U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 [Fee Required]

                   For the fiscal year ended December 31, 1996

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]


           For the transition period from_______ to ________

                           Commission File No. 0-22429

                             DHB CAPITAL GROUP INC.
                 (Name of small business issuer in its charter)

       Delaware                                   11-3129361
(State or other jurisdiction                    (I.R.S. Employer
 of incorporation)                              Identification No.)

               11 Old Westbury Road, Old Westbury, New York 11568
                    (Address of principal executive offices)

                    Issuer's telephone number: (516) 997-1155

       Securities registered under Section 12(b) of the Exchange Act: None
         Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $0.001 Par Value
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B  and  no  disclosure  will  be  contained,  to the  best  of the
registrant's  knowledge,  in the  definitive  proxy  or  information  statements
incorporated  by Reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB [  ]

         Issuer's revenues for the most recent fiscal year: $23,378,698

Aggregate  market value of the voting stock held by  non-affiliates  computed by
reference  to the price at which the stock  sold,  or the  average bid and asked
price of such stock, as of March 25, 1997: $9,810,012

Number of shares outstanding of the issuer's common equity, as of March 25, 1997
(exclusive of securities convertible into common equity) : 23,937,008
<PAGE>

                                    BUSINESS

History

         DHB  Capital  Group,  Inc.  and   Subsidiaries,   (the  "Company")  was
originally  incorporated  as a New York  corporation  on October 22, 1992 by Mr.
David H.  Brooks.  (Mr.  Brooks may be deemed a "founder"  as defined  under the
Act.) Effective  April 17, 1995 (the  "Reincorporation  Date"),  pursuant to the
authorization  of  the  security  holders  of  the  Company,   the  Company  was
reincorporated  (the  "Reincorporation")  in  Delaware.  Under  the terms of the
Reincorporation,  the Delaware  corporation  is the successor in interest to all
the  rights,  interests,  assets and  liabilities  of the New York  corporation.
Holders of certificates  which,  prior to the  Reincorporation  Date,  evidenced
securities of the New York corporation,  automatically  become holders of a like
number of securities of the Delaware  corporation  and are entitled  (subject to
compliance  with  customary  procedures)  to  exchange  their  certificates  for
certificates evidencing the Delaware corporation.

Ballistic - Resistant Equipment

         The Company  entered the  body-armor  business by acquiring  Protective
Apparel  Corporation of America  ("PACA") at the end of 1992. PACA is engaged in
the   development,   manufacture  and   distribution   of  bullet-,   bomb-  and
projectile-resistant     garments,     including     bullet-resistant     vests,
fragmentation-protective   vests,   bullet-resistant   blankets   and   tactical
load-bearing  vests. In addition,  PACA distributes  other ballistic  protection
devices, including helmets, face masks and trauma shields, manufactured by other
companies.  In August 1995, the Company,  through a wholly owned  subsidiary now
known as Point Blank Body Armor, Inc., a Delaware  corporation  ("Point Blank"),
acquired from a trustee in bankruptcy  certain assets (the "Point Blank Assets")
of Point Blank Body Armor, L.P., and an affiliated company  (collectively,  "Old
Point Blank"),  for a cash payment of  $2,000,000,  which was provided by a loan
from Mr. David Brooks.  Prior to the filing of the petition in  bankruptcy,  Old
Point Blank had been a leading U.S.  manufacturer of  bullet-resistant  garments
and related accessories.  PACA and Point Blank are now wholly owned by DHB Armor
Group, Inc., a Delaware corporation (the "Armor Group"), which is a wholly owned
subsidiary of the Company.


Protective Athletic Equipment

         On December 20, 1994, the Company,  through a newly  organized,  wholly
owned subsidiary, DHB Acquisition,  Inc., a Florida corporation,  purchased (the
"Transaction") the assets (the "NDL Assets"), free of all liabilities, of N.D.L.
Products,  Inc., a Delaware  corporation  and of its wholly  owned  subsidiaries
(collectively,  the  "Seller"),  for a cash payment of  $3,080,000,  net of cash
acquired, at an auction held pursuant to Chapter 7 of the Bankruptcy Code. Prior
to the Transaction,  the Seller was a  debtor-in-possession  under Chapter 11 of
the United States  Bankruptcy Code. The transaction was consummated  pursuant to
an order of the United States  Bankruptcy  Court,  Southern District of Florida,
dated December 20, 1994.
<PAGE>
         The  Seller  was  engaged  in  the  manufacture  and   distribution  of
protective  athletic apparel and equipment,  such as elbow,  breast, hip, groin,
knee,  shin and ankle supports,  and wrist,  elbow,  groin and knee braces.  The
Company  changed the name of DHB  Acquisition,  Inc.,  to "NDL  Products,  Inc."
(hereinafter, "NDL"), in order to use the NDL Assets to start up a business as a
manufacturer  and  distributor of specialized  protective  athletic  apparel and
equipment.

Orthopedic Products, Inc.

         The Company has entered the orthopedic  products  business by acquiring
the outstanding  capital stock of Orthopedic  Products Inc.,  ("OPI"), a Florida
corporation.  The Company  issued  270,000  shares  (after  giving effect to the
declaration of the Stock Dividend) of its registered Common Stock in March 1996,
in two transactions,  in exchange for all the outstanding  capital stock of OPI.
In each of the years ended  September 30, 1995 and 1994, OPI had sales in excess
of $3,000,000 and losses of approximately $135,000 in 1995 and $105,000 in 1994.

         OPI is engaged in the  manufacture  and sale of medical and  orthopedic
products.  OPI's products are sold directly to the medical  industry,  including
hospitals, sports medicine centers and medical practices.

Other Business

         Intelligent Data Corporation. In April 1994, the Company acquired a 98%
interest in the common stock of Intelligent Data  Corporation,  ("ID"), a Nevada
corporation. ID is a development-stage company engaged in applying sophisticated
telecommunications  systems,  known as  "virtual  writing"  for remote  document
signature and  authentication,  remote  issuance of bank or brokerage  cashier's
checks and the  facilitation  of COD payment  transactions.  The net assets were
written  down in  1996  see the  caption  below  "Write-down  of Net  Assets  of
Subsidiary".

         DHB Media  Group  Inc.  In April  1994,  the  Company  acquired  a 100%
interest of the  capital  stock of DHB Media  Group Inc.  ("Media"),  a New York
corporation,  whose  principal  asset is a film  library.  The net  assets  were
written  down in  1996  see the  caption  below  "Write-down  of Net  Assets  of
Subsidiary."


         Write-down  of Net  assets of  Subsidiary.  At the end of Fiscal  1996,
Management  of the Company  analyzed its current  operations to examine the most
effective/profitable  ways to direct its future  efforts.  This  resulted in the
decision to reappraise,  for an indefinite  period,  the pursuit of ID's patents
and technology and the film library of DHB Media. These write-downs  resulted in
a loss on the "Net write-down of Investment in Subsidiaries"  for the year ended
December 31, 1996 of approximately $530,000.

Recent Developments

         Increase in Authorized  Shares of Common Stock. On December 30, 1996 at
a Special Meeting of the Stockholders, an amendment to the Company's Certificate
of  Incorporation  was approved,  increasing the number of authorized  shares of
Common Stock from 25,000,000 shares to 100,000,000 shares. This amendment became
effective on December 31, 1996.

         50% Stock Dividend Declared July 1, 1996. On July 1, 1996, the Board of
Directors of the Company  declared a 50% Stock  Dividend (the "Stock  Dividend")
payable on July 16, 1996,  to  shareholders  of record as of July 15, 1996. As a
result  thereof,  the number of outstanding  shares of the Common Stock has been
<PAGE>
increased from 15,303,019 to 22,954,529.  Except where  specifically  noted, all
information in this Prospectus  about shares  outstanding,  per-share  financial
information,  share prices, option prices, warrant prices and the like have been
restated  to give effect to the Stock  Dividend  as if it occurred  prior to the
date or period for which such information is reported or disclosed  herein.  The
Summary Financial  Information on page 7 has been adjusted to give effect to the
Stock Dividend.  The Company will pay cash in lieu of fractional shares issuable
on account of the Stock Dividend;  the aggregate  amount of such payments is not
expected to be material.

         Buyback of Common Stock.  On October 22, 1996 the board of Directors of
the Company announced a directive  authorizing the Company to purchase up to one
million shares of its common stock on the open market, from time to time, at its
discretion.

Zunblindage  S.A. On February 28, 1997 the Company  exchanged a total of 666,000
shares of its  registered  common stock to acquire 100% of the common stock of a
privately held Belgian corporation,  Zunblindage S.A.. Zunblindage is engaged in
the manufacture  and  distribution of bullet  resistant  equipment,  apparel and
related  products and  specializes in sales  distribution  and  marketing in the
European theater and Middle East regions.

Equity Investments.

         The Company also actively seeks to acquire and finance, as appropriate,
additional operating companies or interests therein.  Since January 1, 1994, the
Company made  acquired  minority  interests  in the common  stock or  securities
convertible into common stock, of the following companies:

         Zydacron,  Inc., which designs and manufactures video  teleconferencing
         codecs  that are fully  compliant  with ITU H.320  standards.  Zydacron
         codecs provide  full-featured  multimedia  capabilities  that integrate
         into   micro-computers   running  Windows  operating  system  software.
         Zydacron's  family of codec  products  offers a low-cost  full-function
         "codec engine" that meets existing video teleconferencing environments.
         The Company owns 4.6% of the equity.

         Darwin Molecular Corporation ("DMC"), which hopes to use DNA sequencing
         to create novel drugs for the treatment of cancer, AIDS and auto-immune
         disease.  The  Company  owns 3.9% of the equity.  On December  18, 1996
         Chiroscience  Group plc, a publicly  traded company located in England,
         acquired Darwin Molecular.  The Company received  approximately 394,000
         shares of Chiroscience in exchange for its Darwin shares.  These shares
         are restricted until June 1997.

         Pinnacle  Diagnostics,  Inc., a privately  held  Delaware  corporation,
         which is engaged in marketing a variety of medical diagnostic products.
         The Company owns 16.7% of the equity. On December 31, 1996, the Company
         recorded a  valuation  allowance  for the total  value of Pinnacle as a
         result of their insolvency.

         Positron  Corporation,  a  publicly  held Texas  corporation,  designs,
         manufactures,  markets and services  advanced  medical  imaging devices
         which utilize positron emission tomography ("PET")  technology.  Unlike
         other available imaging technologies,  PET technologies, PET technology
         permits  the  measurement  of the  biological  processes  of organs and
         tissues as well as producing  anatomical  and  structural  images.  The
         Company owns less than 2% of the equity securities of Positron.
<PAGE>
         FED Corporation,  a development-stage  company,  intends to manufacture
         liquid crystal display devices using proprietary field emission display
         technologies,  which can be used in small notebook  computers and other
         similar devices. The Company owns 2.9% of the equity.

         Solid  Manufacturing  Co., of  Fairplay,  Colorado,  a  privately  held
         manufacturer  of  snowboards  and related  goods and  accessories.  The
         Company  owns 9.5% of the  equity.  The  Company  wrote off the  entire
         investment in Solid in December  1996 as a result of Solid Mfg.  filing
         Chapter 11 bankruptcy.

         The  Company   intends  to  continue  to  evaluate   and  consider  the
acquisition  of  additional  businesses,  which may or may not be related to its
current   businesses.   The  Company  has  no  specific   plans,   arrangements,
understandings  or  commitments  with  respect  to any such  acquisition  at the
present time, and it is uncertain as to when or if any acquisition will be made.
The  Company is not  currently  involved  in any  substantive  negotiations  for
purchasing any business or group of assets.

                                    BUSINESS

DHB Armor Group

         Products.  The Armor Group  manufactures two basic types of body armor:
concealable  armor,  which is  generally  intended to be worn beneath the user's
clothing,  and  tactical  armor,  which is worn  externally  and is  designed to
protect  against  more  serious  ballistic  threats.  Both  types of  armor  are
manufactured using multiple layers of KevlarTM and/or a combination of KevlarTM,
Spectra shieldTM and  SpectraFibreTM  ballistic  fabric,  then covered and fully
enclosed in an outer carrier. Although some products of Point Blank and PACA are
competitive with each other, brand  recognition,  brand loyalty and distribution
channels  are  expected  to  minimize  the extent to which  products  of the two
companies may impact each other's sales.  PACA  specializes  in concealable  and
correctional  vests.  Point Blank  specializes  in tactical  vests and  patented
concealable Genesis(TM) series vests.

         Concealable  vests are  contoured to closely fit the user's body shape.
The Armor Group sells a line of vests designed  specifically for the body shapes
of women users.  Male vests are  manufactured  in standard sizes and may also be
custom-made.   Vests  are  fastened  using   Velcro-brand   elastic   strapping.
Concealable vests may be supplied with a shock plate or  SpectrashieldTM  trauma
plate,  which is a light insert  designed to enhance  protection of vital areas.
Vests may be supplemented  with  additional  armor plate made of either metal or
ceramic to withstand  greater threat levels than the vest is otherwise  designed
to protect against. PACA's wholesale prices for its concealable vests range from
approximately $150 to approximately $475. Point Blank's wholesale prices for its
concealable  vests ranged from  approximately  $215 to $440, and the Armor Group
expects to continue these price levels.

         Tactical  vests are  designed to give  all-around  protection  and more
coverage around the neck,  shoulders and kidneys than concealable vests. A groin
protector is a popular  accessory.  These vests contain  pockets to  incorporate
small  panels   constructed  from  high-alumina   ceramic  tiles  which  provide
additional  protection  against rifle fire.  Tactical vests come in a variety of
styles, including tactical assault vests, high-coverage armor, and flak jackets,
each of which is  manufactured  to protect  against varying degrees of ballistic
threat.  PACA's wholesale prices of these products range from approximately $370
to approximately $1200. Point Blank's wholesale prices for its tactical garments
ranged from approximately $295 to $1150, and the Armor Group expects to continue
these price levels.
<PAGE>
         The Armor Group's other  body-armor  products include a tactical police
jacket, military field jacket, executive vests, NATO-style vests,  fragmentation
vests and attack vests. Bomb and  fragmentation  vests and pants are designed to
specifications  in  U.S.  government   contracts  to  offer  protection  against
materials and velocities  associated with the fragmentation of explosive devices
such as grenades and artillery shells. In general, concealable vests sold to law
enforcement  agencies  and  distributors  are  designed to resist  bullets  from
handguns.  Bomb gear  utilizes a variety of designs and  materials  and patterns
slightly   different  from   bullet-resistant   vests.   The  Armor  Group  also
manufactures a variety of accessories for use with its body-armor products.

         Potential Product Liability.  The products  manufactured or distributed
by the Armor Group, e.g.,  bullet-resistant  vests, are used in situations which
could result in serious personal  injuries and death,  whether on account of the
failure of such  products,  or  otherwise.  The Armor  Group  maintains  product
liability  insurance for both PACA and Point Blank in the amount of  $11,000,000
each per  occurrence,  and  $12,000,000  in the  aggregate  less a deductible of
$12,500 for each  company.  There is no assurance  that these  amounts  would be
sufficient to cover the payment of any potential claim. In addition, there is no
assurance  that  this  or any  other  insurance  coverage  will  continue  to be
available or, if available, that PACA and Point Blank would be able to obtain it
at a reasonable  cost. Any substantial  uninsured loss would have to be paid out
of the Armor Group's  assets,  as  applicable,  and may have a material  adverse
effect on the  Company's  financial  condition  and results of  operations  on a
consolidated  basis.  In addition,  the  inability to obtain  product  liability
coverage  would  prohibit  PACA or Point Blank as  applicable,  from bidding for
orders from certain governmental  customers,  because many governmental agencies
require  such  coverage,  and any such  inability  to bid would  have a material
adverse effect on the Company's financial condition and results of operations on
a consolidated basis.

         Raw  Materials  and   Manufacturing.   The  Armor  Group   manufactures
substantially all of their respective  bullet-,  bomb- and  projectile-resistant
garments and other  ballistic-protection  devices. The primary raw material used
by the Armor Group in 60% of its manufacturing of  ballistic-resistant  garments
is  Kevlar(TM),   a  patented   product  of  E.I.  Du  Pont  de  Nemours  &  Co.
Spectrashield(TM)  and  SpectraFibre(TM),  which are patented products of Allied
Signal are used in  approximately  20% of all vests. The Armor Group uses Twaron
for their balance of vest, a fabric  manufactured  by Akxo, an Israeli  company.
The  Armor  Group   purchases  cloth  woven  from  these  materials  from  three
independent  weaving companies.  See "Raw Materials,  Sources and Availability".
The woven  fabric is placed on tables,  layered  over  patterns for a particular
component of a garment  (for  example,  the front or back of a vest),  cut using
electric knives and computerized  cutting  machines,  and then they are stitched
together.  The Armor Group utilizes  several  hundred  patterns based upon size,
shape and style  (depending  upon  whether  the  garment is a bullet-,  bomb- or
fragmentation-resistant garment). The various components of the garment are then
sewn  together  to  create  the  finished  product.  KevlarTM,  SpectrashieldTM,
SpectraFibreTM  and Twaron differ in their  pliability,  strength and cost, such
that the materials are combined to suit a particular application. In the opinion
of management,  the Armor Group enjoys a good relationship with its suppliers of
KevlarTM,  SpectrashieldTM  and  SpectraFibreTM.  If,  however,  Du  Pont or its
European  licensee were to cease, for any reason,  to manufacture and distribute
the bullet-resistant fabrics, the Armor Group would be required to utilize other
fabrics, and the specifications of some of the Armor Group's products would have
to be  modified.  Until the Armor  Group  selected  an  alternative  fabric  and
appropriate  ballistic  tests were performed,  its operations  would be severely
curtailed  and the Armor Group's  financial  condition and results of operations
would be adversely affected.
<PAGE>
         The Armor Group  purchases  other raw materials used in the manufacture
of their products from a variety of sources and believes  additional  sources of
supply for these materials are readily available.

         Customers.  The Armor  Group's  products are sold to United  States law
enforcement  agencies and the military and  internationally  to governments  and
distributors.   Sales  to  domestic  law  enforcement  agencies,   security  and
intelligence  agencies,  police  departments,  federal  and  state  correctional
facilities, highway patrols and sheriffs' departments accounted for 44% and 29%,
respectively,  of the Armor Group's revenues in each of the years ended December
31, 1996 and 1995. One customer, the New York City Police Department,  accounted
for  approximately  4% and 5% of PACA's  sales for the years ended  December 31,
1996 and 1995,  respectively.  PACA was the successful  bidder for a significant
portion of this customers new 1996 - 1997 contract.  Besides domestic  customers
Point  Blank also has  international  customers  which  account for 20% of Point
Blank's 1996 sales. One major international  customer,  Egypt, accounted for 12%
of Point Blank's sales for the year ended December 31, 1996. The loss of any one
customer would not be expected to have a significant impact on the Armor Group's
continuing  financial results,  due to the Armor Group's constant  submission of
bids for new contracts.

         Sales to the United States armed forces  directly or as a subcontractor
accounted for 5% of revenues in 1996 and 1995.

         Substantially  all sales by the Armor Group to the armed  services  and
other  federal  agencies  are made  pursuant  to standard  purchasing  contracts
between  PACA or Point  Blank and the  General  Services  Administration  of the
Federal  Government,  commonly referred to as a "GSA Contract".  The Armor Group
also responds to invitations by military branches and government agencies to bid
for particular  orders.  GSA contracts  accounted for  approximately  28% of the
Armor Group's sales for the year ended December 31, 1996

         PACA and Point Blank,  as GSA Contract  vendors,  are obligated to make
all sales pursuant to such contract at its lowest unit price. PACA's current GSA
Contract  expires July 31, 2001, while Point Blank's GSA Contract is from August
1, 1996 through August 1997.

         During the years ended  December  31, 1996 and 1995,  commercial  sales
(i.e.,  sales  to   non-governmental   entities)  accounted  for  49%  and  52%,
respectively, of Armor Group's revenues.

         Marketing and Distribution.  The Armor Group employs 8 customer support
representatives,   2  regional   sales   managers  and  25   independent   sales
representatives  who are paid solely on a commission basis.  These personnel are
responsible for marketing the Armor Group's products to law enforcement agencies
in the United States.  These  individuals often call upon personnel within these
agencies who are responsible for making purchasing decisions in order to provide
information  concerning  the Armor Group's  products.  Sales are made  primarily
through independent local distributors.  However, in areas in which there are no
suitable distributors, the Armor Group will fill orders directly.

         Substantially  all of the Armor Group's  advertising is directed toward
law enforcement agencies in the form of catalog and trade shows. The Armor Group
advertises  its products  primarily in law  enforcement  trade  magazines and at
trade  shows.  During the years ended  December  31, 1996 and 1995,  advertising
expenditures were $363,000 and $79,000, respectively.
<PAGE>
         Government  and  Industry   Regulations  and  Standards.   Bullet-  and
bomb-resistant garments and accessories manufactured and sold by the Armor Group
are  not  currently  the  subject  of  government   regulations.   However,  law
enforcement  agencies and the military  publish  invitations  for bidding  which
specify certain  standards of performance which the bidders' products must meet.
The  National  Institute  of Justice,  under the  auspices of the United  States
Department  of  Justice,  has  issued a  revised  voluntary  ballistic  standard
(NIJ0101.03) for bullet-resistant  vests of several categories.  The Armor Group
regularly  submits its vests to independent  laboratories for ballistic  testing
under this  voluntary  ballistic  standard and all of its products  have, at the
time  of  manufacture,  met or  exceeded  such  standards  in  their  respective
categories.

         In  addition,  bullet-resistant  garments  and  hard-armor  inserts are
regularly submitted by the Armor Group for rating by independent laboratories in
accordance with a test commonly  referred to as V50. This test involves exposing
the tested item to blasts of fragments of increasing  velocity  until 50% of the
fragments  penetrate  the  materials.  The tested  item is then given a velocity
rating which may be used by prospective  purchasers in assessing the suitability
of the Armor Group's products for a particular  application.  In addition,  PACA
and Point Blank performs similar tests internally.

         Competition.   The  ballistic-resistant   garment  business  is  highly
competitive  and the number of United  States  manufacturers  is estimated to be
less  than 20.  Management  is not aware of  published  reports  concerning  the
market,  and most companies are privately  held.  Nevertheless,  the Armor Group
believes,   based  upon  its   experience  in  the  industry  that  the  largest
manufacturer  was Old Point  Blank  prior to its  filing for  Liquidation  under
Chapter  7 of the  United  States  Bankruptcy  Code and that as a result  of its
purchase  of the Point  Blank  Assets,  it is  positioned  to become the largest
manufacturer  of  ballistic-resistant  garments  in the  United  States.  In the
future,  the Company may face other and  unknown  competitors,  some of whom may
have  substantially  greater  financial,  marketing and other resources than the
Company.

         The Armor Group believes that the principal  elements of competition in
the sale of  ballistic-resistant  garments are its innovative design,  price and
quality.  In dealings with law enforcement  agencies and the military,  PACA and
Point  Blank bid for orders in  response to  invitations  for bidding  which set
forth  specifications  for product  performance.  The Armor Group  believes  its
products are  competitive  as to both price and quality with the products of its
competitors having similar ballistic capabilities and that its ability to remain
competitive  in  pricing is due to its  relatively  lower  labor and  production
costs. In addition, the Company believes that the Armor Group enjoys a favorable
reputation  in the industry with over 20 years of supplying  federal,  state and
municipal governments and agencies.  These factors,  combined with the financial
resources made  available to the Armor Group by the Company,  have permitted it,
and are expected to continue to permit it, to reduce interest expenses,  improve
production  efficiency  and capacity,  control  purchasing  costs and permit the
Armor Group to compete favorably.

         In March 1990, before PACA was controlled by the Company,  PACA entered
into an agreement with American Body Armor and Equipment, Inc., which prohibited
PACA, for a period of ten years ending March 2000, from soliciting business from
American Body Armor's twelve largest domestic distributors, nor may PACA solicit
business outside the United States relating to the  manufacturing,  distribution
or   sale   of   projectile-resistant   garments   and   materials   and   other
<PAGE>
ballistic-protection  devices, including without limitation personal body armor.
In August  1995,  PACA  entered  into an  agreement  which  terminated  all such
restrictions, for a payment of $250,000, which was expensed in the quarter ended
September 30, 1995.

         The Armor Group's Backlog. As of December 31, 1996, the Armor Group had
a backlog of approximately  $2,400,000, as compared to $3,096,000 as of December
31, 1995. Backlog at any one date is not a reliable indicator of future sales or
sales trends.

         In addition to the  backlog,  which  represents  orders  believed to be
firm,  from time to time the Armor Group receives  contract awards for municipal
orders which may be placed over an extended  period of time.  The actual  dollar
amount of products to be delivered pursuant to this and similar contracts cannot
be accurately predicted and is generally excluded from reported backlog.

         Employees.  As of December  31,  1996,  there were two  officers of the
Armor Group,  13 persons  employed in supervisory  capacities,  241 employed for
manufacturing,  shipping and warehousing,  and 18 are office  personnel.  All of
Armor Group's  employees  are employed full time. In the opinion of  management,
the Armor Group enjoys good relationships with its employees.

NDL PRODUCTS, INC.

         On December 20, 1994, the Company,  through a wholly-owned  subsidiary,
acquired  the NDL  Assets for a cash  payment of  $3,080,000,  and  renamed  the
acquiring  subsidiary  "NDL  Products,  Inc." NDL is  engaged in  business  as a
manufacturer and distributor of specialized  protective  athletic  equipment and
apparel.

         NDL's protective  sports apparel and fitness products and related items
are  sold  under  the  brand  names  NDL(TM),  Grid(TM),  Dr.  Bone  Savers(TM),
Hitman(TM)  and Flex  Aid(TM).  NDL has  hired  new  executives  for  sales  and
marketing,  production, and new product research and development.  NDL has moved
its corporate,  manufacturing and warehouse operations into a single building in
Oakland Park, Florida. See "Properties - NDL Facility."

         NDL's Marketing and  Distribution.  NDL employs 5 sales  executives who
are responsible for sales  throughout the United States,  Western Europe,  Asia,
the Middle  East and Latin  America.  and who  supervise  30  independent  sales
representatives who are paid solely on a commission basis. These representatives
call on customers, who are generally major retailers and distributors.  NDL also
sells to local  distributors  and has a  telemarketing  staff of 5. NDL  added a
marketing  director who is currently  evaluating  and  developing  marketing and
sales strategies.

         NDL's Potential Products Liability.  Some of the products  manufactured
or distributed  by NDL are used in situations  where serious  personal  injuries
could occur,  whether on account of the failure of NDL's  products or otherwise.
NDL  maintains  product  liability  insurance  in the amount of  $1,000,000  per
occurrence and $2,000,000 in the aggregate,  including legal fees,  subject to a
$1,000  deductible.  There  can be no  assurance  that  these  amounts  would be
sufficient to cover payment of potential  claims,  and there can be no assurance
that this or any other insurance coverage would continue to be available,  or if
available,  that  NDL  would  be able  to  obtain  it at  reasonable  cost.  Any
substantial  uninsured  loss would have to be paid out of NDL's assets and could
have a material adverse effect on the Company's  financial condition and results
of operations.
<PAGE>
         Employees.  As of December 31,  1996,  there was one officer of the NDL
Products,  Inc., 6 persons employed in supervisory  capacities,  14 employed for
manufacturing,  shipping and warehousing,  and 10 are office  personnel.  All of
NDL's employees are employed full time. In the opinion of management, NDL enjoys
good relationships with its employees.


ORTHOPEDIC PRODUCTS, INC.

         In March 1996,  the Company  exchanged a total of 270,000 shares of its
common  stock with a value of  approximately  $579,000  to  acquire  100% of the
common  stock  of  Orthopedic  Products,   Inc,  a  Florida  corporation.   This
transaction was accounted for as a purchase,  and resulted in an excess purchase
price  over the fair  value of  identifiable  assets  acquired  and  liabilities
assumed of approximately $57,000 which was allocated to goodwill. OPI is engaged
in the manufacture and sale of orthopedic  products,  and the  distribution  and
sale of general medical supplies to Orthopedists, orthopedic clinics, hospitals,
sports medicine centers and orthopedic medical practices.

         OPI's Marketing and  Distribution.  OPI employs 2 sales  executives who
supervise  3  independent  sales  representatives  who  are  paid  solely  on  a
commission  basis.  OPI's  products are sold  directly to the medical  industry,
including  hospitals,  sports  medicine  centers  and medical  practices.  OPI's
objective is to broaden their sales to a national level over the next year.

         OPI's Potential Products Liability.  Some of the products  manufactured
or distributed by OPI are used in situations where serious person injuries could
occur,  whether on account of the failure of OPI's  products or  otherwise.  OPI
maintains  product   liability   insurance  in  the  amount  of  $1,000,000  per
occurrence, and $2,000,000 in the aggregate,  including legal fees, subject to a
$10,000 deductible.

         There can be no assurance  that these  amounts  would be  sufficient to
cover payment of potential claims and there can be no assurance that this or any
other insurance coverage would continue to be available,  or if available,  that
OPI would be able to obtain it at a reasonable  cost. Any substantial  uninsured
loss would have to be paid out of OPI's assets and could have a material adverse
effect on the Company's financial condition and results of operations.

         Employees.  As of December 31, 1996, OPI has one officer,  three people
employed in supervisory capacities,  9 employed for manufacturing,  shipping and
warehousing,  and 3 office  personnel.  All of OPI's employees are employed full
time.  In the  opinion of  management,  OPI enjoys good  relationships  with its
employees.

         Segment Information: As described in detail above, the Company operates
in  two  principal  segments:   Ballistic-resistant   equipment  and  Protective
athletic/medical  equipment.  The  Company  designs,  manufacturers  and markets
products in both segments as described above.
<PAGE>
Financial information on the Company's business segments was as follows:
<TABLE>
<CAPTION>

                                                          1996              1995
                                                     ------------      ------------
<S>                                                  <C>               <C>
Net Sales:
         Ballistic-resistant equipment .........     $ 18,358,614      $ 10,370,602
         Protective athletic & medical equipment        5,909,238         4,276,603
                                                     ------------      ------------
                                                       24,267,852        14,647,205
            Less inter-segment sales ...........         (889,154)         (153,111)
                                                     ------------      ------------
                  Consolidated Net Sales .......       23,378,698        14,494,094
                                                     ============      ============

Income from Operations
         Ballistic-resistant equipment .........     $   (728,388)     $    618,934
         Protective athletic & medical equipment       (2,449,120)         (118,733)
                                                     ------------      ------------
                                                       (3,177,508)          500,201
         Corporate and Other (1) ...............       (1,140,497)         (235,123)
                                                     ------------      ------------
                  Consolidated Operating Income      $ (4,318,005)     $    265,078
                                                     ============      ============

Identifiable Assets (2)
         Ballistic-resistant equipment .........     $ 10,648,863      $  9,818,189
         Protective athletic & medical equipment        4,204,341         3,827,460
                                                     ------------      ------------
                                                       14,853,204        13,645,649
         Corporate and Other ...................        3,549,941         5,819,559
                                                     ------------      ------------
                  Consolidated Net Assets ......     $ 18,403,145      $ 19,465,208
                                                     ============      ============

         (1)      Corporate   and   other   includes   corporate   general   and
                  administrative   expenses,   net   interest   expense,   other
                  non-operating income and expense, and income taxes.

         (2)      Identifiable  assets by industry segment exclude  intercompany
                  loans,   advances,   and   investments.   Intercompany   trade
                  receivables  between  companies  have also been  excluded from
                  identifiable  assets.  Corporate assets are principally  cash,
                  marketable  securities,  deferred  charges and assets held for
                  disposition.
</TABLE>

Item 2.  PROPERTIES

         Corporate  Headquarters.  On January 17, 1996, the Company  purchased a
one-story building on a two-acre lot at 11 Old Westbury Road, Old Westbury,  New
York,  and relocated its corporate  headquarters  into that building on or about
January 19, 1996.
<PAGE>
         PACA.  PACA  leases  23,400  square feet of office,  manufacturing  and
warehouse  space at 148 Cedar  Place,  Norris,  Tennessee  from  Leonard  Rosen,
President of PACA, at a present annual rental of $43,200, plus real estate taxes
of approximately $4,800 annually.  The space is occupied pursuant to a five-year
lease which expires October 31, 1997, with an option to acquire the property for
$500,000.  In the opinion of management,  PACA's facilities are adequate for its
current needs and for its needs in the foreseeable  future.  Management believes
that the  terms of the lease  are at the  current  market  price  that  would be
obtained from an unrelated party.

         NDL/Point Blank/OPI Facility.  NDL Products leases a 67,000 square foot
office and warehouse facility (the "Oakland Park Facility") located at 4031 N.E.
12th Terrace,  Oakland Park, Florida 33334 from V.A.E. Enterprises ("V.A.E."), a
partnership  controlled by Mrs. Terry Brooks,  wife of Mr. David H. Brooks,  and
beneficially owned by Mr. and Mrs. Brooks' minor children.  V.A.E. purchased the
Oakland Park facility as of January 1, 1995.  Point Blank and OPI entered into a
net-net  lease for a portion of the space in the Oakland Park  facility.  Annual
aggregate  base rental is $480,000  and is scheduled to increase by 4% per year.
NDL Products,  Point Blank,  and OPI, as lessees,  are  responsible for all real
estate taxes and other operating and capital expenses.  Management believes that
the terms of the lease are at the  current  market  price that would be obtained
from an unrelated party.


Item 3.  PENDING LITIGATION

         On August  1996,  the Company  commenced  a lawsuit  against the former
shareholders  of OPI, Mr. Jeffrey Schepp and Mr. Leon Wagner for breach of their
employment contracts,  negligent misrepresentation and injunctive relief seeking
to enforce a covenant not to compete.  The legal  counsel  handling the case for
the Company has advised that it is too early to reliably  predict the outcome of
the case.

         In June  1996,  the  Company  commenced  a lawsuit  against  the former
president of NDL, Mr. Barry Finn,  for breach of his  employment  agreement.  On
December 13, 1996 Mr. Finn filed a  counterclaim  against the Company  asserting
Breach of  Contract.  The legal  counsel  handling  the case for the Company has
advised that it is too early to reliably predict the outcome of the case.

         The Company is party to other  litigation  matters and claims which are
normal in the course of its operations,  and while the results of the litigation
and claims cannot be predicted with  certainty,  management  believes,  based on
advice of counsel,  the final outcome of such matters will not have a materially
adverse effect on the consolidated financial position.

Item 4. Submission of Matters to a Vote of Security  Holders.  A special meeting
of the  Shareholders in lieu of an annual meeting was held on December 30, 1996.
The following items were voted on and ratified.

1.   The  following  people  were  elected  directors,  David  H.  Brooks,  Mary
     Kreidell,  Patrick  Garvey,  Gary  Nadleman,  Morton A.  Cohen,  and Robert
     Trevisani.

2.   The  Company's  Certificate  of  Incorporation  was amended to increase the
     number of authorized  common shares from  25,000,000  shares to 100,000,000
     shares.

3.   The  appointment of the  independent  accountants,  Capraro,  Centofranchi,
     Kramer & Co., P.C.
<PAGE>

                                     Part II

Item 5.  Market for Common Equity and Related Stockholder Matters.

         The Common Stock of the Company has been traded on the over-the-counter
market ("OTC Bulletin Board") since September 22, 1993. Prior thereto, there was
no public  market for the Company's  securities.  The bid prices set forth below
represent  quotations by brokers making a market in the Company's  Common Stock,
have been adjusted to reflect the 50% Stock  Dividend and do not include  retail
mark-ups,  mark-downs or  commissions,  and may not  necessarily  reflect actual
transactions.  Commencing on June 8, 1994,  the Company was listed on the Boston
Stock Exchange and traded under the symbol "DHB."
<TABLE>
<CAPTION>
                                                        Low               High
                                                        ---               ----
<S>                                                    <C>              <C>
1994:    1st Quarter                                   1.67               3.50
         2nd Quarter                                   1.50               3.00
         3rd Quarter                                   1.50               2.33
         4th Quarter                                   1.33               3.25
1995:    1st Quarter                                   1.92               2.50
         2nd Quarter                                   1.92               3.75
         3rd Quarter                                   2.92               4.00
         4th Quarter                                   2.17               3.17
1996:    1st Quarter                                   2.00               2.75
         2nd Quarter                                   2.67               6.67
         3rd Quarter                                   5.00              10.00
         4th Quarter                                   3.00               5.88

1997:    1st Quarter (through  March                   1.75               2.75
         25, 1997)
</TABLE>

                  On July 1, 1996,  the Board of Directors  declared a 50% Stock
Dividend payable on July 16, 1996, to holders of record as of July 15, 1996. See
'Business  - Recent  Developments  - 50% Stock  Dividend.'  With  respect to the
Company's current policy on cash dividends,  if the Company generates  earnings,
the Company will retain such earnings for further  development  of its business.
The payment of cash  dividends  in the future will depend upon the  earnings and
financial requirements of the Company and all other relevant factors,  including
approval of such dividends by the Board of Directors.

The  number of  holders  of record of the  Company's  Common  Stock on March 25,
     1997, was 145;  however,  the number of holders of record includes  several
     brokers and depositories  for the accounts of their customers.  The Company
     estimates  that  shares of Common  Stock  are held by  approximately  1,000
     beneficial owners.


Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND      RESULTS OF OPERATIONS

         The following analysis of the Company's financial condition and results
of  operations  should be read in  conjunction  with the  financial  statements,
including the notes thereto, contained elsewhere in this Prospectus.
<PAGE>
General

         The Company is a holding  company which is principally  engaged through
its wholly-owned  subsidiaries in the development,  manufacture and distribution
of  bullet-  and   projectile-resistant   garments,   and  the  manufacture  and
distribution of protective  athletic equipment and apparel.  In August 1995, the
Company  acquired  certain  assets,  free of all  liabilities  (the "Point Blank
Assets")  of  Point  Blank  Body  Armor,   L.P.,   and  an  affiliated   company
(collectively,  "Old Point  Blank") at an auction held  pursuant to Chapter 7 of
the United States Bankruptcy Code. In late December 1994, the Company started up
its protective  athletic  equipment  business by acquiring the trade  inventory,
work in process, raw materials, trade names and trademarks (the "NDL Assets") of
N.D.L.  Products,  Inc., a Delaware corporation,  at an auction held pursuant to
Chapter 7 of the Bankruptcy Code. In March 1996, the Company acquired Orthopedic
Products,  Inc.  ("OPI"),  which is a manufacturer of orthopedic  products and a
distributor  of  general  medical  supplies.  The  Company  also owns a minority
interest in several other companies, some privately held and some publicly held,
in the pharmaceutical business, health care, telecommunications, electronics and
snowboard manufacturing.  The management of the Company is engaged in the review
of  potential  acquisitions  and  in  providing  management  assistance  to  the
Company's operating subsidiaries.

         The Company  commenced  operations  in November  1992 by acquiring  the
outstanding common stock of PACA, a manufacturer and distributor of bullet-proof
garments and  accessories.  From the  acquisition  of PACA through  December 20,
1994,  i.e., the date of the start-up of NDL, PACA was the Company's only source
of revenue from  operations.  Thereafter,  and to date, NDL, Point Blank and OPI
are also sources of revenue from operations.

         The  discussion  that  follows  must be read in  conjunction  with  the
financial statements, including the notes thereto.

         The Armor Group's  products are sold  nationally  and  internationally,
primarily to law enforcement  agencies and military services.  Sales to domestic
law  enforcement  agencies,  including  government,  security  and  intelligence
agencies, police departments, federal and state correctional facilities, highway
patrol and  Sheriffs'  departments,  comprise  the largest  portion of the Armor
Group's  business.   Accordingly,  any  substantial  reduction  in  governmental
spending or change in emphasis in defense  and law  enforcement  programs  could
have a material adverse effect on the Armor Group's business.

Results of Operations

         Year Ended December 31, 1996, compared to year ended December 31, 1995.
Consolidated  net sales of the  Company  for the year ended  December  31,  1996
increased by $8,884,604, or 61% to approximately  $23,378,698.  The increase was
primarily due to the  inclusion of Point Blank for a full year.  Gross profit in
1996 decreased $1,054,520.  The Company's gross profit percentage decreased from
27% in 1995 to 19% in 1996. This decrease was the result of lower selling prices
to induce new customers and a weakness in production  management  and production
controls which allowed for above normal usage of raw materials.  The Company had
a consolidated  net loss of  approximately  $4,866,000 for 1996 as compared to a
consolidated net income of approximately $244,000 for 1995.
<PAGE>
         During the last quarter of 1996, the Company  instituted  major changes
at their Florida  facility which houses Point Blank, NDL and OPI. New management
was put in place in October 1996 including a new production manager. Pricing was
reviewed and controls  put in place to yield  better  profit  margins and better
material  usages.   The  new  management   instituted  a  policy  regarding  the
capitalization  of salesmen samples after finding that the returned samples were
normally  reissued to other salesmen and seldomly sold for their recorded value.
Therefore,  the  decision was made to write these  salesmen  samples off in 1996
resulting in a $292,000 charge to income.  Additionally,  the Company changed it
policies regarding the percentage of inventory to reserve for future slow moving
inventory,  which resulted in a charge of approximately  $700,000 against income
in 1996.

         The Company's  selling,  general and  administrative  expenses  ("S,G&A
expenses")  for 1996  increased to  $8,668,950  from  $5,140,399  in 1995.  As a
percentage of net sales the S,G & A expenses were 37% in 1996 compared to 35% in
1995. In 1996 the Company wrote off a loan-receivable  of approximately  $52,000
which was made to an  individual  relating  to the  acquisition  of  Media.  All
attempts  to collect the debt were  unsuccessful,  and  therefore,  the loan was
written off. In connection with the major changes  instituted  above the Company
incurred some non-recurring consulting and management fees during the year ended
1996 for  approximately  $250,000.  Included in rent  expense for 1996 was a one
time buy-out of OPI's lease for its former location of $80,000.  Management felt
that by moving OPI into the  facility  with the other  Florida  Companies  would
enable  them to reduce  costs in the  future due to the  synergy of  businesses.
Additionally,  the Company  increased its  percentage of accounts  receivable to
record an  allowance  for,  which  resulted  in a  $233,320  increase  in S,G,&A
expenses.

         In 1996 the Company  aggressively  sought to regain its market share by
increasing its marketing efforts.  This amounted to 8% of the S,G&A expenses for
1996 as compared 4 % of the S,G&A  expenses for 1995.  The Company also incurred
additional research and development to launch a new product line which increased
S,G&A expenses $150,000 over 1995's levels.

         The  Company  incurred  more legal and  professional  fees for the year
ended  1996  regarding  the  purchase  of  OPI,  a  proposed  merger  which  was
terminated, and the Company commencing a lawsuit against the former shareholders
of OPI. Legal fees increased over $50,000 in 1996 compared to 1995.

         Interest  expense,  net of  interest  income,  for  1996  increased  to
$327,347 from $303,615 due to a decline of interest income on the Company's cash
balances.

         At the end of Fiscal  1996,  Management  of the  Company  analyzed  its
current operations to examine the most  effective/profitable  ways to direct its
future efforts.  This resulted in the decision to put on hold, for an indefinite
period,  the pursuit of ID's patents and  technology and the film library of DHB
Media. These write-downs resulted in a loss on the "Net write-down of Investment
in Subsidiaries: for the year ended December 31, 1996 of approximately $530,000.
Also included in other income (expense) is a $1,000,000  write-off of two of the
Company's long term  investments.  The Company's  entire $500,000  investment in
Solid  Manufacturing  was written off as a result of them filing for bankruptcy.
The Company  recorded a  valuation  allowance  for its  $500,000  investment  in
Pinnacle  Diagnostic as result of Pinnacles'  insolvency.  The Company had a net
realized gain of $381,337 and an  unrealized  gain of $69,168 for the year ended
December  31,  1996 as  compared  to a  $675,743  realized  gain and a  $347,481
unrealized gain for the year ended December 31, 1995.
<PAGE>
         Year Ended December 31, 1995, compared to year ended December 31, 1994.
Consolidated  net sales of the Company  for the year ended  December  31,  1995,
increased by $5,391,721, or 59% to approximately  $14,494,000.  The increase was
primarily  due to the  inclusion  of Point Blank and NDL. The start-up of NDL on
December 20, 1994,  contributed  less than $100,000 to sales in 1994 as compared
to $4,276,603 in 1995. The Company had  consolidated net income of approximately
$244,000 for 1995, as compared to a  consolidated  net loss of $75,243 for 1994.
The improved results are attributable to the ability to utilize volume discounts
and eliminating duplication of expenses, as well as income derived from the sale
and appreciation of the Company's marketable securities.

         Gross profit in 1995  increased to  $5,405,477 an increase of 119% over
1994.  The  Company's  gross profit ratio  increased  from 27% in 1994 to 37% in
1995,  primarily  because of the products  sold by Point Blank  yielded  greater
margins.

         The Company's  selling,  general and  administrative  expenses for 1995
increased to $5,140,399 from $2,250,550 in 1994.  These expenses as a percentage
of net  sales  were  35% in 1995,  compared  to 25% in 1994.  The  increase  was
attributable  to costs  associated with the move of Point Blank and NDL into the
present location and other nonrecurring expenses.

         Interest  expense,  net of  interest  income,  for  1995  increased  to
$303,615 from $65,072 for 1994,  principally due to a decline in interest income
because  of the  use of the  Company's  funds  in its  operating  business,  and
increases in the borrowings of the Company.

         The Company had a net realized gain of $675,743 and an unrealized  gain
on its  investments  in  marketable  securities  of $347,481  for the year ended
December  31,  1995,  as compared  to a net  realized  loss of  $360,817  and an
unrealized loss of $293,854 for the year ended December 31, 1994.

Liquidity and Capital Resources.

         The Company's primary capital  requirements over the next twelve months
are to assist PACA, Point Blank, NDL, and OPI in financing their working capital
requirements, and to make possible acquisitions. PACA, Point Blank, and NDL sell
most of their products on 60 - 90 day terms,  and OPI sells most of its products
on 30-60 day terms,  and working  capital is needed to finance the  receivables,
manufacturing  process and inventory.  Working  capital at December 31, 1996 was
$8,900,398  compared to $8,416,004 at December 31, 1995 at December 31, 1995 and
its ratio of current  assets to  current  liabilities  was  2.88:1  and  2.46:1,
respectively, on such dates.

         Cash, cash equivalents and marketable  securities totaled $2,591,682 at
December 31, 1996 compared to $2,304,964. The increase in cash, cash equivalents
and  marketable  securities  was  primarily  through the  proceeds  from private
offerings of the Company's  securities.  This  increase was partially  offset by
cash used to pay off a line of credit of  $1,150,000  and to repay a shareholder
loan of $590,000. The Company has, throughout its existence,  obtained funds for
acquisitions  and  operations  from term bank loans for periods of up to a year,
which have been secured, in part, by the controlling shareholder's hypothecation
of marketable securities.  In the past, the Company has always been able to roll
over such loans with new loans at  prevailing  interest  rates.  At the  present
time, it has a loan of $1,400,000  from the Bank of New York coming due in April
1997,  bearing  interest at 6.3125%  per year.  There is no  assurance  that the
Company  will be able to roll over such loans as they  become  due.  The Company
expects to renew this loan, at prevailing interest rates, when it becomes due.
<PAGE>
         The Company's  principal  commitments at December 31, 1996 consisted of
obligations under their operating leases for its facilities.

         The Company's capital expenditures for 1996 were $1,123,739 as compared
to  $4,222,257  for 1995.  The purchase of Point Blank  accounted  for over $2.3
million of the capital expenditures for 1995. The Company purchased OPI in March
1996  and  Zunblindage  in  February  1997 by  issuing  stock  in lieu of a cash
payment.

         The Company invested approximately  $3,316,750 (as of December 31,1996,
on a  historical  cost  basis)  in the  securities  of  certain  privately  held
companies and  restricted  securities  of certain  public  companies,  which are
included in "Investments in Non-marketable  Securities" on the Company's Balance
Sheet.  As of December 31, 1996, the Company has recorded a valuation  allowance
of $1,000,000 against two specific investments to bring the net realizable value
to $2,316,750 at December 31, 1996.

         Although  the Company had a net loss of  $4,865,872  for the year ended
December 31, 1996, there was a net increase of cash of $774,547 as compared to a
net income of $244,475  with a net  increase in cash of $67,683.  The  Company's
quick  ratio  increased  from 1.34% in 1996 as  compared  to 1.09% in 1995.  The
Company  believes  it has  sufficient  resources  to meet  its  working  capital
requirements for the next twelve months.

                                    Part III

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

         The Directors  serve for a term of one year following their election at
the Annual Meeting of Shareholders, and until their successors have been elected
and qualified, the officers serve at the discretion of the Board of Directors.

Directors and Executive Officers

         David H. Brooks,  age 42, has served as Chairman of the Board and Chief
Executive  Officer of the Company since its  inception.  Mr. Brooks has been the
Chairman of the Board,  President  and a Director of Brooks  Industries of L.I.,
Inc. ("Brooks Industries"),  since October 1988, a New York corporation of which
he is the sole  shareholder  and  through  which he  makes  investments.  Brooks
Industries  engages in the venture capital  business and in securities  trading.
Mr. Brooks served as a consultant to U.S. Alcohol Testing of America Inc. during
the  period  from  February  1991 to  November  1992  and  has,  through  Brooks
Industries,  served  as  a  consultant  to  Good  Ideas  Enterprises,   Inc.,  a
majority-owned  indirect  subsidiary  of U.S.  Alcohol  pursuant to an agreement
having a five-year  term expiring in May 1997. Mr. Brooks served as a consultant
to The  Thunder  Group,  Inc.  from  October  25,  1991,  until the filing of an
involuntary Chapter 11 bankruptcy petition against The Thunder Group in February
1993.  In each case,  Mr.  Brooks  provided  advice on matters  relating  to the
business,  financial  management and marketing  activities.  Mr. Brooks does not
serve as a consultant to any other  company at the present time and,  other than
as  previously  described,  he has not served in such capacity for more than the
past five years.  Mr. Brooks received a bachelor of science degree in accounting
from  New  York  University  in  1976.  Since  that  time  he has  been  engaged
principally as an investor for his own account.
<PAGE>
         David H.  Brooks,  his  brother  Jeffrey  Brooks,  and  Jeffrey  Brooks
Securities,  Inc.  ("JBSI"),  which was wholly owned by Jeffrey Brooks,  entered
into a consent  decree in December  1992 with the SEC. The SEC had filed a civil
complaint in the United States  District Court for the Southern  District of New
York (Docket No.  922846)  alleging  that an employee of JBSI was involved in an
unlawful  insider-trading scheme allegedly conducted through JBSI and the filing
of false information by JBSI, a registered  broker-dealer.  The SEC alleged that
JBSI did not establish,  maintain or enforce  policies and  procedures  that are
required under Section 15(f) of the Exchange Act, designed to detect and prevent
insider  trading by an  employee  of JBSI,  and that JBSI did not make  required
disclosures  under Section  15(b) of the Exchange  Act. The SEC further  alleged
that David  Brooks  exercised  "de facto  control" of certain  aspects of JBSI's
operations  and that David  Brooks and  Jeffrey  Brooks  aided and  abetted  the
reporting  violations  of JBSI.  Pursuant to the  settlement  of these  charges,
without admitting or denying such allegations,  David Brooks, Jeffrey Brooks and
JBSI were  assessed an aggregate  civil fine of $405,000 and were  enjoined from
future  violations of Section 15(b) and 15(f) of the Exchange Act;  David Brooks
was  barred  from  having  any direct or  indirect  interest  in, or acting as a
director,  officer or employee  of, any  broker,  dealer,  municipal  securities
dealer, investment advisor, or investment company (provided that David Brooks is
able to apply to become so associated after a five-year period);  Jeffrey Brooks
is prohibited from acting in a supervisory capacity with respect to any employee
or any  broker,  dealer,  municipal  securities  dealer,  investment  company or
investment  advisor for a period of one year; and JBSI was required to institute
and maintain procedures pursuant to Section 15(f) of the Exchange Act. Mr. David
Brooks is not under any  prohibition  from  serving as an officer or director of
any  public  company  other than a  registered  broker-dealer  or an  investment
company.

         Mary  Kreidell,  age 43,  has  served as  Treasurer,  Secretary,  and a
Director of the Company since its inception.  Mrs.  Kreidell  became a Certified
Public Accountant in 1991. She worked for Israeloff, Trattner & Co. CPA'S, P.C.,
a certified public accounting firm, for four years prior thereto.

         Leonard  Rosen,  age 57,  is a  founder  of PACA and has  served as its
President since its inception in 1975. He is actively  involved in all facets of
PACA's  operations,  from  production to sales.  Mr. Rosen has experience in the
apparel  industry  for over 35 years.  He worked  closely  in the  research  and
development of ballistic-resistant  soft body armor and helmets with the Federal
Government,  including  serving  as a  charter  member  of  the  committee  that
conceived the National  Institute of Justice "0l"  Standard for  ballistic  body
armor.

         Sandra  Hatfield,  age 43,  has been  President  of Point  Blank  since
October 1996. For more than 5 years prior thereto, she was the Vice President of
Production at PACA.

         Michael Bell,  age 43,  became the President of NDL in March 1997.  For
more than five years prior  thereto,  he was the President  and Chief  Executive
Officer of Converse, Inc.

         Joseph Giaquinto, age 32, has been President of NDL's Flex Aid division
since March, 1995. For more than 7 years prior thereto,  he was a Vice President
of Sales for Tru-Fit Marketing, of Boston, Massachusetts.
<PAGE>
         Patrick J. Garvey, age 61, is the Director of Canal Enterprises for the
N.Y.  State Thruway  Authority and its wholly owned  subsidiary,  the N.Y. State
Canal  Corp  (development  for  commercial  shipping  and  economic  development
initiatives). Prior to joining the Thruway Authority in 1993, he served for more
than seven  years as the  Commander  of Camp  Smith in  Peekskill,  N.Y.  and as
Legislative  Assistant  to the  Adjunct  General  of N.Y.  Mr.  Garvey is also a
retired Colonel in the United States Marine Corps Reserve.

         Gary Nadelman,  age 44, has been the president of Synari,  Inc., of New
York, NY, a privately held  manufacturer  and distributor of women's  sportswear
and other apparel, for more than 5 years.

         Morton A.  Cohen,  age 61,  has over ten years  experience  in  venture
capital and over twenty-five years experience in the public securities industry,
both as a securities analyst and a investment banker.  Also, he has successfully
managed  several  emerging  growth  companies.  Mr.  Cohen  has  been  Chairman,
President and Chief Executive  Officer of Clarion Capital Corp.  since 1982. Mr.
Cohen  served  as  Governor  of the  Montreal  Stock  Exchange,  is a  Chartered
Financial Analyst and holder of a M. B.A. from the Wharton School of Business of
the  University of  Pennsylvania.  Mr. Cohen was a member of the Small  Business
Investment  Advisory of Small Business  Investment  Companies and is a member of
the Small Business  Investment  Advisory Council.  He is the Chairman of Monitek
Technologies,  Inc.  (NASDAQ),  Chairman of Cohesant  Technologies  (NASDAQ) and
Director of Gothic Energy (NASDAQ) and a director of Zemex Corp (NYSE).

         Robert  Trevisani,  age 62,  is a  senior  partner  in the  Boston  and
Washington  D.C.  law firm of Gadsby &  Hannah.  He was a former  Special  Trial
counsel  for the General  Counsel of the U.S.  Treasury  Department  in New York
City. He holds degrees from Boston College (BA),  Boston College of Law (JD) and
New York University Graduate School of Law (LLD).

         Because  of the  relatively  small size of the  Company,  the loss of a
senior  executive may have a materially  adverse effect upon the Company until a
suitable replacement can be found.

Item 10.  Executive Compensation.

         Summary  Compensation  Table.  The  following  table sets forth certain
summary information  regarding the compensation of the Company's Chief Executive
Officer and each of its other  executive  officers  whose total salary and bonus
for the year ended December 31, 1996 and 1995, exceeded $100,000:
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 Long-Term
                                                                                                 Compensa-
                                                                                                   tion
                                                             Annual Compensation                  Awards
                                                                                                Securities
                                                                                    Other      underlying
Name and Principal                                                                  Annual       Options/
Position                             Year               Salary(1)        Bonus   Compensation      SAR's(4)
--------                             ----               ---------        -----                     -----
<S>                                  <C>                <C>               <C>         <C>          <C>
David Brooks, (2)                    1996               191,667
Chairman, CEO                        1995                39,583

Joseph Giaquinto                     1996               100,000
President of Flex Aid                1995                50,962            0           0            0

Leonard Rosen,(3)                    1996               135,000            0           0            0
President of PACA                    1995               125,000

(1)      Although  certain  officers  receive certain  perquisites  such as auto
         allowances and expense  allowances,  the value of such  perquisites did
         not exceed the  lesser of  $50,000 or 10% of the  respective  officers'
         salary and bonus.

(2)      Certain  warrants  were  awarded to Mrs.  Terry  Brooks in 1994 and Mr.
         David  Brooks  in  1996;  see  "Employment   Agreements"  and  "Certain
         Transactions."


(3)      Mr. Rosen is the lessor of PACA's  premises in Norris,  Tennessee.  See
         "Properties" and "Certain  Transactions." The Company does not consider
         the lease payments to be  compensation,  because they are not in excess
         of the fair market value of the lease.

(4)      In October  1995,  the Company  adopted a plan (the "1995 Stock  Option
         Plan" or the  "Plan")  pursuant  to which the Board of  Directors  or a
         committee (the  "committee")  of the Board is authorized to award up to
         3,500,000 shares of Common Stock,  after giving effect to the 50% stock
         dividend  paid on July  16,  1996,  to  selected  officers,  employees,
         agents,  consultants  and other  persons  who  render  services  to the
         Company.  The  options  may be issued on such terms and  conditions  as
         determined  by the  Board  or  Committee,  and may be  issued  so as to
         qualify as incentive stock options under Internal  Revenue Code Section
         422A.  The  directors  who are  authorized  to  award  options  are not
         eligible  to receive  options  under the Plan.  The Company has filed a
         registration  statement with respect to the Plan,  and shares  ("Option
         Shares")  of Common  Stock  acquired  under the Plan are  eligible  for
         resale by non-affiliates  without further  registration  under the Act;
         Option Shares  acquired by affiliates of the Company are subject to the
         registration  requirements of the Act. No shares have been issued under
         this plan.
</TABLE>
<PAGE>
         Employment Agreements. Mr. Brooks, the CEO and Chairman of the Board of
DHB Capital Group Inc. is employed pursuant to a five year employment  agreement
which was entered  into April 1, 1996.  Pursuant  to the  agreement  Mr.  Brooks
receives an annual salary of $250,000  through April 1997 with annual  increases
of $25,000.  The terms of Mr. Brooks's  contract provide for 750,000 of warrants
exercisable at $2.33 for five years. In addition,  Mr. Brooks receives an annual
bonus of ten percent of the net profit. As the Company has businesses in Florida
and requires Mr. Brooks to spend  considerable time there, this contract include
provisions  for  certain  of his  Florida  living  expenses.  Subsequent  to the
execution of the employment  contract,  Mr. Brooks voluntarily  relinquished his
right to the provision in his employment contract for the annual bonus of 10% of
net profit.

         Mr. Rosen is employed pursuant to a five-year employment agreement with
PACA  which  was  entered  into at the time the  Company  acquired  PACA,  i.e.,
November 6, 1992. Pursuant to the agreement,  Mr. Rosen receives annual salaries
ranging from $115,000 in 1993 to $155,000 in 1997, plus certain fringe benefits.

         NDL's executive,  Mr. Giaquinto,  has a three year employment  contract
providing  for an annual base salary of $100,000 and options to purchase  49,500
shares of common stock at a price of $1.33 per share  exercisable at the rate of
not more than 16,500 shares per year. In March 1997,  NDL's and OPI's President,
Mr. Bell, entered into a three year employment  contract providing for an annual
base salary of $100,000 plus certain fringe benefits and incentive bonuses.

         OPI's former  executives,  Mr.  Schepp and Mr.  Wagner,  had three year
employment contracts providing for an annual base salary of $67,800 plus certain
fringe  benefits.  These contracts were entered into in March 1996 concurrent to
the Company acquiring 100% of the outstanding capital stock OPI. In August 1996,
Mr.  Schepp and Mr.  Wagner  resigned as officers of OPI and  therefore,  in the
opinion  of  management,   breached  their  employment  contracts  (See  Pending
Litigation)

         Stock Options. In the year ended December 31, 1996, the Company granted
750,000 stock warrants per year  exercisable at $2.33 for five years to the CEO,
David Brooks,  in connection with his employment  contract.  No additional stock
options,  warrants  or similar  securities,  rights or  interests  to any of the
executive  officers of the  Company  listed in the  Summary  Compensation  Table
above, and no options, warrants or similar securities,  rights or interests were
exercised by any such executive officers.  In 1994, a warrant was issued to Mrs.
Terry  Brooks in exchange  for loans by Mrs.  Brooks and her pledging of certain
assets to secure the Company's  indebtedness  to The Chase  Manhattan Bank, N.A.
See "Certain Transactions."

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  directors and executive  officers,  and persons who own more than ten
percent of a registered  class of the Company's  equity  securities to file with
the Securities and Exchange  Commission initial reports of ownership and reports
of changes of  ownership  of Common  Stock and other  equity  securities  of the
Company.

         To the  Company's  knowledge,  based  solely on review of the copies of
such reports furnished to the Company and written  representations that no other
reports  were  required  during the fiscal year ended  December  31,  1996,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater-than-ten-percent beneficial owners were complied with.
<PAGE>
Item 11.  Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets  forth  the  beneficial  ownership  of  the
Company's  Common Stock as of March 25, 1997,  after giving  effect to the Stock
Dividend, for (i) each person known by the Company to beneficially own more than
five  percent  of the  shares  of  outstanding  Common  Stock,  (ii) each of the
executive  officers  listed in the  Summary  Compensation  Table in  "Management
Executive  Compensation" and (iii) all of the Company's  executive  officers and
directors as a group except as otherwise indicated,  all shares are beneficially
owned,  and  investments  and voting power are held by the persons  named as the
owners.
<TABLE>
<CAPTION>

                                                     Number of Shares
         Name and Address                            Beneficially Owned                      Percent Owned(1)
         ----------------                            ------------------                      ----------------
<S>                                                       <C>
         David H. Brooks                                  16,500,600(2)                            60%
         11 Old Westbury Road
         Old Westbury, New York 11568

         Jeffrey Brooks(3)                                 2,353,500                                8%
         44 Coconut Row
         Palm Beach, Florida 33480

         Leonard Rosen                                       120,142(4)                             *
         148 Cedar Place
         Norris, Tennessee

         All officers and Directors                       16,959,370(5)                            61(6)
         as a group (11 persons)
--------
         *  - Less than one (1%) percent

1.   Based upon 28,587,008 shares outstanding as of March 25, 1997, after giving
     effect to the Stock  Dividend,  increased  by, with respect to Mr.  Brooks,
     3,750,000  shares  acquirable by his wife pursuant to a warrant to purchase
     3,750,000  shares at a price per  share of $1.33 and the  750,000  warrants
     acquirable by Mr. Brooks at $2.33 as well as 75,000 warrants exercisable at
     $1.33 for each, Ms. Kreidell and Mr. Rosen.

2.   Consists of 7,500,600 shares owned by Mr. Brooks and 4,500,000 owned by his
     wife as custodian for his minor children, and 3,750,000 shares which may be
     acquired by Mrs.  Brooks upon exercise of a warrant to purchase such shares
     at a price per share of $1.33.  Messrs.  David H. Brooks and Jeffrey Brooks
     are brothers.  Each disclaims  beneficial  ownership of shares owned by the
     other.

3.   Messrs.  David H. Brooks and Jeffrey  Brooks are brothers.  Each  disclaims
     beneficial ownership of shares owned by the other.

4.   Consists of 45,142 shares  outstanding and 75,000 shares  acquirable  under
     warrants  awarded to Mr. Rosen;  does not include 4,350 shares owned by Mr.
     Rosen's wife, as to which Mr. Rosen disclaims beneficial ownership.
<PAGE>

5.   Includes 4,500,000 shares acquirable by an officer and his wife pursuant to
     a presently exercisable warrant.

6.   Based  upon  all  shares  outstanding  as set  forth in  Footnote  1 above,
     including 3,750,000  acquirable by Mrs. Terry Brooks and 750,000 acquirable
     by Mr. David Brooks.
</TABLE>

Item 12.  CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company  obtained funds for the cash payment  required to carry out
the  acquisition of the assets used to start up NDL, and for working capital for
NDL, from (i) the Company's working capital, (ii) the Loan, and (iii) term loans
of $1,140,000 from Mr. Brooks and term loans from Mrs. Brooks,  bearing interest
at 9% per year.  Presently  the  outstanding  balance  of this loan is  $550,000
expiring April 1997 and has been renewed until November 1998 bearing interest at
12%.  The  interest  paid on this loan to date is  $183,147.  Under a collateral
agreement [third party] (the "Collateral  Agreement")  covering securities owned
by Mr. David H. Brooks,  Chairman of the Board of the  Company,  and Mrs.  Terry
Brooks,  his wife, Mr. Brooks and Mrs.  Brooks have pledged  certain  marketable
securities to Bank to partially  secure the Bank loans and other  obligations of
the Company to the Bank.  In exchange for this,  the Company has agreed to grant
to Mrs. Brooks 5-year warrants to purchase  3,750,000 shares of Common Stock, at
a price of $1.33 per  share.  The  warrants  contain  provisions  for a one-time
demand  registration,  and piggyback  registration rights. Mr. David Brooks also
lent $2,000,000 to the Company to provide the funds needed to purchase the Point
Blank  Assets;  the  outstanding  balance  on that loan is now  $750,000  at 11%
interest  payable November 1998; the Company obtained funds to pay down the loan
by liquidating  certain  investments  at a profit.  The Company has paid for the
account of Mr. and Mrs.  Brooks a total of $84,551 in interest on their loans to
the Company.  Mr. and Mrs.  Brooks have also pledged  personal  assets to BNY to
secure the Company's debt to that bank.  The Company  entered into an employment
agreement in April 1996 with Mr. Brooks, See - "Employment Agreements".

         During 1995 and 1996, the Company sold 3,300,000 unregistered shares of
Common Stock to approximately 12 persons.

         NDL,  Point  Blank and OPI  operate at a 67,000  square foot office and
warehouse  facility (the  "Facility")  located at 4031 N.E.  12th Terrace,  Fort
Lauderdale, Florida 33334, which it leases from V.A.E. Enterprises ("V.A.E."), a
partnership  controlled by Mrs.  Brooks and  beneficially  owned by Mr. and Mrs.
Brooks'  minor  children,  which  purchased  the Facility on or about January 1,
1995. The lease is a 5-year net-net lease; annual base rental is $480,000 and is
scheduled to increase by 4% per year. The Company, as lessee, is responsible for
all real estate taxes and other operating and capital expenses.

         PACA leases 23,400 square feet of office,  manufacturing  and warehouse
space at 148 Cedar Place,  Norris,  Tennessee from Leonard  Rosen,  President of
PACA,  at a  present  annual  rental  of  $43,200,  plus  real  estate  taxes of
approximately  $4,800  annually.  The space is occupied  pursuant to a five-year
lease which expires October 31, 1997, with an option to acquire the property for
$500,000. In the opinion of management, the rental is fair and reasonable and is
approximately  at the same  rate that  could be  obtained  from an  unaffiliated
lessor for property of similar type and location.  In the opinion of management,
PACA's  facilities  are adequate for its current  needs and for its needs in the
foreseeable future.
<PAGE>



                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                              FINANCIAL STATEMENTS






                                    CONTENTS




INDEPENDENT AUDITORS' REPORT


Consolidated Balance Sheets as of December 31, 1996


Consolidated Statements of Operations for the years ended
         December 31, 1996 and 1995


Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 1996 and 1995


Consolidated Statements of Cash Flows for the years ended December 31,
         1996 and 1995

Consolidated Notes to the Financial Statements

Schedule II Valuation and  Qualifying Accounts


<PAGE>


INDEPENDENT AUDITORS' REPORT



The Board of Directors of
DHB Capital Group Inc.

We have audited the accompanying consolidated balance sheet of DHB Capital Group
Inc.  and  Subsidiaries  as of December  31,  1996 and the related  consolidated
statements  of  operations,  stockholders'  equity  and cash flows for the years
ended December 31, 1996 and 1995. These  consolidated  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of DHB Capital  Group Inc. and
Subsidiaries  as of December 31, 1996 and the results of its  operations and its
cash flows for the years ended  December 31, 1996 and 1995, in  conformity  with
generally accepted accounting principles.



/s/Capraro, Centofranchi, Kramer & Co., P.C.
-------------------------------------------
Capraro, Centofranchi, Kramer & Co., P.C.
South Huntington, New York
March 21, 1997

<PAGE>
<TABLE>
<CAPTION>
                                  DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEET
                                             DECEMBER 31, 1996

                     ASSETS
<S>                                                                <C>                       <C>
CURRENT ASSETS
   Cash and cash equivalents                                       $ 1,249,655
   Marketable securities                                             1,342,027
   Accounts receivable, less allowance for doubtful
         accounts of $303,320                                        3,499,535
   Inventories                                                       7,290,205
   Prepaid expenses and other current assets                           255,218
                                                                     ---------
                  Total Current Assets                                                        $13,636,640

   PROPERTY AND EQUIPMENT, at cost, net of accumulated
         depreciation and amortization of $522,907                                              1,834,777

   OTHER ASSETS
     Intangible assets, net                                           214,213
     Investments in non-marketable securities                       2,316,750
     Deferred tax assets                                              819,300
     Deposits and other assets                                        338,739
                                                                      -------
                  Total Other Assets                                                            3,689,002
                                                                                                ---------

                  TOTAL ASSETS                                                                $19,160,419
                                                                                              ===========

                     LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES
     Note payable                                                  $1,400,000
     Current maturities of long term debt                              61,664
     Accounts payable                                               3,019,804
     Accrued expenses and other current liabilities                   243,763
     State income taxes payable                                        11,011
                                                                       ------
                  Total Current Liabilities                                                    $4,736,242

<PAGE>
<CAPTION>

                                  DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEET
                                             DECEMBER 31, 1996

<S>                                                                <C>                       <C>

  LONG TERM LIABILITIES
    Long term debt, net  of current maturities                         144,091
    Due to shareholders                                              1,300,000
                                                                     ---------
                  Total Long Term Debt                                                          1,444,091
                                                                                                ---------

                  Total Liabilities                                                             6,180,333
                                                                                                ---------

   COMMITMENTS AND CONTINGENCIES

   STOCKHOLDERS' EQUITY
   Common stock                                                         23,146
   Additional paid-in capital                                       17,956,030
   Common stock subscription receivable                               (227,500)
   Retained earnings (Deficit)                                      (4,771,590)
                                                                    -----------
                           Total Stockholders' Equity                                          12,980,086
                                                                                               ----------

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                 $19,160,419
                                                                                              ===========


                    See accompanying notes to financial statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                           DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF OPERATIONS
                               FOR THE YEARS ENDED DECEMBER 31,

                                                                    1996              1995
                                                               ------------      ------------
<S>                                                            <C>               <C>

Net sales ................................................     $ 23,378,698      $ 14,494,094

Cost of sales ............................................       19,027,741         9,088,617
                                                               ------------      ------------

      Gross Profit .......................................        4,350,957         5,405,477

 Selling, general and administrative expenses ............        8,668,950         5,140,399
                                                               ------------      ------------

      Income(Loss) before other income (expense) .........       (4,317,993)          265,078
                                                               ------------      ------------

Other Income (Expense)
      Interest expense, net of interest income ...........         (327,347)         (303,615)
      Dividend income ....................................           24,350             1,710
      Payment to rescind restrictive covenant ............             --            (250,000)
      Write-down of net assets in Subsidiary .............         (529,578)             --
      Loss on holding of non marketable securities .......       (1,000,000)             --
      Realized gain on marketable securities .............          381,337           675,743
      Unrealized gain on marketable securities ...........           69,168           347,481
                                                               ------------      ------------

               Total Other Income (Expenses) .............       (1,382,070)          471,319
                                                               ------------      ------------

      Income (loss) before income tax (benefit) ..........       (5,700,063)          736,397

      Income taxes (benefit) .............................         (834,191)          491,922
                                                               ------------      ------------

      Net Income (loss) ..................................     $ (4,865,872)     $    244,475
                                                               ============      ============

      Earnings (loss) per common share

               Primary ...................................     ($      0.20)     $       0.01
                                                               ============      ============
               Fully Diluted .............................     ($      0.20)     $       0.01
                                                               ============      ============

      Weighted average number of common share outstanding:
               Primary ...................................       24,879,521        21,167,754
                                                               ============      ============

               Fully Diluted .............................       24,879,521        21,689,754
                                                               ============      ============
                        See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                            DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                        FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

                                           Number of                  Number of                Additional     Common Stock
                                          Preferred       Par          Common       Par          Paid-in       Subscription
                                            shares       Value         shares      Value        Capital        Receivable
                                            -------      -----        --------     ------       -------        ----------
<S>                                        <C>         <C>          <C>           <C>         <C>             <C>
Balance- December 31, 1994 .............     64,062    $    641      11,498,202   $  11,498   $  7,310,391           --
Net income for the year ended
  December 31, 1995 ....................       --          --              --          --             --             --
Sale of common stock ...................       --          --         1,955,000       1,955      3,863,045       (437,500)
Conversion of preferred stock into
  common stock .........................    (42,187)       (422)         84,374          84            338           --
Exercise of stock warrants .............       --          --           303,750         304        949,696
Restatement - 50% Common Stock Dividend        --          --         6,920,665       6,921           --             --
                                           --------    --------    ------------   ---------   ------------    -----------
      Balance- December 31, 1995 ........    21,875    $    219      20,761,991   $  20,762   $ 12,123,470    ($  437,500)


Net income for the year ended
  December 31, 1996 ....................       --          --              --          --             --             --
Issuance of stock to purchase subsidiary       --          --           180,000         180        578,820           --
Stock issued to buy out subsidiary lease       --          --             6,000           6         79,994           --
Sale of common stock ...................       --          --         1,345,000       1,345      4,806,154        210,000
Conversion of preferred stock into
   Common stock ........................    (21,875)       (219)         43,750          44            175           --
Common stock - 50% dividend ............       --          --           717,828         718           --             --
Preferred Dividend-common stock ........       --          --             7,939           8           --             --
Boston stock exchange fee for dividend .       --          --              --          --           (5,000)
Stock issued for services ..............       --          --            83,500          83        372,417           --
                                           --------    --------    ------------   ---------   ------------    -----------
      Balance - December 31, 1996. .....          0    $      0      23,146,008   $  23,146   $ 17,956,030   $  (227,500)
                                           ========    ========    ============   =========   ============    ===========

<PAGE>
<CAPTION>
                                               Retained
                                               Earnings         Total
                                             -----------        -----
<S>                                         <C>            <C>
Balance- December 31, 1994 .............    $   (142,537)      7,179,993
Net income for the year ended
  December 31, 1995 ....................         244,475         244,475
Sale of common stock ...................            --         3,427,500
Conversion of preferred stock into
  common stock .........................            --              --
Exercise of stock warrants .............            --           950,000
Restatement - 50% Common Stock Dividend           (6,921)           --
                                            ------------    ------------
      Balance- December 31, 1995 ........   $     95,017    $ 11,801,968


Net income for the year ended
  December 31, 1996 ....................    ($ 4,865,872)   ($ 4,865,872)
Issuance of stock to purchase subsidiary            --           579,000
Stock issued to buy out subsidiary lease            --            80,000
Sale of common stock ...................            --         5,017,499
Conversion of preferred stock into
   Common stock ........................            --              --
Common stock - 50% dividend ............            (718)           --
Preferred Dividend-common stock ........             (17)             (9)
Boston stock exchange fee for dividend .            --            (5,000)
Stock issued for services ..............            --           372,500
                                            ------------     -----------
      Balance - December 31, 1996. .....    $ (4,771,590)    $12,980,086
                                            ============     ===========


                 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                         DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                                 STATEMENTS OF CASH FLOWS
                             FOR THE YEARS ENDED DECEMBER 31,


                                                                   1996           1995
                                                               -----------    -----------
<S>                                                            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net Income (loss) .......................................   $(4,865,872)   $   244,475

   Adjustments  to  reconcile  net  income  to net
     cash  provided  by  operating
     activities:
          Depreciation and amortization ....................       343,564        254,956
          Reserve for accounts receivable...................       233,320           --
          Reserve for inventory ............................        700,00           --
          Valuation on non marketable securities............     1,000,000           --
          Write down of net assets in subsidiaries..........       529,578           --
          Stock issued for services ........................       452,500           --
          Deferred income taxes ............................      (843,000)       440,000
   Changes in assets and liabilities (Increase) Decrease in:
         Accounts receivable ...............................        86,716     (1,276,870)
         Marketable securities .............................       487,829        127,431
         Inventories .......................................      (134,006)    (3,093,118)
         Prepaid expenses and other current assets .........       (46,708)       148,538
         Deposits and other assets .........................      (177,918)       (76,962)
   Increase (decrease) in:
         Accounts payable ..................................       172,114      2,336,854
         Accrued expenses and other current liabilities ....       (57,304)        34,854
         State income taxes payable ........................       (39,772)        22,282
                                                               -----------    -----------
   Total Adjustments .......................................     2,706,913     (1,082,035)
                                                               -----------    -----------

Net cash used by operating activities ......................    (2,158,959)      (837,560)
                                                               -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Payments for purchase of assets of subsidiary,
         net of cash acquired ..............................          --       (2,000,000)
   Payments to acquire non-marketable securities ...........          --         (575,000)
   Payments made for property and equipment ................    (1,123,739)    (1,632,980)
   Payments of capitalized acquisition cost ................          --          (14,277)
                                                               -----------    -----------

Net Cash provided (used) by investing activities ...........    (1,123,739)    (4,222,257)
                                                               -----------    -----------
<PAGE>
<CAPTION>
                         DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                                 STATEMENTS OF CASH FLOWS
                             FOR THE YEARS ENDED DECEMBER 31,


                                                                   1996           1995
                                                               -----------    -----------
<S>                                                            <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Repayments of note payable- bank ........................    (1,150,000)          --
   Proceeds from issuance of long-term debt ................       243,573           --
   Proceeds(Repayments) of note payable- shareholder .......      (590,000)       750,000
   Principal payments on long-term debt ....................       (37,818)          --
   Dividends Paid ..........................................        (7,656)          --
   Net proceeds from sale of common stock ..................     5,599,146      4,377,500
                                                               -----------    -----------

Net cash provided (used) by financing activities ...........     4,057,245      5,127,500
                                                               -----------    -----------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ............       774,547         67,683

CASH AND CASH EQUIVALENTS - BEGINNING ......................       475,108        407,425
                                                               -----------    -----------

CASH AND CASH EQUIVALENTS - END ............................   $ 1,249,655        475,108
                                                               ===========    ===========


                      See accompanying notes to financial statements
</TABLE>
<PAGE>
                         DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION/REPORTING ENTITIES

The  consolidated   financial   statements  of  DHB  Capital  Group,   Inc.  and
Subsidiaries (the "Company") include the following entities:

DHB Capital Group, Inc.
DHB Capital Group Inc.  ("DHB") was  incorporated  on October 22, 1992 under the
laws of the State of New York.  DHB was organized to seek,  acquire and finance,
as  appropriate,  one or more  operating  companies.  On February 15, 1995,  the
holders of the common  stock  approved a  re-incorporation  of DHB as a Delaware
corporation, through a merger with a newly formed Delaware corporation.

DHB Armor Group, Inc.
On August 8, 1995,  the Company  formed a new  Delaware  Corporation  which is a
wholly-owned  subsidiary of the Company. The subsidiary,  DHB Armor Group, Inc.,
("Armor"),  now wholly  owns PACA and Point  Blank  Body  Armor,  Inc.,  ("Point
Blank").

   Protective Apparel Corporation of America
   Protective Apparel  Corporation of America ("PACA") was organized in 1975 and
   is engaged in the  development,  manufacture  and  distribution of bullet and
   projectile   resistant   garments,    including   bullet   resistant   vests,
   fragmentation  vests,  bomb  projectile  blankets and  tactical  load bearing
   vests.  In addition,  PACA  distributes  other ballistic  protection  devices
   including helmets and shields. PACA is dependent upon a few suppliers for the
   raw materials utilized to manufacture its products.

   Point Blank Body Armor, Inc.
   In August 1995, the Company,  through a wholly-owned  subsidiary known as USA
   Fitness & Protection Corp, a Delaware Corporation,  acquired from a Chapter 7
   bankruptcy  auction  certain  assets of Point Blank Body Armor,  L.P.  and an
   affiliated  company ("Old Point  Blank"),  for a cash payment of  $2,000,000,
   free of all  liabilities.  Prior to the filing of the petition in bankruptcy,
   Old Point Blank had been the leading U.S.  manufacturer  of  bullet-resistant
   garments and related  accessories.  After acquiring the Old Point Blank,  USA
   Fitness & Protection  Corp.,  amended its articles of incorporation to change
   their name to Point Blank Body Armor, Inc. ("Point Blank").

NDL Products, Inc.
On December  20,  1994,  the  Company  through a newly  organized,  wholly-owned
subsidiary, DHB Acquisition, Inc., ("Acquisition") purchased certain assets from
a  Chapter  7  bankruptcy  auction,   N.D.L.  Products,   Inc.  for  $3,080,000.
Acquisition   did  not  assume  any   continuing   obligations  of  the  debtor-
in-possession,  nor did the management of the debtor-in-possession  continue. On
February 21, 1995, Acquisition changed its corporate name to NDL Products,  Inc.
NDL manufactures  and distributes  specialized  protective  athletic apparel and
equipment.
<PAGE>
                         DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

Orthopedic Products, Inc.
On March 22 and March 26, 1996, the Company  exchanged a total of 270,000 shares
(after giving effect to the 50% stock  dividend) of its registered  common stock
to acquire 100% of the common stock of OPI, a Florida Corporation engaged in the
manufacturing  and distribution of orthopedic  products to the medical industry.
This  transaction  was  accounted  for as a purchase,  and resulted in an excess
purchase  price  over  the  fair  value  of  identifiable  assets  acquired  and
liabilities  assumed  which was allocated to goodwill.  Fifty  thousand of these
shares are  restricted as follows:  25,000 shares cannot be sold until March 22,
1997 and 25, 000 shares cannot be sold until March 22, 1998.

Intelligent Data Corp.
On April 1, 1994, the Company acquired  4,530,000 common shares (60.4% interest)
and 1,100,000  preferred  shares of stock in Intelligent Data Corp.  ("ID"),  in
exchange for 425,000 shares of the Company's common stock. ID was engaged in the
development of sophisticated  telecommunication systems. At the end of 1996, the
Company wrote down the net assets of the investment.

DHB Media Group, Inc.
On April 15, 1994, DHB Media Group, Inc. ("Media"), a wholly-owned subsidiary of
the Company  acquired all of the outstanding  common stock of Royal  Acquisition
Corp.  in exchange  for 100,000  shares of the  Company's  common  stock,  for a
purchase price of $300,000. Subsequent negotiations resulted in the reduction of
the acquisition cost by $36,550. Royal Acquisition Corp.'s primary assets were a
film  library.  At the end of 1996 the Company  wrote down the net assets of the
investment.

PRINCIPLES OF CONSOLIDATION

All material intercompany  transactions have been eliminated in the consolidated
financial statements.

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.  Significant estimates include
those relating to the valuation of inventories  and  non-marketable  securities,
and collectibility of receivables.

REVENUE RECOGNITION
Revenue is recognized on product sales upon shipment to the customer.
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

CASH AND CASH EQUIVALENTS
For  purposes of the  statement  of cash flows,  the  Company  includes  cash on
deposit,  money market funds and amounts held by brokers in cash  accounts to be
cash equivalents.

MARKETABLE/NON-MARKETABLE SECURITIES

Securities  which are  classified  as "trading  securities"  are recorded in the
Company's balance sheet at fair market value, with the resulting unrealized gain
or loss  recognized  as  income  in the  current  period.  Securities  which are
classified  as  "available  for sale" are also  reported at fair  market  value,
however, the unrealized gain or loss on these securities is listed as a separate
component of shareholder's equity.

Non-marketable  securities,  such as investments in privately-held companies are
carried at historical  cost, if necessary,  reduced by a valuation  allowance to
net realizable value.

INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out) or market.

PROPERTY, EQUIPMENT AND DEPRECIATION

Property and equipment is stated at cost.  Major  expenditures  for property and
those which  substantially  increase useful lives are capitalized.  Maintenance,
repairs, and minor renewals are expensed as incurred. When assets are retired or
otherwise  disposed of,  their costs and related  accumulated  depreciation  are
removed from the accounts and resulting  gains or losses are included in income.
Depreciation is provided by both straight-line and accelerated  methods over the
estimated useful lives of the assets.

INTANGIBLE ASSETS

Goodwill is being amortized on a straight-line  basis over ten years. The amount
allocated to on-going  government  contracts is being amortized over the life of
the  individual  contracts,  which are  typically  1-5 years.  Patents are being
amortized on a straight-line  basis over 17 years.  Other intangible  assets are
being amortized on a straight-line  basis over their estimated lives,  typically
5-15 years. When the assets are retired or otherwise disposed of, their cost and
related accumulated amortization are removed from the accounts and the resulting
gains or losses are included in income.  Accumulated  amortization  was $440,424
and $429,297 as of December 31, 1996 and 1995, respectively.

EARNINGS PER SHARE

The  computation  of earnings per common share is based on the weighted  average
number of  outstanding  common  shares  outstanding  during the period.  Primary
earnings  per share and fully  diluted  earnings  per share  amounts  assume the
conversion of the Cumulative  Convertible  Preferred  Stock, and the exercise of
the stock warrants.
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

INCOME TAXES

         The Company files a consolidated Federal tax return, which includes all
of the  subsidiaries.  Accordingly,  Federal  income  taxes are  provided on the
taxable income of the consolidated  group.  State income taxes are provided on a
separate  company basis, if and when taxable income,  after utilizing  available
carryforward losses, exceeds certain levels.

DEFERRED INCOME TAXES

Deferred taxes arise  principally  from net operating  losses and capital losses
available  for  carryforward  against  future  years  taxable  income,  and  the
recognition of unrealized  gains(losses) on marketable  securities for financial
statement purposes, which are not taxable items for income tax purposes.
<TABLE>
<CAPTION>
2. SUPPLEMENTAL CASH FLOW INFORMATION
                                                        1996          1995
                                                      --------      --------
<S>                                                   <C>           <C>
Cash paid for:
         Interest                                     $535,859      $261,829
         Income taxes                                 $ 33,301      $ 35,774
</TABLE>

Additionally,  during, the year ended December 31, 1996 and 1995 the Company had
a non-cash  financing  activity of and $227,000 and $437,500  respectively for a
stock subscription receivable.

During the year ended  December 31, 1996,  the Company had a non-cash  investing
activity  when it issued common stock to acquire all of the  outstanding  common
stock of OPI.


3. MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES

Following is a comparison of the cost and market value of marketable  securities
included in current assets:
<TABLE>
<CAPTION>
                                                        1996             1995
                                                     ----------      -----------
<S>                                                 <C>              <C>
                  Cost                              $ 1,272,859      $ 1,482,375
                  Unrealized gain (loss)                 69,168          347,481
                                                    -----------      -----------
                  Market value                      $ 1,342,027      $ 1,829,856
                                                    ===========      ===========
</TABLE>
The  Company's  portfolio  value  of  trading  securities  has been  pledged  as
collateral  for the bank  loans  (see Note 6).  However,  the bank has placed no
restrictions on the Company's ability to trade freely in their portfolio.
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

The Company's investments in non-marketable securities is summarized as follows:
<TABLE>
<CAPTION>
                                                           1996          1995
                                                        ----------    ----------
<S>                                                     <C>           <C>
 Darwin Molecular Corporationa
 (approximately 3.9% interest) .....................    $1,000,000    $1,000,000
Zydacron, Inc. .....................................
(approximately 3.1% interest) ......................       941,750       941,750
Pinnacle Diagnostics, Inc.(b)
(approximately 16.7% interest) .....................          --         500,000
FED Corporation
(approximately 2.9% interest) ......................       375,000       375,000
Solid Manufacturing Co. - 10% convertible debentures
(approximately 9.5% interest, if converted)(c) .....          --         500,000
                                                        ----------    ----------
         Totals ....................................    $2,316,750    $3,316,750
                                                        ==========    ==========


         (a)      On December 18th, 1996 Chiroscience Group plc, acquired Darwin
                  Molecular  Corp. The Company  received  approximately  394,000
                  shares of  Chiroscience,  a publicly traded company located in
                  England,  in exchange for its Darwin shares.  These shares are
                  restricted until June 1997.

         (b)      The  Company  recorded a  valuation  allowance  for the entire
                  investment  in Pinnacle as a result of their insolvency.

         (c)      The Company recorded wrote off the entire  investment in Solid
                  Mfg. as a result of Solid filing for Bankruptcy.
</TABLE>
All  of  these  investments  are  included  under  the  caption  "Investment  in
non-marketable securities" on the balance sheet.

4. INVENTORIES

Inventories are summarized as follows:
<TABLE>
<CAPTION>

                                                      1996               1995
                                                 -----------         -----------
<S>                                              <C>                 <C>
Finished products .......................        $ 3,138,256         $ 3,844,506
Work-in process .........................            997,308           1,209,849
Raw materials and supplies ..............          3,854,641           2,801,844
                                                 -----------         -----------
                                                   7,990,205           7,856,199
Valuation Allowance .....................           (700,000)               --
                                                 -----------         -----------
         Total ..........................          7,290,205           7,856,199
                                                 ===========         ===========
</TABLE>
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

5. PROPERTY AND EQUIPMENT

Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                          Estimated useful
                                                             life-years
                                                             ----------
<S>                                                    <C>            <C>
Land .........................................           --           $   47,500
Building .....................................             39            427,500
Machinery and equipment ......................         5-10            1,022,985
Furniture and fixtures .......................         5-7               273,451
Computer equipment ...........................         5-7                69,647
Transportation equipment .....................         3-5               144,361
Leasehold improvements .......................         5-31.5            372,240
                                                                      ----------
                                                                       2,357,684
Less: accumulated depreciation                                        ----------
and amortization .............................                           522,907
                                                                      ----------
Net property and equipment ...................                        $1,834,777
                                                                      ==========
</TABLE>
6. NOTES PAYABLE- FINANCIAL INSTITUTIONS

At December 31, 1996, The Company had a term loan of $1,400,000 from the Bank of
New York which  matures in April  1997,  bearing  interest  at 6.3125% per year.
There is no  assurance  that the Company  will be able to roll over such loan as
they become due. The Company expects to renew this loan, at prevailing  interest
rates,  when it becomes due.  This loan is secured by  substantially  all of the
Company's   marketable   securities   portfolio   value,  and  certain  personal
investments of the majority shareholder.  This loan requires monthly payments of
interest only.

7. LONG TERM DEBT

         Long term debt consist of:
<TABLE>
<CAPTION>
<S>                                                                                           <C>
         9.71% note payable,  due in monthly  installments of $1,876,  including
         interest, with a final payment due June 1999.
         Equipment with an original cost of $89,943 is pledged as collateral.                   $49,757

         9.0%, note payable, due in monthly principal only installments of $3,600 per
         month, with interest accruing and final payment due September 2001.                    155,998
                                                                                               --------
                                                                                                205,755
         Less current maturities                                                                 61,664
                                                                                               --------
         Long term debt                                                                        $144,091
                                                                                               ========

</TABLE>
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

As of December 31, 1996, the annual maturities of long-term debt outstanding for
the next five years as follows:
<TABLE>
<CAPTION>
<S>                                                <C>

                             1997                    60,285
                             1998                    57,281
                             1999                    44,989
                             2000                    43,200
                                                   --------
                               Total               $205,755
                                                   ========

</TABLE>

8. DUE TO SHAREHOLDER

The amount due to  shareholder  represent  notes  payable which bear interest at
12%, payable November 1998.


9. RELATED PARTY TRANSACTIONS

DHB:
DHB leased its office  location from a relative of the former  president of DHB.
Included in DHB's  statement of income  (loss) for the years ended  December 31,
1995 is $16,514 of rent paid or accrued under this lease, respectively (see note
10).  Effective  January 1996, the Company  vacated the premises and purchased a
building for use as the corporate headquarters.

PACA:
PACA leases its location (see note 10) from the  President of PACA.  Included in
the statement of income (loss) for the years ended December 31, 1996 and 1995 is
$48,000 of rent paid under this lease for each period.

NDL and POINT BLANK and OPI:
NDL Products,  Inc.,  Point Blank Body Armor Inc and Orthopedic  Products,  Inc.
lease their  facilities from a partnership  indirectly owned by relatives of the
majority  shareholder  of DHB (note 11).  Included  in the  statement  of income
(loss) for the year ended  December 31, 1996 and 1995 is $480,000 and  $300,000,
respectively, of rent paid or accrued under the lease.

ID:
ID leased its office  location  from a relative of the former  President of DHB.
Included in DHB's  statement  of income  (loss) for the year ended  December 31,
1995 is $5,511 of rent paid or accrued under this lease,  respectively (see note
10). The premises were vacated in April, 1995.
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

10. COMMITMENTS AND CONTINGENCIES

LEASES

PACA:
PACA is obligated  under a lease for its  manufacturing  facility with a related
party (note 9). This lease  expires  October 31, 1997,  and provides for minimum
annual  rentals  of  $43,200,  plus  increases  based on real  estate  taxes and
operating costs.


NDL Products,  Inc., Point Blank Body Armor, Inc. and Orthopedic Products,  Inc.
NDL Products,  Inc., Point Blank Body Armor, Inc. and Orthopedic  Products Inc.,
are obligated  under a lease for its  facilities  with a related party (note 9).
The lease  commenced  January  1, 1995 and  expires  December,  1999.  The lease
provides  for minimum  annual  rentals of $300,000 for the initial year and then
$480,000 the following year with scheduled  increases of 4% per year thereafter,
plus real estate taxes, operating costs and capital expenditures.


The following is a schedule by year of future  minimum lease  obligations  under
noncancellable leases as of December 31,1996
<TABLE>
<CAPTION>
<S>                                                                <C>
                         1997                                      $   542,400
                         1998                                          562,368
                         1999                                          583,135
                                                                   -----------
                Total minimum obligation                           $ 1,687,903
                                                                   ===========
</TABLE>

Total rental expense under  cancelable and  noncancelable  operating  leases was
$615,859  and  $420,269  for  the  years  ended  December  31,  1996  and  1995,
respectively.  OPI was located at different  premise when the Company  purchased
OPI.  Included in the rental  expense  above is the value the  Company's  common
stock  issued in lieu of a cash  payment  of  $80,000  to buyout  the  remaining
portion of OPI's lease at their previous location.


EMPLOYMENT AGREEMENT

Mr.  Brooks,  the CEO and  Chairman  of the Board of DHB  Capital  Group Inc. is
employed pursuant to five year employment agreement which was entered into April
1, 1996.  Pursuant to the  agreement  Mr.  Brooks  receives an annual  salary of
$250,000 through April 1997 with annual  increases of $25,000.  The terms of Mr.
Brooks's  contract  provides for 750,000  warrants per year exercisable at $2.33
for five years. In addition,  Mr. Brooks receives an annual bonus of ten percent
of the net profit.  As the Company has  businesses  in Florida and  requires Mr.
Brooks to spend  considerable time there, this contract includes  provisions for
certain of his Florida  living  expenses.  Subsequent  to the  execution of this
employment  agreement,  Mr.  Brooks  voluntarily  relinquished  his right to the
provision regarding an annual bonus of 10%.
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

         Concurrent with the purchase of PACA, the President of PACA was given a
five year employment agreement. This agreement calls for annual salaries ranging
from $115,000 in 1993 to $155,000 in 1997, plus certain fringe benefits.  During
the year ended December 31, 1995, Joseph Giaquinto, an officer of NDL, was given
a three  year  employment  contract.  This  agreement  calls for an annual  base
salaries of $100,000.  In March 1997, Michael C. Bell, President of NDL and OPI,
was  given a three  year  employment  contract  with an  annual  base  salary of
$100,000, plus certain fringe benefits and incentive bonuses.


LITIGATION

In August 1996, the Company commenced a lawsuit against the former  shareholders
of OPI for breach of their employment contracts, negligent misrepresentation and
injunctive  relief  seeking  to  enforce a covenant  not to  compete.  The legal
counsel  handling  the case for the Company have advised that it is too early to
reliably predict the outcome of the case.

In June 1996, the Company  commenced a lawsuit  against the former  president of
NDL for breach of his employment  agreement.  On December 13, 1996 the defendant
filed a counterclaim against the Company asserting Breach of Contract. The legal
counsel  handling  the case for the Company have advised that it is too early to
reliably predict the outcome of the case.

The Company is party to other litigation  matters and claims which are normal in
the course of  operations,  and while the results of the  litigation  and claims
cannot be  predicted  with  certainty,  managment  believes,  based on advice of
counsel,  the final  outcome of such matters will not have a materially  adverse
effect on the consolidated financial position.


11. CAPITAL STOCK
<TABLE>
<CAPTION>
                                                                       1996                1995
                                                                  ------------         -----------
<S>                                                               <C>                  <C>
Capital stock is as follows:
DHB:
ClassA  Preferred  stock,  10%  convertible,  $.01 par value,
     1,500,000  shares authorized (see amendment below)
Shares issued and outstanding                                           -                   21,875
Par Value                                                         $     -              $       219

Common stock, $.001 par value,
   100,000,000 shares authorized,
Shares issued and outstanding                                       23,146,008          20,761,995
                                                                  ============         ===========
Par Value                                                         $     23,146         $    20,762
                                                                  ============        ============
</TABLE>
Amendment to Certificate of Incorporation:
On December 30, 1996 at a Special Meeting of the  Stockholders,  an amendment to
the Company's  Certificate of Incorporation was approved,  increasing the number
of  authorized  shares of Common  stock from  25,000,000  shares to  100,000,000
shares. This amendment became effective on December 31, 1996.
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


12. PRIVATE PLACEMENTS

Common Stock:
During April, June, July, and November 1996 the Company sold 1,345,000 shares of
common  stock in private  placements  for proceeds of  $4,807,500.  Out of these
proceeds  $1,150,000  was used to repay the line of credit and $590,000 was used
to repay one of the  shareholder  loans.

During June, July, and August,  1995 the Company sold 1,955,000 shares of common
stock in private  placements for proceeds of  $3,910,000.  Out of these proceeds
$45,000 of direct expenses were paid.


13. STOCK WARRANTS

During 1995,  various  warrants which would have expired in November,  1995 from
the Company's original private placement were exercised by certain shareholders.
These  shareholders were issued 303,750 shares of the Company's common stock for
net  proceeds of $950,000.  All  remaining  warrants  for the  original  private
placement have expired.

In December,  1994, in consideration for monies loaned to the Company, the Board
of Directors  granted Mrs.  Terry Brooks,  a related  party,  stock  warrants to
purchase  3,750,000  shares of common  stock for $1.33 per share for a five year
period  commencing  December 19,  1994.  In June,  1993,  the board of directors
granted stock warrants to certain  individuals  and  organizations  with 127,500
warrants  still  outstanding.  The term on these warrants have been extended two
years, the expire June 1998.


14. STOCK DIVIDEND

On July 1, 1996,  the Board of  Directors  of the  Company  declared a 50% Stock
Dividend  payable July 16, 1996, to  shareholders of record as of July 15, 1996.
As a result  thereof,  the number of outstanding  shares of the Common stock has
been increased by 7,638,498  shares.  The weighted  average number of shares and
earnings per share have been restated to give effect to the 50% stock dividend.

During 1996 year-end, the Board of Directors declared a preferred stock dividend
of 7,944  common  shares  with a market  value of $3.77  per share for the years
ended  December 31, 1995 and 1994. All earnings per share data has been restated
giving retroactive effect to the intended stock dividend.
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

15. INCOME TAXES

Components of income taxes are as follows:
<TABLE>
<CAPTION>
                                                        1996             1995
                                                   -----------      -----------
<S>                                                <C>              <C>
Current:
    Federal ..................................     $         0      $     5,400
    State ....................................           8,809           58,922
    Benefit of net operating loss carryfoward             --            (12,400)
                                                   -----------      -----------
         Total current .......................           8,809           51,922
                                                   -----------      -----------

Deferred:
    Federal ..................................      (1,687,000)         451,500
    State ....................................        (562,000)          60,300
    Less: valuation allowance ................       1,406,000          (71,800)
                                                   -----------      -----------

         Total deferred ......................        (843,000)         440,000
                                                   -----------      -----------

Total income taxes (benefit) .................     $  (834,191)     $   491,922
                                                   ===========      ===========
</TABLE>
The composition of the federal and state deferred taxes at December 31, 1996 was
arrived at as follows:
<TABLE>
<CAPTION>
                                                              Federal          State
                                                            ----------     ----------
<S>                                                         <C>            <C>
        Operating Loss Carry Forward...................     $1,056,000     $  224,000
        Allowance for Doubtful Accounts ...............        100,000         21,000
        Valuation Allowance - Inventory ...............        231,000         49,000
        Valuation Allowance - Non marketable securities        330,000         70,000
        Net write down of investment in subsidiaries ..        175,000         37,000
        Unrealized gain on Marketable Securities ......        (23,000)        (4,600)
                                                            ----------     ----------
                 Subtotal .............................      1,869,000        396,400
        Less: Valuation Allowance .....................      1,198,300        247,800
                                                            ----------     ----------
                 Net Deferred Taxes ...................     $  670,700     $  148,600
                                                            ==========     ==========
</TABLE>
The Valuation  Allowance changed from $75,900 at December 31, 1995 to $1,446,100
at December 31, 1996, for a increase of $1,370,200.

At  December  31,  1996 the Company  has net  operating  losses for  carryfoward
against  future  years'  taxable  income of  approximately  $3.2 million for tax
purposes,  which would expire in 2012. The deferred tax asset of $819,300 on the
balance sheet represents the future benefit of the operating loss  carryforwards
<PAGE>
                    DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

offset by a valuation allowance.  The deferred tax assets for the future benefit
of the net  operating  losses  carryforward  have been  partially  reduced  by a
valuation  allowance as the Company  estimates that its' future taxable earnings
will not be sufficient to offset all of the operating losses.


15. SUBSEQUENT EVENT

As of February 28, 1997, the Company  exchanged a total of 666,000 shares of its
registered  common stock to acquire 100% of the common stock of a privately held
Belgian corporation,  Zunblindage S.A. Zunblindage is engaged in the manufacture
and distribution of bullet resistant equipment, apparel and related products and
specializes  in sales  distribution  and  marketing in the European  theater and
Middles East regions. This transaction was accounted for as a purchase.

Subsequent to the year-end and the execution of the employment  aggreement  with
Mr.  Brooks,  the CEO and  Chairman of the Board of DHB Capital  Group Inc.  Mr.
Brooks  voluntarily  relinquished  his right to the provision in his  employment
contract for the annual bonus of 10% of net profit.

In March 1997, the Company renewed its'  shareholder  loan with Mr. Brooks which
was payable in April 1997. The new term loan is payable in November 1998 bearing
interest at 12% per year.
<PAGE>
<TABLE>
<CAPTION>
                          DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                          SCHEDULE II TO THE FINANCIAL STATEMENTS
                             VALUATION AND QUALIFYING ACCOUNTS
                                     DECEMBER 31, 1996



                                                    Balance       Additions
                                                      at          charged to      Balance
                                                   beginning      costs and       at end
                                                   of year        expenses        of year
                                                   -------        --------        -------
<S>                                              <C>            <C>            <C>

1996

Allowances deducted from related
   balance sheet accounts:

Accounts Receivable ........................     $   70,000     $  233,320     $  303,320

Inventories ................................     $        0     $  700,000     $  700,000

Investment in Non-marketable securities ....     $        0     $1,000,000     $1,000,000

Net Write down of Investment in subsidiaries     $        0     $  529,578     $  529,578


</TABLE>
<PAGE>


                                        SIGNATURES


Pursuant to the  requirements of Section 13 or 15(D) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed by the
undersigned, thereunto duly authorized.

Dated March 25, 1997                                   DHB Capital Group Inc.

                                                      /S/ David Brooks
                                                      -----------------
                                                      David Brooks
                                                      Chairman of the Board


Signature                            Capacity                         Date

/S/ David H. Brooks            Chairman of the Board             March 25, 1997
-------------------
David H. Brooks

/S/ Mary Kreidell              Treasurer/Director                March 25, 1997
-----------------
Mary Kreidell

/S/  Gary Nadelman             Director                          March 25, 1997
------------------
Gary Nadelman


/S/ Robert Trevisani           Director                          March 25, 1997
--------------------
Robert Trevisani