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, 1997

[ ] 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: $33,271,607

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 20, 1998: $26,067,436.

Number of shares outstanding of the issuer's common equity, as of March 20, 1998
(exclusive of securities convertible into common equity) : 24,837,229
<PAGE>
Item 1.  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,  the Company's  Chairman and CEO. 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.

         DHB  Capital  Group  Inc.  is a  holding  company  which  has two major
divisions,  DHB Armor Group and DHB Sports  Group.  DHB Armor Group  consists of
Protective Apparel Corporation of America ("PACA"),  Point Blank Body Armor Inc.
and Zunblindage  S.A. DHB Sports Group consists of NDL Products Inc. ("NDL") and
Orthopedic  Products Inc.  ("OPI") DHB Armor Group develops,  manufactures,  and
distributes  bullet and  projectile  resistant  garments,  bullet  resistant and
fragmentation   vests,   bomb  projectile   blankets,   and  related   ballistic
accessories.  DHB Sports Group manufactures and distributes  protective athletic
apparel and equipment,  such as elbow,  breast, hip, groin, knee, shin and ankle
supports,  and  wrist,  elbow,  groin  and  knee  braces  as well as  orthopedic
products.  OPI is engaged in the  manufacture and sale of medical and orthopedic
products  at  directly  to the medical  industry,  including  hospitals,  sports
medicine centers and medical practices.

DHB Armor Group

         The Company  entered the  body-armor  business by acquiring PACA at the
end of 1992. 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.  Brooks.  Old  Point  Blank  had been a leading  U.S.  manufacturer  of
bullet-resistant  garments and related  accessories.  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  Zunblindage  S.A. a privately  held Belgian
corporation.  Zunblindage  is engaged in the  manufacture  and  distribution  of
bullet  resistant  equipment,  apparel and related  products and  specializes in
marketing,  distribution,and  sales of such  products  in Europe  and the Middle
East.

DHB Sports Group

         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 also purchased the assets 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
<PAGE>
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.  The  Company  changed  the  name  of  DHB
Acquisition, Inc., to "NDL Products, Inc."

The Company  expanded  into the  orthopedic  products  business by acquiring the
outstanding  capital  stock of  Orthopedic  Products  Inc.,  ("OPI"),  a Florida
corporation. The Company issued 270,000 shares of its registered Common Stock in
March 1996, in two  transactions,  in exchange for all the  outstanding  capital
stock of OPI. DHB initiated a lawsuit  against the former  shareholders  of OPI,
and as a result of that lawsuit being  settled by mediation,  38,625 shares were
returned in 1997. An additional 6,625 shares will be returned in 1998.

Recent Developments

         Exclusive license and trademark agreement with Magnesystems. On January
16, 1998, The Company  signed an exclusive  (except for certain  rights,  in the
field for horses)  licensing  agreement to make, use and sell magnetic  products
covered by certain US and Canadian  patents,  along with the technical  know how
related to the magnetic products in the possession of Magnesystems.

         Lanxide Armor Products  Inc.("LAP") and Lanxide  Electronic  Components
Inc. ("LEC") On February 9, 1998, the Company  purchased the common stock of two
privately  held  Delaware  corporations  for $4.8  million  which was  funded by
additional  loans from Mr.  Brooks.  LAP is an inovative  company  having unique
technological  capabilities in the development,  design, testing and manufacture
of armor research and development for the U.S.  Department of Defense,  and more
than seven years of experience in the design,  manufacture,  testing and sale of
products for specific armor systems and  components.  LAP's composite hard armor
systems are based on patented  and highly  proprietary  ceramic/metal  composite
systems.

         LEC designs, manufactures and sells unique and heavily patented thermal
management,  packaging and structural  components for the electronics  industry.
LEC's  current   products  are  primarily  based  on  silicon   carbide/aluminum
composites which provide a unique combination of desirable  properties including
high thermal conductivity,  low co-efficient of thermal expansion,  light weight
and high stiffness.  These  properties are ideally suited to provide a number of
products  including,  but not limited to, power module and amplifier  heat sinks
and baseplates,  microprocessor  package lids,  heat  spreaders,  printed wiring
board cores,  carriers,  package bases and fluid cooled heat sinks. LEC has over
seven years of experience in the design, manufacture and sale of products in the
hi-tech electronics industry.

         Buyback of Common Stock.  On February 4, 1998 the board of Directors of
the Company  announced its  authorization  for the Company to purchase up to one
million  additional shares of its common stock on the open market,  from time to
time, at its  discretion.  The Board of Directors had previously  authorized the
repurchase  of one million  shares of its common stock in October  1996. To date
the Company has repurchased and retired 1,188,454 shares.

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  has  acquired  minority  interests  in the common  stock or  securities
convertible into common stock, of the following companies:
<PAGE>
         Zydacron,  Inc.,  ("Zydacron"),  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  which utilize the
         Windows operating system software.  Zydacron's family of codec products
         offers a low-cost  full-function  "codec  engine"  that meets  existing
         video  teleconferencing  environments.  In May 1997, Zydacron signed an
         agreement with a leading  European  telecommunications  Company,  which
         plans on utilizing  Zydacron's  OnWan  single  board  videoconferencing
         systems under its own label.  The agreement  covers  multiple  hardware
         options and could  result in more than $20 million in sales to Zydacron
         over a three to four year  period.  The Company owns 4.6% of the equity
         of this company.

         Pinnacle  Diagnostics,  Inc.,  ("Pinnacle")  a privately  held Delaware
         corporation,  which is  engaged in the  marketing  a variety of medical
         diagnostic products.  The Company owns 16.7% of the equity of Pinnacle.
         On December 31, 1996,  the Company  recorded a valuation  allowance for
         the total value of Pinnacle as a result of their  insolvency.  In 1997,
         the Company was informed that the  microbiological  testing  technology
         owned by Pinnacle was  purchased by MicroSure  Inc. As a result of this
         transaction,  the  Company  now  owns a  percentage  of  MicroSure  and
         therefore, the Company reduced its valuation allowance and restated its
         investment at the net realizable value of $372,000.

         FED  Corporation,  ("FED")  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.  FED is involved with the emissive
         display  development  activities for both miniature  display and direct
         view  display  product  lines.  FED's staff has now created the highest
         resolution  Organic  Light  Emitting  Diode Display based video display
         ever produced in the USA to date (February 19, 1998).  The Company owns
         2.9% of the equity of FED.

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

         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 ("the Armor Group")

         Products.  The Armor Group  manufactures two basic types of body armor:
concealable armor, which is designed 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,   Gold   FlexTM,
SpectrashieldTM  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 GenesisTM series vests.
<PAGE>
         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-elastic  strapping.  Concealable
vests may be  supplemented  for additional  protection and supplied with a shock
plate,  SpectrashieldTM  trauma  plates or a new  series of plates  known as the
DiamondliteTM series of plates. These plates are becoming more integral with the
supply of concealable armor. One plate in the DiamondliteTM  series of plates is
the  DiamondliteTM  thin  plate  which is a light  insert  designed  to  enhance
protection of vital areas.  Vests may be supplemented  with an additional  armor
plate made of either metal or certain  composite  materials to withstand greater
threat  levels  than the vest is  otherwise  designed  to protect  against.  The
DiamondliteTM  thin  plate is an ultra  lightweight  plate,  manufactured  using
proprietary  patented  processes  which when combined with Level II  ballistics,
achieves a  significant  leap in ballistic  protection  from  multiple hits from
steel  penetrator  bullets,   AK-47,  7.62  x  39mm  and  similar  threats.  The
DiamondliteTM  thin  plate is  manufactured  from a high  performance  composite
material  and is only .032 of an inch thick and still  weighs in at under  three
pounds.  The industry  has not been able to  replicate a  performing  protective
plate at twice the weight,  thereby establishing the DiamondliteTM thin plate as
an entirely new standard by which all other armor will be compared.

         During 1997,  Point Blank Body Armor  introduced  more than a dozen new
NIJ Certified vests. Among the more notable are the TriadTM and the Lady TriadTM
correctional  concealable  vests which offer triple  threat  protection  against
stabbings,  slashings and handguns,  the three vital threats most commonly faced
by  Correctional  Officers.  The TriadTM  vest series  also  incorporates  a K-9
TriadTM vest designed  specifically  for Police and  Correctional K-9 Units. The
LibertyTM  line of vests is a series of  extremely  lightweight  ultra  flexible
concealable  vests which offer maximum  freedom of movement for Law  Enforcement
Officers. The GoldLiteTM series of vests is a series of ultra-light  concealable
vests designed for use with the DiamondliteTM concealable plates. Used together,
this combination  protects Law Enforcement  Officers from AK47 7.62 x 39mm Steel
Penetrator Bullets and other lesser threats.

         PACA's   wholesale   prices  for  its  concealable   vests  range  from
approximately $150 to approximately $375. Point Blank's wholesale prices for its
concealable vests range from  approximately $215 to $540, and Zunblindage prices
range from $300 to $500. 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.  These
vests contain pockets to incorporate small panels constructed from, for example,
hard composite  materials and  high-alumina  ceramic tiles, all of which provide
additional  protection  against hi power  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  threats.  The  DiamondliteTM  series of plates  also  includes  a
tactical plate made from novel composite  materials.  Specifically,  Diamondlite
(TM)  tactical  plates  are  made  from  DIMOX-HTTM   composite  armor,  a  high
performance  ceramic matrix composite  manufactured by the Armor Group's Lanxide
Armor Products subsidiary.  The DiamondliteTM  Tactical Plate is only 1/2" thick
and weighs under six pounds, far less than the commonly used alternatiave plates
which weigh 8-10  pounds.  According to NIJ body armor  Standards,  the tactical
plate is certified as Level IV when used in conjunction  with a Level IIIA vest.
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  $500 to $1350,  and  Zunblindage  prices  range from
$700-$1,400. 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.  PACA was awarded a prestigious  contract
from the U.S. Army Soldier  Systems  Command for the design and development of a
technologically advanced Countermine suit. 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 or death, as a potential result of the
failure such products, or otherwise. The Armor Group maintains product liability
insurance  for both PACA and Point Blank in the amount of  $20,000,000  each per
occurrence,  and  $22,000,000  in the aggregate  less a deductible of $5,000 for
each company. Zunblindage maintains product liability insurance in the amount of
$2,000,000  each  occurrence.  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, Point Blank and Zunblindage 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,  Point Blank or Zunblindage 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 55% of its manufacturing of  ballistic-resistant  garments
is  Kevlar(TM),   a  patented   product  of  E.I.  Du  Pont  de  Nemours  &  Co.
Spectrashield(TM), GoldFlexTM, and SpectraFibre(TM), which are patented products
of  Allied  Signal  are  used  in  approximately  45% of all  vests.  GoldFlexTM
represents  the latest in ballistic  technology  from Allied  Signal.  Utilizing
Allied Signal's patented, non-woven Shield technology,  GoldFlexTM is softer and
thinner  than  traditional  ballistic  materials  while  offering the maximum in
multi-hit and angled shot  protective  capabilities.  The Armor Group  purchases
cloth woven from these materials from three independent  weaving companies.  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
computerized  cutting machines and electric  knives,  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).   KevlarTM,   GoldFlexTM   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.
<PAGE>
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.

         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 42% and 44%,
respectively,  of the Armor Group's revenues in each of the years ended December
31, 1997 and 1996. One customer, the New York City Police Department,  accounted
for  approximately  5% and 4% of PACA's  sales for the years ended  December 31,
1997 and 1996,  respectively.  Besides domestic customers,  Point Blank also has
international  customers  which accounted for 17% and 20% of Point Blank's sales
for the  years  ended  December  31,  1997  and  1996  respectively.  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 8%
and 5% of revenues for the years ended December 31, 1997 and 1996, respectively.

         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, 1997 and 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 July
31, 1997 through July 31, 2001.

         During the years ended  December  31, 1997 and 1996,  commercial  sales
(i.e.,  sales  to   non-governmental   entities)  accounted  for  50%  and  49%,
respectively, of Armor Group's revenues.

         Marketing and Distribution. The Armor Group employs 10 customer support
representatives,   3  regional   sales   managers  and  40   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.
<PAGE>
         Substantially  all of the Armor Group's  advertising is directed toward
law  enforcement  agencies in the form of catalogs,  trade  magazines  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, 1997 and
1996, advertising expenditures were $697,000 and $363,000, respectively.

         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  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 ,
Point Blank and Zunblindage perform 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. The Armor Group is 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, Point
Blank,  and  Zunblindage  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.The  Armor Group has the
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,
which are expected to continue will reduce interest expenses, improve production
efficiencies and capacity,  control  purchasing costs and permit the Armor Group
to, viably compete.
<PAGE>
         The Armor Group's Backlog. As of December 31, 1997, the Armor Group had
a backlog of approximately  $4,500,000, as compared to $2,400,000 as of December
31, 1996. 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,  1997,  there were two  officers of the
Armor Group,  15 persons  employed in supervisory  capacities,  249 employed for
manufacturing,  shipping and warehousing,  and 24 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),  Bioflex by NDL(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/Point  Blank/OPI
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
solicit 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  $20,000,000  per
occurrence and $22,000,000 in the aggregate,  including legal fees, subject to a
$5,000  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.

         Backlog.  As of December  31,  1997,  NDL's  backlog was  approximately
$550,000. Backlog at any one date is not a reliable indicator of future sales or
sales trends.
<PAGE>
         Employees.  As of  December  31,  1997,  there was one  officer  of NDL
Products,  Inc., 6 persons employed in supervisory  capacities,  47 employed for
manufacturing,  shipping and warehousing,  and 12 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  method of  accounting.  In August
1996, the Company commenced a lawsuit against the former shareholders of OPI and
as a result  38,625  shares of the  Company's  common  stock were  returned  and
retired.  An additional 6,625 shares will be returned in 1998. 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  telemarketers.  OPI's  products  are sold  directly to the medical
industry,  including  hospitals,  sports medicine centers and medical practices.
OPI's has begun 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  $20,000,000  per
occurrence, and $22,000,000 in the aggregate, including legal fees, subject to a
$5,000 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.

         Backlog.  As of December 31, 1997,  OPI had a backlog of  approximately
$250,000. Backlog at any one date is not a reliable indicator of future sales or
sales trends.

         Employees.  As of December  31, 1997,  OPI had four people  employed in
supervisory capacities, 28 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.
<PAGE>
         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.  Financial  information  on the
Company's business segments was as follows:
<TABLE>
<CAPTION>

                                                                            1997              1996
                                                                        ------------      ------------
<S>                                                                     <C>               <C>
Net Sales:
         Ballistic-resistant equipment ............................     $ 26,805,471      $ 18,358,614
         Protective athletic & medical equipment ..................        7,094,808         5,909,238
                                                                        ------------      ------------
                                                                          33,900,279        24,267,852
            Less inter-segment sales ..............................         (628,672)         (889,154)
                                                                        ------------      ------------
                  Consolidated Net Sales ..........................       33,271,607        23,378,698
                                                                        ============      ============

Income from Operations
         Ballistic-resistant equipment ............................     $  2,626,563      $   (728,388)
         Protective athletic & medical equipment ..................          415,231        (2,449,120)
                                                                        ------------      ------------
                                                                           3,041,794        (3,177,508)
         Corporate and Other (1) ..................................       (1,104,396)       (1,140,497)
                                                                        ------------      ------------
                  Consolidated Operating Income ...................     $  1,937,398      $ (4,318,005)
                                                                        ============      ============

Identifiable Assets (2)
         Ballistic-resistant equipment ............................     $ 17,572,698      $ 10,648,863
         Protective athletic & medical equipment ..................        6,322,150         4,204,341
                                                                        ------------      ------------
                                                                          23,894,484        14,853,204
         Corporate and Other ......................................        3,779,781         3,549,941
                                                                        ------------      ------------
                  Consolidated Net Assets .........................     $ 27,674,629      $ 18,403,145
                                                                        ============      ============
</TABLE>
         (1)      Corporate   and   Other   includes   corporate   general   and
                  administrative   expenses,   net   interest   expense,   other
                  non-operating income and expense, and income taxes.

         (2)      Corporate assets are principally cash, marketable  securities,
                  deferred charges and assets held for disposition.

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 to that site 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 expired October 31, 1997, with an option to acquire the property for
$500,000.  The  Company  is  continuing  to lease this space on a month to month
basis.  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. In April 1997, the Company entered a one year lease for
a 60,000 square foot warehouse  adjacent to the Oakland Park,  Florida  facility
with an annual  rental of  approximately  $210,000  and an option to extend  the
lease for four years.  This  warehouse is located at 1201 NE 38th Street Oakland
Park, Florida.

         Zunblindage Facility. Zunblindage leases a 5,700 square foot office and
warehouse facility located at Rue Leon Frederiq,  14, 4020 Liege,  Belgium and a
1,800 square foot store  located at Passage  Lemonnier,  84000  Liege,  Belgium.
These space are  occupied  pursuant to a nine year lease with annual  rentals of
approximately, $42,000.


Item 3.  PENDING LITIGATION

         Renaissance Financial Securities Corp.  ("Renaissance") filed an action
against the Company and David H. Brooks in the United States  District Court for
the Southern  District of New York in connection with the breach of a consulting
agreement  pursuant to which  Renaissance was to provide certain services to the
Company. Renaissance seeks, among other things, compensatory damages of not less
than  $2,500,000,  punitive  damages  of  not  less  than  $500,000  or  in  the
alternative,  Renaissance seeks to executie certain stock purchase warrants. The
Company filed an Answer and  Counter-Claim  and intends to vigorously defend the
claim and to pursue its Counter-Claims.

         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  Company  intends to  vigorously  pursue its claim and
vigorously defend Mr. Finn's counterclaim.
<PAGE>
         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.  An Annual Meeting
of  Shareholders  was held on December 30, 1997.  The only matter to be voted on
was the election of  directors.  The  following  people were elected  directors:
David H. Brooks, Mary Kreidell, Gary Nadelman, and Morton Cohen.


                                     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 a 50% Stock Dividend declared June 1, 1996, 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>
<S>         <C>                                        <C>             <C>
                                                       Low              High
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                                1.75             3.00
            2nd Quarter                                1.75             4.25
            3rd Quarter                                3.31             6.00
            4th Quarter                                3.25            4.375
1998:       1st Quarter                                3.88             4.75
            (through  March 20,
            1998)
</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.
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
20, 1998, was 146;  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 1,600 beneficial
owners.
<PAGE>
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 document.

General

         The Company is a holding  company which  conducts its business  through
wholly-owned  subsidiaries  organized in two divisions.  The Armor Group through
which develops,  manufactures and distributes  bullet- and  projectile-resistant
garments, and DHB Sports Group which engages in the manufacture and distribution
of protective  athletic  equipment and apparel and the manufacture of orthopedic
products and is a distributor  of general  medical  supplies.  The Armor Group's
products  are sold both  nationally  and  internationally.  Sales  are  directed
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.  The Company also
owns a minority  interest in several other  companies,  some  privately held and
some  publicly  held,  including  the  pharmaceutical  business,   health  care,
telecommunications, and electronics. 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, PACA was the Company's only source of revenue from operations. Thereafter,
the Company  purchased a business each year and thus to date,  NDL, Point Blank,
OPI and Zunblindage are also sources of revenue from operations.

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

Results of Operations

         Year Ended December 31, 1997, compared to year ended December 31, 1996.
Consolidated  net sales of the  Company  for the year ended  December  31,  1997
increased  by  $9,892,909  to  approximately  $33,271,607.   This  increase  was
primarily  due to the  increased  sales volume for Point Blank,  PACA,  and NDL.
Gross profit in 1997 increased  $6,766,725 to  $11,117,682.  The Company's gross
profit  percentage  increased from 19% in 1996 to 33% in 1997. This increase was
the result of improved  production  efficiencies,  as well as,  increased  sales
volume.  The Company had a consolidated net income of  approximately  $1,541,000
for 1997 as compared to a consolidated net loss of approximately  $4,866,000 for
1996.

         The  Company  had net income for the year ended  December  31,  1997 of
$1,540,809 as compared to a net loss of $4,865,872  for the year ended  December
31,  1996.  This turn  around was due to the  successful  implementation  of the
Company's strategic plan put in place in late 1996.

         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  better  controls  where  put into  place to yield  higher  profit
margins.
<PAGE>
         The Company's  selling,  general and  administrative  expenses  ("S,G&A
expenses")  for 1997  increased to  $9,641,655  from  $8,668,950  in 1996.  As a
percentage  of net sales,  the S,G & A expenses were 28% in 1997 compared to 37%
in 1996. This increase of approximately $1.5 million was due mainly to increased
selling  costs   including  sales   commissions,   show  expenses  and  increase
advertising and travel expenses associated with sales.

         In 1997, the Company continued aggressive measures to regain its market
share by  increasing  its  marketing  efforts.  This amounted to 8% of the S,G&A
expenses for 1996 as compared 20 % of the S,G&A expenses for 1997.

         Interest  expense,  net of  interest  income,  for  1997  increased  to
$339,754  from  $327,347  in 1996 due to a  decline  of  interest  income on the
Company's cash balances.

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.

         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  usage.   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  salesman  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.  Additionally,
the Company increased accounts receivable allowance 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  an new  product  line  which
increased S,G&A expenses $150,000 over 1995's levels.
<PAGE>
         The Company incurred  additional  legal and  professional  fees for the
year ended 1996 relating to the purchase of OPI and a proposed  merger which was
terminated.  Additionally,  the Company  commenced 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  in 1995 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 their filing for bankruptcy.
The Company recorded a valuation  allowance for the full value of their $500,000
investment  in Pinnacle  Diagnostic as a 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

Liquidity and Capital Resources.

         The Company's primary capital  requirements over the next twelve months
are to assist PACA,  Point Blank,  NDL, OPI,  Zunblindage and two newly acquired
companies, LAP and LEC, in financing their working capital requirements,  and to
fund any possible acquisitions.  PACA, Point Blank, and NDL sell the majority of
their products on 60 - 90 day terms,  and OPI sells the majority of its products
on 30-60 day  terms.  Working  capital  is needed to  finance  the  receivables,
manufacturing  process and inventory.  Working  capital at December 31, 1997 was
$13,621,014 compared to $8,900,398 at December 31, 1996 and its ratio of current
assets to  current  liabilities  was 2.59:1 and  2.88:1,  respectively,  on such
dates.

         Cash, cash equivalents and marketable  securities totaled $2,586,690 at
December 31, 1997  compared to  $2,591,682  at December  31, 1996.  Although the
total of cash,  cash  equivalents  and  marketable  securities  remained  almost
constant,  the cash  generated by the net income for the year ended December 31,
1997 was utilized to repurchase of the Company's common stock in the open market
which amounted to approximately $2,145,000 for the year ended December 31, 1997.
Since the year end,  the  Company  has  repurchased  and  retired an  additional
604,595  shares  of its  common  stock  in the  open  market  for  approximately
$2,384,000.  At the present time,  it has a loan of $2,675,000  from the Bank of
New York coming due in May 1998,  bearing interest at 6.625% per year. This is a
$1,275,000 increase over last year's line of credit.  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.

         The Company's  principal  commitments at December 31, 1997 consisted of
obligations under their operating leases for its facilities.

         The Company's  capital  expenditures for 1997 were $801,150 as compared
to $1,123,739 for 1996. The Company  purchased OPI in March 1996 and Zunblindage
in February 1997 by issuing stock in lieu of a cash payment.
<PAGE>
                 Special Note Regarding Forward-Looking Statements

This Annual Report contains certain  forward-looking  statements and information
relating  to the  Company  that  are  based  on  the  beliefs  of the  Company's
management as well as assumptions made by and information currently available to
the Company's management.  When used in this document,  the words "anticipate,",
"believe," "estimate",  "expect",  "going forward", and the similar expressions,
as they relate to the Company or Company  management,  are  intended to identify
forward-looking  statements.  Such  statements  reflect the current views of the
Company  with  respect  to future  events  and are  subject  to  certain  risks,
uncertainties   and   assumptions.   Should  one  or  more  of  these  risks  or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may vary materially  from those described  herein as anticipated,
believed,  estimated  or  expected.  The Company does not intend to update these
forward-looking statements.

Item 7. Financial  Statements:  See Index to Consolidated  Financial  Statements
Appearing in the Consolidated Financial Statement Annexed Hereto.

Item  8.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

On January  23,  1998,  the firm of Paritz and Company  P.A.  was engaged as the
Company's  principal  certifying  accountant,  replacing Capraro,  Centofranchi,
Kramer & Co., P.C. who resigned December 9, 1997.

                                    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 43, has served as Chairman of the Board and Chief
Executive  Officer of the Company  since its  inception in 1992.  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  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.

         Mary  Kreidell,  age 44,  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.
<PAGE>
         Leonard  Rosen,  age 60,  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 44,  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.

         Joseph Giaquinto, age 34, 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.

         Gary Nadelman,  age 46, 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.  Mr.  Nadelman has been a director of
the Company since 1995.

         Morton A.  Cohen,  age 62,  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).  Mr.
Cohen has been a director of the Company since 1996.

         Robert Beckel,  age 48, has had an active consulting  practice advising
corporations,  trade  associations and labor unions on  communication  strategy,
consensus-building  and public  policy for the last twelve  years.  He is one of
Washington's  leading political analysts,  the on-air American political analyst
for Britian's  Independent  Television  Network. He also is the co-host of CNN's
Crossfire Sunday and a political analyst for CBS's This Morning Show. Mr. Beckel
became a director in January 1998.

         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.
<PAGE>
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, 1997 and 1996, exceeded $100,000:
<TABLE>
<CAPTION>
                                                                                                            Long-term
                                                                                                          Compenstation
                                                                       Annual Compensation                     Awards
                                                             -----------------------------------------   ---------------
                                                                                                             Securities
                                                                                          Other Annual       underlying
        Name and Principal Position         Year             Salary(1)       Bonus        Compensation    Options/SAR's(4)
        ---------------------------         ----             ---------       -----        ------------    ----------------
<S>                                         <C>               <C>             <C>             <C>                 <C>

        David Brooks,(2)
        Chairman, CEO                       1997              191,917
                                            1996              191,667

        Mary Kreidell                       1997              100,000          0                0                  0
        Chief Financial Officer             1996               80,424

        Sandra Hatfield                     1997              100,330          0                0                  0
        President of Point Blank            1996               48,860

        Joseph Giaquinto                    1997
        President of Flex Aid               1996              100,000          0                0                  0
                                                              100,000


        Leonard Rosen,(3) President         1997              147,596          0                0                  0
        of PACA                             1996              135,000
</TABLE>
---------
(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
<PAGE>
         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.

         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' contract provides for 750,000 warrants per
year  exercisable  at $2.33 for five years.  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.

         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 an annual base
salary of $115,000 in 1993 with annual increases,  plus certain fringe benefits.
Mr. Rosen is currently employed under the same terms and conditions.

         Mr.  Giaquinto,  has a three year employment  contract  entered into in
February  1995,  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 1997,  the  Company  entered  into an  employment  agreement  with a
salesman for DHB Armor Group, expiring in 2000 with an annual salary of $100,000
plus certain fringe benefits.

         Stock  Options.  In the years ended  December  31,  1997 and 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.  The
Board of Directors also granted during the year ended December 31, 1997,  50,000
warrants  exercisable  at $2.00 for three years to the president of Point Blank,
Sandra Hatfield.  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.

         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.
<PAGE>
         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,  1997,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater-than-ten-percent beneficial owners were complied with.

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 20,  1998,  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 "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 investment 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>                               <C>
         David H. Brooks(3)                                     17,250,600(2)                     57%
         11 Old Westbury Road
         Old Westbury, New York 11568

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


         Mary Kreidell
         11 Old Westbury Rd
         Old Westbury, NY 11568                                     84,375 (4)                      *

         Leonard Rosen
         148 Cedar Place
         Norris, Tennessee                                         120,142 (5)                     *

         Sandra Hatfield
         4031 NE 12th Terrace
         Oakland Park, Fl 33334                                     50,000 (6)                     *

         Joseph Giaquinto
         4031 NE 12th Terrace
         Oakland Park, Fl 33334                                     66,000 (7)                     *

         Gary Nadelman
         11 Old Westbury Rd
         Old Westbury, NY 11568                                    235,000                         *

         Morton Cohen8
         11 Old Westbury Rd
         Old Westbury, NY 11568                                    450,000 (8)

         All officers and Directors as a group                  18,281,245 (9)                    60%(6)
</TABLE>
* Less than one (1%) percent
<PAGE>
1.       Based upon 24,837,229 shares outstanding as of March 20, 1998 increased
         by the currently  exercisable  options and warrants of 5,424,600 shares
         of common stock held by directors  and officers for an aggregate  total
         of 30,261,829  shares. Currently  exercisable  options or warrants are
         those  which are  exercisable  within 60 days  after the filing of this
         Annual Report on Form 10-KSB.

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 currently
         exercisable  warrant to  purchase  such  shares at a price per share of
         $1.33 and 1,500,000 shares which may be acquired by Mr. Brooks at $2.33
         per share upon exercise of a currently exercisable warrant.

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

4.       Includes 75,000 shares acquirable under currently  exercisable warrants
         awarded to Mrs. Kreidell.

5.       Includes 75,000 shares acquirable under currently  exercisable 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.

6.       Includes 50,000 shares acquirable under currently  exercisable warrants
         awarded to Mrs. Hatfield.

7.       Includes 49,500 shares acquirable under currently  exercisable warrants
         awarded to Mr. Giaquinto

8.       These  shares  are owned by Clarion  Capital  Corporation  and  Clarion
         Partners of which  Morton  Cohen is the  director,  President,  CEO and
         Chairman.

9.       Includes 5,424,600 currently  exercisable warrants of common stock held
         by directors and officers.
<PAGE>
Item 12.  CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company  obtained  $1,140,000  from term loans Mr.  Brooks and term
loans  from  Mrs.  Brooks  for  the  cash  payment  required  to  carry  out the
acquisition of the assets used to start up NDL, and for working capital for NDL.
Presently the  outstanding  balance of this loan is $550,000  expiring  November
1999 bearing  interest at 12% per year..  The interest paid on this loan to date
is  $218,877.  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 the Bank to fully secure
the Bank Loan and other  obligations of the Company to the Bank. In exchange for
this,  the  Company  has  granted to Mrs.  Brooks  5-year  warrants  to purchase
3,750,000  shares of Common  Stock,  at a price of $1.33 per share  expiring  in
1999. 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 12%  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 $133,274 in interest on their loans to the Company.  Mr.
and Mrs. Brooks have also pledged  personal assets to Bank of New York 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".

         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  expiring in 2000;  with 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 was occupied  pursuant to a five-year
lease which expired October 31, 1997, with an option to acquire the property for
$500,000. The Company is currently leasing this space on a month to month basis.
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, 1997 and 1996


Consolidated Statements of Operations for the years ended
         December 31, 1997 and 1996


Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 1997 and 1996


Consolidated Statements of Cash Flows for the years ended December 31,
         1997 and 1996

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,  1997 and the related  consolidated
statements of operations,  stockholders' equity and cash flows for the year then
ended.  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, 1997 and the results of its  operations and its
cash flows for the year ended  December 31, 1997 in  conformity  with  generally
accepted accounting principles.



/s/Paritz and Company P.A.
-------------------------
Paritz and Company P.A.
Hackensack, New Jersey
March 11, 1997
<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 year then
ended.  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 year ended  December  31,1996 in  conformity  with  generally
accepted accounting principles.



/s/Capraro, Centofranchi, and Kramer Co P.C.
--------------------------------------------
Capraro, Centofranchi, and Kramer Co P.C.
So. Huntington, NY
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
                             DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                                    CONSOLIDATED BALANCE SHEETS
                                           DECEMBER 31,
                                                                         1997            1996
                                                                     -----------     -----------
<S>                                                                  <C>             <C>
                               ASSETS
CURRENT ASSETS
   Cash and cash equivalents .....................................   $   882,884     $ 1,249,655
   Marketable securities .........................................     1,703,806       1,342,027
   Accounts receivable, less allowance for doubtful
         accounts of $353,320 and $303,320 .......................     6,285,181       3,499,535
   Inventories ...................................................    12,543,474       7,290,205
   Prepaid expenses and other current assets .....................       727,421         255,218
                                                                     -----------     -----------

                  Total Current Assets ...........................    22,142,766      13,636,640
                                                                     -----------     -----------

   PROPERTY AND EQUIPMENT, at cost, net of accumulated
         depreciation and amortization ...........................     2,374,085       1,834,777
                                                                     -----------     -----------

   OTHER ASSETS
     Intangible assets, net ......................................       588,017         214,213
     Investments in non-marketable securities ....................     1,688,750       2,316,750
     Deferred tax assets .........................................       455,300         819,300
     Deposits and other assets ...................................       425,711         338,739
                                                                     -----------     -----------

                  Total Other Assets .............................     3,157,778       3,689,002
                                                                     -----------     -----------

                  TOTAL ASSETS ...................................   $27,674,629     $19,160,419
                                                                     ===========     ===========

                   LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES
     Note payable - bank .........................................   $ 2,675,000     $ 1,400,000
     Current maturities of long term debt ........................        65,192          61,664
     Accounts payable ............................................     5,072,929       3,019,804
     Accrued expenses and other current liabilities ..............       708,631         254,774
                                                                     -----------     -----------

                  Total Current Liabilities ......................     8,521,752       4,736,242
                                                                     -----------     -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                                    CONSOLIDATED BALANCE SHEET
                                           DECEMBER 31,
                                                                         1997            1996
                                                                     -----------     -----------
<S>                                                                  <C>             <C>
  LONG TERM LIABILITIES
    Long term debt, net of current maturities ....................       111,258         144,091
    Notes Payable  shareholder  ..................................     1,300,000       1,300,000
                                                                     -----------     -----------

                  Total Long Term Debt ...........................     1,411,258       1,444,091
                                                                     -----------     -----------

                  Total Liabilities ..............................     9,933,010       6,180,333
                                                                     -----------     -----------

   COMMITMENTS AND CONTINGENCIES

   STOCKHOLDERS' EQUITY ..........................................    17,741,619      12,980,086
                                                                     -----------     -----------

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................   $27,674,629     $19,160,419
                                                                     ===========     ===========
</TABLE>
                     See accompanying notes to financial statements.


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

                                                                       1997             1996
                                                                  ------------      -----------
<S>                                                               <C>               <C>
Net sales ...................................................     $ 33,271,607      $ 23,378,698

Cost of sales ...............................................       22,153,925        19,027,741
                                                                  ------------      ------------

      Gross Profit ..........................................       11,117,682         4,350,957

 Selling, general and administrative expenses ...............        9,641,655         8,668,950
                                                                  ------------      ------------

      Income(Loss) before other income (expense) ............        1,476,027        (4,317,993)
                                                                  ------------      ------------

Other Income (Expense)
      Interest expense, net of interest income ..............         (339,754)         (327,347)
      Other income ..........................................           51,599            24,350
      Write-down of net assets in Subsidiary ................             --            (529,578)
      Loss on holding of equity investments .................          372,000        (1,000,000)
      Realized gain on marketable securities ................          (72,175)          381,337
      Unrealized gain on marketable securities ..............          449,702            69,168
                                                                  ------------      ------------

               Total Other Income (Expense) .................          461,372        (1,382,070)
                                                                  ------------      ------------

      Income (loss) before income taxes (benefit) ...........        1,937,399        (5,700,063)

      Income taxes (benefit) ................................          396,509          (834,191)
                                                                  ------------      ------------

      Net Income (loss) .....................................     $  1,540,890      $ (4,865,872)
                                                                  ============      ============

      Earnings (loss) per common share
               Primary ......................................     $       0.06      ($      0.20)
                                                                  ============      ============
               Fully Diluted ................................     $       0.05      ($      0.20)
                                                                  ============      ============
      Weighted average number of common share outstanding:
               Primary ......................................       24,837,771        24,879,521
                                                                  ============      ============
               Fully Diluted ................................       28,053,959        24,879,521
                                                                  ============      ============
</TABLE>
                         See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                               DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                           FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


                                                 Number of                            Number of                       Additional
                                                 Preferred          Par               Common            Par            Paid-in
                                                   Shares          Value              Shares           Value            Capital
                                                   ------          -----              ------           -----            -------
<S>                                               <C>           <C>                 <C>             <C>               <C>
Balance December 31, 1995 ...............           21,875      $        219        20,761,991      $     20,762      $ 12,123,470

Net Loss for the year ended Dec 31, 1996              --                --                --                --                --
Issuance of stock to purchase subsidiary              --                --             180,000               180           578,820
Stock issued to buy-out lease ...........             --                --               6,000                 6            79,994
Sale of common stock ....................             --                --           1,345,000             1,345         4,806,154
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              --
Fee for services regarding dividends ....             --                --                --                --              (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


Net Income for the year ended 12-31-97 ..             --                --                --                --                --
Issuance of stock to purchase subsidiary              --                --             666,000               666           999,334
Stock issued to purchase lease ..........             --                --             144,200               144           209,856
Sale of common stock ....................             --                --           1,825,000             1,825         3,648,175
Stock issued for services ...............             --                --              13,500                13            67,487
Exercise of warrants ....................             --                --             100,000               100           149,900
Fee for services regarding stock issued .             --                --                --                --              (9,171)
Stock issued in settlement of a lawsuit .             --                --              75,000                75           149,925
Stock returned in settlement of a lawsuit             --                --             (38,625)              (38)          (73,596)
Effect of foreign currencytranslation ...             --                --                --                --                --
Purchase of treasury stock ..............             --                --            (583,859)             (584)       (2,144,833)
                                                   -------      ----------          ----------      ------------      ------------

Balance December 31, 1997 ...............                0               0          25,347,224      $     25,347      $ 20,953,107
                                                   =======      ==========        ============      ============      ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   Common
                                                   Stock            Foreign
                                                Subscription        Currency         Retained
                                                 Receivable         Translation       Earnings      Total
                                                 ----------         -----------       --------      -----
 <S>                                          <C>               <C>               <C>               <C>
Balance December 31, 1995 ...............     $   (437,500)     $        0        $     95,017      $ 11,801,968

Net Loss for the year ended Dec 31, 1996              --                --        $ (4,865,872)     $ (4,865,872)
Issuance of stock to purchase subsidiary              --                --                --             579,000
Stock issued to buy-out lease ...........             --                --                --              80,000
Sale of common stock ....................          210,000              --                --           5,017,499
Conversion of preferred stock
into Common Stock .......................             --                --                --                --
Common Stock - 50% dividend .............             --                --                (718)             --
Preferred Dividend - Common Stock .......             --                --                 (17)               (9)
Fee for services regarding dividends ....             --                --                --              (5,000)
Stock issued for services ...............             --                --                --             372,500

                                              ------------      -----------       ------------      ------------
Balance December 31, 1996 ...............     $   (227,500)     $        0      $ (4,771,590)     $ 12,980,086

Net Income for the year ended 12-31-97 ..             --                --           1,540,890         1,540,890
Issuance of stock to purchase subsidiary              --                --                --           1,000,000
Stock issued to purchase lease ..........             --                --                --             210,000
Sale of common stock ....................          227,500              --                --           3,877,500
Stock issued for services ...............             --                --                --              67,500
Exercise of warrants ....................             --                --                --             150,000
Fee for services regarding stock issued .             --                --                --              (9,171)
Stock issued in settlement of a lawsuit .             --                --                --             150,000
Stock returned in settlement of a lawsuit             --                --                --             (73,634)
Effect of translation ...................             --              (6,135)             --              (6,135)
Purchase of treasury stock ..............             --                --                --          (2,145,417)
                                              ------------      ------------      ------------      ------------

Balance December 31, 1997 ...............                0            (6,135)     $ (3,230,700)     $ 17,741,619
                                              ============      ============      ============      ============

</TABLE>
                           See accompanying notes to financial statements.

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

                                                                            1997             1996
                                                                        -----------      -----------
<S>                                                                     <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net Income (loss) ..............................................     $ 1,540,890      $(4,865,872)

   Adjustments to reconcile net income to net
     cash  provided  by  operating activities:
          Depreciation and amortization ...........................         440,650          343,564
          Valuation allowances/reserves ...........................        (372,000)       2,462,898
          Stock issued for services ...............................          67,500          452,500
          Stock issued in settlement of a lawsuit .................         150,000             --
          Stock returned in settlement of a lawsuit ...............         (73,596)            --
          Stock issued to purchase a lease ........................         210,000             --
          Unrealized gain on transfer from investment
             in non-marketable securities to marketable securities         (598,900)            --
          Deferred income taxes ...................................         364,000         (843,000)
          Changes in assets and liabilities (Increase) Decrease in:
          Accounts receivable .....................................      (2,663,565)          86,716
          Marketable securities ...................................       1,237,121          487,829
          Inventories .............................................      (5,018,686)        (134,006)
          Prepaid expenses and other current assets ...............        (472,203)         (46,708)
          Deposits and other assets ...............................         (86,972)        (177,918)
          Increase (decrease) in:
          Accounts payable ........................................       2,013,134          172,114
          Accrued expenses and other current liabilities ..........         439,377          (57,304)
          State income taxes payable ..............................         (14,134)         (39,772)
                                                                        -----------      -----------
Net cash used by operating activities .............................      (2,837,384)      (2,158,959)
                                                                        -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
          Payments for purchase of assets of subsidiary,
             net of cash acquired .................................         134,356             --
          Payments made for property and equipment ................        (801,150)      (1,123,739)
                                                                        -----------      -----------
Net Cash (used) by investing activities ...........................        (666,794)      (1,123,739)
                                                                        -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
                                       STATEMENTS OF CASH FLOWS
                                   FOR THE YEARS ENDED DECEMBER 31,

                                                                            1997             1996
                                                                        -----------      -----------
<S>                                                                     <C>              <C>
CASH FLOWS FROM FINANCING ACTIVITIES
          Proceeds (Repayments) of note payable- bank .............       1,275,000       (1,150,000)
          Proceeds from issuance of long-term debt ................            --            243,573
          Repayments of note payable- shareholder .................            --           (590,000)
          Principal payments on long-term debt ....................         (45,657)         (37,818)
          Dividends Paid ..........................................            --             (7,656)
          Proceeds from the exercise of warrants - common stock ...         150,000             --
          Foreign Currency Translation ............................          (6,135)            --
          Purchase of treasury stock ..............................      (2,145,417)            --
          Net proceeds from sale of common stock ..................       3,909,616        5,599,146
                                                                        -----------      -----------
Net cash provided (used) by financing activities ..................       3,137,407        4,057,245
                                                                        -----------      -----------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ...................        (366,771)         774,547

CASH AND CASH EQUIVALENTS - BEGINNING .............................       1,249,655          475,108
                                                                        -----------      -----------

CASH AND CASH EQUIVALENTS - END ...................................     $   882,884      $ 1,249,655
                                                                        ===========      ===========
</TABLE>

                            See accompanying notes to financial statements
<PAGE>
                             DHB CAPITAL GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

Note 1       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             Principles of consolidation

                  The consolidated  financial statements include the accounts of
            DHB Capital Group, Inc. and its subsidiaries  ("DHB"),  all of which
            are wholly-owned.  DHB has two major divisions,  DHB Armor Group and
            DHB Sports Group.  DHB Armor Group  consists of  Protective  Apparel
            Corporation (PACA), Point Blank Body Armor Inc. and Zunblindage S.A.
            DHB Sports Group  consists of NDL Products Inc. (NDL) and Orthopedic
            Products  Inc.  (OPI).  All  material   inter-company  balances  and
            transactions have been eliminated.

            Business description

                  DHB Armor Group develops, manufactures, and distributes bullet
            and   projectile   resistant   garments,    bullet   resistant   and
            fragmentation vests, bomb projectile blankets, and related ballistic
            accessories.   DHB  Sports  Group   manufactures   and   distributes
            specialized protective athletic apparel and equipment and orthopedic
            products.

            Uses of estimates in the preparation of financial statements

                  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
            net  revenue  and  expenses  during each  reporting  period.  Actual
            results could differ from those estimates.

            Revenue recognition

                  Revenue  from  product  sales  is  recognized  at the time the
            product is shipped.

            Inventories

                  Inventories,  consisting of merchandise  purchased for resale,
            are  valued  at the  lower  of cost  or  market,  determined  on the
            first-in, first-out basis (replacement cost).

            Property, plant and equipment and depreciation

                  Property,  plant  and  equipment  are  stated  at cost.  Major
            additions,  improvements, and renewals, which substantially increase
            the useful lives of assets, are capitalized.  Maintenance,  repairs,
            and minor renewals are expensed as incurred.
<PAGE>
Note 1        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

                  Depreciation  is provided  for both  financial  reporting  and
            income tax purposes using the straight-line and accelerated methods.

            Marketable/Non-Marketable Securities

                  Investments   in  marketable   securities  are  accounted  for
            according to the  provisions  of  Statement of Financial  Accounting
            Standards No. 115,  "Accounting for Certain  Investments in Debt and
            Equity Securities" (SFAS 115).  Management of DHB classified all its
            marketable   securities  as  trading  securities  and,  accordingly,
            unrealized gains and losses are reflected in earnings.

                  Non-marketable securities are valued at historical cost and if
            necessary,  reduced by a valuation  allowance to the net  realizable
            value.

            Intangible assets

                  Intangible  assets are stated at cost and are  amortized  over
            their estimated useful lives (see Note 7).

            Income taxes

                  DHB and its domestic  subsidiaries file a consolidated Federal
            income tax return and separate state income tax returns.

                  DHB accounts for deferred income taxes in accordance with SFAS
            Statement  No.  109 which  requires  that  deferred  tax  assets and
            liabilities   be   recognized   for  the  future   tax   consequence
            attributable to differences  between  financial  statement  carrying
            amounts of existing assets and liabilities and their  respective tax
            bases. In addition,  SFAS No. 109 requires recognition of future tax
            benefits,  such as net operating loss  carryforwards,  to the extent
            that realization of such benefits is more likely than not and that a
            valuation allowance be provided when it is more likely that not that
            some portion of the deferred tax asset will not be realized.

            Stock based compensation

                  Statement  of   Financial   Accounting   Standards   No.  123,
            "Accounting for Stock Based Compensation" (SFAS 123) encourages, but
            does  not  require   companies  to  record   compensation  cost  for
            stock-based employee  compensation at fair value. DHB has chosen not
            to  adopt  SFAS  123 and to  continue  to  account  for  stock-based
            compensation   using  the  intrinsic  value  method   prescribed  in
            Accounting  Principles  Board Opinion No. 25,  "Accounting for Stock
            Issued to  Employees,"  and  related  interpretations.  Accordingly,
            compensation  cost for stock  options is measured as the excess,  of
            any, of the quoted market price of the  Company's  stock at the date
            of the grant over the  amount an  employee  must pay to acquire  the
            stock.
<PAGE>
Note 1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

            Impairment of long-lived assets

                  DHB  accounts  for the  impairment  of  long-lived  assets  in
            accordance with SFAS No. 121 which requires that  long-lived  assets
            and identifiable  intangibles held and used by a company be reviewed
            for possible  impairment whenever events or changes in circumstances
            indicate   that  the  carrying   amount  of  an  asset  may  not  be
            recoverable.

            Reclassification

                  Certain  items  on the 1996  financial  statements  have  been
            reclassified to conform to 1997 presentation..



Note 2      SUPPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
                                                        1997             1996
                                                      -------           -------
<S>                                 <C>               <C>               <C>
                  Cash paid for:
                                    Interest          269,450           535,859
                                    Taxes              11,971            33,301
</TABLE>
          During the years ended  December  31,  1997 and 1996,  the Company had
          non-cash  investing  activities when in issued common stock to acquire
          all of the outstanding stock of Zunblindage and of OPI, respectively.


Note 3    BUSINESS ACQUISITIONS

                  In  February,  1997  DHB  acquired  100%  of  the  issued  and
            outstanding  common stock of  Zunblindage  S.A.  ("ZSA"),  a Belgian
            corporation,  in  exchange  for 666,000  shares of DHB common  stock
            valued  at  an  aggregate  of  $1,000,000.   ZSA   manufactures  and
            distributes bullet resistant equipment, apparel and related products
            generally in Europe and the Middle East.

                  In March, 1996 DHB acquired 100% of the issued and outstanding
            common stock of Orthopedic  Products,  Inc. ("OPI"),  a manufacturer
            and distributor of orthopedic  products to the medical industry,  in
            exchange for 270,000 shares of DHB common stock. In 1997,  38,625 of
            these  shares were  returned as a result of a lawsuit  which DHB won
            against the former shareholders for  misrepresentation and violating
            a covenant  not to  compete.  An  additional  6,625  shares  will be
            returned in 1998.

                  The above  acquisitions  were accounted for using the purchase
            method  of  accounting,  pursuant  to which the  purchase  price was
            allocated  based  upon  the  estimated  fair  values  of the  assets
            acquired as of the dates of acquisition. The purchase of Zunblindage
            resulted in goodwill of $541,000.
<PAGE>
Note 3      BUSINESS ACQUISITIONS (continued)

                  In the opinion of management,  if the results of operations of
            the  acquired  businesses  had been  included  in  the  consolidated
            financial  statements  since the beginning of the year, it would not
            have a materially effect on the results of operations.

Note 4      MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES

                  The  following is a comparison of the cost and market value of
            marketable securities included in current assets:
<TABLE>
<CAPTION>
                                        1997           1996
                                     ----------     ----------
<S>                                  <C>            <C>
                 Cost ..........     $1,254,104     $1,272,859
                 Unrealized gain        449,702         69,168
                                     ----------     ----------
                 Market Value ..     $1,703,806     $1,342,027
                                     ==========     ==========
</TABLE>

                  The   Company's   has   acquired    minority    interests   in
            non-marketable  securities, at December 31, 1997 the historical cost
            was $2,316,750 reduced by a valuation allowance of $628,000 to bring
            the carrying value of these  securities to the net realizable  value
            of $1,688,750.

Note 5      INVENTORIES

                  Inventories consist of the following:
<TABLE>
<CAPTION>
                                              1997            1996
                                          -----------     -----------
<S>                                       <C>             <C>
           Finished goods ...........     $ 5,776,562     $ 2,638,256
           Work in process ..........       1,646,610         997,308
           Raw materials and supplies       5,120,302       3,654,641
                                          -----------     -----------
                                          $12,543,474     $ 7,290,205
                                          ===========     ===========
</TABLE>
<PAGE>
Note 6    PROPERTY, PLANT AND EQUIPMENT

                  A summary of property,  plant and  equipment and the estimated
            lives used in the computation of depreciation is as follows:
<TABLE>
<CAPTION>
                                                                     Estimated
                                          1997           1996       useful life
                                      ----------     ----------     -----------
<S>                                   <C>            <C>            <C>
Land ............................     $   47,500     $   47,500          --
Buildings .......................        427,500        427,500     39 years
Machinery and equipment .........      1,225,812      1,025,072     5-10 years
Furniture, fixtures and
   computer equipment ...........        819,019        343,098     5-7 years
Transportation equipment ........        244,510        144,361     3-5 years
Leasehold improvements ..........        480,928        372,240     5-31.5 years
                                      ----------     ----------
                                       3,245,269      2,359,771
Less accumulated depreciation and
amortization ....................        871,184        524,994
                                      ----------     ----------
                                      $2,374,085     $1,834,777
                                      ==========     ==========

</TABLE>

Note 7      INTANGIBLE ASSETS

                  A summary of intangible assets and the estimated lives used in
            the computation of amortization is as follows:

<TABLE>
<CAPTION>
                                                                   Estimated
                                        1997          1996        useful life
                                     ----------    ----------     -----------
<S>                                  <C>           <C>              <C>
   Goodwill ....................     $  694,473    $  226,209       15 years
   On-going government
       contracts ...............        312,086       312,086       1-5 years
   Other .......................        129,563       129,563       1-7 years
                                     ----------     ---------
                                      1,136,122       667,858
   Less accumulated amortization        548,105       453,645
                                     ----------     ---------
                                     $  588,017     $ 214,213
                                     ==========     =========
</TABLE>
Note 8      NOTES PAYABLE - BANK

                  Notes payable - bank are due on demand and are  collateralized
            by marketable  securities  owned by the majority  stockholder of the
            Company.  The weighted average interest rate on these borrowings was
            6.6% at December 31, 1997.
<PAGE>
Note 9      NOTE PAYABLE STOCKHOLDER

                  These  notes bear  interest  at 12% per annum and are due,  as
            extended,  in  November,  1999  (see  Note  15  in  connection  with
            additional loans made by the majority stockholder in 1998.)

Note 10     LONG-TERM DEBT

                  Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                           1997               1996
                                                                         --------           --------
<S>                                                                      <C>                <C>
            Notes payable in monthly  principal  installments  of        $112,798           $155,998
            $3,600.   Interest  at  the  rate  of  9%  per  annum
            accrues and is payable upon maturity in 2001.

            Note  payable  in  monthly   installments  of  $1,876          32,754             49,757
            inclusive  of interest at 9.71% per annum.  This note
            is  collateralized  by certain  equipment  originally
            costing approximately $90,000.

            Capital   lease   obligation   payable   in   monthly          20,109                 --
            installments  of $432  inclusive  of  interest  at
            9.87%.   This  note  is   collateralized  by  certain
            equipment originally costing approximately $23,000.

            Other                                                          10,789                 --
                                                                         --------           --------
                                                                          176,450            205,755
            Less Current Portion                                           65,192             61,664
                                                                         --------           --------
                                                                         $111,258           $144,091
                                                                         ========           ========
</TABLE>
                  Long-term debt matures as follows:

                                 1998             $58,917
                                 1999              39,332
                                 2000               4,069
                                 2001               4,489
                                 2002               4,451
                                                  -------
                                                  111,258
                                                  =======
Note 11    STOCKHOLDERS' EQUITY

           Common and preferred stock

                       (1) During   1996,   DHB  amended  its   certificate   of
                           incorporation  increasing  the  number of  authorized
                           shares  of its  $.001 par  value  Common  Stock  from
                           25,000,000  to  100,000,000.   In  addition,  DHB  is
                           authorized to issue  1,500,000  shares of Class A 10%
                           convertible Preferred Stock.

                       (2) In July,  1996,  DHB declared a 50% stock dividend on
                           the outstanding Common Stock.
<PAGE>
Note 11     STOCKHOLDERS' EQUITY (continued)

            Stock option plan

                  In October,  1995, the Company adopted a plan (the "1995 Stock
            Option Plan" or the "Plan") pursuant to which the Board of Directors
            is authorized to award options to purchase up to 3,500,000 shares of
            Common Stock 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. No options
            have been granted under this plan.

            Stock warrants

                  During  1997,  the Board of  Directors  granted  50,000  stock
            warrants  exercisable at $2.00 per share to a key employee  expiring
            in June 2000.  Pursuant to employment  agreements (See Note 14), the
            Company has 1,549,500  stock  warrants  outstanding  exercisable  at
            $1.33  per  share  and  expiring  in  2001.  In  December  1994,  in
            consideration  for  monies  loaned  to the  Company,  the  Board  of
            Directors  granted a relative  of the  majority  stockholder,  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  150,000   warrants   still
            outstanding exercisable at $1.33 and expiring in June 1998.

Note 12    RELATED PARTY TRANSACTIONS

                  A summary of related  party  transactions  for the years ended
            December 31, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                               1997             1996
                                                             --------          --------
<S>                                                          <C>               <C>
              Rental expense paid or accrued to the
              relatives of the majority stockholder          $546,000          $480,000

              Rental expense paid to the President
              of a subsidiary of DHB                           48,000            48,000

              Interest paid or accrued on a loan from
              DHB's majority stockholder.                     177,340           170,142
</TABLE>

              See Note 14 for details of the lease with a related party


Note 13    RISKS AND UNCERTAINTIES

                  The  Company  maintains  cash  balances  at various  financial
            institutions.  Accounts  at  each  institution  are  insured  by the
            Federal Deposit Insurance Corporation up to $100,000.  The Company's
            accounts at these  institutions may, at times,  exceed the Federally
            insured  limits.  The Company has not experienced any losses in such
            accounts.
<PAGE>
Note 13     RISKS AND UNCERTAINTIES (continued)

                  Approximately  27% and 23% for the years  ended  December  31,
            1997 and 1996, respectively,  of DHB's sales were made to the United
            States Government or its agencies.

                  Certain  factors  relating  to the  industries  in  which  DHB
            operates and the Company's business should be carefully  considered.
            All of the products sold by DHB are used in  situations  which could
            result in serious personal injuries or death,  whether on account of
            the failure of such products,  or otherwise.  Although DHB maintains
            substantial amounts of insurance coverage to cover such risks, there
            is no assurance  that these amounts would be sufficient to cover the
            payment of any potential claims. In addition,  there is no assurance
            that this or any other insurance  coverage will remain available or,
            if available,  that DHB would be able to obtain such  insurance at a
            reasonable  cost.  The inability to obtain such  insurance  coverage
            would  prohibit  DHB from  bidding  for  certain  orders  for bullet
            resistant products from certain governmental customers.

                  Substantially   all  of  the   raw   materials   used  in  the
            manufacturing of ballistic-resistant  garments are made from fabrics
            which are  patented by major  corporations  and which are  purchased
            from three independent weaving companies.  Although,  in the opinion
            of  management  of DHB,  DHB enjoys a good  relationship  with these
            vendors,  should any of the  manufacturers  cease to  produce  these
            products for any reason, DHB would be required to use other fabrics.
            In such an event,  an  alternative  fabric would have to be selected
            and ballistic test would have to be performed.  Until this was done,
            DHB's  sale  of  ballistic  resistant  products  would  be  severely
            curtailed  and  DHB's   financial   condition  would  be  materially
            adversely affected.

Note 14     COMMITMENTS AND CONTINGENCIES

            Leases

                  DHB  leases a  warehouse  and  manufacturing  facility  from a
            partnership indirectly owned by the majority stockholder of DHB. The
            lease provides for annual rentals of $480,000 for 1996 and 4% annual
            increases through expiration in 1999. In addition, DHB must pay real
            estate taxes and certain operating expenses of this property.

                  DHB leases a warehouse  and  manufacturing  facility  from the
            president of one of its subsidiaries.  The lease provides for annual
            rentals of $43,200,  plus real estate  taxes.  The space is occupied
            pursuant to a five-year  lease which  expired in October 1997 and is
            currently leased on a month to month basis.

                  In April  1997,  the  Company  entered a one year  lease for a
            60,000  square  foot  warehouse  adjacent  to the  existing  Florida
            facility with an annual  rental of  approximately  $210,000,  and an
            option to extend the lease for four years.

                  In  association  with  the  acquisition  of  Zunblindage,  the
            Company  assumed  a lease for  their  warehouse  and store in Liege,
            Belgium.  This space is occupied  pursuant to a nine year lease with
            annual rentals of approximately, $42,000.
<PAGE>
Note 14     COMMITMENTS AND CONTINGENCIES (continued)

                  Rent and real estate taxes expense  charged to operations  for
            the years ended December 31, 1997 and 1996 aggregated  approximately
            $962,000 and $616,000, respectively.

            Employment agreements

                  The Company is committed  under an employment  agreement  with
            its majority  stockholder  which expires in April, 2001 and provides
            for an annual  salary of  $250,000  through  April,  1997 and annual
            increases of $25,000 thereafter.  In addition, the contract provides
            for  the  annual  grant  of  750,000   warrants  to  the   principal
            stockholder,  which are  exercisable  at $2.33 per share and  expire
            five years from date of grant.

                  Concurrent  with the purchase of PACA,  the  President of PACA
            was given a five year  employment  agreement  which expired in 1997.
            This  agreement  calls for annual  salaries of $115,000  with annual
            increases of $10,000 plus certain fringe  benefits.  During the year
            ended December 31, 1995, the vice president of NDL was given a three
            year  employment  contract.  This agreement calls for an annual base
            salary of $100,000 and 16,500 stock warrants per year exercisable at
            $1.33 and expiring in February 2001, as extended.

                  In 1997, the Company entered into an employment agreement with
            a  salesman  for DHB Armor  Group,  expiring  in 2000 with an annual
            salary of $100,000 plus certain fringe benefits.

            Litigation

                  DHB is a  defendant  in a lawsuit  filed in the United  States
            District  Court for the Southern  District of New York.  The lawsuit
            seeks,  among other  things,  compensatory  damages of not less than
            $2,500,000,  punitive  damages of not less than  $500,000  breach of
            contract  and an order  enabling the  plaintiff  to execute  certain
            stock purchase warrants.

                  DHB has filed an  Answer  and  Counter-Claim  and  intends  to
            vigorously defend the claim and to pursue its Counter-Claims.

                  Due to the preliminary  status of this litigation,  counsel to
            DHB is unable to  predict  the  outcome of this  litigation.  In the
            opinion  of  management  of  DHB,  the  ultimate   outcome  of  this
            litigation will not have a material  adverse effect on the financial
            condition of DHB.

                  The Company is subject to other legal  proceedings  and claims
            which have risen in the ordinary course of its business and have not
            been finally  adjudicated.  These actions when ultimately  concluded
            and  determined  will not,  in the  opinion  of  management,  have a
            material  adverse  effect  on  the  results  of  operations  or  the
            financial condition of the Company.
<PAGE>
Note 15   INCOME TAXES

                  Components of income taxes are as follows:
<TABLE>
<CAPTION>
                                       1997             1996
                                   -----------      -----------
<S>                                <C>              <C>
 Current:
    Federal ..................     $   455,000      $         0
    State ....................          22,509            8,809
    Benefit of net operating
       loss  carryforward             (455,000)          --
                                   -----------      -----------
          Total current ......          22,509            8,809

 Deferred:
    Federal ..................         690,000       (1,686,000)
    State ....................         430,700         (562,000)
    Less: valuation allowance       (1,494,700)       1,406,000
                                   -----------      -----------
            Total Deferred ...         374,000         (843,000)
                                   -----------      -----------

 Total income taxes (benefits)     $   396,509      $  (834,191)
                                   ===========      ===========
</TABLE>


                  The  composition  of the federal and state  deferred  taxes at
            December 31, 1997 was arrived at as follows:
<TABLE>
<CAPTION>

<S>                                                               <C>
              Operating Loss Carryforward                         $ 1,762,600
              Allowance for Doubtful Accounts                         141,200
              Valuation Allowance - Non marketable securities          51,200
              Net write down of investment in subsidiaries            175,000
              Unrealized gain on Marketable Securities               (180,000)
                                                                   ----------
                      Subtotal                                      1,950,000
              Less: Valuation Allowance                             1,494,700
                                                                   ----------
                      Net Deferred Taxes                           $  455,300
                                                                   ==========
</TABLE>
<PAGE>


Note 16     SUBSEQUENT EVENTS

                  On January  16,  1998,  DHB signed an  exclusive  (except  for
            certain  rights  in the  field of  products  for  horses)  licensing
            agreement,  to  make,  use and sell  magnetic  products  covered  by
            certain US and Canadian  patents,  along with the technical know how
            related to the magenetic products in the possession of Magnesystems.

                  On February 9, 1998, the Company purchased the common stock of
            two privately  held Delaware  corporations,  Lanxide Armor  Products
            Inc.  (LAP)  and  Lanxide  Electronic  Components  Inc.  (LEC).  The
            purchase  price was  approximately  $4.8  million  and was funded by
            increasing  loans  from  the  majority  shareholder  of $7  million,
            including  amounts  for  working  capital.  LAP  specializes  in the
            design,   development  and  manufacture  of   ceramic/metal   matrix
            composites  for  protective  armor  applications.  LEC is a  leading
            supplier of Silicon Carbide / Aluminum composites.  This transaction
            was accounted for as a purchase.

                  Since  December  31,  1997,  the Company has  repurchased  and
            retired an additional  536,495 shares of the Company's  common stock
            in  open  market   transactions  for  approximately   $2,111,000  as
            authorized by the Board of Directors.  This was funded in part by an
            additional shareholder loan of $2.2 million.
<PAGE>
                     DHB CAPITAL GROUP INC. AND SUBSIDIARIES
                     SCHEDULE II TO THE FINANCIAL STATEMENTS
                        VALUATION AND QUALIFYING ACCOUNTS
                                DECEMBER 31, 1997




Allowances deducted from related balance sheet accounts:
<TABLE>
<CAPTION>



                                                   Additions         Subtractions
                                  Balance at       charged to        charged to         Balance
                                the beginning       costs and         costs and       at end of
                                  of the year       expenses          expenses           year
                                -------------     ------------       ------------    ----------
<S>                              <C>              <C>                <C>             <C>
Accounts Receivable ......       $  303,230       $   50,000             --          $  353,230

Inventory ................          700,000             --           (700,000)                0

Investment in Non-
marketable securities ....        1,000,000                0         (372,000)          628,000

Net Write down of ........       $  529,578             --               --          $  529,578
Investment in subsidiaries

</TABLE>
<PAGE>
<PAGE>
Item 13 (a)       Exhibits.


Exhibit           Description

2.1      Securities  Purchase  Agreement  dated  November  6, 1992,  between the
         Company,  E.S.C.   Industries,   Inc.,  The  Thunder  Group,  Inc.  and
         Protective Apparel Corporation of America

3.1      Certificate  of  Incorporation  of DHB Capital  Group Inc.,  a New York
         corporation (hereinafter, "DHB-New York")

3.2      Certificate of Amendment to the Certificate of Incorporation of DHB-New
         York filed November 5, 1992

3.3      Restated and amended Certificate of Incorporation of DHB New York dated
         February 10, 1993

3.4      By-laws of DHB-New York

3.5      Certificate  of  Incorporation  of DHB Capital  Group Inc.,  a Delaware
         corporation  (hereinafter,  "DHB  Delaware"),  filed with the  Delaware
         Secretary of State on or about September 1, 1994

3.5(a)   Certificate of Amendment to Certificate of Incorporation of DHB Capital
         Group Inc. filed December 31, 1996 Note 10

3.6      By-laws of DHB Delaware

3.7      Plan of merger of DHB-New York into DHB-Delaware

3.8      Certificate  of  Ownership  and  Merger,   Merging  DHB-New  York  into
         DHB-Delaware, pursuant to Section 253 of the General Corporation Law of
         the State of Delaware, filed in the Office of the Secretary of State of
         Delaware on or about April 17, 1995

4.1      Specimen Common Stock Certificate

4.2      Specimen Class A Preferred Stock Certificate

4.3      Form of  Warrant  Agreement  with  respect  to the  Redeemable  Warrant
         together with list of purchasers

7.1      Opinion regarding Liquidation Preference

10.1     Employment  Agreement dated November 6, 1992 between Protective Apparel
         Corporation of America and Leonard Rosen

10.2     Lease dated November 6, 1992, between Protective Apparel Corporation of
         America and Leonard Rosen in Norris, Tennessee

10.3     Domestic and  International  Non-Competition  Agreement dated March 12,
         1990 between the Company and American Body Armor & Equipment, Inc. (the
         "American Body Armor Non-competition Agreement")

10.4     GSA Contracts dated January 21, 1991 and March 19, 1992
<PAGE>
10.5     Indemnification   Agreements   between   certain   officers  of  E.S.C.
         Industries,  Inc.,  Protective  Apparel  Corporation of America and the
         Company   regarding   Certain   Liabilities  in  Connection   with  the
         Acquisition of Protective Apparel Corporation of America

10.6     Warrant to  purchase  2,000,000  shares of common  stock of The Thunder
         Group, Inc.

10.7     Registration  Rights  Agreement  between  the  Company  and the Thunder
         Group, Inc.

10.8     Loan Agreement  dated November 6, 1992,  between the Company and E.S.C.
         Industries, Inc.

10.9     Security Agreement dated November 6, 1992 of TL Fasteners Corp.

10.10    Promissory  Note between the Company and David Brooks dated November 6,
         1992

10.11    Loan  and  Security   between  the  Company  and   Protective   Apparel
         Corporation of American dated December 7, 1992

10.12    Chase Manhattan Bank, N.A. ("Chase") Loan dated November 24, 1992

10.13    Form  of  Registration   Rights  Agreement   between  the  Company  and
         participants in the Company's private placement

10.14    Form of Unit Purchase Option

10.15    Agreement between the Company, Jeffrey Brooks Securities, Inc., Jeffrey
         Brooks, Paul Kazak and Jason Chang dated September 13, 1993

10.16    Agreement between the Company, Jeffrey Brooks Securities, Inc., Jeffrey
         Brooks, Paul Kazak and Jason Chang dated September 17, 1993

10.17    Promissory note,  general security agreement and related loan documents
         dated September 15, 1993 between the Company, PACA and Chase

10.18    Subscription  agreement  dated  March 17,  1994  (the "ID  Subscription
         Agreement"),  between the Company and Intelligent Data  Corporation,  a
         Nevada  corporation  ("ID"),  regarding  the purchase by the Company of
         shares of the common stock and preferred stock of ED 5

10.19    Amendment dated March 30, 1994, of the ID Subscription Agreement

10.20    Shareholders'  agreement dated March 17, 1994,  among the Company,  ID,
         and shareholders of ID 10.21 Employment agreement dated March 17, 1994,
         between ID and Sam Balabon, including written termination thereof

10.22    Bill of sale dated December 20, 1994, made by N.D.L. Products,  Inc., a
         Delaware corporation, and its subsidiaries, N.D.L. International, Inc.,
         Dr.  Bonesavers,  Inc., Grid, Inc., Hitman,  Inc., and Flex-Aid,  Inc.,
         each being a Florida  corporation,  to DHB Acquisition,  Inc., covering
         the NDL Assets

10.23    Order Determining  Successful Bidder, etc., dated December 20, 1994, In
         Re N.D.L.  Products,  Debtor,  of the United States  Bankruptcy  Court,
         Southern  District of  Florida,  Case No.  9421458-BKC-RBR,  Chapter 11
         (Lead  Case),  jointly  administered  with Case Nos.  94-21459  through
         94-21463
<PAGE>
10.24    Term loan to the  Registrant in the amount of $1,150,000  due September
         19, 1995, from The Chase  Manhattan  Bank,  N.A., of New York, New York
         (the "Secured Lender"), bearing interest at 7.2% per year

10.25    Collateral  Agreement [Third Party] dated October 18, 1994, made by Mr.
         David H. Brooks in favor of the Secured Lender

10.26    Agreement  dated August 4, 1995,  terminating  the American  Body Armor
         Non-Competition Agreement

10.27    Bill of sale dated August 3, 1995, made by the Trustee in Bankruptcy of
         Point Blank Body Armor, L.P.

10.28    Order  Authorizing  Sale at Auction  dated July 25,  1995,  In Re Point
         Blank Body Armor,  L.P., Debtor, of the United States Bankruptcy Court,
         Eastern District of New York, Case Nos. 895-83336-2D and 895-83335-2D

10.29    1995 Stock Option Plan

10.30    Stock Purchase Agreement with respect to the outstanding  capital stock
         of Orthopedic Products, Inc., dated as of March 22, 1996 11

10.31    Definitive  Merger  Agreement  with The  Lehigh  Group  Inc and Plan of
         Reorganization

10.32    Employment Agreement with Michael Bell dated March 7, 1997.

10.33    Assignment  Agreement  dated as of  February 6, 1998 by and between DHB
         Capital Group, Inc. and E.I. Du Point Nemours and Company.

10.34    Transfer  Agreement,  dated as of February 6, 1998 by and among Lanxide
         Corporation,  DHB Capital Group,  Inc.,  Lanxide Armor  Products,  Inc.
         Lanxide Electronic  Components,  Inc. and Lanxide  Technology  company,
         L.P.

10.35    Notification Letter from Lanxide Corporation of E.I. Du Pont de Nemours
         and Company dated February 6, 1998.

10.36    Negotiable  Promissory  Note form DHB Capital  Group,  Inc. to David H.
         Brooks dated February 9, 1998. Notes to Exhibit Table:

1.       Incorporated  by reference to the Company's  Registration  Statement on
         Form SB-2, No. 33-59764, which became effective on May 14, 1993.

2.       Incorporated  by reference to the Company's  Definitive  Proxy Material
         filed with the  Commission  in connection  with the Special  Meeting in
         Lieu of Annual Meeting of  Shareholders of the Company held on February
         15, 1995.

3.       Incorporated  by reference to the Company's  Registration  Statement on
         Form SB-2, No. 33-70678, which became effective on December 29, 1993.

4.       Incorporated  by reference to the  Company's  Quarterly  Report on Form
         10-QSB for the quarter ended June 30, 1993.

5.       Incorporated  by reference  to  Post-Effective  Amendment  No. 1 of the
         Company's two Registration  Statements on Form SB-2, Nos.  33-59764 and
         33-70678, which became effective on October 17, 1994.

6.       Incorporated  by  reference  to the  Current  Report  on Form 8-K dated
         December 20, 1994.
<PAGE>
7.       Incorporated  by reference to Amendment  No. 1 dated March 2, 1995,  of
         the Current Report on Form 8-K dated December 20, 1994.

8.       Incorporated  by  reference  to the  Current  Report  on Form 8-K dated
         August 3, 1995.

9.       Incorporated by reference to  Registration  Statement on Form S-8 filed
         on or about October 1, 1995.

10.      Incorporated by reference to Post-Effective  Amendment No. 33-59764, on
         Form SB-2, File # filed on Jan 31, 1997.

11.      Incorporated by reference to the Current Report on Form 8-K dated March
         22, 1996, including the amendments thereof.

12.      Incorporation by reference to Registration Statement on Form SB-2, File
         No. 333-31383 Filed on July 24, 1997.

13.      Incorporated  by reference to Current Report on Form 8-K filed February
         25, 1998.
<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 on its
behalf by the  undersigned,  thereunto  duly  authorized on this the 23rd day of
March, 1998.

                                                     DHB Capital Group Inc.

                                                     /S/ David Brooks
                                                     ----------------
                                                     David Brooks
                                                     Chairman of the Board and
                                                     Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on March 23, 1998.


Signature                               Capacity                      Date
---------                               --------                      ----

/S/David H. Brooks                Chairman of the Board           March 23, 1998
-------------------               and Director
David H. Brooks

/S/Mary Kreidell                  Treasurer/Director              March 23, 1998
-----------------                 Principal Financial Officer
Mary Kreidell                     Principal Accounting Officer

/S/Gary Nadelman                  Director                        March 23, 1998
----------------
Gary Nadelman