<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A
 (Mark One)
    [X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: December 31, 1998

    [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                         Commission File Number 0-18863

                              ARMOR HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                     59-3392443
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

      13386 International Parkway
         Jacksonville, Florida                            32218
(Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (904) 741-5400

Securities registered pursuant to             Name of each exchange on which
Section 12(b) of the Act:                     registered:
Common Stock, par value of $.01 per share     New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1999 is $153,017,851.

The number of shares outstanding of the registrant's Common Stock as of March
23, 1999 is 16,558,848.

                      DOCUMENTS INCORPORATED BY REFERENCE:

         DOCUMENT                                         FORM 10-K PART
         --------                                         --------------

           None

<PAGE>



This Amendment No. 1 to Form 10-K for the fiscal year ended December 31, 1998
is being filed by Armor Holdings, Inc. (the "Company") to correct certain
portions of the Consolidated Statements of Cash Flow and related footnotes
included in the Form 10-K filed by the Company for the fiscal year ended
December 31, 1998.




<PAGE>

                         INDEX TO FINANCIAL STATEMENTS




<TABLE>
<S>                                                             <C>
ARMOR HOLDINGS, INC.
 Report of Independent Accountants ............................         F-2
 Statutory Auditor's Report....................................         F-3
 Independent Auditors' Report .................................         F-4
 Independent Auditors' Report..................................         F-5
 Consolidated Balance Sheets ..................................   F-6 - F-7
 Consolidated Income Statements ...............................         F-8
 Consolidated Statement of Stockholders' Equity ...............         F-9
 Consolidated Statements of Cash Flow .........................        F-10
 Notes to Consolidated Financial Statements ................... F-11 - F-31
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and the
xBoard of Directors of
Armor Holdings, Inc.


     In our opinion, based upon our audit and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Armor Holdings, Inc. and its subsidiaries
(the "Company") at December 31, 1998, and the results of their operations and
their cash flows for the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 did not audit the financial statements of
Defense Systems Colombia S.A., a wholly owned subsidiary, which statements
reflect total assets of $4,974,000 at December 31, 1998 and total revenues of
$13,266,000 for the year ended December 31, 1998. Those statements were audited
by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for
Defense Systems Colombia S.A. is based solely on the report of the other
auditors. We conducted our audit of the consolidated financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for the opinion expressed above. The
consolidated financial statements of the Company for the years ended December
28, 1996 and December 27, 1997, were audited by other independent accountants,
whose report dated March 19, 1998, expressed an unqualified opinion on those
consolidated financial statements.



PricewaterhouseCoopers LLP
March 5, 1999

                                      F-2
<PAGE>

                             DELOITTE & TOUCHE LLP
                                COLOMBIA OPINION

STATUTORY AUDITOR'S REPORT

Messrs.
Shareholders of:
DEFENCE SYSTEMS COLOMBIA S.A.

I have audited the balance sheet of Defence Systems Colombia S.A. as of December
31, 1998 and the related statements of income, changes in shareholders' equity,
changes in financial position and cash flows for the year then ended. These
financial statements are the responsibility of the Management of the Company,
since they reflect the result of its efforts. Among my duties of surveillance of
the Company there is the one of auditing them and expressing an opinion thereon.
The financial statements for the year ended as of December 31, 1997 were
examined by another Statutory Auditor, who in his report of March 5, 1998,
expressed an unqualified opinion on same, such statements are included herewith
for comparative purposes only.

I obtained the information required to comply with my duties and carry out my
audit in accordance with generally accepted auditing standards. Such standards
require that I plan and perform the audit to obtain reasonable assurance on
whether the financial statements reasonably reflect, in all material respects,
the financial position and results of operations. An audit includes, among other
procedures, examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used, of the significant accounting estimates made by the
management of the Company and the presentation of the financial statements as a
whole. I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above, that have been taken
from the books and attached to this report, present fairly, in all material
respects, the financial position of Defence Systems Colombia S.A. as of December
31, 1998, the results of its operations, the changes in shareholders' equity,
the changes in financial position and the cash flows for the year then ended, in
conformity with accounting principles generally accepted in Colombia.

I also inform that during said year the Company has carried out its accounting
books in conformity with the legal regulations and accounting techniques, the
management report on operations is in agreement with the attached basic
financial statements; the transactions recorded in books and the acts of the
administration conform to the statutes and the decisions of the General Assembly
of Shareholders and of the Board of Directors; the correspondence, accounting
vouchers, minutes books and shareholders register are properly kept and
maintained; the Company has followed adequate measures of internal control, for
the preservation and custody of its assets and assets of third parties held by
the Company.

/s/ LUIS JAVIER ORTIZ
LUIS JAVIER ORTIZ
Statutory Auditor
T.P. No. 40014-T

February 8, 1999

                                      F-3


<PAGE>

                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Armor Holdings, Inc.
Jacksonville, Florida


     We have audited the consolidated balance sheet of Armor Holdings, Inc.
(the "Company") as of December 27, 1997 and the related consolidated statements
of income, stockholders' equity, and cash flows for the two years ended
December 27, 1997 and December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. These consolidated
financial statements give retroactive effect to the merger with DSL Group
Limited ("DSL") on April 16, 1997, which has been accounted for as a pooling of
interests as described in Note 1. We did not audit the financial statements of
Defense Systems Colombia ("DSC") (a consolidated subsidiary), which statements
reflect total assets of $3,771,000 at December 27, 1997 and total revenues of
$10,766,000 for the year then ended. Also, we did not audit the financial
statements of DSL included in the December 28, 1996 consolidated financial
statements of the Company, which statements reflect total assets of $20,798,000
as of December 28, 1996 and total revenues of $12,956,000 for the year then
ended. Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for DSC in the December 27, 1997 financial statements and DSL in the December
28, 1996 financial statements, is based solely upon the reports of such other
auditors.


     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 financial
statement presentation. We believe that our audits and the reports of the other
auditors provide a reasonable basis for our opinion.


     In our opinion, based upon our audits and the reports of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Armor Holdings,
Inc. as of December 27, 1997 and the results of their operations and their cash
flows for the two years ended December 27, 1997 and December 28, 1996 in
conformity with generally accepted accounting principles.




Deloitte & Touche, LLP
New York, New York
March 19, 1998

                                      F-4
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and
Shareholders of
DSL Group Limited


     We have audited the consolidated profit and loss account, consolidated
statement of total recognised gains and losses, reconciliation of movements in
shareholders' funds and consolidated cash flow statement of DSL Group Limited
and subsidiaries for the period from 3 June 1996 (date of incorporation) to 31
December 1996 (none of which aforementioned financial statements are separately
presented herein). These consolidated financial statements are the
responsibility of the management of DSL Group Limited. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.


     We conducted our audit in accordance with auditing standards generally
accepted in the United Kingdom and in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.


     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of the operations of DSL
Group Limited and subsidiaries and their cash flows for the period from 3 June
1996 to 31 December 1996, in conformity with generally accepted accounting
principles in the United Kingdom.


     Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States would have affected profit attributable to
shareholders for the period from 3 June 1996 to 31 December 1996, to the extent
summarised in Note 24 to the consolidated financial statements.





KPMG
Chartered Accountants
Registered Auditors
London, England
15 April 1997

                                      F-5
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 27, 1997 AND DECEMBER 31, 1998
                                (IN THOUSANDS)




<TABLE>
<CAPTION>
                                                                        DECEMBER 27,   DECEMBER 31,
                                                                            1997           1998
                                                                       -------------- -------------
<S>                                                                    <C>            <C>
ASSETS
Current assets:
 Cash and cash equivalents ...........................................     $19,300       $ 6,789
 Accounts receivable (net of allowance for doubtful accounts of
   $845 and $1,380) ..................................................      15,752        21,363
 Inventories .........................................................       5,731         9,103
 Prepaid expenses and other current assets ...........................       1,816         5,910
                                                                           -------       -------
    Total current assets .............................................      42,599        43,165
Property, plant and equipment, net ...................................      10,041        12,173
Goodwill (net of accumulated amortization of $659 and $1,577) ........      13,701        25,820
Reorganization value in excess of amounts
 allocable to indentifiable assets (net of
 accumulated amortization of $757 and $2,513).........................       3,318         1,562
Patents, licenses and trademarks (net of accumulated amortization of
 $403 and $728).......................................................       3,978         7,180
Investment in unconsolidated subsidiaries ............................         329           483
Other assets .........................................................       1,521         3,970
                                                                           -------       -------
Total assets .........................................................     $75,487       $94,353
                                                                           =======       =======
</TABLE>

                See notes to consolidated financial statements.

                                      F-6
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
         AS OF DECEMBER 27, 1997 AND DECEMBER 31, 1998 -- (CONTINUED)
                     (IN THOUSANDS, EXCEPT FOR SHARE DATA)




<TABLE>
<CAPTION>
                                                                           DECEMBER 27,   DECEMBER 31,
                                                                               1997           1998
                                                                          -------------- -------------
<S>                                                                       <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Current portion of long-term debt and capitalized lease obligations ....    $    190      $    433
 Short-term debt ........................................................          --         5,041
 Accounts payable, accrued expenses and other current liabilities .......       8,743        11,294
 Income taxes payable ...................................................       1,732         2,031
                                                                             --------      --------
    Total current liabilities ...........................................      10,665        18,799
Minority interest .......................................................         213           108
Long-term debt and capitalized lease obligations, less current portion ..          11           344
                                                                             --------      --------
    Total liabilities ...................................................      10,889        19,251
Commitments and contingencies (Notes 6, 10 and 11) ......................
Preference shares .......................................................          --            --
Stockholders' equity:
 Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares
   issued and outstanding ...............................................          --            --
 Common stock, $.01 par value; 50,000,000 shares authorized; 16,023,740
   and 16,497,808 issued and 15,837,717 and 16,227,080 outstanding at
   December 27, 1997 and December 31, 1998 respectively .................         160           165
   Additional paid-in capital ...........................................      61,496        65,408
   Cumulative comprehensive income excluded from net income,
    net of tax ..........................................................        (353)         (574)
   Retained earnings ....................................................       4,823        13,419
   Treasury stock .......................................................      (1,528)       (3,316)
                                                                             --------      --------
    Total stockholders' equity ..........................................      64,598        75,102
                                                                             --------      --------
Total liabilities and stockholders' equity ..............................    $ 75,487      $ 94,353
                                                                             ========      ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-7
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

                        CONSOLIDATED INCOME STATEMENTS
    YEARS ENDED DECEMBER 28, 1996, DECEMBER 27, 1997 AND DECEMBER 31, 1998
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)




<TABLE>
<CAPTION>
                                                                               YEAR ENDED
                                                               -------------------------------------------
                                                                DECEMBER 28,   DECEMBER 27,   DECEMBER 31,
                                                                    1996           1997           1998
                                                               -------------- -------------- -------------
<S>                                                            <C>            <C>            <C>
Revenues:
 Services ....................................................    $12,956        $48,445        $51,563
 Products ....................................................     18,011         29,869         45,644
                                                                  -------        -------        -------
Total revenues ...............................................     30,967         78,314         97,207
                                                                  -------        -------        -------
Costs and expenses:
 Cost of sales ...............................................     21,172         57,438         66,451
 Operating expenses . ........................................      6,905         12,473         17,102
 Depreciation and amortization ...............................        554          1,127          1,347
 Merger, integration and other non-recurring charges .........         --          2,542             --
 Equity in earnings of investees .............................       (320)          (746)          (713)
 Interest (income) expense, net ..............................        515            195           (625)
                                                                  -------        -------        -------
Total costs and expenses .....................................     28,826         73,029         83,562
 Operating income ............................................      2,141          5,285         13,645
 Other income ................................................          2            392             28
                                                                  -------        -------        -------
Income before provision for income taxes .....................      2,143          5,677         13,673
 Provision for income taxes ..................................      1,215          2,376          5,077
 Dividends on preference shares ..............................        239            143             --
                                                                  -------        -------        -------
 Net income applicable to common shareholders . ..............    $   689        $ 3,158        $ 8,596
                                                                  =======        =======        =======
 Basic earnings per share ....................................    $  0.09        $  0.23        $  0.53
                                                                  =======        =======        =======
 Diluted earnings per share ..................................    $  0.08        $  0.21        $  0.50
                                                                  =======        =======        =======
</TABLE>

                See notes to consolidated financial statements.

                                      F-8
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
    YEARS ENDED DECEMBER 28, 1996, DECEMBER 27, 1997 AND DECEMBER 31, 1998
                                (IN THOUSANDS)


<TABLE>
<CAPTION>


                                       CONVERTIBLE
                                     PREFERRED STOCK        COMMON STOCK
                                 ----------------------- ------------------
                                               STATED               PAR
                                    SHARES      VALUE     SHARES    VALUE
                                 ----------- ----------- -------- ---------
<S>                              <C>         <C>         <C>      <C>
Balance, December 31,
 1995 ..........................     1,214    $   1,214    5,091   $   152
Change in par value of
 common stock ..................                                      (102)
Dividends on preferred
 stock .........................
Conversion of preferred
 stock .........................    (1,214)      (1,214)   1,735        17
Exercise of stock options ......                              26         1
Exercise of stock grants .......                              72         1
Issuance of stock in lieu of
 Directors fees ................                               3
Conversion of convertible
 notes, net of related
 debt issuance costs ...........                           2,300        23
Issuance of stock for
 acquisitions ..................                           2,214        22
Issuance of common stock                                     250         3
Comprehensive income
 excluded from net
 income, net of tax ............
Dividends on preference
 shares ........................
Net income .....................
                                 ----------- ----------- -------- ---------
Balance, December 28,
 1996 ..........................        --    $      --   11,691   $   117
 Exercise of stock
  options ......................                             217         2
 Issuance of stock for
  acquisitions .................                             115         1
Recovery of acquisition
 escrow shares .................
Issuance of common stock                                   4,000        40
Comprehensive income
 excluded from net
 income, net of tax ............
Dividends on preference
 shares ........................
Net income .....................
                                 ----------- ----------- -------- ---------
Balance, December 27,
 1997 ..........................        --    $      --   16,023   $   160
 Exercise of stock
  options ......................                             149         2
 Issuance of stock for
  acquisitions .................                             326         3
 Recovery of acquisition
  escrow shares due to
  settlement of lawsuit ........
 Comprehensive income
  excluded from net
  income, net of tax ...........
 Net income ....................
                                 ----------- ----------- -------- ---------
Balance, December 31,
 1998 ..........................        --    $      --   16,498   $   165
                                    ======    =========   ======   =======



<CAPTION>
                                                           CUMULATIVE
                                                          COMPREHENSIVE
                                                             INCOME
                                  ADDITIONAL                EXCLUDED
                                    PAID-IN    RETAINED     FROM NET      TREASURY
                                    CAPITAL    EARNINGS      INCOME        STOCK       TOTAL
                                 ------------ ---------- -------------- ----------- -----------
<S>                              <C>          <C>        <C>            <C>         <C>
Balance, December 31,
 1995 ..........................    $ 2,594    $   987   $      --     $--           $  4,947

Change in par value of
 common stock ..................        102                                                --
Dividends on preferred
 stock .........................                   (11)                                   (11)
Conversion of preferred
 stock .........................      1,197                                                --
Exercise of stock options ......         62                                                63
Exercise of stock grants .......         54                                                55
Issuance of stock in lieu of
 Directors fees ................         15                                                15
Conversion of convertible
 notes, net of related
 debt issuance costs ...........     10,610                                            10,633
Issuance of stock for
 acquisitions ..................      7,121                                             7,143
Issuance of common stock              1,567                                             1,570
Comprehensive income
 excluded from net
 income, net of tax ............                               (229)                     (229)
Dividends on preference
 shares ........................                  (239)                                  (239)
Net income .....................                   928                                    928
                                 ------------ ---------- -------------- ----------- -----------
Balance, December 28,
 1996 ..........................    $23,322    $ 1,665       $ (229)     $     --    $ 24,875
 Exercise of stock
  options ......................        539                                               541
 Issuance of stock for
  acquisitions .................      1,200                                             1,201
Recovery of acquisition
 escrow shares .................                                           (1,528)     (1,528)
Issuance of common stock             36,435                                            36,475
Comprehensive income
 excluded from net
 income, net of tax ............                               (124)                     (124)
Dividends on preference
 shares ........................                  (143)                                  (143)
Net income .....................                 3,301                                  3,301
                                 ------------ ---------- -------------- ----------- -----------
Balance, December 27,
 1997 ..........................    $61,496    $ 4,823       $ (353)     $ (1,528)   $ 64,598
 Exercise of stock
  options ......................        170                                               172
 Issuance of stock for
  acquisitions .................      3,742                                             3,745
 Recovery of acquisition
  escrow shares due to
  settlement of lawsuit ........                                           (1,788)     (1,788)
 Comprehensive income
  excluded from net
  income, net of tax ...........                               (221)                     (221)
 Net income ....................                 8,596                                  8,596
                                 ------------ ---------- -------------- ----------- -----------
Balance, December 31,
 1998 ..........................    $65,408    $13,419       $ (574)     $ (3,316)   $ 75,102
                                    =======    =======       =========  =========    ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-9
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOW
    YEARS ENDED DECEMBER 28, 1996, DECEMBER 27, 1997 AND DECEMBER 31, 1998
                                (IN THOUSANDS)




<TABLE>
<CAPTION>
                                                                                         YEAR ENDED
                                                                        ---------------------------------------------
                                                                         DECEMBER 28,    DECEMBER 27,    DECEMBER 31,
                                                                             1996            1997            1998
                                                                        --------------  --------------  -------------
<S>                                                                     <C>             <C>             <C>
OPERATING ACTIVITIES:
 Net income ..........................................................    $     928        $  3,301       $   8,596
 Adjustments to reconcile net income to
   cash provided by (used in) operating
   activities, net of effects of acquisitions:
 Preference stock dividends ..........................................         (239)           (143)             --
 Depreciation and amortization . .....................................          818           1,976           2,654
 Loss on sale of equipment . .........................................           --             166              --
 Deferred income taxes ...............................................            2           1,203           1,842
 Directors' fees .....................................................           15              --              --
 Increase in accounts receivable .....................................       (2,115)         (3,468)         (2,848)
 Increase in inventories .............................................         (423)         (1,001)           (786)
 Decrease (increase) in prepaid expenses and other assets ............          870          (1,129)         (5,450)
 (Decrease) increase in accounts payable, accrued liabilities
   and other current liabilities .....................................        1,783          (3,715)           (686)
 Increase in income taxes payable ....................................           --           1,072             162
 Increase (decrease) in minority interests ...........................           --             182            (105)
                                                                          ---------        --------       ---------
 Net cash provided by (used in) operating activities .................        1,639          (1,556)          3,379
                                                                          ---------        --------       ---------
INVESTING ACTIVITIES:
 Purchase of property and equipment ..................................       (1,860)         (5,153)         (3,301)
 Purchase of licenses, patents and trademarks . ......................       (2,828)            (76)         (3,448)
 Purchase of businesses, net of assets acquired . ....................      (11,740)         (3,607)        (12,068)
 Dividends received from equity investees ............................           --             939             478
 Proceeds from the sale of equipment .................................                           20              --
 Other fees paid related to acquisitions .............................           --              --            (685)
 Advances to stockholders ............................................           --              --          (1,677)
                                                                          ---------        --------       ---------
 Net cash used in investing activities ...............................      (16,428)         (7,877)        (20,701)
                                                                          ---------        --------       ---------
FINANCING ACTIVITIES:
 Proceeds from issuance of common stock and preference shares ........        8,886          36,475              --
 Repurchase of preference shares . ...................................           --          (7,480)             --
 Preferred stock dividends ...........................................          (11)           (382)             --
 Proceeds from the exercise of stock options .........................           26             201             172
 Net repayments of long-term debt ....................................         (500)         (8,002)           (181)
 Net borrowings under lines of credit . ..............................       (1,997)             --           5,041
 Net repayments under capital
   expenditure facility ..............................................          (52)             --              --
 Net proceeds from issuance of other debt . ..........................        6,863              --              --
 Net proceeds from issuance of 5% convertible subordinated notes .....       10,633              --              --
                                                                          ---------        --------       ---------
 Net cash provided by financing activities ...........................       23,848          20,812           5,032
                                                                          ---------        --------       ---------
 Cumulative comprehensive income excluded from net
   income, net of tax ................................................         (184)           (124)           (221)
                                                                          ---------        --------       ---------
 Net increase (decrease) in cash and cash
   equivalents .......................................................        8,875          11,255         (12,511)
 Cash and cash equivalents, beginning of period ......................         (830)          8,045          19,300
                                                                          ---------        --------       ---------
 Cash and cash equivalents, end of period ............................    $   8,045        $ 19,300       $   6,789
                                                                          =========        ========       =========
</TABLE>

                See notes to consolidated financial statements.

                                      F-10
<PAGE>


                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     THE COMPANY AND NATURE OF BUSINESS -- Armor Holdings, Inc. (the "Company"
or "Armor") is a leading global provider of security risk management services
and products to multi-national corporations, governmental agencies and law
enforcement personnel through two operating divisions -- ArmorGroup Services and
Armor Holdings Products. ArmorGroup Services division provides
sophisticated security planning and risk management, electronic security
systems integration, consulting and training services, intellectual property
asset protection, business intelligence and investigative services. Armor
provides these services to multi-national corporations and governmental and
non-governmental agencies through 22 offices in 18 countries. Armor Holdings
Products division manufactures and sells a broad range of high quality branded
law enforcement equipment and has leading market positions in several of the
product categories in which Armor competes. Such products include ballistic
resistant vests and tactical armor, less-than-lethal munitions, anti-riot
products and narcotics identification kits. These products are sold primarily to
law enforcement agencies through a worldwide network of over 500 distributors
and sales agents including approximately 350 in the United States. Armor
believes significant opportunities exist to grow the Company and extend its
global infrastructure through geographic expansion and strategic acquisitions of
related businesses in the fragmented security risk management services and
products industries.

     ArmorGroup Services Division. ArmorGroup Services division provides a broad
range of sophisticated security risk management solutions to multi-national
corporations in diverse industries such as natural resources, financial services
and consumer products, and to governmental and non-governmental agencies such as
the U.S. Department of State, the United Nations and the World Bank. Clients
typically have personnel and other investments in unstable and often violent
areas of the world. Through ArmorGroup Services offices on five continents,
ArmorGroup Services provides its multi-national clients with a diversified
portfolio of security solutions to assist them to mitigate risks in their
operations around the world. ArmorGroup Services' highly trained, multi-lingual
and experienced security personnel work closely with clients to create and
implement solutions to complex security problems. These services include the
design and implementation of risk management plans and security systems,
provision of security specialists and training of security personnel. ArmorGroup
Services provides its multi-national clients with specialized investigative
services enhanced by its global network. These services include intellectual
property asset protection and related investigative services ranging from
protecting companies against counterfeiting, patent infringements, product
tampering and extortion to identifying unethical supplier activities. In
addition, ArmorGroup Services provides business intelligence, fraud
investigation and asset tracing and recovery services to financial services
companies, law firms and other entities worldwide.

       Armor Holdings Products Division. Armor Holdings Products division
manufactures and sells a broad range of high quality branded law enforcement
equipment, such as ballistic resistant vests and tactical armor, bomb disposal
equipment, less-than-lethal munitions, anti-riot products including tear gas
and distraction grenades, narcotics identification kits and custom-built
armored vehicles. These products are marketed under brand names which are
well-known and respected in the law enforcement community such as American Body
Armor, Defense Technology, First Defense, MACE, Pro-Tech and NIK. Armor
Holdings Products division sells manufactured products primarily to law
enforcement agencies through a worldwide network of over 500 distributors and
sales agents including approximately 350 in the United States. Extensive
distribution capabilities and commitment to customer service and training have
enabled Armor Holdings Products division to become a leading provider of
security equipment to law enforcement agencies.



                                      F-11
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     In April 1997, the Company combined with DSL Group Limited ("DSL"). DSL is
in the business of planning and implementing solutions to complex security
problems in high risk areas. DSL's services encompass the provision of detailed
threat assessments, security planning, security training, the provision,
training and supervision of specialist manpower and other services up to the
implementation and management of fully integrated security systems. The
Company's combination with DSL provided the Company with the cornerstone of its
security services business. Through recent acquisitions, the Company has
expanded the portfolio of services the Company can offer its customers to
include business intelligence and investigative due diligence, intellectual
property asset protection, alarm monitoring, executive protection and the
engineering, integration, maintenance and technical support of sophisticated
electronic and computer driven security and fire alarm systems.

     BASIS OF PRESENTATION -- The accompanying consolidated financial
statements give effect to the combination with DSL. The combination with DSL
was accounted for under the pooling-of-interests method of accounting (see Note
2), and accordingly, the accompanying consolidated financial statements were
retroactively restated as if the Company and DSL had operated as one entity
since inception.

     PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. In
consolidation, all material intercompany balances and transactions have been
eliminated. Results of operations of companies acquired in transactions
accounted for under their purchase method of accounting are included in the
financial statements from the dates of the acquisition. Accounting principles
generally accepted in Colombia vary in certain respects from accounting
principles generally accepted in the United States of America. The major
variance in the two methods affecting the Company is the accounting for the
effects of inflation for which the Company periodically makes adjustments.
There are no other material differences.

     CASH EQUIVALENTS -- The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.

     CONCENTRATION OF CREDIT RISK -- The Company's accounts receivable consist
of amounts due from customers and distributors located throughout the world.
International product sales generally require cash in advance or confirmed
letters of credit on U.S. banks.

     INVENTORIES -- Inventories are stated at the lower of cost or market
determined on the first-in, first-out ("FIFO") method.

     FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of the
Company's various financial instruments reflected in the accompanying
statements of financial position approximate their estimated fair values at
December 27, 1997 and December 31, 1998.

     PROPERTY AND EQUIPMENT -- Property and equipment are carried at cost less
accumulated depreciation. Property and equipment acquired prior to September
21, 1993 were recorded at their estimated fair values as the result of the
emergence from bankruptcy. Depreciation is computed using the straight-line
method over the estimated lives of the related assets as follows:



<TABLE>
<S>                                          <C>
        Buildings and improvements ......... 5 -- 39 years
        Machinery and equipment ............ 3 -- 7 years
</TABLE>

     GOODWILL -- Goodwill arises from the excess of the purchase price of an
acquired company over the fair value of the net assets acquired in a purchase
business combination. Amortization is recorded on a straight-line basis over
periods up to twenty-five years.


                                      F-12
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     IMPAIRMENT -- The Company periodically reviews the carrying value of these
assets and other long-lived assets and impairments are recognized when the
expected undiscounted future cash flows are less than the carrying amount of
the asset.

     REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
-- This intangible asset is amortized or otherwise reduced in amounts not less
than those which would be recognized on a straight-line basis over twenty-five
years.

     PATENTS, LICENSES AND TRADEMARKS -- Patents, licenses and trademarks were
acquired through acquisitions accounted for by the purchase method of
accounting. Such assets are amortized on a straight line basis over their
remaining lives of 10 to 40 years.

     RESEARCH AND DEVELOPMENT -- Research and development costs are expensed as
incurred. The Company incurred approximately $514,000, $605,000, $738,000 for
the years ended December 28, 1996, December 27, 1997 and December 31, 1998,
respectively, for research and development. These costs are included in the
operating expenses in the accompanying consolidated financial statements.

     ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates.

     INCOME TAXES -- The Company accounts for income taxes pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under the asset and liability method specified thereunder,
deferred taxes are determined based on the difference between the financial
reporting and tax bases of assets and liabilities. Deferred tax liabilities are
offset by deferred tax assets representing the tax-effected cumulative net
operating loss carryforwards and deductible temporary differences, subject to
applicable limits and an asset valuation allowance. Future benefits obtained
from utilization of net operating loss carryforwards or from the reduction in
the income tax asset valuation allowance existing on September 20, 1993 have
been and will be applied to reduce reorganization value in excess of amounts
allocable to identifiable assets. At December 31, 1998, the Company's
consolidated foreign subsidiaries have unremitted earnings of approximately $3
million on which the Company has not recorded a provision for United States
Federal income taxes since these earnings are considered to be permanently
invested. Such foreign earnings have been taxed according to the regulations
existing in the countries in which they were earned.

     REVENUE RECOGNITION -- The Company records sales at gross amounts to be
received, including amounts to be paid to agents as commissions. The Company
records service revenue as the service is provided on a contract by contract
basis. Other income for 1997 includes amounts received as agent for a former
employee in selling shares of the Company's stock owned by the former employer.


     EARNINGS PER SHARE -- In 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share." This Statement establishes
standards for computing and presenting earnings per share ("EPS") and applies
to all entities with publicly held common stock or potential common stock. This
Statement replaces the presentation of primary EPS and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common stockholders
by the weighted average number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings.

     NEW ACCOUNTING STANDARDS -- In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income." Comprehensive income includes net income and
several other


                                      F-13
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

items that current accounting standards require to be recognized outside of net
income. This standard requires enterprises to display comprehensive income and
its components in financial statements, to classify items of comprehensive
income by their nature in financial statements, and to display the accumulated
balances of other comprehensive income in stockholders' equity separately from
retained earnings and additional paid-in capital. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company has adopted the
standard for its fiscal year beginning December 28, 1997, and applied the
standard to all periods presented.

     FOREIGN CURRENCY TRANSLATION -- In accordance with Statement of Financial
Accounting Standard No. 52, "Foreign Currency Translation", assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the current rate of exchange existing at year-end and revenues and expenses
are translated at the average monthly exchange rates. The cumulative
translation adjustment, net of tax, which represents the effect of translating
assets and liabilities of the Company's foreign operations was approximately
$(353,000) and $(574,000) for the years ended December 27, 1997 and December
31, 1998. This is included in comprehensive income.

     RECLASSIFICATIONS -- Certain reclassifications have been made to the 1996
and 1997 financial statements in order to conform to the presentation adopted
for 1998. These reclassifications had no effect on net income or retained
earnings.


2. BUSINESS COMBINATIONS

NIK PUBLIC SAFETY PRODUCT LINE

     On July 15, 1996, the Company acquired, effective as of July 1, 1996,
certain assets of the NIK Public Safety Product Line from Ivers-Lee Corporation
(the "NIK Assets"). The purchase price of the acquisition was 310,931 shares
(the "NIK Shares") of the Company's common stock valued at $2,400,000, plus
$374,000 in costs incurred related to the purchase. The Company acquired
inventory, receivables and certain intangibles. The total purchase price was
assigned to the NIK Assets based on their fair values. The acquisition of the
NIK Assets has been accounted for under the purchase method. Accordingly, the
results of its operations are included in the consolidated financial statements
from the date of acquisition.

DEFENSE TECHNOLOGY CORPORATION OF AMERICA

     On September 30, 1996, the Company acquired, through its newly formed
wholly-owned subsidiary, substantially all of the assets of Defense Technology
Corporation of America ("DTCoA"). The purchase price consisted of $838,025 paid
in cash, the issuance of 629,442 shares (the "Total Shares") of the Company's
common stock having a value of $4,650,000, the assumption of certain
liabilities totaling approximately $2,300,000 and costs of $1,115,000
associated with completing the transaction. The total purchase price was
assigned to the acquired assets based on their fair market values.

     In order to secure the obligations of DTCoA and its seller in connection
with the transaction, 270,728 of the Total Shares were delivered to Union Bank
of Switzerland, New York Branch ("UBS"), as escrow agent pursuant to an escrow
agreement dated September 30, 1996. One half of the shares held in escrow were
subject to release March 15, 1998 and the remainder were subject to release
June 30, 1999. However, these shares were released to the Company upon
settlement of litigation (see Note 11).

     Subject to a letter agreement dated August 16, 1996, (the "Key Bank Letter
Agreement") and in connection with the DTCoA transaction, 358,714 of the Total
Shares (the "Key Bank Shares"), having a value of $2,650,000 (the "Amount
Due"), were issued to Key Bank of Wyoming ("Key Bank") in


                                      F-14
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


2. BUSINESS COMBINATIONS (CONTINUED)

consideration for the release by Key Bank of its security interest in
substantially all of the assets of DTCoA. Key Bank held such security interest
pursuant to certain financings previously made available to DTCoA. On the
closing date, the Company advanced to Key Bank $662,500 cash (the "Initial
Amount") as an advance against the Amount Due. Also on the closing date, the
Company deposited $1,987,500 in an interest bearing Certificate of Deposit
("CD") account at Key Bank (the "Deposit Account"). Subsequent to closing, any
amounts paid to Key Bank on account of the Amount Due, including the Initial
Amount, or advances from the Deposit Account would result in a reduction of the
then outstanding balance of the Amount Due by a like amount.

     Pursuant to the Key Bank Letter Agreement, Key Bank agreed that upon the
registration of the Key Bank Shares, the Key Bank Shares would be sold,
provided that the Company would control, in its sole discretion, the timing,
manner and amount of Key Bank Shares to be sold; and in connection therewith,
the Company agreed to ensure that Key Bank realizes net proceeds from such
sales (the "Net Sale Proceeds"), which, together with any advances from the
Deposit Account and the Initial Amount will, in the aggregate, equal the Amount
Due, on or before September 30, 1997 (the "Maturity Date").

     The acquisition of DTCoA has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

SUPERCRAFT (GARMENTS) LIMITED

     On April 7, 1997, the Company acquired Supercraft (Garments) Limited.
Supercraft is a European manufacturer of military apparel, high visibility
garments and ballistic resistant vests, which it distributes to law enforcement
and military agencies throughout Europe, the Middle East and Asia. The Company
acquired Supercraft for a total purchase price of approximately $2.6 million.
The acquisition of Supercraft has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

DSL GROUP LIMITED

     On April 16, 1997, Armor issued 1,274,217 shares of its common stock in
exchange for all of the outstanding ordinary shares of DSL Group Limited
("DSL"), a company incorporated on June 3, 1996, under the laws of England and
Wales. DSL provides specialized security services in high risk and volatile
environments. On July 31, 1996 DSL acquired all of the share capital of DSL
Holdings Limited ("DSL Holdings"). As a result, DSL recorded the net assets
acquired on July 31, 1996 at fair value of approximately $2,800,000 and also
recorded approximately $9,600,000 of goodwill. Armor's combination with DSL was
accounted for as a pooling of interests and the accompanying financial
statements have been restated to give effect to the combined results of Armor
and DSL since inception.

     In connection with the DSL combination, Armor paid $6,850,000 in repayment
of DSL's outstanding credit facility and approximately $7,508,000 for all of
the outstanding preference shares of DSL. (See Notes 6 and 7).

GORANDEL TRADING LIMITED

     On June 9, 1997, the Company acquired the remaining 50% of Gorandel
Trading Limited that it did not previously own. GTL provides specialized
security services throughout Russia and Central Asia. The aggregate purchase
price of the transaction was approximately $2.4 million, consisting of $570,000
in cash paid at closing, $300,000 in cash paid on September 30, 1997 and
$300,000 in cash payable subject to certain conditions, and 115,176 shares of
the Company's common stock valued at


                                      F-15
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


2. BUSINESS COMBINATIONS (CONTINUED)

$1.2 million. As part of this transaction, the Company agreed to make a loan of
$200,000 to a former stockholder of GTL, subject to certain conditions which
was subsequently repaid. GTL's net revenues for 1996 were approximately $6.4
million. The acquisition of GTL has been accounted for under the purchase
method. Accordingly, the results of its operations are included in the
consolidated financial statements from the date of acquisition.

LOW VOLTAGE SYSTEMS TECHNOLOGY, INC.

     On January 30, 1998, the Company acquired all of the issued and
outstanding stock of Low Voltage Systems Technology, Inc., a New Jersey
corporation ("LST"). LST is a leading engineered systems distributor
specializing in the supply, integration, maintenance and technical support of
sophisticated electronic and computer-driven security and fire alarm systems.
The aggregate purchase price of the transaction was approximately $750,000,
consisting of $562,500 in cash paid at closing and 18,519 unregistered shares
of the Company's common stock valued at the time at $187,500. The Company also
assumed and subsequently repaid approximately $200,000 to a stockholder of LST
in full satisfaction of loans previously made by such stockholder to LST. The
acquisition of LST has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

ASMARA LIMITED

     On April 8, 1998, the Company acquired all of the issued and outstanding
stock of Asmara Limited, based in London, England (hereinafter "Asmara").
Asmara provides business intelligence and investigative due diligence services
to clients on a worldwide basis. Services include personnel investigations, due
diligence, asset tracing, and litigation intelligence. This acquisition has a
current aggregate purchase price of  (pounds sterling)1.825 million. The
purchase price consists of  (pounds sterling)1.575 million (approximately $2.6
million) in cash paid at closing and 36,846 unregistered shares of the
Company's common stock valued at closing at  (pounds sterling)250,000
(approximately $415,000). All 36,846 shares are restricted from sale until
April 8, 2001. As part of the acquisition, additional purchase price contingent
upon meeting certain agreed targets during this period could be paid for the
fiscal years ending 1998, 1999 and 2000. The total aggregate contingent
purchase price could be  (pounds sterling)1.5 million. Based upon the results
of operations for 1998, the Company will pay an additional purchase price of
approximately $825,000. This additional purchase price for fiscal 1998 is
reflected in the Company's balance sheet as of December 31, 1998. The
acquisition of Asmara has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

PRO-TECH ARMORED PRODUCTS OF MASSACHUSETTS, INC.

     On April 14, 1998 the Company acquired all of the issued and outstanding
stock of Pro-Tech Armored Products of Massachusetts, Inc. of Pittsfield,
Massachusetts (hereinafter "Pro-Tech"). Pro-Tech is a leading manufacturer of
hard armor products including ballistic shields, bulletproof vests, visors, and
other personal accessories. Pro-Tech also manufactures protective armor
products for helicopters, automobiles, and riot control vehicles. This
acquisition has been accounted for as a purchase and has a current purchase
price of $1.6 million. The purchase price consists of $1.115 million in cash
and 42,592 unregistered shares of the Company's common stock valued at closing
at $485,000. As part of this transaction, additional purchase price could be
paid for the fiscal years ending 1998, 1999 and 2000 totaling an aggregate of
$4 million, with up to 50% payable in common stock and the remainder in cash.
The payment of additional purchase price is contingent upon operating
performance and meeting certain agreed targets during this period. This
additional purchase price for fiscal 1998 totaled approximately $401,000 and is
reflected in the Company's balance sheet as of December 31, 1998. All of the
shares issued for the purchase and to be issued for


                                      F-16
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


2. BUSINESS COMBINATIONS (CONTINUED)

payment for the earn-out, if any, are restricted from sale until April 14,
2001. The acquisition of Pro-Tech has been accounted for under the purchase
method. Accordingly, the results of its operations are included in the
consolidated financial statements from the date of acquisition.

CDR INTERNATIONAL LTD.

     On June 11, 1998 the Company acquired all of the issued and outstanding
stock of CDR International Ltd. ("CDR"), a London based investigation firm with
offices in London, Charlotte, Los Angeles and Moscow. CDR provides a full range
of consulting and investigative services specializing in worldwide intellectual
property asset protection for multinational corporations involved in the
manufacturing and distribution of, among other things, sportswear, tobacco,
spirits and pharmaceuticals. Its services range from protecting companies
against counterfeiting, patent infringements, product tampering and extortion
to identifying unethical supplier activity such as the use of child labor. CDR
also provides training services to law enforcement agencies in foreign
countries. This acquisition has been accounted for as a purchase and has a
current aggregate purchase price of  (pounds sterling)1.5 million. The purchase
price consists of 210,460 registered shares the Company's common stock valued
at closing at  (pounds sterling)1.5 million (approximately $2.5 million).
Additional purchase price could be paid for the fiscal years ending 1999, 2000
and 2001 totaling an aggregate of  (pounds sterling)6.0 million (approximately
$10 million). The payment of additional purchase price is contingent upon
operating performance meeting certain agreed targets during the period. Any
additional purchase price will be paid entirely in common stock of the Company.
Of the total shares of the Company's common stock received at closing, 70,154
shares and 40% of the additional consideration will be restricted from sale for
a period of three years from the date of issue, and 50% of any additional
consideration in excess of  (pounds sterling)4.25 million will be restricted
from sale for between 4.5 and 6 years. The acquisition of CDR has been
accounted for under the purchase method. Accordingly, the results of its
operations are included in the consolidated financial statements from the date
of acquisition.

ALARM PROTECTION SERVICES, INC.

     On July 15, 1998 the Company acquired of all of the outstanding common
stock of Alarm Protection Services, Inc. ("APS") located in Kampala, Uganda.
APS is a fully licensed physical security and consulting company providing
alarm monitoring, physical asset and executive protection, quick response and
cash in transit capabilities. APS has approximately 900 employees and has been
in operation in Uganda since 1993. Since 1996, the Company has managed APS
through a management agreement. This acquisition has been accounted for as a
purchase and has a current aggregate purchase price of $1,215,166. The purchase
price consisted of $734,426 in cash paid at closing, 17,429 unregistered shares
of the Company's common stock valued at closing at approximately $200,000 and
an additional $280,740 to be paid in cash as the outstanding accounts
receivable at the time of closing is collected. Based on APS meeting certain
performance criteria, additional purchase price may be paid in fiscal years
1999 and 2000 totaling $235,000 in cash. The acquisition of APS has been
accounted for under the purchase method. Accordingly, the results of its
operations are included in the consolidated financial statements from the date
of acquisition.

LAW ENFORCEMENT DIVISION OF MACE SECURITY INTERNATIONAL

     On July 16, 1998 the Company acquired certain assets of the Law
Enforcement Division of MACE Security International (hereinafter "MSI"). This
acquisition includes the assets of the Federal Laboratories ("Fed Labs")
division and an exclusive license to use the MACE (Registered Trademark)
trademark for the manufacture and sale of MACE (Registered Trademark)  brand
aerosol defensive sprays to law enforcement markets worldwide. The purchase
price was approximately $4.6 million in cash. The Company is holding an
additional amount of $600,000 in escrow of which $480,000 is payable six months
after closing (paid in


                                      F-17
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


2. BUSINESS COMBINATIONS (CONTINUED)

January 1999) and $120,000 is payable twelve months after closing. The
acquisition of Fed Labs has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

     The following unaudited consolidated results of operations of the Company
are presented on a pro forma basis as if the acquisitions referenced above had
been consummated on December 29, 1996, for the years ended December 27, 1997
and December 31, 1998:




<TABLE>
<CAPTION>
                                                      1997            1998
                                                 -------------   -------------
                                                   (IN THOUSANDS, EXCEPT PER
                                                         SHARE AMOUNTS)
<S>                                              <C>             <C>
Revenues .....................................     $ 104,027       $ 106,992
Net income ...................................     $   7,059       $   8,241
Basic and diluted earnings per share .........     $    0.47       $    0.47
Weighted average shares ......................        15,090          17,618
</TABLE>

3. INVENTORIES

     Inventories are summarized as follows for the years ended December 27,
1997 and December 31, 1998:




<TABLE>
<CAPTION>
                               1997        1998
                            ---------   ---------
                               (IN THOUSANDS)
<S>                         <C>         <C>
Raw materials ...........    $2,958      $4,863
Work-in-process .........       770       1,348
Finished goods ..........     2,003       2,892
                             ------      ------
                             $5,731      $9,103
                             ======      ======
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment at December 27, 1997 and December 31, 1998
are summarized as follows:




<TABLE>
<CAPTION>
                                           1997          1998
                                       -----------   -----------
                                            (IN THOUSANDS)
<S>                                    <C>           <C>
Land ...............................    $    716      $  1,248
Buildings and improvements .........       6,106         6,352
Machinery and equipment ............       5,386         8,287
Construction in progress ...........          --           458
                                        --------      --------
Total ..............................      12,208        16,345
Accumulated depreciation ...........      (2,167)       (4,172)
                                        --------      --------
                                        $ 10,041      $ 12,173
                                        ========      ========
</TABLE>

     Depreciation expense for 1996, 1997 and 1998 was approximately $388,000,
$994,000 and $1,409,000, respectively. In the statement of operations for
fiscal 1998, depreciation expense in the income statement has been reduced by
$131,000 for the amortization of the proceeds received under an economic
development grant received from the Department of Housing and Urban
Development.


                                      F-18
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accounts payable, accrued expenses and other current liabilities are
summarized as follows for the years ended December 27, 1997 and December 31,
1998:


<TABLE>
<CAPTION>
                                                                  1997         1998
                                                               ---------   -----------
                                                                   (IN THOUSANDS)
<S>                                                            <C>         <C>
Trade and other payables ...................................    $ 3,940     $  3,681
Accrued expenses ...........................................      4,287        2,980
Additional purchase price for acquisition earnouts .........         --        1,226
Deferred consideration for acquisitions ....................        300          835
Other current liabilities ..................................        216        2,572
                                                                -------     --------
                                                                $ 8,743     $ 11,294
                                                                =======     ========
</TABLE>

6. INDEBTEDNESS


<TABLE>
<CAPTION>
                                                                                  1997        1998
                                                                                 ------   -----------
                                                                                    (IN THOUSANDS)
<S>                                                                              <C>      <C>
Debt:
Note to former shareholder payable every four months in installments of
 $95 through April 2000 with an imputed rate of interest of 10% ..............    $ --     $    350
Bank overdraft facility, interest payable monthly, expiring April 1999 with
 an interest rate of 7.05% ...................................................      --        1,151
Bank note payable in quarterly installments of $19 including interest at 9%
 through March 2002 ..........................................................      --          241
Revolving working capital credit facility with NationsBank expiring
 March 1, 1999 with an interest rate of 7.5% .................................      --        3,890
                                                                                  ----     --------
                                                                                  $ --     $  5,632
Less current portion .........................................................      --       (5,378)
                                                                                  ----     --------
                                                                                  $ --     $    254
                                                                                  ====     ========
</TABLE>


<TABLE>
<CAPTION>
                                                                                  1997       1998
                                                                               ---------   -------
                                                                                 (IN THOUSANDS)
<S>                                                                            <C>         <C>
Capitalized lease obligations:
Equipment lease for 48 months, expiring July 2001, collateralized by
 Equipment with an amortized cost of approximately $73 at December 31,
 1998 ......................................................................    $   --      $  73
Equipment lease for 36 months expiring August 2000 collateralized by
 equipment with an amortized cost of approximately $92 at December 31,
 1998 ......................................................................        --         92
Equipment lease for 60 months expiring January 2002 collateralized by
 equipment with an amortized cost of approximately $9 at December 31,
 1998 ......................................................................        --         11
Equipment lease bearing interest at 10.88%, expiring November, 1999,
 collateralized by equipment with an amortized cost of approximately $
 10 at December 31, 1998 ...................................................        20         10
Equipment lease bearing interest at 12%, expiring June, 1998, collateralized
 by equipment with an amortized cost of approximately $0 at
 December 31, 1998 .........................................................       181         --
                                                                                ------      -----
                                                                                $  201      $ 186
Less current portion .......................................................      (190)       (96)
                                                                                ------      -----
                                                                                $   11      $  90
                                                                                ======      =====
</TABLE>

                                      F-19
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


6. INDEBTEDNESS (CONTINUED)

     The Company entered into a revolving working capital credit facility and
Bankers Acceptance Facility (the "Credit Facility") on November 14, 1996 with
NationsBank, N.A. (f/n/a Barnett Bank, N.A.), which provides for total
borrowings up to $10,000,000 (the "Obligation"), with maximum availability
based upon 50% of eligible inventories (with a cap of $1,000,000 for work in
process inventory and $6,000,000 for inventory in total) and 85% of eligible
accounts receivable. The Credit Agreement was amended as of March 26, 1997 to
increase the revolving line of credit to $20,000,000. The Credit Facility has
various covenants which, among other things, require the Company to maintain
certain financial ratios, tangible net worth and working capital, as defined;
and limit the Company's ability to pay dividends on its common stock, encumber
and transfer assets, incur indebtedness or merge into another corporation. The
Company had approximately $3.9 million outstanding under the Credit Agreement
at December 31, 1998. The Credit Facility expires on March 1, 1999 (see Note
19).

     The Company's weighted average borrowing rate on its Credit Facility with
NationsBank, N.A. was 8.08% for 1998. The Company had no borrowings under this
Credit Facility in 1997. The Company's weighted average borrowing rate on its
overdraft facility was 7.68% for 1997 and 7.74% for 1998 .

     Aggregate principal maturities on long-term debt and capital lease
obligations at December 31, 1998 are as follows:




<TABLE>
<CAPTION>
                                                                             UNDER
                                                            LONG-TERM     CAPITALIZED
YEAR ENDING                                                    DEBT          LEASE
--------------------------------------------------------   -----------   ------------
                                                                 (IN THOUSANDS)
<S>                                                        <C>           <C>
          1999 .........................................       $337         $ 106
          2000 .........................................        161            91
          2001 .........................................         74            30
          2002 .........................................         19            --
          2003 .........................................         --            --
                                                               ----         -----
                                                               $591         $ 227
                                                               ====         =====
          Less amount representing interest on
            obligation under capitalized lease .........         --           (41)
                                                               ----         -----
                                                               $591         $ 186
                                                               ====         =====
</TABLE>

7. PREFERENCE SHARES

     DSL has $7,480,000, (4,400,000 shares) of preference shares with a par
value of pounds sterling  (pounds sterling)0.01. Such shares carry an 8%
dividend, are cumulative and redeemable and have a liquidation value of par.
The preference shares have no voting rights. The Company paid cash of
$7,508,000, including accrued interest of approximately $380,000, to purchase
such shares on April 16, 1997.



8. NON-RECURRING ITEMS

     Approximately $2.5 million of fees and expenses associated with the DSL
pooling transaction were expensed in fiscal 1997. These expenses include
approximately $1.1 million in professional fees and approximately $1.4 million
in costs to consolidate the financial and administrative functions at the
Company's headquarters in Jacksonville. These costs had been substantially paid
as of December 27, 1997.


                                      F-20
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES


     Income tax expense (benefit) for the years ended December 28, 1996,
December 27, 1997, and December 31, 1998 consisted of the following components:





<TABLE>
<CAPTION>
                                                    1996         1997         1998
                                                 ---------   -----------   ----------
                                                            (IN THOUSANDS)
<S>                                              <C>         <C>           <C>
Current
 Domestic ....................................    $  480      $  1,329      $ 2,638
 Foreign .....................................       734         2,250        2,641
                                                  ------      --------      -------
   Total Current .............................    $1,214      $  3,579      $ 5,279
Deferred
 Domestic ....................................    $  112      $     68      $   107
 Foreign .....................................      (111)       (1,271)        (309)
                                                  ------      --------      -------
   Total Deferred ............................    $    1      $ (1,203)     $  (202)
                                                  ------      --------      -------
    Total Provision for Income Taxes .........    $1,215      $  2,376      $ 5,077
                                                  ======      ========      =======
</TABLE>

     Significant components of the Company's net deferred tax asset as of
December 27, 1997 and December 31, 1998 are as follows:




<TABLE>
<CAPTION>
                                                       1997         1998
                                                   -----------   ---------
                                                       (IN THOUSANDS)
<S>                                                <C>           <C>
Deferred tax assets:
 Reserves not currently deductible .............    $    289      $  267
 Operating loss carryforwards ..................       2,676       2,890
 Other .........................................         154         154
                                                    --------      ------
                                                       3,119       3,311
Deferred tax asset valuation allowance .........      (1,800)       (150)
                                                    --------      ------
Net deferred tax asset .........................    $  1,319      $3,161
                                                    ========      ======
</TABLE>

     In 1997, the Company maintained a valuation allowance of $1,800,000 against
deferred tax assets in view of, among other things, the expiration dates and
other limitations on usage of certain net operating loss carryforwards ("NOL").
At December 31, 1998, due to both internal growth of the Company and growth by
acquisition, the Company reevaluated the need for a valuation allowance. As a
result, the Company reduced the valuation allowance by $1,650,000 with a
corresponding reduction of the reorganization value in excess of amounts
allocable to identifiable assets since the deferred tax asset was initially
established in 1993, under "fresh start" reporting on its reorganization. These
deferred tax assets are included in other assets on the balance sheet for the
years ended December 27, 1997 and December 31, 1998.


                                      F-21
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


9. INCOME TAXES (CONTINUED)

     The following reconciles the income tax expense computed at the Federal
statutory income tax rate to the provision for income taxes recorded in the
income statement:




<TABLE>
<CAPTION>
                                                                     1996         1997          1998
                                                                  ----------   ----------   ------------
<S>                                                               <C>          <C>          <C>
Provision for income taxes at statutory Federal rate ..........      34.0%         34.0%        34.0%
State and local income taxes, net of Federal benefit ..........       3.0%          0.4%         1.8%
Foreign income taxes ..........................................      32.0%          0.1%         1.5%
Other non-deductible items ....................................      (5.0)%         7.4%        (0.1)%
                                                                     -----         ----        -----
                                                                     64.0%         41.9%        37.2%
                                                                     ====          ====        =====
</TABLE>

     Effective with the change in control of the Company by Kanders Florida
Holdings, Inc. on January 18, 1996, the utilization of the United States portion
of the NOL became restricted to approximately $300,000 per year. As of December
31, 1998, the Company had net NOLs of approximately $8,100,000. The U.S. portion
of the net NOLs expire in varying amounts in fiscal years 2006 to 2008.


10. OPERATING LEASES

     The Company leases its previous manufacturing facilities under a six year
operating lease expiring in 1999, with an option to renew. The Company is also
party to various other equipment and vehicle leases. DSL leases its London
office under an operating lease expiring in 2002. Approximate total future
minimum annual lease payments under all such arrangements are as follows:




<TABLE>
<CAPTION>
YEAR
-----
                            (IN THOUSANDS)
<S>                           <C>
  1999 ....................    $  827
  2000 ....................       689
  2001 ....................       597
  2002 ....................       310
  2003 ....................       201
  Thereafter ..............        70
                               ------
                               $2,694
                               ======
</TABLE>

     The Company incurred rent expense of approximately $161,000, $454,000 (net
of sublease income of $35,000), and $485,000 (net of sublease income of
$141,000) during the years ended December 28, 1996, December 27, 1997 and
December 31, 1998.


11. COMMITMENTS AND CONTINGENCIES

     EMPLOYMENT CONTRACTS -- The Company is party to several employment
contracts with its management. Such contracts are for varying periods and
include restrictions on competition after termination. These agreements provide
for salaries, bonuses and other benefits and also specify and delineate the
granting of various stock options.

     LEGAL/LITIGATION MATTERS -- On November 2, 1994, the Company entered into a
consent order voluntarily settling Federal Trade Commission ("FTC") charges that
the Company engaged in false advertising. Under the consent order, the Company
admitted no violations of law but agreed to establish a body armor replacement
program under which persons who had purchased body armor between 1988 and 1990
would be identified and offered the chance to buy new replacement body armor at
a reduced price. The consent order sets forth many detailed requirements
governing the conduct of the replacement program, the retention of records and
the avoidance of false or misleading advertising. Failure to comply with the
requirements could make the Company liable for civil penalties. The Company
continued to administer the body armor replacement program established under the
FTC consent order.



                                      F-22
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

     ANGOLAN OPERATIONS -- On January 16, 1998, our ArmorGroup Services division
ceased operations in the country of Angola. The cessation of operations in
Angola was dictated by that government's decision to deport all of ArmorGroup's
expatriate management and supervisors. As a result of the cessation of
operations in Angola, our ArmorGroup Services division is involved in various
disputes with SHRM S.A., its minority joint venture partner relating to the
Angolan business. SHRM has alleged that as a result of the cessation of
operations, it has suffered damages of $5 million from lost business. The
Company believes that the likelihood of loss related to these disputes is
possible and the maximum exposure to be approximately $500,000. In March 1999,
Armor filed a claim of $16.1 million in the Commercial Court Nanterre in France
against SHRM for actual and punitive damages from SHRM's violation of its
obligations resulting from its agreement with Armor.

     SETTLEMENT -- During 1998 the Company settled a lawsuit with a previous
seller. As a result of the settlement, the Company received shares of common
stock that were previously issued to the seller and held in escrow pursuant to
the purchase and escrow agreements. Accordingly, the Company recorded $1,788,000
of treasury stock based on the fair value of the Company's stock on the
settlement date.

     OTHER -- In addition to the above, the Company, in the normal course of
business, is subjected to claims and litigation in the areas of product and
general liability. Management does not believe any of such claims will have a
material impact on the Company's financial statements.


12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK

     CONVERTIBLE PREFERRED STOCK -- In 1995 and 1996 the Company issued
1,700,000 shares of preferred stock. The Company elected to convert 242,851 and
1,214,292 shares, respectively, of preferred stock to common stock at $0.77 per
share under conversion provisions calling for the issuance of common stock, the
fair value of which represents 110% of the aggregate stated value of the
preferred stock then subject to redemption.

     PREFERRED STOCK -- On July 16, 1996, the Company's shareholders authorized
a series of preferred stock with such rights, privileges and preferences as the
Board of Directors shall from time to time determine. The Company has not
issued any of this preferred stock.

     ISSUANCE AND CONVERSION OF CONVERTIBLE DEBT -- On April 30, 1996, the
Company completed a private placement of its 5% Convertible Subordinated Notes
due April 30, 2001 (the "Notes") pursuant to which $11,500,000 aggregate
principal amounts of Notes were sold by the Company.


                                      F-23
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK (CONTINUED)

     On December 18, 1996, the Notes were converted into 2,300,000 shares of
common stock at a conversion price of $5.00 per share.

     STOCK OPTIONS AND GRANTS -- In 1994, the Company implemented an incentive
stock plan and an outside directors' stock plan, which plans collectively
provide for the granting to certain key employees of options to acquire the
Company's common stock as well as providing for the grant of common stock to
outside directors and to all full time employees. Pursuant to such plans,
1,050,000 shares of common stock were reserved and made available for
distribution. The option prices of stock which may be purchased under the
incentive stock plan are not less than the fair market value of common stock on
the dates of the grants.

     Effective January 19, 1996, all stock grants awarded under the 1994
incentive stock plan were accelerated and considered fully vested.

     During 1996, the Company implemented a new incentive stock plan and a new
outside directors' stock plan. Pursuant to the new plans and subsequent
amendments, 2,200,000 shares of common stock were reserved and made available
for distribution.

     During 1998, the Company implemented a new non-qualified stock option
plan. Pursuant to the new plan, 725,000 shares of common stock were reserved
and made available for distribution.

     Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes a fair value
based method of accounting for stock-based employee compensation plans;
however, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value based method, compensation costs is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company has
elected to continue to account for its employee stock compensation plans under
APB Opinion No. 25 with pro forma disclosures of net earnings and earnings per
share, as if the fair value based method of accounting defined in SFAS No. 123
had been applied.

     If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for 1998, 1997 and 1996 consistent with the
method prescribed by SFAS No. 123, the Company's net earnings and earnings per
share would have been adjusted to the pro forma amounts indicated below:



<TABLE>
<CAPTION>
                                                          1996          1997          1998
                                                       ----------   -----------   -----------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>             <C>          <C>           <C>
Net earnings .......................   As reported       $  689       $ 3,518       $ 8,596
                                       Pro forma         $  477       $ 2,653       $ 7,844
Diluted earnings per share .........   As reported       $ 0.08       $  0.21       $  0.50
                                       Pro forma         $ 0.05       $  0.18       $  0.45
</TABLE>

     Under SFAS 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996, 1997 and 1998: dividend
yield of 0%, expected volatility of 33% in 1996 and 1997 and 31.9% for 1998,
risk-free interest rates of 5.93%, 6.00% and 5.50% for 1996, 1997 and 1998
respectively, and expected lives of 3 years.


                                      F-24
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK (CONTINUED)

     Outstanding options, consisting of ten-year incentive and non-qualified
stock options, vest and become exercisable over a three year period from the
date of grant. The outstanding options expire ten years from the date of grant
or upon retirement from the Company, and are contingent upon continued
employment during the applicable ten-year period.


     A summary of the status of stock option grants as of December 31, 1998
changes during the years ending on those dates is presented below:




<TABLE>
<CAPTION>
                                                                                           WEIGHTED AVERAGE
                                                                             OPTIONS        EXERCISE PRICE
                                                                          -------------   -----------------
<S>                                                                       <C>             <C>
   Outstanding at December 31, 1995 ...................................     783,500            $  0.93
   Granted ............................................................   1,068,000               5.97
   Forfeited ..........................................................     (26,467)              0.97
                                                                          ----------
   Outstanding at December 28, 1996 ...................................   1,825,033               3.88
   Granted ............................................................     485,000              10.36
   Exercised ..........................................................    (217,332)              0.97
   Forfeited ..........................................................     (51,701)              4.37
                                                                          ----------
   Outstanding at December 27, 1997 ...................................   2,041,000               5.69
   Granted ............................................................     286,450              10.32
   Exercised ..........................................................    (148,582)              1.11
   Forfeited ..........................................................    (101,667)             10.12
                                                                          ----------
   Outstanding at December 31, 1998 ...................................   2,077,201               6.46
   Options exercisable at December 31, 1998 ...........................   1,262,751               7.54
   Weighted-average fair value of options granted during 1998 .........  $  347,685
</TABLE>


                                      F-25
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK (CONTINUED)

The following table summarizes information about stock options outstanding at
December 31, 1998:




<TABLE>
<CAPTION>
EXERCISE              OPTIONS         OPTIONS       REMAINING
PRICE               OUTSTANDING     EXERCISABLE       LIFE
----------------   -------------   -------------   ----------
<S>                <C>             <C>             <C>
$0.79 ..........        99,418          99,418     5.50
 0.97 ..........       175,666         175,666     5.70
 1.00 ..........        24,000          24,000     7.06
 1.05 ..........       206,000         206,000     6.50
 3.75 ..........       150,000         100,000     7.05
 6.06 ..........       150,000              --     7.60
 6.75 ..........        20,000          13,333     7.82
 7.19 ..........        74,000          49,333     7.75
 7.25 ..........        60,000          40,000     7.69
 7.38 ..........        15,000          10,000     7.71
 7.50 ..........       375,000         250,000     7.35
 7.81 ..........        10,000           3,333     8.07
 7.88 ..........         5,000           3,333     8.01
 8.00 ..........        75,000          50,000     7.95
 8.50 ..........        10,000           3,334     8.22
 9.00 ..........        10,000           3,334     8.28
 9.25 ..........       132,000              --     9.60
 9.88 ..........        16,667           6,667     9.36
 9.94 ..........         3,000              --     9.65
10.44 ..........       175,000         125,000     8.68
10.63 ..........        25,000              --     9.92
11.00 ..........       100,000         100,000     8.68
11.19 ..........        74,000                     9.93
11.88 ..........        20,000              --     9.42
12.00 ..........        50,000              --     8.68
12.25 ..........        22,450              --     9.58
                       -------         -------     ----
 Total .........     2,077,201       1,262,751
                     =========       =========
</TABLE>

     Remaining non-exercisable options as of December 31, 1998 become
exercisable as follows:


<TABLE>
<S>                          <C>

  1999 ...................   588,483
  2000 ...................   130,485
  2001 ...................    95,482
</TABLE>


                                      F-26
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK (CONTINUED)

     EARNINGS PER SHARE -- The following is a reconciliation of the numerators
and denominators of the basic and diluted earnings per share computations for
net income and net income available to common stockholders:




<TABLE>
<CAPTION>
                                                            1996          1997          1998
                                                         ----------   -----------   -----------
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                      <C>          <C>           <C>
Numerator for basic and diluted earnings per share:
 Net income available to common shareholders .........    $   689      $  3,158      $  8,596
Denominator:
 Denominator for basic earnings per share weighted
   average shares ....................................      7,966        13,638        16,165
 Effect of dilutive securities:
 Effect of shares issuable under stock option and
   stock grant plans, based on the treasury stock
   method ............................................        819         1,074         1,189
 Effect of shares issuable under conversion of
   preferred stock ...................................         91            --            --
                                                          -------      --------      --------
 Dilutive potential common shares ....................        910         1,074         1,189
                                                          -------      --------      --------
 Denominator for diluted earnings per share --
   adjusted weighted-average shares ..................      8,876        14,712        17,354
                                                          -------      --------      --------
Basic earnings per share .............................    $  0.09      $   0.23      $   0.53
                                                          =======      ========      ========
Diluted earnings per share ...........................    $  0.08      $   0.21      $   0.50
                                                          =======      ========      ========
</TABLE>

13. SUPPLEMENTAL CASH FLOW INFORMATION:




<TABLE>
<CAPTION>
                                                                1996          1997          1998
                                                            -----------   -----------   -----------
                                                                        (IN THOUSANDS)
<S>                                                         <C>           <C>           <C>
Cash paid (received) during the year for:
 Interest ...............................................    $    521      $    673     $    273
                                                             ========      ========     =========
 Income taxes ..........................................     $    (15)     $  1,506     $  4,724
                                                             ========      ========     =========
Noncash investing and financing activities:
 Issuance of stock under stock plan .....................    $    118      $    201     $    172
 Conversion of preferred stock to common stock ..........       1,214            --           --
 Conversion of convertible debt to common stock .........      10,633            --           --
Acquisitions (businesses, patents and trademarks):
 Fair value of assets acquired ..........................      25,573         5,294       10,578
 Goodwill ...............................................          --         4,731       11,732
 Liabilites assumed . ...................................      (6,535)       (5,218)     (10,072)
 Stock issued ...........................................      (6,460)       (1,200)      (3,746)
                                                             --------      --------     ---------
 Total cash paid ........................................    $ 12,578      $  3,607     $  8,492
                                                             ========      ========     =========
</TABLE>


                                      F-27
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES


     At December 27, 1997 and December 31, 1998, the Company had a 20%
investment in Jardine Securicor Gurkha Services Limited for which the equity
method of accounting for investments is used. The following summarizes
significant financial information of these unconsolidated subsidiaries as of
and for the twelve months ended December 27, 1997 and December 31, 1998.




<TABLE>
<CAPTION>
                                    1997            1998
                               -------------   -------------
<S>                            <C>             <C>
Total assets ...............    $3,303,000     $ 4,098,000
Retained earnings ..........    $  903,000     $ 1,212,000
Total revenues .............    $4,950,000     $24,731,000
Net income .................    $  482,000     $ 3,157,000
</TABLE>

     Total revenues and net income disclosed in the 1997 column represents the
Company's 20% share of total revenue and net income of the unconsolidated
subsidiary, whereas the 1998 amounts reflect total revenues and net income.

15. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES


     The Company is a leading global provider of security risk management
services and products to multi-national corporations, governmental agencies and
law enforcement personnel through two operating divisions -- ArmorGroup Services
and Armor Holdings Products. The ArmorGroup Services division provides
sophisticated security planning and risk management, electronic security systems
integration, consulting and training services, as well as intellectual property
asset protection, business intelligence and investigative services. The Armor
Holdings Products division manufactures and sells a broad range of high quality
branded law enforcement equipment.


     The Company has invested substantial resources outside of the United
States and plans to continue to do so in the future. Substantially all of the
operations of the services segment is conducted in emerging markets in Africa,
Asia and South America. These operations are subject to the risk of new and
different legal and regulatory requirements in local jurisdictions, tariffs and
trade barriers, potential difficulties in staffing and managing local
operations, potential imposition of restrictions on investments, potentially
adverse tax consequences, including imposition or increase of withholding and
other taxes on remittances and other payments by subsidiaries, and local
economic, political and social conditions. Governments of many developing
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. Government actions in the future could have
a significant adverse effect on economic conditions in a developing country or
may otherwise have a material adverse effect on the Company and its operating
companies. The Company does not have political risk insurance in the countries
in which it currently conducts business. Moreover, applicable agreements
relating to the Company's interests in it operating companies are frequently
governed by foreign law. As a result, in the event of a dispute, it may be
difficult for the Company to enforce its rights. Accordingly, the Company may
have little or no recourse upon the occurrence of any of these developments.


                                      F-28
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


15. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES (CONTINUED)

     Revenues and income from continuing operations for the years ended
December 28, 1996, December 27, 1997 and December 31, 1998, were as follows:




<TABLE>
<CAPTION>
                                               1996         1997         1998
                                            ----------   ----------   ----------
                                                       (IN THOUSANDS)
<S>                                         <C>          <C>          <C>
Revenues:
 Services ...............................    $12,956      $48,445      $51,563
 Products ...............................     18,011       29,869       45,644
                                             -------      -------      -------
   Total revenues .......................    $30,967      $78,314      $97,207
                                             =======      =======      =======
Income from operations:
 Services ...............................    $   658      $ 4,581      $ 6,140
 Products ...............................      1,680        3,651        8,223
                                             -------      -------      -------
   Total income from operations .........    $ 2,338      $ 8,232      $14,363
                                             =======      =======      =======
Total assets:
 Services ...............................    $20,799      $29,363      $41,531
 Products ...............................     21,669       29,418       45,470
 Corporate ..............................      7,062       16,706        7,352
                                             -------      -------      -------
   Total assets .........................    $49,530      $75,487      $94,353
                                             =======      =======      =======
</TABLE>

     The following unaudited financial information with respect to sales to
principal geographic areas for the years ended December 28, 1996, December 27,
1997 and December 31, 1998 is as follows:




<TABLE>
<CAPTION>
                                      1996         1997          1998
                                   ----------   ----------   -----------
                                              (IN THOUSANDS)
<S>                                <C>          <C>          <C>
Sales to unaffiliated customers:
 North America .................    $15,838      $23,574      $ 36,596
 South America .................      4,197       12,082        16,484
 Africa ........................      8,587       25,499        18,932
 Europe/Asia ...................      2,345       16,079        24,668
 Other .........................         --        1,080           527
                                    -------      -------      --------
   Total revenues ..............    $30,967      $78,314      $ 97,207
                                    -------      -------      --------
Operating profit:
 North America .................    $ 1,223      $ 2,212      $  7,358
 South America .................         67          738         2,747
 Africa ........................        605        2,823         4,683
 Europe/Asia ...................        (74)       1,206         1,105
 Other .........................         --          101           137
Total assets:
 North America .................    $28,731      $40,964        47,881
 South America .................      1,560        2,847         4,477
 Africa ........................      6,068        7,944         4,892
 Europe/Asia ...................     13,171       23,732        37,103
</TABLE>


                                      F-29
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. QUARTERLY RESULTS

     The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1997 and 1998. The Company believes all
necessary adjustments have been included in the amounts stated below to present
fairly the following selected information when read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Future quarterly operating results may fluctuate depending on a number of
factors. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or any other quarter.


<TABLE>
<CAPTION>
                                                             FISCAL 1997
                                       --------------------------------------------------------
                                           FIRST         SECOND         THIRD         FOURTH
                                          QUARTER       QUARTER        QUARTER        QUARTER
                                       ------------   -----------   ------------   ------------
                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>            <C>           <C>            <C>
Revenue ............................     $ 14,750       $18,063       $ 22,124       $ 23,377
Gross profit .......................     $  4,297       $ 4,834       $  5,796       $  5,949
Net income .........................     $    540       $  (696)      $  1,618       $  1,696
Basic earnings per share ...........     $   0.05       $ (0.05)      $   0.11       $   0.11
Diluted earnings per share .........     $   0.04       $ (0.05)      $   0.10       $   0.10
</TABLE>


<TABLE>
<CAPTION>
                                                              FISCAL 1998
                                       ---------------------------------------------------------
                                           FIRST         SECOND          THIRD         FOURTH
                                          QUARTER        QUARTER        QUARTER        QUARTER
                                       ------------   ------------   ------------   ------------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>            <C>            <C>            <C>
Revenue ............................     $ 19,635       $ 22,833       $ 26,444       $ 28,295
Gross profit .......................     $  6,034       $  7,007       $  8,604       $  9,111
Net income .........................     $  1,774       $  1,835       $  2,326       $  2,661
Basic earnings per share ...........     $   0.11       $   0.11       $   0.14       $   0.16
Diluted earnings per share .........     $   0.10       $   0.11       $   0.14       $   0.15
</TABLE>

17. EMPLOYEE BENEFIT PLANS

     In October 1997, the Company formed a 401(k) plan, (the "Plan") which
provides for voluntary contributions by employees and allows for a
discretionary contribution by the Company in the form of cash or stock. The
Company did not make a discretionary contribution to the Plan in 1997 or 1998.


18. RELATED PARTY TRANSACTIONS

     The Company entered into the following transactions with related parties:

     (a) Purchases and Sales -- The Company subcontracts for certain security
guard services with Alpha, Inc., wholly owned by a shareholder of the Company.
In fiscal 1997 and 1998, security guard service fees of approximately
$3,286,000 and $5,204,000 respectively, were paid to Alpha. At December 27,
1997 and December 31, 1998 the Company had outstanding payables to Alpha of
approximately $377,000 and $341,000 respectively. These liabilities are
included in accounts payable. At December 31, 1998, Alpha owed the Company
approximately $291,000, which is included in accounts receivable.

     (b) Advances to Stockholders -- At December 31, 1998, the Company had an
outstanding advance to a stockholder of the Company with a balance of
approximately $1.7 million. This advance arose pursuant to the purchase
agreement for CDR whereby the Company advanced the stockholder funds against
the future sale of the underlying shares. This advance was non-interest bearing
and was collateralized by the assignment of the shares underlying the agreement.
This advance is shown on the balance sheet in prepaid expenses and other current
assets. The stock was subsequently sold in January 1999 with all proceeds
received by the Company.


                                      F-30
<PAGE>

                     ARMOR HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


18. RELATED PARTY TRANSACTIONS (CONTINUED)

     (c) On January 1, 1999 the Company entered into an agreement with Kanders &
Company, Inc. to provide investment banking and financial advisory services to
the Company. The specific details of such services and compensation to be paid
to Kanders & Co. will be determined by the parties on a case by case basis.
Warren B. Kanders, Chairman of the Board of the Company, is the sole
stockholder of Kanders & Company, Inc.




     (d) In March 1999, the Company loaned to Stephen E. Croskey, President of
the Company's Armor Holdings Products division, $111,000 in connection with his
relocation to Jacksonville, Florida. After an initial 90-day grace period, the
loan will bear interest at the prime rate as announced from time to time by
NationsBank, N.A.


19. SUBSEQUENT EVENTS


     On February 12, 1999, the Company entered into a credit agreement with
CIBC, Inc., NationsBank, N.A., First Union National Bank and SunTrust Bank,
North Florida, N.A. as lenders, NationsBank, N.A., as documentation agent and
Canadian Imperial Bank of Commerce, as administrative agent. According to the
terms of the credit facility, several lenders established a five-year
$60,000,000 line of credit for the Company. Indebtedness under the credit
agreement is evidenced by (1) Five Year Revolving Credit Notes of up to
$40,000,000 and (2) 364-Day Revolving Credit Notes of up to $20,000,000,
convertible at the end of 364 days into four-year term notes. All borrowings
under the credit facility will bear interest at either (1) the base rate, plus
an applicable margin ranging from .125% to .375% depending on certain
conditions, or (2) the eurodollar rate, plus an applicable margin ranging from
1.375% to 1.625% depending on certain conditions. In addition, the credit
agreement provides that NationsBank, N.A. shall make swing-line loans of up to
$5,000,000 to be used for working capital purposes. CIBC, Inc. and NationsBank,
N.A. will also issue letters of credit of up to $5,000,000 to the Company.


     As part of the credit facility, all of the Company's direct and indirect
domestic subsidiaries agreed to guarantee the Company's obligations under the
credit facility pursuant to a guarantee by certain subsidiaries. The credit
facility is secured by (1) a pledge of all of the issued and outstanding shares
of stock of certain domestic subsidiaries of the Company pursuant to a pledge
agreement and (2) a pledge of 65% of the issued and outstanding shares of the
Company's foreign subsidiary, Armor Holdings Limited, organized under the laws
of England and Wales.


     On February 24, 1999, the Company announced that it signed a letter of
intent to acquire all of the outstanding stock of Safariland Ltd., Inc., a
leading U.S. manufacturer of law enforcement equipment based in Ontario,
California. The purchase price of approximately $41 million, subject to certain
adjustments, will consist of $37 million in cash and the balance in the
Company's stock, plus the assumption of $5.2 million of indebtedness.


                                      F-31