<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                F O R M 1 0 - K
(Mark One)
    [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
        SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                  For the fiscal year ended: December 27, 1997

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

              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
 incorporation or organization)          Identification No.)

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

       Registrant's telephone number, including area code: (904) 741-5400
<TABLE>
<CAPTION>
<S>                                                                <C>
Securities registered pursuant to Section 12(b) of the Act:        Name of each exchange on which registered:
Common Stock, par value of $.01 per share                          American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
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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 25, 1998 is $127,308,033

The number of shares outstanding of the registrant's Common Stock as of
March 25, 1998 is 16,042,259.



             APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No

                      DOCUMENTS INCORPORATED BY REFERENCE:

                 DOCUMENT                            FORM 10-K PART
                 --------                            --------------
  Proxy Statement for 1998 Annual Meeting                  III

<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

                  Armor Holdings, Inc., a Delaware corporation (the "Company")
is a leading provider of effective security solutions to the increasing level
of security threats encountered by domestic and foreign law enforcement
personnel, governmental agencies and multi-national corporations. These
solutions include a broad range of high quality branded manufactured products
such as ballistic resistant vests and tactical armor, bomb disposal equipment,
less-than-lethal munitions and anti-riot products and sophisticated security
planning, advisory and management services, including the provision of highly
trained, multi-lingual and experienced security personnel in violent and
unstable areas of the world.

                  Founded in 1969 as American Body Armor & Equipment, Inc., the
Company until recently was primarily a manufacturer of armored products such as
ballistic resistant vests and tactical armor. In May 1992, the Company filed
for relief under Chapter 11 of the United States Bankruptcy Code. The
bankruptcy filing was the result of a general decline in the Company's
operations, which included significant operating losses in 1989 and 1991, and
the inability to collect a $1.5 million receivable related to the shipment of
vests to a Middle East customer in April 1991. The Company emerged from
bankruptcy protection effective September 20, 1993, upon confirmation by the
United States Bankruptcy Court for the Middle District of Florida, Jacksonville
Division, of the Company's Third Amended and Restated Plan of Reorganization.

                  On January 18, 1996, the Company underwent a change in
control in connection with the purchase by Kanders Florida Holdings, Inc., a
Delaware corporation ("Kanders") and certain other investors of all of the
capital stock of the Company owned by Clark Schwebel, Inc. and Hexcel
Corporation, both suppliers of raw materials to the Company. Since Kanders
acquired its interest in the Company, the Company has pursued a strategy of
growth through acquisition of businesses and assets within the security
industry. Through such acquisitions and the expansion of its existing
businesses, the Company seeks to: (i) offer superior customer service through a
comprehensive portfolio of security products and services; (ii) capitalize on
its growing, diversified, global and institutional client base; (iii) promote
brand development through the quality of its manufactured products, superior
training and customer service; and (iv) maximize profitability and operational
efficiencies. The Company believes that further growth will be generated by the
leverage of its distribution network and client base as well as expansion into
new areas. See Item 13, "Certain Relationships and Related Transactions."

                  The Company believes that governmental and international
agencies and multi-national corporations will continue to face significant
threats of violent criminal and hostile activity, terrorism and civil
disturbances. The Company therefore expects demand for its security products
and services to increase as these entities anticipate, mitigate and react to
perceived or actual security threats worldwide.

                  From January 18, 1996 through March 20, 1998, the Company has
consummated the six transactions discussed below, and is continuing to pursue
other acquisition opportunities. In addition, in 1997 the Company established a
holding company structure to facilitate management of its growth and completed
an underwritten public offering of 4,000,000 primary shares of its common
stock, $0.01 par value per share (the "Common Stock").

         LOW VOLTAGE SYSTEMS TECHNOLOGY, INC.

                  On January 30, 1998, the Company acquired all of the issued
and outstanding shares of capital stock of Low Voltage Systems Technology,
Inc., a New Jersey corporation ("LST"). LST is a leading systems engineer
specializing in the supply, integration, maintenance and technical support of
sophisticated electronic and




<PAGE>



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 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.

         DSL GROUP LIMITED

                  On April 16, 1997, the Company combined with DSL Group
Limited, a United Kingdom corporation ("DSL"), in a transaction accounted for
as a pooling of interests (the "DSL Transaction"). DSL is a leading provider of
specialized security services in high risk and volatile environments. DSL was
formed on June 3, 1996 for the purpose of acquiring DSL Holdings Limited ("DSL
Holdings"), its predecessor corporation, whose assets included an indirect 50%
interest in Gorandel Trading Limited. DSL's acquisition of DSL Holdings was
completed on July 31, 1996. The consolidated financial statements of the
Company for fiscal 1996 and 1997 include the results of DSL since its
inception. In connection with the DSL Transaction, the Company issued 1,274,217
shares of Common Stock valued at the time at $10.9 million for all of the
outstanding ordinary share capital of DSL and paid $7.5 million in cash for all
of the outstanding preference shares. The Company also assumed and subsequently
repaid $6.9 million, plus interest, of DSL's outstanding credit facility.

         GORANDEL TRADING LIMITED

                  On June 9, 1997, the Company acquired the remaining 50% of
Gorandel Trading Limited, a Cyprus corporation ("GTL"), 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,
$600,000 in cash to be paid upon the satisfaction of certain conditions and
115,176 shares of Common Stock valued at the time at $1.2 million.

         SUPERCRAFT (EUROPE) LIMITED

                  On April 7, 1997, the Company acquired Supercraft (Europe)
Limited, f/k/a Supercraft (Garments) Limited, a United Kingdom corporation
("Supercraft"). 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 an initial total purchase price of
approximately $2.6 million consisting of (i) approximately $1.3 million in
cash, subject to adjustments, (ii) $875,000 in cash which was placed in escrow
pending final disposition of title to certain real property (of which title has
now been properly transferred to the Company) and (iii) certain additional
consideration in an amount not to exceed (pound)250,000 (approximately
$410,000) based on 1997 operating results. The Company was not required to pay
this additional consideration.

         DEFENSE TECHNOLOGY CORPORATION OF AMERICA

                  On September 30, 1996, a wholly-owned subsidiary of the
Company, Defense Technology Corporation of America, a Delaware corporation
("DTC"), acquired substantially all of the assets (the "DTCoA Assets") of
Defense Technology Corporation of America, a Wyoming corporation ("DTCoA"). DTC
manufactures less-than-lethal and anti-riot products, including pepper sprays,
tear gas, distraction devices, flameless expulsion grenades and specialty
impact munitions, which it distributes to U.S. and foreign law enforcement
agencies and the military. The Company acquired these assets by paying DTCoA a
purchase price consisting of approximately $838,000 in cash, 270,728 shares of
Common Stock valued at the time at $2.0 million, subject to reduction under
certain circumstances, and by issuing to Key Bank of Wyoming ("Key Bank"),
which made a credit facility available to DTCoA, 358,714 shares of Common Stock
valued at the time at $2.65 million in return for Key Bank's agreement to
release its liens on the assets of DTCoA. The Company also assumed certain
specified liabilities of DTCoA.



                                       2

<PAGE>




         NIK PUBLIC SAFETY PRODUCT LINE

                  Effective as of July 1, 1996, NIK Public Safety, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("NIK"),
acquired the NIK Public Safety Product Line (the "NIK Product Line"). NIK
assembles and distributes portable narcotic identification kits used for the
identification of narcotic substances by law enforcement agencies. In addition,
NIK distributes the Flex-Cuf(R) restraint, specimen collection kits, evidence
collection kits and tamper guard evidence tape. The Company acquired the NIK
Product Line for a purchase price consisting of 310,931 shares of Common Stock
valued at the time at $2.4 million.

         CONVERSION TO A HOLDING COMPANY STRUCTURE

                  On June 12, 1997, at the annual meeting of stockholders, the
stockholders of the Company approved the creation of a holding company
structure for all of the Company's operations. As of June 16, 1997, the Company
transferred all of its operating assets and liabilities relating to its
American Body Armor(TM) business to a subsidiary and the Company became a
holding company. As a result, the Company owns directly or indirectly the
outstanding capital stock of its subsidiary corporations and no longer conducts
any manufacturing operations directly.

         PUBLIC OFFERING OF COMMON STOCK

                  On July 25, 1997, the Company issued 4,000,000 new shares of
Common Stock at $10.125 per share through a public offering (the "Public
Offering") underwritten by Dillon, Read & Co. Inc. (now known as SBC Warburg
Dillon Read Inc.), Equitable Securities Corporation (now known as SunTrust
Equitable Securities) and Stephens Inc. Net of underwriting discounts and
commissions, the Company realized proceeds of $38,070,000, portions of which
the Company has used to repay all of the outstanding indebtedness on its Credit
Facility (as hereinafter defined) with Barnett Bank, N.A. ("Barnett Bank").

MANUFACTURED PRODUCTS AND SECURITY SERVICES DIVISIONS

                  The Company operates in the broadly defined security industry
through its two divisions: Manufactured Products and Security Services.

         MANUFACTURED PRODUCTS DIVISION

                  Armor Products

                  The Company manufactures a wide array of armor products under
the brand name American Body Armor(TM) which are designed to protect against
bodily injury caused by bullets, knives and explosive shrapnel. The Company's
principal armor products are ballistic resistant vests, sharp instrument
penetration armor and bomb protective gear. In addition to body armor, the
Company also markets an assortment of other personal armor products, including
helmets, shields, gas masks, batons, holsters and upgrade armor plates. The
Company's lines of ballistic protective vests provide varying levels of
protection depending upon the configuration of ballistic materials and the
standards (domestic or international) to which the armor is built. The
Company's body armor products manufactured in the United States are certified
under guidelines established by the National Institute of Justice where
applicable. See "--Government and Industry Regulations and Standards" and
"--Manufacturing and Raw Materials."

                  The Company's ballistic resistant armor is comprised of
concealable armor and tactical armor. Concealable armor, which generally is
worn beneath the user's clothing, is the Company's basic line of body armor.
Tactical armor is worn externally and is designed to provide protection over a
wider area of a user's body and defeat higher levels of ballistic threats.



                                       3


<PAGE>


                  The sharp instrument penetration armor manufactured by the
Company is designed primarily for use by personnel in correctional facilities
and by other law enforcement employees who are primarily exposed to threats
from knives and other sharp instruments. These vests are constructed with
special metallic blends and are available in both concealable and tactical
models. In addition, these vests can be combined with ballistic armor
configurations to provide both ballistic and sharp instrument penetration
resistant protection. The Company also manufactures a variety of hard armor
ballistic shields primarily for use in tactical clearance applications,
including tactical face masks and helmets, ballistic shields, barrier shields
and blankets. These manufactured products allow tactical police officers to
enter high threat environments with maximum ballistic protection.

                  The Company manufactures a wide range of bomb protective
gear. This equipment, known as Explosive Ordnance Disposal (EOD) equipment,
includes bomb disposal suits, which are primarily constructed of an aramid
ballistic fabric that is sheathed in a Nomex(R) brand fire-retardant cover.
Other EOD equipment manufactured by the Company includes bomb protection
blankets and letter bomb suppression pouches.

                  Less-Than-Lethal Products

                  The Company manufactures a complete line of less-than-lethal,
anti-riot and crowd control products designed to assist law enforcement and
military personnel in handling situations that do not require the use of deadly
force. These manufactured products, which generally are available for use only
by authorized public safety agencies, include pepper sprays, tear gas,
specialty impact munitions and distraction devices.

                  The Company manufactures pepper sprays and a wide range of
specialty impact munitions that can be used against either individual targets
or in anti-riot and crowd control situations. The Company's pepper spray
formula, which contains the active ingredient oleoresin capsicum, a cayenne
pepper extract, is patented and carries the trademark name of First Defense(R).
The First Defense(R) line of pepper sprays ranges from small "key-ring" and
hand-held units to large volume canisters for anti-riot and crowd control
applications. The specialty impact munitions manufactured by the Company range
from single projectiles such as bean bags, rubber balls, wood batons and rubber
batons to multiple projectile products containing rubber pellets, rubber balls
or foam. The Company also manufactures Distraction Device(R), a patented and
trademarked device that is used for dynamic entries by specially trained law
enforcement personnel. See "--Manufacturing and Raw Materials."

                  Narcotic Identification and Evidence Equipment

                  The Company assembles and markets portable narcotic
identification kits under the NIK(R) brand name which are used by law
enforcement personnel to identify a variety of controlled substances, including
cocaine, marijuana, heroin and LSD. The Company also assembles and markets
evidence collection kits and evidence tape, and has the exclusive rights to
distribute Flex-Cuf(R) and Key-Cuff(TM) disposable restraints.

         SECURITY SERVICES DIVISION

                  The Company is the world's leading provider of specialized
security services in high risk and hostile environments, including Africa,
South America, Central Asia, Russia and the Balkans. The core of the Company's
security service business is the creation and implementation of solutions to
complex security problems in high risk areas through detailed and targeted
analysis of potential threats to security, assistance in the secure design of
facilities, the provision of highly qualified specialists with extensive
international experience in practical security applications and on-going
training of security personnel and client personnel with respect to preventive
security measures. The Company also provides humanitarian mine clearance and
ordnance disposal, maintenance of the security of lines of communication,
including airlines and airports, and high risk insurance services.

                  The security solutions offered by the Company generally
involve security consultation services and the provision of very experienced
security personnel who act as planners, trainers, managers, advisors,



                                       4


<PAGE>



instructors and liaison personnel. The Company also provides teams of
supervisors, many of whom are British Special Air Services veterans, who
frequently are employed as premium guards for government embassies. In
connection with its security services, the Company utilizes the services of
approximately 4,000 locally recruited guards. These guards are supervised,
managed and trained by the Company's professional security staff, but
approximately 2,500 are employed by local companies that subcontract their
manpower to the Company. Other security services provided by the Company
include risk assessment, project organization and management, equipping,
training and management of existing guard forces, system design, procurement,
installation, crisis management, VIP protection, specialist instruction and
training and evacuation planning.

                  In connection with its Security Services Division, the
Company has invested substantial resources outside of the United States and
plans to continue to do so in the future. The Company's international
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 its 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. See Note 17 to Consolidated
Financial Statements.

                  Electronic Security and Fire Alarm Systems

                  The Company is a leading systems engineer specializing in the
supply, integration, maintenance and technical support of sophisticated
electronic and computer-driven security and fire alarm systems. The Company
specializes in high-speed analog and digital transmission designs for life
safety, communication, alarm, access control, television and security systems
which are installed in airports, banks, government buildings, hospitals,
prisons, universities, mercantile and retail stores, office buildings, radio
and television stations, computer data centers and telephone exchanges.

CUSTOMERS

         MANUFACTURED PRODUCTS DIVISION

                  The Company sells its manufactured products primarily through
a network of independent distributors who serve the law enforcement
communities. In 1997, the Company sold approximately 77% of its manufactured
products in the U.S., with the balance sold internationally. The primary
end-users of the Company's manufactured products are law enforcement agencies,
local police departments, state police agencies, state correctional facilities,
highway patrols and sheriffs' departments. The Company's largest distributor
accounted for approximately 6.3% of the Company's overall revenue from
manufactured product sales in 1997, and the Company's top ten customers
accounted for approximately 19.6% of overall revenue from manufactured product
sales in 1997.

         SECURITY SERVICES DIVISION

                  The Company's principal security services clients include
large multi-national corporations that have significant investments in remote
and hostile areas of the world. These clients include petrochemical companies,
who accounted for approximately 38% of the Company's security business in
fiscal 1997, and mining



                                       5
<PAGE>

and construction companies, who accounted for approximately 11% of the
Company's security business in fiscal 1997. Other significant clients include
the United Nations, governmental embassies, including those belonging to the
United States, projects funded by the World Bank and the European Commission
and a variety of banking, finance, aid and humanitarian organizations and
companies engaged in international trade and commerce.

MARKETING AND DISTRIBUTION

         MANUFACTURED PRODUCTS DIVISION

                  The Company believes that it enjoys excellent name
recognition and a strong reputation in the manufacture of security products.
The central element of the Company's marketing strategy is to leverage its name
recognition and reputation by positioning the Company as a global provider of
many of the security products and services that the Company's customers may
need. The Company believes that, by positioning itself in this manner, it can
capitalize on its existing customer base and its extensive global distribution
network, maximize the benefits of its long history of supplying security-related
products around the world and leverage its leadership position in the security
product and services markets. When entering a foreign market, the Company seeks
to penetrate the market by offering the most comprehensive range of security
products and services available in the security industry. The Company tailors
its marketing strategy to each geographic area of the world and will often
tailor its product offering by country. The Company believes that there are
opportunities for cross-marketing of military and law enforcement security
products which could strengthen the image of each product group. The Company
believes that its ability to cross-market its security products and services
will enhance the Company's position as an integrated provider of an extensive
assortment of security products and services.

                  In addition, the Company has designed comprehensive training
programs to provide initial and continuing training to its customers in the
proper use of its various product lines. These training programs are typically
conducted by trained law enforcement and military personnel hired by the
Company for such purpose. The Company's training programs are an integral part
of the Company's customer service offerings. Not only do the training programs
enhance customer satisfaction, but they also breed customer loyalty and brand
awareness, thereby enabling the Company to sell additional products to the same
customer. The Company's marketing effort is further augmented by its
involvement with and support of several important law enforcement associations,
including the National Tactical Officer's Association, the International Law
Enforcement Firearms Instructors, the American Society of Law Enforcement
Trainers and the International Association of Chiefs of Police.

                  The Company's distribution strategy involves the utilization
of a worldwide distribution network of approximately 345 domestic distributors
and 150 international agents, as well as 15 regional domestic sales managers
who promote the Company's products but refer customers to a local distributor
for purchasing. The Company further reinforces distributor loyalty by offering
price discounts to high volume distributors. The Company believes its
relationships with its distributors are strong. The distributors benefit from
their association with the Company due to the quality of the Company's
manufactured products, the scope of its product line, the high degree of
service provided by the Company and the distributor's opportunity to
participate profitably in the sale of the Company's products.

                  The Company is continually looking for ways to expand its
distribution network. As the Company identifies and acquires businesses that
fit strategically into its existing manufactured product and security service
portfolio, the Company believes that it will maximize its distribution network
by offering additional security products and services. The Company's
acquisition of Supercraft has opened new channels of global distribution to
parts of the world not previously penetrated by the Company. The Company
believes that its combination with DSL will allow the Company to take advantage
of DSL's extensive access to multi-national corporations, whose security
service needs in unstable countries may in the future require products that
complement the security services provided.


                                       6
<PAGE>

                  The Company's backlog of orders consists of orders received
but not yet manufactured. In the case of orders from new customers or
international customers, such backlog includes only orders where management
believes an acceptable assurance of payment has been received. As of December
27, 1997, the Company had an estimated backlog in the manufactured products
division of $1.9 million, as compared to $1.8 million as of December 28, 1996.
As of March 20, 1998, the Company had an estimated backlog of $5.0 million.
Management believes that a backlog of approximately four weeks production
provides for reasonable production scheduling. The Company may reduce or
increase production in the future as a result of changes in the level or mix of
backlog.

         SECURITY SERVICES DIVISION

                  The Company's experience has been that its most successful
form of marketing for its security services is client referrals generated by
the professional abilities of its personnel. As a result, the Company spends
minimal amounts on direct unsolicited marketing for its security service
business. The Company does not, however, rely upon client referrals as its only
strategy of growth. While the Company will rarely enter a country without a
substantial contract for security services already in place, the Company
regularly seeks out new areas which offer potential investment opportunities
for multi-national corporations and present serious security problems which
make such investment opportunities risky. In such cases, the Company will make
contact with organizations that are either currently investing or considering
an investment in such areas. Once established in a new country, the Company
employs qualified country project managers, who often speak the language native
to that country, to develop additional business.

                  The Company also seeks contracts with high visibility
customers for security services in the countries in which it operates. Examples
of such customers include United States embassies, the United Nations and its
related organizations, projects funded by the World Bank and the European
Commission, the International Committee for the Red Cross, the International
Federation of Red Cross and Red Crescent Societies and large multi-national
corporations. The Company may accept a lower profit margin on these contracts
because the referral and advertising value of these contracts outweighs any
reduced profit that may result from such contracts. By providing security
services to such high visibility customers, the Company believes that it will
be able to increase its market share of the security services required by large
multi-national companies operating in those countries.

GOVERNMENT AND INDUSTRY REGULATIONS AND STANDARDS

                  The bullet, sharp instrument penetration and bomb resistant
garments and accessories manufactured and sold by the Company are not currently
subject to government regulations. However, law enforcement agencies and the
military publish invitations for bidding which specify certain standards of
performance which bidders' products must meet. The National Institute of
Justice ("NIJ"), under the auspices of the United States Department of Justice,
has issued a voluntary ballistic standard (NIJ 0101.03) for bullet resistant
vests. The Company regularly submits its vests to independent laboratories for
ballistic testing under this voluntary ballistic standard.

                  The Company's armor products utilize different "applications"
or combinations of material to produce equipment which provides protection
against fragments or gunshots fired from a variety of firearms at each "Threat
Level," as defined by the NIJ's Standard 0101.03 ("Threat Levels"). The NIJ
conducts a series of tests designed to verify that armor used by domestic law
enforcement officers meets a designated standard of protection.

                  Threat Levels are defined in recognition of the trade-off
between protection and wearability. The weight and bulk of body armor are
generally proportioned to the protection it provides. The Threat Level
protection that a police officer will desire in a vest is determined by the
types of threats he will face on the streets, including the officer's own
weapon, should it be used against the officer. As criminals continue to use
heavier weapons,



                                       7
<PAGE>



officers will require protection at a higher Threat Level. The Company believes
that police departments and other purchasers will seek vests that provide an
adequate level of protection without being so heavy and uncomfortable that the
user is discouraged from wearing it.

                  The Company believes that it has created a competitive
advantage in the wearability of its vests. Wearability tests conducted by the
Company have convinced management that the Company's vests are more comfortable
to wear, fit better and can be worn for longer periods of time than similar
products from competitors. Management believes that the Company's armor
products offer higher protection at lower weight and bulk. The Company also
offers designs that provide greater vital-area coverage than other equipment on
the market. The Company custom manufactures each vest to specific measurements
of individual wearers. At least seven different body measurements are taken,
after which the basic design is then further modified by weight, height and
gender of the prospective wearer.

                  The less-than-lethal manufacturing operations of the Company
are subject to the regulation of several regulatory agencies. Within the State
of Wyoming, the Company operates under the guidelines of the Wyoming Department
of Employment Workers' Safety and Compensation Division. The Company has
enrolled in an Employer Voluntary Technical Assistance Program (EVTAP), which
monitors the manufacturing processes to ensure that the Company is free of any
adverse work conditions. Currently, the Company is in good standing within the
EVTAP program. Furthermore, the Company adheres to the guidelines for emissions
as regulated by the Wyoming Department of Environmental Quality. The Company's
operations are also regulated by the Bureau of Alcohol, Tobacco and Firearms.
The Company ships hazardous goods, and in doing so, is subject to the
regulations of the United States Department of Transportation for packaging and
labeling. Certain of the Company's international shipments are subject to the
regulations of the United States Departments of Commerce and State. See
"--Environmental Matters."

MANUFACTURING AND RAW MATERIALS

                  The Company manufactures bullet, bomb and projectile
resistant garments and other ballistic protection devices and assembles its
portable narcotic identification kits at its Jacksonville, Florida facility.
The Company manufactures less-than-lethal products at its Casper, Wyoming
facilities. The Company manufactures military apparel, high visibility garments
and some ballistic resistant garments at its manufacturing facility in
Westhoughton, England. The primary raw materials used by Company in
manufacturing ballistic resistance garments are various ballistic fibers,
including Kevlar(R), Twaron(R) and SpectraShield(R). Kevlar(R) is an aramid
fiber product of E.I. Du Pont de Nemours & Co., Inc. SpectraShield(R) is a high
strength polyethylene product of Allied Signal Corp. Twaron(R) is an aramid
fiber product of Akzo-Nobel Fibers B.V. The Company does not purchase these
fibers directly from the manufacturers, but rather purchases fiber from weaving
companies who convert the raw fibers into cloth. See Item 13, "Certain
Relationships and Related Transactions."

                  The raw materials used by the Company in the production of
chemical agents are supplied by several sources. The raw chemicals used in the
production of CS tear gas are readily obtainable with the exception of
Malononitrile, for which sources are limited. If the Company were unable to
obtain Malononitrile, its production of CS tear gas could be severely
curtailed. The remainder of the chemicals and piece parts used by the Company
are readily available from other suppliers. While it manufactures its armor
products on a built-to-order basis, the Company does maintain reasonable
inventories of its less-than-lethal and anti-riot products. The Company
purchases other raw materials used in the manufacture of its various products
from a variety of sources, and it believes additional sources of supply of
these materials are readily available.

                  The Company adheres to strict quality control standards and
conducts extensive product testing throughout its manufacturing process. Raw
materials supplied to the Company are also tested to ensure quality. The body
armor manufactured by the Company is ISO 9002 certified. ISO 9002 standards are
promulgated by the International Organization of Standardization and have been
adopted by more than 100 countries worldwide. The



                                       8
<PAGE>



Company obtained ISO 9002 certification by successfully completing an audit
certifying its compliance with a comprehensive series of quality management and
quality control standards. The Company is one of only two corporations in the
industry who have earned this prestigious certification. The Company is in the
process of seeking ISO 9002 certification for its less-than-lethal products.

RESEARCH AND DEVELOPMENT

                  The Company is committed to research and development of
manufactured security products. During fiscal 1997, the Company had
expenditures related to new product development and testing of approximately
$605,000, as compared with $513,760 during fiscal 1996. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation."

COMPETITION

                  The markets for the Company's security products and services
are highly competitive and fragmented. In the body armor product industry, the
Company competes by attempting to provide superior design and engineering and
production expertise with respect to its line of fully-integrated ballistic and
blast protective wear. In the less-than-lethal product industry, the Company
competes by attempting to provide a broad variety of less-than-lethal products
with unique features and formulations. There can be no assurance, however, that
the Company will be able to compete successfully in the future. The principal
competitive factors for all of the Company's manufactured products are price,
quality of engineering and design, production capability and capacity, ability
to meet delivery schedules and reputation in the security product industry.

                  The security services industry is extremely competitive and
highly fragmented. Companies within the security services industry compete on
the basis of the quality of security services provided, ability to provide
national and international security services and range of security services
offered, as well as price and reputation. The Company's security services also
face a wide variety of competition in different areas, although there is no
single organization that competes directly with DSL globally. The main
competition in supplying security services to the petrochemical and mining
industries comes from local security companies, in-house security programs and
small consultancy companies. In the embassy and international agency protection
business, the competition comes from local companies and from the largest
manned guarding companies including the Wackenhut Corporation, Pinkerton's,
Inc., Group 4 and ICTS International, N.V. As the countries within which DSL
operates become more mature and stable, competition is likely to increase.

EMPLOYEES

                  As of March 25, 1998, the Company had a total of
approximately 1,830 employees, of which approximately 290 were employed in
product manufacturing and approximately 1,540 were employed in security
services. Approximately 35 employees employed by Supercraft are represented by
the General Municipal Boilermaker and Allied Trade Union. The collective
bargaining agreement currently in effect for these employees expires on
December 31, 1998. Approximately three employees employed by LST are
represented by the Local Union No.3 of the International Brotherhood of
Electrical Workers. The collective bargaining agreement currently in effect for
these employees expires on June 30, 1999. None of the Company's remaining
employees are represented by unions or covered by any collective bargaining
agreements. The Company has not experienced any work stoppages or employee
related slowdowns and believes that its relationship with its employees is
good. The Company also utilizes the services of approximately 2,500 independent
contractors in its security services business as guards. These independent
contractors are employed by local in-country companies that subcontract their
manpower to the Company in exchange for fees which are payable to the companies
from whom such manpower is contracted.





                                       9
<PAGE>



PATENTS AND TRADEMARKS

                  The Company currently has numerous issued U.S. and foreign
patents and pending patent applications relating to its manufactured product
lines. The Company also has several registered trademarks concerning its
manufactured products. The trademarks include American Body Armor (Trademark),
Defense Technology (Trademark), Gold Series GSX(R), Def-Tec Products(R),
Distraction Device(R), NIK(R) and Identidrug(R). Although the Company does
not believe that its ability to compete in any of its manufactured product
markets is dependent solely on its patents and trademarks, the Company does
believe that the protection afforded by its intellectual property provides the
Company with important technological and marketing advantages over its
competitors. Although the Company has protected its technologies to the extent
that it believes appropriate, there can be no assurance that the Company's
measures to protect its proprietary rights will deter or prevent unauthorized
use of the Company's technologies. In other countries, the Company's
proprietary rights may not be protected to the same extent as in the United
States.

ENVIRONMENTAL MATTERS

                  The Company and its operations are subject to a number of
federal, state and local environmental laws, regulations and ordinances that
govern activities or operations that may have adverse environmental effects.
Such activities or operations include discharges to air and water, as well as
handling, storage and disposal practices regarding solid and hazardous
materials. Such laws and regulations may impose liability for the cost of
remediating sites of, and certain damages resulting from, past releases of
hazardous materials. Environmental laws continue to change rapidly, and it is
likely that the Company will be subject to increasingly stringent environmental
standards in the future. The Company uses CS and CN chemical agents in
connection with its production of tear gas. The chemicals are hazardous, and if
not handled and disposed of properly could cause environmental damage. The
Company believes that it currently conducts its activities and operations in
substantial compliance with applicable environmental laws. The Company believes
that its potential liability under the environmental laws, if any, would not
have a material adverse effect, individually or in the aggregate, on its
results of operations or financial condition. There can be no assurance in this
regard, however, nor can there be any assurance that environmental laws will
not become more stringent in the future or that the Company will not incur
significant costs in the future to comply with such environmental laws.

PURSUIT OF STRATEGIC ACQUISITIONS

                  The Company intends to diversify and expand its business
operations through the possible acquisition of one or more operating companies,
which may or may not be related to its current businesses. The Company believes
that there currently exists a large pool of attractive acquisition candidates
in the manufacturing and service sectors. The Company intends to continue to
pursue selective acquisitions to enhance its position in its current markets,
to acquire operations in new markets and to acquire operations that will
broaden the range of manufactured products and scope of security services
which the Company can provide. Other than as set forth below, the Company has
no binding commitments with respect to any acquisitions at the present time,
and it is uncertain as to when or if any acquisitions will be made.

                  On January 20, 1998, the Company executed a non-binding
letter of intent pursuant to which the Company has agreed to negotiate the
terms and conditions of an agreement pursuant to which the Company would
acquire all of the outstanding share capital of Asmara Limited, a London-based
provider of investigative services such as due diligence, asset tracing and
litigation intelligence. Consummation of the acquisition is subject to, among
other things, the completion of due diligence and other customary requirements.





                                       10
<PAGE>



ITEM 2.  PROPERTIES

                  The Company's principal facilities consist of the following:
<TABLE>
<CAPTION>
LOCATION                     PRINCIPAL USE                            OWNED/LEASED            APPROXIMATE SIZE
--------                     -------------                            ------------            ----------------
<S>                          <C>                                      <C>                     <C>
Jacksonville, Florida        Manufacturing, distribution,             Owned                   14 acres 70,000 square
                             corporate headquarters                                           feet(1)
Casper, Wyoming              Manufacturing, warehouse, office         Owned/Leased (2)        60 acres 61,700 square
                                                                                              feet
Westhoughton, England        Sales, manufacturing, warehouse          Owned                   44,000 square feet
London, England              Security services headquarters           Leased (3)              6,500 square feet
</TABLE>



(1)      The Company has the capacity to expand the building facility to
         142,000 square feet. The Company purchased 7 of the 14 acres listed in
         first quarter 1998.

(2)      Of the four properties at this location, three are owned by DTC.
         The fourth property occupied by DTC consists of two buildings. DTC
         owns one building and leases the other. The real property upon which
         these two buildings are situated is also leased. The leased building
         and the real property carry an annual rental of $26,400. The lease for
         this property expires on September 1, 1998.

(3)      DSL leases three floors and pays annual rent thereon in an amount
         equal to (pounds sterling) 130,000. The lease for this property
         expires in March 2002.

                  In addition, the Company also leases a 50,000 square foot
facility in Yulee, Florida, the Company's former manufacturing facility, which
it has subleased at full rental value until the April 30, 1999 expiration of
the lease. The annual rent for this property is $129,236 plus annual increases.
The sublease income was $35,000 in fiscal 1997 (October 1997 through December
1997). See Note 10 to Consolidated Financial Statements.

                  The Company believes its manufacturing, warehouse and office
facilities are suitable, adequate and have sufficient manufacturing capacity
for its current and anticipated requirements. The Company believes that it has
adequate insurance coverage for all of its properties and their contents.

ITEM 3.  LEGAL PROCEEDINGS

                  In November 1989, the Federal Trade Commission (the "FTC")
conducted an investigation into the accuracy of the Company's claims that body
armor it sold between 1988 and 1990 complied with testing and certification
procedures promulgated by the National Institute of Justice. On November 2,
1994, the Company entered into a consent order voluntarily settling the FTC's
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. On
January 4, 1995, the Company filed with the FTC a comprehensive compliance
report detailing the manner in which it was performing the obligations imposed
upon it by the consent order. In February 1997, the FTC asked for additional
information, which the Company believes will be the FTC's final request for



                                       11
<PAGE>



information before closing the case.

                  On January 30, 1997, the Company commenced an action in the
Supreme Court of the State of New York, New York County, against DTCoA, the
sole stockholder of DTCoA and the President and Chief Executive Officer of
DTCoA (collectively, the "Defendants") claiming that the Defendants breached
their agreements relating to the sale of the DTCoA Assets to the Company. The
relief sought by the Company includes monetary damages of approximately
$515,000, plus accruals, and punitive damages. The Company was granted a
preliminary injunction enjoining the Defendants from the unauthorized use of
the "Defense Technology" name. In addition, the Company was subsequently
granted another preliminary injunction enforcing the restrictive covenants
contained in the Asset Purchase Agreement and the Authorized Distributor
Agreement prohibiting the Defendants from competing with the Company. On April
3, 1997, the Defendants filed with the court an answer and counterclaims to the
Company's complaint. The Defendants have denied each of the Company's
allegations and have asserted several affirmative defenses. Defendants have
counterclaimed for, among other things, breach of the terms of the Asset
Purchase Agreement and the Authorized Distributor Agreement entered into in
connection with the Company's acquisition of the DTCoA Assets. The Company
believes that the counterclaims asserted against it are without merit, and
intends to vigorously defend such counterclaims.

                  The Company and DTC, among other parties, have been named as
defendants in a product liability lawsuit claiming damages for wrongful death
resulting from the use by law enforcement officers of less-than-lethal products
sold by DTCoA. The Company's insurance carrier has assumed the defense of this
lawsuit, and the Company does not believe at this time that the outcome of this
lawsuit will have a material adverse effect on the Company.

                  In addition to the above, the Company, in the normal course
of its business, is subject to claims and litigation in the areas of product
and general liability. The Company believes that it has adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on the Company's financial statements is generally
limited to the amount of its insurance deductibles. Management does not believe
at this time that any such claims have a material impact on the Company's
financial position, operations and liquidity.

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

                  There were no matters submitted to a vote of security holders
during the last quarter of fiscal 1997.

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                  The Company's common stock, par value $.01 per share (the
"Common Stock") has been traded on the American Stock Exchange (the "AMEX")
under the symbol "ABE" since March 18, 1996. Prior to March 18, 1996, the
Common Stock was traded in the over-the-counter market, and was listed in the
bid and ask quotes of brokers as reported by the National Quotation Bureau,
Inc. (the "Bulletin Board") under the symbol "ABOA."

                  The following table sets forth the range of reported high and
low bid quotations for the Common Stock as listed on the Bulletin Board for the
period January 1, 1996 to March 17, 1996 and the range of high and low sales
prices for the Common Stock on the AMEX for the remainder of fiscal 1996 and
fiscal 1997. The bid quotations represent inter-dealer prices, and do not
include mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions.




                                       12
<PAGE>


<TABLE>
<CAPTION>
1996                                                                                       HIGH             LOW
----                                                                                       ----             ---
<S>                                                                                        <C>              <C>
1st Quarter (through March 17).........................................................    5 3/4            2 3/4
1st Quarter (from March 18).............................................................   5 1/2            5 1/16
2nd Quarter.............................................................................   9                5 1/8
3rd Quarter.............................................................................   7 7/8            6
4th Quarter.............................................................................   8                6 1/2

1997
1st Quarter.............................................................................   9 1/2            7 1/2
2nd Quarter.............................................................................   10 7/8           8 3/4
3rd Quarter ............................................................................   12 3/4           10 1/2
4th Quarter ............................................................................   13 3/8           10 1/8

1998
1st Quarter (through March 25) .........................................................   11 3/4            9 3/4
</TABLE>


HOLDERS

         As of March 25, 1998, the Company had approximately 1,900
stockholders of record. Holders of shares held in "nominee" or street names are
included in this number.

DIVIDENDS

         The Company has not paid any cash dividends on its Common Stock for
the last three fiscal years, and does not intend to pay any cash dividends on
the Common Stock for the foreseeable future. The Company currently intends to
retain any earnings for working capital, capital expenditures and general
corporate purposes. In addition, except under certain conditions, the Company
is precluded from paying dividends on its Common Stock pursuant to the Credit
Facility with Barnett Bank. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operation--Liquidity and Capital
Resources."

RECENT SALES OF UNREGISTERED SECURITIES

                  The following information relates to unregistered securities
sold by the Company during fiscal 1997 and the first quarter of 1998.

         LOW VOLTAGE SYSTEMS TECHNOLOGY, INC.

                  On January 30, 1998, the Company acquired all of the issued
and outstanding shares of capital stock of LST. As part of the purchase price
therefor, the Company issued 18,519 unregistered shares of Common Stock valued
at the time at $187,500. The foregoing sale of securities was made in reliance
upon an exemption from the registration provisions of the Securities Act set
forth in Section 4(2) thereof as a transaction by an issuer not involving any
public offering.

         DSL GROUP LIMITED

                  On April 16, 1997, the Company combined with DSL in a
transaction accounted for as a pooling of interests. As part of the
consideration paid therefor, the Company issued 1,274,217 unregistered shares
of Common Stock valued at the time at $10.9 million. The foregoing sale of
securities was made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof as a
transaction by an issuer not involving any public offering.






                                       13
<PAGE>



         GORANDEL TRADING LIMITED

                  On June 9, 1997, the Company acquired the remaining 50% of
GTL that it did not previously own. As part of the purchase price therefor, the
Company issued 115,176 unregistered shares of Common Stock valued at the time
at $1.2 million. The foregoing sale of securities was made in reliance upon an
exemption from the registration provisions of the Securities Act set forth in
Section 4(2) thereof as a transaction by an issuer not involving any public
offering.

         AMENDED AND RESTATED 1996 STOCK OPTION PLAN

                  On September 2, 1997, Jonathan M. Spiller, the President and
Chief Executive Officer of the Company, was granted options under the 1996
Option Plan to purchase 250,000 shares of Common Stock at exercise prices
ranging from $10.4375, the market price of the Common Stock on September 2,
1997, to $12.00 per share. Of these options, (i) 100,000 options vested and
became exercisable on September 2, 1997, (ii) 100,000 options vest and become
exercisable on December 31, 1998, and (iii) 50,000 options vest and become
exercisable on December 31, 1999. The vesting and exercisability of the options
may be accelerated upon the occurrence of certain events.

                  On September 2, 1997, pursuant to the terms of his employment
agreement with the Company, David W. Watson, the Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company, was granted options
under the 1996 Option Plan to purchase 75,000 shares of Common Stock at an
exercise price per share of $10.4375, the market price of the Common Stock on
September 2, 1997, the date of the grant. These options vest over a period of
three years from the date of the grant, and all of such options become
exercisable on September 2, 2000. The vesting and exercisability of the options
may be accelerated upon the occurrence of certain events.

                  On September 2, 1997, pursuant to the terms of his employment
agreement with the Company, J. Lawrence Battle, the President-Manufactured
Products Division of the Company, was granted options under the 1996 Option
Plan to purchase 75,000 shares of Common Stock at an exercise price per share
of $10.4375, the market price of the Common Stock on September 2, 1997, the
date of the grant. The options vest over a period of three years from the date
of grant, commencing July 21, 1998, and all of such options become exercisable
on July 21, 2000. The vesting and exercisability of the options may be
accelerated upon the occurrence of certain events.

                  On April 7, 1997, the Company granted to Robert Dwek options
under the 1996 Option Plan to purchase 10,000 shares of Common Stock at an
exercise price per share of $9.00, the market price of the Common Stock on
April 7, 1997, the date of the grant. These options, which are fully vested,
were granted to Mr. Dwek in connection with certain consulting services
rendered by Mr. Dwek to the Company relating to the Company's acquisition of
Supercraft.

                  On December 8, 1997, the Company granted options to purchase
an aggregate of 206,000 shares of Common Stock under the 1996 Option Plan at
exercise prices ranging from $11.00 to $14.83 per share, to certain employees
of DSL. These options were granted pursuant to the terms and provisions of the
Company's combination with DSL in April 1997. All of these options vest and
become exercisable on April 16, 2000, subject to certain conditions. The
vesting and exercisability of these options may be accelerated upon the
occurrence of certain events.

                  During fiscal 1997, the Company also granted options to
various employees to purchase an aggregate of 75,000 shares of Common Stock
under the 1996 Option Plan at exercise prices ranging from $7.8125 to $9.875
per share. These options vest equally over a period of three years from the
date of the grant. The vesting of the options may be accelerated upon the
occurrence of certain events.





                                       14
<PAGE>



                  All of the foregoing sales of securities made pursuant to the
grant of options under the 1996 Option Plan were made in reliance upon an
exemption from the registration provisions of the Securities Act set forth in
Section 4(2) thereof as a transaction by an issuer not involving any public
offering. The shares of Common Stock underlying options granted under the 1996
Option Plan are not registered.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                   1997           1996          1995            1994            1993(a)
<S>                                  <C>            <C>           <C>             <C>               <C>
Total Revenues                       $  78,314      $  30,967     $  11,741       $  11,355         $   2,953
Net Income                               3,158            689           520             423               138
Basic Earnings Per Share(b)               0.23           0.09          0.11            0.07              0.02
Diluted Earnings Per Share(b)             0.21           0.08          0.08            0.07              0.02

Total Assets                            75,487         49,530         8,161           7,470             6,725
Long-Term Obligations                       11          5,780            28              61                27
Stockholders' Equity                    64,598         24,875         4,947           4,427             4,046
</TABLE>


(a)      As a result of emerging from Chapter 11 bankruptcy reorganization and
         adopting fresh-start reporting, the financial information for the
         period from September 20, 1993 through December 31, 1993 and
         thereafter includes the operating results of the reorganized Company.

(b)      The Company has adopted SFAS 128 as discussed in Note 12 to
         Consolidated Financial Statements.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATION

                  This analysis of the Company's results of operations should
be viewed in conjunction with the accompanying financial statements, including
notes thereto, contained in Item 8 of this Annual Report on Form 10-K. Certain
statements in this report may be forward-looking in nature, or "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are identified by such words and phrases as
"expects" and "could be."

                  Actual results may differ from those expressed or implied in
forward-looking statements. With respect to any forward-looking statements
contained in this report, the Company believes that it is subject to a number
of risk factors, including: the inherent unpredictablility of currency
fluctuations; competitive actions, including pricing; the ability to realize
cost reductions and operating efficiencies, including the ability to identify
and to realize other cost-reduction opportunities; and general economic and
business conditions. Any forward-looking statements in this report should be
evaluated in light of these important risk factors.

RESULTS OF OPERATIONS

FISCAL 1997 AS COMPARED TO FISCAL 1996

                  Revenues--manufactured products. Manufactured products
revenues increased $11.9 million, or 66%, to $29.9 million in fiscal 1997 from
$18.0 million in fiscal 1996. This increase in sales resulted primarily from
sales generated from the DTC and NIK operations in fiscal 1997, as well as
sales generated by Supercraft from the date of acquisition, April 7, 1997,
until December 27, 1997 and internal growth in the body armor business.

                  Revenues--security services. Security services revenues were
$48.4 million in fiscal 1997 compared to $13.0 million in fiscal 1996. The
increase is primarily due to only five months of operations being reflected in
fiscal 1996, as results of DSL operations have only been included from August
1, 1996, as previously stated. In addition, the security services business
generated substantial internal growth during fiscal 1997. Fiscal 1997



                                       15
<PAGE>



revenues also included approximately $12.0 million related to Angolan
operations which were ceased on January 16, 1998. See Note 17 to Consolidated
Financial Statements.

                  Cost of sales. Cost of sales increased $36.3 million, or
172%, to $57.4 million in fiscal 1997 from $21.1 million in fiscal 1996. The
majority of the increase is due to the combination with DSL, which had a $28.8
million impact on direct operating costs in fiscal 1997. The remaining $7.5
million increase in cost of sales is attributed to the increased costs of the
manufactured products business (associated with a 66% increase in revenues). As
a percentage of total revenues, cost of sales increased to 73% in fiscal 1997
from 68% in fiscal 1996, reflecting the higher cost of sales associated with
the security services business. In fiscal 1997, the Company also recorded
reserves of approximately $500,000 related to the cessation of operations in
Angola. See Note 17 to Consolidated Financial Statements.

                  Operating expenses. Operating expenses increased $5.6 million
to $12.5 million (16% of total revenues) in fiscal 1997 from $6.9 million (22%
of total revenues) during fiscal 1996. The increase in the actual dollar amount
of operating expenses between the periods was primarily due to overhead costs
associated with DSL, DTC and NIK and approximately $800,000 of selling, general
and administrative costs at the Company's headquarters in Jacksonville,
Florida, primarily for the development of the infrastructure of the Company as
a holding company.

                  Depreciation and amortization. Depreciation and amortization
expense increased to $1.1 million in fiscal 1997 from $554,000 in fiscal 1996.
Of the $573,000 increase, approximately $260,000 was due to amortization of
intangible assets acquired during 1996, another approximate $250,000 was due to
amortization of acquired goodwill in the DSL Transaction, with the remaining
increase due to the amortization of goodwill acquired with the Supercraft and
GTL acquisitions.

                  Merger, integration and other non-recurring charges. Fees and
expenses associated with completing the DSL Transaction have all been expensed
in fiscal 1997. These non-recurring expenses, in combination with certain other
charges relating to the financial and administrative restructuring and
consolidation of DSL into the Company, totaled approximately $2.5 million.

                  Equity in earnings of investees. Equity in earnings of
investees amounted to approximately $746,000 in fiscal 1997, compared to
$320,000 in 1996. The equity in earnings of investees relates to DSL's original
50% investment in GTL until June 9, 1997, the date the Company acquired the
remaining 50% interest not owned by DSL, at which point the 100% investment was
consolidated into the Company's results. The equity also relates to DSL's 20%
investment in Jardine Securicor Gurkha Services Limited ("JSGS"), a joint
venture company in Hong Kong. The 1996 period reflects only five months of
equity earnings, as results of DSL operations have only been included from
August 1, 1996, as previously stated.

                  Interest expense, net. Interest expense, net decreased
$320,000, or 62%, to $195,000 in fiscal 1997 from $515,000 in fiscal 1996. The
decrease in interest expense is primarily due to interest income earned on the
proceeds realized from the Public Offering, after the repayment of the balance
of approximately $18.6 million that was outstanding on the Credit Facility at
the time.

                  Operating income. Operating income increased $3.2 million,
or 152%, to $5.3 million in fiscal 1997 from $2.1 million in fiscal 1996.
Management believes that an additional measurement, "operating income before
merger, integration and other non-recurring charges," is useful and meaningful
to an understanding of the operating performance of the Company. However,
operating income before merger, integration and other non-recurring charges
should not be considered as an alternative either to operating income or net
income nor as an indicator of the Company's operating performance, cash flow
or as a measurement of liquidity. Operating income before the merger,
integration and other non-recurring charges of $2.5 million increased
$5.7 million, or 271%, to $7.8 million in fiscal 1997 from $2.1 million
in fiscal 1996. This increase is due to the combination with DSL and the
acquisitions of Supercraft, the DTCoA Assets and the NIK



                                       16
<PAGE>



Assets, as well as internal growth within DSL and American Body Armor &
Equipment, Inc., a Delaware corporation ("ABA").

                  Other income. Other income increased $390,000 to $392,000 in
fiscal 1997 from $2,000 in fiscal 1996. The other income results primarily from
fees earned as agent relating to the sale of the Company's Common Stock on
behalf of a former employee.

                  Income taxes. As of January 1, 1996, the Company had an
income tax net operating loss carryforward ("NOL") of approximately $4.4
million. Effective with the change in control of the Company by Kanders on
January 18, 1996, the utilization of this NOL became restricted in the United
States to approximately $300,000 per year. However, as of December 27, 1997,
the Company's net operating losses increased to approximately $7.8 million and
expire in varying amounts in fiscal years 2006 to 2010. The increase in the net
operating losses is a result of the recording of DSL deferred tax assets that
related to fiscal 1997 losses generated in the United Kingdom which will be
offset against future income.

                  Income taxes totaled $2.4 million in fiscal 1997, as compared
to $1.2 million in fiscal 1996. The provision of 41.9% has been based on the
Company's U.S. federal and state statutory rates of approximately 35% for its
U.S.-based companies and a 38% blended effective tax rate for foreign
operations of the Company, and was increased by approximately $750,000 for
certain items, primarily merger-related, non-recurring charges which are not
tax deductible.

                  In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), the Company has
recorded a deferred tax asset, representing its cumulative net operating loss
carryforward and deductible temporary differences, subject to applicable limits
and an asset valuation allowance. As of December 27, 1997, the gross amount of
this deferred tax asset was $3.1 million, of which $1.8 million has been offset
by a valuation allowance.

                  Dividends on preference shares. During fiscal 1997 and 1996,
DSL incurred $143,000 and $239,000, respectively, in preference share
dividends. These accrued dividends  as well as the shares underlying the
dividends were acquired by the Company on April 16, 1997 in the
DSL Transaction.

                  Net income applicable to common stockholders. Net income
increased $2.5 million or 358%, to $3.2 million in fiscal 1997 from $689,000
in fiscal 1996. As noted previously, the increase is due to the effect of
acquisitions made during fiscal 1997 together with growth in the core
businesses, being partially offset by the non-recurring charge incurred by
the Company in fiscal 1997. Excluding the merger, integration and other
non-recurring charges discussed above, the Company would have earned $0.33 per
diluted share as compared to actual diluted earnings per share of $0.21.

                  Subsequent event. On January 16, 1998, DSL ceased operations
in the country of Angola. The cessation of operations by DSL in Angola was
dictated by that government's decision to deport all of DSL's expatriate
management and supervisors. As a result of this action, DSL believed that it
could no longer ensure the safety of its personnel or that of its clients.
While Angolan operations represented approximately $12.0 million of the
Company's revenues during fiscal 1997, the contribution was only $1.0 million
before allocation of DSL's central overheads. DSL's assets in Angola have been
substantially secured by DSL and DSL's clients have made temporary alternative
arrangements for the provision of their ongoing security needs. Included in
the fiscal 1997 results is a $0.5 million pretax reserve to provide for
potential losses associated with DSL's withdrawal from Angola. The Company is
currently reviewing all of its available alternatives in connection with the
cessation of DSL's operations in Angola, including various disputes with its
minority partner in a joint venture which managed certain of the Angolan
business.





                                       17
<PAGE>



FISCAL 1996 AS COMPARED TO FISCAL 1995

                  Revenues--manufactured products. Manufactured products
revenues increased $6.3 million, or 54%, to $18.0 million in fiscal 1996 from
$11.7 million in fiscal 1995. This increase resulted primarily from a 35%
increase in domestic and international products revenues, coupled with revenues
generated by the DTC and NIK operations for one and two quarters, respectively.

                  Revenues--security services. Security services revenues were
$13.0 million in fiscal 1996 during the period from August 1, 1996 through
December 31, 1996. No security services revenues prior to August 1, 1996 have
been included in the Company's financial information.

                  Cost of sales. Cost of sales increased $13.7 million, or
184%, to $21.1 million in fiscal 1996 from $7.4 million in fiscal 1995. Of such
increase, $10.1 million is due to increased security services revenues
generated in fiscal 1996, as stated above. As a percentage of total revenues,
cost of sales increased to 68.4% in fiscal 1996 from 63.4% in fiscal 1995,
reflecting the higher cost of sales associated with the security services
business. Manufactured products business gross margin increased to 40% in
fiscal 1996 from 37% in fiscal 1995, due to the impact of higher margins earned
on manufactured products sold by both DTC and NIK.

                  Operating Expenses. Operating expenses increased $3.6
million, or 111%, to $6.9 million in fiscal 1996 from $3.3 million in fiscal
1995. As a percentage of net sales, operating expenses decreased to 22% in
fiscal 1996 from 28% in fiscal 1995. DSL's operating expenses as a percentage
of net sales amounted to 14% for fiscal 1996, whereas the manufactured products
division's operating expenses as a percentage of net sales amounted to 28% for
fiscal 1996. Of the $3.6 million increase, $1.8 million is attributable to DSL,
approximately $800,000 is due to increases in commissions resulting from
increased sales in the manufactured products division, and the remainder is due
to the additional operating costs associated with NIK and DTC.

                  Depreciation and amortization. Depreciation and amortization
increased $406,000 to $554,000 in fiscal 1996 from $148,000 in fiscal 1995. Of
the $406,000 increase, the majority was due to additional depreciation and
amortization related to the manufactured products business (i.e., the DTCoA
Assets purchased). In addition, approximately $159,000 of this expense relates
to the amortization of goodwill on the books of DSL at the time of the merger
and carried over onto the books of the Company.

                  Equity in earnings of investees. Equity in investments held
by DSL amounted to approximately $320,000 in fiscal 1996 compared to $0 in
fiscal 1995. These earnings relate to GTL and JSGS, as discussed previously.

                  Interest expense, net. Interest expense, net increased
$234,000, or 83%, to $515,000 in fiscal 1996 from $281,000 in fiscal 1995. This
increase resulted primarily from $261,000 of interest expense incurred by DSL
relating to its working capital loan. This loan has subsequently been repaid in
full. In addition, the Company incurred net interest expense of $253,000 on its
outstanding 5% Convertible Subordinated Notes (the "Convertible Notes"), which
were redeemed and converted to Common Stock in December 1996.

                  Other income. Other income decreased $226,000 to $2,000 in
fiscal 1996 from $228,000 in fiscal 1995. The other income in fiscal 1995
relates to the release of a non-compete agreement entered into in 1990 between
the Company and a competitor.

                  Income before income taxes. Income before income taxes
increased $1.3 million to $2.1 million in fiscal 1996 from $824,000 in fiscal
1995. Of the $1.3 million increase, approximately $600,000 was attributable to
the manufactured products division and approximately $700,000 to the security
services division.





                                       18
<PAGE>



                  Income taxes. The Company's net operating loss carry forward
("NOL") at December 28, 1996 decreased to approximately $4.4 million from
approximately $4.7 million at January 1, 1996. Due to the Company's change in
control resulting from the Kanders investment in January 1996, the allowed
annual usage of this tax benefit became restricted to approximately $300,000
per year.

                  The Company's effective tax rate was 37% in fiscal 1995
compared to 57% in fiscal 1996 (excluding the U.S. GAAP adjustment of the
preference share dividends). This increase in rate was incurred due to an
unusual and extraordinary tax penalty of approximately $320,000 relating to
DSL's operation in Kazakhstan. Had this charge not been incurred, DSL's
effective tax rate would have been 45%.

                  In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), the Company has
recorded a deferred tax asset, representing its cumulative net operating loss
carryforward and deductible temporary differences, subject to applicable limits
and an asset valuation allowance. Any future benefit obtained from the
realization of this asset will be applied to reduce the reorganization value in
excess of amounts allocable to identifiable assets. As of December 28, 1996,
the gross amount of this deferred tax asset was $1.9 million, of which $1.8
million has been offset by a valuation allowance.

                  Dividends on preference shares. Preference share dividends
were approximately $239,000 in fiscal 1996. No dividends were paid in fiscal
1995. The preference shares on which dividends were accrued were acquired by
the Company on April 16, 1997 in the DSL Transaction.

                  Net income applicable to common stockholders. Net income
increased $169,000, or 33%, to $689,000 in fiscal 1996 from $520,000 in fiscal
1995. This increase reflects the effect of increased sales in fiscal 1996 as
well as the positive effects on net income from the NIK and DTC operations,
partially offset by non-recurring non-operating income only included in fiscal
1995.

LIQUIDITY AND CAPITAL RESOURCES

                  Prior to April 30, 1996, the Company's principal source of
working capital was its credit facility with LaSalle. On April 30, 1996, the
Company sold $11.5 million principal amount of its Convertible Notes and used a
portion of the proceeds thereof to repay all amounts outstanding under the
LaSalle credit facility. Thereafter, the Company terminated the LaSalle credit
facility. In December 1996, the holders of all of the Convertible Notes
converted their Convertible Notes into an aggregate of 2,300,000 shares of
Common Stock.

                  On November 14, 1996, the Company entered into a revolving
working capital credit facility (the "Credit Facility") with Barnett Bank for
up to $10 million. The Credit Facility was amended as of March 26, 1997 to
increase the revolving line of credit to $20 million. In addition, the Credit
Facility provides for a separate sublimit of $5 million under an acceptance
facility. The Credit Facility also provides for the issuance of letters of
credit to the Company. As of the end of the fourth quarter of 1997, the Company
had no indebtedness to Barnett Bank. The Company's indebtedness under the
Credit Facility bears interest, at the Company's option, at a rate of either
(i) Barnett Bank's prime rate less .25% or (ii) an adjusted LIBOR rate equal to
2.25% over the LIBOR rate.

                  As of March 20, 1998, each of the Company's U.S. subsidiaries
(the "U.S. Subsidiaries"), other than ABA and U.S. Defense Systems, Inc., a
Delaware corporation ("USDS"), is a guarantor of the Company's obligations
under the Credit Facility. The Credit Facility is secured by a security
interest in, among other things, inventory, accounts receivable, equipment and
general intangibles of the Company and each of the U.S. Subsidiaries. In
addition, as further collateral for the Credit Facility (i) the Company entered
into a Pledge Agreement with Barnett Bank pursuant to which the Company pledged
as further collateral for the Credit Facility, all of the issued and
outstanding capital stock of each of the U.S. Subsidiaries, other than ABA and
USDS, and (ii) NIK and DTC entered into a Collateral Assignment with Barnett
Bank (the "Collateral Assignment") pursuant to which they each granted a
security interest in the trademarks, patents and other intellectual property
owned by each



                                       19
<PAGE>



entity. The Company agreed to cause any newly formed or acquired subsidiaries
to guarantee the Company's obligations under the Credit Facility.

                  The Credit Facility contains certain restrictive covenants,
including limitations on the encumbrance and transfer of assets, the creation
of indebtedness and the maintenance of certain levels of tangible net worth and
working capital. In addition, the Credit Facility restricts the payment of
dividends. The Credit Facility expires on March 1, 1999, subject to extension
under certain circumstances.

                  On July 25, 1997, the Company issued 4,000,000 new shares of
Common Stock at $10.125 per share through the Public Offering, which was
underwritten by Dillon, Read & Co. Inc. (now known as SBC Warburg Dillon Read
Inc.), Equitable Securities Corporation (now known as SunTrust Equitable
Securities) and Stephens Inc. Net of underwriting discounts and commissions,
the Company realized proceeds of $38,070,000, of which approximately $18.6
million was used to repay in full the Company's outstanding balance on the
Credit Facility. The remaining net proceeds were invested in short term
instruments.

                  As of December 28, 1996, the Company had working capital of
$14.3 million, which reflects the net proceeds of $8.6 million (after paying
down the LaSalle credit facility to zero) from the issuance of the Convertible
Notes as well as positive cash flow from operations. As of December 27, 1997,
the Company had working capital of $31.9 million.

                  The Company anticipates that cash generated from the Public
Offering, operations and borrowings under the Credit Facility will enable the
Company to meet its liquidity, working capital and capital expenditure
requirements during the next 12 months. The Company, however, may require
additional financing to pursue its strategy of growth through acquisitions. If
such financing is required, there are no assurances that it will be available,
or if available, that it can be obtained on terms favorable to the Company or
on a basis that is not dilutive to stockholders.

                  The Company's spending for its fiscal 1998 capital
expenditures will be approximately $1.0 million, of which the Company has
already spent approximately $150,000. Such expenditures include, among other
things, vehicles and communication equipment used in servicing DSL customers,
computer equipment and software, and manufacturing machinery and equipment.

YEAR 2000 COMPLIANCE

                  The financial impact to the Company of Year 2000 compliance
has not been and is not anticipated to be material to the Company's financial
position or results of operations in any given year. The Company has recently
purchased and installed information systems, consisting of hardware and software
supplied by third parties, which are Year 2000 compliant. However, because most
computer systems are, by their very nature, interdependent, it is possible that
non-compliant third party computers could "reinfect" the Company's computer
systems. The Company could be adversely affected by the Year 2000 problem if it
or unrelated parties fail to successfully address this problem. The Company
intends to develop a plan to communicate with the unrelated parties, including
its regulatory consultants with whom it deals, to coordinate Year 2000
compliance. The costs incurred in addressing Year 2000 compliance will be
expensed as incurred and are not expected to be material.


                                       20
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The response to this item is included in Item 14.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                    PART III

                  The information called for pursuant to this Part III, Items
10, 11, 12 and 13, is incorporated by reference from the Company's definitive
proxy statement which the Company intends to file with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
ended December 27, 1997.

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.          EXECUTIVE COMPENSATION

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





                                       21
<PAGE>



                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM
         8-K

(a)      Exhibits

                  The following Exhibits are hereby filed as part of this
Annual Report on Form 10-K:

EXHIBIT NO.       DESCRIPTION
-----------       -----------

2.1**             Order confirming Debtor's Third Amended and Restated Plan of
                  Reorganization with the Third Amended and Restated Plan of
                  Reorganization attached thereto (incorporated by reference
                  from Exhibit 2 to Form 8-K, Current Report of the Company,
                  dated October 1, 1993).

2.2**             Asset Purchase Agreement, dated as of August 23, 1996,
                  between the Company, DTC, Robert L. Oliver, Sandra A. Oliver
                  and DTCoA (filed as Exhibit 2.1 to Form 8-K, Current Report
                  of the Company, dated October 9, 1996 and incorporated herein
                  by reference).

2.3**             Agreement and Plan of Merger, dated July 23, 1996, by and
                  between American Body Armor & Equipment, Inc., a Florida
                  corporation, and the Company (filed as Exhibit 2.1 to Form
                  8-K, Current Report of the Company, dated September 3, 1996
                  and incorporated herein by reference).

2.4**             Agreement for the Sale and Purchase of the Whole of the
                  Issued Share Capital of DSL, dated April 16, 1997, between
                  the Company, Armor Holdings Limited, NatWest Ventures
                  Nominees Limited and Others and Martin Brayshaw (filed as
                  Exhibit 2.2 to Form 8-K, Current Report of the Company, dated
                  April 22, 1997 and incorporated herein by reference).

3.1**             Certificate of Incorporation of the Company (filed as Exhibit
                  3.1 to Form 8-K, Current Report of the Company, dated
                  September 3, 1996 and incorporated herein by reference).

3.2**             Certificate of Merger of American Body Armor & Equipment,
                  Inc., a Florida corporation, and the Company (filed as
                  Exhibit 3.2 to Form 8-K, Current Report of the Company, dated
                  September 3, 1996 and incorporated herein by reference).

3.3**             Bylaws of the Company (filed as Exhibit 3.3 to Form 8-K,
                  Current Report of the Company, dated September 3, 1996 and
                  incorporated herein by reference).





                                       22

<PAGE>


10.1**            Amended and Restated Loan Agreement, dated March 26, 1997,
                  between the Company and Barnett Bank (filed as Exhibit 10.4
                  to Form 8-K, Current Report of the Company, dated April 22,
                  1997 and incorporated herein by reference).

10.2**            Renewal Promissory Note, dated March 26, 1997, made by the
                  Company in favor of Barnett Bank (filed as Exhibit 10.5 to
                  Form 8-K, Current Report of the Company, dated April 22, 1997
                  and incorporated herein by reference).

10.3**            Form of Amended and Restated Security Agreement, dated March
                  26, 1997, made by the Company and each of its U.S.
                  subsidiaries, in favor of Barnett Bank (filed as Exhibit 10.6
                  to Form 8-K, Current Report of the Company, dated April 22,
                  1997 and incorporated herein by reference).

10.4**            Pledge Agreement, dated March 26, 1997, made by the Company
                  in favor of Barnett Bank (filed as Exhibit 10.7 to Form 8-K,
                  Current Report of the Company, dated April 22, 1997 and
                  incorporated herein by reference).

10.5**            Form of Collateral Assignment, dated March 26, 1997, made by
                  DTC and NIK in favor of Barnett Bank (filed as Exhibit 10.8
                  to Form 8-K, Current Report of the Company, dated April 22,
                  1997 and incorporated herein by reference.

10.6**            Amendment to Acceptance Credit Agreement, dated March 26,
                  1997, between the Company and Barnett Bank (filed as Exhibit
                  10.9 to Form 8-K, Current Report of the Company, dated April
                  22, 1997 and incorporated herein by reference).

10.7**            Consent with respect to Guaranty of Payment, dated as of
                  March 26, 1997, of DTC, NIK and Armor Holdings Properties,
                  Inc. (filed as Exhibit 10.10 to Form 8-K, Current Report of
                  the Company, dated April 22, 1997 and incorporated herein by
                  reference.

10.8**            Form of Guaranty of Payment, dated November 14, 1996 (filed
                  as Exhibit 10.11 to Form 8-K, Current Report of the Company,
                  dated April 22, 1997 and incorporated herein by reference).

10.9**@           Employment Agreement between Jonathan M. Spiller and the
                  Company, dated as of January 18, 1996 (filed as Exhibit 10.6
                  to Form 10-KSB for fiscal 1995 and incorporated herein by
                  reference).

10.10**@          Employment Agreement between Richard T. Bistrong and the
                  Company, dated as of January 18, 1996 (filed as Exhibit 10.8
                  to Form 10-KSB for fiscal 1995 and incorporated herein by
                  reference).

10.11**@          Employment Agreement between Robert R. Schiller and the
                  Company, dated as of July 24, 1996 (filed as Exhibit 10.13 to
                  Form 10-KSB for fiscal 1996, dated March 25, 1997 and
                  incorporated herein by reference).

10.12**@          Employment Agreement between J. Lawrence Battle and the
                  Company, dated as of October 29, 1997 (filed as Exhibit 10.1
                  to Form 10-Q for the quarterly period ended September 27,
                  1997, dated November 11, 1997 and incorporated herein by
                  reference).





                                       23
<PAGE>



10.13**@          Employment Agreement between David W. Watson and the Company,
                  dated as of October 29, 1997 (filed as Exhibit 10.2 to Form
                  10-Q for the quarterly period ended September 27, 1997, dated
                  November 11, 1997 and incorporated herein by reference).

10.14**@          Service Agreement between Alastair G.A. Morrison, the Company
                  and DSL, dated April 16, 1997 (filed as Exhibit 10.16 to
                  Registration Statement No. 333-28879 on Form S-1 of the
                  Company and incorporated herein by reference).

10.15**@          Service Agreement between the Hon. Richard N. Bethell, the
                  Company and DSL, dated April 16, 1997 (filed as Exhibit 10.17
                  to Registration Statement No. 333-28879 on Form S-1 of the
                  Company and incorporated herein by reference).

10.16**           Form of Escrow Agreement, dated April 16, 1997, between the
                  Company, the Warrantors of DSL and Ashurst Morris Crisp
                  (filed as Exhibit 10.2 to Form 8-K, Current Report of the
                  Company, dated April 22, 1997 and incorporated herein by
                  reference).

10.17**           Form of Registration Rights Agreement, dated April 16, 1997,
                  between the Company and the Vendors of DSL (filed as Exhibit
                  10.3 to Form 8-K, Current Report of the Company, dated April
                  22, 1997 and incorporated herein by reference).





                                       24
<PAGE>

10.18**           Form of Option for 300,000 shares of Common Stock, dated May
                  15, 1996 granted to Richmont Capital Partners I, L.P. (filed
                  as Exhibit 10.34 to Registration Statement No. 333-28879 on
                  Form S-1 of the Company and incorporated herein by
                  reference).

10.19**           Escrow Agreement, dated September 30, 1996, between the
                  Company, DTC, Robert L. Oliver, Sandra A. Oliver, DTCoA and
                  Union Bank of Switzerland, New York Branch (filed as Exhibit
                  10.4 to Form 8-K, Current Report of the Company, dated
                  October 9, 1996 and incorporated herein by reference).

10.20**           Guaranty Agreement, dated August 26, 1996, by Robert L.
                  Oliver and Sandra A. Oliver for the benefit of the Company
                  (filed as Exhibit 10.5 to Form 8-K, Current Report of the
                  Company, dated October 9, 1996 and incorporated herein by
                  reference).

10.21**           Lock-Up Agreement, dated August 23, 1996, by DTCoA for the
                  benefit of the Company (filed as Exhibit 10.6 to Form 8-K,
                  Current Report of the Company, dated October 9, 1996 and
                  incorporated herein by reference).

10.22**           Authorized Distributor Agreement, dated September 30, 1996,
                  by and among DTC, XM Corporation, f/k/a DTCoA, a Wyoming
                  corporation, and Robert L. Oliver (filed as Exhibit 10.7 to
                  Form 8-K, Current Report of the Company, dated October 9,
                  1996 and incorporated herein by reference).

10.23**           Form of Indemnification Agreement for Directors of the
                  Registrant, dated September 21, 1993 (filed as Exhibit 10.4
                  to Form 10-KSB, Annual Report of the Company for the fiscal
                  year ended December 31, 1993 and incorporated herein by
                  reference).

10.24**           Form of Indemnification Agreement for Officers of the
                  Registrant, dated February 28, 1994 (filed as Exhibit 10.5 to
                  Form 10-KSB, Annual Report of the Company for the fiscal year
                  ended December 31, 1993 and incorporated herein by
                  reference).

10.26**#          American Body Armor & Equipment, Inc. 1994 Incentive Stock
                  Plan (incorporated by reference from Form S-8 filed on
                  October 10, 1994, Reg. No. 33-018863).

10.27*#           Armor Holdings, Inc. Amended and Restated 1996 Stock Option
                  Plan.

10.28**#          Armor Holdings Inc. Amended and Restated 1996 Non-Employee
                  Directors Stock Option Plan (incorporated by reference from
                  the Company's 1997 Definitive Proxy Statement with respect to
                  the Company's 1997 Annual Meeting of Stockholders, held June
                  12, 1997, as filed with the Commission on May 27, 1997).




                                       25
<PAGE>



20.1**            1998 Definitive Proxy Statement to be filed with the
                  Commission not later than 120 days after the end of the
                  fiscal year ended December 27, 1997 (incorporated by
                  reference).

21.1*             Subsidiaries of the Company.

23.1*             Consent of Deloitte & Touche LLP.

23.2*             Consent of KPMG

27.1*             Financial Data Schedule.

          *  Filed herewith.
         **  Incorporated herein by reference.
          @  This Exhibit represents a management contract.
          #  This Exhibit represents a compensatory plan.

(b)      Financial Statements and Schedules

         (1) The following Financial Statements of the Company (which appear
beginning at sequential page number F-1) are included herein:

Independent Auditors' Report............................................F-1

Consolidated Balance Sheets.............................................F-3

Consolidated Income Statements..........................................F-5

Consolidated Statements of Stockholders' Equity.........................F-6

Consolidated Statements of Cash Flows...................................F-7

Notes to Consolidated Financial Statements..............................F-8

         (2) Schedules for which provision is made in the applicable accounting
regulations of the Commission have been omitted because they are not applicable
or the required information is shown in the Financial Statements or the Notes
thereto.

(c)      Reports on form 8-K

                  The Company did not file any current Reports on Form 8-K
during fourth quarter 1997.




                                       26



<PAGE>

INDEPENDENT AUDITORS' REPORT

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

We have audited the consolidated balance sheets of Armor Holdings, Inc. and
subsidiaries (the "Company") as of December 27, 1997 and December 28, 1996 and
the related consolidated statements of income, stockholders' equity, and cash
flows for the three years ended December 27, 1997, December 28, 1996 and
December 31, 1995. 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
Defence Systems Colombia S.A. ("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
$20,799,000 as of December 28, 1996 and total revenues of $12,956,000 for the
period 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 December 28, 1996 and the results of their operations and
their cash flows for the three years ended December 27, 1997, December 28, 1996
and December 31, 1995 in conformity with generally accepted accounting
principles.


/s/ Deloitte & Touche LLP

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



                                      F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF DSL GROUP LIMITED

          We have audited the consolidated balance sheet of DSL Group Limited
and subsidiaries at 31 December 1996 and the related consolidated profit and
loss account, consolidated statement of total recognised gains and losses,
reconciliation of movements in shareholders' funds and consolidated cash
flow statement 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 financial position of DSL
Group Limited and subsidiaries at 31 December 1996 and the results of their
operations 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 and
shareholders' funds at 31 December 1996, to the extent summarised in Note 24 to
the consolidated financial statements.


/s/ KPMG

KPMG
Chartered Accountants
Registered Auditors
London, England
15 April 1997



                                       F-2
<PAGE>



                      ARMOR HOLDINGS INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 27, 1997 AND DECEMBER 28, 1996
               (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                               December 27,            December 28,
                                                                                   1997                    1996
                                                                           --------------------    --------------------
ASSETS
<S>                                                                               <C>                     <C>
Current Assets:
    Cash and cash equivalents......................................               $19,300                 $ 8,045
    Accounts receivable (net of allowance for
       doubtful accounts of $845 and $458 )........................                15,752                  10,309
    Inventories....................................................                 5,731                   4,161
    Prepaid expenses and other current assets......................                 1,816                   3,139
                                                                           --------------------    --------------------

        Total current assets.......................................                42,599                  25,654

Property, plant and equipment, net.................................                10,041                   4,932

Goodwill (net of accumulated amortization of $659 and
  $167)                                                                            13,701                   9,784
Reorganization value in excess of amounts
  allocable to indentifiable assets (net of
  accumulated amortization of $757 and $651).......................                 3,318                   3,424

Patents and trademarks (net of accumulated
  amortization of $403 and $108)...................................                 3,978                   4,196

Investment in unconsolidated subsidiaries..........................                   329                   1,268

Other assets.......................................................                 1,521                     272
                                                                           --------------------    --------------------


Total assets.......................................................               $75,487                 $49,530
                                                                           ====================    ====================
</TABLE>






                See notes to consolidated financial statements.



                                      F-3
<PAGE>



                      ARMOR HOLDINGS INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 27, 1997 AND DECEMBER 28, 1996
               (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                           December 27,     December 28,
                                                                               1997             1996
                                                                         ----------------  ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                        <C>               <C>
Current liabilities:
    Current portion of long-term debt and
       capitalized lease obligations..................................     $     190         $    2,423
    Accounts payable, accrued expenses and other
       current liabilities............................................         8,743              8,209
    Income taxes payable..............................................         1,732                732
                                                                         ----------------  ---------------

        Total current liabilities.....................................        10,665             11,364

Minority interest.....................................................           213                 31
Long-term debt and capitalized lease obligations,
   less current portion...............................................            11              5,780
                                                                         ----------------  ---------------

   Total liabilities..................................................        10,889             17,175

Commitments and contingencies (Notes 6, 10 and 11) ...................

Preference shares.....................................................             -              7,480

Stockholders' equity:
   Preferred stock, $.01 par value, 5,000,000 shares authorized;
      0 shares issued and outstanding.................................             -                  -
   Common stock, $.01 par value; 50,000,000 shares
     authorized; 16,023,740 and 11,691,232 issued and
     outstanding......................................................           160                117
    Additional paid-in capital........................................        61,496             23,322
    Foreign currency translation adjustment...........................          (353)              (229)
    Retained Earnings.................................................         4,823              1,665
    Treasury stock....................................................        (1,528)                 -
                                                                         ----------------  ---------------
       Total stockholders' equity.....................................        64,598             24,875
                                                                         ----------------  ---------------


Total liabilities and stockholders' equity............................       $75,487            $49,530
                                                                         ================  ===============
</TABLE>






                See notes to consolidated financial statements.


                                      F-4
<PAGE>



                      ARMOR HOLDINGS INC. AND SUBSIDIARIES

                         CONSOLIDATED INCOME STATEMENTS
     YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 31, 1995
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                                             -------------------------------------------------------------
                                              DECEMBER 27, 1997    DECEMBER 28, 1996    DECEMBER 31, 1995
                                             -------------------- -------------------  --------------------
Revenues:
<S>                                                <C>                 <C>                   <C>
  Products.................................        $29,869             $18,011               $11,741
  Services.................................         48,445              12,956                     -
                                             -------------------- -------------------  --------------------

Total Revenues.............................         78,314              30,967                11,741
                                             -------------------- -------------------  --------------------

Costs and Expenses:
  Cost of sales............................         57,438              21,172                 7,443
  Operating expenses.......................         12,473               6,905                 3,273
  Depreciation and amortization                      1,127                 554                   148
  Merger, integration and other non-
      recurring charges....................          2,542                   -                     -
  Equity in earnings of  investees.........           (746)               (320)                    -
  Interest expense, net....................            195                 515                   281
                                             -------------------- -------------------  --------------------

       Total costs and expenses............         73,029              28,826                11,145

Operating income...........................          5,285               2,141                   596

Other income...............................            392                   2                   228
                                             -------------------- -------------------  --------------------

Income before provision for income taxes             5,677               2,143                   824

Provision for income taxes.................          2,376               1,215                   304
                                             -------------------- -------------------  --------------------

Net Income ................................          3,301                 928                   520

Dividends on preference shares.............            143                 239                     -
                                             -------------------- -------------------  --------------------

Net income applicable to common
  shareholders ............................        $ 3,158             $   689               $   520
                                             ==================== ===================  ====================
Basic earnings per share                           $  0.23             $  0.09               $  0.08
                                             ==================== ===================  ====================
Diluted earnings per share                         $  0.21             $  0.08               $  0.08
                                             ==================== ===================  ====================
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>







                      ARMOR HOLDINGS INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
     YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 31, 1995
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                               CONVERTIBLE
                                              PREFERRED STOCK      COMMON STOCK
                                            -------------------- -----------------
                                                                                    ADDITIONAL                  FOREIGN
                                                        STATED               PAR     PAID-IN       RETAINED     CURRENCY
                                              SHARES     VALUE    SHARES    VALUE     CAPITAL      EARNINGS    TRANSLATION
                                            ---------------------------------------------------- ------------ -------------
<S>                                           <C>      <C>        <C>       <C>      <C>            <C>          <C>
Balance, December 31, 1994.................   1,457    $ 1,457    4,697     $ 141    $ 2,319        $  510       $     -
 Dividends on preferred stock..............                                                            (43)
 Conversion of preferred stock.............    (243)      (243)     347        10        233
 Issuance of stock in lieu of directors
    fees...................................                          14                   14
 Issuance of stock granted
    under stock plans......................                          33         1         28
 Net income ...............................                                                            520
                                            -------    -------   ------     -----    -------        ------       -------
Balance, December 31, 1995.................   1,214      1,214    5,091       152      2,594           987             -
 Change in par value of common
    stock..................................                                  (102)       102
 Dividends on preferred stock..............                                                            (11)
 Conversion of preferred stock.............  (1,214)    (1,214)   1,735        17      1,197
 Exercise of stock options.................                          26         1         62
 Exercise of stock grants..................                          72         1         54

 Issuance of stock in lieu of
    directors fees.........................                           3                   15

 Conversion of convertible notes, net
   of related debt issuance costs..........                       2,300        23     10,610
 Issuance of stock for acquisitions .......                       2,214        22      7,121
 Issuance of common stock..................                         250         3      1,567
 Foreign currency translation
    adjustment.............................                                                                         (229)
 Dividends on preference shares............                                                           (239)
 Net income ...............................                                                            928
                                            -------    -------   ------     -----    -------        ------       -------
Balance, December 28, 1996.................       -          -   11,691       117     23,322         1,665          (229)
 Exercise of stock options.................                         217         2        539
 Issuance of stock for acquisitions........                         115         1      1,200
 Recovery of acquisition escrow
   shares..................................
 Issuance of common stock..................                       4,000        40     36,435
 Foreign currency translation
    adjustment.............................                                                                         (124)
 Dividends on preference shares............                                                           (143)
 Net income................................                                                          3,301
                                            -------    -------   ------     -----    -------        ------       -------
Balance, December 27, 1997.................       -    $     -   16,023     $ 160    $61,496        $4,823       $  (353)
                                            =======    =======   ======     =====    =======        ======       =======
</TABLE>

                                   F-6

<PAGE>
                    (RESTUBBED TABLE CONTINUED FROM ABOVE)


<TABLE>
<CAPTION>
                                              TREASURY
                                                STOCK       Total
                                            ------------------------
<S>                                             <C>       <C>
Balance, December 31, 1994.................     $    -    $ 4,427
 Dividends on preferred stock..............                   (43)
 Conversion of preferred stock.............                     -
 Issuance of stock in lieu of directors
    fees...................................                    14
 Issuance of stock granted
    under stock plans......................                    29
 Net income ...............................                   520
                                                ------    -------
Balance, December 31, 1995.................          -      4,947
 Change in par value of common
    stock..................................                     -
 Dividends on preferred stock..............                   (11)
 Conversion of preferred stock.............                     -
 Exercise of stock options.................                    63
 Exercise of stock grants..................                    55

 Issuance of stock in lieu of
    directors fees.........................                    15

 Conversion of convertible notes, net
   of related debt issuance costs..........                10,633
 Issuance of stock for acquisitions .......                 7,143
 Issuance of common stock..................                 1,570
 Foreign currency translation
    adjustment.............................                  (229)
 Dividends on preference shares............                  (239)
 Net income ...............................                   689
                                                ------    -------
Balance, December 28, 1996.................          -     24,875
 Exercise of stock options.................                   541
 Issuance of stock for acquisitions........                 1,201
 Recovery of acquisition escrow
   shares..................................     (1,528)    (1,528)
 Issuance of common stock..................                36,475
 Foreign currency translation
    adjustment.............................                  (124)
 Dividends on preference shares............                  (143)
 Net income................................                 3,158
                                                ------    -------
Balance, December 27, 1997.................    $(1,528)  $ 64,598
                                                ======    =======
</TABLE>




                See notes to consolidated financial statements.


                                   F-6 (continued)
<PAGE>







                      ARMOR HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOW
     YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 31, 1995
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                               YEAR ENDED
                                                                      -------------------------------------------------------------
                                                                       DECEMBER 27, 1997     DECEMBER 28, 1996   DECEMBER 31, 1995
                                                                      --------------------  ------------------- -------------------
<S>                                                                        <C>                   <C>                 <C>
OPERATING ACTIVITIES:
  Net Income.....................................................          $   3,301             $   928             $    520
  Adjustments to reconcile net income to
    cash (used in) provided by operating
    activities:
  Preferred Stock Dividends......................................               (143)               (239)
  Depreciation and amortization..................................              1,976                 818                  148
  Loss on sales and disposals of equipment.......................                166
  Deferred income taxes..........................................              1,203                   2                  300
  Directors' fees................................................                  -                  15                   14
  Increase in accounts  receivable...............................             (3,468)             (2,115)                (745)
  Increase in inventories........................................             (1,001)               (423)                 (59)
  (Increase) decrease in prepaid expenses and other assets.......             (1,129)                870                 (257)
  (Decrease) increase in accounts payable, accrued
     liabilities and other current liabilities...................             (3,715)              1,783                 (168)
  Increase in income taxes payable...............................              1,072
  Increase in minority interest..................................                182
                                                                      --------------------  ------------------- -------------------

  Net cash (used in) provided by operating activities............             (1,556)              1,639                 (247)
                                                                      --------------------  ------------------- -------------------

INVESTING ACTIVITIES:
  Purchase of property and equipment.............................             (5,153)             (1,860)                (119)
  Purchase of patents and trademarks.............................                (76)             (2,828)
  Purchase of business, net of assets acquired...................             (3,607)            (11,740)
  Dividends received from associated companies...................                939
  Proceeds from the sale of equipment............................                 20
                                                                      --------------------  ------------------- -------------------

  Net cash used in investing activities..........................             (7,877)            (16,428)                (119)
                                                                      --------------------  ------------------- -------------------

FINANCING ACTIVITIES:
  Proceeds from issuance of common stock and preference
    shares.......................................................             36,475               8,886
  Preferred Stock dividends......................................               (382)                (11)                 (43)
  Repurchase of preference shares................................             (7,480)
  Proceeds from the exercise of stock options....................                201                  26
  Net borrowings (payments) under line of credit.................                  -             (1,997)                  329
  Net repayments of long-term debt...............................             (8,002)               (500)                 (14)
  Net borrowings (repayments) under capital
     expenditure facility........................................                                    (52)                  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......................             20,812              23,848                  324
                                                                      --------------------  ------------------- -------------------
  Net effect of translation of foreign currencies................               (124)               (184)                   -
                                                                      --------------------  ------------------- -------------------
  Net increase (decrease) in Cash and Cash equivalents...........             11,255               8,875                  (42)
  Cash and Cash Equivalents, Beginning of Period.................              8,045                (830)                 315
                                                                      --------------------  ------------------- -------------------

  Cash and Cash Equivalents, End of Period.......................          $  19,300           $   8,045           $      273
                                                                      ====================  =================== ===================
</TABLE>




                See notes to consolidated financial statements.


                                      F-7
<PAGE>






                      ARMOR HOLDINGS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 31, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Armor Holdings, Inc. (the "Company"), and its subsidiaries
American Body Armor & Equipment, Inc., a Delaware corporation ("ABA"), Armor
Holdings Properties, Inc., a Delaware corporation ("AHPI"), NIK Public Safety,
Inc., a Delaware corporation ("NIK"), Defense Technology Corporation of
America, a Delaware corporation ("DTC"), Armor Holdings Limited, a corporation
incorporated under the laws of England, Supercraft (Europe) Limited, a
corporation organized under the laws of England ("Supercraft"). All
material intercompany balances and transactions have been eliminated in
consolidation.

   ORGANIZATION -- Armor Holdings, Inc. ("the Company") acquired the NIK Assets
effective as of July 1, 1996 and substantially all of the DTCOA assets as of
September 30, 1996. On April 7, 1997, the Company acquired the outstanding
share capital of Supercraft. On June 9, 1997, the Company acquired the
remaining 50% interest of GTL that it did not previously own. These
acquisitions were accounted for by the purchase method, and the purchase price
was assigned to assets acquired and liabilities assumed based on their fair
value at the date of acquisition.

   POOLING OF INTERESTS -- On April 16, 1997, the Company issued 1,274,217
shares of its common stock in exchange for all of the outstanding ordinary
shares of DSL. 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. The Company'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 AHI and DSL since inception.

   In connection with the DSL combination, the Company paid $6,850,000 in
repayment of DSL's outstanding credit facility and approximately $7,480,000 for
all of the outstanding preference shares of DSL. (See Notes 6 and 7).

   COMPANY'S BUSINESS -- The Company is a leading manufacturer of security
equipment, including body armor, less-lethal munitions, and anti-riot products.
The Company is also a leading provider of security planning, advisory and
management services to corporations and governmental agencies operating in
unstable areas of the world.




                                      F-8
<PAGE>


   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") basis.

   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 28, 1996.

   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 a result of the
emergence from bankruptcy. Depreciation is computed using the straight-line
method based on estimated lives of 3 to 31.5 years.

   GOODWILL - Goodwill is amortized on a straight-line basis over twenty-five
years and is periodically reviewed for impairment by comparing carrying value
to undiscounted expected future cash flows.

   REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS -- 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 AND TRADEMARKS -- Patents 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 15
years.

   NEW ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Finance Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive
income includes net income and several other 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, and the Company intends to adopt the
standard for its fiscal year beginning December 28, 1997. The Company has
determined that it will display comprehensive income in the Consolidated
Statement of Shareholders' Equity for the fiscal year 1998.



                                      F-9
<PAGE>

   In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," replacing SFAS No. 14 and its
amendments. This standard requires enterprises to report certain information
about their operating segments in a complete set of financial statements to
shareholders; to report certain enterprise-wide information about products and
services, activities in different geographic areas, and reliance on major
customers; and to disclose certain segment information in their interim
financial statements. The basis for determining an enterprise's operating
segments is the manner in which financial information is used internally by the
enterprise's chief operating decision maker. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997, however early adoption is
encouraged. The Company has elected to adopt the standard for the
fiscal year 1997.

   ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

   INCOME TAXES -- In connection with the adoption of fresh-start reporting,
the Company adopted SFAS No. 109, "Accounting for Income Taxes". 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 27, 1997 the Company's consolidated foreign subsidiaries
have unremitted earnings of approximately $1.1 million on which the Company has
not recorded a provision for U.S. 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. In 1995, other income
includes amounts received in settlement of a non-competition agreement.

   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 which represents the effect of translating assets and
liabilities of the Company's foreign operations was an approximate loss of
$353,000 and $229,200 for the years ended December 27, 1997 and December 28,
1996, respectively.

   RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995
and 1996 financial statements in order to conform to the presentation adopted
for 1997.





                                      F-10
<PAGE>

2. BUSINESS COMBINATIONS

  DSL GROUP LIMITED

   On April 16, 1997, the Company combined with DSL Group Limited, a United
Kingdom corporation ("DSL"), in a transaction accounted for as a pooling of
interests (the "DSL Transaction"). DSL is a leading provider of specialized
security services in high risk and volatile environments. DSL was formed on
June 3, 1996 for the purpose of acquiring DSL Holdings Limited ("DSL
Holdings"), its predecessor corporation, whose assets included an indirect
50% interest in Gorandel Trading Limited. DSL's acquisition of DSL Holdings
was completed on July 31, 1996. The consolidated financial statements of the
Company for fiscal 1997 and 1996 include the results of DSL since its
inception. In connection with the DSL Transaction, the Company issued
1,274,217 shares of Common Stock valued at the time at $10.9 million for all
of the outstanding ordinary share capital of DSL and paid $7.5 million in cash
for all of the outstanding preference shares. The Company also assumed and
subsequently repaid $6.9 million, plus interest, of DSL's outstanding credit
facility.

<TABLE>
<CAPTION>
                                                                         1996
                                                     --------------------------------------------
                                                      COMPANY             DSL            TOTAL
                                                     HISTORICAL       HISTORICAL       HISTORICAL
                                                     -----------      -----------     -----------
                                                       (in thousands, except per share amounts)
<S>                                                  <C>              <C>               <C>
Revenues                                               $18,011         $12,956           $30,967
Net Income                                             $   835         $  (146)          $   689
Net Inccome Per Common Share and Common
  Equivalent Share                                     $   .10              --           $   .08
</TABLE>



   DEFENSE TECHNOLOGY CORPORATION OF AMERICA

   On September 30, 1996, a wholly-owned subsidiary of the Company, Defense
Technology Corporation of America, a Delaware corporation ("DTC"), acquired
substantially all of the assets (the "DTCoA Assets") of Defense Technology
Corporation of America, a Wyoming corporation ("DTCoA"). DTC manufactures
less-than-lethal and anti-riot products, including pepper sprays, tear gas,
distraction devices, flameless expulsion grenades and specialty impact
munitions, which it distributes to U.S. and foreign law enforcement agencies
and the military. The Company acquired these assets by paying DTCoA a purchase
price consisting of approximately $838,000 in cash, 270,728 shares of Common
Stock valued at the time at $2.0 million, subject to reduction under certain
circumstances, and by issuing to Key Bank of Wyoming ("Key Bank"), which made
a credit facility available to DTCoA, 358,714 shares of Common Stock valued
at the time at $2.65 million in return for Key Bank's agreement to release its
liens on the assets of DTCoA. The Company also assumed certain specified
liabilities of DTCoA.

   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.

                                     F-11
<PAGE>


   NIK PUBLIC SAFETY PRODUCT LINE

   Effective as of July 1, 1996, NIK Public Safety, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company ("NIK"), acquired the
NIK Public Safety Product Line (the "NIK Product Line"). NIK assembles and
distributes portable narcotic identification kits used for the identification
of narcotic substances by law enforcement agencies. In addition, NIK
distributes the Flex-Cuf(Registered Trademark) restraint, specimen collection
kits, evidence collection kits and tamper guard evidence tape. The Company
acquired the NIK Product Line for a purchase price consisting of 310,931 shares
of Common Stock valued at the time at $2.4 million.



GORANDEL TRADING LIMITED

   On June 9, 1997, the Company acquired the remaining 50% of Gorandel
Trading Limited, a Cyprus corporation ("GTL"), 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, $600,000 in cash to be paid
upon the satisfaction of certain conditions and 115,176 shares of Common Stock
valued at the time at $1.2 million.

SUPERCRAFT (EUROPE) LIMITED

   On April 7, 1997, the Company acquired Supercraft (Europe) Limited,
f/k/a Supercraft (Garments) Limited, a United Kingdom corporation
("Supercraft"). 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 an initial total purchase price of
approximately $2.6 million consisting of (i) approximately $1.3 million in
cash, subject to adjustments, (ii) $875,000 in cash which was placed in escrow
pending final disposition of title to certain real property (of which title has
now been properly transferred to the Company) and (iii) certain additional
consideration in an amount not to exceed 250,000 pounds sterling (approximately
$410,000) based on 1997 operating results. The Company was not required to pay
this additional consideration.

The unaudited consolidated results of operations of the Company on a pro
forma basis as if the Company had consummated the above acquisitions on
January 1, 1996, are as follows (in 000's, except per share amounts):


                           PRO FORMA FINANCIAL INFORMATION


<TABLE>
<CAPTION>
                                                                     Years Ended
                                                   ----------------------------------------------
  (IN THOUSANDS, EXCEPT PER SHARE DATA)             DECEMBER 27, 1997          December 28, 1996
                                                   -------------------        -------------------
<S>                                                        <C>                   <C>
Revenues                                                   $  82,927             $  68,030
Net income                                                 $   5,385             $   2,300
Diluted earnings per share                                 $     .36             $     .23
Weighted average shares                                       14,764                 9,997
</TABLE>





                                     F-12
<PAGE>

3. INVENTORIES

   Inventories are summarized as follows for the years ended December 27, 1997
and December 28, 1996:

<TABLE>
<CAPTION>
                        (IN THOUSANDS)                                   1997                        1996
                                                               ------------------------    -------------------------
<S>                                                                            <C>                          <C>
Raw materials                                                                  $2,958                       $1,738
Work-in-process                                                                   770                          859
Finished goods                                                                  2,003                        1,564
                                                               ------------------------    -------------------------
                                                                               $5,731                       $4,161
                                                               ========================    =========================
</TABLE>


4. PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment at December 27, 1997 and December 28, 1996 are
summarized as follows:

<TABLE>
<CAPTION>
                        (IN THOUSANDS)                                   1997                        1996
                                                               ------------------------    -------------------------
<S>                                                                    <C>                        <C>
Land and improvements                                                  $        716               $          582
Buildings and improvements                                                    6,106                        1,372
Machinery and equipment                                                       5,736                        4,111
Construction in progress                                                          -                          586
                                                               ------------------------    -------------------------

Total                                                                        12,558                        6,651
Accumulated depreciation                                                     (2,517)                      (1,719)
                                                               ------------------------    -------------------------

                                                                       $     10,041               $        4,932
                                                               ========================    =========================
</TABLE>

   Depreciation expense for 1997, 1996 and 1995 was approximately $1,079,000,
$388,000 and $148,000, respectively.


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 28,
1996:

<TABLE>
<CAPTION>
              (IN THOUSANDS)                                  1997            1996
                                                   -------------------    ----------------
<S>                                                       <C>                 <C>
Trade and other payables                                  $   3,940           $  4,828
Accrued expenses                                              4,287              2,260
Deferred consideration for acquisitions                         300                680
Other current liabilities                                       216                441
                                                   -------------------    ----------------
                                                          $   8,743           $  8,209
                                                   ===================    ================
</TABLE>






                                     F-13
<PAGE>

6. INDEBTEDNESS

Debt:

<TABLE>
<CAPTION>
                        (IN THOUSANDS)                                                            1996
                                                                                         ----------------------
<S>                                                                                            <C>
Note payable to Finoff & Associates, payable in monthly installments of $10,000
including interest at 8% through October 5, 1998                                               $      200
Mortgage loan payable in monthly installments of $1,296 at 9% through April 1,
1997, with a balloon installment of $127,739 due on May 1, 1997, collateralized
by a first mortgage on a building                                                                     129
DSL credit facility, payable in semi-annually installments including interest
at LIBOR plus 2%, through June 28, 2002 (1)                                                         6,850
DSL bank overdraft facility with monthly interest payments                                            590
Other installment loans                                                                                43
                                                                                         ----------------------
                                                                                                    7,812
Less current portion                                                                               (2,233)
                                                                                         ----------------------
                                                                                               $    5,579
                                                                                         ======================
</TABLE>


(1)     Proceeds were used to acquire the outstanding shares of DSL Holdings as
discussed in Note 1. These borrowings were paid in full subsequent to the
Company's combination with DSL.


Capitalized lease obligation:

<TABLE>
<CAPTION>
                             (IN THOUSANDS)                                    1997              1996
                                                                        -------------------  ----------------
<S>                                                                          <C>              <C>
Equipment lease bearing interest at 10.88%, expiring November, 1999,
  collateralized by equipment with an amortized cost of
  approximately $42 at December 27, 1997                                     $          20    $           28
Equipment lease bearing interest at 12%, expiring June, 1998,
 collateralized by equipment with an amortized cost of
 approximately $241 at December 27, 1997                                               181               363
                                                                        -------------------  ----------------
                                                                                       201               391
Less current portion                                                                  (190)             (190)
                                                                        -------------------  ----------------
                                                                             $          11    $          201
                                                                        ===================  ================
</TABLE>


   The Company entered into a revolving working capital credit facility and
Bankers Acceptance Facility (the "Credit Facility") on November 14, 1996 with
Barnett Bank, N.A., which provides for total borrowings up to $10,000,000
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 Facility 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 no borrowings outstanding under the
Credit Facility at December 27, 1997. The Credit Facility expires March 1, 1999.



                                     F-14
<PAGE>

7. PREFERENCE SHARES

   DSL had $7,480,000, (4,400,000 shares) of preference shares with a par value
of pounds sterling 0.01. Such shares carried an 8% dividend, were cumulative and
redeemable and had a liquidation value of par. The preference shares had no
voting rights. The Company paid cash of $7,480,000, including accrued interest
of approximately $382,000, to purchase such shares on April 16, 1997.

8. NON-RECURRING ITEMS

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










                                     F-15
<PAGE>

9. INCOME TAXES

   Income tax expense (benefit) for the years ended December 27, 1997, December
28, 1996, and December 31, 1995 consisted of the following components:


<TABLE>
<CAPTION>
                      (IN THOUSANDS)                               1997            1996             1995
                                                          ----------------  ----------------  --------------
<S>                                                             <C>            <C>                <C>
Current
  Domestic                                                      $   1,329      $      480         $       4
  Foreign                                                           2,250             734                 -
                                                          ----------------  ----------------  --------------
   Total Current                                                $   3,579      $    1,214         $       4

Deferred
  Domestic                                                      $      68      $      112         $     300
   Foreign                                                         (1,271)           (111)                -
                                                          ----------------  ----------------  --------------
     Total Deferred                                             $  (1,203)     $        1         $     300

      Total Provision for Income Taxes                          $   2,376      $    1,215         $     304
                                                          ================  ================  ==============
</TABLE>

   Significant components of the Company's net deferred tax asset as of
December 27, 1997 and December 28, 1996 are as follows:


<TABLE>
<CAPTION>
                                                                          1997                 1996
                                                                -------------------   ---------------------
<S>                                                                   <C>                   <C>
Deferred tax assets:
 Reserves not currently deductible                                    $    289              $   255
 Operating loss carryforwards                                            2,676                1,507
 Other                                                                     154                  154
                                                                -------------------   ---------------------
                                                                         3,119                1,916
Deferred tax asset valuation allowance                                  (1,800)              (1,800)
                                                                -------------------   ---------------------
Net deferred tax asset                                                $  1,319              $   116
                                                                ===================   =====================
</TABLE>


   The Company provided a valuation allowance of $1,800,000 against deferred
tax assets recorded as of December 27, 1997 and December 28, 1996 in view of,
among other things, the expiration dates and other limitations on usage of the
net operating loss carryforwards. These deferred tax assets are included in
other assets on the balance sheet for the years ended December 27, 1997 and
December 28, 1996.

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>
                                                            1997      1996      1995
                                                        ----------  ---------  -------

<S>                                                           <C>      <C>        <C>
Provision for income taxes at statutory Federal rate          34%      34 %       34%
State and local income taxes, net of Federal benefit          .4%       3 %        -
Foreign income taxes                                          .1%      32 %        -
Other non-deductible items                                   7.4%      (5)%        3%
                                                        ----------  ---------  -------
                                                            41.9%      64 %       37%
                                                        ==========  =========  =======
</TABLE>




                                     F-16
<PAGE>

   As of January 1, 1996, the Company had an income tax net operating loss
carryforward ("NOL") of approximately $4,400,000. Effective with the change in
control of the Company by Kanders Florida Holdings, Inc. on January 18, 1996,
the utilization of this NOL became restricted in the United States to
approximately $300,000 per year. However, as of December 27, 1997 the Company's
net operating losses increased to approximately $7,800,000 and expire in
varying amounts in fiscal years 2006 to 2010. The increase in the net operating
losses is a result of the recording of DSL deferred tax assets that related to
fiscal 1997 losses generated in the United Kingdom which will be offset against
future income.

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 ENDING
-----------
<S>                                            <C>
1998                                           $       502,000
1999                                                   360,000
2000                                                   273,000
2001                                                   260,000
2002                                                    85,000
Thereafter                                              10,000
                                            ---------------------
                                               $     1,490,000
                                            =====================
</TABLE>


   The Company incurred rent expense of approximately $454,000 (net of sublease
income of $35,000), $330,000, and $161,000 during the years ended December 27,
1997, December 28, 1996 and December 31, 1995, respectively.

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.


                                     F-17

<PAGE>

   LEGAL/LITIGATION MATTERS -- In November 1989, the Federal Trade Commission
(the "FTC") conducted an investigation into the accuracy of the Company's
claims that body armor it sold between 1988 and 1990 complied with testing
and certification procedures promulgated by the National Institute of
Justice. On November 2, 1994, the Company entered into a consent order
voluntarily settling the FTC's 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. On
January 4, 1995, the Company filed with the FTC a comprehensive compliance
report detailing the manner in which it was performing the obligations
imposed upon it by the consent order. In February 1997, the FTC asked for
additional information, which the Company believes will be the FTC's final
request for information before closing the case.


   On January 30, 1997, the Company commenced an action in the Supreme Court of
the State of New York, New York County, against DTCoA, the sole stockholder of
DTCoA and the President and Chief Executive Officer of DTCoA (collectively, the
"Defendants") claiming that the Defendants breached their agreements relating
to the sale of the DTCoA Assets to the Company. The relief sought by the
Company includes monetary damages of approximately $515,000, plus accruals, and
punitive damages. The Company was granted a preliminary injuction enjoining
the Defendants from the unauthorized use of the "Defense Technology" name.
In addition, the Company was subsequently granted another preliminary
injunction enforcing the restrictive covenants contained in the Asset Purchase
Agreement and the Authorized Distributor Agreement prohibiting the Defendants
from competing with the Company. On April 3, 1997, the Defendants filed with
the court an answer and counterclaims to the Company's complaint. The
Defendants have denied each of the Company's allegations and have asserted
several affirmative defenses. Defendants have counterclaimed for, among other
things, breach of the terms of the Asset Purchase Agreement and the Authorized
Distributor Agreement entered into in connection with the Company's
acquisition of the DTCoA Assets.The Company believes that the counterclaims
asserted against it are without merit, and intends to vigorously defend such
counterclaims.

   The Company and DTC, among other parties, have been named as defendants in
a product liability lawsuit claiming damages for wrongful death resulting
from the use by law enforcement officers of less-than-lethal products sold
by DTCoA. The Company's insurance carrier has assumed the defense of this
lawsuit, and the Company does not believe at this time that the outcome of
this lawsuit wil have a material adverse effect on the Company.

12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK

   CONVERTIBLE PREFERRED STOCK -- The Plan of Reorganization provided for the
filing by the Company of its Restated Articles of Incorporation which
authorized the issuance of 1,700,000 shares of $1 stated value, 3% convertible
preferred stock ("preferred stock"). Pursuant to the Plan of Reorganization,
the Company issued 1,700,000 shares of preferred stock.

   In 1995 and 1996, 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 market value of which represents 110% of the aggregate stated value of
the preferred stock then subject to redemption.

   The Company has authorized a series of preferred stock with such rights,
privileges and preferences as the Board of Directors shall from time to time
determine.

   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-18
<PAGE>
   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, 1,800,000 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 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 cost 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 1997, 1996 and 1995 consistent with the
method prescribed by SFAS No. 123, the Company's net earnings and diluted
earnings per share would have been adjusted to the pro forma amounts indicated
below:


<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)                  1997             1996               1995
                                                     --------         --------           --------
<S>                          <C>                      <C>               <C>               <C>
Net earnings                 As reported              $3,158             $689              $520
                             Pro forma                $2,653             $477              $520

Diluted earnings per share   As reported               $0.21            $0.08             $0.08
                             Pro forma                 $0.18            $0.05             $0.08
</TABLE>


   Under SFAS No. 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 1997, 1996 and 1995: dividend
yield of 0%, expected volatility of 22%, 33% and 33%, respectively, risk-free
interest rates of 6.00%, 5.93% and 5.46%, respectively, and expected lives of
3 years.




                                     F-19
<PAGE>
  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 27, 1997
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, 1994                          658,500      $0.92
Granted                                                   136,000       0.97
Forfeited                                                 (11,000)      0.97
                                                     -------------

Outstanding at December 31, 1995                          783,500       0.93
Granted                                                 1,068,000       5.97
Exercised                                                 (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

Options exercisable at December 27, 1997                  995,001      $3.32

Weighted-average fair value of options granted
  during 1997                                            $634,960
</TABLE>




   The following table summarizes information about stock options outstanding
at December 27, 1997:

<TABLE>
<CAPTION>
                  EXERCISE                       OPTIONS                     OPTIONS         REMAINING
                   PRICE                       OUTSTANDING                 EXERCISABLE          LIFE
----------------------------------------       --------------            ---------------    ------------
<S>                                                  <C>                         <C>           <C>
$  0.79                                              226,000                     226,000       6.50
   0.97                                              191,000                     191,000       6.70
   1.00                                               24,000                      24,000       8.06
   1.05                                              206,000                     206,000       6.50
   3.75                                              150,000                      50,000       8.05
   6.06                                              150,000                           -       8.60
   6.75                                               20,000                       6,667       8.82
   7.19                                               74,000                      13,000       8.75
   7.25                                               60,000                      20,000       8.69
   7.38                                               15,000                       5,000       8.71
   7.50                                              375,000                     125,000       8.35
   7.81                                               10,000                           -       9.07
   7.88                                                5,000                           -       9.01
   8.00                                               85,000                      28,334       8.95
   8.50                                               10,000                           -       9.22
   9.00                                               10,000                           -       9.28
   9.13                                               10,000                           -       9.26
   9.88                                               20,000                           -       9.30
  10.44                                              250,000                     100,000       9.68
  11.00                                              100,000                           -       9.68
  12.00                                               50,000                           -       9.68
                                               --------------            -----------------
        Total                                      2,041,000                     995,001
                                             ================            =================
</TABLE>


                                     F-20

<PAGE>

Remaining non-exercisable options as of December 27, 1997 become exercisable as
follows:

1998                                           319,671
1999                                           504,665
2000                                           221,663


EARNINGS PER SHARE -- In March 1997, the FASB issued SFAS 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. This Statement is effective for the Company's financial
statements for the year ended December 27, 1997.

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>
        (IN THOUSANDS, EXCEPT PER SHARE DATA)                   1997           1996           1995
                                                           ------------      --------        --------
<S>                                                         <C>              <C>             <C>
Numerator for basic and diluted earnings per share:
  Net income available to common stockholders               $     3,158      $    689        $    520
                                                           ------------      --------        --------

Denominator:
  Denominator for basic earnings per share weighted
     average shares.......................................       13,638         7,966           4,754
  Effect of dilutive securities:
    Effect of shares issuable under stock option
      and stock grant plans, based on the
      treasury stock method...............................        1,074           819             325
    Effect of shares issuable under conversion of
      preferred stock.....................................                         91           1,290
                                                           ------------      --------        --------
  Dilutive potential common shares                                1,074           910           1,615
                                                           ------------      --------        --------
 Denominator for diluted earnings per share  --
    adjusted weighted-average shares......................       14,712         8,876           6,369
                                                           ------------      --------        --------

Basic earnings per share..................................  $       .23      $    .09        $    .11
                                                           ============      ========        ========

Diluted earnings per share................................  $       .21      $    .08        $    .08
                                                           ============      ========        ========
</TABLE>



                                     F-21
<PAGE>

13. SUPPLEMENTAL CASH FLOW INFORMATION:


<TABLE>
<CAPTION>
                  (IN THOUSANDS)                                    1997         1996         1995
                                                               ------------   ----------   ------------
<S>                                                                <C>          <C>          <C>
Cash paid (received) during the year for:
  Interest                                                         $  673       $  521       $   274
  Income taxes                                                      1,506          (15)            3

Noncash investing and financing activities:
 Issuance of stock under stock plan                                $  201          118            29
 Conversion of preferred stock to common stock                          -        1,214           243
 Conversion of convertible debt to common stock                         -       10,633

Acquisitions (businesses, patents and trademarks):
 Fair value of assets acquired                                     $5,294      $25,573       $     -
 Goodwill recorded                                                  4,731            -             -
 Liabilites assumed                                                (5,218)      (6,535)            -
 Stock issued                                                      (1,200)      (6,460)            -
                                                               ------------   ----------   ------------

 Total cash paid                                                   $3,607      $12,578       $     -
                                                               ============   ==========   ============
</TABLE>


14. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES

   At December 27, 1997 and December 28, 1996, the Company has investments in
the following companies which it accounts for under the equity method of
accounting for investments:

<TABLE>
<CAPTION>
                                                              1997                  1996
                                                      ------------------     --------------------
<S>                                                            <C>                  <C>
      Jardine Securicor Gurkha Services Limited                20%                  20%
      Gorandel Trading Limited                                  -                   50%
</TABLE>


   The following summarizes significant financial information of these
unconsolidated subsidiaries as of and for the twelve months ended December 27,
1997 and the nine months ended December 28, 1996.

<TABLE>
<CAPTION>
                                                              1997                  1996
                                                     ------------------      -------------------
<S>                                                        <C>                 <C>
Total Assets                                               $3,303,000          $ 6,582,100
Retained Earnings                                          $  903,000          $ 2,938,800
Total Revenues                                             $4,950,000          $20,720,300
Net Income                                                 $  482,000          $ 3,235,500
</TABLE>



15. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

   Prior to its combinations with DSL, the Company operated in one business
segment - Manufactured Products. This segment includes the development,
manufacture and distribution of ballistic protective equipment,
less-than-lethal products and narcotic identification and evidence equipment.
These products are sold through an international network of distributors who
serve law enforcement communities. Since the DSL combination, the Company
operates in a second business segment - Security Services. This segment
includes devising 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.



                                     F-22
<PAGE>

  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 its 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.
See Note 17.

Revenues, income from continuing operations and identifiable assets for each of
the Company's segments for the years ended December 27, 1997 and December 28,
1996, were as follows:

<TABLE>
<CAPTION>
                     (IN THOUSANDS)                               1997                     1996
                                                       -----------------------     -----------------------
<S>                                                               <C>                     <C>
Revenues:
  Products                                                        $  29,869               $   18,011
  Services                                                           48,445                   12,956
                                                       -----------------------     -----------------------
    Total revenues                                                $  78,314               $   30,967

Income from operations:
  Products                                                        $   3,651               $    1,680
  Services                                                            4,581                      658
                                                       -----------------------     -----------------------
    Total income from operations                                  $   8,232               $    2,338

Total assets:
  Products                                                        $  29,418               $   21,669
  Services                                                           29,363                   20,799
  Corporate                                                          16,706                    7,062
                                                       -----------------------     -----------------------
                                                                  $  75,487                $  49,530

</TABLE>







                                     F-23
<PAGE>

   The following unaudited information with respect to sales to principal
geographic areas for the years ended December 27, 1997, December 28, 1996 and
December 31, 1995 is as follows:


<TABLE>
<CAPTION>
              (IN THOUSANDS)                             1997                1996                 1995
<S>                                                   <C>               <C>                   <C>
Sales to unaffiliated customers:
   North America                                      $   23,574         $    15,838          $    10,371
   South America                                          12,082               4,197                  625
   Africa                                                 25,499               8,587                  745
   Europe/Asia                                            16,079               2,345                    -
   Other
   Miscellaneous foreign                                   1,080                   -                    -
                                             -------------------    -----------------    -----------------
      Total revenues                                   $  78,314         $    30,967            $  11,741

Operating profit:
   North America                                       $   2,212         $     1,223            $     775
   South America                                             738                  67                   47
   Africa                                                  2,823                 605                    -
   Europe/Asis                                             1,206                 (74)                  56
   Other                                                     101                   -                    -

Identifiable assets:
   North America                                         $40,964             $28,731               $8,161
   South America                                           2,847               1,560                    -
   Africa                                                  7,944               6,068                    -
   Europe/Asia                                            23,732              13,171                    -
   Other                                                       -                   -                    -

</TABLE>




16. QUARTERLY RESULTS

  The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1997 and 1996. 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.



                                     F-24
<PAGE>

<TABLE>
<CAPTION>
                                                                  Fiscal 1997
                                             ------------------------------------------------------
 Amounts in thousands, except per share data      First       Second        Third        Fourth
                                                 Quarter      Quarter      Quarter       Quarter
----------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>           <C>          <C>
Sales                                          $  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 1996
                                             ------------------------------------------------------
 Amounts in thousands, except per share data      First       Second        Third        Fourth
                                                 Quarter      Quarter      Quarter       Quarter
----------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>           <C>          <C>
Sales                                         $    3,267   $    3,596    $    9,715   $   14,389
Gross Profit                                       1,157        1,338         2,677        4,623
Net income                                            72          144           346          127
Basic earnings per share                          $ 0.01        $0.02    $     0.05   $     0.02
Diluted earnings per share                        $ 0.01        $0.02    $     0.04   $     0.02
----------------------------------------------------------------------------------------------------
</TABLE>

17. SUBSEQUENT EVENTS

   On January 16, 1998, DSL ceased operations in the country of Angola. The
cessation of operations by DSL in Angola was dictated by that government's
decision to deport all of DSL's expatriate management and supervisors. As a
result of this action, DSL believed that it could no longer ensure the safety
of its personnel or that of its clients. While Angolan operations represented
approximately $12.0 million of the Company's revenues during 1997, the
contribution was only $1.0 million before allocation of DSL's corporate
overhead charges. DSL's assets in Angola of approximately $900,000 have been
substantially secured by DSL and DSL's clients have made temporary alternative
arrangements for the provision of their ongoing security needs. The Company
has recorded a reserve of approximately $500,000 for potential losses
associated with DSL's withdrawal from Angola. The Company is currently
reviewing all of its available alternatives in connection with the cessation
of DSL's operations in Angola, including various disputes with its minority
partner in a joint venture which managed certain of the Angolan business.
Management does not believe that the outcome of these matters will have a
material impact on the financial statements of the Company.


   On January 30, 1998, the Company acquired all of the issued and outstanding
shares of capital 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 Common Stock valued at the time at $187,500. The Company also assumed and
subsequently repaid approximately $204,340 to a stockholder of LST in full
satisfaction of loans previously made by such stockholder to LST.

18. EMPLOYEE BENEFIT PLANS

   In October 1997, the Company implemented a 401(k) plan, (the "401(k) 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 401(k) Plan in 1997.
DSL operates a defined contribution plan for its United Kingdom employees. The
assets of the plan are held separately by an independently administered fund.
The Company contributed approximately 94,000 pounds sterling (or approximately
$154,000) for fiscal 1997 and 73,000 pounds sterling (or approximately
$119,000) for fiscal 1996.

                                     F-25


<PAGE>



                                   SIGNATURES

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

                              ARMOR HOLDINGS, INC.

                              /s/ Jonathan M. Spiller
                              ----------------------------------
                              Jonathan M. Spiller
                              President, Chief Executive Officer
                              and Director
                              Dated:  March 26, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
<S>                                            <C>
/s/ Jonathan M. Spiller                        /s/ Warren B. Kanders
-------------------------------------          ----------------------------------
Jonathan M. Spiller                            Warren B. Kanders
President and Chief Executive Officer          Chairman of the Board of Directors
and Director                                   March 26, 1998
Principal Executive Officer
March 26, 1998

/s/ Carol T. Burke                             /s/ Nicholas Sokolow
-------------------------------------          ----------------------------------
Carol T. Burke                                 Nicholas Sokolow
Vice President--Finance                        Director
Principal Financial Officer                    March 26, 1998
March 26, 1998

/s/ Burtt R. Ehrlich                           /s/ Thomas W. Strauss
-------------------------------------          ----------------------------------
Burtt R. Ehrlich                               Thomas W. Strauss
Director                                       Director
March 26, 1998                                 March 26, 1998

/s/ Richard C. Bartlett                        /s/ Alair A. Townsend
-------------------------------------          ----------------------------------
Richard C. Bartlett                            Alair A. Townsend
Director                                       Director
March 27, 1998                                March 26, 1998
</TABLE>





<PAGE>




                                 EXHIBIT INDEX
                                 -------------


The following Exhibits are filed herewith:

EXHIBIT NO.       DESCRIPTION
-----------       -----------

10.27             Armor Holdings, Inc. Amended and Restated 1996 Stock Option
                  Plan.

21.1              Subsidiaries of the Company.

23.1              Consent of Deloitte & Touche LLP.

23.2              Consent of KPMG

27.1              Financial Data Schedule.