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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    ---------

                                   FORM 10-K/A

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003
                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from ________ to
         __________


                         COMMISSION FILE NUMBER 0-18863

                               ------------------

                              ARMOR HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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                     DELAWARE                                             59-3392443
 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)

             1400 MARSH LANDING PARKWAY, SUITE 112
                      JACKSONVILLE, FLORIDA                                  32250
            (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)
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                                 (904) 741-5400
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
               Title of each class: Common Stock, $0.01 par value
       Name of each exchange on which registered: New York Stock Exchange

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None

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

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in rule 12B-2 of the Act)

         Yes [ x ]   No [  ]



         The aggregate market value of voting and non-voting common equity held
by non-affiliates of the Registrant as of June 30, 2003, the last business day
of the Registrant's most recently completed second fiscal quarter (based on the
closing sale price of the Common Stock on the New York Stock Exchange on such
date) was $369,446,455.

         The number of shares of the Registrant's Common Stock outstanding as of
March 5, 2004 was 28,542,987.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for our Annual Meeting of Stockholders to be
held on June, 22, 2004, are incorporated by reference into Part III hereof.


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                              TABLE OF CONTENTS AND
                              CROSS REFERENCE SHEET


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                                                                                        Page Number
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<S>               <C>        <C>                                                        <C>
PART I                       Forward Looking Statements                                       3
                             Reasons for Filing Amendment to Form 10-K                        3
                             Factors That May Affect Our Future Business                      3
                  Item 1.    Description of Business                                          12
                             Company Overview                                                 12
                             Material Developments                                            13
                             Industry Overview                                                14
                             Information Concerning Business Segments and
                               Geographical Sales                                             15
                             Business Strengths                                               16
                             Growth Strategy                                                  18
                             Acquisitions                                                     19
                             Products                                                         19
                             Customers                                                        25
                             Marketing and Distribution                                       26
                             Product Manufacturing and Raw Materials                          27
                             Backlog                                                          28
                             Competition                                                      28
                             Employees                                                        29
                             Research and Development                                         29
                             Patents and Trademarks                                           30
                             Government Regulation                                            30
                             Environmental Matters                                            30
                             Available Information                                            31
                             Discontinued Operations                                          32
                  Item 2.    Properties                                                       33
                  Item 3.    Legal Proceedings                                                34
                  Item 4.    Submission of Matters to a Vote of Security Holders              36


PART II           Item 5.    Market for Registrant's Common Equity and Related
                               Stockholder Matters                                            37
                  Item 6.    Selected Financial Data                                          38
                  Item 7.    Management's Discussion and Analysis of Financial
                               Condition and Results of Operations                            38
                  Item 7A.   Quantitative and Qualitative Disclosures About
                               Market Risk                                                    56
                  Item 8.    Financial Statements and Supplementary Data                      57
                  Item 9.    Changes in and Disagreements with Accountants on
                               Accounting and Financial Disclosure                            57
                  Item 9A.   Controls and Procedures                                          57

PART III                                                                                      58

PART IV           Item 15.   Exhibits, Financial Statements and Schedules,
                               and Reports on Form 8-K                                        59
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                                     PART I

FORWARD LOOKING STATEMENTS

We believe that it is important to communicate our expectations to our
investors. Accordingly, this report contains discussion of events or results
that have not yet occurred or been realized. You can identify this type of
discussion, which is often termed "forward-looking statements", by such words
and phrases as "expects", "anticipates", "intends", "plans", "believes",
"estimates" and "could be". Execution of acquisition or divestiture strategies,
expansion of product lines and increase of distribution networks or product
sales are examples of issues whose future success may be difficult to predict.
You should read forward-looking statements carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial position, or state other expectations of future performance.
The actions of current and potential new competitors, changes in technology,
seasonality, business cycles and new regulatory requirements are examples of
factors that impact greatly upon strategies and expectations and are outside our
direct control. There may be events in the future that we are not able
accurately to predict or to control. Any cautionary language in this report, and
the risk factors set forth below, provide examples of risks, uncertainties and
events that may cause our actual results to differ from the expectations we
express in our forward-looking statements.

REASONS FOR FILING AMENDMENT TO FORM 10-K

We are filing this Form 10-K/A amending our earlier filing on Form 10-K to
reflect the resegmenting of our business into the Aerospace & Defense Group, the
Products Division and the Mobile Security Division. As more fully described in
this Form 10-K/A, we believe that this resegmenting better reflects our approach
to operating and directing the businesses, and, in certain instances, to
aligning financial reporting with our market and customer segments.

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

In addition to other information in this Annual Report on Form 10-K/A, the
following risk factors should be carefully considered in evaluating our business
because such factors may have a significant impact on our business, operating
results, liquidity and financial condition. As a result of the risk factors set
forth below, actual results could differ materially from those projected in any
forward-looking statements. Additional risks and uncertainties not presently
known to us, or that we currently consider to be immaterial, may also impact our
business, operating results, liquidity and financial condition. If any of the
following risks occur, our business, operating results, liquidity and financial
condition could be materially adversely affected. In such case, the trading
price of our securities could decline, and you may lose all or part of your
investment.

RISKS RELATED TO OUR INDUSTRY

THE PRODUCTS WE SELL ARE INHERENTLY RISKY AND COULD GIVE RISE TO PRODUCT
LIABILITY AND OTHER CLAIMS.

The products that we manufacture are typically used in applications and
situations that involve high levels of risk of personal injury. Failure to use
our products for their intended purposes, failure to use them properly, their
malfunction, or, in some limited circumstances, even correct use of our
products, could result in serious bodily injury or death. Our products include:
body armor and plates designed to protect against ballistic and sharp instrument
penetration; less-lethal products such as less-lethal munitions, pepper sprays,
distraction devices and flameless expulsion grenades; various models of police
batons; rotary and fixed-wing aircraft seating systems; parachutes; vehicle and
hard armoring systems; and police duty gear.

Claims have been made and are pending against certain of our subsidiaries,
involving permanent physical injury and death caused by self-defense sprays and
other munitions intended to be less-lethal. In addition, the manufacture and
sale of certain less-lethal products may be the subject of product liability
claims arising from the design, manufacture or sale of such goods. If these
claims are decided against us and we are found to be liable, we may be required
to pay substantial damages and our insurance costs may increase significantly as
a result. Also, a significant or extended lawsuit, such as a class action, could
also divert significant amounts of management's time and attention. We cannot
assure you that our insurance coverage would be sufficient to cover the payment
of any potential claim. In addition, we cannot assure you that this or any other
insurance coverage will continue to be available or, if available, that we will
be able to obtain it at a reasonable cost. Our cost of obtaining insurance
coverage has risen substantially since September 11, 2001. Any material
uninsured loss could have a material adverse effect on our business, financial
condition and results of operations. In addition, the inability to obtain
product liability coverage would prohibit us from bidding for orders from
certain governmental customers since, at present, many bids from governmental
entities require such coverage, and any such inability would have a material
adverse effect on our business, financial condition and results of operations.

Both private claimants and State Attorneys General have already commenced legal
action against Second Chance Body Armor based upon its Ultima(R) and Ultimax(R)
model vests. Second Chance Body Armor licenses from Simula, one of our indirect
subsidiaries, a certain patented technology which is used in some of the body


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armor it manufactures, but to our knowledge, no lawsuit has yet been brought
against Second Chance Body Armor based upon this licensed technology, although a
letter was received by Simula from an attorney representing a police officer who
was injured while wearing a Second Chance Body Armor vest alleging potential
liability against Simula. In addition, the U.S. Attorney General has asked the
U.S. Department of Justice to investigate the claims regarding the Zylon(R)
vests. As Simula has licensed its technology to Second Chance Body Armor, it may
be impacted by the pending claims against Second Chance Body Armor and the
investigation being conducted by the U.S. Department of Justice. If Simula is
included in the claims pending against Second Chance Body Armor and the
investigation being conducted by the U.S. Department of Justice, we cannot
assure you that any judgment, settlement or resolution against Simula will not
have a material adverse effect on Simula's business, financial condition and
results of operations.

The National Institute of Justice (NIJ) is engaged in an ongoing inquiry and
investigation of bullet-resistant vests and the protocol for testing used vests,
as well as the reliability of Zylon and other fibers. We have consulted with and
cooperated fully with the NIJ in this endeavor. To date, the NIJ has embarked
only in its first phase of testing, which entails vests that have been heavily
worn or exposed to adverse conditions, and which involves the ballistic standard
applicable to new vests. Although some of the vests tested, including ours,
experienced some level of penetration, the NIJ specifically warned against the
misuse and misinterpretation of these results, emphasizing that the data
produced so far is preliminary in nature, applies to a very small sample size
and therefore it is not possible to draw any statistically-based conclusions
from these results. The NIJ will continue to conduct further testing and analyze
these issues in order to determine if any conclusions can be reached as to the
performance and reliability of aged vests. We have requested the NIJ to provide
us with its testing data, and we intend to evaluate and review the NIJ results
in our continuing effort to assist the NIJ in developing uniform standards for
certification of new vests and the testing of used vests. The NIJ continues to
encourage law enforcement officers to wear body armor, in light of the fact that
"the lives of more than 2,700 law enforcement officers have been saved by the
use of bullet-resistant body armor over the past 30 years."

In April 2004, two class action complaints were filed in Florida state courts by
police organizations and individual police officers, alleging that our vests do
not have the qualities and performance characteristics as warranted, thereby
breaching express warranty, implied warranty of merchantability, implied
warranty of fitness for a particular purpose and duty to warn. We strenuously
disagree with the allegations set forth in these complaints and intend to
present a vigorous defense. By letter dated April 14, 2004, an attorney
representing the Ohio State Troopers Association, Inc. wrote to us demanding a
full refund of the purchase price for our vests containing Zylon(R) purchased by
Ohio Highway Patrol Troopers. We have responded by denying his demand for a
refund and explaining that there have been no incidents of injury related to our
vests, that our vests meet the NIJ certification standards and that there exists
no reliable evidence to show that our vests are sub-standard or inappropriate
for their intended use.


WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND OUR FAILURE OR INABILITY
TO COMPLY WITH THESE REGULATIONS COULD MATERIALLY RESTRICT OUR OPERATIONS AND
SUBJECT US TO SUBSTANTIAL PENALTIES.

We are subject to federal licensing requirements with respect to the sale in
foreign countries of certain of our products. In addition, we are obligated to
comply with a variety of federal, state and local regulations, both domestically
and abroad, governing certain aspects of our operations and workplace, including
regulations promulgated by, among others, the U.S. Departments of Commerce,
State and Transportation, the Federal Aviation Administration, the U.S.
Environmental Protection Agency and the U.S. Bureau of Alcohol, Tobacco and
Firearms. The U.S. Bureau of Alcohol, Tobacco, and Firearms also regulates us as
a result of our manufacturing of certain destructive devices and by the use of
ethyl alcohol in certain products. We also ship hazardous goods, and in doing
so, must comply with the regulations of the U.S. Department of Transportation
for packaging and labeling. Additionally, the failure to obtain applicable
governmental approval and clearances could adversely affect our ability to
continue to service the government contracts we maintain. Furthermore, we have
material contracts with governmental entities and are subject to rules,
regulations and approvals applicable to government contractors. We are also
subject to routine audits to assure our compliance with these requirements. We
have become aware that we are not in full compliance with certain regulations
governing the export of equipment and related technology used for military
purposes that are applicable to certain of our products. We have undertaken
steps to comply with these regulations and to help ensure compliance in the
future. We do not believe that such noncompliance will have a material adverse
effect on our business. In addition, a number of our employees involved with
certain of our federal government contracts are required to obtain specified
levels of security clearances. Our business may suffer if we or our employees
are unable to obtain the security clearances

                                       4
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that are needed to perform services contracted for the Department of Defense,
one of our major customers. Our failure to comply with these contract terms,
rules or regulations could expose us to substantial penalties, including the
loss of these contracts and disqualification as a U.S. government contractor.

Like other companies operating internationally, we are subject to the Foreign
Corrupt Practices Act and other laws which prohibit improper payments to foreign
governments and their officials by U.S. and other business entities. We operate
in countries known to experience endemic corruption. Our extensive operations in
such countries creates the risk of an unauthorized payment by one of our
employees or agents which would be in violation of various laws including the
Foreign Corrupt Practices Act. Violations of the Foreign Corrupt Practices Act
may result in severe criminal penalties which could have a material adverse
effect on our business, financial condition and results of operations.

WE HAVE SIGNIFICANT INTERNATIONAL OPERATIONS AND ASSETS AND ARE THEREFORE
SUBJECT TO ADDITIONAL FINANCIAL AND REGULATORY RISKS.

We sell our products in foreign countries and seek to increase our level of
international business activity. Our overseas operations are subject to various
risks, including: U.S.-imposed embargoes of sales to specific countries (which
could prohibit sales of our products there); foreign import controls (which may
be arbitrarily imposed and enforced and which could interrupt our supplies or
prohibit customers from purchasing our products); exchange rate fluctuations;
dividend remittance restrictions; expropriation of assets; war, civil uprisings
and riots; government instability; the necessity of obtaining government
approvals for both new and continuing operations; and legal systems of decrees,
laws, taxes, regulations, interpretations and court decisions that are not
always fully developed and that may be retroactively or arbitrarily applied.

One component of our strategy is to expand our operations into selected
international markets. Military procurement, for example, has traditionally had
a large international base. Countries in which we are actively marketing include
Germany, Canada, France, Italy, the United Kingdom, Norway, Japan, India, Korea
and Australia. We, however, may be unable to execute our business model in these
markets or new markets. Further, foreign providers of competing products and
services may have a substantial advantage over us in attracting consumers and
businesses in their country due to earlier established businesses in that
country, greater knowledge with respect to the cultural differences of consumers
and businesses residing in that country and/or their focus on a single market.
We expect to continue to experience higher costs as a percentage of revenues in
connection with the development and maintenance of international products and
services. In pursuing our international expansion strategy, we face several
additional risks, including:

         o foreign laws and regulations, which may vary country by country, that
           may impact how we conduct our business;
         o higher costs of doing business in foreign countries, including
           different employment laws;
         o potential adverse tax consequences if taxing authorities in different
           jurisdictions worldwide disagree with their interpretation of various
           tax laws or their determinations as to the income and expenses
           attributable to specific jurisdictions, which could result in our
           paying additional taxes, interest and penalties;
         o technological differences that vary by marketplace, which we may not
           be able to support;
         o longer payment cycles and foreign currency fluctuations;
         o economic downturns; and
         o revenue growth outside of the United States may not continue at the
           same rate if it is determined that we have already launched our
           products and services in the most significant markets.

We may also be subject to unanticipated income taxes, excise duties, import
taxes, export taxes or other governmental assessments. In addition, a percentage
of the payments to us in our international markets are often in local
currencies. Although most of these currencies are presently convertible into
U.S. dollars, we cannot be sure that convertibility will continue. Even if
currencies are convertible, the rate at which they convert is subject to
substantial fluctuation. Our ability to transfer currencies into or out of local
currencies may be restricted or limited. Any of these events could result in a
loss of business or other unexpected costs which could reduce revenue or profits
and have a material adverse effect on our business, financial condition and
results of operations.

We routinely operate in areas where local government policies regarding foreign
entities and the local tax and legal regimes are often uncertain, poorly
administered and in a state of flux. We cannot, therefore, be certain that we
are in compliance with, or will be protected by, all relevant local laws and
taxes at any given point in time. A

                                       5


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subsequent determination that we failed to comply with relevant local laws and
taxes could have a material adverse effect on our business, financial condition
and results of operations. One or more of these factors could adversely effect
our future international operations and, consequently, could have a material
adverse effect on our business, financial condition and results of operation.

RISKS RELATED TO OUR BUSINESS

MANY OF OUR CUSTOMERS HAVE FLUCTUATING BUDGETS WHICH MAY CAUSE SUBSTANTIAL
FLUCTUATIONS IN OUR RESULTS OF OPERATIONS.

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

THE LOSS OF, OR A SIGNIFICANT REDUCTION IN, U.S. MILITARY BUSINESS WOULD HAVE A
MATERIAL ADVERSE EFFECT ON US.

U.S. military contracts account for a significant portion of our business. The
U.S. military funds these contracts in annual increments. These contracts
require subsequent authorization and appropriation that may not occur or that
may be greater than or less than the total amount of the contract. Changes in
the U.S. military's budget, spending allocations, and the timing of such
spending could adversely affect our ability to receive future contracts. None of
our contracts with the U.S. military have a minimum purchase commitment and the
U.S. military generally has the right to cancel its contracts unilaterally
without prior notice. We are the sole-source provider to the U.S. military for
up-armoring of the U.S. military's High Mobility Multipurpose Wheeled Vehicles
("HMMWVs"). The HMMWVs are manufactured by AM General Corporation under separate
U.S. military contracts. Should production or deliveries of HMMWVs be
significantly interrupted, or should other single source suppliers significantly
interrupt deliveries of our components for up-armoring the HMMWVs, we will not
be able to deliver such up-armoring systems for the HMMWVs to the U.S. military
on schedule, which could have a material adverse effect on our business,
financial condition and results of operations. We also manufacture for the U.S.
military helicopter seating systems, aircraft and land vehicle armor systems,
protective equipment for military personnel and other technologies used to
protect soldiers in a variety of life-threatening or catastrophic situations.
The loss of, or a significant reduction in, U.S. military business for our
helicopter seating systems, aircraft and land vehicle armor systems and other
protective equipment could have a material adverse effect on our business,
financial condition and results of operations.

WE MAY LOSE MONEY OR GENERATE LESS THAN EXPECTED PROFITS ON OUR FIXED-PRICE
CONTRACTS.

Some of our government contracts provide for a predetermined, fixed price for
the products we make regardless of the costs we incur. Therefore, fixed-price
contracts require us to price our contracts by forecasting our expenditures.
When making proposals for fixed-price contracts, we rely on our estimates of
costs and timing for completing these projects. These estimates reflect
management's judgments regarding our capability to complete projects efficiently
and timely. Our production costs may, however, exceed forecasts due to
unanticipated delays or increased cost of materials, components, labor, capital
equipment or other factors. Therefore, we may incur losses on fixed price
contracts that we had expected to be profitable, or such contracts may be less
profitable than expected, which could have a material adverse effect on our
business, financial condition and results of operations.

OUR BUSINESS IS SUBJECT TO VARIOUS LAWS AND REGULATIONS FAVORING THE U.S.
GOVERNMENT'S CONTRACTUAL POSITION, AND OUR FAILURE TO COMPLY WITH SUCH LAWS AND
REGULATIONS COULD HARM OUR OPERATING RESULTS AND PROSPECTS.

As a contractor to the U.S. government, we must comply with laws and regulations
relating to the formation, administration and performance of the federal
government contracts that affect how we do business with our clients and may
impose added costs on our business. These rules generally favor the U.S.
government's


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contractual position. For example, these regulations and laws include provisions
that subject contracts we have been awarded to:

         o protest or challenge by unsuccessful bidders; and
         o unilateral termination, reduction or modification by the government.

The accuracy and appropriateness of certain costs and expenses used to
substantiate our direct and indirect costs for the U.S. government under both
cost-plus and fixed-price contracts are subject to extensive regulation and
audit by the Defense Contract Audit Agency, an arm of the U.S. Department of
Defense. Responding to governmental audits, inquiries or investigations may
involve significant expense and divert management's attention. Our failure to
comply with these or other laws and regulations could result in contract
termination, suspension or debarment from contracting with the federal
government, civil fines and damages and criminal prosecution and penalties, any
of which could have a material adverse effect on our business, financial
condition and results of operations.

OUR MARKETS ARE HIGHLY COMPETITIVE AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY,
WE WILL BE ADVERSELY AFFECTED.

The markets in which we operate include a large number of competitors ranging
from small businesses to multinational corporations and are highly competitive.
Competitors who are larger, better financed and better known than us may compete
more effectively than we can. In order to stay competitive in our industry, we
must keep pace with changing technologies and client preferences. If we are
unable to differentiate our services from those of our competitors, our revenues
may decline. In addition, our competitors have established relationships among
themselves or with third parties to increase their ability to address client
needs. As a result, new competitors or alliances among competitors may emerge
and compete more effectively than we can. There is also a significant industry
trend towards consolidation, which may result in the emergence of companies
which are better able to compete against us.

THERE ARE LIMITED SOURCES FOR SOME OF OUR RAW MATERIALS WHICH MAY SIGNIFICANTLY
CURTAIL OUR MANUFACTURING OPERATIONS.

The raw materials that we use in manufacturing ballistic resistant garments and
up-armored vehicles include: SpectraShield, a patented product of Honeywell,
Inc.; Z-Shield, a patented product of Honeywell, Inc.; Zylon, a patented product
of Toyobo Co., Ltd.; Kevlar, a patented product of E.I. du Pont de Nemours Co.,
Inc., or DuPont; and Twaron, a patented product of Akzo-Nobel Fibers, B.V. We
purchase these materials in the form of woven cloth from five independent
weaving companies. In the event Du Pont or its licensee in Europe cease, for any
reason, to produce or sell Kevlar to us, we would utilize these other ballistic
resistant materials as a substitute. However, none of SpectraShield, Twaron,
Z-Shield or Zylon is expected to become a complete substitute for Kevlar in the
near future. We enjoy a good relationship with our suppliers of Kevlar,
SpectraShield, Twaron, Z-Shield and Zylon. The use of Zylon and Z-Shield in the
design of ballistic resistant vests is a recent technological advancement that
is subject to continuing development and study. Toyobo is the only producer of
Zylon, and Honeywell is the only producer of Z-Shield. Should these materials
become unavailable for any reason, we would be unable to replace them with
materials of like weight and strength. Thus, if our supply of any of these
materials were materially reduced or cut off or if there was a material increase
in the prices of these materials, our manufacturing operations could be
adversely affected and our costs increased, and our business, financial
condition and results of operations could be materially adversely affected.

WE MAY BE UNABLE TO COMPLETE OR INTEGRATE ACQUISITIONS EFFECTIVELY, IF AT ALL,
AND AS A RESULT MAY INCUR UNANTICIPATED COSTS OR LIABILITIES OR OPERATIONAL
DIFFICULTIES.

We intend to grow through the acquisition of businesses and assets that will
complement our current businesses. We cannot be certain that we will be able to
identify attractive acquisition targets, obtain financing for acquisitions on
satisfactory terms or successfully acquire identified targets. Furthermore, we
may have to divert our management's attention and our financial and other
resources from other areas of our business. Our inability to implement our
acquisition strategy successfully may hinder the expansion of our business.
Because we depend in part on acquiring new businesses and assets to develop and
offer new products, failure to implement our acquisition strategy may also
adversely affect our ability to offer new products in line with industry trends.

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We may not be successful in integrating acquired businesses into our existing
operations. Integration may result in unanticipated liabilities or unforeseen
operational difficulties, which may be material, or require a disproportionate
amount of management's attention. Acquisitions may result in us incurring
additional indebtedness or issuing preferred stock or additional common stock.
Competition for acquisition opportunities in the industry may rise, thereby
increasing our cost of making acquisitions or causing us to refrain from making
further acquisitions. In addition, the terms and conditions of our secured
revolving credit facility and the indenture governing our 8 1/4% notes impose
restrictions on us that, among other things, restrict our ability to make
acquisitions.

OUR RESOURCES MAY BE INSUFFICIENT TO MANAGE THE DEMANDS IMPOSED BY OUR GROWTH.

We have rapidly expanded our operations, and this growth has placed significant
demands on our management, administrative, operating and financial resources.
The continued growth of our customer base, the types of services and products
offered and the geographic markets served can be expected to continue to place a
significant strain on our resources. In addition, we cannot easily identify and
hire personnel qualified both in the provision and marketing of our security
services and products. Our future performance and profitability will depend in
large part on our ability to attract and retain additional management and other
key personnel; our ability to implement successful enhancements to our
management, accounting and information technology systems; and our ability to
adapt those systems, as necessary, to respond to growth in our business.

WE ARE DEPENDENT ON INDUSTRY RELATIONSHIPS.

A number of our products are components in our customers' final products.
Accordingly, to gain market acceptance, we must demonstrate that our products
will provide advantages to the manufacturers of final products, including
increasing the safety of their products, providing such manufacturers with
competitive advantages or assisting such manufacturers in complying with
existing or new government regulations affecting their products. There can be no
assurance that our products will be able to achieve any of these advantages for
the products of our customers. Furthermore, even if we are able to demonstrate
such advantages, there can be no assurance that such manufacturers will elect to
incorporate our products into their final products, or if they do, that our
products will be able to meet such customers' manufacturing requirements.
Additionally, there can be no assurance that our relationships with our
manufacturer customers will ultimately lead to volume orders for our products.
The failure of manufacturers to incorporate our products into their final
products could have a material adverse effect on our business, financial
condition and results of operations.

WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, INCLUDING THE
TECHNOLOGIES WE USE TO FURNISH THE UP-ARMORING OF HMMWVS.

We are dependent upon a variety of methods and techniques that we regard as
proprietary trade secrets. We are also dependent upon a variety of trademarks,
service marks and designs to promote brand name development and recognition. We
rely on a combination of trade secret, copyright, patent, trademark, unfair
competition and other intellectual property laws as well as contractual
agreements to protect our rights to such intellectual property. Due to the
difficulty of monitoring unauthorized use of and access to intellectual
property, however, such measures may not provide adequate protection. It is
possible that our competitors may access our intellectual property and
proprietary information and use it to their advantage. In addition, there can be
no assurance that courts will always uphold our intellectual property rights, or
enforce the contractual arrangements that we have entered into to protect our
proprietary technology. Any unenforceability or misappropriation of our
intellectual property could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, we cannot assure you
that any pending patent application or trademark application made by us will
result in an issued patent or registered trademark, or that, if a patent is
issued, it will provide meaningful protection against competitors or competitor
technologies. In addition, if we bring or become subject to litigation to defend
against claimed infringement of our rights or of the rights of others or to
determine the scope and validity of our intellectual property rights, such
litigation could result in substantial costs and diversion of our resources
which could have a material adverse effect on our business, financial condition
and results of operations. Unfavorable results in such litigation could also
result in the loss or compromise of our proprietary rights, subject us to
significant liabilities, require us to seek licenses from third parties on
unfavorable terms, or prevent us from manufacturing or selling our products, any
of which could have a material adverse effect on our business, financial
condition and results of operations.

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TECHNOLOGICAL ADVANCES, THE INTRODUCTION OF NEW PRODUCTS, AND NEW DESIGN AND
MANUFACTURING TECHNIQUES COULD ADVERSELY AFFECT OUR OPERATIONS UNLESS WE ARE
ABLE TO ADAPT TO THE RESULTING CHANGE IN CONDITIONS.

Our future success and competitive position depend to a significant extent upon
our proprietary technology. We must make significant investments to continue to
develop and refine our technologies. We will be required to expend substantial
funds for and commit significant resources to the conduct of continuing research
and development activities, the engagement of additional engineering and other
technical personnel, the purchase of advanced design, production and test
equipment, and the enhancement of design and manufacturing processes and
techniques. Our future operating results will depend to a significant extent on
our ability to continue to provide design and manufacturing services for new
products that compare favorably on the basis of time to introduction, cost and
performance with the design and manufacturing capabilities. The success of new
design and manufacturing services depends on various factors, including
utilization of advances in technology, innovative development of new solutions
for customer products, efficient and cost-effective services, timely completion
and delivery of new product solutions and market acceptance of customers' end
products. Because of the complexity of our products, we may experience delays
from time to time in completing the design and manufacture of new product
solutions. In addition, there can be no assurance that any new product solutions
will receive or maintain customer or market acceptance. If we are unable to
design and manufacture solutions for new products of our customers on a timely
and cost-effective basis, such inability could have a material adverse effect on
our business, financial condition and results of operations.

WE MAY BE ADVERSELY AFFECTED BY APPLICABLE ENVIRONMENTAL LAWS AND REGULATIONS.

We are subject to federal, state, local and foreign laws and regulations
governing the protection of the environment and human health, including those
regulating discharges to the air and water, the management of wastes, and the
control of noise and odors. We cannot assure you that we are at all times in
complete compliance with all such requirements. Like all companies in our
industry, we are subject to potentially significant fines or penalties if we
fail to comply with environmental requirements. Environmental requirements are
complex, change frequently, and could become more stringent in the future.
Accordingly, we cannot assure you that these requirements will not change in a
manner that will require material capital or operating expenditures or will
otherwise have a material adverse effect on us in the future. In addition, we
are also subject to environmental laws requiring the investigation and clean-up
of environmental contamination. We may be subject to liability, including
liability for clean-up costs, if contamination is discovered at one of our
current or former facilities, in some circumstances even if such contamination
was caused by a third party such as a prior owner. We also may be subject to
liability if contamination is discovered at a landfill or other location where
we have disposed of wastes, notwithstanding that our historic disposal practices
may have been in accordance with all applicable requirements. We use
Orthochlorabenzalmalononitrile and Chloroacetophenone chemical agents in
connection with our production of tear gas, and these chemicals are hazardous
and could cause environmental damage if not handled and disposed of properly.
Moreover, private parties may bring claims against us based on alleged adverse
health impacts or property damage caused by our operations. The amount of
liability for cleaning up contamination or defending against private party
claims could be material.

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

DELAWARE LAW MAY LIMIT POSSIBLE TAKEOVERS.

Our certificate of incorporation makes us subject to the anti-takeover
provisions of Section 203 of the General Corporation Law of the State of
Delaware. In general, Section 203 prohibits publicly-held Delaware corporations
to which it applies from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. This provision could
discourage others from bidding for our shares and could, as a result, reduce the
likelihood of an increase in our stock price that would otherwise occur if a
bidder sought to buy our stock.

OUR CERTIFICATE OF INCORPORATION AUTHORIZES THE ISSUANCE OF SHARES OF BLANK
CHECK PREFERRED STOCK.

Our certificate of incorporation provides that our board of directors will be
authorized to issue from time to time, without further stockholder approval, up
to 5,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each



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series, including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, including sinking fund provisions, redemption price
or prices, liquidation preferences and the number of shares constituting any
series or designations of any series. Such shares of preferred stock could have
preferences over our common stock with respect to dividends and liquidation
rights. We may issue additional preferred stock in ways which may delay, defer
or prevent a change in control of us without further action by our stockholders.
Such shares of preferred stock may be issued with voting rights that may
adversely affect the voting power of the holders of our common stock by
increasing the number of outstanding shares having voting rights, and by the
creation of class or series voting rights.

THE MARKET PRICE FOR OUR COMMON STOCK IS VOLATILE.

The market price for our common stock may be highly volatile. We believe that a
variety of factors, including announcements by us or our competitors, quarterly
variations in financial results, trading volume, general market trends and other
factors, could cause the market price of our common stock to fluctuate
substantially. Additionally, due to our relatively modest size, our winning or
losing a large contract may have the effect of distorting our overall financial
results.

WE MAY ISSUE A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK IN CONNECTION WITH FUTURE
ACQUISITIONS AND THE SALE OF THOSE SHARES COULD ADVERSELY AFFECT OUR STOCK
PRICE.

As part of our acquisition strategy, we anticipate issuing additional shares of
common stock as consideration for such acquisitions. To the extent that we are
able to grow through acquisitions and issue our shares of common stock as
consideration, the number of outstanding shares of common stock that will be
eligible for sale in the future is likely to increase substantially. Persons
receiving shares of our common stock in connection with these acquisitions may
be more likely to sell large quantities of their common stock that may influence
the price of our common stock. In addition, the potential issuance of additional
shares in connection with anticipated acquisitions could lessen demand for our
common stock and result in a lower price than would otherwise be obtained.

OUR STOCK PRICE MAY BE ADVERSELY AFFECTED WHEN ADDITIONAL SHARES ARE SOLD.

If our stockholders sell substantial amounts of our common stock in the public
market, the market price of our common stock could fall. These sales might make
it more difficult for us to sell equity or equity-related securities in the
future at a time and price that we deem appropriate and may require us to issue
greater amounts of our common stock to finance future acquisitions. Additional
shares sold to finance acquisitions may dilute our earnings per share if the new
operations' earnings are disappointing.

OUR DEBT AGREEMENTS RESTRICT OUR ABILITY TO PAY DIVIDENDS OR MAKE OTHER
DISTRIBUTIONS TO OUR STOCKHOLDERS.

Our debt agreements, such as the indenture governing the 8 1/4% senior
subordinated notes and the senior credit facility, contain certain financial and
other covenants that limit, under certain circumstances, our ability to pay
dividends or make other distributions to our stockholders. We are permitted to
pay dividends and make other distributions to stockholders to the extent we
satisfy the conditions, including the financial and other covenants, contained
in such documents.

WE HAVE A HIGH LEVEL OF DEBT.

Our high level of debt could have important consequences to you and to us. For
example:

         o No payment of any kind may be made to our common stockholders
            without first meeting our obligations under our senior credit
            facility and the indenture governing our 8 1/4% notes;
         o We may become more vulnerable to general adverse  economic and
            industry conditions and adverse changes in governmental regulations;
         o We may have to dedicate a substantial portion of our cash flow
            from operations to make payments required under our senior credit
            facility and the 8 1/4% notes, reducing the availability of cash
            flow to fund future capital expenditures, working capital, execution
            of our growth strategy, research and development costs and other
            general corporate requirements;
         o We may have limited flexibility in planning for, or reacting to,
            changes in our business and our industry, which may place us at a
            competitive disadvantage compared with competitors that have less
            debt or more financial resources;

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         o We may have limited ability to borrow additional funds, even when
            necessary to maintain adequate liquidity; and
         o The terms of our senior credit facility and the indenture
            governing the 8 1/4% notes will allow us to incur substantial
            amounts of additional debt, subject to certain limitations. We might
            incur additional debt for various reasons, including to pay for
            additional acquisitions that we may make and assuming debt of
            companies that we may acquire.

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ITEM 1.  DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

We are a leading manufacturer and provider of specialized security products;
training and support services related to these products; vehicle armor systems;
military helicopter seating systems, aircraft and land vehicle armor systems;
protective equipment for military personnel; and other technologies used to
protect humans in a variety of life-threatening or catastrophic situations. Our
products and systems are used domestically and internationally by military, law
enforcement, security and corrections personnel, as well as governmental
agencies, multinational corporations and individuals. Effective in the first
quarter 2004, we instituted a new segment reporting format to include three
reportable business divisions: Aerospace & Defense Group, the Products Division
and the Mobile Security Division. The Aerospace & Defense Group was formed upon
the completion of our acquisition of Simula, Inc. on December 9, 2003, and
results have been included herein since the acquisition date. The Aerospace &
Defense Group also includes the military business, including armor and blast
protection systems for M1114 Up-Armored HMMWVs, and other military vehicle armor
programs, which previously were included in the Mobile Security Division. The
Aerospace & Defense Group also includes the SAPI plate produced by our Protech
subsidiary in Pittsfield, Massachusetts, which was previously reported as part
of the Products Division. The historical results of these businesses have been
reclassified as part of the Aerospace & Defense Group. This reporting change was
made to better reflect management's approach to operating and directing the
businesses, and, in certain instances, to align financial reporting with our
market and customer segments. Prior period segment data has been restated to
conform to the 2003 presentation.

Aerospace & Defense. Our Aerospace & Defense Group supplies human safety and
survival systems to the U.S. military, and major Aerospace & Defense prime
contractors. Our core markets are military aviation safety, military personnel
safety, and land and marine safety. Under the brand name O'Gara-Hess &
Eisenhardt, we are the sole-source provider to the U.S. military of the armor
and blast protection systems for M1114 Up-Armored HMMWVs. We are also under
contract with the U.S. Army to provide spare parts, logistics and ongoing field
support services for the currently installed base of approximately 4,415
Up-Armored HMMWVs. Additionally, we provide blast and ballistic protection kits
for the standard HMMWVs, which are installed on existing equipment in the field.
Our Aerospace & Defense Group is also subcontracted to develop a ballistic and
blast protected armored and sealed truck cab for the High Mobility Artillery
Rocket System (HIMARS), a program recently transitioned by the U.S. Army and
U.S. Marine Corps from developmental to a low rate of initial production,
deliveries of which commenced in 2003. We also supply armor sub-systems for
other tactical wheeled vehicles. Through Simula, we provide military helicopter
seating systems, helicopter cockpit airbag systems, aircraft and land vehicle
armor kits, body armor and other protective equipment for military personnel,
emergency bailout parachutes and survival ensembles worn by military aircrew.
The primary customers for our products are the U.S. Army, U.S. Marine Corps,
Boeing, and Sikorsky Aircraft. Most of Simula's aviation safety products are
provided on a sole source basis. The U.S. armed forces have adopted ceramic body
armor as a key element of the protective ensemble worn by our troops in Iraq and
Afghanistan. Simula was the developer of this specialized product called SAPI,
and is the largest supplier to U.S. forces. We also provide ceramic body armor
from our Protech subsidiary based in Pittsfield, Massachusetts.

Products. Our Products Division manufactures and sells a broad range of high
quality security products, equipment and related consumable items, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories, weapon maintenance products, foldable
ladders and specialty gloves. Our products are marketed under brand names that
are well established in the military and law enforcement communities such as
AMERICAN BODY ARMOR(TM), B-SQUARE(R), BREAK FREE(R), CLP(R), DEFENSE
TECHNOLOGY/FEDERAL LABORATORIES(R), DEF-TEC PRODUCTS(R), DISTRACTION DEVICE(R),
FEDERAL LABORATORIES(R), FERRET(R), FIRST DEFENSE(R), IDENTICATOR(R),
IDENTIDRUG(R), LIGHTNING POWDER(R), MONADNOCK(R), NIK(R), PROTECH(TM), QUIKSTEP
LADDERS(TM), PORTAL LADDERS(TM), QUIKSHIELD(TM), SAFARILAND(R), SPEEDFEED(R),
911EP(R) and DESIGN(TM). We sell our products through a network of over 350
distributors and sales agents, including approximately 200 in the United States.
Our extensive distribution capabilities and commitment to customer service and
training have enabled us to become a leading provider of security equipment to
law enforcement agencies.

Mobile Security. Our Mobile Security Division manufactures and installs
ballistic and blast protected armoring systems for privately owned vehicles as
well as some military vehicles for European based militaries. Under the brand
name O'GARA-HESS & EISENHARDT ARMORING COMPANY(R), we armor a variety of
privately owned commercial vehicles, including limousines, sedans, sport utility
vehicles, commercial trucks and cash-in-transit

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<PAGE>

vehicles, to protect against varying degrees of ballistic and blast threats. Our
customers in this business include international corporations and high net worth
individuals. In addition, we supply ballistic and blast protected armoring
systems to U.S. federal law enforcement and intelligence agencies and foreign
heads of state.

MATERIAL DEVELOPMENTS

Sale of Services Division

On November 26, 2003, we announced that we completed the sale of ArmorGroup, our
security service division, for $33,660,000 in total consideration to a group of
private investors led by Granville Baird Partners of London, England and
Management. We received $31,360,000 in cash at closing and are scheduled to
receive another $2,300,000 by the end of 2004, of which we have received
$375,000 through March 6, 2004.

Simula, Inc. Acquisition

On December 9, 2003, we completed our acquisition of Simula, an Arizona
corporation, pursuant to the Agreement and Plan of Merger, dated as of August
29, 2003, by and among Armor Holdings, AHI Bulletproof Acquisition Corp., a
wholly-owned subsidiary of Armor Holdings, and Simula. The consummation of the
merger followed the Special Meeting of Shareholders of Simula held on December
5, 2003, at which the requisite shareholder approval was obtained. In the
merger, we acquired all of the outstanding common stock of Simula and retired a
majority of Simula's outstanding indebtedness for $110.5 million in cash. Of
this amount, approximately $31 million principal amount of 8% debentures
remained outstanding for approximately 30 days at which time we repaid these
debentures, plus accrued interest, in their entirety. After payment of 100% of
the outstanding indebtedness and transaction expenses, the merger consideration
payable to Simula shareholders at closing pursuant to the merger agreement was
approximately $43.5 million or approximately $3.21 per share. The source of the
funds used in the acquisition was our working capital, which was derived from
proceeds received from our private placement of $150 million aggregate principal
amount of 8 1/4% Senior Subordinated Notes due 2013.

Hatch Imports, Inc. Acquisition

On December 16, 2003, we acquired all of the issued and outstanding common stock
of Hatch Imports, Inc. for $8.0 million dollars in cash and $2.0 million in
deferred consideration payable in April 2005, subject to adjustments. Hatch
designs, imports and distributes a variety of specialty gloves and accessories,
including goggles, hoods, riot gear and bags for law enforcement, military,
corrections, medical, safety and other markets.

Zylon(R) Investigation

Second Chance Body Armor, Inc., a body armor manufacturer and competitor to
Armor Holdings, has notified its customers of a potential safety issue with its
Ultima(R) and Ultimax(R) models. Second Chance Body Armor has claimed that
Zylon(R) fiber, which is made by Toyobo, a Japanese corporation, and used in the
ballistic fabric construction of those two models, degraded more rapidly than
originally anticipated. Second Chance Body Armor has also stated that the
Zylon(R) degradation problem affects the entire body armor industry, not just
its products. Both private claimants and State Attorneys General have already
commenced legal action against Second Chance Body Armor based upon its Ultima(R)
and Ultimax(R) model vests. Second Chance Body Armor licenses from Simula a
certain patented technology which is used in some of the body armor it
manufactures, but to our knowledge, no lawsuit has yet been brought against
Second Chance Body Armor based upon this licensed technology, although a letter
was received by Simula from an attorney representing a police officer who was
injured while wearing a Second Chance Body Armor vest alleging potential
liability against Simula.

We use Zylon(R) fiber in a number of concealable body armor models for law
enforcement, but our design and construction are different. We have been testing
our Zylon(R)-based vests since their 2000 introduction and to date these tests
of our Zylon(R)-based vests show no unanticipated degradation in ballistic
performance. In addition, to our knowledge, no other body armor manufacturer has
reported or experienced similar problems as those cited by Second Chance Body
Armor. Finally, the National Institute of Justice tests and certifies each of
our body armor designs before we begin to produce or sell any particular model.

Following the Second Chance Body Armor assertions, several key law enforcement
associations have raised the issue to the U.S. Department of Justice and
Attorney General's Office. The U.S. Attorney General has asked the


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U.S. Department of Justice to investigate the concerns and produce information
to clarify the issues. We support the Attorney General's directive and the
investigation.

As Simula has licensed a soft body armor technology to Second Chance Body Armor,
it may be impacted by the pending suits filed against Second Chance Body Armor
and the on-going investigation being conducted by the U.S. Department of
Justice. However, the licensed technology is not specifically related to use of
Zylon(R) fiber in Second Chance Body Armor vests.

The National Institute of Justice (NIJ) is engaged in an ongoing inquiry and
investigation of bullet-resistant vests and the protocol for testing used vests,
as well as the reliability of Zylon and other fibers. We have consulted with and
cooperated fully with the NIJ in this endeavor. To date, the NIJ has embarked
only in its first phase of testing, which entails vests that have been heavily
worn or exposed to adverse conditions, and which involves the ballistic standard
applicable to new vests. Although some of the vests tested, including ours,
experienced some level of penetration, the NIJ specifically warned against the
misuse and misinterpretation of these results, emphasizing that the data
produced so far is preliminary in nature, applies to a very small sample size
and therefore it is not possible to draw any statistically-based conclusions
from these results. The NIJ will continue to conduct further testing and analyze
these issues in order to determine if any conclusions can be reached as to the
performance and reliability of aged vests. We have requested the NIJ to provide
us with its testing data, and we intend to evaluate and review the NIJ results
in our continuing effort to assist the NIJ in developing uniform standards for
certification of new vests and the testing of used vests. The NIJ continues to
encourage law enforcement officers to wear body armor, in light of the fact that
"the lives of more than 2,700 law enforcement officers have been saved by the
use of bullet-resistant body armor over the past 30 years."

In April 2004, two class action complaints were filed in Florida state courts by
police organizations and individual police officers, alleging that our vests do
not have the qualities and performance characteristics as warranted, thereby
breaching express warranty, implied warranty of merchantability, implied
warranty of fitness for a particular purpose and duty to warn. We strenuously
disagree with the allegations set forth in these complaints and intend to
present a vigorous defense. By letter dated April 14, 2004, an attorney
representing the Ohio State Troopers Association, Inc. wrote to us demanding a
full refund of the purchase price for our vests containing Zylon(R) purchased by
Ohio Highway Patrol Troopers. We have responded by denying his demand for a
refund and explaining that there have been no incidents of injury related to our
vests, that our vests meet the NIJ certification standards and that there exists
no reliable evidence to show that our vests are sub-standard or inappropriate
for their intended use.

INDUSTRY OVERVIEW

We participate in the domestic and international markets for military and
commercial security products and armoring systems. Our Aerospace & Defense Group
is a provider of military helicopter seating systems, aircraft and land vehicle
armor systems, protective equipment for military personnel, mobile security
systems used by militaries and other technologies used to protect humans in a
variety of life-threatening or catastrophic situations. Our Products Division
manufactures security equipment used by military, law enforcement, security and
corrections personnel, and other first responders (e.g., fire and rescue
personnel). Our Mobile Security Division provides armoring systems and mobile
security systems used by government agencies, law enforcement personnel,
corporations and private individuals. Increasingly, governments, militaries,
businesses, and individuals have recognized the need for security products to
protect them from the risks of terrorism, physical attacks and threats of
violence.

The U.S. government has placed a high priority on fighting terrorism overseas
and securing the homeland from future terrorist attacks. This effort has led
many institutions within the government and private sector to redefine their
strategies to protect against, respond to, and combat terrorism. The creation of
the Department of Homeland Security is one significant step in a reformed and
reorganized effort to make our homeland more secure and better able to respond
in the event of an attack. The Bush Administration's fiscal 2004 budget request
includes $41.3 billion for homeland security spending. While it is impossible to
quantify the effects that spending by the U.S. government on homeland security
will have on our businesses, we expect to benefit to the extent that spending is
allocated to increase the number of law enforcement personnel, to purchase
security equipment and consumables used in equipping and training these
personnel, and the armoring of vehicles.

Vehicle Armor Market. Recent conflicts, military actions, and protracted
involvement in peacekeeping missions around the globe have increased the demand
for rapidly deployable and highly mobile armored vehicles. The Up-

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Armored HMMWV has proven its ability to survive front-line combat action in
Bosnia, Kosovo, Afghanistan, and Iraq. The Government Electronics and
Information Technology Association, a defense budget forecasting service,
estimates that between 2003 and 2007, over $2.2 billion will be spent by the
U.S. military for HMMWV procurement and research and development efforts. The
continuing terrorist attacks on U.S. forces deployed in Iraq and Afghanistan
have created significant interest in providing armor protection for the full
range of light, medium and heavy vehicles. Congressional testimony provided by
the U.S. Army leadership has indicated a desire to procure armor kits for these
vehicles that can be installed on the vehicle at its deployed location. Foreign
governments and militaries are also investing in armored vehicle technology,
including the Up-Armored HMMWV, and other armored vehicle alternatives. In
addition, we believe that the use of lightly armored commercial vehicles in
countries with high levels of crime, terrorism and violence ("high fright
areas") around the world will continue to increase as corporations, foreign
governments and wealthy individuals re-evaluate their personnel protection
policies and procedures.

Military Aviation Safety Market. The military aviation safety market is
comprised of three distinct market segments: crash safety, ballistic
survivability, and personnel safety equipment. The primary market for crash
safety is in military helicopters. The marketplace for these features is a
subset of the military helicopter market. The products include crashworthy
seats, airbags, landing gear, fuel systems, and structures. Demand for these
products is currently flat, although there is an expected upturn in the market
for upgrades to aircraft such as the U.S. Army's UH-60M Black Hawk and for
replacement of a wide range of U.S. military helicopters that have been damaged
in combat operations. The ballistic survivability market is both for helicopters
and fixed wing aircraft. Many front line aircraft have some basic armor
protection. There is a growing interest in new protective solutions that can
offer more complete ballistic protection within the limited available weight on
an aircraft. Foreign markets for crash safety and ballistic survivability
products are similar in size to the U.S. market, although the types of aircraft
and customer base are more fragmented. The personnel safety market for aviators
and passengers of aircraft include equipment such as body armor, uniforms and
helmets, survival vests and survival equipment, inflatable life preservers,
parachutes, and emergency oxygen. The market is experiencing some growth as new
ensembles incorporating lessons learned from combat are introduced and
replacement equipment is increased due to the increased pace of operations.

Military Personnel Body Armor Market. A revolution is taking place in the type
and extent to which U.S. forces are being provided protective body armor. In
1998, the Army and Marines adopted a new body armor ensemble called Interceptor.
This ensemble is made up of a soft armor vest for fragmentation protection
(using similar materials and design concepts to law enforcement vests) and hard,
ceramic body armor plates inserted into the soft vest to provide rifle
protection over vital organs. The concept was first deployed in a combat zone in
Afghanistan with tremendous success measured in the reduction of
life-threatening chest wounds. During the invasion of Iraq, front line U.S.
forces were widely equipped with the Interceptor system. The use of the
Interceptor system was extended to cover all deployed troops in the combat zone
by order of the Secretary of the Army in mid-2003. Extensive procurement actions
by the Army and Marines are underway to outfit all active, Reserve and National
Guard troops that could be deployed around the world. The market is substantial
and is straining the capacity of the industry to support the need. The product
has a life cycle in use and we expect there will be a sizable ongoing
replacement market in the future.

Law Enforcement Security Products Market. According to the most recent data
available from the Department of Justice, direct expenditures for police
protection services in the United States grew at a compound annual growth rate
of 7.3% from 1984 through 1999, to a total of $65.4 billion in 1999. We
currently believe that this growth rate will continue, as will the growth in the
number of police officers and other first responders in the United States. The
Bush Administration estimates that there are more than 1.9 million first
responders in the United States, categorized as follows:

         o Over 17,000 state and local law enforcement agencies employing
            more than 700,000 full-time sworn law enforcement personnel.
         o 69 federal law enforcement agencies employing more than 88,000
            persons.
         o Over 1 million firefighters, of which approximately 750,000 are
            volunteers
         o Over 155,000 nationally registered emergency medical technicians.

INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

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For information concerning our business segments and geographical sales, please
refer to Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 12 to our Consolidated Financial Statements
included elsewhere in this report.

BUSINESS STRENGTHS

We believe that the following strengths are critical to our success as a leading
provider of specialized security products, training and support services, human
safety and survival systems and vehicle armor systems.

Valuable Brands with Leading Market Positions. Our products and brands are well
established and have developed a reputation for high quality and dependability.
Due to the life-protecting nature of many of our products, customers prefer
premium, well-recognized brands with quality reputations. We believe that our
strong brand recognition attracts customer loyalty and repeat customer business
and helps us establish leading market share positions in many of our product
offerings.

Broad Portfolio of Products. Our broad product portfolio and our ability to
offer that portfolio in both domestic and overseas markets result in a balanced
revenue mix. Our broad array of security products and armor systems allows us to
be a single-source provider of comprehensive solutions for our customers'
security needs. Cross selling among our products creates additional business
opportunities and increases the value of our client relationships. We believe
that our acquisition of Simula will increase our access to superior technology
and know-how and will enhance our efforts to develop new products.

Extensive Distribution Network. We market and deliver our products through an
extensive network of approximately 200 domestic distributors, 150 international
distributors and through a sales force of 34 representatives and specialists. We
believe that we have one of the largest distribution networks of security
products, which provides a foundation for our continued growth and expansion.
The diversity of the markets we serve and the strength of our distribution
relationships reduces our dependence on any particular product, market, or
customer.

Long-Term Relationships with Government and Military Customers. We derive the
majority of our sales from domestic and foreign law enforcement, government and
military customers. Over many years, we have developed strong relationships with
military, law enforcement, security and corrections customers both in the United
States and overseas. We believe that our solid reputation and longstanding
relationships with customers support our continued growth.

Sole-Source Provider of M1114 Up-Armored HMMWVs. We are the sole-source provider
of up-armoring for new M1114 Up-Armored HMMWVs procured by the U.S. military.
Since August 2001, we have furnished the up-armoring for approximately 1,100
M1114 Up-Armored HMMWVs to the U.S. military. We are also currently under
contract to provide spare parts, logistics and ongoing field support services
for the U.S. military's M1114 Up-Armored HMMWV fleet. In addition, we have begun
providing up-armoring of M1114 HMMWVs to a number of foreign military customers
including Canada, Egypt and Israel.

Extensive Portfolio of Armor Kits for Military Trucks. The two predominate
developers and manufacturers of mine blast and ballistic protection kits for
military trucks over the last 10 years have been O'Gara-Hess & Eisenhardt and
Simula. The acquisition of Simula brings these two organizations together as
well as provides a very complete portfolio of kit designs for light, medium and
heavy trucks used by the U.S. military and foreign militaries. Although the
market has not been sizeable in the past, recent actions by the services and by
Congress indicate that substantial quantities of vehicles will be armored in the
near term and future vehicles will be designed to readily accept these kits. The
combined capabilities of O'Gara-Hess & Eisenhardt and Simula also provide the
complete capability of armor technologies from basic steel armors to
sophisticated ceramic/composite armor systems that will be used to armor the
fleet of trucks.

Industry-leading Market Position in Body Armor. Within the Armor Holdings family
of companies is contained industry leading technology, manufacturing and supply
relationships for all types of body armor. This includes soft armor vests used
in the law enforcement marketplace, as well as soft armor vests and hard armor
plates used by military forces. There are substantial technical synergies that
enable us to stay at the forefront of the market. The combined buying power for
ballistic fabrics and ceramics, which is the largest in the world, is being
utilized today to manage costs and to gain preferred supply relationships.

                                       16
<PAGE>

Sole-Source Provider of Aviation Safety Products. We are the sole supplier of
crew seats for 14 different helicopter models and other variants of these
aircraft. We have also developed and patented the Cockpit Airbag System (CABS)
that is currently being installed on two front-line helicopter platforms and has
substantial U.S. and foreign market potential. Our reputation in these areas has
enabled us to assume the systems integrator role for our customer base and
allows us access to a range of new technologies.

Experienced Management Team. Our management team brings extensive knowledge of
our customers and a proven ability to effectively manage our operations. The
team has been augmented through acquisitions in the area of engineering and R&D
to provide the capability to develop a range of new products. In addition, our
management has a proven record of identifying, executing and integrating
strategic acquisitions into our business, including our two largest acquisitions
to date: Simula in 2003 and the O'Gara group of companies in 2001.


                                       17
<PAGE>


GROWTH STRATEGY

We believe the demand for security products, vehicle armor systems and human
safety and survival systems will continue to grow. We expect to address this
growth by offering a comprehensive array of high quality branded security
products to meet the needs of law enforcement and militaries around the globe.
We also expect to continue to develop ballistic and blast protection for
high-end commercial vehicles as well as for military vehicles. We intend to
enhance our leadership position through additional strategic acquisitions by
creating a broad portfolio of products and services to satisfy all of our
customers' increasingly complex security products needs. The following elements
define our growth strategy:

Focus on Core Competencies. Our primary strength lies in our ability to
manufacture and distribute high quality security products, vehicle armoring
systems and human safety and survival systems. We plan to leverage this core
strength by expanding our research and development efforts, developing new
products and acquiring businesses that complement our existing technical base
and manufacturing operations. We plan to continue to streamline our
manufacturing process, aggressively integrate acquisitions and pursue additional
operating efficiencies to maximize the profitability of our business.

Expand Distribution Network and Product Offerings. We plan to leverage our
distribution network by expanding our range of branded law enforcement equipment
through the acquisition of security products manufacturers and by investing in
the development of new and enhanced products that complement our existing
offerings. We believe that a broader product line will further strengthen our
relationships with distributors and enhance our brand appeal with military, law
enforcement and other end users.

Increase Exposure to Military Programs. As the sole-source provider of M1114
Up-Armored HMMWV for the U.S. military's HMMWVs, we believe that we are in a
strong position to capture opportunities to provide armoring of additional
vehicles for the Department of Defense. We believe the proven success of M1114
Up-Armored HMMWVs in combat has led to increased interest in armoring other
vehicles. Examples include recent successful efforts to develop and supply armor
kits for various types of light through heavy tactical trucks and the continued
relationship with the original equipment manufacturers to explore up-armoring
opportunities for the U.S. Army's tactical vehicle fleet. We have developed and
own the proprietary technology for the M1114 Up-Armored HMMWV. We believe that
the cost and time required for the development of an alternative protection
system increases the likelihood that we will maintain our sole source position
on this program.

Capitalize on Increased Homeland Security Requirements. The creation of the
Department of Homeland Security has increased the U.S. government's focus on
strengthening the infrastructure of homeland security. Our Products Division is
well positioned to provide security equipment and materials required by
military, law enforcement, and security personnel to combat terrorism, respond
to attacks and counter homeland threats. Our Mobile Security Division is well
positioned to provide armored vehicles for federal, state and local government
agencies.

Pursue Strategic Acquisitions. Since January 1, 1999, we have completed 15
acquisitions and integrated the acquired businesses into our Aerospace & Defense
Group, Products Division, and Mobile Security Division. We will continue to seek
opportunities to make value-based acquisitions that complement our business
operations or expand our product offerings, provide access to new geographic
markets and provide additional distribution channels and new customer
relationships. We have historically taken a disciplined value-based approach to
evaluating acquisition opportunities, driven by a prudent use of our capital,
rigorous due diligence standards and a targeted expected return on our
investment. No assurances can be given that any such potential acquisitions will
be consummated or, if any such acquisition is consummated, as to the terms of
such acquisition, including price.

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<PAGE>



ACQUISITIONS

We pursue a strategy of growth through acquisition by acquiring businesses and
assets that complement our existing operations. We exercise a high degree of
financial discipline and strictly adhere to the following criteria to evaluate
prospective acquisitions, including whether the business to be acquired:

            o broadens the scope of products we offer or the geographic areas we
               serve;

            o offers attractive margins;

            o is accretive to earnings;

            o offers opportunity to improve profitability by increasing the
               efficiency of our operations;

            o is managed in a manner consistent with our existing businesses;
               and

            o complements our portfolio of existing businesses by increasing our
               ability to meet our customers' needs.

We have completed 15 acquisitions since January 1, 1999. The following table
sets forth information regarding each of these acquired businesses and their
respective products:

<TABLE>
<CAPTION>
                                                     YEAR OF
                                                     -------
          BUSINESS OR ASSETS ACQUIRED              ACQUISITION         DIVISION              PRIMARY PRODUCT CATEGORIES
          ---------------------------              -----------         --------              --------------------------
<S>                                                <C>            <C>                 <C>
Safariland                                             1999       Products            Duty Gear
Break Free                                             2000       Products            Weapons Maintenance Products
Lightning Powder                                       2000       Products            Forensics
Monadnock Lifetime Products                            2000       Products            Police Batons
Guardian Products                                      2001       Products            Less Lethal Products
O'Gara-Hess & Eisenhardt Companies                     2001       Aerospace &         Commercial and Military Vehicles
                                                                  Defense and
                                                                  Mobile Security
Identicator                                            2001       Products            Forensics
Speedfeed                                              2002       Products            Firearm Accessories
Evi-Paq                                                2002       Products            Forensics
Foldable Products Group                                2002       Products            Safety Products
B-Square                                               2002       Products            Firearm Accessories
Trasco Bremen                                          2002       Mobile Security     Commercial Vehicles
911 Emergency Products                                 2002       Products            Warning and Emergency  Lighting,  Safety
                                                                                      Products
Simula                                                 2003       Aerospace &         Human Safety and Survival Systems
                                                                  Defense
Hatch Imports                                          2003       Products            Specialty Gloves and Accessories
</TABLE>

PRODUCTS

AEROSPACE & DEFENSE

We are a provider of military helicopter seating systems, aircraft and land
vehicle armor systems, protective equipment for military personnel, ballistic
and blast protection-armoring systems for military vehicles and other
technologies used to protect humans in a variety of life-threatening or
catastrophic situations.

Our products are deployed on a wide range of high-profile military platforms
such as the M1114 Up-Armored HMMWV, HIMARS, AH-64 Apache and the UH-60 Black
Hawk helicopters, the C-17 Globemaster III Transport Aircraft, the M1117
Guardian Armored Security Vehicle, various versions of the HMMWV, and body-worn
equipment for personal protection of the United States Army, Marine Corps, and
Air Force Special Operations Forces. Primary Aerospace & Defense customers
include Boeing, Sikorsky, Bell Helicopter, Oshkosh Truck, General Motors, the
U.S. military services, and the U.S. Coast Guard.

                                       19
<PAGE>

Military Products. We are the sole-source provider to the U.S. military for
up-armoring of the M1114 Up-Armored HMMWV. The HMMWV chassis is produced by AM
General Corporation and shipped directly to our facility in Fairfield, Ohio,
where up-armoring components are added. The M1114 Up-Armored HMMWVs provide
exterior protection against various levels of armor piercing ammunition,
overhead airburst protection and underbody blast protection against anti-tank
and anti-personnel mines. In addition, we install other features designed to
enhance crew safety, comfort and performance, such as air conditioning, weapon
turrets and mounts, door locks and shock absorbing seats. During 2003, the
Aerospace & Defense Group shipped 873 M1114 Up-Armored HMMWVs. We also supply
engineering design and prototype services in support of the M1114 Up-Armored
HMMWV program, and supply spare parts and logistics and ongoing field support
services. None of our contracts with the U.S. military have a minimum purchase
commitment and the U.S. military generally has the right to cancel its contracts
unilaterally, at its convenience.

Our expertise in military vehicle safety systems focuses on two areas: armor
kits for the tactical vehicles, and ballistic armor systems for combat vehicles.

Our experience in high-performance, lightweight armor for aircraft has enabled
us to build a business around armoring thin-skinned vehicles for priority
missions during peacekeeping operations. Work in this area includes ballistic
and mine-blast kits for HMMWVs, 5-ton trucks, and large off-road trucks such as
the Heavy Expanded Mobility Tactical Truck (HEMTT). We have responded to urgent
armor requirements in most major conflicts involving U.S. peacekeepers in the
last 10 years. We are currently under contract to supply armor kits for HMMWVs
and for four heavy transport trucks. Our customers for these kits are
predominately the U.S. Army and Marine Corps.

Our ground vehicle armor business also includes production armor kits for the
M1117 Guardian Armored Security Vehicle for the U.S. Army. This small armored
personnel carrier is used by military police in a peacekeeping role. The armor
kits consist of an array of ceramic composite armor panels that form the armor
system with the vehicle hull and internal composite spall liner. We have
completed more than 75 kits, which represents all ASVs produced to date. Simula
has also provided similar ceramic composite armor kits for the U.S. Army's first
Stryker vehicle deployments.

We are serving as a subcontractor to Stewart & Stevenson Services which is
contracted with Lockheed Martin under a U. S. Army and U.S. Marine Corps program
to supply a ballistically armored and sealed truck cab for the HIMARS. The truck
is used to fire missiles that are a part of either the Multiple Launch Rocket
System or the Army Tactical Missile System. This program consisted of shipping
several prototypes in 2001 and 2002 for testing and evaluation by the U.S. Army
and U.S. Marine Corps, and has been transitioned to a low rate initial
production in 2003.

We market armor sub-systems for other tactical wheeled vehicles, such as medium
and heavy military trucks. We also produce various armor systems as a
subcontractor to a number of large defense contractors. These products include
armor for containers for fuels and missile launchers and for pilot protection.
These specialized armoring products often involve the use of unique materials or
methods.

Aviation Safety Systems. Our core capabilities and technologies in the aircraft
safety market include protective seating, inflatable restraints, and armor.

We have been a major supplier of crash-resistant, energy-absorbing seating
systems for military helicopters and other military aircraft to various branches
of the United States military and its prime defense contractors, and foreign
customers for over 25 years. We currently supply a substantial portion of the
new and replacement crew seating systems for U.S. military helicopters. The
seating systems focus on reducing injury and increasing survivability in
aircraft crashes. Many of our seating systems incorporate our advanced armor
systems. We are the sole supplier of crew seats for 14 different helicopter
models and other variants of these aircraft. Military helicopters for which we
have designed and manufactured crew seat assemblies include the AH-64 Apache
attack helicopter, UH-60 Black Hawk utility helicopter, SH-60 Sea Hawk ASW
helicopter, ASW and Transport helicopters, Italy's EH101 MMI ASW and Transport
helicopters, Canada's CH-149 Cormorant Search-and-Rescue helicopter, and
Norway's Sea King Multi-role helicopter. Aircraft manufacturers in our customer
base include Boeing Helicopters, Sikorsky Aircraft Corporation, Bell Helicopter,
Textron, Inc., Kaman Aerospace, Kawasaki Heavy Industries, Mitsubishi Heavy
Industries, Hindustan Aeronautics, and Agusta Westland. We also supply crew
seats directly to various agencies of the U.S. Department of Defense and various
foreign militaries

                                       20
<PAGE>

Our expertise in military seating systems also extends to troop seats for both
helicopters and fixed-wing aircraft. Simula is the sole-source provider of troop
seats for the C-17 Globemaster transport aircraft. We were selected as the sole
supplier by the U.S. Air Force to develop a common wall-mounted troop seat for
its C-130, C-141, and KC-135 aircraft. The common troop seat also has
application to a range of transport helicopters and various fixed-wing aircraft
flown by other U.S. services and foreign militaries.

Our expertise in helicopter crash safety led to the development of cockpit
airbag systems ("CABS") with U.S. Army funding over the last five years. Our
role has evolved into the position as a system integrator incorporating airbags,
gas generators, and complex three-dimensional crash sensors into helicopter
cockpits. In 2001, we were awarded the first ever production contracts for
aircraft airbag systems. These are currently being produced for the U.S. Army's
UH-60 Black Hawk and OH-58 Kiowa Warrior helicopters. We received one production
contract in 2002 and two production contracts in 2003, which represents less
than 5 percent of the potential world market for CABS. Thus we believe there is
substantial growth potential in this business area.

Military Personnel Safety Systems. Our core competencies and technologies in
personnel safety include ballistic body armor, emergency bailout parachutes,
flotation collars, survival vests, and integrated ensembles incorporating
multiple capabilities.

Simula Inc.'s body armor business includes a range of hard armor plates used in
conjunction with soft vests to minimize injury from handgun bullets, rifle
bullets and fragments from explosive warheads. The primary product in the
product line is the small arms protective insert (SAPI) plate, developed by
Simula in 1998 and which has now become a standard product for all U.S. Army and
Marine Corps ground troops. Simula is the largest producer of SAPI plates in the
world. We supply more than 40 percent of the U.S. military market share for
these products. More than 275,000 SAPI plates have been produced to date.

We have applied our technologies and overall knowledge of materials and
structures to develop a parachute system that solves numerous functional
problems attendant to traditional military bailout parachutes. Our Thin-Pack
Parachute (TPP) incorporates patented environmental sealing technology, which
reduces repackaging and maintenance costs, and extends the service life of the
parachute without jeopardizing user safety. To date, we have supplied over 5,000
TPPs to the U.S. Navy.

We have also developed a line of flotation collars that are designed to provide
additional buoyancy for a person that enters water in an emergency. The basic
configuration of the product, called the Low Profile Flotation Collar, can fit a
wide range of applications. For example, aviators that eject or bailout can use
it over water and rescue swimmers, divers and naval personnel can utilize it as
well. In addition, it can be worn with a wide range of other equipment and
clothing for ground troops being ferried over water and also by commercial
personnel who work around water. The U.S. Navy, U.S. Marine Corps, and the U.S.
Air Force have adopted our system. To date, we have supplied over 20,000
collars.

We have seen a trend among our customers to integrate various armor, survival
and flotation technologies in a common vest ensemble. We were selected to
develop the U.S. Army's new Air Warrior ensemble and the product will begin
sales in 2004. The Army has a stated need for 9,300 over systems. The Air
Warrior ensemble may also be adopted by other services.

Technology Development and Licensing. An important part of our business is a
growing portfolio of licensed technologies. Our principal licenses include soft
armor and a patented family of transparent polymers. We currently license our
patented SimuLITE(TM) material technology to Second Chance Body Armor, for use
in concealable personal body armor used by police forces.

Simula has developed a number of advanced transparent polymers, trademarked as
CleargardTM, and has introduced these materials to a variety of customers in
numerous markets. These patented and proprietary transparent plastics are
high-strength, impact resistant, lightweight and dye compatible materials, which
possess the ability to withstand extreme temperatures and chemical attack.
Potential uses for such materials include transparent armor, laser protective
devices, aircraft canopies, high performance windows for aircraft and
automobiles, industrial and protective lenses and visors, medical products and
sun, sport and ophthalmic lenses. We have taken steps to commercialize the
transparent polymer material through our own products and through licenses in
other markets. We have licensed our optical polymer for use in ophthalmic lenses
with PPG Industries, Inc. and for sun and sport lenses and motorcycle helmets
with Intercast Europe. PPG introduced Simula's polymer in 2001 under the
tradename of Trivex(TM). Intercast introduced a product trade named NXT(TM)

                                       21

<PAGE>

to the sunglass market in early 2002. In 2002, we completed a license with the
prime contractor for the Joint Services General Purpose Gas Mask (JSGPM) to
develop a Cleargard lens with chemical agent resistance and ballistic
properties.

ARMOR HOLDINGS PRODUCTS

Body Armor. We manufacture and sell a wide array of armor products under the
leading brand names American Body Armor(R), Safariland(R) and Protech(TM) that
are designed to protect against bodily injury caused by bullets, knives and
explosive shrapnel. Our principal armor products are ballistic resistant vests,
sharp instrument penetration armor, hard armor such as anti-riot gear, shields
and upgrade armor plates, and bomb protective gear. Our line of ballistic
protective vests provides varying levels of protection depending upon the
configuration of ballistic materials and the standards (domestic or
international) to which the armor is built. We primarily sell ballistic
resistant vests, under the brand names Xtreme(TM), American Body Armor(TM),
Safariland(R), Protech(TM) and Zero-G(R). Our body armor products that are
manufactured in the United States are certified under guidelines established by
the National Institute of Justice. We also manufacture body armor in Manchester,
England that is certified under various international standards.

We offer two types of body armor, concealable armor and tactical armor.
Concealable armor, which generally is worn beneath the user's clothing, is our
basic line of body armor. These vests are often sold with a shock plate, which
is an insert designed to improve the protection of vital organs from sharp
instrument attack and to provide enhanced blunt trauma protection. Tactical
armor is typically worn externally and is designed to provide protection over a
wider area of a user's body and defeat higher levels of ballistic threats. The
vests, which are usually manufactured with hard armor ballistic plates that
provide additional protection against rifle fire, are designed to afford the
user maximum protection and may be purchased with enhanced protection against
neck and shoulder injuries. Tactical armor is offered in a variety of styles,
including tactical assault vests, tactical police jackets, floatation vests,
high coverage armor and flak jackets.

Our sharp instrument penetration armor is designed primarily for use by
personnel in corrections 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, blended fabrics, as well as flexible woven
fabrics and are available in both concealable and tactical models. In addition,
these vests can be combined with ballistic armor configurations to provide
"multi-threat protection" against both ballistic and sharp instrument
penetration.

We also distribute a variety of items manufactured by others, including helmets,
goggles, face shields and crowd management systems for protection from blunt
trauma.

Less-Lethal Products. Under the Defense Technology/Federal Laboratories(TM),
First Defense(R), MACE(R) for Law Enforcement and Guardian(TM) brands, we
manufacture and sell a complete line of less-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 products, which
generally are available for use only by authorized public safety agencies,
include pepper sprays, tear gas, specialty impact munitions and diversionary
devices. We market and distribute Chemical Biological Agent and Riot Control
Agent rated Mine Safety Appliance Advantage 1000 and Millennium model gas masks
to law enforcement and public safety agencies in the United States.

We hold an exclusive license to use the MACE(R) brand in connection with the
manufacturing and sale of MACE(R) aerosol sprays to law enforcement entities
worldwide. We also manufacture pepper sprays containing the active ingredient
Oleoresin Capsicum, a cayenne pepper extract. Our pepper spray formula is
patented and carries the trademark name of First Defense(TM). The products range
from small "key-ring" and hand held units to large volume canisters for
anti-riot and crowd control applications. Our tear gases are manufactured using
Orthochlorabenzalmalononitrile and Chloroacetophenone. These products are
packaged in hand held or launchable grenades, both pyrotechnic and
non-pyrotechnic, as well as in 37mm, 40mm and 12 gauge munitions. The munitions
include barricade rounds, blast dispersions and pyrotechnic canisters.

We manufacture a wide range of specialty impact munitions that can be used
against either individual targets or in anti-riot and crowd control situations.
These products, which range from single projectiles, such as bean bags, rubber
balls, sponge rounds, wood and rubber batons, to multiple projectile products
containing rubber pellets, rubber balls or foam, can be fired from standard 12
gauge shotguns, 37mm gas guns and 40mm launchers. We also manufacture a patented
and trademarked device that is used for dynamic entries by specially trained
forces


                                       22

<PAGE>

where it is necessary to divert the attention of individuals away from an entry
area. This product, which carries the trademark name of Distraction Device(TM),
emits a loud bang and brilliant flash of light when used.

Duty Gear. We are a leading supplier of duty gear to law enforcement personnel
in the United States. Uniformed police officers require a wide assortment of
duty gear, which typically includes items such as belts, safety holsters,
handcuff and flashlight holders and related accessories. We manufacture and sell
duty gear and accessories under the widely recognized brands Safariland(R)
(Safari-LaminateTM) and NYLOK(R) (nylon). Duty gear represents a market in which
brand appeal, safety and quality dictate demand. Replacement sales represent
significant recurring demand for duty gear.

Tactical Products; Structural Armor Systems. We manufacture hard armor products
under the PROTECH(TM) brand name. PROTECH(TM) products include ballistic shields
and other personal protection accessories and armor products for aircraft,
automobiles and riot control vehicles.

Following the terrorist attacks of September 11, 2001, we partnered with C&D
Aerospace of California to produce armored commercial airline cockpit doors
certified by the U.S. Federal Aviation Administration (FAA). To date, we have
retrofitted approximately 8,307 cockpit doors on commercial aircraft; we expect
any future orders to be associated with new aircraft production.

We also manufacture a variety of hard armor ballistic shields primarily for use
in tactical clearance applications and ballistic resistant enclosures for use as
guard booths, shacks and towers. These shields are manufactured using a variety
of ballistic fibers, polyethylene ballistic materials, ballistic steel,
ballistic glass or a combination of these materials. Other hard armor products
include barrier shields and blankets. These products allow tactical police
officers to enter high-threat environments with maximum ballistic protection.

Automotive Accessories. Through our Safariland subsidiary, we manufacture and
supply automotive accessories such as tire covers, seat covers, cargo organizers
and grill covers to automobile manufacturers, including Toyota, Ford, Honda,
Nissan, Mitsubishi, Kia and Subaru.

Forensic Products. We assemble and market a number of portable narcotic
identification kits under several well known brand names such as NIK(R) brand
name, NarcoTest(R) brand, and NarcoPouch(R) brand that are used in the field by
law enforcement personnel to identify a variety of controlled substances,
including Ecstasy, cocaine, marijuana, heroin and methamphetamine. We also
assemble and market evidence collection kits and evidence tape. We have the
exclusive rights to distribute Flex-Cuf(R) disposable restraints and hold a
license to use the Flex-Cuf(R) trademark. We believe we have earned a reputation
as one of the most responsive companies in the forensic community.

We manufacture and distribute an extensive line of evidence collection equipment
under our brand name Lightning Powder(R). These products, such as fingerprint
powders, dusting brushes, and lifting tape, are used to collect latent
fingerprints. We distribute other supplies for evidence collection including
bags, tapes, stone casting equipment and high powered, distortion free
magnifying glasses.

We design, manufacture and market proprietary cost-effective fingerprint
products for business, government and law enforcement agencies under the
Identicator(TM) brand name. These products are designed to deter fraud and
produce positive identification in many different applications, and must be
simple to operate, clean, and cost-effective. All products produce non-smearing,
instantly permanent, black prints acceptable to the FBI for scanning,
classification, search and retention. We also produce a variety of specialized
products for various investigative and evidence collection applications under
the brand name Evi-Paq(TM).

Batons. We manufacture batons of wood, alloy steel, acetate, aluminum and
polycarbonate products under our brand name Monadnock(R). Branded products
include our patented Auto-Lock(TM) baton and our Classic-Friction Lock(TM)
baton. Our batons are manufactured in a variety of lengths for different
intended users, including patrol officers, detectives, corrections officers and
other law enforcement personnel in smaller portable units and military and
federal agencies. We believe that our manufacturing specifications are among the
highest in the marketplace and set the standard in the industry.

Firearm Accessories. We manufacture non-destructive, non-gunsmith mounts as well
as synthetic stocks and for ends. Our Speedfeed high quality synthetic stocks
and for ends fit most makes and models. Our B-Square(TM)


                                       23

<PAGE>

subsidiary is a leading designer, manufacturer and marketer of quality aluminum
and steel sight mount, tools and accessories for the law enforcement, military
and sporting goods (hunting and target shooting) markets.

Weapon Maintenance Products. We manufacture synthetic based lubricants, cleaners
and preservative compounds for military weapon maintenance, law enforcement,
civilian firearms/sports equipment and industrial machinery. Our flagship weapon
maintenance product, Break Free CLP(R), was specifically developed to provide
reliable weapon lubrication in battlefield conditions; remove firing residues,
carbon deposits and other firing contaminants; repel water and dirt and prevent
corrosion; and keep weapons combat ready and functional in a wide variety of
climates.

Warning and Emergency Lighting; Safety Products. We manufacture emergency
lighting products using LED technology branded as 911EP(R). LED technology
offers patrol car lighting systems that are energy efficient, safe and durable
for use in primary and secondary warning lights. 911EP(R)'s unique design
utilizes the patrol vehicle's existing 12-volt electrical system and consumes
70% less energy than traditional strobe or halogen systems. We also manufacture
strong, lightweight, and compact ladders designed to be deployed quickly in
emergency situations, branded as Quikstep(TM). Constructed with aluminum alloy
and stainless steel, our 12-foot ladder weighs only 31 pounds and folds up to a
briefcase size.

We are the exclusive U.S. distributor of the Thermal-Air(TM) Mask Engineered by
Polar-Wrap. The Thermal-Air products are manufactured with a patented heat
exchange module that captures the wearer's own breath and uses it to preheat
cold air coming in the mouth and helps keep the body core temperature at a
higher level, increasing the time law enforcement officers can effectively
perform their duties outdoors, even in cold temperatures.

Specialty Gloves & Protective Gear. The newly acquired Hatch is a leading
supplier of high quality gloves and other protective gear serving the law
enforcement, correctional, military, medical and industrial markets. We excel at
providing new, innovative products using proprietary materials and designs to
the law enforcement and military fields. Of note are our patented SOG
Operator(TM) Kevlar(R) and Kangaroo leather series of gloves used by tactical
personnel worldwide. The Exo-Tech(TM) disturbance control suit along with the
Centurion(TM) single piece body protection provide law enforcement unrivaled
protection for riots, prisoner extraction and civil disturbance. Duty gloves
range from those lined with cut resistant Spectra(R) to Thinsulate(R) insulated
fine leather gloves. To provide users in the field with optimum performance our
high tech tactical products incorporate materials such as Kevlar(R), Nomex(R),
Kangaroo leather, and Schoeller Dynamic Extreme(TM) textiles. In addition the
Boss(TM) line of tactical eyewear yields a goggle with a hybrid and highly
proprietary design. Hatch's Knee pads, elbow protection along with Nomex (R) and
Kevlar(R) hoods give SWAT and other officers the protection they demand.
Commercial offerings consist of the shooting, dress, industrial safety
anti-vibration, motorcycle and ergonomic gloves.

ARMOR MOBILE SECURITY

Commercial Products. We provide ballistic and blast protection-armoring systems
for a variety of vehicles, including limousines, sedans, sport utility vehicles,
commercial trucks and cash-in-transit vehicles, to protect against varying
degrees of ballistic and blast threats. The commercial vehicle armoring process
begins with the disassembly of a new base vehicle. This disassembly normally
involves the removal of the interior trim, seats, doors and windows. The
passenger compartment then is armored with both opaque and transparent armor.
Other features, such as run flat tires and non-exploding gas tanks, may also be
added. Finally, the vehicle is reassembled as close to its original appearance
as possible. The entire conversion process results in a low profile, integrated
ballistic protective system. Our relationship with various vehicle manufacturers
has been valuable in permitting us to armor certain vehicles while allowing the
customer to maintain the benefits of warranties issued by the vehicle
manufacturer. The Mobile Security Division shipped 1,127 commercial armored
vehicles in 2003.

We produce fully armored vehicles and light armored vehicles. Fully armored
commercial vehicles, such as limousines, large sedans or sport utility vehicles,
typically are armored to protect against attacks from military assault rifles
such as AK-47s and M16s. These vehicles also can be blast protected by enhancing
the ballistic and underbody protection with proprietary materials and
installation methods that protect the occupants against a defined blast threat.
Blast protected vehicles defend against threats such as pipe bombs attached to
the exterior of the vehicle. Fully armored vehicles typically sell for $70,000
to $250,000, exclusive of the cost of the base vehicle.

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Fully armored vehicles also include parade cars, which are formal limousines
used predominantly for official functions by a president or other head of state.
These vehicles are usually customized based upon a commercially available
chassis, which we essentially rebuild completely. Because the threat of
organized assassination attempts is greater for heads of state, these vehicles
normally incorporate more advanced armor and sophisticated protection features.
These features can include supplemental air and oxygen systems, air purification
systems to protect against chemical or biological contamination, underbody fire
suppressant systems, tear gas launchers, anti-explosive self-sealing fuel tanks,
electric deadbolt door locks, gun ports and bomb scanners. Parade Cars normally
sell for $300,000 to in excess of $1.0 million, inclusive of the cost of the
base vehicle.

Light armored vehicles are similar in all respects to fully armored vehicles
except that we add substantially less total weight to a light armored vehicle.
Therefore, it is possible to armor smaller vehicles such as the Volkswagen Jetta
and the General Motors Omega, as well as larger vehicles such as the Mercedes
Benz S600 and the Jeep Grand Cherokee. Light armored vehicles are designed to
protect against attacks from handguns. The price of a light armored vehicle
ranges from $5,000 to $60,000, exclusive of the cost of the base vehicle.

We also produce specialty vehicles and cash-in-transit vehicles. Specialty
vehicles are custom built for a specific mission. Examples of specialty vehicles
are escort cars, usually convertibles, and chase cars, usually closed top
vehicles, in which security personnel ride while in a head of state motorcade.
Cash-in-transit vehicles are used by banks or other businesses to transport
currency and other valuables. After starting with a van or small truck, we
modify the base vehicle to provide protection for the cargo and passengers from
ballistic and blast threats.

CUSTOMERS

Aerospace & Defense Group. In 2003, our Aerospace & Defense Group sold more than
99.7% of its products in North America, with the balance sold internationally.
Sales of Aerospace & Defense Group products to all branches of the United States
military and its prime contractors such as Boeing and Sikorsky Aircraft
represented approximately 87% of the Aerospace & Defense Group's revenue. The
Aerospace & Defense Group's businesses have relied to a great extent on
relatively few major customers, although 2003 saw the development of additional
major users of Aerospace & Defense Group products within their existing customer
base (e.g. other users within the U.S. Army). We believe that historical
customers, such as the U.S. Army and other branches of the United States
military, to whom we have supplied products for approximately 25 years, will
continue to be major customers. Current commercial and licensing customers
include Boeing, Bell Helicopter Textron, Second Chance Body Armor, PPG
Industries, Intercast Europe, and Avon Rubber Company. The loss of or
significant reduction in sales to a major customer could potentially have a
material adverse effect on our business, operations and financial condition.

The market for military hardware products is worldwide in scope, including the
U.S. military and foreign defense forces. The primary contract for delivery of
Up-Armored HMMWVs is with the U.S. military, although smaller quantities are
also sold overseas. We also serve as a subcontractor to provide ballistically
armored and sealed truck cabs for HIMARS for use by the U.S. Army and the U.S.
Marine Corps, a program recently transitioned to low rate initial production.

Products Division. In 2003, the Products Division sold approximately 86.1% of
its products in North America, with the balance sold internationally. The
primary end users of the Products Division's products are federal, state and
local law enforcement agencies, local police departments, state corrections
facilities, U.S. and allied militaries, highway patrols and sheriffs'
departments. We reach these customers through a distribution strategy that
utilizes a worldwide distribution network of approximately 200 domestic
distributors and 150 international agents, as well as approximately 25 domestic
sales representatives, three regional sales managers, and six technical sales
specialists, who promote the Products Division's products but refer customers to
a local distributor for purchasing.

Mobile Security Division. In 2003, the Mobile Security Division sold
approximately 21.5% of its products in North America, with the balance sold
internationally. The Mobile Security Division's armored commercial vehicle
customers include governmental and private buyers and U.S. and foreign
governmental buyers who purchase both fully and light-armored vehicles.
Governmental buyers and foreign royalty also comprise the market for parade
cars. Typically, governmental buyers consist of ministries of foreign affairs,
defense and internal affairs and offices of presidential security. These
customers are not constrained in their purchasing decisions by considerations
such as import duties and taxes and are free to search globally for the best
product available. The procurement cycles of governmental buyers can range from
relatively rapid, when the vehicles are for the use of


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<PAGE>

the head of state or in response to a particular crisis, to prolonged highly
documented bids and evaluations for normally budgeted items. Private customers
for armored commercial vehicles include corporations and individuals. Private
buyers tend to be more price-sensitive and will often purchase locally
manufactured vehicles to reduce taxes and avoid import duties. Local servicing
of the vehicle is also a critical concern to private buyers. Customers for
cash-in-transit vehicles are generally companies that provide cash-in-transit
services to financial institutions. Purchasing decisions for cash-in-transit
vehicles depend on many criteria including insurance, regulatory requirements
and costs, and whether the financial institution is private or governmental.

Approximately 38.3% of our revenues were from our ten largest customers for the
year ended December 31, 2003 ("Fiscal 2003"). Approximately 21.0% of our
revenues came from U.S. military contracts. Our Aerospace & Defense Group's ten
largest customers accounted for approximately 92.3% of Aerospace & Defense Group
revenues for Fiscal 2003. The Products Division's ten largest customers
accounted for approximately 29.2% of total revenues of the Products Division for
Fiscal 2003. The Mobile Security Division's ten largest customers accounted for
approximately 28.8% of total revenues of the Mobile Security Division for Fiscal
2003. Military and governmental contracts generally are awarded on a periodic or
sporadic basis. If the Aerospace & Defense Group were to lose the HMMWV
contract, which continues through June 2008, our financial performance would
experience a material adverse effect.

MARKETING AND DISTRIBUTION

Aerospace & Defense Group. Most of the Aerospace & Defense Group's products are
distributed as a component supplier to original equipment manufacturers (OEMs)
or as a direct contractor to the U.S. Government. The products are built to
order. We do not directly serve mass consumer markets and supply directly from
manufacturing facilities. Thus, the distribution of the Aerospace & Defense
Group's products does not involve significant inventory, warehousing or shipping
methodologies.

Depending upon the product, we typically employ one of four methods for
marketing: (i) direct sales, (ii) technical teams, typically comprised of a
combination of sales personnel and engineers, (iii) strategic alliances with
OEMs and U.S. Government prime contractors, and (iv) responses to formal request
for proposals in bidding for government contracts.

In marketing our safety restraint and seating products, we endeavor to maintain
close relationships with existing customers and to establish new customer
relationships. Ongoing relationships and repeat customers are an important
source of business for our current and new products.

Our marketing and sales activities in the government sector focus primarily upon
identifying research and development and other contract opportunities with
various agencies of the United States government or with others acting as prime
contractors on government projects. Key members of our engineering and project
management staffs maintain close working relationships with representatives of
the United States military and their prime contractors. Through these
relationships, we monitor needs, trends, and opportunities within current
military product lines.

The Aerospace & Defense Group emphasizes its ability to develop new products, or
product adaptations, quickly and more cost effectively than traditional defense
contractors. In marketing its products to the military, the Aerospace & Defense
Group places strong emphasis on its superior antitank and antipersonnel mine
protection for the occupants of tactical wheeled vehicles. We market our
military products through a combination of trade show exhibitions, print
advertising in military-related periodicals and direct customer visits. We
emphasize the cross-marketing of military and commercial products, which we
believe strengthens the image of each product group. We have also entered into
exclusive teaming and joint marketing agreements with various prime contractors
in connection with the Up-Armored HMMWV and up-armoring for HIMARS and Family of
Medium Tactical Vehicles (FMTV) for sales in domestic and international military
and commercial areas. Such agreements allow us to benefit from the prime
contractor's marketing network and save on certain selling costs.

Our military sales activities are directed toward identifying contract bid
opportunities with various U.S. government agencies and prime contractors.
International sales are made through the Department of Defense's Foreign
Military Sales Program and directly to foreign military organizations. We have
three full time business development managers who are responsible for this
activity and have contractual arrangements with several outside consultants who
assist the business development managers in their activities. Proposal
preparation and




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<PAGE>

presentation for government projects is done by a team, which normally consists
of program managers, a contracting officer, a cost accountant and various
manufacturing and engineering personnel.

Products Division. As a result of our history of providing high quality and
reliable concealable armor, tactical armor, hard armor, duty gear, less-lethal
munitions, anti-riot products and forensic products, we enjoy broad brand name
recognition and a strong reputation in the law enforcement equipment industry.
The central element of our marketing strategy is to capitalize on our brand name
recognition and reputation among our customers by positioning ourselves as an
international provider of many of the premier security risk management products
that our customers require. By positioning ourselves in this manner, we expect
to capitalize on our existing customer base and our extensive global
distribution network, and to maximize the benefits of our long history of
supplying security related products around the world.

We have designed comprehensive training programs to provide initial and
continuing training in the proper use of our various products. These training
programs, offered by The Training Academy for Technology and Tactics, are
typically conducted by trained law enforcement and military personnel that we
hire for such purposes. Training programs are an integral part of our customer
service strategy. In addition to enhancing customer satisfaction, we believe
that training also helps breed customer loyalty and brand awareness. Moreover,
many of our products are consumable and used in training, which generates
replacement orders. Our marketing efforts are further augmented by our
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.

We further reinforce distributor loyalty by offering price discounts to high
volume distributors. We believe that we have strong relationships with our
distributors. The distributors benefit from their association with us due to the
quality of our products, the scope of our product line, the high degree of
service we provide and the distributor's opportunity to participate profitably
in the sale of our products. We continually seek to expand our distribution
network. As we identify and acquire businesses that fit strategically into our
existing product portfolio, we maximize our distribution network by offering
additional products, accessing new customers and penetrating new geographic
markets. We also sell a selected number of civilian products into mass
merchandise and sporting goods stores via a network of national sporting goods
wholesalers. These products include concealment holsters, hunting and sports
shooting accessories, cleaning equipment and pepper spray products.

In addition to our traditional distribution channels, we also sell our products
on the World Wide Web through a variety of sites. GSA-Buy.com contains an
on-line catalog and secured transaction platform for all Products Division
General Services Administration contracts targeting government agencies
exclusively. We also sell a small array of our concealable and competition
holsters to the consumer market on Holsters.com, limiting distribution of our
law enforcement equipment to law enforcement channels of distribution.

Mobile Security Division. On a worldwide basis, the Mobile Security Division
employs approximately 40 full-time sales professionals in connection with its
commercial sales. These employees operate out of Washington, D.C.; Fairfield,
Ohio; Sao Paulo, Brazil; Lamballe, France; Mexico City, Mexico; Bogota,
Colombia; Bremen, Germany, Geneva, Switzerland and Caracas, Venezuela. All
personnel have a geographic and/or product-specific responsibility. In most
cases, the sales personnel also recruit and maintain sales agents or
distributors. The agents or distributors have geographic and product specific
agreements, and compensation in most cases is based upon a commission
arrangement. Sales personnel use a consultative approach when offering solutions
to customers' security problems. Sales cycles for commercial physical security
products can range from several months to a matter of days, depending upon the
product and the urgency associated with the security problem being addressed.

PRODUCT MANUFACTURING AND RAW MATERIALS

The Aerospace & Defense Group's production and manufacturing consist principally
of the molding of armor and composite materials, ceramic tile cutting and
grinding, adhesive bonding, sewing, component fabrication, and final assembly.
The Aerospace & Defense Group outsources substantial quantities of machining,
metal fabrication and welding. Our manufacturing capability features
computer-integrated manufacturing programs which, among other things, schedule
and track production, update inventories, and issue work orders to the
manufacturing floor. All products manufactured must meet rigorous standards and
specifications for workmanship, process, raw materials, procedures, and testing,
and in some cases regulatory requirements. Products are functionally tested on a
sample basis as required by applicable contracts. Customers, and in some cases
the United States

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<PAGE>

government as the end user, perform periodic quality audits of the
manufacturing process. Certain customers, including the United States
government, periodically send representatives to our facilities to monitor
quality assurance. The Aerospace & Defense Group's operations are certified to
the ISO Standard by AS9001 and ISO 9001:2000 by British Standards Institution,
Inc. (BSI).

The raw materials used in manufacturing ballistic resistant garments and
up-armored vehicles include various ballistic fibers such as Kevlar, Twaron,
SpectraShield, Zylon and Z-Shield. Kevlar is a patented product of E.I. du Pont
de Nemours Co., Inc. ("Du Pont") and is only available from Du Pont and its
European licensee. We purchase Twaron, SpectraShield, Zylon and Z-Shield fibers
directly from the manufacturers, and from weaving companies who convert the raw
fibers into ballistic fabric. We believe that we enjoy a good relationship with
these suppliers. However, if necessary, we believe that we could readily find
replacement weavers. We also use SpectraShield and Kevlar in our hard and
vehicle armor products. Additionally, we use polycarbonates, acrylics, ballistic
quality steel, ceramics, and ballistic glass. We are aware of multiple suppliers
for these materials and would not anticipate a significant impact if we were to
lose any suppliers.

We purchase other raw materials used in the manufacture of our various products
from a variety of sources and additional sources of supply of these materials
are readily available. We also own several molds, which are used throughout our
less-lethal product line.

We adhere to strict quality control standards and conduct extensive product
testing throughout our manufacturing processes. Raw materials are also tested to
ensure quality. We have obtained ISO 9001 certification for our Wyoming
manufacturing facility for less-lethal products, our facility in Pittsfield,
Massachusetts for hard armor products, and our facility in Ontario, California
for body armor and duty gear holsters and accessories. We have obtained ISO 9002
certification for our Westhoughton, England manufacturing facility for body
armor and high visibility garments. ISO standards are promulgated by the
International Organization of Standardization and have been adopted by more than
100 countries worldwide. We obtain ISO certification by successfully completing
an audit certifying our compliance with a comprehensive series of quality
management and quality control standards.

We emphasize engineering excellence and have an extensive engineering staff.
Design engineers use state-of-the-art two-dimensional and three-dimensional
computer aided design and engineering or CAD/CAE systems in conjunction with
coordinate measuring machines to develop electronic models, which generally are
converted to solid models or prototypes. Manufacturing engineers concentrate on
improvements in the production process and on overall cost reductions from
better methods, fewer components and less expensive materials with equal or
superior quality. Applying these techniques, we reduced both the time and cost
necessary to produce armored vehicles. Our ballistic engineers, in conjunction
with our design and manufacturing engineers, develop and test new ballistic and
blast protection systems that meet ever-changing threats.

BACKLOG

Aerospace & Defense Group. At December 31, 2003, our Aerospace & Defense Group
had unfilled customer orders of approximately $257.1 million. Approximately
$76.0 million of these orders will ship in the first quarter of 2004.

Products Division. At December 31, 2003, the Products Division had unfilled
customer orders of approximately $21.8 million. Approximately $15.0 million of
these orders will ship in the first quarter of 2004.

Mobile Security Division. At December 31, 2003, the Mobile Security Division had
unfilled customer orders of approximately $25.7 million. Approximately $19.0
million of these orders will be shipped in the first quarter of 2004.

COMPETITION

The market for our Aerospace & Defense Group's products and services are highly
competitive. Numerous suppliers compete for government defense contracts as
prime contractors or subcontractors. Competition relates primarily to technical
know-how, cost, and marketing efforts. The competition for government contracts
relates primarily to the award of contracts for the development of proposed
products. Contracts for supply of products primarily tends to follow the
development contracts because of the extensive investment necessary to develop
and qualify new products. Our principal competitors in the crash-resistant
military seating market are Martin-Baker (England) and Israeli Aircraft
Industries (Israel). Our military product lines in armor, parachutes, and


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<PAGE>

flotation collars have a number of competitors, with none dominating the market.
Our competitive strategy is to be a technology innovator and strategic partner
to first tier suppliers and OEMs. Our present or future products could be
rendered obsolete by technological advances by one or more of our competitors or
by future entrants into our markets. There are a large number of companies that
provide specific armoring packages for tactical wheeled vehicles, helicopters
and selected other military applications.

The market for our law enforcement products is highly competitive and we compete
with competitors ranging from small businesses to multinational corporations.
For example, in the body armor business, we compete by providing superior
design, engineering and production expertise in our line of fully-integrated
ballistic and blast protective wear. Our principal competitors in this market
niche include Point Blank Body Armor, Inc. and Second Chance Body Armor, Inc. as
well as several international competitors on a region-by-region basis. In the
less-lethal product industry, we compete by providing a broad variety of
less-lethal products with unique features and formulations, which, we believe,
afford us a competitive advantage over our competitors. The principal
competitive factors for all of our products are quality of engineering and
design, reputation in the industry, production capability and capacity, price
and ability to meet delivery schedules.

The markets for the Mobile Security Division's products and services are also
highly competitive. We compete in a variety of markets and geographic regions,
with competitors ranging from small businesses to multinational corporations. We
believe that the our design, engineering and production expertise in providing
fully integrated ballistic and blast protected vehicles gives us a competitive
advantage over those competitors who provide protection against only selected
ballistic threats.

A number of complete vehicle armorers in Europe, the Middle East and Latin
America armor primarily locally manufactured automobiles. In the U.S., protected
passenger automobile armorers include Scaletta Maloney, International Armor and
Square One Armoring Services. In each of the South American markets in which we
compete, we have a variety of different competitors. In the high-end luxury
sedan market we compete with a variety of OEMs, as well as a variety of small
independent automotive integrators such as Carat Du Chatelet in Europe. The
principal competitive factors are price, quality of engineering and design,
production capability and capacity, ability to meet delivery schedules and
reputation in the industry.

EMPLOYEES

As of January 1, 2004, we have a total of approximately 2,529 employees in
continuing operations, of which approximately 511 were employed in the Aerospace
& Defense Group, approximately 1,263 in the Products Division, approximately 742
in the Mobile Security Division, and 13 in our corporate headquarters.

Approximately 48 employees in Armor Products International, our UK subsidiary,
are represented by the General Municipal Boilermaker and Allied Trade Union.
Approximately 32 employees in O'Gara-Hess & Eisenhardt de Mexico, S.A. de C.V.,
our Mexico subsidiary, are represented by a union. Approximately 12 employees in
O'Gara-Hess & Eisenhardt France S.A., our France subsidiary, are represented by
C.F.D.T. Approximately 111 employees in Trasco-Bremen, our Germany subsidiary,
are represented by IG Metall, Bezirk Kuste. None of our remaining employees are
represented by unions or covered by any collective bargaining agreements. We
have not experienced any work stoppages or employee related slowdowns and
believe that the relationship with our employees is good.

RESEARCH AND DEVELOPMENT

We view our research and development efforts as critical to maintaining a
leadership position in the security products and vehicle armoring markets. Our
research and development occurs primarily under fixed-price or cost-plus,
government funded contracts as well as Company-sponsored efforts. We seek to
offer superior quality and advanced products and systems to our customers at
competitive prices. To achieve this objective, we engage in ongoing engineering,
research and development activities to improve the reliability, performance and
cost-effectiveness of our existing products. We also design and develop new
products in an ongoing effort to anticipate and meet our customers' evolving
needs.

We employ scientific, engineering and other personnel to improve our existing
product lines and to develop new products and technologies in the same or
related fields.

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PATENTS AND TRADEMARKS

We currently own numerous issued United States and foreign patents and pending
patent applications for inventions relating to our product lines as well as
several registered and unregistered trademarks and service marks relating to our
products and services. The registered trademarks include AMERICAN BODY
ARMOR(TM), B-SQUARE(R), BREAK FREE(R), CLP(R), DEFENSE TECHNOLOGY/FEDERAL
LABORATORIES(R), DEF-TEC PRODUCTS(R), DISTRACTION DEVICE(R), FEDERAL
LABORATORIES(R), FERRET(R), FIRST DEFENSE(R), IDENTICATOR(R), IDENTIDRUG(R),
IMPAK(TM,) LIGHTNING POWDER(R), MONADNOCK(R), NIK(R), O'GARA-HESS & EISENHARDT
ARMORING COMPANY(R), PROTECH(TM), QUIKSTEP LADDERS(Tm), SAFARILAND DESIGN(R),
SPEEDFEED(R), 911EP and DESIGN(TM), MOBILE DEFENDER(TM), SIMULITE(R),
REINVENTING THE TECHNOLOGY OF SAFETY(R), SIMULA SAFE(TM), PROTECTING PEOPLE IN
MOTION(R), DURACHUTE(R) and CLEARGARD(R). We also have an exclusive license to
use the MACE trademark in the law enforcement market and a non-exclusive license
to use the FLEX-CUF trademark. Although we do not believe that our ability to
compete in any of our product markets is dependent solely on our patents and
trademarks, we do believe that the protection afforded by our intellectual
property provides us with important technological and marketing advantages over
our competitors. Although we have protected our technologies to the extent that
we believe appropriate, the measures taken to protect our proprietary rights may
not deter or prevent unauthorized use of our technologies. In other countries,
our proprietary rights may not be protected to the same extent as in the United
States.

GOVERNMENT REGULATION

We are subject to federal licensing requirements with respect to the sale in
foreign countries of certain of our products. In addition, we are obligated to
comply with a variety of federal, state and local regulations, both domestically
and abroad, governing certain aspects of our operations and workplace, including
regulations promulgated by, among others, the U.S. Departments of Commerce,
State and Transportation, the Federal Aviation Administration, the U.S.
Environmental Protection Agency and the U.S. Bureau of Alcohol, Tobacco and
Firearms. The U.S. Bureau of Alcohol, Tobacco, and Firearms also regulates us as
a result of our manufacturing of certain destructive devices and by the use of
ethyl alcohol in certain products. We also ship hazardous goods, and in doing
so, must comply with the regulations of the U.S. Department of Transportation
for packaging and labeling. Additionally, the failure to obtain applicable
governmental approval and clearances could adversely affect our ability to
continue to service the government contracts we maintain. Furthermore, we have
material contracts with governmental entities and are subject to rules,
regulations and approvals applicable to government contractors. We are also
subject to routine audits to assure our compliance with these requirements. We
have become aware that we are not in full compliance with certain regulations
governing the export of equipment and related technology used for military
purposes that are applicable to certain of our products. We have undertaken
steps to comply with these regulations and to help ensure compliance in the
future. We do not believe that such noncompliance will have a material adverse
effect on our business. In addition, a number of our employees involved with
certain of our federal government contracts are required to obtain specified
levels of security clearances. Our business may suffer if we or our employees
are unable to obtain the security clearances that are needed to perform services
contracted for the Department of Defense, one of our major customers. Our
failure to comply with these contract terms, rules or regulations could expose
us to substantial penalties, including the loss of these contracts and
disqualification as a U.S. government contractor.

Like other companies operating internationally, we are subject to the Foreign
Corrupt Practices Act and other laws which prohibit improper payments to foreign
governments and their officials by U.S. and other business entities. We operate
in countries known to experience endemic corruption. Our extensive operations in
such countries creates the risk of an unauthorized payment by one of our
employees or agents which would be in violation of various laws including the
Foreign Corrupt Practices Act. Violations of the Foreign Corrupt Practices Act
may result in severe criminal penalties which could have a material adverse
effect on our business, financial condition and results of operations.

ENVIRONMENTAL LAWS AND REGULATIONS

We are subject to federal, state, and local and foreign laws and regulations
governing the protection of the environment and human health, including those
regulating discharges to the air and water, the management of wastes, and the
control of noise and odors. While we always strive to operate in compliance with
these requirements, we cannot assure you that we are at all times in complete
compliance with all such requirements.


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We are subject to potentially significant fines or penalties if we fail to
comply with environmental requirements and we do not currently carry insurance
for such noncompliance events. Although we have made and will continue to make
capital expenditures in order to comply with environmental requirements, we do
not expect material capital expenditures for environmental controls in 2004.
However, environmental requirements are complex, change frequently, and could
become more stringent in the future. Accordingly, we cannot assure you that
these requirements will not change in a manner that will require material
capital or operating expenditures or will otherwise have a material adverse
effect on us in the future.

We are also subject to environmental laws requiring the investigation and
cleanup of environmental contamination. We may be subject to liability,
including liability for cleanup costs, if contamination is discovered at one of
our current or former facilities, in some circumstances even if such
contamination was caused by a third party such as a prior owner. We also may be
subject to liability if contamination is discovered at a landfill or other
location where we have disposed of wastes, notwithstanding that our historic
disposal practices may have been in accordance with all applicable requirements.
The amount of such liability could be material and we do not currently carry
insurance for such environmental cleanups should they be required of us. We use
Orthochlorabenzalmalononitrile and Chloroacetophenone chemical agents in
connection with our production of tear gas, and these chemicals are hazardous
and could cause environmental damage if not handled and disposed of properly.
Simula's principal environmental focus is the handling and disposal of paints,
solvents, and related materials in connection with product finishes, welding,
and composite fabrication.

AVAILABLE INFORMATION

Our Internet address is www.armorholdings.com. We make available free of charge
on or through our Internet website our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports, and the proxy statement for our annual meeting of stockholders as soon
as reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission. Forms 3, 4 and 5 filed
with respect to our equity securities under section 16(a) of the Securities
Exchange Act of 1934, as amended, are also available on our Internet website.
All of the foregoing materials are located at the "Investor Relations" tab. The
information found on our website shall not be deemed incorporated by reference
by any general statement incorporating by reference this report into any filing
under the Securities Act of 1933, as amended, or under the Securities Exchange
Act of 1934, as amended, and shall not otherwise be deemed filed under such
Acts.

We have adopted a Code of Ethics for the Chief Executive Officer and Senior
Financial Officers, a Code of Business Conduct and Ethics for directors,
officers, employees, agents, representatives, subsidiaries and affiliates, an
Audit Committee Charter, Complaint Procedures for Accounting and Auditing
Matters, a Compensation Committee Charter, a Nominating/Corporate Governance
Committee Charter, Corporate Governance Guidelines, and an Audit Committee
Pre-Approval Policy, all of which are available at our Internet website at the
tab "Investor Relations." We will provide to any person without charge, upon
request, a copy of the foregoing materials. We intend to disclose future
amendments to the provisions of the foregoing documents, policies and guidelines
and waivers therefrom, if any, on our Internet website and/or through the filing
of a Current Report on Form 8-K with the Securities and Exchange Commission.
Materials we file with the Securities and Exchange Commission may be read and
copied at the Securities and Exchange Commission's Public Reference Room at 450
Fifth Street, NW, Washington, D.C. 20549. You may obtain information on the
operation of the Securities and Exchange Commission's Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and Exchange Commission also maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Securities and Exchange Commission at
www.sec.gov. Any requests for the foregoing documents from us should be made in
writing to Todd Smith, our Vice President of Legal Affairs, at 1400 Marsh
Landing Parkway, Suite 112, Jacksonville, Florida, 32250.

Information on our Internet website does not constitute a part of this Annual
Report on Form 10-K/A.

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DISCONTINUED OPERATIONS

On April 17, 2003, we announced that we had completed the sale of our ArmorGroup
Integrated Systems business through the sale of 100% of the stock of ArmorGroup
Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc. to Aerwav
Integration Systems, Inc. ("AIS"). AIS is a wholly owned subsidiary of Aerwav
Holdings, LLC. As consideration for the integrated systems business, we received
a $4.1 million collateralized note due in two years and a warrant for
approximately 2.5% of AIS. We have recorded a loss of $366,000 on the sale.

On November 26, 2003, we announced that we completed the sale of ArmorGroup, our
security service division, for $33,660,000 in cash to a group of private
investors led by Granville Baird Capital Partners of London, England and
Management. We received $31,360,000 in cash at closing and are scheduled to
receive another $2,300,000 by the end of 2004, of which we have received
$375,000 through March 6, 2004. We have recorded a loss of $8.8 million on the
sale in the fourth quarter of 2003.

At December 31, 2003, our litigation support services subsidiary remains as our
only operating entity in discontinued operations. We are actively attempting to
sell this business.

                                       32


<PAGE>


ITEM 2. PROPERTIES

The following table identifies and provides certain information regarding our
principal facilities.

<TABLE>
<CAPTION>
CONTINUING OPERATIONS
                                        ANNUAL RENT          OWNED/            APPROXIMATE SIZE      PRODUCTS MANUFACTURED
LOCATION                                                     LEASED
-----------------------------------    -------------    ------------    ------------------------     ------------------------------
<S>                                    <C>               <C>            <C>                          <C>
Jacksonville, FL                                N/A           Owned                    14 Acres      Body armor, forensic products,
                                                                                 70,000 sq. ft.      weapon cleaning lubricants
Jacksonville, FL                    $       131,000          Leased               6,930 sq. ft.      Corporate headquarters.
Casper, WY                                      N/A           Owned                    66 Acres      Tear gas, pepper spray,
                                                                                 72,234 sq. ft.      less-lethal munitions
Westhoughton, England                           N/A           Owned              44,000 sq. ft.      Body armor
Ontario, CA                                     N/A           Owned             117,500 sq. ft.      Body armor, duty gear,
                                                                                                     automotive accessories
Pittsfield, MA                      $        79,000          Leased              16,000 sq. ft.      Hard armor, vehicle armor
Pittsfield, MA                                  N/A           Owned              19,700 sq. ft.      Hard armor, vehicle armor
Tijuana, Mexico                     $       159,000          Leased              31,452 sq. ft.      Duty gear, body armor,
                                                                                                     automotive accessories
Fitzwilliam, NH                     $        37,500          Leased              22,848 sq. ft.      Police batons
El Segundo, CA                      $        69,000          Leased               6,500 sq. ft.      Fingerprint equipment
Fort Worth, TX                      $        42,000          Leased              10,000 sq. ft.      Scope mounts & rings
Oxnard, CA                          $       147,000          Leased              25,000 sq. ft.      Specialty gloves
St. Cloud, MN                       $        60,000          Leased              10,000 sq. ft.      LED light bars
Fort Worth, TX                      $        19,000          Leased               5,000 sq. ft.      Scope mounts & rings
Bremen, Germany (1)                             N/A           Owned                    11 Acres      Armored vehicles
                                                                                161,500 sq. ft.
Fairfield, OH                                   N/A           Owned             130,000 sq. ft.      Armored vehicles & ballistic
                                                                                                     glass
Fairfield, OH                       $       186,000          Leased              95,000 sq. ft.      Armored vehicles
Fairfield, OH                       $       139,000          Leased              40,000 sq. ft.      Armored vehicles
Lamballe, France (2)                $       101,000          Leased              52,000 sq. ft.      Armored vehicles
Sao Paulo, Brazil                   $       224,000          Leased              56,000 sq. ft.      Armored vehicles & ballistic
                                                                                                     glass
Rio De Janeiro, Brazil              $        35,000          Leased              11,406 sq. ft.      Armored vehicles
Bogota, Colombia                    $        77,500          Leased              35,000 sq. ft.      Armored vehicles & ballistic
                                                                                                     glass
Bogota, Colombia                    $        22,200          Leased               6,823 sq. ft.      Armored vehicles
Mexico City, Mexico                 $        62,500          Leased              20,000 sq. ft.      Armored vehicles
Mexico City, Mexico                             N/A           Owned               5,380 sq. ft.      Armored vehicles
Caracas, Venezuela                  $       128,000          Leased              15,360 sq. ft.      Armored vehicles
Plattsburgh, NY                     $        42,000          Leased               3,000 sq. ft.      Hard armor, vehicle armor
Champlain, NY                       $        18,500          Leased               7,000 sq. ft.      Hard armor, vehicle armor
Phoenix, AZ                         $     1,165,000          Leased             188,140 sq. ft.      Human Safety and Survival
                                                                                                     Systems
Phoenix, AZ                         $       306,000          Leased              25,312 sq. ft.      Commercial products

Note 1 - For accounting purposes, the land underneath our owned facility in Bremen, Germany is financed by a capital lease that
is recorded as a liability on our financial statements.
Note 2 - For accounting purposes, the Lamballe, France facility is considered owned and financed by a capital lease that is
recorded as a liability on our financial statements.
We believe our manufacturing, warehouse and office facilities are suitable and adequate and afford sufficient manufacturing
capacity for our current and anticipated requirements. We believe we have adequate insurance coverage for our properties and
their contents.

DISCONTINUED OPERATIONS
Charlotte, NC (3)                          $ 68,000          Leased               5,407 sq. ft.      Investigations
Gresham, OR                               $ 138,000          Leased               7,160 sq. ft.      Litigation Support Services
Note 3 - We have reached an agreement to terminate this lease of vacant space for $140,000.
</TABLE>

                                       33

<PAGE>


ITEM 3. LEGAL PROCEEDINGS

In 1997 we terminated several agreements with a Dutch company, Airmunition
International, B.V. ("AMI"), and with a British company, Crown Limited
("Crown"). AMI and Crown started an action against us before the Netherlands
Arbitration Institute in Rotterdam, Holland claiming breach of contract,
unauthorized use of confidential information, inducing an AMI employee to leave
to work for us in competition with plaintiffs and further inducing him to breach
his confidentiality agreements with plaintiffs. Plaintiffs sought damages of
$20.5 million. On April 29, 2003, the Tribunal rendered an interim award in our
favor on the first three counts. However, it reserved the opportunity for
Plaintiffs to provide proof of damages noting that any damages AMI/Crown may
have suffered on this remaining issue would be "limited" based on the facts. On
March 4, 2004, the arbitrators found that the plaintiffs had failed to offer any
evidence of damages, and therefore, they dismissed all of the claims against us.
Further the arbitrators directed AMI/Crown to pay us our costs. Unfortunately,
AMI and Crown have filed for bankruptcy protection from creditors so recovery of
our costs is doubtful.

On January 16, 1998, our Services Division ceased operations in Angola and
subsequently became involved in various disputes with SHRM S.A. ("SHRM"), its
minority joint venture partner relating to the Angolan joint venture known as
Defense System International Africa ("DSIA"). On March 6, 1998, SIA (a
subsidiary of SHRM) filed a complaint against Defense Systems France, SA ("DSF")
before the Commercial Court of Nanterre (Tribunal de Commerce de Nanterre)
seeking to be paid an amount of $577,286 corresponding to an alleged debt of
DSIA to SIA. In October 2002, the Commercial Court of Nanterre stayed the
proceedings before it, pending the decisions of the Court of Appeal and the
Paris Commercial Court. In February 2003, the Court of Appeal ruled against SHRM
and its parent entity, Compass Group, effectively ending all further proceedings
on the merits of Compass' claims. Compass has appealed the decision before the
French Court of Cassation, which reviews only matters of law.

In 1999 and prior to our acquisition of O'Gara-Hess & Eisenhardt Armoring
Company (which has been converted to a limited liability company and is now
known as O'Gara-Hess & Eisenhardt Armoring Company, L.L.C.) ("OHEAC") in 2001,
O'Gara-Hess & Eisenhardt Armoring de Brasil Ltda. ("OHE Brazil") was audited by
the Brazilian federal tax authorities and assessed over Ten Million Reals
(US$3.4 million based on the exchange rate as of December 31, 2003). OHE Brazil
has appealed the tax assessment and the case is pending. To the extent that
there may be any liability resulting from the 2001 audit, we believe that we are
entitled to indemnification from Kroll, Inc. under the terms of our purchase
agreement dated April 20, 2001, despite the denial by Kroll, Inc. of any such
liability, because the events occurred prior to our purchase of the O'Gara
Companies from Kroll, Inc. However, to the extent that the appeal relating to
2001 activity results in an unfavorable ruling, we could be liable for unpaid
taxes incurred subsequent to the acquisition from Kroll.

In 1999 and prior to our acquisition of OHEAC in 2001, several of the former
employees of Kroll O'Gara Company de Mexico, S.A. de C.V. ("O'Gara Mexico"), a
subsidiary of OHEAC, commenced labor claims against O'Gara Mexico seeking
damages for unjustified termination. These cases are still pending before the
labor board in Mexico City. The terminated employees are seeking back pay and
benefits since the date of termination amounting to approximately US $2.9
million, and accruing at approximately US $50,400 per month. To the extent that
there may be any liability, we believe that we are entitled to indemnification
from Kroll, Inc. under the terms of our purchase agreement dated April 20, 2001,
despite the denial by Kroll, Inc. of any such liability, because the events
occurred prior to our purchase of the O'Gara Companies from Kroll, Inc. Although
we do not have any insurance coverage for this matter, at this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In August 2001, Defense Technology Corporation of America ("DTC"), one of our
subsidiaries, received a civil subpoena from the United States Environmental
Protection Agency requesting information pursuant to Section 104(e) of the
Comprehensive Environmental Response, Compensation and Liability Act regarding
the possible impact of the Casper, Wyoming tear gas facility on the environment.
DTC responded to the request, and to date the EPA has not taken any further
action with respect to the matter. At this time, we do not believe this matter
will have a material impact on our financial position, operations or liquidity.

In December 2001, O'Gara-Hess & Eisenhardt France S.A. ("OHE France") sold its
industrial bodywork business operated under the name Labbe/Division de O'Gara
Hess & Eisenhardt France/ Carrosserie Industriells to SNC Labbe. Subsequent to
the sale, the Labbe Family Trust ("LFT"), owner of the leasehold interest upon
which the Carrosserie business is operated, sued OHE France and SNC Labbe
claiming that the transfer of the leasehold was not valid because the LFT had
not given its consent to the transfer as required under the terms of the lease.


                                       34


<PAGE>

Further, LFT seeks to have OHE France, as the sole tenant, maintain and repair
the leased building. The approximate cost of renovating the building is
estimated to be between US $3.2 and US $6.4 million, based on the exchange rate
as of December 31, 2003. The case is currently pending, and while we are
contesting the allegations vigorously, we are unable to predict the outcome of
this matter. Although we do not have any insurance coverage for this matter, at
this time, we do not believe this matter will have a material impact on our
financial position, operations or liquidity.

On or about March 22, 2002, OHEAC received a civil subpoena from the Department
of Defense ("DOD") requesting documents and information concerning various
quality control documentation regarding parts delivered by its subcontractors
and vendors in support of the HMMWVs armored at its Fairfield, Ohio facility for
the period October 1, 1999 through May 1, 2001. OHEAC has complied fully with
the subpoena. In early 2003, OHEAC was advised that the Department of Justice
("DOJ") was also investigating separate claims against OHEAC filed by
individuals that involve the same time frame and issues covered by the DOD
subpoena. OHEAC has learned that the DOJ investigation relates to a certain
unidentified action filed under the federal False Claims Act pursuant to which
the United States government may intervene and recover damages. OHEAC has fully
responded to, and cooperated with, the government's questions and investigation.
The DOJ has since notified OHEAC that it has declined to intervene in the case.
On September 30, 2003, the action filed under the federal False Claims Act was
voluntarily withdrawn without prejudice.

On October 18, 2002, we were notified by the Internal Revenue Service that our
tax return for the tax year ended December 31, 2000 had been selected for
examination. Further, on January 30, 2003 we were notified that our tax return
for the tax year ended December 31, 2001 had been selected for examination. The
examinations are currently pending, and at this time we are unable to predict
the outcome of these matters. However, we do not believe this matter will have a
material impact on our financial position, operations or liquidity.

In October 2002, we were sued in the United States District Court for the
District of Wyoming with respect to one of our subsidiaries' Casper, Wyoming
tear gas plant. The plaintiffs in the lawsuit asserted various state law tort
claims and federal environmental law claims under the Resource Conservation and
Recovery Act and the Clean Air Act stemming from the tear gas plant. In February
2004, we agreed with the plaintiffs to settle the lawsuit for an amount of money
that is not material to us, and on April 19, 2004, the court dismissed the
lawsuit with prejudice.

In September 2003, Second Chance Body Armor, Inc., a body armor manufacturer and
one of our competitors, has notified its customers of a potential safety issue
with its Ultima(R) and Ultimax(R) models. Second Chance Body Armor has claimed
that Zylon(R) fiber, which is made by Toyobo, a Japanese corporation, and used
in the ballistic fabric construction of its Ultima(R) and Ultimax(R) models,
degraded more rapidly than originally anticipated. Second Chance Body Armor has
also stated that the Zylon(R) degradation problem affects the entire body armor
industry, not just its products. Both private claimants and State Attorneys
General have already commenced legal action against Second Chance Body Armor
based upon its Ultima(R) and Ultimax(R) model vests and we have received
investigative demands from state agencies in Texas and Connecticut. Second
Chance Body Armor licenses from Simula a certain patented technology which is
used in some of the body armor it manufactures, but to our knowledge, no lawsuit
has yet been brought against Second Chance Body Armor based upon this licensed
technology, although a letter was received by Simula from an attorney
representing a police officer who was injured while wearing a Second Chance Body
Armor vest alleging potential liability against Simula. In addition, the U.S.
Attorney General has asked the U.S. Department of Justice to investigate the
claims regarding the use of Zylon(R) in bulletproof vests, which we use in the
manufacturing of certain of our body armor models for law enforcement personnel.
As Simula has licensed its technology to Second Chance Body Armor, it may be
impacted by the pending claims against Second Chance Body Armor and the
investigation being conducted by the U.S. Department of Justice. If Simula is
included in the claims pending against Second Chance Body Armor and the
investigation being conducted by the U.S. Department of Justice, we cannot
assure you that any judgment, settlement or resolution against Simula will not
have a material impact on Simula's financial position, operations or liquidity.

The National Institute of Justice (NIJ) is engaged in an ongoing inquiry and
investigation of bullet-resistant vests and the protocol for testing used vests,
as well as the reliability of Zylon and other fibers. We have consulted with and
cooperated fully with the NIJ in this endeavor. To date, the NIJ has embarked
only in its first phase of testing, which entails vests that have been heavily
worn or exposed to adverse conditions, and which involves the ballistic standard
applicable to new vests. Although some of the vests tested, including ours,
experienced some level of penetration, the NIJ specifically warned against the
misuse and misinterpretation of these results, emphasizing


                                       35


<PAGE>

that the data produced so far is preliminary in nature, applies to a very small
sample size and therefore it is not possible to draw any statistically-based
conclusions from these results. The NIJ will continue to conduct further testing
and analyze these issues in order to determine if any conclusions can be reached
as to the performance and reliability of aged vests. We have requested the NIJ
to provide us with its testing data, and we intend to evaluate and review the
NIJ results in our continuing effort to assist the NIJ in developing uniform
standards for certification of new vests and the testing of used vests. The NIJ
continues to encourage law enforcement officers to wear body armor, in light of
the fact that "the lives of more than 2,700 law enforcement officers have been
saved by the use of bullet-resistant body armor over the past 30 years."

In April 2004, two class action complaints were filed in Florida state courts by
police organizations and individual police officers, alleging that our vests do
not have the qualities and performance characteristics as warranted, thereby
breaching express warranty, implied warranty of merchantability, implied
warranty of fitness for a particular purpose and duty to warn. We strenuously
disagree with the allegations set forth in these complaints and intend to
present a vigorous defense. By letter dated April 14, 2004, an attorney
representing the Ohio State Troopers Association, Inc. wrote to us demanding a
full refund of the purchase price for our vests containing Zylon(R) purchased by
Ohio Highway Patrol Troopers. We have responded by denying his demand for a
refund and explaining that there have been no incidents of injury related to our
vests, that our vests meet the NIJ certification standards and that there exists
no reliable evidence to show that our vests are sub-standard or inappropriate
for their intended use.

In addition to the above, in the normal course of business, we are subjected to
various types of claims and currently have on-going litigations in the areas of
products liability and general liability. Our products are used in a wide
variety of law enforcement situations and environments. Some of our products can
cause serious personal or property injury or death if not carefully and properly
used by adequately trained personnel. We believe that we have adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on our financial statements is generally limited to the
amount of our insurance deductible or self-insured retention. Our annual
insurance premiums and self insurance retention amounts have risen significantly
over the past several years and may continue to do so to the extent we are able
to purchase insurance coverage. At this time, we do not believe any such claims
or pending litigation will have a material impact on our 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 fourth
quarter of the fiscal year covered by this report.


                                       36

<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock, par value $.01 per share (the "Common Stock") is traded under
the symbol "AH" on the New York Stock Exchange (the "NYSE"). The following table
sets forth the range of high and low sales prices for our Common Stock on the
NYSE for fiscal years 2003 and 2002 and for the first quarter of fiscal year
2004 (through March 5, 2004).

<TABLE>
<CAPTION>
                                                                              HIGH            LOW
                                                                              ----            ---
<S>                   <C>                                                  <C>            <C>
                      2004
                      1st Quarter - through March 5, 2004                  $ 30.30        $ 24.80

                      2003
                      4th Quarter ...........................              $ 27.35        $ 16.46
                      3rd Quarter ...........................              $ 17.80        $ 12.83
                      2nd Quarter............................              $ 14.95         $ 9.91
                      1st Quarter.............................             $ 14.60         $ 9.40

                      2002
                      4th Quarter ...........................              $ 16.50        $ 12.50
                      3rd Quarter ...........................              $ 25.50        $ 12.00
                      2nd Quarter............................              $ 29.55        $ 22.00
                      1st Quarter...........................               $ 28.25        $ 20.45
</TABLE>


HOLDERS

As of March 5, 2004, we had approximately 385 stockholders of record. Only
record holders of shares held in "nominee" or street names are included in this
number.

DIVIDENDS

We have never declared or paid cash dividends on our Common Stock. Our debt
agreements, such as the indenture governing the 8 1/4% senior subordinated notes
and the senior credit facility, contain certain financial and other covenants
that limit, under certain circumstances, our ability to pay dividends or make
other distributions to our stockholders. We are permitted to pay dividends and
make other distributions to stockholders to the extent we satisfy the
conditions, including the financial and other covenants, contained in such
documents. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" and Note 8
to Consolidated Financial Statements.

RECENT SALES OF UNREGISTERED SECURITIES

None.

RECENT PURCHASES OF OUR REGISTERED EQUITY SECURITIES

We did not purchase any shares of our common stock during the fourth quarter of
2003.

                                       37
<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL OVERVIEW

FIVE-YEAR SUMMARY

         The table below sets forth a summary of our results of operations and
financial condition as of and for the periods then ended.

<TABLE>
<CAPTION>
                                                 2003            2002           2001            2000           1999
                                                 ----            ----           ----            ----           ----
                                     (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>           <C>            <C>             <C>            <C>

Total revenues (1)                                $ 365,172      $ 305,117      $ 197,100       $ 139,904      $ 96,706
Operating income                                  $  35,729      $  38,365      $  26,673       $  19,869      $ 15,126
Income from continuing operations
                                                  $  17,006      $  21,337      $  14,684       $  10,847      $  9,328
Net income (loss)  (2)                            $  10,886      $(17,689)      $  10,128       $  17,048      $ 13,196

Basic income from continuing operations
per common share                                  $    0.61      $   0.70       $    0.61        $   0.48      $   0.44

Diluted income from continuing operations
per common share                                  $    0.59      $   0.69       $    0.59        $   0.46      $   0.43
Basic earnings (loss) per share                   $    0.39      $  (0.58)      $    0.42        $   0.75      $   0.63
Diluted earnings (loss) per share                 $    0.38      $  (0.57)      $    0.41        $   0.73      $   0.61
</TABLE>

Note 1 - Revenue and operating income for all periods presented represents
revenue from continuing operations only, while net income includes income and
losses from discontinued operations.

Note 2 - 2003 and 2002 net income (loss) includes a pre-tax charge for
impairment of long-lived assets of discontinued operations of $12.4 million and
$30.3 million, respectively. 2001 net income (loss) includes a pre-tax
restructuring charge of $10.3 million in discontinued operations.

<TABLE>
<CAPTION>
<S>                                               <C>            <C>            <C>             <C>            <C>
Total assets                                      $ 585,626      $ 367,753      $ 388,057       $ 225,957      $ 178,922
Working capital                                   $ 168,644      $ 100,591      $ 142,723       $  67,937      $  53,993
Long-term obligations                             $ 168,508      $   5,240      $   4,640       $  38,288      $   2,453
Stockholders' equity                              $ 295,365      $ 288,077      $ 326,019       $ 166,771      $ 157,883
</TABLE>

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

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Statements that are predictive in nature, that
depend upon or refer to future events or conditions or that include the words
such as "expects", "anticipates", "intends", "plans", "believes", "estimates",
"could be" and similar expressions are forward looking statements. Although we
believe that these statements are based upon reasonable assumptions, we can give
no assurance that our goals will be achieved. For more information, see "Forward
Looking Statements" contained elsewhere in this report.

Our actual results may differ from those expressed or implied in forward-looking
statements. We believe that we are subject to a number of risk factors,
including, without limitation: the inherent unpredictability of currency
fluctuations; competitive actions, including pricing; the ability to realize
cost reductions and operating efficiencies, including the ability to implement
headcount reduction programs timely and in a manner that does not unduly disrupt
business operations and the ability to identify and to realize other
cost-reduction opportunities; general economic and business conditions; our
ability to successfully execute changes to operations, such as integration


                                       38

<PAGE>

of recent and future acquisitions and the move of our corporate headquarters and
certain of our manufacturing operations, without disrupting our operations; and
our ability to obtain supplies and raw materials without disruption.

Any forward-looking statements in this report should be evaluated in light of
these and other important risk factors listed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere in
this Annual Report on Form 10-K/A including the accompanying financial
statements.

COMPANY OVERVIEW

We are a leading manufacturer and provider of specialized security products;
training and support services related to these products; vehicle armor systems;
military helicopter seating systems, aircraft and land vehicle safety systems;
protective equipment for military personnel; and other technologies used to
protect humans in a variety of life-threatening or catastrophic situations. Our
products and systems are used domestically and internationally by military, law
enforcement, security and corrections personnel, as well as governmental
agencies, multinational corporations and individuals. We are organized and
operated under three business divisions: Aerospace & Defense Group, Armor
Holdings Products, also referred to as our Products Division, and Armor Mobile
Security, also referred to as our Mobile Security Division.

CONTINUING OPERATIONS

We are a leading manufacturer and provider of specialized security products;
training and support services related to these products; vehicle armor systems;
military helicopter seating systems, aircraft and land vehicle armor systems;
protective equipment for military personnel; and other technologies used to
protect humans in a variety of life-threatening or catastrophic situations. Our
products and systems are used domestically and internationally by military, law
enforcement, security and corrections personnel, as well as governmental
agencies, multinational corporations and individuals. Effective in the first
quarter 2004, we instituted a new segment reporting format to include three
reportable business divisions: Aerospace & Defense Group, Armor Holdings
Products, also referred to as our Products Division, and Armor Mobile Security,
also referred to as our Mobile Security Division. The Aerospace & Defense Group
was formed upon the completion of our acquisition of Simula, Inc. on December 9,
2003, and results have been included herein since the acquisition date. The
Aerospace & Defense Group also includes the military business, including armor
and blast protection systems for M1114 Up-Armored HMMWVs, and other military
vehicle armor programs, which previously were included in the Mobile Security
Division. The Aerospace & Defense Group also includes the small arms protective
insert (SAPI) plate produced by our Protech subsidiary in Pittsfield,
Massachusetts, which was previously reported as part of the Products Division.
The historical results of these businesses have been reclassified as part of the
Aerospace & Defense Group. This reporting change was made to better reflect
management's approach to operating and directing the businesses, and, in certain
instances, to align financial reporting with our market and customer segments.

Aerospace & Defense. Our Aerospace & Defense Group supplies human safety and
survival systems to the U.S. military, and major Aerospace & Defense prime
contractors. Our core markets are military aviation safety, military personnel
safety, and land and marine safety. Under the brand name O'Gara-Hess &
Eisenhardt, we are the sole-source provider to the U.S. military of the armor
and blast protection systems for M1114 Up-Armored HMMWVs. We are also under
contract with the U.S. Army to provide spare parts, logistics and ongoing field
support services for the currently installed base of approximately 4,415
Up-Armored HMMWVs. Additionally, we provide blast and ballistic protection kits
for the standard HMMWVs, which are installed on existing equipment in the field.
Our Aerospace & Defense Group is also subcontracted to develop a ballistic and
blast protected armored and sealed truck cab for the High Mobility Artillery
Rocket System (HIMARS), a program recently transitioned by the U.S. Army and
U.S. Marine Corps from developmental to a low rate of initial production,
deliveries of which commenced in 2003. We also supply armor sub-systems for
other tactical wheeled vehicles. Through Simula, we provide military helicopter
seating systems, helicopter cockpit airbag systems, aircraft and land vehicle
armor kits, body armor and other protective equipment for military personnel,
emergency bailout parachutes and survival ensembles worn by military aircrew.
The primary customers for our products are the U.S. Army, U.S. Marine Corps,
Boeing, and Sikorsky Aircraft. Most of Simula's aviation safety products are
provided on a sole source basis. The U.S. armed forces have adopted ceramic body
armor as a key element of the protective ensemble worn by our troops in Iraq and
Afghanistan. Simula was the developer of this specialized product called SAPI,
and is the largest supplier to U.S. forces. We also supply ceramic body armor
from our Protech subsidiary based in Pittsfield, Massachusetts.

Products. Our Products Division manufactures and sells a broad range of high
quality security products, equipment and related consumable items, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories, weapon maintenance products, foldable
ladders and specialty gloves. Our products are marketed


                                       39


<PAGE>

under brand names that are well established in the military and law enforcement
communities such as AMERICAN BODY ARMOR(TM), B-SQUARE(R), BREAK FREE(R), CLP(R),
DEFENSE TECHNOLOGY/FEDERAL LABORATORIES(R), DEF-TEC PRODUCTS(R), DISTRACTION
DEVICE(R), FEDERAL LABORATORIES(R), FERRET(R), FIRST DEFENSE(R), IDENTICATOR(R),
IDENTIDRUG(R), IMPAK(TM), LIGHTNING POWDER(R), MONADNOCK(R), NIK(R), O'GARA-HESS
& EISENHARDT ARMORING COMPANY(R), PROTECH(TM), QUIKSTEP LADDERS(TM), SAFARILAND
DESIGN(R), SPEEDFEED(R), 911EP and DESIGN(TM). We sell our products through a
network of over 350 distributors and sales agents, including approximately 200
in the United States. Our extensive distribution capabilities and commitment to
customer service and training have enabled us to become a leading provider of
security equipment to law enforcement agencies.

Mobile Security. Our Mobile Security Division manufactures and installs
ballistic and blast protected armoring systems for privately owned vehicles.
Under the brand name O'GARA-HESS & EISENHARDT ARMORING COMPANY(R), we armor a
variety of privately owned commercial vehicles, including limousines, sedans,
sport utility vehicles, commercial trucks and cash-in-transit vehicles, to
protect against varying degrees of ballistic and blast threats. Our customers in
this business include international corporations and high net worth individuals.
In addition, we supply ballistic and blast protected armoring systems to U.S.
federal law enforcement and intelligence agencies and foreign heads of state.

DISCONTINUED OPERATIONS

On April 17, 2003, we announced that we had completed the sale of our ArmorGroup
Integrated Systems business through the sale of 100% of the stock of ArmorGroup
Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc. to Aerwav
Integration Systems, Inc. ("AIS"). AIS is a wholly owned subsidiary of Aerwav
Holdings, LLC. As consideration for the integrated systems business, we received
a $4.1 million collateralized note due in two years and a warrant for
approximately 2.5% of AIS. We have recorded a loss of $366,000 on the sale.

On November 26, 2003, we announced that we completed the sale of ArmorGroup, our
security service division, for $33,660,000 in consideration to a group of
private investors led by Granville Baird Capital Partners of London, England and
Management. We received $31,360,000 in cash at closing and are scheduled to
receive another $2,300,000 by the end of 2004. We have recorded a loss of $8.8
million on the sale in the fourth quarter of 2003. In accordance with generally
accepted accounting principles, unrealized gains and losses, which are included
in equity as accumulated other comprehensive income or loss, are not recognized
until the period in which the related assets and liabilities are disposed of.

At December 31, 2003, our litigation support services subsidiary remains in
discontinued operations. This subsidiary specializes in providing computer
forensics consulting services, training and software tools to the civil
litigation market and to government agencies and Fortune 500 corporations.
Computer forensics is the preservation, identification, extraction and
documentation of computer evidence. We are actively attempting to sell this
business.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 1 to the consolidated
financial statements included in Item 8 of this Form 10-K/A. We believe our most
critical accounting policies include revenue recognition, the use of estimates,
income taxes and impairment.

Revenue Recognition. We record products revenue at the time of shipment. Returns
are minimal and do not materially affect the financial statements.

We record revenue from our Aerospace & Defense Group and Mobile Security
Division when the vehicle is shipped, except for larger commercial contracts
typically longer than four months in length and the contract for the delivery of
HMMWVs to the U.S. government on which revenue is recognized on a units
completed basis with completion occurring upon inspection and acceptance by the
U.S. government. This contract continues through 2005. Revenue from such larger
contracts is recognized on the percentage of completion, units-of-work performed
method. HMMWV units sold to the U.S. government are considered complete when the
onsite Department of Defense officer finishes the inspection of the HMMWV and
approves it for delivery. Should such contracts be in a loss position, the
entire estimated loss would be recognized for the balance of the contract at
such time. We believe that our current contracts are profitable.

                                       40
<PAGE>

We record service revenue as services are provided on a contract-by-contract
basis. Revenues from service contracts are recognized over the term of the
contract.

Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Significant estimates inherent in the preparation of the
accompanying consolidated financial statements include periodic testing of the
carrying value of long-lived assets for impairment, valuation allowances for
receivables, inventories and deferred income tax assets, liabilities for
potential litigation claims and settlements; and contract contingencies and
obligations. Actual results could differ from those estimates.

Income taxes. We account for income taxes pursuant to Statement of Financial
Accounting Standards ("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
relating to net operating loss carryforwards and deductible temporary
differences. Future benefits obtained either from utilization of net operating
loss carryforwards or from the reduction in the income tax asset valuation
allowance existing on September 20, 1993 have been and will be applied to reduce
reorganization value in excess of amounts allocable to identifiable assets. At
December 31, 2003 and 2002, our consolidated foreign subsidiaries have
unremitted earnings of approximately $9.0 million and $3.0 million,
respectively, on which the Company has not recorded a provision for United
States Federal income taxes since these earnings are considered to be
permanently reinvested. Such foreign earnings have been taxed according to the
regulations existing in the countries in which they were earned.

Impairment. Long-lived assets including certain identifiable intangibles, and
the goodwill related to those assets, are reviewed annually for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable including, but not limited to, a
deterioration of profits for a business segment that has long-lived assets, and
when other changes occur which might impair recovery of long-lived assets.
Management reviewed the Company's long-lived assets and has taken an impairment
charge of $12.4 million in fiscal 2003 and $30.3 million in fiscal 2002 to
reduce the carrying value of the Services Division to estimated realizable
value. The method used to determine the existence of an impairment would be
discounted operating cash flows estimated over the remaining useful lives of the
related long-lived assets for continuing operations in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets." Impairment is measured as the
difference between fair value and unamortized cost at the date impairment is
determined.

Discontinued Operations. In accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144), a component classified as held for sale is reported in
discontinued operations when the following conditions are met: (a) the
operations and cash flows of the component have been (or will be) eliminated
from the ongoing operations of the entity as a result of the disposal
transaction and (b) the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.
In a period in which a component of an entity either has been disposed of or is
classified as held for sale, the income statement for current and prior periods
reports the results of operations of the component, including any estimated
impairment gain or loss recognized in accordance with SFAS 144 paragraph 37, in
discontinued operations. The results of discontinued operations, less applicable
income taxes (benefit), is reported as a separate component of income before
extraordinary items and the cumulative effect of accounting changes (if
applicable). The assets and liabilities of a disposal group classified as held
for sale are presented separately in the asset and liability sections,
respectively, of the statement of financial position.

                                       41

<PAGE>


RESULTS OF OPERATIONS

Effective June 30, 2002, we decided to sell the ArmorGroup Services Division
(the sale was completed on November 26, 2003) through an organized and formal
auction managed by outside advisors. In accordance with Statement of Accounting
Standards 144, Accounting for Impairment or Disposal of Long-Lived Assets, the
assets and liabilities of the Company's Services Division have been classified
as held for sale, with operating results reported as discontinued operations in
the statement of operations for all periods prior to the sale of this division.
Our US based training subsidiary, Cyconics International Training Services, Inc.
(formerly known as Advanced Training Solutions, Inc. which was formerly known as
USDS, Inc.) previously reported under the Services Division but not included for
sale has been reclassified to the Products Division.

The following table sets forth selected statement of operations data as a
percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                                         FISCAL YEAR
                                                                                    2003         2002        2001
                                                                                    ----         ----        ----
<S>                                                                               <C>          <C>         <C>
              Revenue from continuing operations
                 Aerospace & Defense                                               25.1%        19.4%        9.2%
                 Products                                                          53.1%        59.0%       76.0%
                 Mobile Security                                                   21.8%        21.6%       14.8%
              Total revenues from continuing operations                           100.0%       100.0%      100.0%
              Cost of sales                                                        69.4%        69.1%       64.1%
              Operating expenses                                                   17.2%        16.3%       19.6%
              Amortization                                                          0.1%         0.1%        1.1%
              Integration and other charges                                         3.4%         1.9%        1.7%
              Operating income                                                      9.8%        12.6%       13.5%
              Interest expense, net                                                 1.1%         0.3%        2.0%
              Other income, net                                                     0.1%         0.0%        0.0%
              Income from continuing operations before
                 provision for income taxes                                         8.5%        12.3%       11.6%
              Provision for income taxes                                            3.9%         5.3%        4.2%
              Income from continuing operations                                     4.7%         7.0%        7.5%
              Loss from discontinued operations, net of income tax                (1.7%)      (12.8)%      (2.3)%
              benefit
              Net income (loss)                                                     3.0%       (5.8)%        5.1%
</TABLE>

FISCAL 2003 AS COMPARED TO FISCAL 2002

Net income (loss). Net income (loss) increased $28.6 million, or 161.5%, to net
income of $10.9 million for the year ended December 31, 2003 ("fiscal 2003")
compared to a net loss of $(17.7) million for the year ended December 31, 2002
("fiscal 2002"). Income from continuing operations and a loss from discontinued
operations were $17.0 million and ($6.1) million, respectively, for fiscal 2003,
compared to income from continuing operations and a loss from discontinued
operations of $21.3 million and $(39.0) million, respectively, for fiscal 2002.
The decrease in income from continuing operations relates primarily to a $7.3
million non-cash, non-recurring charge for stock based compensation in the
fourth quarter of 2003, a $3.3 million (including a $2.1 million non-cash
charge) severance charge related to the termination of our former Chief
Executive Officer in the second quarter of 2003, an increase in interest expense
relating to the company's $150.0 million subordinated debenture issued on August
12, 2003, and increases in bonus expense, legal and accounting fees, insurance
and internal audit expenses.

CONTINUING OPERATIONS

Aerospace & Defense Group revenues. Our Aerospace & Defense Group revenues
increased $32.4 million, or 54.5%, to $91.7 million in fiscal 2003 compared to
$59.3 in fiscal 2002. The Aerospace & Defense Group was created with the
acquisition of Simula on December 9, 2003. The Aerospace & Defense Group also
includes the military business of the Mobile Security Division, including armor
and blast protection systems for M1114 Up-Armored HMMWVs, and the SAPI business
generated from our Protech subsidiary. The historical results of these
businesses have been reclassified to the Aerospace & Defense Group. For fiscal
2003, Aerospace &



                                       42


<PAGE>

Defense Group revenue increased 47.2% internally, including year-over-year
changes in acquired businesses, and 7.4% due to the acquisition of Simula on
December 9, 2003.

Products Division revenues. Our Products Division revenues increased $14.0
million, or 7.8%, to $194.0 million in fiscal 2003, compared to $179.9 million
in fiscal 2002. For fiscal 2003, Products Division revenue increased 4.9%
internally, including year-over-year changes in acquired businesses, and 2.9%
due to the acquisitions of Speedfeed, Inc., the Foldable Products Group,
Evi-Paq, Inc., B-Square, Inc. and 911 Emergency Products, Inc., all of which
were completed during 2002 and Hatch Imports, Inc., which was completed in the
fourth quarter of 2003. Products Division revenues include $20.7 million and
$16.8 million from Cyconics International Training Services, Inc., our US based
training company, for the years ended fiscal 2003 and fiscal 2002, respectively.
In our filings prior to June 30, 2002, we reported Cyconics International
Training Services, Inc. as a part of our Services Division. The historical
results of the SAPI business of the Products Division have been reclassified to
the Aerospace & Defense Group.

Mobile Security Division revenues. Our Mobile Security Division revenues
increased $13.7 million, or 20.8% to $79.6 million in fiscal 2003, compared to
$65.9 million in fiscal 2002. Mobile Security Division revenues for 2003
increased by $19.2 million due to the acquisition of substantially all of the
assets of Trasco-Bremen on September 24, 2002. Excluding the $19.2 million of
2003 revenue increase relating to Trasco-Bremen, Mobile Security Division
revenue decreased $5.5 million, or 8.7%, in fiscal 2003 compared to fiscal 2002.
The historical results of the military business of the Mobile Security Division
have been reclassified to the Aerospace & Defense Group.

Cost of sales. Cost of sales increased $42.8 million, or 20.3%, to $253.6
million for fiscal 2003 compared to $210.7 million for fiscal 2002. As a
percentage of total revenues, cost of sales increased to 69.4% of total revenues
for fiscal 2003 from 69.1% for fiscal 2002.

Gross margins in the Aerospace & Defense Group were 31.3% for fiscal 2003
compared to 28.3% for fiscal 2002. The increase in the Aerospace & Defense Group
gross margins was primarily attributable to: (1) favorable manufacturing
overhead cost absorption relating to increased manufacturing volumes at our
Cincinnati manufacturing facility, and (2) operational efficiencies at our
Cincinnati manufacturing facility. These improvements were slightly offset by
purchase accounting from the Simula acquisition, and the wrap up of a low margin
contract at Simula, which was acquired on December 9, 2003.

Gross margins in the Products Division were 34.8% for fiscal 2003 compared to
36.4% for fiscal 2002. The decline in Product Division's gross margins resulted
primarily from: (1) an increase in low margin gas mask sales; (2) an increase in
lower margin international body armor sales produced overseas at Armor Products
International; (3) lower production volumes within our less-lethal, automotive
and hard armor product lines, which resulted in reduced fixed cost absorption
and certain labor inefficiencies; and (4) moving costs and labor inefficiencies
at ProTech associated with the relocation of its manufacturing facility.
Excluding our Products training division subsidiary, the Products Division gross
margins were 37.1%, compared to 38.7% in 2002.

Gross margins in the Mobile Security Division were 19.4% in fiscal 2003,
compared to 18.3% for fiscal 2002. The increase in the Mobile Security gross
margins was primarily attributable to: (1) favorable manufacturing overhead cost
absorption relating to increased manufacturing volumes at our Cincinnati
manufacturing facility, and (2) operational efficiencies at our Cincinnati
manufacturing facility.

Operating expenses. Operating expenses increased $13.0 million, or 26.0%, to
$62.8 million (17.2% of total revenues) for fiscal 2003 compared to $49.8
million (16.3% of total revenues) for fiscal 2002.

Aerospace & Defense Group operating expenses increased $1.9 million, or 51.9%,
to $5.6 million (6.2% of Aerospace & Defense Group revenues) compared to $3.7
million (6.3% of Aerospace & Defense revenues) for fiscal 2002 primarily due to
incremental operating expenses associated with the acquisition of Simula on
December 9, 2003.

Products Division operating expenses increased $1.8 million, or 5.7%, to $33.1
million (16.6% of Products Division revenues) compared to $31.4 million (17.4%
of Products Division revenues) for fiscal 2002. This increase is primarily due
to the incremental operating expenses associated with acquired businesses
completed during or subsequent to 2002.

Mobile Security Division operating expenses increased $3.7 million, or 43.1%, to
$12.3 million (15.4% of Mobile Security Division revenues) for fiscal 2003
compared to $8.6 million (13.0% of Mobile Security Division revenues) for fiscal
2002. Excluding the increase in 2003 operating expenses resulting from the
acquisition of substantially all of the assets of Trasco-Bremen on September 24,
2002, the operating expenses for fiscal 2003 increased $1.9 million versus
fiscal 2002. The increase in operating expenses was primarily due to: (1)
increased expenses


                                       43

<PAGE>

associated with the start-up of operations in Caracas, Venezuela; (2) increased
insurance costs; (3) the net effect of a weaker U.S. dollar against foreign
currencies, and (4) normal wage inflation.

Corporate operating expenses increased $5.6 million, or 89.9%, to $11.8 million
(3.2% of total revenues) in fiscal 2003 compared to $6.2 million in fiscal 2002
(2.0% of total revenues). This increase is due primarily to increased bonus
expense, legal and accounting fees, insurance and internal audit expenses.

Amortization. Amortization expense increased $244,000, or 99.6%, to $489,000 for
fiscal 2003 compared to $245,000 for fiscal 2002. SFAS 142, which we adopted on
January 1, 2002, eliminated amortization of intangible assets with indefinite
lives and goodwill for all acquisitions completed after July 1, 2001, as well as
for all fiscal years ending after January 1, 2002. Remaining amortization
expense is related to patents and trademarks with finite lives and to
amortization on intangible assets, other than goodwill, associated with the
Simula and Hatch Imports acquisitions in 2003.

Integration and other charges. Integration and other charges increased $6.7
million, or 112.2%, to $12.6 million for fiscal 2003 compared to $5.9 million in
fiscal 2002. The increase in integration and other charges is primarily related
to a $7.3 million non-cash charge for stock-based compensation for a performance
plan for certain key executives and a $3.3 million severance charge (including a
$2.1 million non-cash charge) related to the recent departure of our former
Chief Executive Officer. Excluding these charges, integration and other charges
were $2.0 million for fiscal 2003, a decrease of $3.9 million from fiscal 2002.
This decrease was primarily due to the elimination of expense associated with
the 2001 acquisitions of O'Gara-Hess & Eisenhardt and Identicator.

Operating income. Operating income from continuing operations decreased $2.7
million, or 6.9%, to $35.7 million in fiscal 2003 compared to $38.4 million in
fiscal 2002 due to the factors discussed above.

Interest expense, net. Interest expense, net increased $3.1 million, or 334.7%
to $4.0 million for fiscal 2003 compared to $923,000 for fiscal 2002. This
increase was due primarily to interest expense associated with the $150 million
aggregate principal amount of 8.25% senior subordinated notes due 2013, which
were issued on August 12, 2003. On September 2, 2003, we entered into interest
rate swap agreements that effectively exchanged the 8.25% fixed rate for a
variable rate of six month LIBOR, set in arrears, plus a spread of 2.735% to
2.75%. At December 31, 2003, the six-month LIBOR rate was 1.22%.

Other expense, net. Other expense, net, was $508,000 for fiscal 2003, compared
to $51,000 for fiscal 2002. The increase related primarily to foreign exchange
currency losses and a write-down of certain fixed assets.

Income from continuing operations before provision for income taxes. Income from
continuing operations before provision for income taxes decreased $6.2 million,
or 16.5%, to $31.2 million for fiscal 2003 compared to $37.4 million for fiscal
2002 due to the reasons discussed above.

Provision for income taxes. Provision for income taxes on continuing operations
was $14.2 million for fiscal 2003 compared to $16.1 million for fiscal 2002. The
effective income tax rate was 45.5% for fiscal 2003 compared to 42.9% for fiscal
2002 based on our annual income amounts and jurisdictions in which such amounts
were taxable. The 2003 effective income tax rate of 45.5% is higher than the
37.4% estimated effective income tax rate that was utilized in the first half of
2003 due to, among other things: (1) the non-tax deductible nature of the
non-cash, non-recurring stock based compensation that was provided to certain
key executives, and (2) a taxable gain that was realized in the second half of
2003 when certain intellectual property utilized in our discontinued operations
was revalued in order to comply with tax code provisions. The impact of the
incremental tax associated with the revalued intellectual property is recorded
in continuing operations as required by generally accepted accounting
principles, and resulted in an incremental non-cash tax expense, for which
foreign tax credits are available to offset the tax otherwise payable. The
previously mentioned negative impacts on the 2003 tax rate were partially offset
by some state level tax strategies, which lowered the effective tax rate.

Income from continuing operations. Income from continuing operations decreased
$4.3 million to $17.0 million for fiscal 2003 compared to $21.3 million for
fiscal 2002 due to the factors discussed above.




                                       44
<PAGE>


DISCONTINUED OPERATIONS

Many of the items listed below involve accounting estimates. The loss and
amounts below will be re-evaluated in the future for any changes which might be
appropriate.

On April 17, 2003, we announced that we had completed the sale of our ArmorGroup
Integrated Systems business through the sale of 100% of the stock of ArmorGroup
Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc. to Aerwav
Integration Systems, Inc. ("AIS"). AIS is a wholly owned subsidiary of Aerwav
Holdings, LLC. As consideration for the integrated systems business, we received
a $4.1 million collateralized note due in two years and a warrant for
approximately 2.5% of AIS. We have recorded a loss of $366,000 on the sale.

On November 26, 2003, we announced that we completed the sale of ArmorGroup, our
security service division, for $33,660,000 million in consideration to a group
of private investors led by Granville Baird Capital Partners of London, England
and Management. We received $31,360,000 million in cash at closing and are
scheduled to receive another $2,300,000 million by the end of 2004. We have
recorded a loss of $8.8 million on the sale. In accordance with generally
accepted accounting principles, unrealized gains and losses, which are included
in equity as accumulated other comprehensive income or loss, are not recognized
until the period of disposition of the related assets and liabilities (which was
a large component of the loss).

At December 31, 2003, our litigation support services subsidiary, remains our
only operating subsidiary in discontinued operations.

Note 2 of the consolidated financial statements contains comparative information
for our discontinued operations.

Services revenues. Services Division revenues decreased $3.1 million, or 3.2%,
to $95.1 million for fiscal 2003 compared to $98.3 million for fiscal 2002 as
fiscal 2003 reflects revenues from ArmorGroup only through November 26, 2003,
and revenues from ArmorGroup Integrated Systems only through April 17, 2003,
their respective dates of sale as opposed to a full year in 2002. Exclusive of
ArmorGroup Integrated Systems, revenue increased $8.5 million, or 10.3%, to
$90.4 million for fiscal 2003 compared to $82.0 million for fiscal 2002. This
increase is due to strong performance primarily in the Middle East with strong
growth coming from Iraq along with ongoing strong training revenues from the
Athens Olympics build up. These are tempered by weak revenues in mine action
business, investigations business and the Latin American business and the lack
of a full year's revenues in fiscal 2003.

Cost of sales. Cost of sales decreased $9.0 million, or 11.9%, to $66.8 million
for fiscal 2003 compared to $75.8 million for fiscal 2002 as fiscal 2003
reflects cost of sales from ArmorGroup only through November 26, 2003, and cost
of sales from ArmorGroup Integrated Systems only through April 17, 2003, their
respective dates of sale. As a percentage of total revenue from discontinued
operations, cost of sales decreased to 70.2% of total revenues from discontinued
operations for fiscal 2003 from 77.1% for fiscal 2002. This decrease is a result
of the sale of the ArmorGroup Integrated Systems business in April 2003, which
has a comparatively low gross margin.

Exclusive of ArmorGroup Integrated Systems, cost of sales increased $3.9
million, or 6.8%, to $61.6 million for fiscal 2003 compared to $57.7 million for
fiscal 2002. Exclusive of ArmorGroup Integrated Systems, cost of sales as a
percentage of total revenue from discontinued operations decreased to 68.2% of
total revenues from discontinued operations for fiscal 2003 from 70.4% for
fiscal 2002. This decrease in cost of sales as a percentage of total revenue
from discontinued operations was primarily a result of the proportion of the
revenue growth coming from expatriate intensive security contracts in Iraq and
continued high margin training contracts.

Operating expenses. Operating expenses decreased $10.7 million, or 34.9%, to
$19.9 million (20.9% of total revenues from discontinued operations) for fiscal
2003 compared to $30.6 million (24.9% of total revenues from discontinued
operations) for fiscal 2002 as fiscal 2003 reflects operating expenses from
ArmorGroup only through November 26, 2003, and operating expenses from
ArmorGroup Integrated Systems only through April 17, 2003, their respective
dates of sale. Exclusive of ArmorGroup Integrated Systems, operating expenses
decreased $7.6 million, or 28.1%, to $19.4 million for fiscal 2003 compared to
$26.9 million for fiscal 2002. This decrease was due to reduced foreign currency
expenses, a reduction in salary costs as a result of the 2002 restructuring and
the sale of ArmorGroup on November 26, 2003.

                                       45
<PAGE>

Charge for impairment of long-lived assets. Charge for impairment of long-lived
assets was $21.5 million for fiscal 2003 compared to $30.3 for fiscal 2002. The
fiscal 2003 charge related to a $12.4 million reduction in the carrying value of
the Services division to its estimated realizable value, the $8.8 million loss
on the sale of ArmorGroup and the $366,000 loss on the sale of ArmorGroup
Integrated Systems. The 2002 charge was the result of $6.1 million in estimated
disposal costs and a $24.2 million reduction in carrying value of the Services
Division to the estimated realizable value as required by SFAS 144.

Integration and other charges. Integration and other charges decreased $1.8
million, or 70.4%, to $776,000 for fiscal 2003 compared to $2.6 million for
fiscal 2002. This decrease is primarily due to severance payments to certain
personnel in the prior year.

Operating loss. Operating losses were $(4.7) million for fiscal 2003, compared
to an operating loss of $(41.0) million for fiscal 2002 due to the factors
discussed above. Operating loss from the ArmorGroup Integrated Systems business
was ($15.0) million for fiscal 2002 primarily due to the $11.9 million charge
for impairment of long-lived assets. Excluding the ArmorGroup Integrated Systems
business, the balance of the assets held for sale generated an operating loss of
$(3.7) million for fiscal 2003 compared to an operating loss of ($26.9) million
for fiscal 2002.

Interest expense, net. Interest expense, net decreased $330,000 or 95.4%, to
$16,000 for fiscal 2003 compared to $346,000 for fiscal 2002. This decrease was
due to decreased utilization of the Services Division's line of credit.

Other expense, net. Other expense, net, was $479,000 for fiscal 2003 compared to
$99,000 for fiscal 2002 due primarily to an increase in foreign currency
fluctuation losses in fiscal 2003.

Loss from discontinued operations before benefit for income taxes. Loss from
discontinued operations before benefit for income taxes was $(14.4) million for
fiscal 2003 and $(41.5) million for fiscal 2002 due to the reasons discussed
above.

Benefit for income taxes. Income tax benefit was $8.3 million for fiscal 2003
compared to $2.4 million for fiscal 2002. The effective tax rate for fiscal 2003
was a benefit of 57.4% compared to a benefit of 5.9% for fiscal 2002. The income
tax benefit of 57.4% for fiscal 2003 was primarily due to a taxable loss
realized on the sale of ArmorGroup.

Loss from discontinued operations. Loss from discontinued operations was $(6.1)
million for fiscal 2003 compared to a loss from discontinued operations of
$(39.0) million for fiscal 2002 due to the factors discussed above.

FISCAL 2002 AS COMPARED TO FISCAL 2001

Net (loss) income. Net income decreased $27.8 million to a net loss of $17.7
million for fiscal 2002 compared to net income of $10.1 million for the year
ended December 31, 2001 ("fiscal 2001"). Income from continuing operations and
the loss from discontinued operations was $21.3 million and $39.0 million
respectively for fiscal 2002, compared to income from continuing operations of
$14.7 million and a loss from discontinued operations of $4.6 million for fiscal
2001. The increase in income from continuing operations relates primarily to the
inclusion of the Mobile Security Division for a full year in 2002 versus four
months in 2001.

CONTINUING OPERATIONS

Aerospace & Defense revenues. Our Aerospace & Defense Group revenues increased
$41.2 million, or 226.9%, to $59.3 million in fiscal 2002, compared to $18.1
million in fiscal 2001. The Aerospace & Defense Group was created with the
acquisition of Simula on December 9, 2003. The Aerospace & Defense Group also
includes the military business of the Mobile Security Division, including armor
and blast protection systems for M1114 Up-Armored HMMWVs, and the SAPI business
generated from our Protech subsidiary. The historical results of these
businesses have been reclassified to the Aerospace & Defense Group. Revenues for
fiscal 2001 included only four months of operations after the acquisitions of
O'Gara-Hess & Eisenhardt Armoring Company, The O'Gara Company, and O'Gara
Security Associates, Inc. in August 2001.

                                       46
<PAGE>

Products Division revenues. Our Products Division revenues increased $30.0
million, or 20.1%, to $179.9 million in fiscal 2002, compared to $149.9 million
in fiscal 2001. For fiscal 2002, Products Division revenue increased 14.4%
internally, including year over year changes in acquired businesses, and 5.7%
due to a series of small strategic "tuck-in" acquisitions including Identicator,
Inc. ("Identicator"), Guardian Personal Security Products, Inc. ("Guardian"),
Speedfeed, Inc. ("Speedfeed"), the Foldable Products Group ("Foldable"),
Evi-Paq, Inc. ("Evi-Paq") B-Square, Inc. ("B-Square") and 911 Emergency Products
("911"). Products Division revenues include $16.8 million and $7.2 million from
Cyconics International Training Services, Inc., our US based training company,
for the years ended fiscal 2002 and fiscal 2001, respectively. In our filings
prior to June 30, 2002, we reported Cyconics International Training Services,
Inc. as a part of our Services Division.

Mobile Security Division revenues. Our Mobile Security Division revenues
increased $36.8 million, or 126.4% to $65.9 million in fiscal 2002, compared to
$29.1 million in fiscal 2001. Revenues for fiscal 2001 included only four months
of operations after the acquisitions of O'Gara-Hess & Eisenhardt Armoring
Company, The O'Gara Company, and O'Gara Security Associates, Inc. in August
2001. Revenues in fiscal 2002 include $3.3 million related to the acquisition of
Trasco Bremen in September 2002. On a pro forma basis, Mobile Security Division
revenue increased 17.7% internally from approximately $106.3 million during
fiscal 2001.

Cost of sales. Cost of sales increased $84.4 million, or 66.8%, to $210.7
million for fiscal 2002 compared to $126.3 million for fiscal 2001. This
increase was due primarily to the acquisition of O'Gara as well as overall
revenue growth for fiscal 2002 compared to fiscal 2001. As a percentage of total
revenues, cost of sales increased to 69.1% of total revenues for fiscal 2002
from 64.1% for fiscal 2001. This increase as a percentage of total revenues was
partially due to the full year inclusion in 2002 of the O'Gara acquisition, and
partially to reduced Products Division margins as discussed below . O'Gara
operates at lower average gross margins than the Products Division.

Gross margins in the Aerospace & Defense Group were 28.3% for fiscal 2002
compared to 26.6% for fiscal 2001 primarily due to production efficiencies
related to reduced labor hours and overhead costs on the M1114 Up-armored HMMWV
program as well as higher margins on foreign sales of M1114 Up-Armored HMMWVs.

Gross margins in the Products Division were 36.4% compared to 39.3% reported in
the same period last year. The Products Division consists of a portfolio of law
enforcement products, each of which is manufactured and sold at different
margins. In any given period, the Products Division weighted average gross
margins will fluctuate based upon the relative volume of products sold during
the period. Lower gross margins during fiscal 2002 in the Products Division were
partially attributable to product mix, as well as to short term increases in
manufacturing costs and a raw material supply issue in the division's body armor
operations during the first half of 2002.

During late 2001 and 2002, the Products Division combined its Jacksonville,
Florida based body armor operation into its body armor manufacturing facility in
Ontario, California. During 2002, the Division experienced difficulty in this
combination resulting in capacity constraints and increased manufacturing costs.
We believe that these capacity constraints have been alleviated and that certain
of our body armor manufacturing costs will decrease during the first half of
2003. However, during this time, we also experienced interruptions in the supply
of Zylon Shield, a certain ballistic fiber used in our leading concealable
ballistic vest. This particular supply problem was related to the ballistic
integrity of the fiber we received and not the actual availability of the
material. Nevertheless, our inability to receive quality Zylon Shield during
this period exacerbated our capacity constraints. As of December 31, 2002, the
Division is currently receiving adequate supplies of Zylon Shield and is
currently working to decrease its body armor manufacturing costs.

The Products Division gross margins also decreased because it realized higher
proportional revenue increases from its training division, which operates at
significantly lower overall gross margins than its manufacturing segment.

Gross margins in the Mobile Security Division were 18.3% in fiscal 2002 compared
to 24.2% in fiscal 2001, which included only four months since its acquisition
in August 2001. The decrease in gross margins in the Mobile Security Division
was primarily due to a less favorable mix of commercial vehicle sales compared
to the same period in the prior year, a heavier mix of "lower margin"
cash-in-transit vehicles in 2002 compared to 2001, and a larger number of base
unit sales included in revenue in fiscal 2002. Base units are the unarmored OEM
produced vehicle, which can either be purchased directly by the Company and
resold; or purchased directly by our customer, in which case the base unit cost
is not included in our revenues.



                                       47
<PAGE>

Operating expenses. Operating expenses increased $11.2 million, or 28.9%, to
$49.8 million (16.3% of total revenues) for fiscal 2002 compared to $38.7
million (19.6% of total revenues) for fiscal 2001. This increase was primarily
due to the operating expenses associated with the operations of O'Gara, acquired
in August 2001, which were not included for the full year ended December 31,
2001. Operating expenses also increased in the Products Division primarily due
to operating expenses associated with acquired companies and from internal
growth of the business. Operating expenses as a percent of sales decreased
because the acquired O'Gara business operates with a lower level of operating
expenses as a percentage of sales than does the Products Division. We expect to
see an increase in corporate operating expense during 2003 because we will incur
significant increases in insurance expenses, government affairs and lobbying
efforts, internal audit, information technology and increased legal and
accounting costs associated with legal compliance.

Amortization. Amortization expense decreased $1.9 million, or 88.6%, to $0.2
million for fiscal 2002 compared to $2.1 million for fiscal 2001. This decrease
results from the implementation of SFAS 142, which eliminated goodwill
amortization for all acquisitions completed after July 1, 2001, as well as for
all fiscal years ending after January 1, 2002. Remaining amortization expense is
related to patents and trademarks with finite lives.

Integration and other charges. Integration and other charges increased $2.6
million, or 79.8%, to $5.9 million for fiscal 2002 compared to $3.3 million in
fiscal 2001. These charges relate primarily to the integration of the Aerospace
& Defense Group and Mobile Security Division, as well as other acquisitions
completed in 2001 and 2002. 2002 integration and other charges also included
certain expenses related to the integration of our body armor operations, as
well as direct costs and expenses associated with potential acquisitions that
did not close.

Operating income. Operating income from continuing operations increased $11.7
million to $38.4 million for fiscal 2002 compared to $ 26.7 million in fiscal
2001 due to the factors discussed above. Cyconics International Training
Services, Inc. contributed operating income that was previously reported as a
part of the Services Division of $1.7 million and $1.2 million for the years
ended December 31, 2002 and 2001, respectively.

Interest expense, net. Interest expense, net decreased $2.9 million, or 76.1% to
$0.9 million for fiscal 2002 compared to $3.9 million for fiscal 2001. This
decrease was due primarily to the repayment of long-term debt under our
revolving credit facility with the net proceeds of the secondary common stock
offering completed in December 2001.

Other expense (income), net. Other expense (income), net, was $51,000 for fiscal
2002, compared to ($82,000) for fiscal 2001 due to a gain on sale of fixed
assets during 2001.

Income from continuing operations before provision for income taxes. Income from
continuing operations before provision for income taxes increased by $14.5
million to $37.4 million for fiscal 2002 compared to $22.9 million for fiscal
2001 due to the reasons discussed above.

Provision for income taxes. Provision for income taxes was $16.1 million for
fiscal 2002 compared to $8.2 million for fiscal 2001. The provision for income
taxes for fiscal 2002 included charges of approximately $1.5 million related to
the establishment of valuation allowances for certain foreign deferred tax
assets of our discontinued operations. The effect of these charges was to
increase our effective tax rate for fiscal 2002 to 42.9% compared to 35.9% for
fiscal 2001. Without these charges, our effective tax rate for fiscal 2002 would
have been 39%. The increase in what our effective tax rate would have been
without the tax charges related to our discontinued operations is due primarily
to the higher percentage of income earned in the United States and the impact of
state income taxes on this income. Our expected effective tax rate is not
necessarily indicative of what our actual effective rate will be due to the
changing concentration and mix of income in the various countries in which we
continue to operate.

Income from continuing operations. Income from continuing operations increased
$6.6 million to $21.3 million for fiscal 2002 compared to $14.7 million for
fiscal 2001 due to the factors discussed above.

DISCONTINUED OPERATIONS

Many of the items listed below involve accounting estimates. The loss and
amounts below will be re-evaluated in the future for any changes which might be
appropriate.

Note 2 of the consolidated financial statements contains comparative information
for our discontinued operations. Our ArmorGroup Services Division revenues
increased $3.3 million, or 3.5%, to $98.3 million for fiscal 2002

                                       48

<PAGE>

compared to $94.9 million for fiscal 2001. For fiscal 2002, revenue increased
6.7% due to the acquisition of International Training, Inc. ("ITI"), which was
acquired as part of the acquisition of our Mobile Security Division and is
included in the Services Division from the date of acquisition. The 3.4%
reduction in revenue exclusive of the ITI acquisition was a result of lower
revenues in the Integrated Systems business in the United States and the
Security consulting business both in Latin America and Russia due to the
completion of several large contracts.

Cost of sales. Cost of sales increased $10.8 million, or 16.5%, to $75.8 million
for fiscal 2002 compared to $65 million for fiscal 2001. This increase was due
primarily to the acquisition of ITI. As a percentage of total revenue, cost of
sales increased to 77.1% of total revenues for fiscal 2002 from 68.5% for fiscal
2001. This increase in cost of sales as a percentage of total revenue was
primarily due to the weakness in our Integrated Systems business resulting in
poor margins from increased inventory reserves, the loss of high margin oil
industry security consulting work in Latin America and the scaling down of
business in the Democratic Republic of Congo.

Operating expenses. Operating expenses increased $6.1 million, or 24.9%, to
$30.6 million (31.1% of total revenues) for fiscal 2002 compared to $24.5
million (25.8% of total revenues) for fiscal 2001. This increase was due
primarily to increased accounts receivable reserves, other asset write-downs,
and other charges in the Integrated Systems and Security consulting businesses,
as well as additional operating expenses associated with ITI's operations,
acquired in August 2001.

Amortization. Amortization expense decreased $1.5 million, or 100%, to $0 for
fiscal 2002 compared to $1.5 million for fiscal 2001. This decrease was a result
of the implementation of SFAS 142, which eliminated goodwill amortization for
acquisitions completed after July 1, 2001 and for fiscal years beginning on or
after January 1, 2002.

Charge for impairment of long-lived assets. Charges for impairment of long-lived
assets was $30.3 million for fiscal 2002 compared to $0 for fiscal 2001. The
impairment charge is the result of the $24.2 million reduction in carrying value
of the Services Division to the estimated realizable value as required by SFAS
144.

Restructuring and related charges. In January 2001, the our Board of Directors
approved a restructuring plan to close the Services Division's U.S.
investigative businesses, realign the Service Division's organization, eliminate
excess facilities and reduce overhead in its business worldwide. In connection
with this restructuring charge, the Services Division performed a review of its
long-lived assets to identify potential impairments. Pursuant to this
restructuring plan, we a) eliminated 26 employees, primarily from the Services
Division investigative business; b) eliminated an additional 24 employees from
its security consulting business; c) incurred lease and other exit costs as a
result of the closure of the investigative businesses; and d) wrote-down the
value of both tangible and intangible assets as a result of the impairment
review.

As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. At December 31, 2002 we had a restructuring accrual of $270,000
compared to $354,000 at December 31, 2001 relating to lease termination and
other exit costs. This liability has been classified in accrued expenses and
other current liabilities on our discontinued operations balance sheet and will
be funded through cash provided by operating activities and our credit facility.

Integration and other charges. Integration and other charges increased $1.8
million, or 238.0%, to $2.6 million for fiscal 2002 compared to $776,000 for
fiscal 2001. These charges reflect certain severance expenses, software
write-off costs and other expenses associated with preparing the division for
sale, as well as the expenses associated with integrating ITI into the Services
Division.

Operating loss. Operating losses were $41.0 million for fiscal 2002, compared to
an operating loss of $7.1 million for fiscal 2001 due to the factors discussed
above.

Interest expense, net. Interest expense, net increased $203,000 or 142%, to
$346,000 for fiscal 2002 compared to $143,000 for fiscal 2001. This increase was
due to increased utilization of the Services Division's line of credit.

Other (income) expense, net. Other expense, net, was $99,000 for fiscal 2002,
compared to other income, net of $218,000 for fiscal 2001. The increase expense
in fiscal 2002 was a result of losses on the disposal of fixed assets and other
asset write-offs.

                                       49
<PAGE>

Loss from discontinued operations before provision for income taxes (benefit).
Loss from discontinued operations before provision for income taxes (benefit)
was $41.5 million for fiscal 2002 and $7.1 million for fiscal 2001 due to the
reasons discussed above.

Provision for income taxes (benefit). Income tax benefit was $2.4 million for
fiscal 2002 compared to a benefit of $2.5 million for fiscal 2001. The effective
tax rate for fiscal 2002 was a benefit of 5.9% compared to a benefit of 35.5%
for fiscal 2001. The decrease in percentage benefit is primarily due to the
inclusion in taxable income of certain expenses not deductible for tax purposes,
including a $31.2 million charge for the impairment of long-lived assets.

Loss from discontinued operations. Loss from discontinued operations was $39.0
million for fiscal 2002 compared to a loss from discontinued operations of $4.6
million for fiscal 2001 due to the factors discussed above.

QUARTERLY RESULTS

Set forth below are certain unaudited quarterly financial data for each of our
last eight quarters and certain such data expressed as a percentage of our
revenue for the respective quarters. The information has been derived from
unaudited financial statements that, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present such quarterly information in accordance with generally accepted
accounting principles. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.

                                       50

<PAGE>


QUARTER ENDED

<TABLE>
<CAPTION>
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   Dec 31,    Sept 30,      Jun 30,      Mar 31,     Dec 31,     Sept 30,      Jun 30,     Mar 31,
                                    2003         2003        2003         2003         2002        2002         2002         2002
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
<S>                              <C>          <C>         <C>          <C>          <C>         <C>          <C>          <C>
Revenues:
  Aerospace & Defense               $ 38,834    $ 21,136      $15,793      $15,910    $ 16,652     $ 16,889     $ 10,147    $ 15,630
  Products                            50,802      49,804       49,347       44,007      48,897       49,047       43,057      38,945
  Mobile Security                     22,521      19,942       16,519       20,557      17,802       14,621       18,401      15,029
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Total Revenue                        112,157      90,882       81,659       80,474      83,351       80,557       71,605      69,604
Operating income                       8,381      12,512        6,010        8,826      10,815       10,337        8,168       9,045
Interest expense, net                  1,721       1,475          437          379         254          343          284          42
Other expense (income), net              327          96           16           69         128         (13)            -        (64)
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Income from continuing                 6,333      10,941        5,557        8,378      10,433       10,007        7,884       9,067
operations before taxes
Provision for income taxes             4,159       4,832        2,079        3,133       2,451        7,043        3,060       3,500
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Income from continuing                 2,174       6,109        3,478        5,245       7,982        2,964        4,824       5,567
operations
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
(Loss) income from
discontinued operations, net
of (benefit) provision for           (7,103)           6        1,135        (158)    (20,999)     (17,671)        (749)         393
income taxes
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Net (loss) income                   $(4,929)      $ 6,115      $4,613      $ 5,087   $(13,017)    $(14,707)       $4,075      $5,960
                                 ============ =========== ============ ============ =========== ============ ============ ==========


Net income/(loss) per common
share - Basic
Income from continuing               $  0.08       $0.22        $0.13        $0.18      $ 0.27       $ 0.10       $ 0.15      $ 0.18
operations
Loss from discontinued                (0.25)        0.00         0.04       (0.01)      (0.71)       (0.60)       (0.02)        0.01
operations
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Basic (loss) earnings per share     $ (0.17)       $0.22        $0.17        $0.17    $ (0.44)     $ (0.50)       $ 0.13      $ 0.19
                                 ============ =========== ============ ============ =========== ============ ============ ==========
Net income/(loss) per common
share - Diluted
Income from continuing               $  0.07       $0.22        $0.13        $0.18      $ 0.27       $ 0.10       $ 0.15      $ 0.18
operations
Loss from discontinued                (0.24)        0.00         0.04       (0.01)      (0.71)       (0.59)       (0.02)        0.01
operations
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Diluted (loss) earnings per         $ (0.17)       $0.22        $0.17        $0.17    $ (0.44)     $ (0.49)       $ 0.13       $0.19
share
                                 ============ =========== ============ ============ =========== ============ ============ ==========

Weighted average common shares
outstanding
Basic                                 28,195      27,811       27,555       28,964      29,456      29,708       31,193       31,030
Diluted                               29,364      28,249       27,836       29,111      29,623      30,037       32,110       31,986

Revenues:
  Aerospace & Defense                  34.6%       23.3%        19.4%        19.8%       20.0%        21.0%        14.2%       22.5%
  Products                             45.3%       54.8%        60.4%        54.7%       58.7%        60.9%        60.1%       56.0%
  Mobile Security                      20.1%       21.9%        20.2%        25.5%       21.3%        18.1%        25.7%       21.5%
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Total revenue                         100.0%      100.0%       100.0%       100.0%      100.0%       100.0%       100.0%      100.0%
Operating income                        7.5%       13.7%         7.3%        11.0%       13.0%        12.8%        11.4%       13.0%
Interest expense, net                   1.5%        1.6%         0.5%         0.5%        0.3%         0.4%         0.4%        0.1%
Other expense (income), net             0.3%        0.1%         0.0%         0.1%        0.2%         0.0%         0.0%      (0.1%)
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Income from continuing                  5.6%       12.0%         6.8%        10.4%       12.5%        12.4%        11.0%       13.0%
operations before taxes
Provision for income taxes              3.7%        5.3%         2.5%         3.9%        2.9%         8.7%         4.3%        5.0%
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Income from continuing                  1.9%        6.7%         4.3%         6.5%        9.6%         3.7%         6.7%        8.0%
operations
(Loss) income from
discontinued operations before       (16.0%)        1.8%         2.3%         0.1%     (28.6%)      (21.1%)       (1.1%)        0.4%
income taxes
(Benefit) provision for income        (9.7%)        1.8%         0.9%         0.3%      (3.4%)         0.8%       (0.1%)      (0.2%)
taxes
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
(Loss) income from                    (6.3%)        0.0%         1.4%       (0.2%)     (25.2%)      (21.9%)       (1.0%)        0.6%
discontinued operations
                                 ------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Net (loss) income                     (4.4%)        6.7%         5.7%         6.3%     (15.6%)      (18.3%)         5.7%        8.6%
                                 ============ =========== ============ ============ =========== ============ ============ ==========
</TABLE>

                                       51
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

On August 12, 2003, we terminated our prior credit facility and entered into a
new secured revolving credit facility (the "Credit Facility") with Bank of
America, N.A., Wachovia Bank, National Association and a syndicate of other
financial institutions arranged by Bank of America Securities, LLC. The new
Credit Facility consists of a five-year revolving credit facility and, among
other things, provides for (i) total maximum borrowings of $60 million, (ii) a
$25 million sub-limit for the issuances of standby and commercial letters of
credit, (iii) a $5 million sub-limit for swing-line loans, and (iv) a $5 million
sub-limit for multi-currency borrowings. All borrowings under the Credit
Facility will bear interest at either (i) a rate equal to LIBOR, plus an
applicable margin ranging from 1.125% to 1.625%, (ii) an alternate base rate
which will be the higher of (a) the Bank of America prime rate and (b) the
Federal Funds rate plus 0.50%, or (iii) with respect to foreign currency loans,
a fronted offshore currency rate, plus an applicable margin ranging from 1.125%
to 1.625%, depending on certain conditions. The Credit Facility is guaranteed by
certain of our direct and indirect domestic subsidiaries and is collateralized
by, among other things, (i) a pledge of all of the issued and outstanding shares
of stock or other equity interests of certain of our domestic subsidiaries, (ii)
a pledge of 65% of the issued and outstanding voting shares of stock or other
voting equity interests of certain of our direct and indirect foreign
subsidiaries, (iii) a pledge of 100% of the issued and outstanding nonvoting
shares of stock or other nonvoting equity interests of certain of our direct and
indirect foreign subsidiaries, and (iv) a first priority perfected security
interest on certain of our domestic assets and certain domestic assets of
certain of our direct and indirect subsidiaries that will become guarantors of
our obligations under the new credit facility, including, among other things,
accounts receivable, inventory, machinery, equipment, certain contract rights,
intellectual property rights and general intangibles.

As of December 31, 2003, we were in compliance with all of our negative and
affirmative covenants.

On August 12, 2003, we completed a private placement of $150 million aggregate
principal amount of 8.25% Senior Subordinated Notes due 2013 (the "Notes"). The
Notes are guaranteed by all of our domestic subsidiaries, excluding for Cyconics
International Training Services, Inc., on a senior subordinated basis. The Notes
have been sold to qualified institutional investors in reliance on Rule 144A of
the Securities Act of 1933, as amended, and to non-U.S. persons in reliance on
Regulation S under the Securities Act of 1933, as amended. The Notes were rated
B1/B+ by Moody's Investors' Service and Standard & Poor's Rating Services,
respectively. During 2003, we used a portion of the funds to acquire Simula,
Inc. and Hatch Imports, Inc., and we intend to use the remaining proceeds of the
offering to fund acquisitions, repay a portion of our outstanding debt and for
general corporate and working capital purposes, including the funding of capital
expenditures.

On September 2, 2003, we entered into interest rate swap agreements, designated
as a fair value hedge as defined under Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedge Activities,"
("SFAS 133") with a notional amount totaling $150 million. The agreements were
entered into to exchange the fixed interest rate on the Notes for a variable
interest rate equal to six-month LIBOR, set in arrears, plus a spread ranging
from 2.735% to 2.75% fixed semi-annually on the fifteenth day of February and
August. The agreements are subject to other terms and conditions common to
transactions of this type. In accordance with SFAS 133, changes in the fair
value of the interest rate swap agreements offset changes in the fair value of
the fixed rate debt due to changes in the market interest rate. Accordingly, the
other assets on the Consolidated Balance Sheets as of December 31, 2003
increased by $5.9 million, which reflected an increase in the fair value of the
interest rate swap agreements. The corresponding increase in the hedge liability
was recorded in long-term debt. The agreements are deemed to be a perfectly
effective fair value hedge, and, therefore, qualify for the short-cut method of
accounting under SFAS 133. As a result, no ineffectiveness is expected to be
recognized in our earnings associated with the interest rate swap agreements.

In March 2002, our Board of Directors approved a stock repurchase program
authorizing the repurchase of up to a maximum 3.2 million shares of our common
stock. In February 2003, the Board of Directors increased this stock repurchase
program to authorize the repurchase, from time to time depending upon market
conditions and other factors, of up to an additional 4.4 million shares. Through
March 12, 2004, we repurchased 3.8 million shares of our common stock under the
stock repurchase program at an average price of $12.49 per share, leaving us
with the ability to repurchase up to an additional 3.8 million shares of our
common stock. Repurchases may be made in the open market, in privately
negotiated transactions or otherwise. At December 31, 2003, we had 28.3 million
shares of common stock outstanding.

We expect to continue our policy of repurchasing our common stock from time to
time, subject to the restrictions contained in our Credit Facility and our
indenture. Our Credit Facility permits us to repurchase shares of our

                                       52


<PAGE>

common stock with no limitation if our ratio of Consolidated Total Indebtedness
to Consolidated EBITDA (as such terms are defined in the Credit Facility) for
any rolling twelve-month period is less than 1.00 to 1. At ratios greater than
1.00 to 1, our credit agreement limits our ability to repurchase shares at $15.0
million. This basket resets to $0 each time the ratio is less than 1.0 to 1.

Working capital, excluding amounts relating to discontinued operations, was
$168.6 million and $89.0 million as of December 31, 2003, and December 31, 2002,
respectively.

Our fiscal 2003 capital expenditures for continuing operations were $8.7
million. Our fiscal 2003 capital expenditures for discontinued operations were
$3.1 million. Such expenditures include leasehold improvements, information
technology and communications infrastructure equipment and software, and
manufacturing machinery and equipment.

We anticipate that the cash generated from operations, proceeds from the sale of
discontinued operations, cash on hand and available borrowings under the Credit
Facility will enable us to meet liquidity, working capital and capital
expenditure requirements during the next 12 months. We may, however, require
additional financing to pursue our 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 us or on a basis
that is not dilutive to our stockholders.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, ceased upon adoption of this
statement. In addition, this statement requires that goodwill be tested for
impairment at least annually at the reporting unit level. We implemented SFAS
No. 142 on January 1, 2002. In connection with the adoption of SFAS 142, we
completed in the second quarter the transitional goodwill impairment test that
compared the fair value of each reporting unit to its carrying value and
determined that no impairment existed. The goodwill resulting from acquisitions
made by us subsequent to June 30, 2001 was immediately subject to the
non-amortization provisions of SFAS 142. Had we been accounting for goodwill
under SFAS 142 in 2001, our net income and earnings per share would have been as
follows:

<TABLE>
<CAPTION>
                                                       DECEMBER 31, 2001
                                                     (in thousands, except
                                                        per share data)
<S>                                                  <C>
Reported net income                                                 $10,128
Add back goodwill amortization, net of tax                            3,044
                                                     -----------------------
 Actual/pro forma adjusted net income                               $13,172
                                                     ======================
Basic earnings per share
  Reported basic income per share                                    $ 0.42
  Goodwill amortization, net of tax                                    0.13
                                                     -----------------------
  Actual/pro forma basic income per share                            $ 0.55
                                                     ======================
Diluted earnings per share
  Reported diluted income per share                                 $  0.41
  Goodwill amortization, net of tax                                    0.12
                                                     -----------------------

  Actual/pro forma diluted income per share                         $  0.53
                                                     ======================
</TABLE>

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, and Interpretation of FASB Statements No.
5, 57 and 107 and Rescission of FASB Interpretation No. 34" ("FIN 45"). FIN 45
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. We adopted the provisions of this Statement on
January 1, 2003, which did not have a significant impact on our consolidated
financial statements.

                                       53
<PAGE>

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable-Interest Entities - an Interpretation of ARB No. 51 (FIN 46). FIN 46
addresses consolidation by business enterprises of variable interest entities,
which have one or both of the following characteristics: (1) the equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties,
which is provided through other interests that will absorb some or all of the
expected losses of the entity and (2) the equity investors lack one or more of
the following essential characteristics of a controlling financial interest:

            o The direct or indirect ability to make decisions about the
              entity's activities through voting rights or similar rights
            o The obligation to absorb the expected losses of the entity if they
              occur, which makes it possible for the entity to finance its
              activities
            o The right to receive the expected residual returns of the entity
              if they occur, which is the compensation for the risk of absorbing
              the expected losses.

This Interpretation applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The adoption of FIN 46 did not have a significant impact on our
consolidated financial statements.

In December 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" (revised December 2003) (FIN 46(R)). The provisions
of FIN 46(R) are as follows:

            o Provides that the condition that would preclude an enterprise from
              applying the scope exception of FIN 46 for certain entities that
              are businesses if that enterprise and/or its related parties
              participated significantly in the design or redesign of the entity
              should not apply if the entity is a franchisee.
            o An enterprise shall not consolidate a governmental organization
              and shall not consolidate a financing entity established by a
              governmental organization unless the financing entity (a) is not a
              governmental organization and (b) is used by the business
              enterprise in a manner similar to a variable interest entity in an
              effort to circumvent the provisions of Interpretation 46(R).
            o A troubled debt restructuring, as defined in paragraph 2 of FASB
              Statement No. 15, Accounting by Debtors and Creditors for Troubled
              Debt Restructurings, as amended, shall be accounted for in
              accordance with that Statement and is not an event that requires
              the reconsideration of whether the entity involved is a variable
              interest entity or whether an enterprise with a variable interest
              in a variable interest entity is the primary beneficiary of that
              entity.
            o Provides that an enterprise with an interest in an entity to which
              the provisions of FIN 46 have not been applied as of December 24,
              2003, shall apply FIN 46 or FIN 46(R) to that entity in accordance
              with the effective date provisions of FIN 46(R) as described
              below.
            o FIN 46(R) should be applied no later than the end of the first
              reporting period that ends after March 15, 2004 (as of March 31,
              2004 for the Company). However, prior to the required application
              of FIN 46(R), the Company must apply FIN 46 or FIN 46(R) to those
              entities that are considered to be special-purpose entities no
              later than as of the end of the first reporting period that ends
              after December 15, 2003 (as of December 31, 2003 for the Company).

We do not have, nor have had, any interests in variable interest entities that
are subject to the provisions of FIN 46 or FIN 46(R).

In October 2001, the FASB issued Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 establishes a "primary-asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. SFAS 144 requires that
a long-lived asset to be (1) abandoned, (2) exchanged for a similar productive
asset, or (3) distributed to owners in a spin-off be considered held and used
until it is abandoned, exchanged, or distributed. SFAS 144 requires (1) that
spin-offs and exchanges of similar productive assets be recorded at the lower of
carrying value or fair value, and that such assets be classified as held and
used until disposed of and (2) that any impairment loss resulting from a
spin-off or exchange of similar productive assets be recognized upon asset
disposition. SFAS 144 provides for total assets and total liabilities of
discontinued business segments to be presented in separate captions in assets
and liabilities and also provides that future losses, if any, of discontinued
business segments shall be reported as

                                       54
<PAGE>

incurred. We adopted SFAS 144 effective January 1, 2002. The reclassification of
the Services Division to discontinued operations and subsequent reduction in its
carrying value was in accordance with the provisions of SFAS 144.

In April 2002, the FASB issued Statement of Financial Accounting Standard No.
145, "Rescission on FASB 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses related to
the extinguishment of debt should no longer be segregated on the income
statement from continuing operations. The provisions of SFAS 145 are effective
for fiscal years beginning after May 15, 2002.

In June 2002, the FASB issued Statement of Financial Accounting Standard No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
146). SFAS 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 is effective for exit or disposal activities initiated
on or after December 31, 2002. The effects of adopting this standard did not
have a material effect on us.

In December 2002, the FASB issued Statement of Financial Accounting Standard No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosures required by SFAS 148 are included in this document.

In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149, " Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" (SFAS 149). SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 149 is effective for contracts entered
into or modified and hedging relationships designated after June 30, 2003,
except for the provisions of SFAS 149 that relate to SFAS 133 Implementation
Issues that have been effective for fiscal quarters that began prior to June 15,
2003, which should continue to be applied in accordance with their respective
effective dates. Adoption of this standard had no effect on us.

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150,
" Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. Adoption of this
standard had no effect on us.

In May 2003, the FASB issued FASB Staff Position No. 146-1, "Determining Whether
a One-Time Termination Benefit Offered in Connection with an Exit or Disposal
Activity is, in Substance, an Enhancement to an Ongoing Benefit Arrangement."
This Staff Position states that in order to be considered an enhancement to an
ongoing benefit arrangement, the additional termination benefits must represent
a revision to the ongoing arrangement that is not limited to a specified
termination event or a specified future period. Otherwise the additional
termination benefits should be considered one-time termination benefits
accounted for under SFAS 146. The guidance in this Staff Position is effective
for exit or disposal activities initiated in interim or annual reporting periods
beginning after September 15, 2003. The adoption of this Staff Position is not
expected to have a material impact on our consolidated financial statements.

INFLATION

We believe that the relatively moderate rates of inflation in recent years have
not had a significant impact on our revenue or profitability. Historically, we
have been able to offset any inflationary effects by either increasing prices or
improving cost efficiencies.

                                       55
<PAGE>

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table presents our contractual obligations as of December 31,
2003:

<TABLE>
<CAPTION>
        CONTRACTUAL OBLIGATIONS                                   PAYMENT DUE BY PERIOD
                                                                  ---------------------
                                                        Less than 1                                 More than 5
                                            Total           year       1 - 3 years   3 - 5 years       years
                                        -------------- --------------- ------------- ------------ ----------------
<S>                                     <C>            <C>             <C>           <C>          <C>
Long-term debt obligations                   $190,407         $32,107       $ 1,250      $ 1,307         $155,743
Operating lease obligations                    19,719           3,417         3,908        3,073            9,321
Other long-term liabilities                    10,208               -         1,614        7,558            1,036
                                        -------------- --------------- ------------- ------------ ----------------
Total                                        $220,334         $35,524       $ 6,772     $ 11,938         $166,100
                                        ============== =============== ============= ============ ================
</TABLE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of our global operating and financial activities, we are exposed to
changes in raw material prices, interest rates and foreign currency exchange
rates, which may adversely affect our results of operations and financial
position. In seeking to minimize the risks and/or costs associated with such
activities, we manage exposure to changes in raw material prices, interest
rates, and foreign currency exchange rates through our regular operating and
financing activities. We have entered into interest rate swap agreements to
reduce our overall interest expense. We do not utilize financial instruments for
trading purposes.

MARKET RATE RISK

The following discussion about our market rate risk involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements. We are exposed to market risk related to changes in
interest rates, foreign currency exchange rates, and equity security price risk.

Interest Rate Risk. Our exposure to market rate risk for changes in interest
rates relate primarily to borrowings under our $150 million senior subordinated
notes, our credit facilities and our short-term monetary investments. To the
extent that, from time to time, we hold short-term money market instruments,
there is a market rate risk for changes in interest rates on such instruments.
To that extent, there is inherent rollover risk in the short-term money market
instruments as they mature and are renewed at current market rates. The extent
of this risk is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements. However, there is no
risk of loss of principal in the short-term money market instruments, only a
risk related to a potential reduction in future interest income.

On September 2, 2003, we entered into interest rate swap agreements in which we
effectively exchanged the $150 million fixed rate 8.25% interest rate on the
senior subordinated notes for variable rates in the notional amount of $80
million, $50 million and $20 million at six-month LIBOR, set in arrears, plus
2.75%, 2.75%, and 2.735%, respectively. The agreement involves receipt of fixed
rate amounts in exchange for floating rate interest payments over the lives of
the agreements without an exchange of the underlying principal amount. The
variable interest rates are fixed semi-annually on the fifteenth day of February
and August. The six-month LIBOR rate was 1.17% on February 24, 2004. The
maturity dates of the interest rate swap agreements match those of the
underlying debt. Our objective for entering into these interest rate swaps was
to reduce our exposure to changes in the fair value of the senior subordinated
notes and to obtain variable rate financing at an attractive cost. Changes in
the six-month LIBOR would affect our earnings either positively or negatively.
An assumed 100 basis point increase in the six-month LIBOR would increase our
interest obligations under the interest rate swaps by approximately $750,000 for
a six-month period.

In accordance with SFAS 133, we designated the interest rate swap agreements as
perfectly effective fair value hedges and, accordingly, use the short-cut method
of evaluating effectiveness. As permitted by the short-cut method, the change in
the fair value of the interest rate swaps will be reflected in earnings and an
equivalent


                                       56


<PAGE>


amount will be reflected as a change in the carrying value of the swaps, with an
offset to earnings. There is no ineffectiveness to be recorded. On December 31,
2003, we recorded the fair value of the interest rate swap agreements of $5.9
million and recorded the corresponding fair value adjustment to the 8.25% senior
subordinated notes in the other assets and long-term debt sections of the
Consolidated Balance Sheets, respectively.

We are exposed to credit-related losses in the event of nonperformance by
counterparties to these financial instruments. However, counterparties to these
agreements are major financial institutions and the risk of loss due to
nonperformance is considered by management to be minimal. We do not hold or
issue interest rate swap agreements or other derivative instruments for trading
purposes.

Foreign Currency Exchange Rate Risk. The majority of our business is denominated
in U.S. dollars. There are costs associated with our operations in foreign
countries that require payments in the local currency. Where appropriate and to
partially manage our foreign currency risk related to those payments we receive
payment from customers in local currencies in amounts sufficient to meet our
local currency obligations. We do not use derivatives or other financial
instruments to hedge foreign currency risk.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

We do business in numerous countries, including emerging markets in Africa,
Asia, South America, Russia and the former CIS. We have invested substantial
resources outside of the United States and plan to continue to do so in the
future. Our 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 us and our operating companies.
We do not have political risk insurance in the countries in which we currently
conduct business, but periodically analyze the need for and cost associated with
this type of policy. Moreover, applicable agreements relating to our interests
in our operating companies are frequently governed by foreign law. As a result,
in the event of a dispute, it may be difficult for us to enforce our rights.
Accordingly, we may have little or no recourse upon the occurrence of any of
these developments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is incorporated by reference from our consolidated
financial statements and notes thereto which are included in this report
beginning on page F-1. Certain selected quarterly financial data is included
under Item 7 of this Report.

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

There have been no changes in or disagreements with accountants on accounting or
financial disclosure matters during the periods covered by this Annual Report on
Form 10-K/A.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures. Our disclosure controls and procedures are designed to provide
reasonable assurance that the information that we must disclose in our reports
filed under the Securities and Exchange Act is communicated and processed in a
timely manner. Warren B. Kanders, Chairman and Chief Executive Officer, and
Robert R. Schiller, President, Chief Operating Officer and Chief Financial
Officer, participated in this evaluation.

Based on such evaluation, Mr. Kanders and Mr. Schiller concluded that, as of the
date of such evaluation, our disclosure controls and procedures were effective.
During the most recent fiscal quarter, there have not been any significant
changes in our internal controls or in other factors that could significantly
affect those controls.

                                       57

<PAGE>


                                    PART III

The information called for pursuant to this Part III, Items 10, 11, 12, 13 and
14 is incorporated by reference from our definitive proxy statement, which we
intend to file with the Securities and Exchange Commission no later than April
29, 2004.


                                       58
<PAGE>



                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K


(a)      The following financial statements (which appear sequentially beginning
         at page number F-1) are included in this report on Form 10-K/A.
         Financial statement schedules have been omitted since they are either
         not required, not applicable, or the information is otherwise included.


         Reports of Independent Certified Public Accountants

         Consolidated Balance Sheets

         Consolidated Income Statements

         Consolidated Statements of Stockholders' Equity and Comprehensive
         Income (Loss)

         Consolidated Statements of Cash Flows

         Notes to Consolidated Financial Statements

(b)      Reports on Form 8-K

         During the quarter ended December 31, 2003, we filed the following
         Current Reports on Form 8-K:

            (i)   Current Report on Form 8-K, date of report - November 4, 2003,
                  with respect to Items 7 and 12, filed with the Commission on
                  November 5, 2003 relating to a press release announcing our
                  earnings for the three-month period ended September 30, 2003;

            (ii)  Current Report on Form 8-K, date of report - November 26,
                  2003, with respect to Items 2 and 7, filed with the Commission
                  on December 11, 2003 relating to our sale of our Services
                  Division; and

            (iii) Current Report on Form 8-K, date of report - December 9, 2003,
                  with respect to Items 2 and 7, filed with the Commission on
                  December 23, 2003 relating to our acquisition of Simula, Inc.

(c)        Exhibits

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

EXHIBIT NO. DESCRIPTION


+2.1              Stock Purchase Agreement, dated as of April 20, 2001, by and
                  among Armor Holdings, Inc., Bengal Acquisition Corp., The
                  Kroll-O'Gara Company, O'Gara-Hess & Eisenhardt Armoring
                  Company, The O'Gara Company, and O'Gara Security Associates,
                  Inc. (filed as Exhibit 2.1 to our Current Report on Form 8-K
                  dated April 20, 2001 and incorporated herein by reference).

+2.2              Amendment dated as of August 20, 2001 to the Stock Purchase
                  Agreement, dated as of April 20, 2001, by and among Armor
                  Holdings, Inc., Bengal Acquisition Corp., The Kroll-O'Gara
                  Company, O'Gara-Hess & Eisenhardt Armoring Company, The O'Gara
                  Company, and O'Gara Security Associates, Inc. (filed as
                  Exhibit 2.2 to our Current Report on Form 8-K dated August 22,
                  2001 and incorporated herein by reference).

+2.3              Amendment dated as of August 21, 2001 to the Stock Purchase
                  Agreement, dated as of April 20, 2001, by and among Armor
                  Holdings, Inc., Bengal Acquisition Corp., The Kroll-O'Gara
                  Company, O'Gara-Hess & Eisenhardt Armoring Company, The O'Gara
                  Company, and O'Gara Security

                                       59

<PAGE>


                  Associates, Inc. (filed as Exhibit 2.3 to our Current Report
                  on Form 8-K dated August 23, 2001 and incorporated herein by
                  reference).

+2.4              Agreement and Plan of Merger dated as of August 29, 2003 by
                  and among Armor Holdings, Inc., AHI Bulletproof Acquisition
                  Corp., and Simula, Inc. (filed as Appendix A to our
                  Registration Statement on Form S-4 filed with the Commission
                  on September 23, 2003 and incorporated herein by reference).

+2.5              Purchase and Sale Agreement dated November 26, 2003, among
                  Armor Holdings, Inc., Armor Group Limited Partnership, Armor
                  Holdings Mobile Security, L.L.C., ArmorGroup Services, L.L.C.
                  and ArmorGroup International Limited (filed as Exhibit 10.1 to
                  our Current Report on Form 8-K dated November 26, 2003 and
                  incorporated herein by reference).

*2.6              Stock Purchase Agreement dated as of December 16, 2003, by and
                  among Armor Holdings, Inc., Safari Land Ltd., Inc., Mary and
                  William E. Hatch Revocable Trust dated December 22, 1998, R &
                  J Hatch Survivor's A-Trust u/d/t dated May 6, 1998, Lisa
                  Hatch-Sciuto, David Sciuto, and Robert J. Hatch and William
                  Hatch.

+3.1              Certificate of Incorporation of Armor Holdings, Inc. (filed as
                  Exhibit 3.1 to our Current Report on Form 8-K, dated September
                  3,1996 and incorporated herein by reference).

+3.2              Certificate of Merger of American Body Armor & Equipment,
                  Inc., a Florida corporation, and Armor Holdings, Inc. (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 Armor Holdings, Inc. (filed as Exhibit 3.3 to our
                  Current Report on Form 8-K, dated September 3, 1996 and
                  incorporated herein by reference).

+3.4              Amendment to Bylaws of Armor Holdings, Inc. (incorporated by
                  reference to Exhibit 3.3.2 to our Form 10-K Annual Report for
                  the fiscal year ended December 31, 1998).

+4.1              Indenture, dated as of August 12, 2003, among Armor Holdings,
                  the subsidiary guarantors listed as signatories thereto and
                  Wachovia Bank, National Association, as trustee, and form of
                  Old Note attached as Exhibit A thereto (incorporated by
                  reference to Exhibit 10.2 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended June 30, 2003).

+4.2              First Supplemental Indenture, dated as of September 30, 2003,
                  among Armor Holdings, Inc., the subsidiary guarantors listed
                  as signatories to the Indenture, the subsidiaries listed in
                  Schedule I to the First Supplemental Indenture and Wachovia
                  Bank, National Association, as trustee (filed as Exhibit 4.2
                  to our Registration Statement on Form S-4 filed with the
                  Commission on January 7, 2004 and incorporated herein by
                  reference).

+4.3              Second Supplemental Indenture, dated as of December 9, 2003,
                  among Armor Holdings, Inc., the subsidiary guarantors listed
                  as signatories thereto and Wachovia Bank, National
                  Association, as trustee (filed as Exhibit 4.3 to our
                  Registration Statement on Form S-4 filed with the Commission
                  on January 7, 2004 and incorporated herein by reference).

+4.4              Third Supplemental Indenture, dated as of December 24, 2003,
                  among Armor Holdings, Inc., the subsidiary guarantors listed
                  as signatories thereto and Wachovia Bank, National
                  Association, as trustee (filed as Exhibit 4.4 to our
                  Registration Statement on Form S-4 filed with the Commission
                  on January 7, 2004 and incorporated herein by reference).

+4.5              Registration Rights Agreement, dated August 12, 2003, among
                  Armor Holdings, Inc., the subsidiary guarantors listed as
                  signatories thereto and Wachovia Capital Markets, LLC
                  (incorporated by reference to Exhibit 10.3 to our Form 10-Q
                  Quarterly Report for the fiscal quarter ended June 30, 2003).

                                       60
<PAGE>

+4.6              Form of the new 8 1/4% Senior Subordinated Notes Due 2013
                  (filed as Exhibit 4.6 to our Registration Statement on Form
                  S-4 filed with the Commission on January 7, 2004 and
                  incorporated herein by reference).

+10.1             Purchase Agreement, dated August 6, 2003, among Armor
                  Holdings, Inc., the subsidiary guarantors listed as
                  signatories thereto and Wachovia Capital Markets, LLC
                  (incorporated by reference to Exhibit 10.1 to our Form 10-Q
                  Quarterly Report for the fiscal quarter ended June 30, 2003).

+10.2             Credit Agreement, dated as of August 12, 2003, among Armor
                  Holdings, Inc., each lender from time to time party thereto,
                  Bank of America, N.A., as Administrative Agent, Swing Line
                  Lender and L/C Issuer, Wachovia Bank, National Association, as
                  Syndication Agent, and Key Bank National Association, as
                  Documentation Agent (incorporated by reference to Exhibit 10.4
                  to our Form 10-Q Quarterly Report for the fiscal quarter ended
                  June 30, 2003)

+10.3             Subsidiary Guaranty Agreement, dated as of August 12, 2003, by
                  certain Subsidiaries of Armor Holdings, Inc. as identified on
                  the signature pages thereto and any Additional Guarantor who
                  may become party to this Guaranty, in favor of Bank of
                  America, N.A., as Administrative Agent (incorporated by
                  reference to Exhibit 10.5 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended June 30, 2003).

+10.4             Collateral Agreement, dated as of August 12, 2003, by and
                  among Armor Holdings and certain of its Subsidiaries as
                  identified on the signature pages thereto and any Additional
                  Grantor who may become party to this Agreement, in favor of
                  Bank of America, N.A., as Administrative Agent (incorporated
                  by reference to Exhibit 10.6 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended June 30, 2003).

+10.5             Trademark Security Agreement, dated as of August 12, 2003, by
                  the entities listed on the signature pages thereto, in favor
                  of Bank of America, N.A., as Administrative Agent
                  (incorporated by reference to Exhibit 10.7 to our Form 10-Q
                  Quarterly Report for the fiscal quarter ended June 30, 2003).

+10.6             Patent Security Agreement, dated as of August 12, 2003, by the
                  entities listed on the signature pages attached thereto, in
                  favor of Bank of America, N.A., as Administrative Agent
                  (incorporated by reference to Exhibit 10.8 to our Form 10-Q
                  Quarterly Report for the fiscal quarter ended June 30, 2003).

+10.7             Promissory Note dated August 12, 2003 in the principal amount
                  of up to $15,000,000 made by Armor Holdings, Inc. in favor of
                  Keybank National Association (incorporated by reference to
                  Exhibit 10.9 to our Form 10-Q Quarterly Report for the fiscal
                  quarter ended June 30, 2003).

+10.8             Promissory Note dated August 12, 2003 in the principal amount
                  of up to $22,500,000 made by Armor Holdings, Inc. in favor of
                  Wachovia Bank, National Association (incorporated by reference
                  to Exhibit 10.10 to our Form 10-Q Quarterly Report for the
                  fiscal quarter ended June 30, 2003).

@*10.9            Separation Agreement and General Release dated as of May 22,
                  2003 by and between Armor Holdings, Inc. and Jonathan M.
                  Spiller.

@+10.10           Employment Agreement between Robert R. Schiller and Armor
                  Holdings, Inc., dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.2 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

@+10.11           Amendment dated November 4, 2003 to the Employment Agreement
                  between Armor Holdings, Inc., Inc. and Robert Schiller
                  (incorporated by reference to Exhibit 10.2 to our Form 10-Q
                  Quarterly Report for the fiscal quarter ended September 30,
                  2003).

@+10.12           Employment Agreement between Stephen E. Croskrey and Armor
                  Holdings, Inc., dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.3 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

                                       61
<PAGE>

@+10.13           Employment Agreement between Warren B. Kanders and Armor
                  Holdings, Inc., dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.4 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

@+10.14           Letter agreement dated as of July 26, 2003 between Armor
                  Holdings, Inc. and Warren B. Kanders (filed as Exhibit 99.1 to
                  our Current Report on Form 8-K dated July 26, 2003 and
                  incorporated herein by reference).

@+10.15           Amendment No. 2 dated November 4, 2003 to the Employment
                  Agreement between Armor Holdings, Inc. and Warren B. Kanders
                  (incorporated by reference to Exhibit 10.1 to our Form 10-Q
                  Quarterly Report for the fiscal quarter ended September 30,
                  2003).

+10.16            Form of Indemnification Agreement for Directors of Armor
                  Holdings, Inc., 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).

+10.17            Form of Indemnification Agreement for Officers of Armor
                  Holdings, Inc., 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).

**+10.18          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).

**+10.19          American Body Armor & Equipment, Inc. 1994 Directors Stock
                  Plan (incorporated by reference from Form S-8 filed on October
                  31, 1994, Reg. No. 33-018863).

**+10.20          Armor Holdings, Inc. Amended and Restated 1996 Stock Option
                  Plan (incorporated by reference from our 1997 Definitive Proxy
                  Statement with respect to our 1997 Annual Meeting of
                  Stockholders, held June 12, 1997, as filed with the Commission
                  on May 27, 1997).

**+10.21          Armor Holdings Inc. Amended and Restated 1996 Non-Employee
                  Directors Stock Option Plan incorporated by reference from our
                  1997 Definitive Proxy Statement with respect to our 1997
                  Annual Meeting of Stockholders, held June 12, 1997, as filed
                  with the Commission on May 27, 1997).

**+10.22          Armor Holdings, Inc. 1998 Stock Option Plan (incorporated by
                  reference to Exhibit 10.19 to our Form 10-K Annual Report for
                  the fiscal year ended December 31, 1998).

**+10.23          Armor Holdings, Inc. 1999 Stock Incentive Plan (incorporated
                  by reference from Appendix A to our 1999 Definitive Proxy
                  Statement with respect to our 1999 Annual Meeting of
                  Stockholders, as filed with the Commission on May 21, 1999).

**+10.24          Armor Holdings, Inc. 2002 Stock Incentive Plan (incorporated
                  by reference from Appendix A to our 2002 Definitive Proxy
                  Statement with respect to our 2002 Annual Meeting of
                  Stockholders, as filed with the Commission on April 30, 2002).

**+10.25          Amendment No. 1 to the Armor Holdings, Inc. 2002 Stock
                  Incentive Plan (filed as Exhibit 4.3 to our Registration
                  Statement Form on S-8 filed with the Commission on January 22,
                  2004 and incorporated herein by reference).

**+10.26          Armor Holdings, Inc. 2002 Executive Stock Plan (incorporated
                  by reference to Exhibit 10.6 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

+10.27            Consulting Agreement between Kanders & Company, Inc. and Armor
                  Holdings, Inc. dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.5 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

                                       62
<PAGE>

+10.28            Tax Deed dated November 26, 2003, by and among Armor Holdings,
                  Inc., ArmorGroup, International, Inc., and Armor Group (UK)
                  Limited (filed as Exhibit 10.2 to our Current Report on Form
                  8-K dated November 26, 2003 and incorporated herein by
                  reference).

+10.29            Promissory Note made by Armor Holdings Limited in favor of
                  Armor Holdings, Inc. dated November 26, 2003 (filed as Exhibit
                  10.3 to our Current Report on Form 8-K dated November 26, 2003
                  and incorporated herein by reference).

+21.1             Subsidiaries of the Registrant (filed as Exhibit 21.1 to our
                  Registration Statement on Form S-4 filed with the Commission
                  on January 7, 2004 and incorporated herein by reference).

*23.1             Consent of PricewaterhouseCoopers LLP.

*31.1             Certification of Principal Executive Officer, as required by
                  Rule 13a-14(a) of the Securities Exchange Act of 1934.

*31.2             Certification of Principal Financial Officer, as required by
                  Rule 13a-14(a) of the Securities Exchange Act of 1934.

*32.1             Certification of Principal Executive Officer, as required by
                  Rule 13a-14(b) of the Securities Exchange Act of 1934.

*32.2             Certification of Principal Financial Officer, as required by
                  Rule 13a-14(b) of the Securities Exchange Act of 1934.

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

                                       63
<PAGE>


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
<S>                                                                                                     <C>
ARMOR HOLDINGS, INC.

     Report of Independent Certified Public Accountants                                                  F-2

     Consolidated Balance Sheets                                                                         F-3

     Consolidated Statements Of Operations                                                               F-4

       Consolidated Statements of Stockholders' Equity and                                               F-5
                Comprehensive Income (Loss)

     Consolidated Statements of Cash Flow                                                                F-6

     Notes to the Consolidated Financial Statements                                                   F-7 - F-46
</TABLE>


                                      F-1
<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and comprehensive
income (loss), and cash flows present fairly, in all material respects, the
financial position of Armor Holdings, Inc. and its subsidiaries (the "Company")
at December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America. 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. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill
following adoption of Statement of Financial Accounting standard No. 142
"Goodwill and Other Intangible Assets."

As discussed in Note 12 to the consolidated financial statements, the Company
has restated its consolidated financial statements for each of the three years
in the period ended December 31, 2003 to reflect their new segment reporting
format.


PricewaterhouseCoopers LLP
February 20, 2004, except as
to Notes 11 and 20, for which
the date is April 19, 2004


                                      F-2
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                     DECEMBER 31, 2003 AND DECEMBER 31, 2002
                      (IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31, 2003          DECEMBER 31, 2002
                                                                                  -----------------------   ------------------------
<S>                                                                               <C>                       <C>
ASSETS
Current assets:
    Cash and cash equivalents                                                                  $ 111,850                   $ 12,913
    Restricted cash                                                                                2,600                          -
    Accounts receivable (net of allowance for doubtful accounts of $1,673
         and $1,428)                                                                              72,635                     58,513
    Costs and earned gross profit in excess of billings                                                -                        234
    Inventories                                                                                   80,527                     62,330
    Prepaid expenses and other current assets                                                     22,032                     12,212
    Current assets of discontinued operations (Note 2)                                               753                     28,825
                                                                                  -----------------------   ------------------------
Total current assets                                                                             290,397                    175,027

Property and equipment (net of accumulated depreciation of $19,046 and
$12,919)                                                                                          57,576                     47,136
Goodwill (net of accumulated amortization of $4,024 and $4,024)                                  175,707                     98,736
Patents, licenses and trademarks (net of accumulated amortization of $2,627                       44,174                      7,521
and $2,169)
Long-term assets of discontinued operations (Note 2)                                               1,603                     30,285
Other assets                                                                                      16,169                      9,048
                                                                                  -----------------------   ------------------------

Total assets                                                                                   $ 585,626                   $367,753
                                                                                  =======================   ========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of long-term debt                                                          $  32,107                   $  1,813
    Short-term debt                                                                                  498                        599
    Accounts payable                                                                              30,304                     23,770
    Accrued expenses and other current liabilities                                                58,218                     25,116
    Income taxes payable                                                                               -                      5,913
    Current liabilities of discontinued operations (Note 2)                                          626                     17,225
                                                                                  -----------------------   ------------------------
Total current liabilities                                                                        121,753                     74,436

Long-term debt, less current portion                                                             158,300                      5,072
Other long-term liabilities                                                                       10,208                          -
Long-term liabilities of discontinued operations (Note 2)                                              -                        168
                                                                                  -----------------------   ------------------------
Total liabilities                                                                                290,261                     79,676

Commitments and contingencies (Note 11)

Stockholders' equity:
   Preferred stock, $.01 par value, 5,000,000 shares authorized; no
       shares issued and outstanding                                                                   -                          -
   Common stock, $.01 par value; 50,000,000 shares authorized;
       34,337,034 and 33,593,977 issued; 28,276,812 and 29,456,692
       outstanding at December 31, 2003 and December 31, 2002, respectively                          344                        336
   Additional paid-in capital                                                                    318,460                    307,487
   Retained earnings                                                                              44,942                     34,056
   Accumulated other comprehensive income (loss)                                                   3,936                    (4,169)
   Treasury stock                                                                               (72,317)                   (49,633)
                                                                                  -----------------------   ------------------------
       Total stockholders' equity                                                                295,365                    288,077
                                                                                  -----------------------   ------------------------

Total liabilities and stockholders' equity                                                     $ 585,626                   $367,753
                                                                                  =======================   ========================
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-3
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2003     DECEMBER 31, 2002     DECEMBER 31, 2001
                                                              -------------------   -------------------   -------------------
<S>                                                           <C>                   <C>                   <C>
REVENUES:

  Aerospace & Defense                                                    $ 91,673             $  59,318            $ 18,145
  Products                                                                193,960               179,946             149,868
  Mobile Security                                                          79,539                65,853              29,087
                                                              --------------------  --------------------  --------------------
  Total Revenues                                                          365,172               305,117             197,100
                                                              --------------------  --------------------  --------------------

COSTS AND EXPENSES:
  Cost of sales                                                           253,586               210,745             126,330
  Operating expenses                                                       62,795                49,836              38,659
  Amortization                                                                489                   245               2,142
  Integration and other charges                                            12,573                 5,926               3,296
                                                              --------------------  --------------------  --------------------

OPERATING INCOME                                                           35,729                38,365              26,673

  Interest expense, net                                                     4,012                   923               3,864
  Other expense (income), net                                                 508                    51                (82)
                                                              --------------------  --------------------  --------------------

INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES                                                               31,209                37,391              22,891
                                                                           14,203                16,054               8,207
PROVISION FOR INCOME TAXES
                                                              --------------------  --------------------  --------------------
INCOME FROM CONTINUING OPERATIONS                                          17,006                21,337              14,684
DISCONTINUED OPERATIONS (NOTE 2):
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT              (6,120)              (39,026)             (4,556)
                                                              --------------------  --------------------  --------------------
NET INCOME (LOSS)                                                        $ 10,886             $(17,689)            $ 10,128
                                                              ====================  ====================  ====================


NET INCOME (LOSS) PER COMMON SHARE - BASIC

INCOME FROM CONTINUING OPERATIONS                                        $   0.61             $   0.70             $   0.61

LOSS FROM DISCONTINUED OPERATIONS                                          (0.22)                (1.28)               (0.19)
                                                              --------------------  --------------------  --------------------
                                                                         $   0.39             $  (0.58)            $   0.42
BASIC INCOME (LOSS) PER SHARE
                                                              ====================  ====================  ====================

NET INCOME (LOSS) PER COMMON SHARE - DILUTED

INCOME FROM CONTINUING OPERATIONS                                        $   0.59             $   0.69             $   0.59

LOSS FROM DISCONTINUED OPERATIONS                                          (0.21)                (1.26)               (0.18)
                                                              --------------------  --------------------  --------------------
                                                                         $   0.38             $  (0.57)            $   0.41
DILUTED INCOME (LOSS) PER SHARE
                                                              ====================  ====================  ====================

                                                                           28,175                30,341              23,932
WEIGHTED AVERAGE SHARES - BASIC
                                                              ====================  ====================  ====================

WEIGHTED AVERAGE SHARES - DILUTED                                          28,954                30,957              24,768

                                                              ====================  ====================  ====================
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-4
<PAGE>



                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                    COMMON STOCK                                        ACCUMULATED
                                 --------------------  ADDITIONAL                          OTHER
                                              PAR        PAID-IN        RETAINED       COMPREHENSIVE       TREASURY
                                  SHARES     VALUE       CAPITAL        EARNINGS       (LOSS) INCOME        STOCK         TOTAL
                                 --------- ----------- --------------  ------------  ------------------  ------------- ---------
<S>                              <C>       <C>       <C>               <C>           <C>                 <C>           <C>

Balance, December 31, 2000         25,064       $250        $150,254       $43,663            $(1,684)      $(25,712)      $166,771
Exercise of stock options and       1,063         11          10,101                                                         10,112
distribution of stock awards
Tax benefit from exercises of
options                                                        3,116                                                          3,116
Issuance of treasury shares
for exercises of options            (119)        (1)           (123)       (2,046)                              2,856           686
Issuance of common stock            5,765         58         117,969                                                        118,027
Issuance of stock for
acquisitions and additional
consideration for earnouts          1,293         13          20,678                                                         20,691
Repurchase of stock                                                                                             (723)         (723)
                                                                                                                       -------------
Comprehensive income:
Net income                                                                  10,128                                           10,128
Foreign currency translation
adjustments, net of taxes of                                                                   (2,789)                      (2,789)
$713
                                                                                                                       -------------

Total comprehensive income                                                                                                    7,339
                                 --------- ------------- ------------  ------------  ------------------  ------------- -------------
Balance, December 31, 2001         33,066        331         301,995        51,745             (4,473)       (23,579)       326,019
Exercise of stock options and         528          5           4,135                                                          4,140
distribution of stock awards
Tax benefit from exercises of
options                                                          832                                                            832
Sale of put options                                              525                                                            525
Repurchase of stock                                                                                          (26,054)      (26,054)
                                                                                                                       -------------
Comprehensive loss:
Net loss                                                                  (17,689)                                         (17,689)
Foreign currency translation
adjustments, net of taxes of                                                                       304                          304
$364
                                                                                                                       -------------

Total comprehensive loss                                                                                                   (17,385)
                                 --------- ------------ -------------  ------------  ------------------  ------------- -------------

Balance, December 31, 2002         33,594        336         307,487        34,056             (4,169)       (49,633)       288,077
Exercise of stock options and         743          8           9,028                                                          9,036
distribution of stock awards
Tax benefit from exercises of
stock options                                                  1,136                                                          1,136
Extension of stock options
related to termination of
former Chief Executive Officer                                   809                                                            809
Repurchase of stock                                                                                          (22,684)      (22,684)
Comprehensive income:
                                                                                                                       -------------
Net income                                                                  10,886                                           10,886
Sale of ArmorGroup                                                                               3,231                        3,231
Foreign currency translation
adjustments                                                                                      4,874                        4,874
                                                                                                                       -------------

Total comprehensive income                                                                                                   18,991
                                 --------- ----------  --------------  ------------  ------------------  ------------- -------------

Balance, December 31, 2003         34,337       $344        $318,460       $44,942              $3,936     $ (72,317)      $295,365
                                 ========= ==========  ==============  ============  ==================  ============= =============
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-5

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED
                                                                         --------------------------------------------------------
                                                                         DECEMBER 31, 2003  DECEMBER 31, 2002  DECEMBER 31, 2001
                                                                         ----------------- ------------------ -------------------
<S>                                                                      <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Income from continuing operations                                            $   17,006            $ 21,337        $   14,684
  Adjustments to reconcile income from continuing operations to cash
     provided by operating activities:
      Depreciation and amortization                                                 7,608               5,580             5,614
      Loss on disposal of fixed assets                                                327                 200               191
      Deferred income taxes                                                         5,025                 359              (373)
      Non-cash termination charge                                                   2,093                   -                 -
      Non-cash restricted stock unit award                                          7,266                   -                 -
  Changes in operating assets and liabilities, net of
         acquisitions:
      Increase in accounts receivable                                                (995)            (2,554)           (14,880)
      Increase in inventories                                                      (2,501)            (9,381)            (3,948)
      (Increase) decrease in prepaid expenses and
      other assets                                                                 (2,381)            (2,246)             1,049
      Increase (decrease) in accounts payable, accrued
         expenses and other current liabilities                                    17,043             (3,754)             7,181
      Increase in income taxes payable                                                361               6,745             6,667
                                                                         ------------------ ------------------ ------------------
      Net cash provided by operating activities                                    50,852              16,286            16,185
                                                                         ------------------ ------------------ ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of patents and trademarks                                                (185)               (69)                 -
   Purchase of property and equipment                                              (8,684)            (5,902)            (5,644)
   Increase in restricted cash                                                     (2,600)                  -                 -
   Additional consideration for purchased businesses                               (1,026)            (9,375)            (3,270)
   Proceeds from sale of equity securities                                              -                   -               843
   Proceeds from sale of business                                                  31,361                   -                 -
   Purchase of businesses, net of cash acquired                                   (90,512)            (8,818)           (39,365)
                                                                         ------------------ ------------------ ------------------
   Net cash used in investing activities                                          (71,646)           (24,164)           (47,436)
                                                                         ------------------ ------------------ ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from the issuance of common stock                                           -                   -           117,979
   Proceeds from the exercise of stock options                                      8,471               4,227            10,160
   Repurchases of treasury stock                                                  (22,684)           (26,054)              (723)
   Proceeds from the sale of put options                                                -                 525                 -
   Proceeds from issuance of treasury shares for the exercise
        of stock options                                                                -                   -               686
   Cash paid for deferred loan costs                                                    -                   -              (545)
   Cash paid for financing costs                                                   (4,599)              (326)                 -
   Borrowings of long-term debt                                                   148,278                   -                 -
   Repayments of long-term debt                                                    (1,688)              (730)              (676)
   Repayments of debt assumed in acquisitions                                           -                   -            (1,315)
   Borrowings under line of credit                                                 31,830              32,372            98,286
   Repayments under line of credit                                                (32,098)           (32,447)          (130,981)
                                                                         ------------------ ------------------ ------------------

   Net cash provided by (used in) financing activities                            127,510            (22,433)            92,871

   Effect of exchange rate changes on cash and
        cash equivalents                                                              833               (126)            (1,459)
   Net cash used in discontinued operations                                        (8,612)            (4,139)           (14,336)
                                                                         ------------------ ------------------ ------------------

   NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            98,937            (34,576)            45,825
   CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  12,913              47,489             1,664
                                                                         ------------------ ------------------ ------------------
   CASH AND CASH EQUIVALENTS, END OF PERIOD                                  $    111,850             $12,913         $  47,489
                                                                         ================== ================== ==================

   CASH AND CASH EQUIVALENTS, END OF PERIOD
       CONTINUING OPERATIONS                                                 $    111,850             $12,913         $  47,489
       DISCONTINUED OPERATIONS                                                         76               3,638             6,230
                                                                         ------------------ ------------------ ------------------
                                                                             $    111,926             $16,551         $  53,719
                                                                         ================== ================== ==================
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-6
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

1.   BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company and nature of business. Armor Holdings, Inc. (the "Company" or
"Armor") is a leading manufacturer and provider of specialized security
products; training and support services related to these products; vehicle armor
systems; military helicopter seating systems, aircraft and land vehicle armor
systems; protective equipment for military personnel; and other technologies
used to protect humans in a variety of life-threatening or catastrophic
situations. Our products, vehicle armor systems and human safety and survival
systems are used domestically and internationally by military, law enforcement,
security and corrections personnel, as well as governmental agencies,
multinational corporations and individuals. Effective in the first quarter 2004,
we instituted a new segment reporting format to include three reportable
business divisions: Aerospace & Defense Group, the Products Division and the
Mobile Security Division. The Aerospace & Defense Group was formed upon the
completion of our acquisition of Simula, Inc. on December 9, 2003, and results
have been included herein since the acquisition date. The Aerospace & Defense
Group also includes the military business, including armor and blast protection
systems for M1114 Up-Armored HMMWVs, and other military vehicle armor programs,
which previously were included in the Mobile Security Division. The Aerospace &
Defense Group also includes the SAPI plate produced by our Protech subsidiary in
Pittsfield, Massachusetts, which was previously reported as part of the Products
Division. The historical results of these businesses have been reclassified as
part of the Aerospace & Defense Group. This reporting change was made to better
reflect management's approach to operating and directing the businesses, and, in
certain instances, to align financial reporting with our market and customer
segments. Prior period segment data has been restated to conform to the 2003
presentation. ArmorGroup Services has been classified as discontinued
operations. The amounts disclosed in the footnotes are related to continuing
operations unless otherwise indicated.

CONTINUING OPERATIONS

Aerospace & Defense. Our Aerospace & Defense Group supplies human safety and
survival systems to the U.S. military, and major Aerospace & Defense prime
contractors. Our core markets are military aviation safety, military personnel
safety, and land and marine safety. Under the brand name O'Gara-Hess &
Eisenhardt, we are the sole-source provider to the U.S. military of the armor
and blast protection systems for M1114 Up-Armored HMMWVs. We are also under
contract with the U.S. Army to provide spare parts, logistics and ongoing field
support services for the currently installed base of approximately 4,415
Up-Armored HMMWVs. Additionally, we provide blast and ballistic protection kits
for the standard HMMWVs, which are installed on existing equipment in the field.
Our Aerospace & Defense Group is also subcontracted to develop a ballistic and
blast protected armored and sealed truck cab for the High Mobility Artillery
Rocket System (HIMARS), a program recently transitioned by the U.S. Army and
U.S. Marine Corps from developmental to a low rate of initial production,
deliveries of which commenced in 2003. We also supply armor sub-systems for
other tactical wheeled vehicles. Through Simula, we provide military helicopter
seating systems, helicopter cockpit airbag systems, aircraft and land vehicle
armor kits, body armor and other protective equipment for military personnel,
emergency bailout parachutes and survival ensembles worn by military aircrew.
The primary customers for our products are the U.S. Army, U.S. Marine Corps,
Boeing, and Sikorsky Aircraft. Most of Simula's aviation safety products are
provided on a sole source basis. The U.S. armed forces have adopted ceramic body
armor as a key element of the protective ensemble worn by our troops in Iraq and
Afghanistan. Simula was the developer of this specialized product called SAPI,
and is the largest supplier to U.S. forces.

Products. Our Products Division manufactures and sells a broad range of high
quality security products, equipment and related consumable items, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories, weapon maintenance products, foldable
ladders and specialty gloves. Our products are marketed under brand names that
are well established in the military and law enforcement communities such as
AMERICAN BODY ARMOR(TM), B-SQUARE(R), BREAK FREE(R), CLP(R), DEFENSE
TECHNOLOGY/FEDERAL LABORATORIES(R), DEF-TEC PRODUCTS(R), DISTRACTION DEVICE(R),
FEDERAL LABORATORIES(R), FERRET(R), FIRST DEFENSE(R), IDENTICATOR(R),
IDENTIDRUG(R), IMPAK(TM), LIGHTNING POWDER(R), MONADNOCK(R), NIK(R), O'GARA-HESS
& EISENHARDT ARMORING COMPANY(R), PROTECH(TM), QUIKSTEP LADDERS(TM), SAFARILAND
DESIGN(R), SPEEDFEED(R), and 911EP and DESIGN(TM). We sell our products through
a network of over 350 distributors and sales agents, including approximately 200
in the United States. Our extensive

                                      F-7

<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

distribution capabilities and commitment to customer service and training have
enabled us to become a leading provider of security equipment to law enforcement
agencies.

Mobile Security. Our Mobile Security Division manufactures and installs
ballistic and blast protected armoring systems for privately owned vehicles. We
armor a variety of privately owned commercial vehicles, including limousines,
sedans, sport utility vehicles, commercial trucks and cash-in-transit vehicles,
to protect against varying degrees of ballistic and blast threats. Our customers
in this business include international corporations and high net worth
individuals. In addition, we supply ballistic and blast protected armoring
systems to U.S. federal law enforcement and intelligence agencies and foreign
heads of state.

DISCONTINUED OPERATIONS

On April 17, 2003, we announced that we had completed the sale of our ArmorGroup
Integrated Systems business through the sale of 100% of the stock of ArmorGroup
Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc. to Aerwav
Integration Systems, Inc. ("AIS"). AIS is a wholly owned subsidiary of Aerwav
Holdings, LLC. As consideration for the integrated systems business, we received
a $4.1 million collateralized note due in two years and a warrant for
approximately 2.5% of AIS. We have recorded a loss of $366,000 on the sale.

On November 26, 2003, we announced that we completed the sale of ArmorGroup, our
security service division, for $33,660,000 in consideration to a group of
private investors led by Granville Baird Capital Partners of London, England and
Management. We received $31,360,000 in cash at closing and are scheduled to
receive another $2,300,000 by the end of 2004, of which $375,000 has been
received through March 6, 2004. We have recorded a loss of $8.8 million on the
sale in the fourth quarter of 2003. In accordance with generally accepted
accounting principles, unrealized gains and losses, which are included in equity
as accumulated other comprehensive income or loss, are not recognized until the
period in which the related assets and liabilities are disposed of.

At December 31, 2003, our litigation support services subsidiary remains as our
only operating discontinued operations subsidiary. We are actively attempting to
sell this business.

ACCOUNTING POLICIES

Principles of consolidation. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. In consolidation, all
material inter-company balances and transactions have been eliminated. Results
of operations of companies acquired in transactions accounted for under the
purchase method of accounting are included in the financial statements from the
date of the acquisition.

Cash and cash equivalents. We consider all highly liquid investments purchased
with maturities of three months or less, at date of purchase, to be cash
equivalents.

Restricted cash. Restricted cash includes $2.6 million held in trust for the
benefit of the Ontario Industrial Development Authority Variable Rate Demand
Industrial Development Revenue Bonds, Series 1989 bondholders. On January 2,
2004, the restrictions were released and the funds were used to pay off the
bonds in full.

Concentration of credit risk. Financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company maintains its cash and
cash equivalents with what it believes to be various high quality banks. Amounts
held in individual banks may periodically exceed, for brief time periods,
federally insured amounts. Our 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 United
States ("U.S.") banks. We maintain reserves for potential credit losses. As of
December 31, 2003 and 2002, management believes that we have no significant
concentrations of credit risk excluding the U.S. military.

                                      F-8
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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

Fair value of financial instruments. The carrying value of cash and cash
equivalents, accounts receivable, other receivables, accounts payable, and short
and long-term debt approximates fair value at December 31, 2003 and 2002.

Derivative Instruments and Hedging Activities. We account for derivative
instruments and hedging activities in accordance with Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedge
Activities" (SFAS 133) as amended. All derivative instruments are recorded on
the balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. For fair-value hedge
transactions in which we hedge changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative instrument
will generally be offset in the income statement by changes in the hedged item's
fair value. We adopted SFAS 133 in the first quarter of 2001. However, we had no
derivatives to be measured at the time of adoption. We do not hold or issue
interest rate swap agreements or other derivative instruments for trading
purposes.

Changes in the fair value of the interest rate swap agreements offset changes in
the fair value of the fixed rate debt due to changes in the market interest
rate. Accordingly, the other assets on the Condensed Consolidated Balance Sheet
as of December 31, 2003 increased by $5.9 million, which reflected an increase
in the fair value of the interest rate swap agreements. The corresponding
increase in the hedge liability was recorded in long-term debt. The agreements
are deemed to be a perfectly effective fair value hedge and therefore qualify
for the short-cut method of accounting under SFAS 133. As a result, no
ineffectiveness is expected to be recognized in our earnings associated with the
interest rate swap agreements.

Property and equipment. Property and equipment are carried at cost less
accumulated depreciation. Upon disposal of property and equipment, the
appropriate accounts are reduced by the related cost and accumulated
depreciation. The resulting gains and losses are reflected in consolidated
earnings. Depreciation is computed using the straight-line method over the
estimated lives of the related assets as follows:

Buildings and improvements              5 - 39 years
Machinery and equipment                 3 - 7 years

Goodwill. Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired in a purchase business combination. Goodwill
and other intangible assets are stated on the basis of cost. The $122.9 million
in goodwill resulting from acquisitions made by the Company subsequent to June
30, 2001 was immediately subjected to the non-amortization provisions of SFAS
142. See also Impairment and Recent Accounting Pronouncements which follows.

Patents, licenses and trademarks. Patents, licenses and trademarks were
primarily acquired through acquisitions accounted for by the purchase method of
accounting. Such assets are amortized on a straight-line basis over their
remaining lives useful lives.

Impairment. Long-lived assets, including certain identifiable intangibles and
goodwill, are reviewed for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount of the asset in question may not
be recoverable including, but not limited to, a deterioration of profits for a
business segment that has long-lived assets, and when other changes occur which
might impair recovery of long-lived assets. Management has reviewed our
long-lived assets and has taken impairment charges of $12.4 million in fiscal
2003 and $30.3 million in fiscal 2002 to reduce the carrying value of the
Services Division to estimated realizable value. The method used to determine
the existence of an impairment would be generally by undiscounted operating cash
flows estimated over the remaining useful lives of the related long-lived assets
or estimated realizable amounts on assets of discontinued operations. Impairment
is measured as the difference between fair value and unamortized cost at the
date impairment is determined.

                                      F-9
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Research and development. We engage in ongoing engineering, research and
development activities to improve the reliability, performance and
cost-effectiveness of our existing products. We also design and develop new
products in an ongoing effort to anticipate and meet our customers' evolving
needs. Research and development costs are included in operating expenses as
incurred and for the years ended December 31, 2003, 2002 and 2001, approximated
$4,015,000, $2,968,000 and $2,353,000, respectively.

Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Significant estimates inherent in the preparation of the
accompanying consolidated financial statements include the carrying value of
long-lived assets, valuation allowances for receivables, inventories and
deferred income tax assets, liabilities for potential litigation claims and
settlements, and contract contingencies and obligations. Actual results could
differ from those estimates.

Income taxes. We account for income taxes pursuant to Statement of Financial
Accounting Standards ("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
relating to net operating loss carryforwards and deductible temporary
differences. Future benefits obtained either from utilization of net operating
loss carryforwards or from the reduction in the income tax asset valuation
allowance existing on September 20, 1993 have been and will be applied to reduce
reorganization value in excess of amounts allocable to identifiable assets. At
December 31, 2003 and 2002, our consolidated foreign subsidiaries have
unremitted earnings of approximately $9.0 million and $3.0 million,
respectively, on which we have not recorded a provision for United States
Federal income taxes since these earnings are considered to be permanently
reinvested. Such foreign earnings have been taxed according to the regulations
existing in the countries in which they were earned.

Revenue recognition. We record products revenue at the time of shipment. Returns
are minimal and do not materially affect the financial statements.

We record Aerospace & Defense Group revenue related to government contracts
which results principally from fixed price contracts and is recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed and determinable and collectibility is probable. Generally, all of these
conditions are met when the Company ships products to its customers. M1114
Up-Armored HMMWV units sold to the U.S. Government are considered sold when the
onsite Department of Defense officer finishes the inspection of the M1114
Up-Armored HMMWV and approves it for delivery. Revenues related to nonrefundable
license fees that are payable at the initiation of a licensing agreement are
recognized immediately in income when received or when collectibility is
reasonably assured, provided that there are no future obligations or performance
requirements. Non-refundable license fees that are in essence, a prepayment of
future royalties, are recognized as revenue on a straight-line basis over the
term of the initial license.

We record revenue of the Aerospace & Defense Group and Mobile Security Division
when the vehicle is shipped, except for larger commercial contracts typically
longer than four months in length and the contract for the delivery of M1114
Up-Armored HMMWVs to the U.S. Government, which continues through 2005. Revenue
from such contracts is recognized on the percentage of completion, units-of-work
performed method. Should such contracts be in a loss position, the entire
estimated loss would be recognized for the balance of the contract at such time.
Current contracts are profitable.

We record service revenue as services are provided on a contract-by-contract
basis. Revenues from service contracts are recognized over the term of the
contract.

Advertising. We expense advertising costs as expense in the period in which they
are incurred.

Earnings per share. Basic earnings per share is computed by dividing net income
by the weighted-average number of common shares outstanding. Diluted earnings
per share is computed by dividing net income by the weighted-average number of
common shares outstanding compounding the effects of all

                                      F-10

<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

potentially dilutive common stock equivalents, principally options, except in
cases where the effect would be anti-dilutive.

Comprehensive income and foreign currency translation. In accordance with SFAS
No. 130, "Reporting Comprehensive Income", assets and liabilities denominated in
a foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year-end and revenues and expenses are translated at the
average monthly exchange rates. The cumulative translation adjustment, net of
tax, which represents the effect of translating assets and liabilities of our
foreign operations is recorded as an increase of equity of $3,936,000 and a
reduction of equity of $(4,169,000) for the years ended December 31, 2003 and
2002, respectively, and is classified as accumulated other comprehensive loss.
The current year change in the accumulated amount, net of tax, is included as a
component of comprehensive income.

Stock options and grants. 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
costs is the excess, if any, of the quoted market price of the stock at the
grant date or other measurement date over the amount an employee must pay to
acquire the stock. We have 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 2003, 2002 and 2001 consistent with the method
prescribed by SFAS No. 123, the Company's net earnings and earnings per share
would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                   2003              2002            2001
                                                              ----------------  ---------------  --------------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>               <C>              <C>
        Net income as reported                                       $ 10,886       $ (17,689)       $ 10,128
        Deduct:  Total stock-based employee compensation
        expense determined under fair value based method
        for all awards, net of related tax effects
                                                                       (4,157)         (5,053)         (2,435)
                                                              ----------------  ---------------  --------------
                                                                     $  6,729       $ (22,742)       $  7,693
                                                              ================  ===============  ==============
        Earnings per share:
          Basic - as reported                                        $   0.39       $   (0.58)       $   0.42
                                                              ================  ===============  ==============
          Basic - pro forma                                          $   0.24       $   (0.75)       $   0.32
                                                              ================  ===============  ==============

          Diluted - as reported                                      $   0.38       $   (0.57)       $   0.41
                                                              ================  ===============  ==============
          Diluted - pro forma                                        $   0.23       $   (0.74)       $   0.31
                                                              ================  ===============  ==============
</TABLE>

Reclassifications. Certain reclassifications have been made to the 2002 and 2001
financial statements in order to conform to the presentation adopted for 2003.
These reclassifications had no effect on net income or retained earnings.

                                      F-11
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Recent accounting pronouncements.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations, ceased upon adoption of this statement. In addition, this
statement requires that goodwill be tested for impairment at least annually at
the reporting unit level. We implemented SFAS No. 142 on January 1, 2002. In
connection with the adoption of SFAS 142, we completed in the second quarter of
2002 the transitional goodwill impairment test that compared the fair value of
each reporting unit to its carrying value and determined that no impairment
existed. The goodwill resulting from acquisitions made by us subsequent to June
30, 2001, was immediately subject to the non-amortization provisions of SFAS
142. Had we been accounting for goodwill under SFAS 142 for 2001, our net income
and earnings per share would have been as follows:

<TABLE>
<CAPTION>
                                                        DECEMBER 31, 2001
                                                        -------------------

                                                          (in thousands,
                                                         except per share
                                                               data
<S>                                                     <C>

Reported net income                                                $10,128
Add back goodwill amortization, net of tax                           3,044
                                                        -------------------
 Actual/pro forma adjusted net income                              $13,172
                                                        ===================

Basic earnings per share
  Reported basic income per share                                  $  0.42
  Goodwill amortization, net of tax                                   0.13
                                                        -------------------
  Actual/pro forma basic income per share                          $  0.55
                                                        ===================

Diluted earnings per share
  Reported diluted income per share                                $  0.41
  Goodwill amortization, net of tax                                   0.12
                                                        -------------------
  Actual/pro forma diluted income  per share                       $  0.53
                                                        ===================
</TABLE>

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, and Interpretation of FASB Statements No.
5, 57 and 107 and Rescission of FASB Interpretation No. 34" ("FIN 45"). FIN 45
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. We adopted the provisions of this Statement on
January 1, 2003, which did not have a significant impact on our consolidated
financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable-Interest Entities - an Interpretation of ARB No. 51" ("FIN 46"). FIN 46
addresses consolidation by business enterprises of variable interest entities,
which have one or both of the following characteristics: (1) the equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties,
which is provided through other interests that will absorb some or all of the
expected losses of the entity and (2) the equity investors lack one or more of
the following essential characteristics of a controlling financial interest:

                                      F-12

<PAGE>
                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

       o The direct or indirect ability to make decisions about the entity's
         activities through voting rights or similar rights
       o The obligation to absorb the expected losses of the entity if they
         occur, which makes it possible for the entity to finance its activities
       o The right to receive the expected residual returns of the entity if
         they occur, which is the compensation for the risk of absorbing the
         expected losses.

This Interpretation applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The adoption of FIN 46 did not have a significant impact on our
consolidated financial statements.

In December 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" (revised December 2003) ("FIN 46(R)"). The
provisions of FIN 46(R) are as follows:

            o Provides that the condition that would preclude an enterprise from
              applying the scope exception of FIN 46 for certain entities that
              are businesses if that enterprise and/or its related parties
              participated significantly in the design or redesign of the entity
              should not apply if the entity is a franchisee.
            o An enterprise shall not consolidate a governmental organization
              and shall not consolidate a financing entity established by a
              governmental organization unless the financing entity (a) is not a
              governmental organization and (b) is used by the business
              enterprise in a manner similar to a variable interest entity in an
              effort to circumvent the provisions of Interpretation 46(R).
            o A troubled debt restructuring, as defined in paragraph 2 of FASB
              Statement No. 15, Accounting by Debtors and Creditors for Troubled
              Debt Restructurings, as amended, shall be accounted for in
              accordance with that Statement and is not an event that requires
              the reconsideration of whether the entity involved is a variable
              interest entity or whether an enterprise with a variable interest
              in a variable interest entity is the primary beneficiary of that
              entity.
            o Provides that an enterprise with an interest in an entity to which
              the provisions of FIN 46 have not been applied as of December 24,
              2003, shall apply FIN 46 or FIN 46(R) to that entity in accordance
              with the effective date provisions of FIN 46(R) as described
              below.
            o FIN 46(R) should be applied no later than the end of the first
              reporting period that ends after March 15, 2004 (as of March 31,
              2004 for the Company). However, prior to the required application
              of FIN 46(R), the Company must apply FIN 46 or FIN 46(R) to those
              entities that are considered to be special-purpose entities no
              later than as of the end of the first reporting period that ends
              after December 15, 2003 (as of December 31, 2003 for the Company).

We do not have, nor have had, any interests in variable interest entities that
are subject to the provisions of FIN 46 or FIN 46(R).

In October 2001, the FASB issued Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 establishes a "primary-asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. SFAS 144 requires that
a long-lived asset to be (1) abandoned, (2) exchanged for a similar productive
asset, or (3) distributed to owners in a spin-off be considered held and used
until it is abandoned, exchanged, or distributed. SFAS 144 requires (1) that
spin-offs and exchanges of similar productive assets be recorded at the lower of
carrying value or fair value, and that such assets be classified as held and
used until disposed of and (2) that any impairment loss resulting from a
spin-off or exchange of similar productive assets be recognized upon asset
disposition. SFAS 144 provides for total assets and total liabilities of
discontinued business segments to be presented in separate captions in assets
and liabilities and also provides that future losses, if any, of discontinued
business segments shall be reported as incurred. We adopted SFAS 144 effective
January 1, 2002. The reclassification of the Services Division to discontinued
operations and subsequent reduction in its carrying value was in accordance with
the provisions of SFAS 144.

                                      F-13
<PAGE>
                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In April 2002, the FASB issued Statement of Financial Accounting Standard No.
145, "Rescission on FASB 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses related to
the extinguishment of debt should no longer be segregated on the income
statement from continuing operations. The provisions of SFAS 145 are effective
for fiscal years beginning after May 15, 2002.

In June 2002, the FASB issued Statement of Financial Accounting Standard No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
146). SFAS 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 is effective for exit or disposal activities initiated
on or after December 31, 2002. The effects of adopting this standard did not
have a material effect on us.

In December 2002, the FASB issued Statement of Financial Accounting Standard
148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of
Statement of Financial Accounting Standard 123, "Accounting for Stock-Based
Compensation" (SFAS 123), to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosures required by SFAS 148 are included in this document.

In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149, " Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" (SFAS 149). SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 149 is effective for contracts entered
into or modified and hedging relationships designated after June 30, 2003,
except for the provisions of SFAS 149 that relate to SFAS 133 Implementation
Issues that have been effective for fiscal quarters that began prior to June 15,
2003, which should continue to be applied in accordance with their respective
effective dates. Adoption of this standard had no effect on us.

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. Adoption of
this standard had no effect on us.

In May 2003, the FASB issued FASB Staff Position No. 146-1, "Determining Whether
a One-Time Termination Benefit Offered in Connection with an Exit or Disposal
Activity is, in Substance, an Enhancement to an Ongoing Benefit Arrangement."
This Staff Position states that in order to be considered an enhancement to an
ongoing benefit arrangement, the additional termination benefits must represent
a revision to the ongoing arrangement that is not limited to a specified
termination event or a specified future period. Otherwise the additional
termination benefits should be considered one-time termination benefits
accounted for under SFAS 146. The guidance in this Staff Position is effective
for exit or disposal activities initiated in interim or annual reporting periods
beginning after September 15, 2003. The adoption of this Staff Position is not
expected to have a material impact on our consolidated financial statements.

                                      F-14


<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

2.  DISCONTINUED OPERATIONS

In January 2001, our management approved a restructuring plan to close its U.S.
investigative businesses, realign the division's organization, eliminate excess
facilities and reduce overhead in its businesses worldwide. In connection with
this restructuring plan, the division performed a review of its long-lived
assets to identify potential impairments. Pursuant to this restructuring plan,
ArmorGroup i) eliminated 26 employees, primarily from its investigative
businesses, ii) eliminated an additional 24 employees from its security
business, iii) incurred lease and other exit costs as a result of the closure of
its investigative businesses, and iv) wrote-down the value of both tangible and
intangible assets as a result of the impairment review. All of the significant
actions contemplated by the restructuring plan have been completed.

As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. As of December 31, 2003, we had a remaining liability of $140,000 after
fiscal year 2003 utilization of $130,000 relating to lease termination costs.
The remaining liability has been classified in accrued expenses and current
liabilities of discontinued operations on the consolidated balance sheet.

On July 15, 2002, we announced plans to sell the Services division and the
retention of Merrill Lynch & Company to assist in the sale. In accordance with
Statement of Accounting Standards 144, Accounting for Impairment or Disposal of
Long-Lived Assets, the assets and liabilities of the Services division have been
classified as held for sale, with its operating results in the current and prior
periods reported in discontinued operations for the year ended December 31,
2003, 2002 and 2001. Cyconics International Training Services, Inc., a
subsidiary providing certain training services, formerly reported as a part of
the Services Division is not included in the amounts classified as assets held
for sale. The assets and liabilities as well as the operating results of
Cyconics International Training Services, Inc. have been reclassified to the
Products Division where management oversight currently resides.

On April 17, 2003, we announced that we had completed the sale of our ArmorGroup
Integrated Systems business through the sale of 100% of the stock of ArmorGroup
Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc. to Aerwav
Integration Systems, Inc. ("AIS"). AIS is a wholly owned subsidiary of Aerwav
Holdings, LLC. As consideration for the integrated systems business, we received
a $4.1 million collateralized note due in two years and a warrant for
approximately 2.5% of AIS. $375,000 of the balance due was paid in advance in
November 2003. In accordance with SFAS 144, we have recorded a loss of $366,000
on the sale.

Based upon our analysis and discussions with our advisors regarding the
estimated realizable value, net of selling costs, of the Services Division, we
reduced its carrying value and recorded net impairment charges of $12.4 million
and $30.3 million in fiscal 2003 and 2002, respectively. The 2003 impairment
charges consisted of a non-cash goodwill reduction. The fiscal 2002 impairment
charges consisted of approximately $6.1 million in estimated disposal costs and
a $24.2 million non-cash goodwill reduction. The benefit for income taxes for
discontinued operations was $8.3 million and $2.4 million for fiscal 2003 and
2002, respectively. The reductions in the carrying value of the Services
Division were management's best estimate based upon the information currently
available, including discussions with our investment bankers.

On November 26, 2003, we announced that we completed the sale of ArmorGroup, our
security service division, for $33,660,000 in total consideration to a group of
private investors led by Granville Baird Capital Partners of London, England and
Management. We received $31,360,000 in cash at closing and are scheduled to
receive another $2,300,000 by the end of 2004, of which we have received
$375,000 through March 6, 2004. We recorded a loss of $8.8 million on the sale
in the fourth quarter of 2003. In accordance with generally accepted accounting
principles, unrealized gains and losses, which are included in equity as
accumulated other comprehensive income or loss, are not recognized until the
period in which the related assets and liabilities are disposed of.

At December 31, 2003, our litigation support services subsidiary remains in
discontinued operations. The actual proceeds from the disposal of this business
may differ materially from our current estimates and therefore could result in
either a gain or a loss upon final disposal. We are actively attempting to sell
this business.

                                      F-15
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following is a summary of the operating results of the discontinued
operations for the years ended December 31, 2003, 2002 and 2001.


<TABLE>
<CAPTION>
                                                     DECEMBER 31, 2003     DECEMBER 31, 2002     DECEMBER 31, 2001
                                                     ------------------   -------------------   -------------------
                                                                             (IN THOUSANDS)
<S>                                                  <C>                   <C>                  <C>

Revenue                                                       $  95,124             $  98,263           $  94,928
Cost of sales                                                    66,780                75,779              65,021
                                                     ------------------   -------------------   -------------------
Gross profit                                                     28,344                22,484              29,907
Operating expenses                                               19,910                30,588              24,496
Amortization expense                                                  -                     -               1,519
Charge for impairment of long-lived assets                       21,535                30,296                   -
Restructuring and related charges                                     -                     -              10,257
Integration and other charges                                       776                 2,623                 776
                                                     -------------------  --------------------  --------------------
Operating loss                                                 (13,877)              (41,023)             (7,141)
Interest expense, net                                                16                   346                 143
Other expense (income), net                                         479                    99               (218)
                                                     -------------------  --------------------  --------------------
    Loss from discontinued operations before
    benefit for income taxes
                                                               (14,372)              (41,468)             (7,066)
    Benefit for income taxes  (a)                               (8,252)               (2,442)             (2,510)
                                                     -------------------  --------------------  --------------------
    Loss from discontinued operations                         $ (6,120)             $(39,026)           $ (4,556)
                                                     ===================  ====================  ====================
</TABLE>

a)       Fiscal 2002 income taxes exclude additional expense of $1,475,000 per
         paragraphs 26 and 27 of SFAS No. 109 included in income from continuing
         operations on a consolidated basis. See Note 13.

   The following is a summary of the assets and liabilities of our discontinued
operations:

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2003       DECEMBER 31, 2002
                                                               ---------------------   ---------------------
                                                                            (IN THOUSANDS)
<S>                                                            <C>                      <C>
Assets
  Cash and cash equivalents                                                $   76                $  3,638
  Accounts receivable, net                                                    549                  16,228
  Other current assets                                                        128                   8,959
                                                               ---------------------  ----------------------
      Total current assets                                                    753                  28,825
  Property and equipment, net                                               1,206                  12,481
  Goodwill, net                                                               356                  12,995
  Other assets                                                                 41                   4,809
                                                               ---------------------  ----------------------
 Total assets of discontinued operations                                   $2,356                $ 59,110
                                                               =====================  ======================

Liabilities
  Current portion of long-term debt                                        $  125                  $  186
   Short-term debt                                                              -                     350
   Accounts payable                                                             5                   2,405
   Accrued expenses and other current liabilities                             496                  14,284
                                                               ---------------------  ----------------------
       Total current liabilities                                              626                  17,225
   Long-term debt                                                               -                     168
Total liabilities of discontinued operations                               $  626                $ 17,393
                                                               =====================  ======================
</TABLE>

                                      F-16

<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

3.    COMPREHENSIVE INCOME

The components of comprehensive income (loss), net of tax benefits of zero,
$364,000 and $713,000 for the years ended December 31, 2003, 2002 and 2001, are
listed below:

<TABLE>
<CAPTION>
                                               DECEMBER 31, 2003  DECEMBER 31, 2002    DECEMBER 31, 2001
                                               ------------------ -------------------  ------------------
                                                                   (IN THOUSANDS)
<S>                                            <C>                <C>                  <C>
Net income  (loss)                                      $ 10,886           $(17,689)           $10,128
Other comprehensive income (loss):
   Sale of ArmorGroup                                      3,231                   -                 -
   Foreign currency translations, net of tax               4,874                 304           (2,789)
                                               ------------------ -------------------  ------------------
Comprehensive income (loss)                             $ 18,991           $(17,385)           $ 7,339
                                               ================== ===================  ==================
</TABLE>

In accordance with generally accepted accounting principles, unrealized gains
and losses, which are included in equity as accumulated other comprehensive
income or loss, are not recognized until the period in which the related assets
and liabilities are disposed of.

4.     BUSINESS COMBINATIONS

We have completed numerous purchase business combinations for cash and/or shares
of our common stock and assumption of liabilities in certain cases. In the three
years in the period ended December 31, 2003, the following acquisitions were
completed:

<TABLE>
<CAPTION>
                                                         TOTAL             SHARES          VALUE OF
                                                     CONSIDERATION         ISSUED           SHARES
                                                   ------------------------------------------------------
                                                           (IN THOUSANDS, EXCEPT SHARES ISSUED)
<S>                                                <C>                   <C>               <C>
2003
----
Aggregate 2003 acquisitions (1)                               $90,512                -                 -
Additional purchase price paid/issued for
deferred consideration                                          1,026                -                 -
                                                   ------------------- ----------------- ----------------
                                                              $91,538                -                 -
                                                   =================== ================= =================

2002
----
Aggregate 2002 acquisitions (2)                               $ 8,818                -                 -
Additional purchase price paid/issued for
acquisition earnouts                                            9,375                -                 -
                                                   ------------------- ---------------- -----------------
                                                              $18,193                -                 -
                                                   =================== ================= =================
2001
-----
Aggregate 2001 acquisitions (3)                               $59,887        1,224,302          $ 19,604
Additional purchase price paid/issued for
acquisition earnouts                                            3,904           68,888             1,087
                                                   ------------------- ---------------- -----------------
                                                              $63,791        1,293,190          $ 20,691
                                                   =================== ================= =================
</TABLE>

(1)  Includes Simula, Inc. and Hatch Imports, Inc.
(2)  Includes Speedfeed, Inc., Foldable Products Group, B-Square, Inc., Evi-Paq,
     Inc., Trasco Bremen and 911 Emergency Products.
(3)  Includes O'Gara-Hess & Eisenhardt Companies, Guardian and Identicator.


                                      F-17
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On December 9, 2003, we acquired all of the outstanding stock of Simula, for
approximately $84.8 million in cash including transaction costs. Simula is a
safety technology company that supplies human safety and survival systems to all
branches of the United States military, major aerospace and defense prime
contractors. Its core markets are military aviation safety, military personnel
safety, and land and marine safety. Simula is a provider of military helicopter
seating systems, aircraft and land vehicle armor systems, protective equipment
for military personnel and technologies used to protect humans in a variety of
life-threatening or catastrophic situations.

As a result of the acquisition, we expect to: (1) strengthen our position as a
leading mid-tier defense and security industry consolidator through increased
scale and scope; (2) increase our relevance to Department of Defense customers
and programs; (3) diversify our business mix by adding fixed-wing and rotorcraft
crashworthy seating; (4) combine body armor capabilities of Simula and PROTECH,
one of our subsidiaries, supplementing our position in the SAPI market; (5)
achieve cross-selling opportunities by leveraging our global sales force and
relationships; and (6) offer opportunities for cost reduction through
integration savings and rationalization of operations.

The acquisition was accounted for as a purchase business combination, and
accordingly, the results of operations were included in our financial statements
after December 9, 2003. The cost to acquire Simula has been allocated to the
assets acquired and liabilities assumed according to their estimated fair values
at the time of the acquisition as follows:

<TABLE>
<CAPTION>
                                                           (IN THOUSANDS)
                                                        ---------------------
<S>                                                     <C>
         Working capital                                            $  5,027
         Property and equipment                                        5,360
         Other long-term assets                                          434
         Assumed note payable                                       (31,135)
         Assumed long-term liabilities                               (1,704)
         Customer-related intangible                                  25,140
         Technology-related intangible                                 8,814
         Goodwill (Deductible)                                        72,816
                                                        ---------------------
                                                                    $ 84,752
</TABLE>

The customer-related intangible asset relates to acquired customer relationships
and is being amortized over a 14-year weighted-average useful life on a
straight-line basis. The technology-related intangible asset relates to certain
acquired technology and is being amortized over an eight-year weighted-average
useful life on a straight-line basis.

During 2002, we completed the acquisition of Speedfeed, Inc., Foldable Products
Group, B-Square, Inc., Evi-Paq, Inc., Trasco Bremen and 911 Emergency Products.

On August 23, 2001, we completed our acquisition of Security Products and
Services Group of the Kroll-O'Gara Company, including the O'Gara-Hess &
Eisenhardt subsidiary ("O'Gara"). O'Gara is the prime contractor to the U.S.
Military for the supply of armoring and blast protection for HMMWVs and armors a
variety of vehicles, including limousines, sedans, sport utility vehicles, and
money transport vehicles, to protect against varying degrees of ballistic and
blast threats.


                                      F-18

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Businesses acquired are included in consolidated results from the date of
acquisition. Pro forma results of the 2003 acquisition of Hatch Imports, Inc.
and the 2002 acquisitions are not presented, as they would not differ by a
material amount from actual results. The following unaudited pro forma
consolidated results are presented to show the results on a pro forma basis as
if the 2003 acquisition of Simula had been made as of January 1, 2002:

<TABLE>
<CAPTION>
                                                                        2003               2002
                                                                  --------------------------------------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                               <C>                   <C>

     Revenues from continuing operations                                  $443,881            $ 379,521
     Net income from continuing operations                                $ 20,212            $  19,935
     Basic earnings per share from continuing operations                  $   0.72            $    0.66
     Diluted earnings per share from continuing operations                $   0.70            $    0.64
     Weighted average shares - basic                                        28,175               30,341
     Weighted average shares - diluted                                      28,954               30,957
</TABLE>

The changes in the carrying amount of goodwill for the year ended December 31,
2003, are as follows:

<TABLE>
<CAPTION>
                                       AEROSPACE &           PRODUCTS         MOBILE SECURITY          TOTAL
                                         DEFENSE
                                     --------------    -------------------    ---------------     -------------
                                                           (IN THOUSANDS)
<S>                                  <C>               <C>                    <C>                  <C>
Balance at January 1, 2003                $      -          $ 60,143                $ 38,593         $  98,736
Goodwill acquired during year               72,816             4,262                   (107)            76,971
                                     --------------    -------------------    ---------------     -------------
Balance at December 31, 2003              $ 72,816          $ 64,405                $ 38,486         $ 175,707
                                     ==============    ===================    ===============     =============
</TABLE>

                                      F-19
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5.    INVENTORIES

The components of inventory as of December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                            2003                2002
                                                      ------------------ --------------------
                                                                  (IN THOUSANDS)
<S>                                                   <C>                <C>
               Raw materials                                   $ 40,397             $ 30,211
               Work-in-process                                   25,422               15,733
               Finished goods                                    14,708               16,386
                                                      ------------------ --------------------
                                                               $ 80,527             $ 62,330
                                                      ================== ====================
</TABLE>

6.    PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2003 and 2002 are summarized as
follows:

<TABLE>
<CAPTION>
                                              2003                2002
                                       ------------------- --------------------
                                                  (IN THOUSANDS)
<S>                                    <C>                 <C>
Land                                             $  5,940              $ 5,557
Buildings and improvements                         29,776               23,964
Machinery and equipment                            40,906               30,534
                                       ------------------- --------------------
Total                                              76,622               60,055
Accumulated depreciation                         (19,046)             (12,919)
                                       ------------------- --------------------
                                                 $ 57,576             $ 47,136
                                       =================== ====================
</TABLE>

Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was
approximately $5,719,000, $4,953,000 and $3,031,000 respectively. In the
statement of operations of continuing operations for the years ended December
31, 2003, 2002 and 2001, depreciation expense has been reduced by $130,000 in
each year for the amortization of the proceeds received under an economic
development grant received from the Department of Housing and Urban Development.

7.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of December 31, 2003 and 2002
are summarized as follows:

<TABLE>
<CAPTION>
                                                                               2003             2002
                                                                           -------------- ------------------
                                                                                    (IN THOUSANDS)
<S>                                                                        <C>            <C>
                             Accrued expenses                                    $40,787            $16,988
                             Customer deposits                                    14,651              6,302
                             Deferred consideration for acquisitions               2,780              1,826
                                                                           -------------- ------------------
                                                                                 $58,218            $25,116
                                                                           ============== ==================
</TABLE>

                                      F-20
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

8.    DEBT

<TABLE>
<CAPTION>
                                                                                           2003            2002
                                                                                     ---------------   -------------
                                                                                              (IN THOUSANDS)
<S>                                                                                  <C>               <C>
Credit facility (a)                                                                          $    -            $  -
Senior Subordinated Notes (b)                                                               147,600               -
Senior Subordinated Convertible Notes (c)                                                    31,135               -
Ontario Industrial Development Authority Variable Rate Demand Industrial
   Development Revenue Bonds, Series 1989 payable in annual installments of $200
   to $300, through August 1, 2014, with interest paid monthly at varying rates               2,600           2,800
Note payable in scheduled installments through 2013, with an interest rate of 5%.             1,508           1,582
Economic Development Revenue Bonds, payable in scheduled installments through
  September 2016, with a variable interest rate approximating 85% of the bond
  equivalent yield of the 13-week U.S. Treasury bills (not to exceed 12%) which
  approximated 1.5% at December 31, 2002.                                                         -           1,075
Note to former officer payable in monthly principal and interest installments of
  $7 through December 31, 2009 with an imputed interest rate of 9.25%                           359             399
Minimum guaranteed royalty to former officer payable in monthly principal and
   interest installments of $4 through August 2005, with an imputed interest rate
   of 9.2%                                                                                       73             114
Minimum guaranteed royalty to former officer payable in monthly principal and
   interest installments of $36 through April 2005, with an imputed interest rate
   of 7.35%                                                                                     542             915
Note payable in schedule installments through 2008, with an interest rate of 3%                 739               -
Plus fair value of interest rate swaps (d)                                                    5,851               -
                                                                                     ---------------   -------------
                                                                                          $ 190,407          $6,885
Less current portion                                                                       (32,107)         (1,813)
                                                                                     ---------------   -------------
                                                                                          $ 158,300          $5,072
                                                                                     ===============   =============
</TABLE>

(a) Credit Facility - On August 12, 2003, we terminated our existing credit
facility and entered into a new collateralized revolving credit facility with
Bank of America, N.A., Wachovia Bank, N.A. and Key Bank, N.A. The new credit
facility is a five-year revolving credit facility and, among other things,
provides for: 1) total maximum borrowings of $60 million; 2) a $25 million
sub-limit for the issuances of standby and commercial letters of credit; 3) a $5
million sub-limit for swing-line loans; and 4) a $5 million sub-limit for
multi-currency borrowings. All borrowings under the new credit facility will
bear interest at either 1) a rate equal to LIBOR, plus an applicable margin
ranging from 1.125% to 1.625%; 2) an alternate base rate which will be the
higher of (a) the Bank of America prime rate and (b) the Federal Funds rate plus
0.50%; or 3) with respect to foreign currency loans, a fronted offshore currency
rate, plus an applicable margin ranging from 1.125% to 1.625%, depending on
certain conditions. The Credit Facility is guaranteed by certain of our direct
and indirect domestic subsidiaries and is collateralized by, among other things,
(i) a pledge of all of the issued and outstanding shares of stock or other
equity interests of certain of our domestic subsidiaries, (ii) a pledge of 65%
of the issued and outstanding voting shares of stock or other voting equity
interests of certain of our direct and indirect foreign subsidiaries, (iii) a
pledge of 100% of the issued and outstanding nonvoting shares of stock or other
nonvoting equity interests of certain of our direct and indirect foreign
subsidiaries, and (iv) a first priority perfected security interest on certain
of our domestic assets and certain domestic assets of certain of our direct and
indirect subsidiaries that will become guarantors of our obligations under the
new credit facility, including, among other things, accounts receivable,
inventory, machinery, equipment, certain contract rights, intellectual property
rights and general intangibles.

(b) Senior Subordinated Notes - On August 12, 2003, we completed a private
placement of $150 million aggregate principal amount of 8.25% senior
subordinated notes due 2013 (the "Notes"). The Notes are guaranteed by all of
our domestic subsidiaries, except Cyconics International Training Services,
Inc., on a senior subordinated basis (see


                                      F-21


<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Note 20). The Notes have been sold to qualified institutional buyers in
reliance on Rule 144A of the Securities Act of 1933, as amended, and to non-U.S.
persons in reliance on Regulation S under the Securities Act of 1933, as
amended. The Notes were rated B1/B+ by Moody's Investors' Service and Standard &
Poor's Rating Services, respectively. During 2003, we used a portion of the
funds to acquire Simula, Inc. and Hatch Imports, Inc., and we intend to use the
remaining proceeds of the offering to fund acquisitions, repay a portion of our
outstanding debt and for general corporate and working capital purposes,
including the funding of capital expenditures. Interest on the Notes is payable
semiannually on the fifteenth of February and August of each year. The Notes
were issued at a discount of approximately $2.5 million to investors. The Notes
may be redeemed at our option in whole or in part on a pro-rata basis, on and
after August 15, 2008, at certain specified redemption prices plus accrued
interest payable to the redemption date.

(c) Senior Subordinated Convertible Notes - On December 9, 2003, we purchased
Simula. In 1997, Simula completed a public offering of $34.5 million of 8%
Senior Subordinated Convertible Notes (the "8% Notes"). On January 5, 2004, the
8% Notes were paid-in-full. The balance of these notes is included in the
current portion of long-term debt.

(d) Fair Value of Interest Rate Swaps - On September 2, 2003, we entered into
interest rate swap agreements, designated as a fair value hedge as defined under
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedge Activities," (SFAS 133) with an aggregate notional amount
totaling $150 million. The agreements were entered to exchange the fixed
interest rate on the Notes for a variable interest rate equal to six-month
LIBOR, set in arrears, plus a spread ranging from 2.735% to 2.75% fixed
semi-annually on the fifteenth day of February and August. At December 31, 2003,
the six-month LIBOR was 1.22%. The agreements are subject to other terms and
conditions common to transactions of this type. In accordance with SFAS 133,
changes in the fair value of the interest rate swap agreements offset changes in
the fair value of the fixed rate debt due to changes in the market interest
rate. The fair value of the interest rate swap agreements was approximately $5.9
million at December 31, 2003. The agreements are deemed to be a perfectly
effective fair value hedge and therefore qualify for the short-cut method of
accounting under SFAS 133. As a result, no ineffectiveness is expected to be
recognized in earnings associated with the interest rate swap agreements on the
Notes.

Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
                                 YEAR ENDED             (IN THOUSANDS)
                           ------------------------  ----------------------
<S>                        <C>                       <C>
                           2004                                   $ 32,107
                           2005                                        701
                           2006                                        549
                           2007                                        665
                           2008                                        642
                           Thereafter                              155,743
                                                     ----------------------
                                                                 $ 190,407
                                                     ======================
</TABLE>

9.   DERIVATIVE FINANCIAL INSTRUMENTS

We account for derivative instruments in accordance with SFAS 133, which
requires all freestanding and embedded derivative instruments to be measured at
fair value and recognized on the balance sheet as either assets or liabilities.
In addition, all derivative instruments used in hedging relationships must be
designated, reassessed and accounted for as either fair value hedges or cash
flow hedges pursuant to the provisions of SFAS 133.

We hedge the fair value of our Notes using interest rate swaps. We enter into
these derivative contracts to manage fair value changes that could be caused by
our exposure to interest rate changes. On September 2, 2003, we entered into
interest rate swap agreements, designated as fair value hedges as defined under
SFAS 133, with an aggregate notional amount totaling $150 million. The interest
rate

                                      F-22

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

swaps mature on August 15, 2013. The agreements were entered into to exchange
the fixed interest rate of 8.25% on the Notes for a variable interest rate equal
to six-month LIBOR, set in arrears, plus a spread ranging from 2.735% to 2.75%
fixed semi-annually on the fifteenth of February and August. The six-month LIBOR
rate at December 31, 2003, was 1.22%. The agreements are subject to other terms
and conditions common to transactions of this type. These fair value hedges
qualify for hedge accounting using the short-cut method since the swap terms
match the critical terms of the Notes. Accordingly, changes in the fair value of
the interest rate swap agreements offset changes in the fair value of the Notes
due to changes in the market interest rate. As a result, no ineffectiveness is
expected to be recognized in our earnings associated with the interest rate swap
agreements on the Notes.

The fair values of our interest rate swap agreements are obtained from our
counter-parties and represent the estimated amount we would receive or pay to
terminate the agreement, taking into consideration the difference between the
contract rate of interest and rates currently quoted for agreements of similar
terms and maturities.

10. INTEGRATION AND OTHER CHARGES

We incurred integration and other charges of approximately $12.6 million, $5.9
million and $3.3 million for the years ending December 31, 2003, 2002 and 2001,
respectively. The charges for the year ended December 31, 2003 includes a $7.3
million non-cash charge for stock-based compensation for a performance plan for
certain key executives and a $3.3 million (including a $2.1 million non-cash
charge) severance charge related to the departure of our former Chief Executive
Officer. The remaining charges relate to the relocation of assets and personnel,
severance costs, systems integration, domestic and international tax
restructuring as well as integrating the sales and marketing functions for
acquired companies.

11.  COMMITMENTS AND CONTINGENCIES

Employment contracts. We are party to several employment contracts as of
December 31, 2003 with certain members of management. Such contracts are for
varying periods and include restrictions on competition after termination. These
agreements provide for salaries, bonuses and other benefits and also specify and
delineate the granting of various stock options.

Legal/litigation matters.

In 1997 we terminated several agreements with a Dutch company, Airmunition
International, B.V. ("AMI"), and with a British company, Crown Limited
("Crown"). AMI and Crown started an action against us before the Netherlands
Arbitration Institute in Rotterdam, Holland claiming breach of contract,
unauthorized use of confidential information, inducing an AMI employee to leave
to work for us in competition with plaintiffs and further inducing him to breach
his confidentiality agreements with plaintiffs. Plaintiffs sought damages of
$20.5 million. On April 29, 2003, the Tribunal rendered an interim award in our
favor on the first three counts. However, it reserved the opportunity for
Plaintiffs to provide proof of damages noting that any damages AMI/Crown may
have suffered on this remaining issue would be "limited" based on the facts. On
March 4, 2004, the arbitrators found that the plaintiffs had failed to offer any
evidence of damages, and therefore, they dismissed all of the claims against us.
Further the arbitrators directed AMI/Crown to pay us our costs. Unfortunately,
AMI and Crown have filed for bankruptcy protection from creditors so recovery of
our costs is doubtful.

On January 16, 1998, our Services Division ceased operations in Angola and
subsequently became involved in various disputes with SHRM S.A. ("SHRM"), its
minority joint venture partner relating to the Angolan joint venture known as
Defense System International Africa ("DSIA"). On March 6, 1998, SIA (a
subsidiary of SHRM) filed a complaint against Defense Systems France, SA ("DSF")
before the Commercial Court of Nanterre (Tribunal de Commerce de Nanterre)
seeking to be paid an amount of $577,286 corresponding to an alleged debt of
DSIA to SIA. In October 2002, the Commercial Court of Nanterre stayed the
proceedings before it, pending the decisions of the Court of Appeal and the
Paris Commercial Court. In February 2003, the Court of Appeal ruled against SHRM
and its parent entity, Compass Group, effectively ending all further proceedings
on the merits of Compass' claims. Compass has appealed the decision before the
French Court of Cassation, which reviews only matters of law.

                                      F-23

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In 1999 and prior to our acquisition of O'Gara-Hess & Eisenhardt Armoring
Company (which has been converted to a limited liability company and is now
known as O'Gara-Hess & Eisenhardt Armoring Company, L.L.C.) ("OHEAC") in 2001,
O'Gara-Hess & Eisenhardt Armoring de Brasil Ltda. ("OHE Brazil") was audited by
the Brazilian federal tax authorities and assessed over Ten Million Reals
(US$3.4 million based on the exchange rate as of December 31, 2003). OHE Brazil
has appealed the tax assessment and the case is pending. To the extent that
there may be any liability resulting from the 2001 audit, we believe that we are
entitled to indemnification from Kroll, Inc. under the terms of our purchase
agreement dated April 20, 2001, despite the denial by Kroll, Inc. of any such
liability, because the events occurred prior to our purchase of the O'Gara
Companies from Kroll, Inc. However, to the extent that the appeal relating to
2001 activity results in an unfavorable ruling, we could be liable for unpaid
taxes incurred subsequent to the acquisition from Kroll. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In 1999 and prior to our acquisition of OHEAC in 2001, several of the former
employees of Kroll O'Gara Company de Mexico, S.A. de C.V. ("O'Gara Mexico"), a
subsidiary of OHEAC, commenced labor claims against O'Gara Mexico seeking
damages for unjustified termination. These cases are still pending before the
labor board in Mexico City. The terminated employees are seeking back pay and
benefits since the date of termination amounting to approximately US $2.9
million, and accruing at approximately US $50,400 per month. To the extent that
there may be any liability, we believe that we are entitled to indemnification
from Kroll, Inc. under the terms of our purchase agreement dated April 20, 2001,
despite the denial by Kroll, Inc. of any such liability, because the events
occurred prior to our purchase of the O'Gara Companies from Kroll, Inc. Although
we do not have any insurance coverage for this matter, at this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In August 2001, Defense Technology Corporation of America ("DTC"), one of our
subsidiaries, received a civil subpoena from the United States Environmental
Protection Agency requesting information pursuant to Section 104(e) of the
Comprehensive Environmental Response, Compensation and Liability Act regarding
the possible impact of the Casper, Wyoming tear gas facility on the environment.
DTC responded to the request, and to date the EPA has not taken any further
action with respect to the matter. At this time, we do not believe this matter
will have a material impact on our financial position, operations or liquidity.

In December 2001, O'Gara-Hess & Eisenhardt France S.A. ("OHE France") sold its
industrial bodywork business operated under the name Labbe/Division de O'Gara
Hess & Eisenhardt France/ Carrosserie Industriells to SNC Labbe. Subsequent to
the sale, the Labbe Family Trust ("LFT"), owner of the leasehold interest upon
which the Carrosserie business is operated, sued OHE France and SNC Labbe
claiming that the transfer of the leasehold was not valid because the LFT had
not given its consent to the transfer as required under the terms of the lease.
Further, LFT seeks to have OHE France, as the sole tenant, maintain and repair
the leased building. The approximate cost of renovating the building is
estimated to be between US $3.2 and US $6.4 million, based on the exchange rate
as of December 31, 2003. The case is currently pending, and while we are
contesting the allegations vigorously, we are unable to predict the outcome of
this matter. Although we do not have any insurance coverage for this matter, at
this time, we do not believe this matter will have a material impact on our
financial position, operations or liquidity.

On or about March 22, 2002, OHEAC received a civil subpoena from the Department
of Defense ("DOD") requesting documents and information concerning various
quality control documentation regarding parts delivered by its subcontractors
and vendors in support of the High Mobility Multipurpose Wheeled Vehicles
("HMMWVs") armored at its Fairfield, Ohio facility for the period October 1,
1999 through May 1, 2001. OHEAC has complied fully with the subpoena. In early
2003, OHEAC was advised that the Department of Justice ("DOJ") was also
investigating separate claims against OHEAC filed by individuals that involve
the same time frame and issues covered by the DOD subpoena. OHEAC has learned
that the DOJ investigation relates to a certain unidentified action filed under
the federal False Claims Act pursuant to which the United States government may
intervene and recover damages. OHEAC has fully responded to, and cooperated
with, the government's questions and investigation. The DOJ has since notified
OHEAC that it has declined to intervene in the case. On September 30, 2003, the
action filed under the federal False Claims Act was voluntarily withdrawn
without prejudice.

                                      F-24
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On October 18, 2002, we were notified by the Internal Revenue Service that our
tax return for the tax year ended December 31, 2000 had been selected for
examination. Further, on January 30, 2003 we were notified that our tax return
for the tax year ended December 31, 2001 had been selected for examination. The
examinations are currently pending, and at this time we are unable to predict
the outcome of these matters. However, we do not believe this matter will have a
material impact on our financial position, operations or liquidity.

In October 2002, we were sued in the United States District Court for the
District of Wyoming with respect to one of our subsidiaries' Casper, Wyoming
tear gas plant. The plaintiffs in the lawsuit asserted various state law tort
claims and federal environmental law claims under the Resource Conservation and
Recovery Act and the Clean Air Act stemming from the tear gas plant. In February
2004, we agreed with the plaintiffs to settle the lawsuit for an amount of money
that is not material to us, and the plaintiffs have agreed to dismiss their
lawsuit with prejudice.

In September 2003, Second Chance Body Armor, Inc., a body armor manufacturer and
one of our competitors, has notified its customers of a potential safety issue
with its Ultima(R) and Ultimax(R) models. Second Chance Body Armor has claimed
that Zylon(R) fiber, which is made by Toyobo, a Japanese corporation, and used
in the ballistic fabric construction of its Ultima(R) and Ultimax(R) models,
degraded more rapidly than originally anticipated. Second Chance Body Armor has
also stated that the Zylon(R) degradation problem affects the entire body armor
industry, not just its products. Both private claimants and State Attorneys
General have already commenced legal action against Second Chance Body Armor
based upon its Ultima(R) and Ultimax(R) model vests and we have received
investigative demands from state agencies in Texas and Connecticut. Second
Chance Body Armor licenses from Simula a certain patented technology which is
used in the body armor it manufactures, but to our knowledge, no lawsuit has yet
been brought against Second Chance Body Armor based upon this licensed
technology, although a letter was received by Simula from an attorney
representing a police officer who was injured while wearing a Second Chance Body
Armor vest alleging potential liability against Simula. In addition, the U.S.
Attorney General has asked the U.S. Department of Justice to investigate the
claims regarding the use of Zylon(R) in bulletproof vests, which we use in the
manufacturing of certain of our body armor models for law enforcement personnel.
As Simula has licensed its technology to Second Chance Body Armor, it may be
impacted by the pending claims against Second Chance Body Armor and the
investigation being conducted by the U.S. Department of Justice. If Simula is
included in the claims pending against Second Chance Body Armor and the
investigation being conducted by the U.S. Department of Justice, we cannot
assure you that any judgment, settlement or resolution against Simula will not
have a material impact on Simula's financial position, operations or liquidity.

The National Institute of Justice (NIJ) is engaged in an ongoing inquiry and
investigation of bullet-resistant vests and the protocol for testing used vests,
as well as the reliability of Zylon and other fibers. We have consulted with and
cooperated fully with the NIJ in this endeavor. To date, the NIJ has embarked
only in its first phase of testing, which entails vests that have been heavily
worn or exposed to adverse conditions, and which involves the ballistic standard
applicable to new vests. Although some of the vests tested, including ours,
experienced some level of penetration, the NIJ specifically warned against the
misuse and misinterpretation of these results, emphasizing that the data
produced so far is preliminary in nature, applies to a very small sample size
and therefore it is not possible to draw any statistically-based conclusions
from these results. The NIJ will continue to conduct further testing and analyze
these issues in order to determine if any conclusions can be reached as to the
performance and reliability of aged vests. We have requested the NIJ to provide
us with its testing data, and we intend to evaluate and review the NIJ results
in our continuing effort to assist the NIJ in developing uniform standards for
certification of new vests and the testing of used vests. The NIJ continues to
encourage law enforcement officers to wear body armor, in light of the fact that
"the lives of more than 2,700 law enforcement officers have been saved by the
use of bullet-resistant body armor over the past 30 years."


                                      F-25

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


In addition to the above, in the normal course of business, we are subjected to
various types of claims and currently have on-going litigations in the areas of
products liability and general liability. Our products are used in a wide
variety of law enforcement situations and environments. Some of our products can
cause serious personal or property injury or death if not carefully and properly
used by adequately trained personnel. We believe that we have adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on our financial statements is generally limited to the
amount of our insurance deductible or self-insured retention. Our annual
insurance premiums and self insurance retention amounts have risen significantly
over the past several years and may continue to do so to the extent we are able
to purchase insurance coverage. At this time, we do not believe any such claims
or pending litigation will have a material impact on our financial position,
operations and liquidity.

12.   INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

We are a leading manufacturer and provider of specialized security products;
training and support services related to these products; vehicle armor systems;
military helicopter seating systems, aircraft and land vehicle safety systems;
protective equipment for military personnel; and other technologies used to
protect humans in a variety of life-threatening or catastrophic situations. Our
products and systems are used domestically and internationally by military, law
enforcement, security and corrections personnel, as well as governmental
agencies, multinational corporations and individuals. Effective in the first
quarter 2004, we instituted a new segment reporting format to include three
reportable business divisions: Aerospace & Defense Group, the Products Division
and the Mobile Security Division. The Aerospace & Defense Group was formed upon
the completion of our acquisition of Simula, Inc. on December 9, 2003, and
results have been included herein since the acquisition date. The Aerospace &
Defense Group also includes the military business, including armor and blast
protection systems for M1114 Up-Armored HMMWVs, and other military vehicle armor
programs, which previously were included in the Mobile Security Division. The
Aerospace & Defense Group also includes the SAPI plate produced by our Protech
subsidiary in Pittsfield, Massachusetts, which was previously reported as part
of the Products Division. The historical results of these businesses have been
reclassified as part of the Aerospace & Defense Group. This reporting change was
made to better reflect management's approach to operating and directing the
businesses, and, in certain instances, to align financial reporting with our
market and customer segments. Our Services division has been classified as
discontinued operations and is no longer included in this presentation (See Note
2).

Aerospace & Defense Group. Our Aerospace & Defense Group supplies human safety
and survival systems to the U.S. military, and major aerospace and defense prime
contractors. Our core markets are military aviation safety, military personnel
safety, and land and marine safety. Under the brand name O'Gara-Hess &
Eisenhardt, we are the sole-source provider to the U.S. military of the armor
and blast protection systems for M1114 Up-Armored HMMWVs. We are also under
contract with the U.S. Army to provide spare parts, logistics and ongoing field
support services for the currently installed base of approximately 4,415
Up-Armored HMMWVs. Additionally, we provide blast and ballistic protection kits
for the standard HMMWVs, which are installed on existing equipment in the field.
Our Aerospace & Defense Group is also subcontracted to develop a ballistic and
blast protected armored and sealed truck cab for the HIMARS, a program recently
transitioned by the U.S. Army and U.S. Marine Corps from developmental to a low
rate of initial production, deliveries of which commenced in 2003. We also
supply armor sub-systems for other tactical wheeled vehicles. Through Simula, we
provide military helicopter seating systems, helicopter cockpit airbag systems,
aircraft and land vehicle armor kits, body armor and other protective equipment
for military personnel, emergency bailout parachutes and survival ensembles worn
by military aircrew. The primary customers for our products are the U.S. Army,
U.S. Marine Corps, Boeing, and Sikorsky Aircraft. Most of Simula's aviation
safety products are provided on a sole source basis. The U.S. armed forces have
adopted ceramic body armor as a key element of the protective ensemble worn by
our troops in Iraq and Afghanistan. Simula was the developer of this specialized
product called SAPI, and is the largest supplier to U.S. forces.

Armor Holdings Products. Our Armor Holdings Products division manufactures and
sells a broad range of high quality equipment marketed under brand names that
are well known and respected in the military and law enforcement communities.
Products manufactured by this division include concealable and tactical body
armor, hard armor, duty gear, less-lethal munitions, anti-riot products, police
batons, emergency lighting products, forensic products firearms accessories,
weapon maintenance products, foldable ladders, and specialty gloves. Cyconics
International Training Services, Inc., a small subsidiary providing certain
training services formerly reported as a part of the Services division, is not
included in the amounts classified as assets held for sale or

                                      F-26


<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


discontinued operations and has been reclassified to our Armor Holdings
Products division where management oversight currently resides.

Armor Mobile Security. Our Armor Mobile Security division manufactures and
installs ballistic and blast protection armoring systems for a variety of
commercial vehicles including limousines, sedans, sport utility vehicles,
commercial trucks and cash-in-transit vehicles, to protect against varying
degrees of ballistic and blast threats. Our customers in this business include
international corporations and high net worth individuals. In addition, we
supply ballistic and blast protected armoring systems to U.S. federal law
enforcement and intelligence agencies and foreign heads of state.

                                      F-27

<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

We have invested substantial resources outside of the United States and plan to
continue to do so in the future. The Armor Mobile Security division has invested
substantial resources in Europe 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, currency risks, 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 us and our operating companies. We do not have political risk
insurance in the countries in which we currently conduct business. Moreover,
applicable agreements relating to our interests in our operating companies are
frequently governed by foreign law. As a result, in the event of a dispute, it
may be difficult for us to enforce our rights. Accordingly, we may have little
or no recourse upon the occurrence of any of these developments.

Revenues, operating income and total assets for each of our continuing segments
are as follows:

<TABLE>
<CAPTION>
                                          2003            2002           2001
                                        ---------      ---------      ---------
                                                         (IN THOUSANDS)
<S>                                     <C>            <C>            <C>
Revenues:
     Aerospace & Defense                $  91,673      $  59,318      $  18,145
     Products                             193,960        179,946        149,868
     Mobile Security                       79,539         65,853         29,087
                                        ---------      ---------      ---------
      Total revenues                    $ 365,172      $ 305,117      $ 197,100
                                        =========      =========      =========

Operating income:
     Aerospace & Defense                $  22,775      $  12,833      $   3,052
     Products                              33,054         30,978         26,845
     Mobile Security                        2,538          1,542          3,621
     Corporate                            (22,638)        (6,988)        (6,845)
                                        ---------      ---------      ---------
      Total operating income            $  35,729      $  38,365      $  26,673
                                        =========      =========      =========

Total assets:
     Aerospace & Defense                $ 209,834      $  47,746      $  23,963
     Products                             183,972        179,367        147,313
     Mobile Security                       63,161         57,700         78,164
     Corporate                            126,303         23,830         49,950
                                        ---------      ---------      ---------
      Total assets                      $ 583,270      $ 308,643      $ 299,390
                                        =========      =========      =========
</TABLE>

                                      F-28
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Financial information with respect to revenues, operating income from continuing
operations (geographic operating income from continuing operations before
amortization expense and integration and other charges) and total assets to
principal geographic areas is as follows:

<TABLE>
<CAPTION>
                                             2003                 2002                2001
                                      -------------------  ------------------- -------------------
                                                            (IN THOUSANDS)
<S>                                   <C>                  <C>                 <C>
     Revenues:
          North America                         $275,529            $ 225,365           $ 144,981
          South America                           15,007               19,879               6,449
          Africa                                   1,420                1,219                 582
          Europe/Asia                             73,216               58,654              45,088
                                      -------------------  ------------------- -------------------
                                                $365,172            $ 305,117           $ 197,100
                                      ===================  =================== ===================

     Geographic operating income:
          North America                          $38,674              $34,032             $23,290
          South America                              882                1,702                 473
          Africa                                     345                  428                 192
          Europe/Asia                              8,890                8,374               8,156
                                      -------------------  ------------------- -------------------
                                                $ 48,791              $44,536             $32,111
                                      ===================  =================== ===================

     Total assets:
          North America                         $523,954            $ 264,767            $268,019
          South America                            6,433                5,456               5,811
          Africa                                       -                    -                   -
          Europe/Asia                             52,883               38,420              25,560
                                      -------------------  ------------------- -------------------
                                                $583,270            $ 308,643           $ 299,390
                                      ===================  =================== ===================
</TABLE>

A reconciliation of consolidated geographic operating income from continuing
operations to consolidated operating income from continuing operations follows:

<TABLE>
<CAPTION>
                                                                 2003            2002             2001
                                                            --------------- ---------------  ---------------
                                                                            (IN THOUSANDS)
<S>                                                         <C>             <C>              <C>
      Consolidated geographic operating income                     $48,791         $44,536          $32,111
      Amortization                                                   (489)           (245)          (2,142)
      Integration and other charges                               (12,573)         (5,926)          (3,296)
                                                            --------------- ---------------  ---------------
                Operating income                                   $35,729         $38,365          $26,673
                                                            =============== ===============  ===============
</TABLE>
                                      F-29


<PAGE>



                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


13.      INCOME TAXES

Income tax expense (benefit) from continuing operations for the years ended
December 31, 2003, 2002, and 2001 consisted of the following:

<TABLE>
<CAPTION>
                                                            2003             2002             2001
                                                       ---------------- ---------------- ---------------
                                                                        (IN THOUSANDS)
<S>                                                     <C>             <C>              <C>
           Current
             Domestic                                         $ 10,387          $13,306         $ 7,017
             Foreign                                               403            2,389           1,563
                                                       ---------------- ---------------- ---------------
                Total current                                   10,790           15,695           8,580
                                                       ---------------- ---------------- ---------------
           Deferred
             Domestic                                            2,006             (25)           (319)
             Foreign                                             1,407              384            (54)
                                                       ---------------- ---------------- ---------------
                Total deferred                                   3,413              359           (373)
                                                       ---------------- ---------------- ---------------
                Total provision for income taxes              $ 14,203          $16,054          $8,207
                                                       ================ ================ ===============
</TABLE>

Significant components of our net deferred tax asset related to continuing
operations as of December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                            2003              2002
                                                                     ------------------- ----------------
                                                                                   (IN THOUSANDS)
<S>                                                                  <C>                 <C>
           Deferred tax assets:
                Reserves not currently deductible                              $ 3,527            $2,697
                Capital loss                                                    11,320                 -
                Operating loss carryforwards                                     2,811             1,769
                Patents                                                             22                 -
                Accrued expenses                                                   954               220
                Foreign tax credits                                                912             2,939
                Research and development and other credits                         150               206
                Tax on unremitted foreign earnings                                   -             1,255
                                                                     ------------------ -----------------
                                                                                19,696             9,086
           Deferred tax asset valuation allowance                             (11,395)              (75)
                                                                     ------------------ -----------------
           Deferred tax asset, net of valuation allowance                        8,301             9,011
           Deferred tax liability:
                Goodwill not amortized for financial
                  statement purposes under SFAS 142                            (2,418)             (954)
                Property and equipment                                         (2,970)             (475)
                                                                     ------------------ -----------------
           Net deferred tax asset                                              $ 2,913            $7,582
                                                                     ================== =================
</TABLE>

Recognition of deferred tax assets is based on management's belief that it is
more likely than not that the tax benefit associated with temporary differences
and operating and capital loss carryforwards will be utilized. A valuation
allowance is recorded for those deferred tax assets for which it is more likely
than not that the realization will not occur.

Our valuation allowance at December 31, 2003, consisted of $11,320,000 for a
capital loss carryforward and $75,000 in net operating loss carryforwards.

As of December 31, 2003, we have federal, state, and foreign NOLs providing a
tax effected benefit of $2,811,000. The NOLs expire in varying amounts in fiscal
years 2006 and 2022. At December 31, 2003, we also have tax credits of $150,000
subject to certain limitations due to the acquisition of Safariland, Ltd. We
also have approximately $912,000 of foreign tax credits expiring in 2006.

                                      F-30

<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

We are subject to periodic review by federal, foreign, state, and local tax
jurisdictions in the ordinary course of business. During 2002, we were notified
by the Internal Revenue Service (IRS) that certain prior year income tax returns
would be examined. As of December 31, 2003, the IRS exam has not been concluded
nor do we believe that it will have any material impact on the financial
statements.

US taxes have not been provided for on unremitted foreign earnings of
approximately $9.0 million from continuing operations. These earnings are
considered to be permanently reinvested in non-US operations.

Net deferred tax assets described above have been included in the accompanying
consolidated balance sheets as follows:

<TABLE>
<CAPTION>
                                                                2003            2002
                                                           ---------------   ------------
<S>                                                        <C>               <C>
                             Other current assets                 $ 4,151        $ 2,697
                             Other assets                               -          4,885
                             Other long-term liabilities          (1,238)              -
                                                           ---------------   ------------
                             Total deferred tax assets            $ 2,913        $ 7,582
                                                           ===============   ============
</TABLE>

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 for the years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                          2003         2002        2001
                                                                       ------------ ----------- ------------
<S>                                                                    <C>          <C>         <C>
      Provision for income taxes at statutory federal rate                   35.0%       35.0%        35.0%
      State and local income taxes, net of Federal benefit                  (0.5%)        3.8%         3.2%
      Compensation subject to IRC Section 162(m)                              8.6%           -            -
      Foreign income taxes                                                    2.1%        0.7%       (0.1%)
      Valuation allowances from discontinued operations                          -        3.8%            -
      Other permanent items                                                   0.3%       (.4%)       (2.2%)
                                                                       ------------ ----------- ------------
                                                                             45.5%       42.9%        35.9%
                                                                       ============ =========== ============
</TABLE>

14.      STOCKHOLDERS' EQUITY

Preferred stock. On July 16, 1996, our stockholders authorized a series of
preferred stock with such rights, privileges and preferences as the Board of
Directors shall from time to time determine. We have not issued any of this
preferred stock.

Stock options and grants. In 1994, we implemented an incentive stock plan and an
outside directors' stock plan. These plans collectively provide for the granting
of options to certain key employees 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 that 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.

In 1996, we implemented an incentive stock plan and an outside directors' stock
plan. These plans collectively provide for the granting of options to certain
key employees and directors. Pursuant to such plans, as amended, 2,200,000
shares of common stock were reserved and made available for distribution. The
option prices of stock that 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.

During 1998, we implemented a new non-qualified stock option plan. Pursuant to
the new plan, 725,000 shares of common stock were reserved and made available
for distribution. On January 1, 1999, we distributed all 725,000 shares
allocated under the plan. In 1999, we implemented the 1999 Stock Incentive Plan
(the "1999 Plan"). We reserved 2,000,000 shares of our common stock for the 1999
Plan. The 1999 Plan provides for the granting of options to employees, officers,
directors, consultants,


                                      F-31

<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

independent contractors and advisors of the Company. The
option prices of stock which may be purchased under the 1999 Plan are not less
than the fair market value of common stock on the dates of the grants.

During 2002, we implemented two new stock option plans. The 2002 Stock Incentive
Plan authorizes the issuance of up to 2,700,000 shares of our common stock upon
the exercise of stock options or in connection with the issuance of restricted
stock and stock bonuses. The 2002 Stock Incentive Plan authorizes the granting
of stock options, restricted stock and stock bonuses to employees, officers,
directors and consultants, independent contractors and advisors of Armor
Holdings and its subsidiaries. The 2002 Executive Stock Plan provides for the
grant of a total of 470,000 stock options and stock awards to our key employees.
The terms and provisions of the 2002 Executive Stock Plan are substantially the
same as the 2002 Stock Incentive Plan, except that we may only grant
non-qualified stock options under the 2002 Executive Stock Plan. The 2002
Executive Stock Plan was adopted on March 13, 2002 and all shares available for
grant under the 2002 Executive Stock Plan were granted to our executive officers
on March 13, 2002.

Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 2003, 2002 and
2001:

<TABLE>
<CAPTION>
                                                                   2003           2002           2001
                                                              --------------- ------------- ----------------
<S>                                                           <C>             <C>           <C>
             Expected life of option                                   4 yrs         4 yrs            4 yrs
             Dividend yield                                               0%            0%               0%
             Volatility                                                49.8%         52.2%            44.7%
             Risk free interest rate                                   2.51%         3.94%            4.52%
</TABLE>

The increase in volatility from fiscal 2001 to fiscal 2003 is primarily due to
the increased demand for the stock, which drove up the price and increased the
volatility.

The weighted average fair value of options granted during 2003, 2002 and 2001
are as follows:

<TABLE>
<CAPTION>
                                                                   2003           2002            2001
                                                              --------------- -------------  ---------------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>               <C>          <C>
              Fair value of each option granted                       $ 6.21        $10.08           $ 6.17
              Total number of options granted                            898         1,895              892
              Total fair value of all options granted                 $5,576       $19,098          $ 5,501
</TABLE>

Outstanding options, generally consisting of ten-year incentive and
non-qualified stock options, generally vest and become exercisable over a
three-year period from the date of grant. The outstanding options generally
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.

                                      F-32
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

A summary of the status of stock option grants as of December 31, 2003 and
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, 2000                           3,294,839                $ 9.91
                     Granted                                                      892,159                $15.24
                     Exercised                                                (1,173,227)                $ 9.37
                     Forfeited                                                   (29,737)                $15.51
                                                                         -----------------

                     Outstanding at December 31, 2001                           2,984,034                $11.60
                     Granted                                                    1,894,660                $22.96
                     Exercised                                                  (507,868)                $ 8.41
                     Forfeited                                                   (86,168)                $16.75
                                                                         -----------------

                     Outstanding at December 31, 2002                           4,284,658                $ 7.81
                     Granted                                                      898,347                $16.62
                     Exercised                                                  (724,934)                $11.83
                     Forfeited                                                  (567,150)                $21.52
                                                                         -----------------

                     Outstanding at December 31, 2003                           3,890,921                $17.00
                                                                         =================

                     Options exercisable at December 31, 2003                   2,036,417                $15.21
                                                                         =================
</TABLE>


The following table summarizes information about stock options outstanding at
December 31, 2003:

<TABLE>
<CAPTION>
                                                 12/31/2003                            REMAINING
                                                   OPTIONS            OPTIONS           LIFE IN
                  EXERCISE PRICE RANGE           OUTSTANDING        EXERCISABLE          YEARS
                  --------------------------- ------------------  -----------------     ---------
<S>                                           <C>                 <C>                   <C>
                   0.97 -  3.75                          75,166             75,166        2.0
                   7.50 -  9.94                         230,084            230,084        3.8
                  10.00 - 10.63                          17,836             17,836        5.5
                  11.00 - 11.63                         340,008            340,008        5.0
                  13.19 - 14.00                         335,500            228,665        6.8
                  14.17 - 14.70                         811,161            370,538        8.6
                  15.05 - 15.90                         362,590            203,240        8.1
                  16.31 - 16.50                          26,002              6,000        7.0
                  17.00 - 17.54                         368,072             46,392        9.3
                  21.75 - 21.75                         125,000             41,666        8.1
                  23.09 - 23.93                         649,502            315,156        8.4
                  24.07 - 25.80                         550,000            161,666        8.5
                                              -----------------   ----------------
                  Total                               3,890,921          2,036,417
                  --------------------------- ==================  =================
</TABLE>


                                      F-33



<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Remaining non-exercisable options as of December 31, 2003 become exercisable as
follows:

2004                           932,642
2005                           441,522
2006                           480,340

Earnings per share. The following details the earnings per share computations on
a basic and diluted basis for the years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                       2003            2002           2001
                                                                  ----------------------------------------------
                                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                               <C>              <C>            <C>
Numerator for basic and diluted earnings per share:
  Net income (loss) available to common shareholders                     $ 10,886     $ (17,689)        $10,128
                                                                  ---------------- -------------- --------------
Denominator:
    Basic earnings per share weighted-average shares outstanding
                                                                           28,175         30,341         23,932
  Effect of dilutive securities:
    Effect of shares issuable under stock option and stock
    grant plans, based on the treasury stock method                           779            616            836
                                                                  ---------------- -------------- --------------
Diluted earnings per share
  Adjusted weighted-average shares outstanding                             28,954         30,957         24,768
                                                                  ---------------- -------------- --------------
Basic earnings (loss) per share                                           $  0.39       $ (0.58)         $ 0.42
                                                                  ================ ============== ==============
Diluted earnings (loss) per share                                         $  0.38       $ (0.57)         $ 0.41
                                                                  ================ ============== ==============
</TABLE>

15. SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                                                       2003            2002            2001
                                                                  --------------- ---------------- -------------
<S>                                                               <C>             <C>              <C>
Cash paid during the year for:                                                     (IN THOUSANDS)
   Interest                                                              $ 1,245            $ 527       $ 3,878
                                                                  =============== ================ =============
   Income taxes                                                          $ 7,886           $5,753       $ 4,656
                                                                  =============== ================ =============
</TABLE>

<TABLE>
<CAPTION>
                                                                       2003            2002            2001
                                                                  --------------- ---------------- -------------
<S>                                                               <C>             <C>              <C>
Acquisitions of businesses, net of cash acquired:                                  (IN THOUSANDS)
   Fair value of assets acquired                                         $72,132         $ 16,134       $57,932
   Goodwill                                                               76,802            8,478        37,578
   Liabilities assumed                                                  (58,422)         (15,794)      (36,541)
   Stock issued                                                                -                -      (19,604)
                                                                  --------------- ---------------- -------------
   Total cash paid                                                       $90,512          $ 8,818       $39,365
                                                                  =============== ================ =============
</TABLE>

                                      F-34

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

16. QUARTERLY RESULTS (UNAUDITED)

The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 2003 and 2002. We believe all necessary
adjustments have been included in the amounts stated below to present fairly the
following selected information when read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere herein. Future
quarterly operating results may fluctuate depending on a number of factors.
Results of operations for any particular quarter are not necessarily indicative
of results of operations for a full year or any other quarter.

<TABLE>
<CAPTION>
                                                                         FISCAL 2003
                                             --------------------------------------------------------------------
                                                    FIRST             SECOND           THIRD          FOURTH
                                                   QUARTER            QUARTER         QUARTER         QUARTER
                                             -------------------- ---------------- -------------- ---------------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>                  <C>              <C>            <C>
Revenue from continuing operations                       $80,474          $81,659        $90,882        $112,157
Gross profit from continuing operations                  $23,312          $24,378        $28,929        $ 34,967
Net income (loss)                                        $ 5,087          $ 4,613        $ 6,115       $ (4,929)
Basic earnings per share                                 $  0.17          $  0.17        $  0.22         $(0.17)
Diluted earnings per share                               $  0.17          $  0.17        $  0.22       $  (0.17)
</TABLE>

<TABLE>
<CAPTION>
                                                                         FISCAL 2002
                                             --------------------------------------------------------------------
                                                    FIRST             SECOND           THIRD          FOURTH
                                                   QUARTER            QUARTER         QUARTER        QUARTER
                                             -------------------- ---------------- -------------- ---------------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>                  <C>              <C>            <C>
Revenue from continuing operations                      $ 69,604         $ 71,605       $ 80,557        $ 83,351
Gross profit from continuing operations                 $ 21,974         $ 22,701       $ 24,610        $ 25,087
Net income (loss)                                       $  5,960         $  4,075       $(14,707)       $(13,017)
Basic earnings (loss) per share                         $   0.19         $   0.13       $  (0.50)       $  (0.44)
Diluted earnings (loss) per share                       $   0.19         $   0.13       $  (0.49)       $  (0.44)
</TABLE>

17.  EMPLOYEE BENEFITS PLAN

In October 1997, we formed a 401(k) plan, (the "Plan") which provides for
voluntary contributions by employees and allows for a discretionary contribution
by us in the form of cash. We made contributions of approximately $332,000,
$395,500 and $272,700 to the Plan in 2003, 2002 and 2001 respectively.

We acquired Simula's noncontributory defined benefit pension plan (the "Pension
Plan") for employees on December 9, 2003. The Pension Plan was originally
adopted as of November 1, 1980. Contributions were made to the Pension Plan
based upon actuarially determined amounts. Effective July 1, 1999, Simula froze
the Plan for new participants. Effective December 8, 2003, prior to our
acquisition of the Pension Plan, Simula froze the Pension Plan for future
service for all participants. We have elected to payout the Supplemental
Retirement Plan of Simula, which represents $1,067,000 of the net amount
recognized. This amount was paid out on February 25, 2004.

                                      F-35
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Pension Plan's funded status and amounts recognized in our balance sheet at
December 31 are as follows:

<TABLE>
<CAPTION>
                                                                                        2003
                                                                                   (IN THOUSANDS)
                                                                                  ----------------
<S>                                                                               <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation                                                     $        8,810
Effect of projected future compensation increases                                               -
                                                                                  ----------------
Projected benefit obligation                                                                8,810
Pension Plan assets at fair value                                                         (6,169)
Contributions after measurement date                                                        (183)
                                                                                  ----------------
Unfunded status                                                                             2,458
Unrecognized prior service cost                                                                 -
Unrecognized loss                                                                               -
Unrecognized transition liability                                                               -
                                                                                  ----------------
Accrued benefit cost                                                                        2,458
Additional minimum liability                                                                    -
                                                                                  ----------------
Accrued benefit liability                                                                   2,458
Intangible asset                                                                                -
Accumulated other comprehensive income adjustments                                              -
                                                                                  ----------------
    Net amount recognized                                                          $        2,458
                                                                                  ================
</TABLE>

Reconciliation of the Pension Plan's projected benefit obligation is as follows:

<TABLE>
<CAPTION>
                                                                                        2003
                                                                                  ----------------
<S>                                                                               <C>
Projected benefit obligation at beginning of year                                 $         8,774
    Service Cost                                                                                -
    Interest Cost                                                                              56
    Actuarial gain                                                                              -
    Benefits paid                                                                            (20)
                                                                                  ----------------
Projected benefit obligation at end of year                                       $         8,810
                                                                                  ================
</TABLE>

Reconciliation of the fair value of plan assets is as follows:

<TABLE>
<CAPTION>
                                                                                        2003
                                                                                  ----------------
<S>                                                                               <C>
Fair value of plan assets at beginning of year                                     $        6,006
    Employer contributions                                                                    183
    Actual loss                                                                                 -
    Benefits paid                                                                            (20)
                                                                                  ----------------
Fair value of plan assets at end of year                                           $        6,169
                                                                                  ================
</TABLE>

Net periodic pension cost includes the following:

<TABLE>
<CAPTION>
                                                                                        2003
                                                                                    --------------
<S>                                                                                <C>
Service Cost                                                                       $            -
Interest Cost                                                                                  56
Expected loss on assets                                                                         -
Transition asset recognition                                                                    -
Prior service cost                                                                              -
Net loss recognition                                                                            -
                                                                                  ----------------
Net periodic pension cost                                                          $           56
                                                                                  ================
</TABLE>

Assumptions at December 31 used in the accounting for the Pension Plan were as
follows:

<TABLE>
<CAPTION>
                                                                                        2003
                                                                                    --------------
<S>                                                                                 <C>
Discount or settlement rate                                                             6.00%
Rate of increase in compensation levels                                                 3.25%
Expected long-term rate of return on Plan assets                                        8.00%
</TABLE>

                                      F-36
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Pension Plan's assets consist of money market accounts and investments in
common stocks, bonds and mutual funds.

18.  RELATED PARTY TRANSACTIONS

Effective as of January 1, 2002, Kanders & Company, Inc. ("Kanders & Co."), a
corporation controlled by Warren B. Kanders, the Chairman of our Board of
Directors and our Chief Executive Officer, entered into an agreement with us to
provide certain investment banking, financial advisory and related services for
a five year term that expires on December 31, 2006. Kanders & Co. will receive a
mutually agreed upon fee on a transaction-by-transaction basis during the term
of this agreement. The aggregate fees under this agreement will not exceed
$1,575,000 during any calendar year. We also agreed to reimburse Kanders & Co.
for reasonable out-of-pocket expenses including Kanders & Co.'s expenses for
office space, an executive assistant, furniture and equipment, travel and
entertainment, reasonable fees and disbursements of counsel, and consultants
retained by Kanders & Co. In April 2003, in connection with Mr. Kanders being
appointed Chief Executive Officer of Armor Holdings, Armor Holdings and Kanders
& Co. agreed to terminate the agreement pursuant to which Kanders & Co. provided
certain services to Armor Holdings. We paid Kanders & Co. $143,000 for
investment banking services during fiscal 2003 (through and including April 2003
only). We also reimbursed Kanders & Co. for out-of-pocket expenses in the
aggregate amount of $61,000 during the fiscal years ended December 31, 2003
(through and including April 2003 only).

Effective as of January 1, 2003, we entered into a Transportation Services
Agreement with Kanders Aviation, LLC, an entity controlled by Mr. Kanders, our
Chairman of the Board and Chief Executive Officer. Pursuant to the terms of the
Transportation Services Agreement and upon our request, Kanders Aviation may, in
its sole discretion, provide us with airport to airport air transportation
services via certain aircraft. The Transportation Services Agreement will remain
in effect indefinitely until terminated by written notice by either party
thereto to the other party thereto. During the term of the Transportation
Services Agreement, we will reimburse Kanders Aviation in an amount equal to the
fair market value of the air transportation services provided by Kanders
Aviation to us and any additional expenses incurred by Kanders Aviation in
connection with such air transportation services.

Nicholas Sokolow, one of our directors, is a member of the law firm Sokolow,
Dunaud, Mercadier & Carreras located in Paris, France. We have retained Sokolow,
Dunaud, Mercadier & Carreras during the fiscal year ended December 31, 2003 and
may retain Sokolow, Dunaud, Mercadier & Carreras during the fiscal year ending
December 31, 2004. During the fiscal year ended December 31, 2003, we paid
Sokolow, Dunaud, Mercadier & Carreras $124,000 for legal services in connection
with various acquisitions.

19. OPERATING LEASES

We are party to certain real estate, equipment and vehicle leases. Several
leases include options for renewal and escalation clauses. In most cases,
management expects that in the normal course of business leases will be renewed
or replaced by other leases. Approximate total future minimum annual lease
payments under all non-cancelable leases of continuing operations are as
follows:

<TABLE>
<CAPTION>
YEAR                              (IN THOUSANDS)
------------------------    ---------------------
<S>                         <C>
2004                                      $3,417
2005                                       2,249
2006                                       1,659
2007                                       1,593
2008                                       1,480
Thereafter                                 9,321

                            ---------------------
                                         $19,719
                            =====================
</TABLE>

                                      F-37
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

We incurred rent expense of approximately $1,467,000, $1,200,000 and $765,000
during the years ended December 31, 2003, December 31, 2002 and December 31,
2001, respectively.

20.  GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS

On August 12, 2003 we sold $150 million of Senior Subordinated Notes in private
placements pursuant to Rule 144A and Regulation S. The Senior Subordinated Notes
are uncollateralized obligations and rank junior in right of payment to our
existing and future senior debt. The Senior Subordinated Notes are guaranteed,
jointly and severally on a senior subordinated and uncollateralized basis, by
all of our domestic subsidiaries except Cyconics International Training
Services, Inc.

The following consolidating financial information presents the consolidating
balance sheets as of December 31, 2003 and 2002 and the related statements of
income and cash flows for each of the three years in the period ended December
31, 2003 for:

       o Armor Holdings, Inc., the parent,

       o the guarantor subsidiaries,

       o the nonguarantor subsidiaries, and

       o Armor Holdings, Inc. on a consolidated basis

The information includes elimination entries necessary to consolidate Armor
Holdings, Inc., the parent, with the guarantor and nonguarantor subsidiaries.

Investments in subsidiaries are accounted for by the parent using the equity
method of accounting. The guarantor and nonguarantor subsidiaries are presented
on a combined basis. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions. Separate financial
statements for the guarantor and nonguarantor subsidiaries are not presented
because management believes such financial statements would not be meaningful to
investors.



                                      F-38
<PAGE>



                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                          CONSOLIDATING BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             DECEMBER 31, 2003
                                              --------------------------------------------------------------------------------
                                                             GUARANTOR        NONGUARANTOR                       CONSOLIDATED
                                              PARENT         SUBSIDIARIES     SUBSIDIARIES      ELIMINATIONS        TOTAL
                                              ----------     ------------    ---------------    -------------    -------------
<S>                                           <C>            <C>             <C>                <C>              <C>
                                                                             (IN THOUSANDS)
ASSETS
Current Assets:
   Cash and cash equivalents                   $90,764         $ 11,084              $10,002          $   -        $ 111,850
    Restricted cash                              2,600                -                    -                           2,600
   Accounts receivable, net                      1,201           59,470               11,964              -           72,635
   Costs and earned gross profit in excess
     of billings                                     -                -                    -              -                -
   Intercompany receivables                     60,974            2,600               38,352      (101,926)                -
   Inventories                                       -           61,494               19,033              -           80,527
   Prepaid expenses and other current assets    20,241            1,844                2,600        (2,653)           22,032
   Current assets of discontinued operations         -              753                    -                             753
                                              ----------     ------------    ---------------    -------------    -------------
      Total Current Assets                     175,780          137,245               81,951      (104,579)          290,397

Property and equipment, net                      2,122           34,853               20,601              -           57,576
Goodwill, net                                        -          173,640                2,067              -          175,707
Patents, licenses and trademarks, net                -           43,991                  183              -           44,174
Long-term assets of discontinued operations          -            1,603                    -              -            1,603
Other assets                                    14,092            1,924                  153              -           16,169
Investment in subsidiaries                     320,034           10,038                    -      (330,072)                -
                                              ----------     ------------    ---------------    -------------    -------------
Total Assets                                  $512,028        $ 403,294             $104,955    $ (434,651)        $ 585,626
                                              ==========     ============    ===============    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Current portion of long-term debt              $  -         $ 31,960              $   147          $   -         $ 32,107
   Short-term debt                                   -                -                  498              -              498
   Accounts payable                              1,584           20,941                7,779              -           30,304
   Accrued expenses and other current
     liabilities                                12,403           27,113               18,702              -           58,218
   Income taxes payable                              -                -                    -              -                -
   Intercompany payables                        44,251           47,073                9,933      (101,257)                -
   Current liabilities of discontinued
     operations                                      -         (35,714)               37,009          (669)              626
                                              ----------     ------------    ---------------    -------------    -------------
      Total Current Liabilities                 58,238           91,373               74,068      (101,926)          121,753

Long-term debt, less current portion           153,452            4,257                  591              -          158,300
Other long-term liabilities                      4,973            4,008                1,227              -           10,208
Long-term liabilities of discontinued
operations                                           -            2,653                    -        (2,653)                -
                                              ----------     ------------    ---------------    -------------    -------------
Total Liabilities                              216,663          102,291               75,886      (104,579)          290,261

Stockholders' Equity:
   Preferred stock                                   -            1,450                    -        (1,450)                -
   Common stock                                    344            4,143                7,854       (11,997)              344
   Additional paid in capital                  318,460          191,781               46,095      (237,876)          318,460
   Retained earnings (accumulated deficit)      44,942          103,629             (24,880)       (78,749)           44,942
   Accumulated other comprehensive income        3,936                -                    -              -            3,936
   Treasury stock                              (72,317)               -                    -              -          (72,317)
                                              ----------     ------------    ---------------    -------------    -------------
Total Stockholders' Equity                     295,365          301,003               29,069      (330,072)          295,365
                                              ----------     ------------    ---------------    -------------    -------------

Total Liabilities and Stockholders' Equity    $512,028        $ 403,294             $104,955    $ (434,651)        $ 585,626
                                              ==========     ============    ===============    =============    =============
</TABLE>

                                      F-39

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                          CONSOLIDATING BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             DECEMBER 31, 2002
                                              --------------------------------------------------------------------------------
                                                             GUARANTOR        NONGUARANTOR                       CONSOLIDATED
                                              PARENT         SUBSIDIARIES     SUBSIDIARIES      ELIMINATIONS        TOTAL
                                              ----------     ------------    ---------------    -------------    -------------
<S>                                           <C>            <C>             <C>                <C>              <C>
                                                                             (IN THOUSANDS)
ASSETS
Current Assets:
   Cash and cash equivalents                  $  7,152        $   3,556         $      2,205       $      -        $  12,913
   Restricted cash                                   -                -                    -              -                -
   Accounts receivable, net                          -           44,864               13,649              -           58,513
   Costs and earned gross profit in excess
     of billings                                     -              234                    -              -              234
   Intercompany receivables                    123,744           33,165                3,800      (160,709)                -
   Inventories                                       -           46,591               15,739              -           62,330
   Prepaid expenses and other current assets    12,490           21,999                2,368       (24,645)           12,212
   Current assets of discontinued operations         -           10,351               18,474              -           28,825
                                              ----------     ------------    ---------------    -------------    -------------
      Total Current Assets                     143,386          160,760               56,235      (185,354)          175,027

Property and equipment, net                      2,456           27,250               17,430              -           47,136
Goodwill, net                                        -           96,903                1,833              -           98,736
Patents, licenses and trademarks, net                -            7,326                  195              -            7,521
Other assets                                       916            6,872                1,260              -            9,048
Long-term assets of discontinued operations          -            6,910               23,375              -           30,285
Investment in subsidiaries                     161,805           10,078                    -      (171,883)                -
                                              ----------     ------------    ---------------    -------------    -------------
Total Assets                                  $308,563       $  316,099         $    100,328    $ (357,237)       $  367,753
                                              ==========     ============    ===============    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Current portion of long-term debt            $    -        $   1,813           $        -       $      -        $   1,813
   Short-term debt                                   -                -                  599              -              599
   Accounts payable                                828           15,751                7,191              -           23,770
   Accrued expenses and other current
     liabilities                                 1,790           11,324               12,002              -           25,116
   Income taxes payable                          4,831            (148)                1,230              -            5,913
   Intercompany payables                        13,037          115,658               10,434      (139,129)                -
   Current liabilities of discontinued
     operations                                      -           14,267               24,538       (21,580)           17,225
                                              ----------     ------------    ---------------    -------------    -------------
      Total Current Liabilities                 20,486          158,665               55,994      (160,709)           74,436

Long-term debt, less current portion                 -            5,072                    -              -            5,072
Other long-term liabilities                          -                -                    -              -                -
Long-term liabilities of discontinued
operations                                           -           13,022               11,791       (24,645)              168
                                              ----------     ------------    ---------------    -------------    -------------
Total Liabilities                               20,486          176,759               67,785      (185,354)           79,676

Stockholders' Equity:
   Preferred stock                                   -            1,450                    -        (1,450)                -
   Common stock                                    336            5,681               26,318       (31,999)              336
   Additional paid in capital                  307,487           73,836               10,016       (83,852)          307,487
   Retained earnings (accumulated deficit)      34,056           58,373              (3,791)       (54,582)           34,056
   Accumulated other comprehensive loss        (4,169)                -                    -              -          (4,169)
   Treasury stock                             (49,633)                -                    -              -         (49,633)
                                              ----------     ------------    ---------------    -------------    -------------
Total Stockholders' Equity                     288,077          139,340               32,543      (171,883)          288,077
                                              ----------     ------------    ---------------    -------------    -------------

Total Liabilities and Stockholders' Equity    $308,563       $  316,099         $    100,328    $ (357,237)       $  367,753
                                              ==========     ============    ===============    =============    =============
</TABLE>

                                      F-40

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATING STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31, 2003
                                             -----------------------------------------------------------------------------
                                                           GUARANTOR      NONGUARANTOR                       CONSOLIDATED
                                               PARENT      SUBSIDIARIES   SUBSIDIARIES      ELIMINATIONS        TOTAL
                                             ----------    -----------    --------------    -------------    -------------
                                                                         (IN THOUSANDS)
<S>                                          <C>           <C>            <C>               <C>              <C>
REVENUES:
   Aerospace & Defense                       $      -       $ 91,673        $        -        $       -         $ 91,673
   Products                                         -        157,984            35,976                -          193,960
   Mobile Security                                  -         15,029            62,853            1,657           79,539
                                             ----------    -----------    --------------    -------------    -------------
   Total revenues                                   -        264,686            98,829            1,657          365,172
                                             ----------    -----------    --------------    -------------    -------------

COSTS AND EXPENSES:
   Cost of sales                                    -        172,089            79,840            1,657          253,586
   Operating expenses                          11,602         40,598            10,595                -           62,795
   Amortization                                     -            478                11                -              489
   Integration and other charges               10,886          1,687                 -                -           12,573
   Related party management fees (income),
   net                                         12,823              -             7,598         (20,421)                -
                                             ----------    -----------    --------------    -------------    -------------

OPERATING (LOSS) INCOME                      (35,311)         49,834               785           20,421           35,729
   Interest expense, net                        3,313            497               202                -            4,012
   Other expense, net                               -            117               391                -              508
   Equity in losses (earnings) of
   subsidiaries                              (42,600)         38,790                 -            3,810                -
   Related party interest expense
   (income), net                                   16          (255)                 -              239                -
                                             ----------    -----------    --------------    -------------    -------------

(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES               3,960         10,685               192           16,372           31,209
(BENEFIT) PROVISION FOR INCOME TAXES          (6,926)         18,399             2,730                -           14,203
                                             ----------    -----------    --------------    -------------    -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS       10,886        (7,714)           (2,538)           16,372           17,006

DISCONTINUED OPERATIONS:
   NET INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAX BENEFIT               -         34,882          (20,820)         (20,182)          (6,120)
                                             ----------    -----------    --------------    -------------    -------------
NET INCOME (LOSS)                            $ 10,886       $ 27,168        $ (23,358)        $ (3,810)         $ 10,886
                                             ==========    ===========    ==============    =============    =============
</TABLE>

                                      F-41
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATING STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31, 2002
                                             -----------------------------------------------------------------------------
                                                           GUARANTOR      NONGUARANTOR                       CONSOLIDATED
                                               PARENT      SUBSIDIARIES   SUBSIDIARIES      ELIMINATIONS        TOTAL
                                             ----------    -----------    --------------    -------------    -------------
                                                                          (IN THOUSANDS)
<S>                                          <C>           <C>            <C>               <C>              <C>
REVENUES:
   Aerospace & Defense                         $    -       $ 59,318            $    -            $   -       $   59,318
   Products                                         -        154,466            25,480                -          179,946
    Mobile Security                                 -         15,958            49,895                -           65,853
                                             ----------    -----------    --------------    -------------    -------------
   Total revenues                                   -        229,742            75,375                -          305,117
                                             ----------    -----------    --------------    -------------    -------------

COSTS AND EXPENSES:
   Cost of sales                                    -        148,208            62,537                -          210,745
   Operating expenses                           6,034         36,161             7,641                -           49,836
   Amortization                                     -            243                 2                -              245
   Integration and other charges                  800          5,126                 -                -            5,926
   Related party management fees (income),
   net                                          2,487          (171)             (616)          (1,700)                -
                                             ----------    -----------    --------------    -------------    -------------

OPERATING (LOSS) INCOME                       (9,321)         40,175             5,811            1,700           38,365
   Interest expense, net                          450            275               198                -              923
   Other (income) expense, net                    (2)           (22)                75                -               51
   Equity in losses (earnings) of
   subsidiaries                                 8,237        (1,220)                 -          (7,017)                -
   Related party interest income, net               -          (239)                 -              239                -
                                             ----------    -----------    --------------    -------------    -------------

(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES            (18,006)         41,381             5,538            8,478           37,391
(BENEFIT) PROVISION FOR INCOME TAXES            (317)         14,313             2,058                -           16,054
                                             ----------    -----------    --------------    -------------    -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS     (17,689)         27,068             3,480            8,478           21,337

DISCONTINUED OPERATIONS:
   NET LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX BENEFIT                           -       (16,894)          (20,671)          (1,461)         (39,026)
                                             ----------    -----------    --------------    -------------    -------------
NET (LOSS) INCOME                            $(17,689)     $  10,174      $   (17,191)       $    7,017      $  (17,689)
                                             ==========    ===========    ==============    =============    =============
</TABLE>

                                      F-42
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATING STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31, 2001
                                             -----------------------------------------------------------------------------
                                                           GUARANTOR      NONGUARANTOR                       CONSOLIDATED
                                               PARENT      SUBSIDIARIES   SUBSIDIARIES      ELIMINATIONS        TOTAL
                                             ----------    -----------    --------------    -------------    -------------
                                                                         (IN THOUSANDS)
<S>                                          <C>           <C>            <C>                <C>             <C>
REVENUES:
   Aerospace & Defense                         $    -       $ 18,145             $   -           $    -        $  18,145
   Products                                         -        134,006            15,862                -          149,868
    Mobile Security                                 -          7,076            22,011                -           29,087
                                             ----------    -----------    --------------    -------------    -------------
   Total revenues                                   -        159,227            37,873                -          197,100
                                             ----------    -----------    --------------    -------------    -------------

COSTS AND EXPENSES:
   Cost of sales                                    -         95,831            30,499                -          126,330
   Operating expenses                           5,451         30,418             2,790                -           38,659
   Amortization                                     -          2,059                83                -            2,142
   Integration and other charges                1,205          2,079                12                -            3,296
   Related party management income, net          (47)              -           (1,112)            1,159                -
                                             ----------    -----------    --------------    -------------    -------------

OPERATING (LOSS) INCOME                       (6,609)         28,840             5,601          (1,159)           26,673
   Interest expense, net                        3,452            360                52                -            3,864
   Other income, net                                -           (28)              (54)                -             (82)
   Equity in earnings of subsidiaries        (14,269)        (1,513)                 -           15,782                -
   Related party interest income, net               -        (1,310)                 -            1,310                -
                                             ----------    -----------    --------------    -------------    -------------

INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES                      4,208         31,331             5,603         (18,251)           22,891
(BENEFIT) PROVISION FOR INCOME TAXES          (5,920)         12,215             1,912                -            8,207
                                             ----------    -----------    --------------    -------------    -------------
INCOME FROM CONTINUING OPERATIONS              10,128         19,116             3,691         (18,251)           14,684

DISCONTINUED OPERATIONS:
   NET LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX BENEFIT                           -        (1,890)           (5,135)            2,469          (4,556)
                                             ----------    -----------    --------------    -------------    -------------
NET INCOME (LOSS)                             $10,128       $ 17,226        $  (1,444)      $  (15,782)       $   10,128
                                             ==========    ===========    ==============    =============    =============
</TABLE>


                                      F-43

<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATING STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31, 2003
                                                    --------------------------------------------------------------------------------
                                                                    GUARANTOR        NONGUARANTOR                      CONSOLIDATED
                                                       PARENT      SUBSIDIARIES      SUBSIDIARIES     ELIMINATIONS        TOTAL
                                                    -------------  -------------     --------------   -------------    -------------
                                                                                   (IN THOUSANDS)
<S>                                                 <C>            <C>               <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations:               $ 10,886      $ (7,714)          $ (2,538)        $ 16,372        $  17,006
Adjustments to reconcile income from continuing
   operations to cash provided by (used in)
   operating activities:
   Depreciation and amortization                           1,326          4,270              2,012               -            7,608
   Deferred income taxes                                 (3,008)          5,389              2,644               -            5,025
   Loss on disposal of fixed assets                            -             68                259               -              327
   Non-cash termination charge                             2,093              -                  -               -            2,093
   Non-cash restricted stock unit award                    7,266              -                  -               -            7,266
Changes in operating assets and liabilities, net of
   acquisitions:
   (Increase) decrease in accounts receivable                  -        (2,680)              1,685               -            (995)
   Decrease (increase) in intercompany
     receivables & payables                               83,092       (78,887)             15,977         (20,182)               -
   Decrease (increase) in inventory                            -            793            (3,294)               -          (2,501)
   Decrease (increase) in prepaid expenses and
     other assets                                         12,267       (13,758)              (890)               -          (2,381)
   Increase (Decrease) in accounts payable,
     accrued expenses and other current
     liabilities                                         10,775          (1,020)            7,288                -           17,043
   (Decrease) increase in income taxes payable          (22,583)         23,826              (882)               -              361
                                                    -------------  -------------     --------------   -------------    -------------

Net cash provided by  (used in) operating                102,114       (69,713)             22,261         (3,810)           50,852
activities
                                                    -------------  -------------     --------------   -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                         (200)        (5,894)            (2,590)               -          (8,684)
Purchase of patents and trademarks                             -          (185)                  -               -            (185)
Increase in restricted cash                              (2,600)              -                  -               -          (2,600)
Additional consideration for purchased
  businesses                                                  -         (1,026)                  -               -          (1,026)
Investment in subsidiaries                              (85,243)         45,403             36,030           3,810                -
Proceeds from the sale of business                        31,361              -                  -               -           31,361
Purchase of businesses, net of cash acquired            (90,512)              -                  -               -         (90,512)
                                                    -------------  -------------     --------------   -------------    -------------

Net cash (used in) provided by investing               (147,194)         38,298             33,440           3,810         (71,646)
activities:
                                                    -------------  -------------     --------------   -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options                    8,471              -                  -               -            8,471
Cash paid for financing costs                            (4,599)              -                  -               -          (4,599)
Repurchase of treasury stock                            (22,684)              -                  -               -         (22,684)
Borrowings of long-term debt                             147,504              -                774               -          148,278
Repayments of long-term debt                                   -        (1,688)                  -               -          (1,688)
Borrowings under lines of credit                          30,406              -              1,424               -           31,830
Repayments under lines of credit                        (30,406)          (114)            (1,578)               -         (32,098)
                                                    -------------  -------------     --------------   -------------    -------------

Net cash provided by (used in) financing                 128,692        (1,802)                620               -          127,510
  activities
                                                    -------------  -------------     --------------   -------------    -------------

Effect of exchange rate on cash and cash
  Equivalents
                                                               -          3,890            (3,057)               -              833
Net cash provided by (used in) discontinued                    -         36,855           (45,467)               -          (8,612)
  operations
                                                    -------------  -------------     --------------   -------------    -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                 83,612          7,528              7,797               -           98,937
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD             7,152          3,556              2,205               -           12,913
                                                    -------------  -------------     --------------   -------------    -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                $ 90,764       $ 11,084          $  10,002           $   -        $ 111,850
                                                    =============  =============     ==============   =============    =============
</TABLE>

                                      F-44
<PAGE>


                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATING STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31, 2002
                                                    --------------------------------------------------------------------------------
                                                                     GUARANTOR        NONGUARANTOR                     CONSOLIDATED
                                                       PARENT       SUBSIDIARIES      SUBSIDIARIES     ELIMINATIONS       TOTAL
                                                    -------------   -------------     --------------   -------------   -------------
<S>                                                 <C>             <C>               <C>              <C>             <C>
                                                                                    (IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income from continuing operations:            $  (17,689)     $    27,068       $      3,480     $     8,478      $    21,337
Adjustments to reconcile (loss) income from
  continuing operations to cash (used
   in) provided by operating activities:
   Depreciation and amortization                             854           3,583              1,143               -           5,580
   Deferred income taxes                                   (364)             321                402                             359
   Loss on disposal of fixed assets                            -              66                134               -             200
Changes in operating assets and liabilities, net of
  acquisitions:
   (Increase) decrease in accounts receivable                  -         (3,829)              1,275               -         (2,554)
   Decrease (increase) in intercompany
     receivables & payables                                6,151         (5,266)                576         (1,461)               -
   Increase in inventory                                       -         (5,125)            (4,256)               -         (9,381)
   Decrease (increase) in prepaid expenses and
     other assets                                            492         (2,459)              (279)               -         (2,246)
   (Decrease) increase in accounts payable,
     accrued expenses and other current
     liabilities                                         (1,405)           7,215            (9,564)               -         (3,754)
   Increase (decrease) in income taxes payable             5,663           (148)              1,230               -           6,745
                                                    -------------   -------------     --------------   -------------   -------------

Net cash (used in) provided by operating                 (6,298)          21,426            (5,859)           7,017          16,286
  activities
                                                    -------------   -------------     --------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                         (506)         (3,671)            (1,725)               -         (5,902)
Purchase of patents and trademarks                             -            (69)                  -               -            (69)
Additional consideration for purchased businesses              -         (9,375)                  -               -         (9,375)
Investment in subsidiaries                               (3,347)           1,643              8,721         (7,017)               -
Purchase of businesses, net of cash acquired                   -         (8,818)                  -               -         (8,818)
                                                    -------------   -------------     --------------   -------------   -------------

Net cash (used in) provided by investing                 (3,853)        (20,290)              6,996         (7,017)        (24,164)
  activities:
                                                    -------------   -------------     --------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options                    4,227               -                  -               -           4,227
Proceeds from of sale of put options                         525               -                  -               -             525
Cash paid for financing costs                              (326)               -                  -               -           (326)
Repurchase of treasury stock                            (26,054)               -                  -               -        (26,054)
Repayments of long-term debt                                   -           (620)              (110)               -           (730)
Borrowings under lines of credit                          32,372               -                  -               -          32,372
Repayments under lines of credit                        (32,372)            (75)                  -               -        (32,447)
                                                    -------------   -------------     --------------   -------------   -------------

Net cash used in financing activities                   (21,628)           (695)              (110)               -        (22,433)
                                                    -------------   -------------     --------------   -------------   -------------

Effect of exchange rate on cash and cash
   equivalents                                               304             342              (772)               -           (126)
Net cash used in discontinued operations                       -         (2,763)            (1,376)               -         (4,139)
                                                    -------------   -------------     --------------   -------------   -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS               (31,475)         (1,980)            (1,121)               -        (34,576)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD            38,627           5,536              3,326               -          47,489
                                                    -------------   -------------     --------------   -------------   -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD               $   7,152       $   3,556         $    2,205         $     -      $   12,913
                                                    =============   =============     ==============   =============   =============
</TABLE>

                                      F-45
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATING STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31, 2001
                                                    --------------------------------------------------------------------------------
                                                                     GUARANTOR        NONGUARANTOR                     CONSOLIDATED
                                                       PARENT       SUBSIDIARIES      SUBSIDIARIES     ELIMINATIONS       TOTAL
                                                    -------------   -------------     --------------   -------------   -------------
<S>                                                 <C>            <C>                <C>              <C>             <C>
                                                                                    (IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations:                    $   10,128     $    19,116         $   3,691      $  (18,251)     $    14,684
Adjustments to reconcile income from continuing
   operations to cash (used in)
   provided by operating activities:
   Depreciation and amortization                             694           4,578                342               -           5,614
   Deferred income taxes                                      76           (407)               (42)                           (373)
   Loss on disposal of fixed assets                            -              21                170               -             191
Changes in operating assets and liabilities,
   net of acquisitions:
   Increase in accounts receivable                             -        (11,880)            (3,000)               -        (14,880)
   (Increase) decrease in intercompany
     receivables & payables                             (67,323)          62,878              1,976           2,469               -
   (Increase) decrease in inventory                            -        (12,044)              8,096               -         (3,948)
   Decrease (increase) in prepaid expenses and
     other assets                                            162            (92)                979               -           1,049
   Increase (decrease) in accounts payable,
     accrued expenses and other current
     liabilities                                           4,632           6,317            (3,768)               -           7,181
   Increase (decrease) in income taxes payable             6,667             272              (272)               -           6,667
                                                    -------------   -------------     --------------   -------------   -------------

Net cash (used in) provided by operating                (44,964)          68,759              8,172        (15,782)          16,185
  activities
                                                    -------------   -------------     --------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                       (1,140)         (3,984)              (520)               -         (5,644)
Proceeds from sale of equity investment                      843               -                  -               -             843
Additional consideration for purchased businesses        (1,913)         (1,357)                  -               -         (3,270)
Investment in subsidiaries                               (6,739)        (15,360)              6,317          15,782               -
Purchase of businesses, net of cash acquired                   -        (39,365)                  -               -        (39,365)
                                                    -------------   -------------     --------------   -------------   -------------

Net cash (used in) provided by investing                 (8,949)        (60,066)              5,797          15,782        (47,436)
  activities:
                                                    -------------   -------------     --------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options                   10,160               -                  -               -          10,160
Proceeds from of issuance of common stock                117,979               -                  -               -         117,979
Cash paid for deferred loan costs                          (545)               -                  -               -           (545)
Repurchase of treasury stock                               (723)               -                  -               -           (723)
Proceeds from issuance of treasury shares for                686               -                  -               -             686
  stock options
Repayments of long-term debt                                   -           (676)                  -               -           (676)
Repayments of debt assumed in acquisitions                     -         (1,315)                  -               -         (1,315)
Borrowings under lines of credit                          98,000               -                286               -          98,286
Repayments under lines of credit                       (130,981)               -                  -               -       (130,981)
                                                    -------------   -------------     --------------   -------------   -------------

Net cash provided by (used in) financing                  94,576         (1,991)                286               -          92,871
  activities
                                                    -------------   -------------     --------------   -------------   -------------

Effect of exchange rate on cash and cash
  equivalents
                                                         (2,789)           2,703            (1,373)               -         (1,459)
Net cash used in discontinued operations                       -         (3,453)           (10,883)               -        (14,336)
                                                    -------------   -------------     --------------   -------------   -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                 37,874           5,952              1,999               -          45,825
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               753           (416)              1,327               -           1,664
                                                    -------------   -------------     --------------   -------------   -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD              $   38,627       $   5,536         $    3,326         $     -      $   47,489
                                                    =============   =============     ==============   =============   =============
</TABLE>

                                      F-46

<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

21.  SUBSEQUENT EVENTS

On January 2, 2004, the Ontario Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bonds, Series 1989 was paid-in full with
restricted cash of $2.6 million.

On January 5, 2004, $31.1 million of 8% Senior Subordinated Convertible Notes
plus accrued interest was paid-in full.

On February 25, 2004, we paid $1,067,000 to fully satisfy the Supplemental
Retirement Plan of Simula, Inc., which we acquired on December 9, 2003 with the
acquisition of Simula.

On March 5, 2004, we acquired a majority of the assets and assumed certain
liabilities of Vector Associations, Inc. (dba ODV, Inc.), a leading manufacturer
and distributor of field drug test kits and crime scene products. The purchase
price was $3,289,000 including $2,739,000 in cash at closing, an additional
$275,000 plus interest payable on December 31, 2004, subject to certain
adjustments and an additional $275,000 plus interest payable on April 30, 2005,
subject to certain adjustments.

Effective in the first quarter 2004, we instituted a new segment reporting
format to include three reportable business divisions: Aerospace & Defense
Group, the Products Division and the Mobile Security Division. The Aerospace &
Defense Group was formed upon the completion of our acquisition of Simula, Inc.
on December 9, 2003, and results have been included herein since the acquisition
date. The Aerospace & Defense Group also includes the military business,
including armor and blast protection systems for M1114 Up-Armored HMMWVs, and
other military vehicle armor programs, which previously were included in the
Mobile Security Division. The Aerospace & Defense Group also includes the SAPI
plate produced by our Protech subsidiary in Pittsfield, Massachusetts, which was
previously reported as part of the Products Division. The historical results of
these businesses have been reclassified as part of the Aerospace & Defense
Group. This reporting change was made to better reflect management's approach to
operating and directing the businesses, and, in certain instances, to align
financial reporting with our market and customer segments.

                                      F-47
<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/ Warren B. Kanders
                                            ----------------------------------
                                            Warren B. Kanders
                                            Chairman of the Board of Directors
                                            and Chief Executive Officer
                                            Dated: May 10, 2004


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:


/s/ Warren B. Kanders
------------------------------------
Warren B. Kanders
Chairman of the Board of Directors
and Chief Executive Officer
May 10, 2004


/s/ Glenn J. Heiar                      /s/ Nicholas Sokolow
-----------------------------------     ----------------------------------
Glenn J. Heiar                          Nicholas Sokolow
Chief Financial Officer                 Director
May 10, 2004                            May 10, 2004


/s/ Burtt R. Ehrlich                    /s/ Thomas W. Strauss
-----------------------------------     ----------------------------------
Burtt R. Ehrlich                        Thomas W. Strauss
Director                                Director
May 10, 2004                            May 10, 2004


/s/ Alair A. Townsend                   /s/ Deborah A. Zoullas
-----------------------------------     ----------------------------------
Alair A. Townsend                       Deborah A. Zoullas
Director                                Director
May 10, 2004                            May 10, 2004


/s/ David R. Haas
-----------------------------------
David R. Haas
Director
May 10, 2004