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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   ----------

                                   FORM 10-Q

                                   ----------

(Mark One)

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

               FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005, or

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

               FOR THE TRANSITION PERIOD FROM ___________TO ___________.

                         COMMISSION FILE NUMBER 0-18863

                              ARMOR HOLDINGS, INC.

                                   ----------

             (Exact name of registrant as specified in its charter)

                DELAWARE                                          59-3392443
     (State or other jurisdiction of                            (IRS Employer
     incorporation or organization)                          Identification No.)

       13386 INTERNATIONAL PARKWAY
          JACKSONVILLE, FLORIDA                                     32218
(Address of principal executive offices)                          (Zip Code)

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

                                   ----------

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [_]

The number of shares outstanding of the registrant's Common Stock as of April
27, 2005 is 34,535,765.


                                       1



                              ARMOR HOLDINGS, INC.

                                   FORM 10-Q

                                     INDEX

                                                                            Page
                                                                            ----

PART I - FINANCIAL INFORMATION

     ITEM 1.   FINANCIAL STATEMENTS......................................     3

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS....................    29

     ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK............................................    43

     ITEM 4.   CONTROLS AND PROCEDURES...................................    45

PART II - OTHER INFORMATION

     ITEM 1.   LEGAL PROCEEDINGS.........................................    46

     ITEM 6.   EXHIBITS..................................................    49

SIGNATURES                                                                   50


                                       2



                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

     The accompanying unaudited condensed consolidated financial statements of
Armor Holdings, Inc. and its wholly-owned subsidiaries include all adjustments
which management considers necessary for a fair presentation of operating
results and financial position as of March 31, 2005 and for the three month
periods ended March 31, 2005 and March 31, 2004.

     These unaudited condensed consolidated financial statements should be read
in conjunction with the financial statements included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2004.


                                       3



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)



                                                            MARCH 31, 2005   DECEMBER 31, 2004
                                                              (UNAUDITED)            *
                                                            --------------   -----------------

ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                  $   49,136        $  421,209
   Short-term investment securities                              391,975                --
   Accounts receivable (net of allowance for
      doubtful accounts of $3,927 and $3,077)                    183,993           174,559
   Costs and earned gross profit in excess of billings             5,781               893
   Inventories                                                   184,050           176,208
   Prepaid expenses and other current assets                      49,703            46,935
                                                              ----------        ----------
      Total current assets                                       864,638           819,804

PROPERTY AND EQUIPMENT (net of
   accumulated depreciation of $30,068 and
   $27,917)                                                       76,894            77,307

GOODWILL (net of accumulated amortization
   of $4,024 and $4,024)                                         263,807           262,013

PATENTS, LICENSES AND TRADEMARKS
   (net of accumulated amortization of $8,865 and $6,830)        110,456           112,459

OTHER ASSETS                                                      16,450            20,768
                                                              ----------        ----------
TOTAL ASSETS                                                  $1,332,245        $1,292,351
                                                              ==========        ==========


                 * Condensed from audited financial statements.

           See notes to condensed consolidated financial statements.


                                       4



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS, EXCEPT FOR SHARE DATA)



                                                       MARCH 31, 2005   DECEMBER 31, 2004
                                                         (UNAUDITED)            *
                                                       --------------   -----------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Current portion of long-term debt                     $      479         $      621
   Short-term debt                                          345,593            343,756
   Accounts payable                                          82,251             69,601
   Accrued expenses and other current liabilities            99,601            107,247
   Income taxes payable                                       8,197              9,001
                                                         ----------         ----------
      Total current liabilities                             536,121            530,226

LONG-TERM LIABILITIES:
   Long-term debt, less current portion                     152,547            156,751
   Other long-term liabilities                                1,974              1,951
   Deferred income taxes                                     40,136             38,227
                                                         ----------         ----------
      Total liabilities                                     730,778            727,155

COMMITMENTS AND CONTINGENCIES
(NOTE 12)

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 5,000,000 shares
      authorized; no shares issued and outstanding               --                 --
   Common stock, $.01 par value; 75,000,000 and
      75,000,000 shares authorized; 40,364,903 and
      40,133,870 issued and 34,304,681 and
      34,073,648 outstanding at March 31, 2005
      and December 31, 2004, respectively                       404                402
   Additional paid-in capital                               512,092            504,809
   Retained earnings                                        156,510            125,481
   Accumulated other comprehensive income                     4,778              6,821
   Treasury stock                                           (72,317)           (72,317)
                                                         ----------         ----------
      Total stockholders' equity                            601,467            565,196
                                                         ----------         ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
   EQUITY                                                $1,332,245         $1,292,351
                                                         ==========         ==========


                 * Condensed from audited financial statements.

           See notes to condensed consolidated financial statements.


                                       5



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                     THREE MONTHS ENDED
                                              -------------------------------
                                              MARCH 31, 2005   MARCH 31, 2004
                                              --------------   --------------
REVENUES:
   Aerospace & Defense                           $260,470         $ 81,008
   Products                                        68,558           53,840
   Mobile Security                                 35,937           26,780
                                                 --------         --------
   Total revenues                                 364,965          161,628
                                                 --------         --------
COSTS AND EXPENSES:
   Cost of revenues                               273,655          114,068
   Operating expenses                              33,816           23,251
   Amortization                                     2,038              980
   Integration and other charges                      800              681
                                                 --------         --------

OPERATING INCOME                                   54,656           22,648
   Interest expense, net                            2,245            1,728
   Other expense, net                               1,123              115
                                                 --------         --------

INCOME FROM CONTINUING OPERATIONS BEFORE
   PROVISION FOR INCOME TAXES                      51,288           20,805

PROVISION FOR INCOME TAXES                         20,259            8,177
                                                 --------         --------
INCOME FROM CONTINUING OPERATIONS                  31,029           12,628
LOSS FROM DISCONTINUED OPERATIONS (NOTE 2),
   NET OF TAX                                          --             (138)
                                                 --------         --------
NET INCOME                                       $ 31,029         $ 12,490
                                                 ========         ========

NET INCOME PER COMMON SHARE - BASIC

INCOME FROM CONTINUING OPERATIONS                $   0.90         $   0.44
LOSS FROM DISCONTINUED OPERATIONS                    0.00             0.00
                                                 --------         --------
BASIC EARNINGS PER SHARE                         $   0.90         $   0.44
                                                 ========         ========
NET INCOME PER COMMON SHARE - DILUTED

INCOME FROM CONTINUING OPERATIONS                $   0.87         $   0.42
LOSS FROM DISCONTINUED OPERATIONS                    0.00             0.00
                                                 --------         --------
DILUTED EARNINGS PER SHARE                       $   0.87         $   0.42
                                                 ========         ========

WEIGHTED AVERAGE SHARES - BASIC                    34,509           28,472
                                                 ========         ========
WEIGHTED AVERAGE SHARES - DILUTED                  35,832           29,934
                                                 ========         ========

           See notes to condensed consolidated financial statements.


                                       6



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)



                                                                              THREE MONTHS ENDED
                                                                       -------------------------------
                                                                       MARCH 31, 2005   MARCH 31, 2004
                                                                       --------------   --------------

CASH FLOW FROM OPERATING ACTIVITIES:
   Income from continuing operations                                     $  31,029         $ 12,628
   Adjustments to reconcile income from continuing operations to
      cash provided by operating activities:
      Depreciation and amortization                                          5,203            3,414
      Loss on disposal of fixed assets                                          30                6
      Deferred income taxes                                                  2,616             (438)
      Fair value adjustment for put options                                  1,121               --
   Changes in operating assets and liabilities, net of acquisitions:
      (Increase) in accounts receivable                                    (14,322)         (17,173)
      (Increase) in inventories                                             (7,842)         (12,232)
      (Increase) in prepaid expenses and other assets                       (1,574)          (5,222)
      Increase in accounts payable, accrued expenses
         and other current liabilities                                       2,478           12,395
      Increase in income taxes payable                                         742            7,221
                                                                         ---------         --------
      Net cash provided by operating activities                             19,481              599
                                                                         ---------         --------
CASH FLOW FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                       (3,223)          (3,814)
   Purchase of patents and trademarks                                          (34)             (49)
   Purchases of short-term investment securities                          (469,800)         (25,075)
   Proceeds from sales of short-term investment securities                  77,825           16,175
   Sale of put options                                                       1,687               --
   Purchase of equity investment                                                --           (1,374)
   Collection of note receivable                                                --              375
   Decrease in restricted cash                                                  --            2,600
   Additional consideration for purchased businesses                        (1,081)         (32,967)
   Purchase of businesses, net of cash acquired                             (1,362)          (2,729)
                                                                         ---------         --------
   Net cash used in investing activities                                  (395,988)         (46,858)
                                                                         ---------         --------
CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds from the exercise of stock options                               3,903            4,488
   Repayments of long-term debt                                               (190)          (2,762)
   Borrowings under lines of credit                                          8,325            5,449
   Repayments under lines of credit                                         (6,505)          (5,327)
                                                                         ---------         --------
   Net cash provided by used in financing activities                         5,533            1,848
                                                                         ---------         --------
   Effect of exchange rate changes on cash and cash equivalents             (1,099)             134
   Net cash used in discontinued operations                                     --             (638)
                                                                         ---------         --------
   NET DECREASE IN CASH AND CASH EQUIVALENTS                              (372,073)         (44,915)
   CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          421,209          111,850
                                                                         ---------         --------
   CASH AND CASH EQUIVALENTS, END OF PERIOD                              $  49,136         $ 66,935
                                                                         =========         ========
   CASH AND CASH EQUIVALENTS, END OF PERIOD
      CONTINUING OPERATIONS                                              $  49,136         $ 66,935
      DISCONTINUED OPERATIONS                                                  --               383
                                                                         ---------         --------
                                                                         $  49,136         $ 67,318
                                                                         =========         ========


            See notes to condensed consolidated financial statements.


                                        7



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

NOTE 1 - BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements of
Armor Holdings, Inc. and its wholly-owned subsidiaries (the "Company", "we",
"our", "us") have been prepared in accordance with generally accepted accounting
principles for interim information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X, and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
by management to present a fair presentation have been included. The results of
operations for the three month period is not necessarily indicative of the
results to be expected for the full year and should be read in conjunction with
the consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2004. The amounts disclosed
in the footnotes are related to continuing operations unless otherwise
indicated. Certain prior year amounts have been reclassified to conform to the
current year presentation.

NOTE 2 - DISCONTINUED OPERATIONS

     On July 2, 2004, we sold the security consulting division of our litigation
support services subsidiary, New Technologies Armor, Inc. ("NTI"), which was the
last remaining business in discontinued operations. The remaining division in
NTI, consisting primarily of training services, has been included as part of the
Products Division segment, where management now resides. This business
represented the last remaining business in our ArmorGroup Services Division (the
"Services Division"). We had no discontinued operations at March 31, 2005.

     A summary of the operating results of the discontinued operations for the
three months ended March 31, 2005 and 2004, is as follows.

                                                  THREE MONTHS ENDED
                                           -------------------------------
                                           MARCH 31, 2005   MARCH 31, 2004
                                           --------------   --------------
                                                    (IN THOUSANDS)

Revenue                                          $--            $ 720
Cost of sales                                     --              236
Operating expenses                                --              436
                                                 ---            -----
Operating income                                  --               48
Interest expense, net                             --                2
Other expense, net                                --              263
                                                 ---            -----
Loss from discontinued operations before          --             (217)
   income tax benefit
Income tax benefit                                --              (79)
                                                 ---            -----
Loss from discontinued operations                $--            $(138)
                                                 ===            =====


                                        8



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

NOTE 3 - COMPREHENSIVE INCOME

     The components of comprehensive income, net of tax benefit of $114,000 and
tax provision of $20,000 for the three months ended March 31, 2005 and 2004,
respectively, are listed below:



                                                             THREE MONTHS ENDED
                                                      -------------------------------
                                                      MARCH 31, 2005   MARCH 31, 2004
                                                      --------------   --------------
                                                               (IN THOUSANDS)

Net income                                                $31,029          $12,490
Other comprehensive income:
   Unrealized gain on equity securities, net of tax             -               37
   Foreign currency translation                            (2,043)            (365)
                                                          -------          -------
Comprehensive income                                      $28,986          $12,162
                                                          =======          =======


NOTE 4 - INVENTORIES

     The components of inventory as of March 31, 2005 and December 31, 2004, are
summarized as follows:

                       MARCH 31, 2005   DECEMBER 31, 2004
                       --------------   -----------------
                                  (IN THOUSANDS)

Raw material              $112,924           $ 97,528
Work-in-process             37,606             51,137
Finished goods              33,520             27,543
                          --------           --------
   Total inventories      $184,050           $176,208
                          ========           ========

NOTE 5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued expenses and other current liabilities as of March 31, 2005 and
December 31, 2004, are summarized as follows:



                                                          MARCH 31, 2005   DECEMBER 31, 2004
                                                          --------------   -----------------
                                                                    (IN THOUSANDS)

Accrued expenses and other current liabilities                $63,581           $ 70,869
Customer deposits                                              31,914             32,317
Deferred consideration for acquisitions                         4,106              4,061
                                                              -------           --------
   Total accrued expenses and other current liabilities       $99,601           $107,247
                                                              =======           ========



                                        9



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

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

     We account for derivative instruments in accordance with Statement of
Financial Accounting Standards No. 133, " Accounting for Derivative Instruments
and Hedging Activities," as amended by Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment of SFAS 133", and Statement of Financial
Accounting Standards No. 149 "Amendment of SFAS 133 on Derivative Instruments
and Hedging Activities" (collectively "SFAS 133"). SFAS 133 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 8.25% $150 million Senior Subordinated Notes
due 2013 (the "8.25% Notes") using interest rate swaps. We enter into these
derivative contracts to manage fair value changes which 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 agreements
were entered into to exchange the fixed interest rate on the 8.25% Notes for a
variable interest rate equal to six-month LIBOR (3.4% at March 31, 2005), set in
arrears, plus a spread ranging from 2.735% to 2.75% fixed semi-annually on the
fifteenth of February and August each year through maturity. 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 8.25% Notes. Accordingly, changes
in the fair value of the interest rate swap agreements offset changes in the
fair value of the 8.25% 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 8.25% Notes. The fair
value of the interest rate swap agreements was approximately $1.9 million and
$6.0 million at March 31, 2005 and December 31, 2004, respectively, and is
included in other assets and long-term debt on the accompanying condensed
consolidated balance sheets.

     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



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

NOTE 7 - GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

     Under Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), goodwill and intangible assets with
indefinite lives are no longer amortized, but are tested for impairment at least
annually or more often if indicators of impairment arise. The changes in the
carrying amount of goodwill for the three months ended March 31, 2005 are as
follows:

                       AEROSPACE               MOBILE
                       & DEFENSE   PRODUCTS   SECURITY   CORPORATE     TOTAL
                       ---------   --------   --------   ---------   --------
                                          (IN THOUSANDS)
Balance at
   December 31, 2004    $154,313   $101,292    $6,408      $   --    $262,013
Goodwill acquired
   during period              --         --        --       1,729       1,729
Foreign currency
   translation and
   other adjustments          --         93       (28)         --          65
                        --------   --------    ------      ------    --------
Balance at
   March 31, 2005       $154,313   $101,385    $6,380      $1,729    $263,807
                        ========   ========    ======      ======    ========

     Included in patents, licenses and trademarks in the accompanying
consolidated balance sheets are the following intangible assets as of March 31,
2005:

                              CUSTOMER
                           RELATIONSHIPS   TECHNOLOGY   MARKETING     TOTAL
                           -------------   ----------   ---------   --------
Gross amount                  $58,454        $14,743     $46,124    $119,321
Accumulated amortization       (4,282)        (1,936)     (2,647)     (8,865)
                              -------        -------     -------    --------
Net amount                    $54,172        $12,807     $43,477    $110,456
                              =======        =======     =======    ========

     Included in Marketing are approximately $41.2 million of marketing-related
intangible assets that have indefinite lives.


                                       11



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

NOTE 8 - INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL REVENUES

     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. Our Services division has been
classified as discontinued operations and is no longer included in this
presentation (See Note 2).

     Aerospace & Defense Group. The 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 land, marine and aviation safety and
military personnel protection. The most significant business within the
Aerospace & Defense Group is armoring a variety of light, medium and heavy
wheeled vehicles for the military. We are the sole-source provider to the U.S.
military of the armor and blast protection systems (up-armoring) for their High
Mobility Multi-purpose Wheeled Vehicles (Up-Armored HMMWV, commonly known as the
Humvee). We also provide spare parts and logistical and field support services
for Up-Armored HMMWVs previously shipped by us. We also provide blast and
ballistic protection kits for the standard HMMWV which are installed in the
field. Additionally, we develop ballistic and blast protected armored and sealed
truck cabs for other military tactical wheeled vehicles. For example, we provide
land vehicle armor kits for the Heavy Expanded Mobility Tactical Truck
("HEMTT"), Palletized Load System ("PLS"), Heavy Equipment Transporter ("HET"),
M915 and Armored Security Vehicle ("ASV").

     The Aerospace & Defense Group develops and supplies personnel equipment,
including small arms protection inserts ("SAPI") and other engineered ceramic
body armor, helmets, and other protective and duty equipment. Our products
include, among others, Modular Lightweight Load-Carrying Equipment ("MOLLE")
systems, Outer Tactical Vests ("OTVs") and Warrior Helmets. We are currently the
largest supplier of MOLLE systems for the U.S. Army which is a modular rucksack
that can be configured in a number of ways depending on the needs of the
military mission. We also manufacture OTVs which, when used with SAPI plates,
provide enhanced protection against bullets, mines, grenades and mortar and
artillery shells. SAPI plates have been adopted by the U.S. military as a key
element of the protective equipment worn by U.S. troops.

     The Aerospace & Defense Group develops and sells military helicopter
seating systems, helicopter cockpit airbag systems, aircraft armor kits,
emergency bailout parachutes and survival equipment worn by military aircrew.
The primary customers for these products are the U.S. Army, U.S. Marine Corps,
Boeing and Sikorsky Aircraft.

     Armor Holdings Products. Our Armor Holdings Products division manufactures
and sells a broad range of high quality equipment marketed under brand names
that are known 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,


                                       12



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

police batons, emergency lighting products, forensic products, firearms
accessories, weapon maintenance products, foldable ladders, backpacks and
specialty gloves.

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

     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.

     Corporate. Our Corporate Division includes the corporate management and
expenses associated with managing the overall company. These expenses include
compensation and benefits of corporate management and staff, legal and
professional fees, and administrative and general expenses, which are not
allocated to the business units.


                                       13



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

     Revenues, operating income and total assets for each of our continuing
operating segments are as follows (net of intercompany eliminations):

                                                        THREE MONTHS ENDED
                                                 -------------------------------
                                                 MARCH 31, 2005   MARCH 31, 2004
                                                 --------------   --------------
                                                          (IN THOUSANDS)
Revenues:
   Aerospace & Defense                              $260,470         $ 81,008
   Products                                           68,558           53,840
   Mobile Security                                    35,937           26,780
                                                    --------         --------
      Total revenues                                $364,965         $161,628
                                                    ========         ========

Operating income (loss):
   Aerospace & Defense                              $ 47,499         $ 19,479
   Products                                            9,040            5,685
   Mobile Security                                     5,606            1,073
   Corporate                                          (7,489)          (3,589)
                                                    --------         --------
      Total operating income                        $ 54,656         $ 22,648
                                                    ========         ========

                                              MARCH 31, 2005   DECEMBER 31, 2004
                                              --------------   -----------------
                                                        (IN THOUSANDS)
Total assets:
   Aerospace & Defense                          $  496,854         $  490,754
   Products                                        286,275            278,912
   Mobile Security                                 105,898            103,799
   Corporate                                       443,218            418,886
                                                ----------         ----------
      Total assets                              $1,332,245         $1,292,351
                                                ==========         ==========


                                       14



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

     The following unaudited information with respect to revenues and total
fixed assets, net from continuing operations to principal geographic areas are
as follows:

                                                        THREE MONTHS ENDED
                                                 -------------------------------
                                                 MARCH 31, 2005   MARCH 31, 2004
                                                 --------------   --------------
                                                          (IN THOUSANDS)
Revenues:
   North America                                    $321,449      $131,351
   South America                                       4,393         3,476
   Africa                                              4,744         1,206
   Europe/Asia                                        34,379        25,595
                                                    --------      --------
      Total revenue                                 $364,965      $161,628
                                                    ========      ========

                                              MARCH 31, 2005   DECEMBER 31, 2004
                                              --------------   -----------------
                                                        (IN THOUSANDS)
Total fixed assets, net:
   North America                                  $55,208           $54,332
   South America                                    1,399             1,461
   Africa                                              --                --
   Europe/Asia                                     20,287            21,514
                                                  -------           -------
      Total fixed assets, net                     $76,894           $77,307
                                                  =======           =======


                                       15



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

NOTE 9 - EARNINGS PER SHARE

     The following details the numerators and denominators of the basic and
diluted earnings per share computations for net income from continuing
operations:



                                                                THREE MONTHS ENDED
                                                         -------------------------------
                                                         MARCH 31, 2005   MARCH 31, 2004
                                                         --------------   --------------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

Numerator for basic and diluted earnings per share:

Income from continuing operations                           $31,029          $12,628
                                                            =======          =======

Denominator for basic earnings per share - weighted
   average shares outstanding:                               34,509           28,472

Effect of shares issuable under stock option and
   stock grant plans, based on the treasury stock
   method                                                     1,323            1,462
                                                            -------          -------
Denominator for diluted earnings per share -
   adjusted weighted average shares outstanding              35,832           29,934
                                                            =======          =======

Basic earnings per share from continuing operations         $  0.90          $  0.44
                                                            =======          =======

Diluted earnings per share from continuing
   operations                                               $  0.87          $  0.42
                                                            =======          =======


NOTE 10 - STOCKHOLDERS' EQUITY

     Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), as amended by Statement of Financial
Accounting Standard No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS 148"), 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 Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under the fair value based method, compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the intrinsic value
based method, compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock. We have elected to continue to
account for our employee stock compensation plans under APB 25 with pro forma
disclosures of net earnings and earnings per share, as if the fair value based
method of accounting defined in SFAS 123 had been applied. If compensation cost
for stock option grants had been determined based on the fair value on the grant
dates for the three month periods ended March 31, 2005 and 2004, consistent with
the method


                                       16



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

prescribed by SFAS 123, our net earnings and earnings per share would
have been adjusted to the pro forma amounts indicated below:



                                                             THREE MONTHS ENDED
                                                      -------------------------------
                                                      MARCH 31, 2005   MARCH 31, 2004
                                                      --------------   --------------
                                                      (IN THOUSANDS, EXCEPT FOR PER
                                                              SHARE AMOUNTS)

Net income as reported                                   $ 31,029         $12,490

Deduct: Total stock-based employee compensation
   expense determined under fair value based method
   for all awards, net of related tax effects             (33,545)         (1,247)

Add: Employee compensation expense for modification
   of stock option awards included in reported net
   income, net of income taxes                                118              --
                                                         --------         -------
Pro forma net (loss) income                              $ (2,398)        $11,243
                                                         ========         =======

Earnings (loss) per share:
   Basic - as reported                                   $   0.90         $  0.44
                                                         ========         =======
   Basic - pro forma                                     $  (0.07)        $  0.39
                                                         ========         =======
   Diluted - as reported                                 $   0.87         $  0.42
                                                         ========         =======
   Diluted - pro forma                                   $  (0.07)        $  0.38
                                                         ========         =======


     $15.3 million of the stock-based employee compensation expense for the
three months ended March 31, 2005 is related to accelerated vesting of certain
existing stock options and $17.6 million is related to certain stock options
issued in the three months ended March 31, 2005.

     On June 22, 2004, our stockholders approved an amendment to our Certificate
of Incorporation, as amended, that increased the number of shares of our
authorized capital stock to 80,000,000, of which 75,000,000 shares are
designated as common stock and 5,000,000 shares are designated as preferred
stock.

     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. On
March 25, 2005, our Board of Directors increased our existing stock repurchase
program to enable us to repurchase, from time to time depending upon market
conditions and other factors, up to an additional 3.5 million shares of its
outstanding common stock. Through March 31, 2005, 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 7.3 million shares of our common stock. Repurchases may be made in
the open market, in privately negotiated transactions utilizing various hedging
mechanisms including, among others, the sale to third parties of put options our
common stock, or otherwise. At March 31, 2005, we had 34.3 million shares of
common stock outstanding.


                                       17



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

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS

     On December 16, 2004, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 123, "Share Based Payment (revised 2004)" (FAS 123R).
FAS 123R revises SFAS 123 and requires companies to expense the fair value of
employee stock options and other forms of stock-based compensation. In addition
to revising FAS 123, FAS 123R supersedes APB 25, and amends FASB Statement No.
95, "Statement of Cash Flows." On April 14, 2005, The Securities and Exchange
Commission announced the amendment of the adoption compliance date of FAS 123R
from the first interim period to the first annual period after June 15, 2005.
We will be required to apply the expense recognition provisions of FAS 123R
beginning in the first quarter of 2006.

     On March 31, 2005, we announced that we accelerated the vesting of certain
unvested stock options previously awarded to employees, officers and directors
of the Company under various stock option plans effective March 25, 2005,
subject to such employees, officers and directors entering into lock-up,
confidentiality and non-competition agreements. As a result of this action,
options to purchase approximately 1.6 million shares of our common stock that
would otherwise have vested over the next one to five years became fully vested.
Outstanding unvested options that were not accelerated will continue to vest on
their normal schedule.

     The decision to accelerate the vesting of these options, which we believe
to be in the best interest of our stockholders, was made primarily to reduce
non-cash compensation expense that would have been recorded in future periods
following our application of FAS 123R. Because we accelerated these options, we
expect to reduce our non-cash compensation expense related to these options by
approximately $12.3 million (pre-tax) between the first quarter of 2006 and
2009, based on estimated value calculations using the Black-Scholes methodology.

     In October 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed
into law. In December 2004, the FASB issued Staff Position No. 109-1 ("FSP
109-1"), Application of FASB Statement No. 109, Accounting for Income Taxes, to
the Tax Deduction on Qualified Production Activities Provided by the American
Jobs Creation Act of 2004 and Staff Position No. 109-2 ("FSP 109"), Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004. FSP 109-1 clarifies that the
manufacturer's tax deduction provided for under the AJCA should be accounted for
as a special deduction in accordance with SFAS No. 109 and not as a tax rate
reduction. FSP 109-2 provides accounting and disclosure guidance for the
repatriation of certain foreign earnings to a U.S. taxpayer as provided for in
the AJCA. Currently, uncertainty remains as to how to interpret numerous
provisions of the AJCA. As such, we are not yet in a position to decide on
whether, and to what extent, we might repatriate foreign earnings that have not
yet been remitted to the U.S. We expect to be in a position to make a decision
on implementation, if any, later in 2005.


                                       18



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

NOTE 12 - LEGAL PROCEEDINGS

     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"). Since March 1998, we have been and
continue to be involved in various legal proceedings before French courts with
SHRM, which is part of the Compass Group, regarding damages from the
circumstances under which DSIA had to cease doing business in Angola due to the
decree of the Angolan government expelling the employees of our Services
Division from Angola.

Kroll, Inc. Matters

     O'Gara-Hess & Eisenhardt Armoring de Brasil Ltda. ("OHE Brazil") was
assessed 41.1 Million Reals (US $15.4 million based on the exchange rate as of
March 31, 2005) by the Brazilian tax authorities. OHE Brazil has appealed the
tax assessments and the cases are pending. To the extent that there may be any
liability resulting from such assessments, we believe that we are entitled to
indemnification from Kroll, Inc. for up to $7.7 million under the terms of our
purchase agreement dated April 20, 2001, because the events in question with
respect to up to $7.7 million of such assessments occurred prior to our purchase
of the O'Gara Companies from Kroll, Inc.

     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. In late 2004, the principal labor
claim was settled by the Company for approximately $1.9 million and two of the
other claims were settled for approximately $52,000. We believe that we are
entitled to indemnification from Kroll, Inc. with respect to these settlement
payments and the remaining claims.

     In December 2001, O'Gara-Hess & Eisenhardt France S.A., which was acquired
from Kroll, Inc. ("OHE France"), sold its industrial bodywork business operated
under the name Labbe/Division de O'Gara Hess & Eisenhardt France/ Carrosserie
Industriells ("Carrosserie") 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 LFT had not given its consent to the
transfer as allegedly required under the terms of the lease. In addition, LFT is
seeking to have OHE France, as the sole tenant, maintain and repair the leased
building with an estimated cost of between US $4.0 and US $7.9 million, based on
the exchange rate as of March 31, 2005. 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.

Matters Involving Zylon(R) Fiber

     In April 2004, two class action lawsuits were filed against us in Florida
state court by police organizations and individual police officers, alleging,
among other things, that our bullet-resistant soft body armor (vests)
manufactured and sold under the American Body Armor(TM), Safariland(R) and
PROTECH(TM) brands, do not have the qualities and performance characteristics as
warranted, thereby breaching express warranty, implied warranty of
merchantability, implied warranty of fitness for a


                                       19



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

particular purpose and duty to warn. On August 12, 2004, we reached a
preliminary settlement with respect to the class action lawsuit filed in Duval
County, Florida by the Southern States Police Benevolent Association ("Southern
States PBA"). After fairness hearings were held, the Florida Circuit Court gave
final approval to that settlement on November 5, 2004. The other class action
lawsuit filed against us by the National Association of Police Organizations,
Inc. ("NAPO"), in Lee County, Florida, was voluntarily dismissed with prejudice
on November 16, 2004.

     Pursuant to the terms of the class action settlement with the Southern
States PBA, the warranty on the American Body Armor(TM) Xtreme(R) ZX vest (both
NIJ threat level II and IIIA) has been reduced from 5 years to 2 1/2 years. In
addition, every purchaser of an Xtreme(R) ZX vest has the option to exchange
their vest for either a new ZX vest or any other vest of their choosing from the
American Body Armor(TM), Safariland(R) and ProTech(TM) product lines plus a
$100.00 transferable rebate coupon applicable towards their next purchase of a
vest. We have also made available on the American Body Armor(TM) website testing
data, protocols and results relating to the testing of our vests. We also
continue to test all of our Zylon(R)-containing vests, and if such testing
demonstrates that the tested vests fail to perform in accordance with their
warranties, we will implement an exchange program for those models on a
reasonably comparable basis to the American Body Armor(TM) Xtreme(R) ZX exchange
program outlined above. Zylon(R) fiber is made by Toyobo, a Japanese
corporation, and is a ballistic fiber widely used in the entire body armor
industry. A final report to the Duval County Court regarding claims
administration of the settlement and exchange of vests, will be filed on or
before May 2, 2005. We are also voluntarily cooperating with a request received
in December 2004 from the Department of Justice who is reviewing the entire
industry's use of Zylon(R) fiber in bullet resistant vests.

     It should be stressed that our vests are certified by the National
Institute of Justice, have never suffered any penetration in the field and
continue to save lives and protect officers from injury. In fact, neither of the
two resolved class action lawsuits alleged personal injuries of any kind.

     Second Chance Body Armor, one of our competitors in the bullet-resistant
market, 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 been
brought against Second Chance based upon this licensed technology. Although
Simula may be impacted by the pending suits filed against Second Chance
regarding its Zylon(R)-containing vests, the licensed technology is not
specifically related to the use of Zylon(R) fiber. Any adverse resolution of
these matters, however, could have a material adverse effect on our business,
financial condition, results of operations and liquidity.

Other Matters

     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, general liability and intellectual property.
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


                                       20



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

material impact on our financial position, operations and liquidity.

NOTE 13 - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS

     On August 12, 2003, we sold $150 million of the 8.25% Notes in private
placements pursuant to Rule 144A and Regulation S. The 8.25% Notes are
uncollateralized obligations and rank junior in right of payment to our existing
and future senior debt. On October 29, 2004, we completed the placement of $300
million aggregate principal amount of the 2% Senior Subordinated Convertible
Notes due November 1, 2024 (the "2% Convertible Notes"). On November 5, 2004,
Goldman, Sachs & Co. exercised its option to purchase an additional $45 million
principal amount of the 2% Convertible Notes. The 8.25% Notes and 2% Convertible
Notes are guaranteed, jointly and severally on a senior subordinated and
uncollateralized basis, by most of our domestic subsidiaries.

     The following consolidating financial information presents the
consolidating balance sheets as of March 31, 2005 and December 31, 2004, and the
related statements of operations and cash flows for the three months ended March
31, 2005 and 2004 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.


                                       21



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

                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATING BALANCE SHEETS



                                                                         MARCH 31, 2005
                                             ----------------------------------------------------------------------
                                                            GUARANTOR    NONGUARANTOR                  CONSOLIDATED
                                               PARENT     SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS       TOTAL
                                             ----------   ------------   ------------   ------------   ------------
                                                                         (IN THOUSANDS)

                  ASSETS

Current assets:
   Cash and cash equivalents                 $   23,073     $ 14,209       $ 11,854      $      --      $   49,136
   Short-term investment securities             391,975           --             --             --         391,975
   Accounts receivable, net                          --      163,880         20,113             --         183,993
   Costs and earned gross profit in
      excess of billings                             --        5,781             --             --           5,781
   Intercompany receivables                     148,443      106,591         38,399       (293,433)             --
   Inventories                                       --      148,842         35,208             --         184,050
   Prepaid expenses and other current
      assets                                      4,775       40,826          4,102             --          49,703
                                             ----------     --------       --------      ---------      ----------
      Total current assets                      568,266      480,129        109,676       (293,433)        864,638

Property and equipment, net                       2,301       51,703         22,890             --          76,894
Goodwill, net                                        --      261,636          2,171             --         263,807
Patents, licenses and trademarks, net                --      110,285            171             --         110,456
Other assets                                     14,203        2,106            141             --          16,450
Investment in subsidiaries                      632,275       24,095             --       (656,370)             --
                                             ----------     --------       --------      ---------      ----------
Total assets                                 $1,217,045     $929,954       $135,049      $(949,803)     $1,332,245
                                             ==========     ========       ========      =========      ==========
   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt         $       --     $    322       $    157      $      --      $      479
   Short-term debt                              341,622           --          3,971             --         345,593
   Accounts payable                                 162       70,143         11,946             --          82,251
   Accrued expenses and other current
      liabilities                                16,099       63,351         20,151             --          99,601
   Income taxes payable                          (6,830)      11,930          3,097             --           8,197
   Intercompany payable                         112,749       96,837         83,847       (293,433)             --
                                             ----------     --------       --------      ---------      ----------
      Total current liabilities                 463,802      242,583        123,169       (293,433)        536,121

Long-term debt, less current portion            149,775        2,360            412             --         152,547
Other long-term liabilities                          --        1,974             --             --           1,974
Deferred income taxes                             2,001       37,088          1,047             --          40,136
                                             ----------     --------       --------      ---------      ----------
Total liabilities                               615,578      284,005        124,628       (293,433)        730,778

Stockholders' equity:
   Preferred stock                                   --        1,450             --         (1,450)             --
   Common stock                                     404        3,792          7,853        (11,645)            404
   Additional paid in capital                   512,092      396,820         14,777       (411,597)        512,092
   Retained earnings (accumulated deficit)      156,510      243,887        (12,209)      (231,678)        156,510
   Accumulated other comprehensive income         4,778           --             --             --           4,778
   Treasury stock                               (72,317)          --             --             --         (72,317)
                                             ----------     --------       --------      ---------      ----------
Total stockholders' equity                      601,467      645,949         10,421       (656,370)        601,467
                                             ----------     --------       --------      ---------      ----------
Total liabilities and stockholders' equity   $1,217,045     $929,954       $135,049      $(949,803)     $1,332,245
                                             ==========     ========       ========      =========      ==========



                                       22



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

                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATING BALANCE SHEETS



                                                                          DECEMBER 31, 2004
                                               ----------------------------------------------------------------------
                                                              GUARANTOR    NONGUARANTOR                  CONSOLIDATED
                                                 PARENT     SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS       TOTAL
                                               ----------   ------------   ------------   ------------   ------------
                                                                           (IN THOUSANDS)

                   ASSETS

Current assets:
   Cash and cash equivalents                   $  388,727     $ 21,173       $ 11,309      $      --      $  421,209
   Accounts receivable, net                            --      155,229         19,330             --         174,559
   Costs and earned gross profit in excess
      of billings                                      --          893             --             --             893
   Intercompany receivables                       173,735      108,313          7,045       (289,093)             --
   Inventories                                         --      142,362         33,846             --         176,208
   Prepaid expenses and other current assets        1,611       42,023          3,301             --          46,935
                                               ----------     --------       --------      ---------      ----------
   Total current assets                           564,073      469,993         74,831       (289,093)        819,804

Property and equipment, net                         5,144       47,968         24,195             --          77,307
Goodwill, net                                          --      259,773          2,240             --         262,013
Patents, licenses and trademarks, net                  --      112,288            171             --         112,459
Other assets                                       18,410        2,209            149             --          20,768
Investment in subsidiaries                        592,437       12,730             --       (605,167)             --
                                               ----------     --------       --------      ---------      ----------
Total assets                                   $1,180,064     $904,961       $101,586      $(894,260)     $1,292,351
                                               ==========     ========       ========      =========      ==========
    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt           $       --     $    457       $    164      $      --      $      621
   Short-term debt                                341,579           --          2,177             --         343,756
   Accounts payable                                   640       58,422         10,539             --          69,601
   Accrued expenses and other current
      liabilities                                  11,216       73,314         22,717             --         107,247
   Income taxes payable                            (6,454)      11,513          3,942             --           9,001
   Intercompany payables                          112,741      123,466         52,886       (289,093)             --
                                               ----------     --------       --------      ---------      ----------
      Total current liabilities                   459,722      267,172         92,425       (289,093)        530,226
Long-term debt, less current portion              153,897        2,377            477             --         156,751
Other long-term liabilities                            --        1,951             --             --           1,951
Deferred income taxes                               1,249       36,077            901             --          38,227
                                               ----------     --------       --------      ---------      ----------
Total liabilities                                 614,868      307,577         93,803       (289,093)        727,155

Stockholders' equity:
   Preferred stock                                     --        1,450             --         (1,450)             --
   Common stock                                       402        3,792          7,854        (11,646)            402
   Additional paid in capital                     504,809      387,229         14,771       (402,000)        504,809
   Retained earnings (accumulated deficit)        125,481      204,913        (14,842)      (190,071)        125,481
   Accumulated other comprehensive loss             6,821           --             --             --           6,821
   Treasury stock                                 (72,317)          --             --             --         (72,317)
                                               ----------     --------       --------      ---------      ----------
Total stockholders' equity                        565,196      597,384          7,783       (605,167)        565,196
                                               ----------     --------       --------      ---------      ----------
Total liabilities and stockholders' equity     $1,180,064     $904,961       $101,586      $(894,260)     $1,292,351
                                               ==========     ========       ========      =========      ==========



                                       23



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

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



                                                                 THREE MONTHS ENDED MARCH 31, 2005
                                            --------------------------------------------------------------------
                                                         GUARANTOR    NONGUARANTOR                  CONSOLIDATED
                                             PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS       TOTAL
                                            --------   ------------   ------------   ------------   ------------
                                                                       (IN THOUSANDS)

REVENUES:
   Aerospace & Defense                      $     --     $267,579       $    --        $ (7,109)      $260,470
   Products                                       --       57,185        11,373              --         68,558
   Mobile Security                                --       12,204        23,903            (170)        35,937
                                            --------     --------       -------        --------       --------
   Total revenues                                 --      336,968        35,276          (7,279)       364,965
                                            --------     --------       -------        --------       --------
COSTS AND EXPENSES:
   Cost of revenues                               --      253,462        27,472          (7,279)       273,655
   Operating expenses                          7,473       22,954         3,389              --         33,816
   Amortization                                   --        2,038            --              --          2,038
   Integration and other charges                 147          653            --              --            800
   Related party management fees (income)         16          (17)            1              --             --
                                            --------     --------       -------        --------       --------
OPERATING (LOSS) INCOME:                      (7,636)      57,878         4,414              --         54,656
   Interest expense (income), net              2,193          (49)          101              --          2,245
   Other expense (income), net                 1,122          (16)           17              --          1,123
   Equity in earnings of subsidiaries        (39,838)      (1,769)           --          41,607             --
                                            --------     --------       -------        --------       --------
INCOME BEFORE (BENEFIT) PROVISION FOR
   INCOME TAXES                               28,887       59,712         4,296         (41,607)        51,288

(BENEFIT) PROVISION FOR INCOME TAXES          (2,142)      20,738         1,663              --         20,259
                                            --------     --------       -------        --------       --------
NET INCOME                                  $ 31,029     $ 38,974       $ 2,633        $(41,607)      $ 31,029
                                            ========     ========       =======        ========       ========



                                       24



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

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



                                                                   THREE MONTHS ENDED MARCH 31, 2004
                                                 --------------------------------------------------------------------
                                                              GUARANTOR    NONGUARANTOR                  CONSOLIDATED
                                                  PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS      TOTAL
                                                 --------   ------------   ------------   ------------   ------------
                                                                            (IN THOUSANDS)

REVENUES:
   Aerospace & Defense                           $     --     $ 81,008        $    --       $     --       $ 81,008
   Products                                            --       44,249          9,591             --         53,840
   Mobile Security                                     --        5,367         21,932           (519)        26,780
                                                 --------     --------        -------       --------       --------
   Total revenues                                      --      130,624         31,523           (519)       161,628
                                                 --------     --------        -------       --------       --------
COSTS AND EXPENSES:
   Cost of revenues                                    --       88,350         26,237           (519)       114,068
   Operating expenses                               3,502       16,387          3,362             --         23,251
   Amortization                                        --          977              3             --            980
   Integration and other non-recurring charges         90          591             --             --            681
   Related party management fees (income)              16          (17)             1             --             --
                                                 --------     --------        -------       --------       --------
OPERATING (LOSS) INCOME                            (3,608)      24,336          1,920             --         22,648
   Interest expense, net                            1,656           32             40             --          1,728
   Other expense, net                                  50           16             49             --            115
   Equity in (earnings) losses of
      subsidiaries                                (16,321)         182             --         16,139             --
                                                 --------     --------        -------       --------       --------
INCOME FROM CONTINUING OPERATIONS BEFORE
   (BENEFIT) PROVISION FOR INCOME TAXES            11,007       24,106          1,831        (16,139)        20,805

(BENEFIT) PROVISION FOR INCOME TAXES               (1,483)       9,009            651             --          8,177
                                                 --------     --------        -------       --------       --------
INCOME FROM CONTINUING OPERATIONS                  12,490       15,097          1,180        (16,139)        12,628

DISCONTINUED OPERATIONS:
   Loss from discontinued operations                   --         (138)            --             --           (138)
                                                 --------     --------        -------       --------       --------
NET INCOME                                       $ 12,490     $ 14,959        $ 1,180       $(16,139)      $ 12,490
                                                 ========     ========        =======       ========       ========



                                       25



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

                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW



                                                                              THREE MONTHS ENDED MARCH 31, 2005
                                                            ---------------------------------------------------------------------
                                                                         GUARANTOR     NONGUARANTOR                  CONSOLIDATED
                                                              PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS       TOTAL
                                                            ---------   ------------   ------------   ------------   ------------
                                                                                        (IN THOUSANDS)

CASH FLOW FROM OPERATING ACTIVITIES:
   Income from continuing operations                        $  31,029     $ 38,974       $ 2,633        $(41,607)     $  31,029
   Adjustments to reconcile income from continuing
      operations to cash provided by (used in)
      operating activities:
      Depreciation and amortization                               702        3,813           688              --          5,203
      Loss on disposal of fixed assets                             --           26             4              --             30
      Deferred income taxes                                       769        1,706           141              --          2,616
      Fair value adjustment for put options                     1,121           --            --              --          1,121
   Changes in operating assets & liabilities,
      net of acquisitions:
      (Increase) in accounts receivable                            --      (13,539)         (783)             --        (14,322)
      Decrease (increase) in intercompany
         receivables & payables                                28,249      (30,018)        1,769              --             --
      (Increase) in inventory                                      --       (6,480)       (1,362)             --         (7,842)
      (Increase) decrease in prepaid
         expenses & other assets                               (1,407)         621          (788)             --         (1,574)
      Increase (decrease) in accounts payable, accrued
         expenses and other current liabilities                 1,127        2,510        (1,159)             --          2,478
      Increase (decrease) in income taxes payable               1,170          417          (845)             --            742
                                                            ---------     --------       -------        --------      ---------
   Net cash provided by (used in) operating activities         62,760       (1,970)          298         (41,607)        19,481
                                                            ---------     --------       -------        --------      ---------
CASH FLOW FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                            (602)      (2,185)         (436)             --         (3,223)
   Purchase of patents and trademarks                              --          (34)           --              --            (34)
   Purchases of short-term investment securities             (469,800)          --            --              --       (469,800)
   Proceeds from sales of short-term
      investment securities                                    77,825           --            --              --         77,825
   Sale of put options                                          1,687           --            --              --          1,687
   Investment in subsidiaries                                 (39,838)      (1,769)           --          41,607             --
   Additional consideration for purchased businesses             (227)        (854)           --              --         (1,081)
   Purchase of businesses net of cash acquired                 (1,362)          --            --              --         (1,362)
                                                            ---------     --------       -------        --------      ---------
   Net cash (used in) investing activities                   (432,317)      (4,842)         (436)         41,607       (395,988)
                                                            ---------     --------       -------        --------      ---------
CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options                      3,903           --            --              --          3,903
   Repayments of long-term debt                                    --         (152)          (38)             --           (190)
   Borrowings under lines of credit                             5,485           --         2,840              --          8,325
   Repayments under lines of credit                            (5,485)          --        (1,020)             --         (6,505)
                                                            ---------     --------       -------        --------      ---------
   Net cash provided by (used in) financing activities          3,903         (152)        1,782              --          5,533
                                                            ---------     --------       -------        --------      ---------
   Effect of exchange rate on cash and cash equivalents            --           --        (1,099)             --         (1,099)
                                                            ---------     --------       -------        --------      ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         (365,654)      (6,964)          545              --       (372,073)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                388,727       21,173        11,309              --        421,209
                                                            ---------     --------       -------        --------      ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD                    $  23,073     $ 14,209       $11,854        $     --      $  49,136
                                                            =========     ========       =======        ========      =========



                                       26



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

                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW



                                                                              THREE MONTHS ENDED MARCH 31, 2005
                                                            ---------------------------------------------------------------------
                                                                         GUARANTOR     NONGUARANTOR                  CONSOLIDATED
                                                              PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS       TOTAL
                                                            ---------   ------------   ------------   ------------   ------------
                                                                                        (IN THOUSANDS)

CASH FLOW FROM OPERATING ACTIVITIES:
   Income from continuing operations                        $  12,490     $ 15,097       $ 1,180        $(16,139)      $ 12,628
   Adjustments to reconcile income from continuing
      operations to cash provided by
         operating activities
      Depreciation and amortization                               348        2,275           791              --          3,414
      Loss on disposal of fixed assets                             --           --             6              --              6
      Deferred income taxes                                       104         (521)          (21)             --           (438)
   Changes in operating assets & liabilities,
      net of acquisitions:
      (Increase) decrease in accounts receivable                  212      (15,996)       (1,389)             --        (17,173)
      Decrease (increase) in intercompany
         receivables & payables                                46,016      (46,396)          380              --             --
      Increase in inventory                                        --      (11,917)         (315)             --        (12,232)
      (Increase) decrease in prepaid expenses & other
         assets                                                (3,611)      (1,814)          203              --         (5,222)
      Increase in accounts payable, accrued expenses
         and other current liabilities                         (5,663)      17,859           199              --         12,395
      (Decrease) increase in income taxes payable               8,651       (1,607)          177              --          7,221
                                                            ---------     --------       -------        --------       --------
      Net cash provided by (used in) operating activities      58,547      (43,020)        1,211         (16,139)           599
                                                            ---------     --------       -------        --------       --------
CASH FLOW FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                            (254)      (3,246)         (314)             --         (3,814)
   Purchase of patents and trademarks                              --          (49)           --              --            (49)
   Purchases of short-term investment securities              (25,075)          --            --              --        (25,075)
   Proceeds from sales of short-term investment
      securities                                               16,175           --            --              --         16,175
   Purchase of equity investment                                   --       (1,374)           --              --         (1,374)
   Collection of note receivable                                   --          375            --              --            375
   Decrease in restricted cash                                  2,600           --            --              --          2,600
   Investment in subsidiaries                                 (98,115)      81,976            --          16,139             --
   Additional consideration for purchased businesses               --      (32,967)           --              --        (32,967)
   Purchase of businesses, net of cash acquired                    --       (2,729)           --              --         (2,729)
                                                            ---------     --------       -------        --------       --------
   Net cash used in (provided by) investing activities       (104,669)      41,986          (314)         16,139        (46,858)
                                                            ---------     --------       -------        --------       --------
CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options                      4,488           --            --              --          4,488
   Repayments of long-term debt                                    --       (2,728)          (34)             --         (2,762)
   Borrowings under lines of credit                             5,303           --           146              --          5,449
   Repayments under lines of credit                            (5,303)          --           (24)             --         (5,327)
                                                            ---------     --------       -------        --------       --------
   Net cash provided by (used in) financing activities          4,488       (2,728)           88              --          1,848
                                                            ---------     --------       -------        --------       --------
   Effect of exchange rate on cash and cash equivalents            --         (359)          493              --            134
   Net cash used in discontinued operations                        --         (638)           --              --           (638)
                                                            ---------     --------       -------        --------       --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS          (41,634)      (4,759)        1,478              --        (44,915)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                 90,764       11,084        10,002              --        111,850
                                                            ---------     --------       -------        --------       --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                    $  49,130     $  6,325       $11,480        $     --       $ 66,935
                                                            =========     ========       =======        ========       ========



                                       27



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

NOTE 14 - PUT OPTION TRANSACTIONS

     We account for put option transactions in accordance with Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," ("SFAS 150").
SFAS 150 requires put options to be measured at fair value and recognized on the
balance sheet as liabilities.

     During the first quarter ended March 31, 2005, we sold put options in
various private transactions covering 2,000,000 shares (5.8% of outstanding
shares at March 31, 2005) at a weighted average strike price of $36.25 per
share, all of which expire prior to December 31, 2005. If the purchasers
exercise the put options, we will be required to repurchase our shares or enter
into alternative cash settlement arrangements at the negotiated strike price. As
of March 31, 2005, based on the existing put option strike prices, it would cost
us $72.5 million ($74.2 million fair value), if we were required to repurchase
our shares under these put options. If all 2,000,000 put options are exercised,
we would have 5.3 million shares remaining under our repurchase programs.

     The fair values of the put options are obtained from our counter-parties
and represent the estimated amount we would receive or pay to terminate the put
options, taking into account the consideration we received for the sale of the
put options. As our stock price fluctuates the value of these contracts also
fluctuates. As of March 31, 2005, we incurred a fair value loss of $1.1 million
recorded in other expense, net.

     Under the terms of our put options, if our stock price were to fall to 50%
of the strike price we could be required to settle the contracts prior to the
expiration of the contracts. We have the ability to terminate the contracts
prior to expiration by paying an early unwind amount to the counterparty. This
amount is equal to the current market value of the option contract provided by
the counterparty at the time of unwind.

NOTE 15 - INTEREST EXPENSE, NET

     Interest expense, net is comprised of the following:

                               THREE MONTHS ENDED
                        -------------------------------
                        MARCH 31, 2005   MARCH 31, 2004
                        --------------   --------------
                                 (IN THOUSANDS)
Interest expense           $ 4,858           $2,067
Interest income             (2,613)            (339)
                           -------           ------
Interest expense, net      $ 2,245           $1,728
                           =======           ======

NOTE 16 - SUBSEQUENT EVENT

     In April 2005, we sold an additional 500,000 put options with terms similar
to those mentioned in Note 14, including a strike price of $35.00 and an
expiration date prior to December 31, 2005.


                                       28



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following is a discussion of the results of operations and analysis of
financial condition for the three months ended March 31, 2005. The results of
operations for purchase business combinations are included since their effective
acquisition dates. The following discussion may be understood more fully by
reference to the consolidated financial statements, notes to the consolidated
financial statements, and management's discussion and analysis contained in our
Annual Report on Form 10-K for the year ended December 31, 2004, as filed with
the Securities and Exchange Commission.

CRITICAL ACCOUNTING POLICIES (INCLUDING RECENT ACCOUNTING PRONOUNCEMENTS):

     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. 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 Up-Armored HMMWV,
approves it for delivery and shipment occurs.

     We record revenue of the Aerospace & Defense Group and Mobile Security
Division when a vehicle is shipped, except for larger commercial contracts
typically longer than four months in length. Revenue from large commercial
contracts is recognized on the percentage of completion, units-of-work performed
method. Should large commercial 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.

     Allowance for Doubtful Accounts. We encounter risks associated with sales
and the collection of the associated accounts receivable. As such, we review our
accounts receivable aging on a monthly basis and determine a provision for
accounts receivable that is considered to be uncollectible. In order to
calculate the appropriate monthly provision, we review accounts on a monthly
basis and estimate the amount that is uncollectible.


                                       29



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

     Periodically, we compare the identified credit risks with the allowance
that has been established using historical experience and adjust the allowance
accordingly.

     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. Put options are marked to
market at the end of each period.

     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 March 31, 2005, decreased by $4.1 million, which reflected a
decrease in the fair value of the interest rate swap agreements to $1.9 million.
The corresponding decrease 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.

     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 $210.7
million in goodwill resulting from acquisitions made by us subsequent to June
30, 2001 was immediately subjected to the non-amortization provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). See also Impairment below. The purchase method
of accounting for business combinations requires us to make use of estimates and
judgments to allocate the purchase price paid for acquisitions to the fair value
of the net tangible and identifiable intangible assets. Goodwill is tested for
impairment annually, or when a possible impairment is indicated, using the fair
value based test prescribed by SFAS 142. We performed our annual assessment of
goodwill and determined that no impairment existed as of June 30, 2004.

     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 useful
lives. Certain of these assets with indefinite lives are not amortized.

     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, potential liabilities related to tax filings in the ordinary


                                       30



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

course of business, 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 No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under the asset and liability method specified there under, 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, tax credit
carryforwards and deductible temporary differences.

     Impairment. Long-lived assets including certain identifiable intangibles,
and the goodwill related to those assets, are reviewed annually for impairment
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. 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 142.
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.

     Comprehensive income and foreign currency translation. In accordance with
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), assets and liabilities denominated in a foreign currency
are translated into U.S. dollars at the current rate of exchange existing at
period-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 $4.8 and $6.8 million as of March 31, 2005 and December 31, 2004,
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.


                                       31



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

     Stock options and grants. Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by
Statement of Financial Accounting Standard Number 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," ("SFAS 148") 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 Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. Under
the intrinsic value based method, compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. We have elected to
continue to account for our employee stock compensation plans under APB 25 with
pro forma disclosures of net earnings and earnings per share, as if the fair
value based method of accounting defined in SFAS 123 had been applied. If
compensation cost for stock option grants had been determined based on the fair
value on the grant dates for the three month periods ended March 31, 2005 and
2004 consistent with the method prescribed by SFAS 123, our net earnings and
earnings per share would have been adjusted to the pro forma amounts indicated
below:



                                                                        THREE MONTHS ENDED
                                                                 -------------------------------
                                                                 MARCH 31, 2005   MARCH 31, 2004
                                                                 --------------   --------------
                                                           (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

Net income as reported                                              $ 31,029         $12,490

Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects                                           (33,545)         (1,247)

Add: Employee compensation expense for modification of
stock option awards included in reported net income, net
of income taxes                                                          118              --
                                                                    --------         -------
Pro forma net (loss) income                                         $ (2,398)        $11,243
                                                                    ========         =======
Earnings (loss) per share:
   Basic - as reported                                              $   0.90         $  0.44
                                                                    ========         =======
   Basic - pro forma                                                $  (0.07)        $  0.39
                                                                    ========         =======
   Diluted - as reported                                            $   0.87         $  0.42
                                                                    ========         =======
   Diluted - pro forma                                              $  (0.07)        $  0.38
                                                                    ========         =======


     $15.3 million of the stock-based employee compensation expense for the
three months ended March 31, 2005 is related to accelerated vesting of certain
existing stock options and $17.6 million is related to certain stock options
issued in the three months ended March 31, 2005.

                                       32



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

RECENT ACCOUNTING PRONOUNCEMENTS:

     On December 16, 2004, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 123, "Share Based Payment (revised 2004)" (FAS 123R).
FAS 123R revises SFAS 123 and requires companies to expense the fair value of
employee stock options and other forms of stock-based compensation. In addition
to revising FAS 123, FAS 123R supersedes APB 25, and amends FASB Statement No.
95, "Statement of Cash Flows." On April 14, 2005, The Securities and Exchange
Commission announced the amendment of the adoption compliance date of FAS 123R
from the first interim period to the first annual period after June 15, 2005. We
will be required to apply the expense recognition provisions of FAS 123R
beginning in the first quarter of 2006.

     On March 31, 2005, we announced that we accelerated the vesting of certain
unvested stock options previously awarded to employees, officers and directors
of the Company under various stock option plans effective March 25, 2005,
subject to such employees, officers and directors entering into lock-up,
confidentiality and non-competition agreements. As a result of this action,
options to purchase approximately 1.6 million shares of our common stock that
would otherwise have vested over the next one to five years became fully vested.
Outstanding unvested options that were not accelerated will continue to vest on
their normal schedule.

     The decision to accelerate the vesting of these options, which we believe
to be in the best interest of our stockholders, was made primarily to reduce
non-cash compensation expense that would have been recorded in future periods
following our application of FAS 123R. Because we accelerated these options, we
expect to reduce our non-cash compensation expense related to these options by
approximately $12.3 million (pre-tax) between the first quarter of 2006 and
2009, based on estimated value calculations using the Black-Scholes methodology.

     In October 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed
into law. In December 2004, the FASB issued Staff Position No. 109-1 ("FSP
109-1"), Application of FASB Statement No. 109, Accounting for Income Taxes, to
the Tax Deduction on Qualified Production Activities Provided by the American
Jobs Creation Act of 2004 and Staff Position No. 109-2 ("FSP 109"), Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004. FSP 109-1 clarifies that the
manufacturer's tax deduction provided for under the AJCA should be accounted for
as a special deduction in accordance with SFAS No. 109 and not as a tax rate
reduction. FSP 109-2 provides accounting and disclosure guidance for the
repatriation of certain foreign earnings to a U.S. taxpayer as provided for in
the AJCA. Currently, uncertainty remains as to how to interpret numerous
provisions of the AJCA. As such, we are not yet in a position to decide on
whether, and to what extent, we might repatriate foreign earnings that have not
yet been remitted to the U.S. We expect to be in a position to make a decision
on implementation, if any, later in 2005.


                                       33



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004.

     Net income. Net income increased $18.5 million, or 148.4%, to $31.0 million
for the three months ended March 31, 2005, compared to $12.5 million for the
three months ended March 31, 2004. Net income for the three months ended March
31, 2004, includes income from continuing operations of $12.6 million and a loss
from discontinued operations of $138,000.

CONTINUING OPERATIONS

     Total revenues. Total revenues increased $203.3 million, or 125.8%, to
$365.0 million in the three months ended March 31, 2005, compared to $161.6
million in the three months ended March 31, 2004. For the three months ended
March 31, 2005, total revenue increased 96.1% internally, including year over
year changes in acquired businesses.

     Aerospace & Defense Group revenues. Aerospace & Defense Group revenues
increased $179.5 million, or 221.5%, to $260.5 million in the three months ended
March 31, 2005, compared to $81.0 million in the three months ended March 31,
2004. For the three months ended March 31, 2005, Aerospace & Defense Group
revenue increased 177.4% internally, including year-over-year changes in
acquired businesses. Internal growth was primarily due to increased demand for
the Up-Armored HMMWV, supplemental armor for other military vehicles, and small
arms protective inserts (SAPI) plates, while acquired growth was a function of
the acquisition of Specialty Defense in November, 2004.

     Products Division revenues. Products Division revenues increased $14.7
million, or 27.3%, to $68.6 million in the three months ended March 31, 2005,
compared to $53.8 million in the three months ended March 31, 2004. For the
three months ended March 31, 2005, Products Division revenue increased 4.7%
internally, including year-over-year changes in acquired businesses. Internal
growth was primarily due to strong sales of international body armor, strong
domestic and international sales within duty gear and strong less lethal sales.
Acquired growth was a function of the acquisitions of Bianchi International,
which was completed during the fourth quarter 2004; Kleen Bore, Inc., which was
completed during the third quarter of 2004; and ODV, Incorporated which was
completed during the first quarter 2004.

     Mobile Security revenues. Mobile Security Division revenues increased $9.2
million, or 34.2%, to $35.9 million in the three months ended March 31, 2005,
compared to $26.8 million in the three months ended March 31, 2004, primarily
due to the increasing threat of terrorism. All of Mobile Security Division's
34.2% revenue growth was internal.

     Cost of revenues. Cost of revenues increased $159.6 million, or 139.9%, to
$273.7 million for the three months ended March 31, 2005, compared to $114.1
million for the three months ended March 31, 2004. As a percentage of total
revenues, cost of revenues increased to 75.0% of total revenues for the three
months ended March 31, 2005, from 70.6% for the three months ended March 31,
2004.

     Gross margins in the Aerospace & Defense Group were 22.1% for the three
months ended March 31, 2005, compared to 32.1% for the three months ended March
31, 2004, primarily due to reduced


                                       34



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

selling prices for the Up-Armored HMMWV, and significant changes in our product
mix as we have diversified beyond Up-Armored HMMWVs.

     Gross margins in the Products Division were 35.7% for the three months
ended March 31, 2005, compared to 31.5% for the three months ended March 31,
2004. The increase was primarily due to improved product mix, improved body
armor margins and the impact of inventory reserves established in 2004.

     Gross margins in the Mobile Security Division were 25.6% in the three
months ended March 31, 2005, compared to 17.3% for the three months ended Mach
31, 2004. The margin improvement was primarily due to improved fixed cost
absorption associated with increased manufacturing volumes, and a richer sales
mix of high-end, higher margin vehicles.

     Operating expenses. Operating expenses increased $10.6 million, or 45.4%,
to $33.8 million (9.3% of total revenues) for the three months ended March 31,
2005, compared to $23.3 million (14.4% of total revenues) for the three months
ended March 31, 2004. The decrease as a percentage of revenues was largely a
function of our ability to achieve scale as revenues have increased, and the
fourth quarter 2004 acquisition of Specialty Defense, which operates with lower
operating expenses as a percentage of revenues than the Products Division and
the Mobile Security Division.

     Aerospace & Defense Group operating expenses increased $3.3 million, or
61.9%, to $8.5 million (3.3% of Aerospace & Defense Group revenues) for the
three months ended March 31, 2005, compared to $5.3 million (6.5% of Aerospace &
Defense Group revenues) for the three months ended March 31, 2004. The increase
in operating expenses is due primarily to additional operating expenses
associated with the acquisition of Specialty Defense in November 2004, increased
research and development expense, and increase in administrative expenses as a
result of increased production of the Up-Armored HMMWV and supplemental armor
for other military vehicles. The decrease in operating expense as a percentage
of revenue was due to leveraging of the operating expenses over a much larger
revenue base.

     Products Division operating expenses increased $3.4 million, or 31.3%, to
$14.4 million (20.9% of Products Division revenues) for the three months ended
March 31, 2005, compared to $10.9 million (20.3% of Products Division revenues)
for the three months ended March 31, 2004. This increase is due primarily to
acquisitions, higher sales and marketing expenses as related to increased sales
volumes, increased research and development expenses and management severance
expenses.

     Mobile Security Division operating expenses were flat at $3.6 million
(10.0% of Mobile Security Division revenues) for the three months ended March
31, 2005, compared to $3.6 million (13.3% of Mobile Security Division revenues)
for the three months ended March 31, 2004. The decrease in operating expenses as
a percentage of revenues was due to the leveraging of the operating expenses
over a much larger revenue base.

     Corporate operating expenses increased $3.8 million, or 109.7%, to $7.3
million (2.0% of total revenues) for the three months ended March 31, 2005,
compared to $3.5 million (2.2% of total revenues) for the three months ended
March 31, 2004. This increase in administrative expenses is associated with the
overall growth of the Company, including increased travel expenses, bonus
provision and insurance expenses.


                                       35



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

     Amortization. Amortization expense increased $1.1 million, or 108.0% to
$2.0 for the three months ended March 31, 2005, compared to $980,000 for the
three months ended March 31, 2004, primarily due to the acquisitions of
Specialty Defense in November, 2004 and Bianchi in December, 2004. 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 acquired amortizable intangible assets that meet the criteria for
recognition as an asset apart from goodwill under SFAS 141.

     Integration and other charges. Integration and other charges increased
$119,000, or 17.5%, to $800,000 for the three months ended March 31, 2005,
compared to $681,000 for the three months ended March 31, 2004. Included in
integration and other charges in the first quarter of 2005 were charges for the
integration of Specialty Defense and Bianchi, which were acquired in the fourth
quarter of 2004. Included in integration and other charges in the first quarter
of 2004 were charges for Simula and Hatch Imports, which were acquired in the
fourth quarter of 2003.

     Operating income. Operating income increased $32.0 million, or 141.3%, to
$54.7 million for the three months ended March 31, 2005, compared to $22.6
million in the three months ended March 31, 2004, due to the factors discussed
above.

     Interest expense, net. Interest expense, net increased $0.5 million, or
29.9%, to $2.2 million for the three months ended March 31, 2005, compared to
$1.7 million for the three months ended March 31, 2004. This increase was due
primarily to an increase in six-month LIBOR interest rate and interest expense
related to the issuance of the 2% Convertible Notes in the fourth quarter of
2004. This was partially offset by additional interest income generated from our
June 2004 equity offering proceeds and our 2% Convertible Notes proceeds. On
September 2, 2003, we entered into interest rate swap agreements that
effectively exchanged the 8.25% fixed rate on the 8.25% Notes for a variable
rate of six-month LIBOR (3.40% at March 31, 2005 and 1.16% at March 31, 2004),
set in arrears, plus a spread of 2.735% to 2.75%.

     Other expense, net. Other expense, net, was $1.1 million for the three
months ended March 31, 2005, and relates primarily to the fair value loss on
recently sold put options in various private transactions covering 2,000,000
shares. Other expense, net, of $115,000 for the three months ended March 31,
2004, relates primarily to the loss on disposal of fixed assets and losses
related to foreign currency fluctuations.

     Income from continuing operations before provision for income taxes. Income
from continuing operations before provision for income taxes increased $30.5
million, or 146.5%, to $51.3 million for the three months ended March 31, 2005,
compared to $20.8 million for the three months ended March 31, 2004, due to the
reasons discussed above.

     Provision for income taxes. Provision for income taxes was $20.3 million
for the three months ended March 31, 2005, compared to $8.2 million for the
three months ended March 31, 2004. The effective tax rate was 39.5% for the
three months ended March 31, 2005, compared to 39.3% for the three months ended
March 31, 2004. The increased tax rate relates primarily to the
non-deductibility of the fair value loss on put options and certain executive
compensation expenses.


                                       36



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED

     Income from continuing operations. Income from continuing operations
increased $18.4 million, or 145.7%, to $31.0 million for the three months ended
March 31, 2005, compared to $12.6 million for the three months ended March 31,
2004, due to the factors discussed above.

DISCONTINUED OPERATIONS

     On July 2, 2004, we sold the security consulting division of our litigation
support services subsidiary, NTI, which was the last remaining business in
discontinued operations. The remaining division in NTI, consisting primarily of
training services, has been included as part of the Products Division segment,
where management now resides. This business represented the last remaining
business in our ArmorGroup Services Division (the "Services Division").

     We had no discontinued operations in the three months ended March 31, 2005.
Please see Note 2, Discontinued Operations, in Part I, Item 1 for a summary of
the operating results of the discontinued operations for three months ended
March 31, 2004.


                                       37



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED

LIQUIDITY AND CAPITAL RESOURCES

     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. On
March 25, 2005, our Board of Directors increased our existing stock repurchase
program to enable us to repurchase, from time to time depending upon market
conditions and other factors, up to an additional 3.5 million shares of its
outstanding common stock. Through April 27, 2005, 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 7.3 million shares of our common stock. Repurchases may be made in
the open market, in privately negotiated transactions utilizing various hedging
mechanisms including, among others, the sale to third parties of put options our
common stock, or otherwise. At March 31, 2005, we had 34.3 million shares of
common stock outstanding.

     As of April 27, 2005, we have sold put options in various private
transactions covering 2,500,000 shares (7.3% of outstanding shares at April 27,
2005) at a weighted average strike price of $36.00 per share, all of which
expire prior to December 31, 2005. If the purchasers exercise the put options,
we will be required to repurchase our shares or enter into alternative cash
settlement arrangements at the negotiated strike price. If all of these put
options are exercised, we would have 4.8 million shares remaining under our
repurchase programs.

     We expect to continue our policy of repurchasing our common stock from time
to time, subject to the restrictions contained in our Credit Facility, the
indenture governing the 8.25% Notes and the indenture governing the 2%
Convertible Notes. Our Credit Facility permits us to repurchase shares of our
common stock with no limitation if our ratio of Consolidated Senior 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. When such ratio is
greater than 1.00 to 1, our Credit Facility limits our ability to repurchase
shares at $15.0 million. This basket resets to $0 each time the ratio is less
than 1.00 to 1. As of March 31, 2005, such ratio was 0.06 to 1. Our indentures
governing the 8.25% Notes and the 2% Convertible Notes also permit us to
repurchase shares of our common stock, subject to certain limitations, as long
as we satisfy the conditions to such repurchase contained therein.

     On October 29, 2004, we completed the placement of $300 million aggregate
principal amount of the 2.00% Senior Subordinated Convertible Notes due November
1, 2024 (the "2% Convertible Notes"). On November 5, 2004, Goldman, Sachs & Co.
exercised its option to purchase an additional $45 million principal amount of
the 2% Convertible Notes. The 2% Convertible Notes provide the holders with a
seven year put option and are guaranteed by most of our domestic subsidiaries on
a senior subordinated basis (see Note 13). The 2% Convertible Notes were
initially rated B1/B+ by Moody's Investors' Service and Standard & Poor's Rating
Services, respectively. The 2% Convertible Notes will bear interest at a rate of
2.00% per year, payable on November 1 and May 1 of each year beginning on May 1,
2005 and ending on November 1, 2011. The 2% Convertible Notes will be subject to
accretion of the principal amount beginning on November 1, 2011, at a rate that
provides holders with an aggregate annual yield to maturity of 2.00%, as defined
in the agreement. The 2% Convertible Notes will bear contingent interest during
any six-month period beginning November 1, 2011, of 15 basis points paid in cash
if the average trading price of the notes is above certain levels. The 2%
Convertible Notes will be convertible, at the bond holder's option at any time,
initially at a conversion rate of


                                       38



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED

18.5151 shares of our common stock per $1,000 principal amount of notes, which
is the equivalent conversion price of approximately $54.01 per share, subject to
adjustment. Upon conversion, we will satisfy our conversion obligation with
respect to the accreted principal amount of the notes to be converted in cash,
with any remaining amount to be satisfied in shares of our common stock. In
accordance with generally accepted accounting principles, the 2% Convertible
Notes are classified as short term debt. We intend to use the proceeds of the
offering to fund acquisitions and for general corporate and working capital
purposes, including the funding of capital expenditures. Funds that are not
immediately used are invested in money market funds and other investment grade
securities until needed.

     On June 22, 2004, our stockholders approved an amendment to our Certificate
of Incorporation, as amended, that increased the number of shares of our
authorized capital stock to 80,000,000, of which 75,000,000 shares are
designated as common stock and 5,000,000 shares are designated as preferred
stock.

     On June 15, 2004, we sold 4,000,000 primary shares of common stock at a
price of $37.50 per share, raising $142.5 million of net proceeds after
deducting the underwriter discounts and commissions. In addition, certain of our
directors and officers granted the underwriters a 30-day option to purchase up
to 600,000 shares. The 30-day option expired unexercised on July 15, 2004. We
intend to use the net proceeds from the offering to fund future acquisitions, to
take advantage of business development opportunities, 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, which
have been designated as fair value hedges as defined under SFAS 133 with a
notional amount totaling $150 million. The agreements were entered into to
exchange the fixed interest rate on our 8.25% 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, other assets on
the Consolidated Balance Sheet decreased by $4.1 million to $1.9 million at
March 31, 2005, from $6.0 million at December 31, 2004, which reflected a
decrease in the fair value of the interest rate swap agreements. The
corresponding decrease 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.

     On August 12, 2003, we completed a private placement of $150 million
aggregate principal amount of the 8.25% Notes. The 8.25% Notes are guaranteed by
almost all of our domestic subsidiaries, on a senior subordinated basis. The
8.25% 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 8.25%
Notes were initially rated B1/B+ by Moody's Investors' Service and Standard &
Poor's Rating Services, respectively. We used a portion of the funds to repay
debt, acquire Simula, Inc., Hatch Imports, Inc., ODV, Inc., and Kleen-Bore,
Inc., and we intend to use the remaining proceeds of the offering to fund
acquisitions and for general corporate and working capital purposes, including
the funding of capital expenditures. On March 29,


                                       39



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED

2004, we completed a registered exchange offer for the 8.25% Notes and exchanged
the 8.25% Notes for new 8.25% Notes that were registered under the Securities
Act of 1933, as amended.

     On August 12, 2003, in concert with our 8.25% Note offering, we 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 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 Credit Facility, including, among other things,
accounts receivable, inventory, machinery, equipment, certain contract rights,
intellectual property rights and general intangibles. On January 9, 2004, we
amended our Credit Facility to broaden our ability to make additional
open-market purchases of publicly-traded securities subject to certain
limitations. On March 29, 2004, we amended our Credit Facility to allow us to
pay dividends subject to certain limitations. On October 19, 2004, we amended
our Credit Facility to allow us to subtract cash equivalents from total
indebtedness in calculation of our compliance covenants. On April 14, 2005, we
amended our credit agreement to amend the definition of cash equivalents to
include auction rate securities held by our existing bank group.

     As of March 31, 2005, we were in compliance with all of our negative and
affirmative covenants contained in the Credit Facility and the indentures
governing the 8.25% Notes and the 2% Convertible Notes.

     Working capital was $328.5 million and $289.6 million as of March 31, 2005,
and December 31, 2004, respectively. The increase in working capital is largely
a function of increases in accounts receivable of $14.3 million and inventory of
$7.8 million to support the growth in revenues from demand for the Up-Armored
HMMWV, supplemental armor for other military vehicles, and SAPI plates.

     Our fiscal 2005 capital expenditures are expected to be $16.7 million, of
which we have spent $3.2 million through the three months ended March 31, 2005.
Such expenditures included additional manufacturing, office space, manufacturing
machinery and equipment, leasehold improvements, information technology and
communications infrastructure equipment.


                                       40



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED

     We anticipate that the cash on hand, cash generated from operations, 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 and we are continuously exploring alternatives. 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.

     See Part II Item 1 Legal Proceedings regarding outstanding legal matters.


                                       41



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED

FORWARD LOOKING AND CAUTIONARY STATEMENTS

     Except for the historical information and discussions contained herein,
statements contained in this Form 10-Q may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including, but not
limited to, our failure to continue to develop and market new and innovative
products and services and to keep pace with technological change; competitive
pressures; failure to obtain or protect intellectual property rights; the
ultimate effect of various domestic and foreign political and economic issues on
our business, financial condition or results of operations; quarterly
fluctuations in revenues and volatility of stock prices; contract delays; cost
overruns; our ability to attract and retain key personnel; currency and customer
financing risks; dependence on certain suppliers, customers and availability of
raw materials; changes in the financial or business condition of our
distributors or resellers; our ability to successfully manage acquisitions,
alliances and integrate past and future business combinations; regulatory,
legal, political and economic changes; an adverse determination in connection
with the Zylon(R) investigation being conducted by the U.S. Department of
Justice and certain state agencies and/or other Zylon(R)-related litigation; and
other risks, uncertainties and factors inherent in our business and otherwise
discussed elsewhere in this Form 10-Q and in our other filings with the
Securities and Exchange Commission or in materials incorporated therein by
reference.


                                       42



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3. 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, foreign currency
exchange rates and our stock price, 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.

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 relates 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 only a remote risk of loss of principal in the
short-term money market instruments. The main risk is 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 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 agreements involve receipt of fixed
rate amounts in exchange for floating rate interest payments over the life of
the agreement without an exchange of the underlying principal amount. The
variable interest rates are fixed semi-annually on the fifteenth day of February
and August each year through maturity. The six-month LIBOR rate was 3.33% on
April 18, 2005. 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 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
$375,000 for a three 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 fair value of the interest rate swaps will be reflected in
earnings and an equivalent 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 March 31, 2005, we recorded the fair value of the interest rate
swap agreements of $1.9 million and recorded the corresponding fair value


                                       43



ARMOR HOLDINGS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - CONTINUED

adjustment to the 8.25% senior subordinated notes in other assets and long-term
debt sections of the Condensed 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.

     Stock Price Risk. The fair values of the put options are obtained from our
counter-parties and represent the estimated amount we would receive or pay to
terminate the put options, taking into account the consideration we received for
the sale of the put options. As our stock price fluctuates the value of these
contracts also fluctuates. As of March 31, 2005, we incurred a fair value loss
of $1.1 million recorded in other expense, net.

     Our exposure to our stock price risk is a result of the 2.5 million put
option contracts we have entered into. Under the terms of our put options, if
our stock price were to fall to 50% of the strike price we could be required to
settle the contracts prior to the expiration of the contracts. We have the
ability to terminate the contracts prior to expiration by paying an early unwind
amount to the counterparty. This amount is equal to the current market value of
the option contract provided by the counterparty at the time of unwind.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

     We do business in numerous countries, including emerging markets in South
America. We have invested 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.


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ARMOR HOLDINGS, INC. AND SUBSIDIARIES

ITEM 4. CONTROLS AND PROCEDURES

     Our management, including Warren B. Kanders, Chairman and Chief Executive
Officer, and Glenn J. Heiar, Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this quarterly report. Based on that evaluation, the Chairman
and Chief Executive Officer and Chief Financial Officer have concluded that as
of the end of the period covered by this quarterly report, our disclosure
controls and procedures, which are designed to ensure that information required
to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in applicable Securities and Exchange Commission rules and forms, were
effective.

     Our management, including our Chairman and Chief Executive Officer and
Chief Financial Officer, has also evaluated our internal control over financial
reporting to determine whether any changes occurred during the fiscal quarter
covered by this quarterly report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. Based on that evaluation, there has been no such change during the
fiscal quarter covered by this quarterly report.


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ARMOR HOLDINGS, INC. AND SUBSIDIARIES

                                    PART II

ITEM 1. LEGAL PROCEEDINGS

     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"). Since March 1998, we have been and
continue to be involved in various legal proceedings before French courts with
SHRM, which is part of the Compass Group, regarding damages from the
circumstances under which DSIA had to cease doing business in Angola due to the
decree of the Angolan government expelling the employees of our Services
Division from Angola.

Kroll, Inc. Matters

     O'Gara-Hess & Eisenhardt Armoring de Brasil Ltda. ("OHE Brazil") was
assessed 41.1 Million Reals (US $15.4 million based on the exchange rate as of
March 31, 2005) by the Brazilian tax authorities. OHE Brazil has appealed the
tax assessments and the cases are pending. To the extent that there may be any
liability resulting from such assessments, we believe that we are entitled to
indemnification from Kroll, Inc. for up to $7.7 million under the terms of our
purchase agreement dated April 20, 2001, because the events in question with
respect to up to $7.7 million of such assessments occurred prior to our purchase
of the O'Gara Companies from Kroll, Inc.

     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. In late 2004, the principal labor
claim was settled by the Company for approximately $1.9 million and two of the
other claims were settled for approximately $52,000. We believe that we are
entitled to indemnification from Kroll, Inc. with respect to these settlement
payments and the remaining claims.

     In December 2001, O'Gara-Hess & Eisenhardt France S.A., which was acquired
from Kroll, Inc. ("OHE France"), sold its industrial bodywork business operated
under the name Labbe/Division de O'Gara Hess & Eisenhardt France/ Carrosserie
Industriells ("Carrosserie") 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 LFT had not given its consent to the
transfer as allegedly required under the terms of the lease. In addition, LFT is
seeking to have OHE France, as the sole tenant, maintain and repair the leased
building with an estimated cost of between US $4.0 and US $7.9 million, based on
the exchange rate as of March 31, 2005. 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.

Matters Involving Zylon(R) Fiber

     In April 2004, two class action lawsuits were filed against us in Florida
state court by police organizations and individual police officers, alleging,
among other things, that our bullet-resistant soft body armor (vests)
manufactured and sold under the American Body Armor(TM), Safariland(R) and


                                       46



ARMOR HOLDINGS, INC. AND SUBSIDIARIES

PROTECH(TM) brands, 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. On August 12, 2004, we reached a preliminary settlement with respect to
the class action lawsuit filed in Duval County, Florida by the Southern States
Police Benevolent Association ("Southern States PBA"). After fairness hearings
were held, the Florida Circuit Court gave final approval to that settlement on
November 5, 2004. The other class action lawsuit filed against us by the
National Association of Police Organizations, Inc. ("NAPO"), in Lee County,
Florida, was voluntarily dismissed with prejudice on November 16, 2004.

     Pursuant to the terms of the class action settlement with the Southern
States PBA, the warranty on the American Body Armor(TM) Xtreme(R) ZX vest (both
NIJ threat level II and IIIA) has been reduced from 5 years to 2 1/2 years. In
addition, every purchaser of an Xtreme(R) ZX vest has the option to exchange
their vest for either a new ZX vest or any other vest of their choosing from the
American Body Armor(TM), Safariland(R) and ProTech(TM) product lines plus a
$100.00 transferable rebate coupon applicable towards their next purchase of a
vest. We have also made available on the American Body Armor(TM) website testing
data, protocols and results relating to the testing of our vests. We also
continue to test all of our Zylon(R)-containing vests, and if such testing
demonstrates that the tested vests fail to perform in accordance with their
warranties, we will implement an exchange program for those models on a
reasonably comparable basis to the American Body Armor(TM) Xtreme(R) ZX exchange
program outlined above. Zylon(R) fiber is made by Toyobo, a Japanese
corporation, and is a ballistic fiber widely used in the entire body armor
industry. A final report to the Duval County Court regarding claims
administration of the settlement and exchange of vests, will be filed on or
before May 2, 2005. We are also voluntarily cooperating with a request received
in December 2004 from the Department of Justice who is reviewing the entire
industry's use of Zylon(R) fiber in bullet resistant vests.

     It should be stressed that our vests are certified by the National
Institute of Justice, have never suffered any penetration in the field and
continue to save lives and protect officers from injury. In fact, neither of the
two resolved class action lawsuits alleged personal injuries of any kind.

     Second Chance Body Armor, one of our competitors in the bullet-resistant
market, 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 been
brought against Second Chance based upon this licensed technology. Although
Simula may be impacted by the pending suits filed against Second Chance
regarding its Zylon(R)-containing vests, the licensed technology is not
specifically related to the use of Zylon(R) fiber. Any adverse resolution of
these matters, however, could have a material adverse effect on our business,
financial condition, results of operations and liquidity.

Other Matters

     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, general liability and intellectual property.
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


                                       47



ARMOR HOLDINGS, INC. AND SUBSIDIARIES

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.

     Reference is made to Part I, Item 3, Legal Proceedings, in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2004, for a
description of other legal proceedings.


                                       48



ARMOR HOLDINGS, INC. AND SUBSIDIARIES

ITEM 6. EXHIBITS

(a)  Exhibits

     The following exhibits are filed as part of this quarterly report on Form
10-Q:

     Exhibit No.   Description
     -----------   -----------

         31.1      Certification of Principal Executive Officer Pursuant to Rule
                   13a-14(a) (17 CFR 240.13a-14(a)).

         31.2      Certification of Principal Financial Officer Pursuant to Rule
                   13a-14(a) (17 CFR 240.13a-14(a)).

         32.1      Certification of Principal Executive Officer Pursuant to Rule
                   13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter
                   63 of Title 18 of the United States Code (18 U.S.C. 1350).

         32.2      Certification of Principal Financial Officer Pursuant to Rule
                   13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter
                   63 of Title 18 of the United States Code (18 U.S.C. 1350).


                                       49



ARMOR HOLDINGS, INC. AND SUBSIDIARIES

                                   SIGNATURES

Pursuant to the requirements 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 and Chief Executive Officer
                  Dated: April 29, 2005


                  /s/ Glenn J. Heiar
                  ------------------------------------------
                  Glenn J. Heiar
                  Chief Financial Officer
                  (Principal Financial Officer and Principal Accounting Officer)
                  Dated: April 29, 2005


                                       50



                               Index to Exhibits

Exhibit No.   Description
- -----------   -----------

    31.1      Certification of Principal Executive Officer Pursuant to Rule 13a-
              14(a) (17 CFR 240.13a-14(a)).

    31.2      Certification of Principal Financial Officer Pursuant to Rule 13a-
              14(a) (17 CFR 240.13a-14(a)).

    32.1      Certification of Principal Executive Officer Pursuant to Rule 13a-
              14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of
              Title 18 of the United States Code (18 U.S.C. 1350).

    32.2      Certification of Principal Financial Officer Pursuant to Rule 13a-
              14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of
              Title 18 of the United States Code (18 U.S.C. 1350).


                                       51