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 SEPTEMBER 30, 2004, 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.)


 1400 MARSH LANDING PARKWAY, SUITE 112
       JACKSONVILLE, FLORIDA                                        32250
(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
October 15, 2004 is 33,196,008.


                                       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....  38

         ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                       ABOUT MARKET RISK................................  57

         ITEM 4.    CONTROLS AND PROCEDURES.............................  59

PART II - OTHER INFORMATION

         ITEM 1.    LEGAL PROCEEDINGS...................................  60

         ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                       HOLDERS..........................................  64

         ITEM 6.    EXHIBITS ...........................................  64

SIGNATURES                                                                65





                                       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 (consisting only of normal recurring accruals and the elimination of
all material intercompany accounts and transactions) which management considers
necessary for a fair presentation of operating results and financial position as
of September 30, 2004 and for the three month and nine months periods ended
September 30, 2004 and September 30, 2003.

         These unaudited condensed consolidated financial statements should be
read in conjunction with the financial statements included in our Annual Report
on Form 10-K/A for the fiscal year ended December 31, 2003.







                                       3



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



                                                        SEPTEMBER 30, 2004    DECEMBER 31, 2003
                                                            (UNAUDITED)              *
                                                        ------------------    -----------------
                                                                             
ASSETS

CURRENT ASSETS:
    Cash and cash equivalents                                $234,487              $111,850
    Restricted cash                                                 -                 2,600
    Accounts receivable (net of allowance for
      doubtful accounts of $2,540 and $1,673)                 126,185                72,635
    Costs and earned gross profit in excess of billings           157                     -
    Inventories                                               139,820                80,527
    Prepaid expenses and other current assets                  26,482                22,032
    Current assets of discontinued operations (Note 2)              -                   753
                                                             --------              --------

        Total current assets                                  527,131               290,397

PROPERTY AND EQUIPMENT (net of
  accumulated depreciation of $24,710 and $19,046)             62,006                57,576

GOODWILL (net of accumulated amortization
  of $4,024 and $4,024)                                       181,613               175,707

PATENTS, LICENSES AND TRADEMARKS
  (net of accumulated amortization of $5,518 and $2,627)       45,070                44,174

OTHER ASSETS                                                   16,631                16,169

LONG-TERM ASSETS OF DISCONTINUED OPERATIONS (Note 2)                -                 1,603
                                                             --------              --------


TOTAL ASSETS                                                 $832,451              $585,626
                                                             ========              ========



                 * 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)



                                                                  SEPTEMBER 30, 2004    DECEMBER 31, 2003
                                                                      (UNAUDITED)               *
                                                                  ------------------    -----------------
                                                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current portion of long-term debt                                  $     612             $  32,107
    Short-term debt                                                          973                   498
    Accounts payable                                                      50,469                30,304
    Accrued expenses and other current liabilities                        73,625                58,218
    Income taxes payable                                                  22,283                     -
    Current liabilities of discontinued operations (Note 2)                    -                   626
                                                                       ---------             ---------

        Total current liabilities                                        147,962               121,753

LONG-TERM LIABILITIES:
    Long-term debt, less current portion                                 155,436               158,300
    Other long-term liabilities                                            8,671                10,208
                                                                       ---------             ---------
                                                                         312,069               290,261
   Total liabilities

COMMITMENTS AND CONTINGENCIES (NOTE 11)

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 5,000,000 shares
            authorized; no shares issued and outstanding                       -                     -
   Common stock, $.01 par value; 75,000,000 and
            50,000,000 shares authorized; 39,135,873 and
            34,337,034 issued and 33,075,651 and
            28,276,812 outstanding at September 30, 2004
            and December 31, 2003, respectively                              392                   344
    Additional paid-in capital                                           489,293               318,460
    Retained earnings                                                     99,127                44,942
    Accumulated other comprehensive income                                 3,887                 3,936
    Treasury stock                                                       (72,317)              (72,317)
                                                                       ---------             ---------
       Total stockholders' equity                                        520,382               295,365
                                                                       ---------             ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 832,451             $ 585,626
                                                                       =========             =========




                 * 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                        NINE MONTHS ENDED
                                              SEPTEMBER 30, 2004   SEPTEMBER 30, 2003    SEPTEMBER 30, 2004    SEPTEMBER 30, 2003
                                              ------------------   ------------------    ------------------    ------------------
                                                                                                        
REVENUES:

  Aerospace & Defense                               $160,238             $21,136             $ 371,019              $ 52,839
  Products                                            64,659              49,804               184,242               143,158
  Mobile Security                                     31,906              19,942                86,874                57,018
                                                    --------             -------             ---------              --------
  Total Revenues                                     256,803              90,882               642,135               253,015
                                                    --------             -------             ---------              --------
COSTS AND EXPENSES:
  Cost of revenues                                   185,457              61,953               456,771               176,396
  Cost of warranty revision                            5,000                   -                 5,000                     -
  Operating expenses                                  22,695              15,977                69,332                44,505
  Amortization                                           984                  72                 2,937                   201
  Integration and other charges                          932                 368                 9,736                 4,565
                                                    --------             -------             ---------              --------

OPERATING INCOME                                      41,735              12,512                98,359                27,348

  Interest expense, net                                1,400               1,475                 5,185                 2,291
  Other expense (income), net                            154                  96                  (121)                  181
                                                    --------             -------             ---------              --------

INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES                            40,181              10,941                93,295                24,876
PROVISION FOR INCOME TAXES                            16,307               4,832                39,072                10,044
                                                    --------             -------             ---------              --------
INCOME FROM CONTINUING OPERATIONS                     23,874               6,109                54,223                14,832

DISCONTINUED OPERATIONS (NOTE 2):

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF TAX                                                 -                   6                   (38)                  983
                                                    --------             -------             ---------              --------
NET INCOME                                          $ 23,874             $ 6,115             $  54,185              $ 15,815
                                                    ========             =======             =========              ========

NET INCOME PER COMMON SHARE - BASIC
INCOME FROM CONTINUING OPERATIONS                   $   0.73             $  0.22             $    1.79              $   0.52
INCOME FROM DISCONTINUED OPERATIONS                     0.00                0.00                  0.00                  0.04
                                                    --------             -------             ---------              --------
BASIC EARNINGS PER SHARE                            $   0.73             $  0.22             $    1.79              $   0.56
                                                    ========             =======             =========              ========


           See notes to condensed consolidated financial statements.


                                       6



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



                                                    THREE MONTHS ENDED                            NINE MONTHS ENDED
                                         SEPTEMBER 30, 2004    SEPTEMBER 30, 2003     SEPTEMBER 30, 2004    SEPTEMBER 30, 2003
                                         ------------------    ------------------     ------------------    ------------------

                                                                                                  
NET INCOME PER COMMON SHARE - DILUTED

INCOME FROM CONTINUING OPERATIONS              $     0.70          $     0.22             $     1.72             $     0.52
INCOME FROM DISCONTINUED OPERATIONS                  0.00                0.00                   0.00                   0.04
                                               ----------          ----------             ----------             ----------
DILUTED EARNINGS PER SHARE                     $     0.70          $     0.22             $     1.72             $     0.56
                                               ==========          ==========             ==========             ==========

WEIGHTED AVERAGE SHARES - BASIC                    32,861              27,811                 30,221                 28,106
                                               ==========          ==========             ==========             ==========
WEIGHTED AVERAGE SHARES - DILUTED                  34,198              28,249                 31,498                 28,438
                                               ==========          ==========             ==========             ==========



           See notes to condensed consolidated financial statements.



                                       7



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


                                                                                      NINE MONTHS ENDED
                                                                           SEPTEMBER 30, 2004   SEPTEMBER 30, 2003
                                                                           ------------------   ------------------
                                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:
  Income from continuing operations                                              $  54,223           $  14,832
  Adjustments to reconcile income from continuing operations to cash
     provided by operating activities:
     Depreciation and amortization                                                   9,954               5,380
     Loss on disposal of fixed assets                                                  426                 167
     Deferred income taxes                                                           2,785               3,676
     Non-cash charge for acceleration of performance-based
         restricted stock awards                                                     6,294                   -
     Non-cash impairment charge                                                      1,408                   -
     Non-cash termination charge                                                         -               2,093
  Changes in operating assets and liabilities, net of acquisitions:
      (Increase) in accounts receivable                                            (52,331)             (1,556)
      (Increase) decrease in inventories                                           (58,848)              2,173
      (Increase) in prepaid expenses and other assets                               (7,723)             (3,682)
      Increase in accounts payable, accrued expenses
          and other current liabilities                                             37,594              11,808
      Increase (decrease) in income taxes payable                                   28,235              (1,999)
                                                                                 ---------           ---------
      Net cash provided by operating activities                                     22,017              32,892
                                                                                 ---------           ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                              (11,061)             (5,645)
   Purchase of patents and trademarks                                                 (117)                (99)
   Purchase of equity investment                                                    (5,275)                  -
   Proceeds from sale of equity investment                                           5,823                   -
   Collection of note receivable                                                       975                   -
   Decrease in restricted cash                                                       2,600                   -
   Sale of business, net of cash disposed                                              125                   -
   Additional consideration for purchased businesses                                (2,323)               (740)
   Purchase of business, net of cash acquired                                       (8,373)             (5,828)
                                                                                 ---------           ---------
   Net cash used in investing activities                                           (17,626)            (12,312)
                                                                                 ---------           ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from the exercise of stock options                                      11,448               6,588
   Proceeds from the issuance of common stock                                      142,500                   -
   Cash paid for common stock offering costs                                        (1,339)                  -
   Repurchases of treasury stock                                                         -             (22,684)
   Proceeds from the issuance of long-term debt                                          -             147,504
   Cash paid for financing costs                                                         -              (4,020)
   Repayments of long-term debt                                                    (34,339)             (1,399)
   Borrowings under lines of credit                                                 18,507              31,744
   Repayments under lines of credit                                                (18,054)            (32,070)
                                                                                 ---------           ---------
   Net cash provided by financing activities                                       118,723             125,663
                                                                                 ---------           ---------
   Effect of exchange rate changes on cash and cash equivalents                        240                 478
   Net cash used in discontinued operations                                           (717)             (4,868)
                                                                                 ---------           ---------
   NET INCREASE IN CASH AND CASH EQUIVALENTS                                       122,637             141,853
   CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  111,850              12,913
                                                                                 ---------           ---------
   CASH AND CASH EQUIVALENTS, END OF PERIOD                                      $ 234,487           $ 154,766
                                                                                 =========           =========
   CASH AND CASH EQUIVALENTS, END OF PERIOD
       CONTINUING OPERATIONS                                                     $ 234,487           $ 154,766
       DISCONTINUED OPERATIONS                                                           -               5,051
                                                                                 ---------           ---------
                                                                                 $ 234,487           $ 159,817
                                                                                 =========           =========



           See notes to condensed consolidated financial statements.


                                       8



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

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 the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals and the elimination of all material intercompany
accounts and transactions) considered necessary by management to present a fair
presentation have been included. The results of operations for the three month
and nine 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/A for the year ended December 31, 2003. The amounts
disclosed in the footnotes are related to continuing operations unless otherwise
indicated.

         Effective in the first quarter 2004, we instituted a new segment
reporting format to include three reportable business segments: Aerospace &
Defense Group, the Products Division ("Armor Holdings Products"), and the Mobile
Security Division ("Armor Mobile Security"). The Aerospace & Defense Group was
formed upon the completion of our acquisition of Simula, Inc. on December 9,
2003, and results have been included since the acquisition date. The Aerospace &
Defense Group also includes the military business, including armor and blast
protection systems for M1114 Up-Armored High Mobility Multi-Purpose Wheeled
Vehicles ("HMMWVs"), and other military vehicle armor programs, which previously
were included in the Mobile Security Division. The Aerospace & Defense Group
also includes the small arms protective insert ("SAPI") plate produced by our
Protech subsidiary in Pittsfield, Massachusetts, which was previously reported
as part of the Products Division. The historical results of these businesses
have been reclassified as part of the Aerospace & Defense Group. This reporting
change was made to better reflect management's approach to operating and
directing the businesses, and, in certain instances, to align financial
reporting with our market and customer segments. The reporting change had no
impact on consolidated revenues, gross profit, operating income or net income.

         As discussed in Note 2, 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"). The
assets and liabilities of the Services Division have been classified as assets
and liabilities of discontinued operations on our condensed consolidated balance
sheets and the results of their operations classified as income (loss) from
discontinued operations in the accompanying unaudited condensed consolidated
statements of operations.


                                       9



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


NOTE 2 - DISCONTINUED OPERATIONS

         On April 17, 2003, we announced that we had completed the sale of our
ArmorGroup Integrated Systems business through the sale of 100% of the stock of
ArmorGroup Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc.
to Aerwav Integration Systems, Inc. ("AIS"). AIS is a wholly owned subsidiary of
Aerwav Holdings, LLC. As consideration for the integrated systems business, we
received a $4.1 million collateralized note due in two years and a warrant for
approximately 2.5% of AIS. $475,000 of the balance due was paid in advance
through September 30, 2004. In accordance with Statement of Financial Accounting
Standards No. 144, we recorded a loss of $366,000 on the sale in the second
quarter of 2003.

         On November 26, 2003, we announced that we completed the sale of
ArmorGroup, our security service division, for $33,660,000 in total
consideration to a group of private investors led by Granville Baird Capital
Partners of London, England and Management. We received $31,360,000 in cash at
closing and are scheduled to receive another $2,300,000 by the end of 2004, of
which we have received $1.4 million through October 15, 2004. We recorded a loss
of $8.8 million on the sale in the fourth quarter of 2003 primarily due to
unrealized foreign currency translation loss. In accordance with generally
accepted accounting principles, unrealized foreign currency translation gains
and losses, which are included in equity as accumulated other comprehensive
income or loss, are not recognized until the period in which the related assets
and liabilities are disposed of.

         On June 30, 2004, our litigation support services subsidiary, NTI, was
the last remaining business in discontinued operations. On July 2, 2004, we sold
the security consulting division of NTI. In the second quarter of 2004, we
recorded an impairment charge of $1.4 million in integration and other charges
in continuing operations to reduce the carrying value of the remaining portion
of NTI to its estimated fair value.




                                       10



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


         A summary of the operating results of the discontinued operations for
the three months and nine months ended September 30, 2004 and 2003 is as
follows.



                                                THREE MONTHS ENDED                        NINE MONTHS ENDED

                                      SEPTEMBER 30, 2004   SEPTEMBER 30, 2003   SEPTEMBER 30, 2004   SEPTEMBER 30, 2003
                                      ------------------   ------------------   ------------------   ------------------
                                                   (IN THOUSANDS)                           (IN THOUSANDS)
                                                                                             
Revenue                                     $      -            $ 26,039             $ 1,733             $ 75,738
Cost of revenues                                   -              18,078                 697               53,447
Operating expenses                                 -               4,882                 821               16,299
Charge for impairment of long-lived
assets                                             -              11,258                 -                 11,258
Integration and other charges                      -                 104                 -                    598
                                            --------            --------             -------             --------
Operating (loss) income                            -              (8,283)                215               (5,864)
Interest expense, net                              -                  18                   2                   71
Other expense, net                                 -                  20                 273                  472
                                            --------            --------             -------             --------
Loss from discontinued operations before           -              (8,321)                (60)              (6,407)
for income tax benefit
Income tax benefit                                 -              (8,327)                (22)              (7,390)
                                            --------            --------             -------             --------
Income (loss) from discontinued
operations
                                            $      -            $      6             $   (38)            $    983
                                            ========            ========             =======             ========




                                       11



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



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

                                                 SEPTEMBER 30,    DECEMBER 31,
                                                      2004            2003
                                                 -------------    ------------
                                                          (IN THOUSANDS)
Assets
  Cash and cash equivalents                         $    -              $   76
  Accounts receivable, net                               -                 549
  Other current assets                                   -                 128
                                                    ------              ------
      Total current assets                               -                 753
  Property and equipment, net                            -               1,206
  Goodwill, net                                          -                 356
  Other assets                                           -                  41
                                                    ------              ------
 Total assets of discontinued operations            $    -              $2,356
                                                    ======              ======

Liabilities
  Current portion of long-term debt                 $    -              $  125
   Accounts payable                                      -                   5
   Accrued expenses and other current liabilities        -                 496
                                                    ------              ------
       Total current liabilities                         -                 626
                                                    ------              ------
Total liabilities of discontinued operations        $    -              $  626
                                                    ======              ======

         Based upon our analysis and discussions with our advisors regarding the
estimated realizable value, net of selling costs, of the Services Division, we
reduced its carrying value and recorded net impairment charges of $11.3 million
in the third quarter of fiscal 2003. The 2003 impairment charges consisted of a
non-cash goodwill reduction. The benefit for income taxes for discontinued
operations was $7.4 million for fiscal 2003. The reductions in the carrying
value of the Services Division were management's best estimate based upon the
information available at the time, including discussions with our investment
bankers.


                                       12



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 provision of zero
and $31,000 for the three months ended September 30, 2004 and 2003,
respectively, and zero and $255,000 for the nine months ended September 30, 2004
and 2003, respectively, are listed below:



                                                     THREE MONTHS ENDED                          NINE MONTHS ENDED

                                          SEPTEMBER 30, 2004   SEPTEMBER 30, 2003     SEPTEMBER 30, 2004    SEPTEMBER 30, 2003
                                          ------------------   ------------------     ------------------    ------------------
                                                      (IN THOUSANDS)                              (IN THOUSANDS)
                                                                                                       
Net income                                       $23,874              $6,115                $ 54,185               $15,815
Other comprehensive income (loss):
   Foreign currency translations, net
   of tax                                            507                  34                     (51)                2,265
                                                 -------              ------                --------               -------
Comprehensive income:                            $24,381              $6,149                $ 54,134               $18,080
                                                 =======              ======                ========               =======



NOTE 4 - INVENTORIES

         Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and are summarized as follows:



                                    SEPTEMBER 30, 2004      DECEMBER 31, 2003
                                    ------------------      -----------------
                                                  (IN THOUSANDS)
                                                            
Raw material                               $ 85,098               $ 40,397
Work-in-process                              36,284                 25,422
Finished goods                               18,438                 14,708
                                           --------               --------
    Total inventories                      $139,820               $ 80,527
                                           ========               ========



NOTE 5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

         Accrued expenses and other current liabilities are summarized as
follows:



                                                            SEPTEMBER 30, 2004      DECEMBER 31, 2003
                                                           ---------------------   --------------------
                                                                         (IN THOUSANDS)
                                                                                   
Accrued expenses and other current liabilities                     $53,426               $ 40,787
Deferred consideration for acquisitions                              4,383                  2,780
Customer deposits                                                   15,816                 14,651
                                                                   -------               --------

   Total accrued expenses and other current liabilities            $73,625               $ 58,218
                                                                   =======               ========




                                       13


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 "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 Notes for a
variable interest rate equal to six-month LIBOR (2.20% at September 30, 2004),
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 Notes.
Accordingly, changes in the fair value of the interest rate swap agreements
offset changes in the fair value of the Notes due to changes in the market
interest rate. As a result, no ineffectiveness is expected to be recognized in
our earnings associated with the interest rate swap agreements on the Notes. The
fair value of the interest rate swap agreements was approximately $5.7 million
and $5.9 million at September 30, 2004 and December 31, 2003, 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.


NOTE 7 - 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. We are
organized and operated under three business segments: Aerospace & Defense Group,
Armor


                                       14



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


Holdings Products, also referred to as our Products Division, and Armor Mobile
Security, also referred to as our 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. Our Aerospace & Defense Group supplies human
safety and survival systems to the U.S. military, and major aerospace and
defense prime contractors. Our core markets are military aviation safety,
military personnel safety, and land and marine safety. Under the brand name
O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S. military
of the armor and blast protection systems for M1114 Up-Armored HMMWVs. We are
also under contract with the U.S. Army to provide spare parts, logistics and
ongoing field support services for the currently installed base of approximately
7,000 Up-Armored HMMWVs. Additionally, we provide blast and ballistic protection
kits for the standard HMMWVs, which are installed on existing equipment in the
field. Our Aerospace & Defense Group is also subcontracted to develop a
ballistic and blast protected armored and sealed truck cab for the High Mobility
Artillery Rocket System ("HIMARS"), a program recently transitioned by the U.S.
Army and U.S. Marine Corps from developmental to a low rate of initial
production, deliveries of which commenced in 2003. We also supply armor
sub-systems for other tactical wheeled vehicles. Through Simula, we provide
military helicopter seating systems, helicopter cockpit airbag systems, aircraft
and land vehicle armor kits, body armor and other protective equipment for
military personnel, emergency bailout parachutes and survival ensembles worn by
military aircrew. The primary customers for the Aerospace & Defense Group
products are the U.S. Army, U.S. Marine Corps, Boeing, and Sikorsky Aircraft.
Most of Simula's aviation safety products are provided on a sole source basis.
The U.S. armed forces have adopted ceramic body armor as a key element of the
protective ensemble worn by our troops in Iraq and Afghanistan. Simula was the
developer of this specialized product called SAPI, and is the largest supplier
to U.S. forces.

         Armor Holdings Products. Our Armor Holdings Products division
manufactures and sells a broad range of high quality equipment marketed under
brand names that are well known and respected in the military and law
enforcement communities. Products manufactured by this division include
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms' accessories, weapon maintenance products, foldable
ladders, and specialty gloves.

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

         We have invested resources outside of the United States and plan to
continue to do so in the future. The Armor Mobile Security Division has invested
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,


                                       15


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


including imposition or increase of withholding and other taxes on remittances
and other payments by subsidiaries, and local economic, political and social
conditions. Governments of many developing countries have exercised and continue
to exercise substantial influence over many aspects of the private sector.
Government actions in the future could have a significant adverse effect on
economic conditions in a developing country or may otherwise have a material
adverse effect on us and our operating companies. We do not have political risk
insurance in the countries in which we currently conduct business. Moreover,
applicable agreements relating to our interests in our operating companies are
frequently governed by foreign law. As a result, in the event of a dispute, it
may be difficult for us to enforce our rights. Accordingly, we may have little
or no recourse upon the occurrence of any of these developments.

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



                                              THREE MONTHS ENDED                          NINE MONTHS ENDED

                                   SEPTEMBER 30, 2004    SEPTEMBER 30, 2003    SEPTEMBER 30, 2004   SEPTEMBER 30, 2003
                                   ------------------    ------------------    ------------------   ------------------
                                                 (IN THOUSANDS)                            (IN THOUSANDS)
                                                                                             
Revenues:
   Aerospace & Defense                  $ 160,238             $ 21,136             $ 371,019             $  52,839
   Products                                64,659               49,804               184,242               143,158
   Mobile Security                         31,906               19,942                86,874                57,018
                                        ---------             --------             ---------             ---------
      Total revenues                    $ 256,803             $ 90,882             $ 642,135             $ 253,015
                                        =========             ========             =========             =========

Operating income (loss):
   Aerospace & Defense                  $  35,146             $  5,088             $  86,177             $  12,431
   Products                                 6,849                9,588                23,793                24,247
   Mobile Security                          3,699                  638                 8,619                 1,432
   Corporate                               (3,959)              (2,802)              (20,230)              (10,762)
                                        ---------             --------             ---------             ---------
      Total operating income            $  41,735             $ 12,512             $  98,359             $  27,348
                                        =========             ========             =========             =========





                                                                              SEPTEMBER 30, 2004    DECEMBER 31, 2003
                                                                              ------------------    -----------------
                                                                                            (IN THOUSANDS)
                                                                                                    
Total assets:
   Aerospace & Defense                                                               $305,782             $209,834
   Products                                                                           197,417              183,972
   Mobile Security                                                                     88,912               63,161
   Corporate                                                                          240,340              126,303
                                                                                     --------             --------
      Total assets                                                                   $832,451             $583,270
                                                                                     ========             ========



                                       16



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



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



                                                       THREE MONTHS ENDED                           NINE MONTHS ENDED

                                             SEPTEMBER 30, 2004   SEPTEMBER 30, 2003    SEPTEMBER 30, 2004   SEPTEMBER 30, 2003
                                             ------------------   ------------------    ------------------   ------------------
                                                         (IN THOUSANDS)                             (IN THOUSANDS)
                                                                                                       
Revenues:
   North America                                   $217,143            $68,924                 $537,148            $186,754
   South America                                      4,390              4,456                   12,051              10,547
   Africa                                               351                774                    2,032               1,578
   Europe/Asia                                       34,919             16,728                   90,904              54,136
                                                   --------            -------                 --------            --------
      Total revenues                               $256,803            $90,882                 $642,135            $253,015
                                                   ========            =======                 ========            ========

Geographic operating income:
   North America                                   $ 37,524            $10,313                 $ 96,906            $ 24,973
   South America                                        810                513                    1,428                 618
   Africa                                               128                183                      334                 377
   Europe/Asia                                        5,189              1,943                   12,364               6,146
                                                   --------            -------                 --------            --------
      Total geographic operating Income            $ 43,651            $12,952                 $111,032            $ 32,114
                                                   ========            =======                 ========            ========




                                                                                        SEPTEMBER 30, 2004    DECEMBER 31, 2003
                                                                                        ------------------    -----------------
                                                                                                    (IN THOUSANDS)
                                                                                                          
Total assets:
   North America                                                                               $756,590         $523,954
   South America                                                                                  8,793            6,433
   Africa                                                                                             -                -
   Europe/Asia                                                                                   67,068           52,883
                                                                                               --------         --------
      Total assets                                                                             $832,451         $583,270
                                                                                               ========         ========


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



                                                       THREE MONTHS ENDED                           NINE MONTHS ENDED

                                             SEPTEMBER 30, 2004   SEPTEMBER 30, 2003     SEPTEMBER 30, 2004    SEPTEMBER 30, 2003
                                             ------------------   ------------------     ------------------    ------------------
                                                          (IN THOUSANDS)                              (IN THOUSANDS)
                                                                                                        
Consolidated geographic operating income            $ 43,651             $ 12,952             $ 111,032             $ 32,114
Amortization                                            (984)                 (72)               (2,937)                (201)
Integration and other charges                           (932)                (368)               (9,736)              (4,565)
                                                    --------             --------             ---------             --------
Operating income                                    $ 41,735             $ 12,512             $  98,359             $ 27,348
                                                    ========             ========             =========             ========



                                       17



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


NOTE 8 - 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                      NINE MONTHS ENDED

                                                 SEPTEMBER 30, 2004   SEPTEMBER 30, 2003  SEPTEMBER 30, 2004    SEPTEMBER 30, 2003
                                                 ------------------   ------------------  ------------------    ------------------
                                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                                          
Numerator for basic and diluted
earnings per share:

Income from continuing operations                        $23,874             $ 6,109             $54,223              $14,832
                                                         -------             -------             -------              -------

Denominator for basic earnings per share -
weighted average shares outstanding:                      32,861              27,811              30,221               28,106

Effect of shares issuable under stock
option and stock grant plans, based on the
treasury stock method                                      1,337                 438               1,277                  332
                                                         -------             -------             -------              -------

Denominator for diluted earnings per
share- Adjusted weighted average shares
outstanding                                               34,198              28,249              31,498               28,438
                                                         =======             =======             =======              =======

Basic earnings per share from
continuing operations                                    $  0.73             $  0.22             $  1.79              $  0.52
                                                         =======             =======             =======              =======

Diluted earnings per share from
continuing operations                                    $  0.70             $  0.22             $  1.72              $  0.52
                                                         =======             =======             =======              =======



NOTE 9 - NEW ACCOUNTING PRONOUNCEMENT

         In April 2004, the FASB issued FASB Staff Position No. 129-1,
Disclosure Requirements under FASB Statement No. 129, "Disclosure of Information
about Capital Structure," relating to contingently convertible securities ("FSP
129-1"). The purpose of FSP 129-1 is to interpret how the disclosure provisions
of FASB Statement No. 129 apply to contingently convertible securities and to
their potentially dilutive effects on earnings per share. The guidance in FSP
129-1 is effective April 2004 and applies to all existing and newly created
securities. This pronouncement has no effect on us.


                                       18



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


NOTE 10 - STOCKHOLDERS' EQUITY

         On July 15, 2004, our stockholders approved the increase in number of
shares in our 2002 Stock Incentive Plan by 4,000,000, however, we will not issue
more than 2,000,000 of these shares without additional stockholder approval.

         On June 22, 2004, our stockholders approved an amendment to our
Certificate of Incorporation that increased the number of shares of our
authorized common stock to 75,000,000. The amendment was filed with the
Secretary of State of the State of Delaware and became effective on July 22,
2004.

         On June 15, 2004, we sold 4,000,000 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. Funds
that are not immediately used are invested in money market funds, certificates
of deposits, and other investment grade securities until needed.

         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 and nine month periods ended September 30, 2004 and 2003
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:





                                       19



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



                                                              THREE MONTHS ENDED                      NINE MONTHS ENDED

                                                SEPTEMBER 30, 2004   SEPTEMBER 30, 2003   SEPTEMBER 30, 2004  SEPTEMBER 30, 2003
                                                ------------------   ------------------   ------------------  ------------------
                                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                                        
Net income as reported:                               $ 23,874              $ 6,115             $ 54,185            $ 15,815

Deduct:  Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects                                     (1,368)                (671)              (3,902)             (2,985)

Add:  Employee compensation expense for
modification of stock option awards
included in reported net income, net of
income taxes                                               -                    506                   57                 506
                                                      --------              -------             --------            --------

Pro-forma net income                                  $ 22,506              $ 5,950             $ 50,340            $ 13,336
                                                      ========              =======             ========            ========
Earnings per share:

         Basic - as reported                          $   0.73              $  0.22             $   1.79            $   0.56
                                                      ========              =======             ========            ========
         Basic - pro-forma                            $   0.68              $  0.21             $   1.67            $   0.47
                                                      ========              =======             ========            ========
         Diluted - as reported                        $   0.70              $  0.22             $   1.72            $   0.56
                                                      ========              =======             ========            ========
         Diluted - pro-forma                          $   0.66              $  0.21             $   1.60            $   0.47
                                                      ========              =======             ========            ========



                                       20



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


NOTE 11 - 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"). On March 6, 1998, SIA (a
subsidiary of SHRM) filed a complaint against Defense Systems France, SA ("DSF")
before the Commercial Court of Nanterre (Tribunal de Commerce de Nanterre)
seeking to be paid an amount of $577,286 corresponding to an alleged debt of
DSIA to SIA. In October 2002, the Commercial Court of Nanterre stayed the
proceedings before it, pending the decisions of the Court of Appeal and the
Paris Commercial Court. In February 2003, the Court of Appeal ruled against SHRM
and its parent entity, Compass Group, effectively ending all further proceedings
on the merits of Compass' claims. Compass has appealed the decision before the
French Court of Cassation, which reviews only matters of law.

         In 1999 and prior to our acquisition of O'Gara-Hess & Eisenhardt
Armoring Company (which has been converted to a limited liability company and is
now known as O'Gara-Hess & Eisenhardt Armoring Company, L.L.C.) ("OHEAC") in
2001, O'Gara-Hess & Eisenhardt Armoring de Brasil Ltda. ("OHE Brazil") was
audited by the Brazilian federal tax authorities and assessed over Ten Million
Reals (US$3.5 million based on the exchange rate as of September 30, 2004). OHE
Brazil has appealed the tax assessment and the case is pending. To the extent
that there may be any liability resulting from the 1999 audit, we believe that
we are entitled to indemnification from Kroll, Inc. under the terms of our
purchase agreement dated April 20, 2001, despite the denial by Kroll, Inc. of
any such liability, because the events occurred prior to our purchase of the
O'Gara Companies from Kroll, Inc. However, to the extent that the appeal
relating to 1999 activity results in an unfavorable ruling, we could be liable
for unpaid taxes incurred subsequent to the acquisition from Kroll.

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

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


                                       21



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


estimated to be between US $3.8 and US $7.5 million, based on the exchange rate
as of September 30, 2004. The case is currently pending, and while we are
contesting the allegations vigorously, we are unable to predict the outcome of
this matter. Although we do not have any insurance coverage for this matter, at
this time, we do not believe this matter will have a material impact on our
financial position, operations or liquidity.

         On October 18, 2002, we were notified by the Internal Revenue Service
that our tax return for the tax year ended December 31, 2000 had been selected
for examination. Further, on January 30, 2003 we were notified that our tax
return for the tax year ended December 31, 2001 had been selected for
examination. In April 2004, we reached an agreement with the Internal Revenue
Service regarding our tax returns for the years ended December 31, 2000 and 2001
that did not have a material impact on our financial position, operations or
liquidity.

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

         In September 2003, Second Chance Body Armor, Inc. ("Second Chance"), a
body armor manufacturer and competitor to Armor Holdings, notified its customers
of a potential safety issue with its Ultima(R) and Ultimax(R) models. Second
Chance has claimed that Zylon(R) fiber, which is made by Toyobo, a Japanese
corporation, and used in the ballistic fabric construction of those two models,
degraded more rapidly than originally anticipated. Second Chance has also stated
that the Zylon(R) degradation problem affects the entire body armor industry,
not just its products. Both private claimants and State Attorneys General have
already commenced legal action against Second Chance based upon its Ultima(R)
and Ultimax(R) model vests.

         We use Zylon(R) fiber in a number of concealable body armor models for
law enforcement, but our vest design and construction are different from Second
Chance. The National Institute of Justice ("NIJ") tests and has certified each
of our body armor designs before we begin to produce or sell any particular
model.

         In the Fall of 2003, following the assertions made by Second Chance,
several law enforcement associations raised this issue to the U.S. Attorney
General ("USAG"), who then asked the U.S. Department of Justice ("DOJ") through
the NIJ to investigate these concerns and attempt to clarify the issues. We have
and continue to support the Attorney General's directive and investigation. In
2004 we received investigative demands from state agencies in Texas and
Connecticut to which we have complied, as well as letters from two private
attorneys threatening potential litigation.

         As a result of the USAG's and DOJ's initiative, the NIJ commenced an
inquiry and investigation regarding the protocol for testing used vests, as well
as the reliability of Zylon(R) and other ballistic fibers. We have consulted and
continue to cooperate fully with the NIJ in this endeavor. To date, the NIJ


                                       22



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


has embarked only in its first phase of testing, which entails vests that have
been heavily worn or exposed to adverse conditions, and which utilized the
ballistic testing standard applicable to new vests. Although some of the vests
tested, including ours, experienced a penetration, the NIJ specifically warned
against the misuse and misinterpretation of these results, emphasizing that the
data produced so far is preliminary in nature, applies to a very small sample
size and therefore it is not possible to draw any definitive conclusions from
these results. The NIJ will continue to conduct further testing and analyze
these issues in order to determine if any conclusions can be reached as to the
performance and reliability of aged vests. We have requested the NIJ to provide
us with its testing data, and we intend to evaluate and review the NIJ's results
upon our receipt of such data in our continuing effort to assist the NIJ in
developing uniform standards for certification of new vests and the testing of
used vests.

         In April 2004, two class action complaints 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, Safariland 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 particular purpose and duty to warn. On August 12,
2004, we announced that we had 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"), subject to final court
approval. After a fairness hearing held on September 30, 2004, the Florida
Circuit Court gave final approval to that settlement as to all purchasers of
Zylon(R)-containing body armor manufactured under the brand name American Body
Armor, and scheduled a final fairness hearing for November 5, 2004, with regard
to purchasers of all other Zylon(R)-containing body armor manufactured by our
subsidiaries, Safariland(R) and ProTech(TM).

         Pursuant to the terms of the class action settlement, the warranty on
the American Body Armor Xtreme ZX(R) vest (both NIJ threat level II and IIIA)
has been reduced from 5 years to 2 1/2 years. In addition, a purchaser of the
Xtreme ZX(R) vest has one of the following two options: (1) receive a new
American Body Armor Xtreme ZX(R) vest (either threat level II or IIIA) with a 2
1/2 year warranty, an extra carrier and a transferable rebate coupon for $100
applicable toward the next purchase of any soft body armor from American Body
Armor, Safariland, or ProTech(TM); or (2) receive any new vest of his/her
choosing from American Body Armor, Safariland, or ProTech, which must be the
same threat level as the original vest purchased, and a transferable rebate
coupon for $100 applicable toward the next purchase of any soft body armor from
American Body Armor, Safariland, or ProTech. The exchange for the new vest will
be at no additional cost to the purchaser. In addition, if the purchase price of
the new vest is less than the credit (based upon a court approved formula) for
the original vest, the purchaser will receive a cash refund for the difference.
We will also make available on our website, and pursuant to a request made from
the NIJ or a bona fide law enforcement agency to our customer service
department, testing data and protocols, and results relating to the testing of
our vests. We will 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 Xtreme
ZX(R) exchange program outlined above.

         All of the potential class members in the other Zylon(R)-related class
action lawsuit filed against us by the National Association of Police
Organizations, Inc. ("NAPO"), in Lee County, Florida, are also


                                       23



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


among the class members in the Southern States PBA case and are therefore
covered by the terms of the settlement. Accordingly, we believe that the NAPO
lawsuit should be dismissed and we are seeking a voluntary discontinuance from
plaintiffs' counsel, and if necessary, will move to dismiss that action.

         It should be stressed that our vests are certified by the NIJ, have
never suffered any penetration in the field and continue to save lives and
protect officers from injury. In fact, neither of the two recent lawsuits
alleged personal injuries of any kind, but instead speculated that our vests
which contained Zylon(R) were defective without the benefit of any scientific
studies that supported any claim of defect.

         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 yet 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.

         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 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/A for the fiscal year ended December 31, 2003, for a
description of other legal proceedings.





                                       24



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


NOTE 12 -GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS

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

         The following condensed consolidating financial information presents
the condensed consolidating balance sheets as of September 30, 2004 and December
31, 2003, the related condensed consolidating statements of operations for each
of the three and nine month periods ended September 30, 2004 and September 30,
2003 and the related condensed consolidating statements of cash flows for the
nine month periods ended September 30, 2004 and September 30, 2003 for:

         a) Armor Holdings, Inc., the parent,

         b) the guarantor subsidiaries,

         c) the nonguarantor subsidiaries, and

         d) 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.






                                       25

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

                                        ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                                       CONDENSED CONSOLIDATING BALANCE SHEETS



                                                                            SEPTEMBER 30, 2004
                                              --------------------------------------------------------------------------------
                                                             GUARANTOR        NONGUARANTOR                       CONSOLIDATED
                                              PARENT         SUBSIDIARIES     SUBSIDIARIES      ELIMINATIONS        TOTAL
                                              ----------     ------------    ---------------    -------------    -------------
                                                                             (IN THOUSANDS)
                                                                                                      
                   ASSETS
Current Assets:
                                             
   Cash and cash equivalents                  $214,731        $   8,350             $ 11,406    $         -       $  234,487
   Accounts receivable, net                          -          111,599               14,586              -          126,185
   Costs and earned gross profit in excess
      of billings                                    -              157                    -              -              157
   Intercompany receivables                     67,215           78,395               38,354      (183,964)                -
   Inventories                                       -          109,789               30,031              -          139,820
   Prepaid expenses and other current assets     2,999           20,369                3,114              -           26,482
   Current assets of discontinued operations         -                -                    -              -                -
                                              ----------     ------------    ---------------    -------------    -------------
      Total Current Assets                     284,945          328,659               97,491      (183,964)          527,131

Property and equipment, net                      3,365           38,958               19,683              -           62,006
Goodwill, net                                        -          179,536                2,077              -          181,613
Patents, licenses and trademarks, net                -           44,896                  174              -           45,070
Other assets                                    14,241            2,115                  275              -           16,631
Long-term assets of discontinued operations          -                -                    -              -                -
Investment in subsidiaries                     467,713           11,887                    -      (479,600)                -
                                              ----------     ------------    ---------------    -------------    -------------
Total Assets                                  $770,264        $ 606,051             $119,700    $ (663,564)       $  832,451
                                              ==========     ============    ===============    =============    =============
    LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Current portion of long-term debt          $      -        $     466             $    146    $         -       $      612
   Short-term debt                                   -                -                  973              -              973
   Accounts payable                                787           43,316                6,366              -           50,469
   Accrued expenses and other current
      liabilities                                7,028           42,787               23,810              -           73,625
   Income taxes payable                          7,294           13,561                1,428              -           22,283
   Intercompany payables                        82,816           52,135               49,013      (183,964)                -
   Current liabilities of discontinued
      operations                                     -                -                    -              -                -
                                              ----------     ------------    ---------------    -------------    -------------
      Total Current Liabilities                 97,925          152,265               81,736      (183,964)          147,962

Long-term debt, less current portion           153,444            1,521                  471              -          155,436
Other long-term liabilities                    (1,487)            8,988                1,170              -            8,671
Long-term liabilities of discontinued
   operations                                        -                -                    -              -                -
                                              ----------     ------------    ---------------    -------------    -------------
Total Liabilities                              249,882          162,774               83,377      (183,964)          312,069

Stockholders' Equity:
   Preferred stock                                   -            1,450                    -        (1,450)                -
   Common stock                                    392            3,792                7,854       (11,646)              392
   Additional paid in capital                  489,293          265,353               46,094      (311,447)          489,293
   Retained earnings (accumulated deficit)      99,127          172,682             (17,625)      (155,057)           99,127
   Accumulated other comprehensive loss          3,887                -                    -              -            3,887
   Treasury stock                             (72,317)                -                    -              -         (72,317)
                                              ----------     ------------    ---------------    -------------    -------------
Total Stockholders' Equity                     520,382          443,277               36,323      (479,600)          520,382
                                              ----------     ------------    ---------------    -------------    -------------
                                              
Total Liabilities and Stockholders' Equity    $770,264        $ 606,051             $119,700    $ (663,564)       $  832,451
                                              ==========     ============    ===============    =============    =============
 


                                       26




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


                                        ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                                       CONDENSED CONSOLIDATING BALANCE SHEETS



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

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

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

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

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

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



                                       27


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 SEPTEMBER 30, 2004
                                             -----------------------------------------------------------------------------
                                                           GUARANTOR      NONGUARANTOR                       CONSOLIDATED
                                               PARENT      SUBSIDIARIES   SUBSIDIARIES      ELIMINATIONS        TOTAL
                                             ----------    -----------    --------------    -------------    -------------
                                                                         (IN THOUSANDS)
                                                                                               
REVENUES:
   Aerospace & Defense                       $      -       $160,238           $     -         $      -        $ 160,238
   Products                                         -         53,621            11,038                -           64,659
   Mobile Security                                  -          6,556            26,103             (753)          31,906
                                             ----------    -----------    --------------    -------------    -------------
   Total revenues                                   -        220,415            37,141             (753)         256,803
                                             ----------    -----------    --------------    -------------    -------------

COSTS AND EXPENSES:
   Cost of revenues                                 -        156,777            29,433             (753)         185,457
   Cost of warranty revision                        -          5,000                 -                -            5,000
   Operating expenses                           3,295         16,301             3,099                -           22,695
   Amortization                                     -            981                 3                -              984
   Integration and other charges                  658            274                 -                -              932
   Related party management (income) fees           -              -                 -                -                -
                                             ----------    -----------    --------------    -------------    -------------

OPERATING (LOSS) INCOME:                       (3,953)        41,082             4,606                -           41,735
   Interest expense, net                        1,317             23                60                -            1,400
   Other expense, net                              (4)            96                62                -              154
   Equity in (earnings) losses of
      subsidiaries                            (28,303)        (1,214)                -           29,517                -
                                             ----------    -----------    --------------    -------------    -------------

INCOME FROM CONTINUING OPERATIONS BEFORE
(BENEFIT) PROVISION FOR INCOME TAXES           23,037         42,177             4,484          (29,517)          40,181

(BENEFIT) PROVISION FOR INCOME TAXES             (837)        15,593             1,551                -           16,307
                                             ----------    -----------    --------------    -------------    -------------
INCOME FROM CONTINUING OPERATIONS              23,874         26,584             2,933          (29,517)          23,874

DISCONTINUED OPERATIONS:
   Income from discontinued operations,
   net of tax                                       -              -                 -                -                -
                                             ----------    -----------    --------------    -------------    -------------
NET INCOME                                   $ 23,874       $ 26,584           $ 2,933         $(29,517)       $  23,874
                                             ==========    ===========    ==============    =============    =============



                                       28



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 SEPTEMBER 30, 2003
                                                    -----------------------------------------------------------------------------
                                                                   GUARANTOR     NONGUARANTOR                       CONSOLIDATED
                                                      PARENT      SUBSIDIARIES   SUBSIDIARIES      ELIMINATIONS         TOTAL
                                                    ----------    ------------   --------------    ------------     ------------
                                                                                 (IN THOUSANDS)
                                                                                                       
REVENUES:

   Products                                           $     -        $42,110        $  8,676          $     -         $50,786

   Mobile Security                                          -         24,338          15,758                -          40,096
                                                      -------        -------        --------          -------         -------
   Total revenues                                           -         66,448          24,434                -          90,882
                                                      -------        -------        --------          -------         -------

COSTS AND EXPENSES:

   Cost of revenues                                         -         42,120          19,833                -          61,953

   Operating expenses                                   2,661         10,945           2,371                -          15,977

   Amortization                                             -             69               3                -              72

   Integration and other non-recurring charges            107            261              --                -             368

   Related party management (income) fees              (1,859)             -           2,339             (480)              -
                                                      -------        -------        --------          -------         -------

OPERATING (LOSS) INCOME                                  (909)        13,053            (112)             480          12,512

   Interest expense, net                                1,371             59              45                -           1,475

   Other expense (income), net                              -            129             (33)               -              96

   Equity in (earnings) losses of subsidiaries         (7,603)           256              --            7,347               -
                                                      -------        -------        --------          -------         -------

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR INCOME TAXES             5,323         12,609            (124)          (6,867)         10,941

PROVISION (BENEFIT) FOR INCOME TAXES                     (792)         4,748             876                -           4,832
                                                      -------        -------        --------          -------         -------
INCOME (LOSS) FROM CONTINUING OPERATIONS                6,115          7,861          (1,000)          (6,867)          6,109

DISCONTINUED OPERATIONS:

   Net income (loss) from discontinued operations           -            995            (509)            (480)              6
                                                      -------        -------        --------          -------         -------
NET INCOME (LOSS)                                     $ 6,115        $ 8,856        $ (1,509)         $(7,347)        $ 6,115
                                                      =======        =======        ========          =======         =======



                                       29



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

                                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


                                                                 NINE MONTHS ENDED SEPTEMBER 30, 2004
                                             -----------------------------------------------------------------------------
                                                           GUARANTOR      NONGUARANTOR                       CONSOLIDATED
                                               PARENT      SUBSIDIARIES   SUBSIDIARIES      ELIMINATIONS        TOTAL
                                             ----------    -----------    --------------    -------------    -------------
                                                                          (IN THOUSANDS)
REVENUES:
   Aerospace & Defense                       $      -       $371,019           $     -       $        -        $ 371,019
   Products                                         -        151,237            33,005                -          184,242
   Mobile Security                                  -         18,139            70,639           (1,904)          86,874
                                             ----------    -----------    --------------    -------------    -------------
   Total revenues                                   -        540,395           103,644           (1,904)         642,135
                                             ----------    -----------    --------------    -------------    -------------

COSTS AND EXPENSES:
   Cost of revenues                                 -        375,920            82,755           (1,904)         456,771
   Cost of warranty revision                        -          5,000                 -                -            5,000
   Operating expenses                          12,043         47,940             9,349                -           69,332
   Amortization                                     -          2,928                 9                -            2,937
   Integration and other charges                8,179          1,557                 -                -            9,736
   Related party management fees (income)          16            (18)                2                -                -
                                             ----------    -----------    --------------    -------------    -------------

OPERATING (LOSS) INCOME                       (20,238)       107,068            11,529                -           98,359
   Interest expense, net                        4,863            199               123                -            5,185
   Other expense (income), net                     23           (226)               82                -             (121)
   Equity in (earnings) losses of
      subsidiaries                            (74,464)        (1,844)                -           76,308                -
                                             ----------    -----------    --------------    -------------    -------------

INCOME FROM CONTINUING OPERATIONS BEFORE
(BENEFIT)  PROVISION FOR INCOME TAXES          49,340        108,939            11,324          (76,308)          93,295

(BENEFIT) PROVISION FOR INCOME TAXES           (4,845)        39,848             4,069                -           39,072
                                             ----------    -----------    --------------    -------------    -------------
INCOME FROM CONTINUING OPERATIONS              54,185         69,091             7,255          (76,308)          54,223

DISCONTINUED OPERATIONS:
   (Loss) from discontinued operations,
      net of tax                                    -            (38)                -                -              (38)
                                             ----------    -----------    --------------    -------------    -------------
NET INCOME                                   $ 54,185       $ 69,053           $ 7,255       $  (76,308)       $  54,185
                                             ==========    ===========    ==============    =============    =============



                                       30



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



                                      ARMOR HOLDINGS, INC. AND SUBSIDIARIES
                                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


                                                                       NINE MONTHS ENDED SEPTEMBER 30, 2003
                                                -----------------------------------------------------------------------------------
                                                                   GUARANTOR      NONGUARANTOR                        CONSOLIDATED
                                                   PARENT        SUBSIDIARIES     SUBSIDIARIES       ELIMINATIONS        TOTAL
                                                ------------     ------------     ------------       -------------    ------------
                                                                                 (IN THOUSANDS)
                                                                                                      
REVENUES:

   Products                                        $      -        $ 117,863         $26,277            $      -         $144,140

   Mobile Security                                        -           63,110          45,765                   -          108,875
                                                   --------        ---------         -------            --------         --------
   Total revenues                                         -          180,973          72,042                   -          253,015
                                                   --------        ---------         -------            --------         --------

COSTS AND EXPENSES:

   Cost of revenues                                       -          117,278          59,118                   -          176,396

   Operating expenses                                 7,203           29,732           7,570                   -           44,505

   Amortization                                           -              193               8                   -              201

   Integration and other non-recurring charges        3,456            1,109               -                   -            4,565

   Related party management (income) fees            (1,859)               -           2,339                (480)               -
                                                   --------        ---------         -------            --------         --------

OPERATING (LOSS) INCOME                              (8,800)          32,661           3,007                   -           27,348

   Interest expense, net                              1,866              250             175                   -            2,291

   Other expense, net                                     -              131              50                   -              181

   Equity in (earnings) losses of
   subsidiaries                                     (22,688)             419               -              22,269                -

   Related parting interest expense
   (income), net                                         16              (16)              -                   -                -
                                                   --------        ---------         -------            --------         --------

INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION (BENEFIT) FOR INCOME TAXES                 12,006           31,877           2,782             (21,789)          24,876

PROVISION (BENEFIT) FOR INCOME TAXES                 (3,809)          12,011           1,842                   -           10,044
                                                   --------        ---------         -------            --------         --------
INCOME FROM CONTINUING OPERATIONS                    15,815           19,866             940             (21,789)          14,832
                                                   --------        ---------         -------            --------         --------

DISCONTINUED OPERATIONS:

   Net income from discontinued operations                -              542             921                (480)             983
                                                   --------        ---------         -------            --------         --------
NET INCOME                                         $ 15,815        $  20,408         $ 1,861            $(22,269)        $ 15,815
                                                   ========        =========         =======            ========         ========





                                       31


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


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


     
                                                                       NINE MONTHS ENDED SEPTEMBER 30, 2004
                                                   ------------------------------------------------------------------------------
                                                                  GUARANTOR       NONGUARANTOR                      CONSOLIDATED
                                                      PARENT      SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                                   -----------    -----------     --------------   -------------    -------------
                                                                                  (IN THOUSANDS)
                                                                                                         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Income from continuing operations                $ 54,185        $69,091            $ 7,255      $  (76,308)       $  54,223
   Adjustments to reconcile income from
   continuing operations to cash provided
   by (used in) operating activities:
   Depreciation and amortization                       1,176          6,879              1,899               -            9,954
   Loss on disposal of fixed assets                        -            251                175               -              426
   Deferred income taxes                                 883          1,961                (59)              -            2,785
   Non-cash charge for acceleration of
   performance-based restricted stock
   awards                                              6,294              -                  -               -            6,294
   Non-cash impairment charge                          1,408              -                  -               -            1,408
   Changes in operating assets & liabilities, 
   net of acquisitions:
   Decrease (increase) in accounts receivable          1,201        (50,910)            (2,622)              -          (52,331)
   Decrease (increase) in intercompany
   receivables & payables                             30,866        (32,934)             2,068               -                -
   Increase in inventory                                   -        (47,850)           (10,998)              -          (58,848)
   Increase in prepaid expenses & other assets        (3,589)        (3,848)              (286)              -           (7,723)
   (Decrease) increase in accounts payable,
   accrued expenses and other current liabilities     (4,040)        37,939              3,695               -           37,594
   Increase (decrease) in income taxes payable        28,762         (1,607)             1,080               -           28,235
                                                   -----------    -----------     --------------   -------------    -------------
   Net cash provided by (used in) operating          117,146        (21,028)             2,207         (76,308)          22,017
   activities
                                                   -----------    -----------     --------------   -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                 (1,683)        (7,890)            (1,488)              -          (11,061)
   Purchase of patents and trademarks                      -           (117)                 -               -             (117)
   Purchase of equity investment                           -         (5,275)                 -               -           (5,275)
   Proceeds from sale of equity investment                 -          5,823                  -               -            5,823
   Collection of note receivable                         975              -                  -               -              975
   Decrease in restricted cash                         2,600              -                  -               -            2,600
   Sale of business, net of cash disposed                  -            125                  -               -              125
   Additional consideration for purchased
   businesses                                              -         (2,323)                 -               -           (2,323)
   Investment in subsidiaries                       (147,680)        71,372                  -          76,308                -
   Purchase of businesses net of cash acquired             -         (8,373)                 -               -           (8,373)
                                                   -----------    -----------     --------------   -------------    -------------
   Net cash (used in) provided by investing
   activities                                       (145,788)        53,342             (1,488)         76,308          (17,626)
                                                   -----------    -----------     --------------   -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options            11,448              -                  -               -           11,448
   Proceeds from the issuance of common stock        142,500              -                  -               -          142,500
   Cash paid for common stock offering costs          (1,339)             -                  -               -           (1,339)
   Repayments of long-term debt                            -        (34,232)              (107)              -          (34,339)
   Borrowings under lines of credit                   17,705              -                802               -           18,507
   Repayments under lines of credit                  (17,705)             -               (349)              -          (18,054)
                                                   -----------    -----------     --------------   -------------    -------------
   Net cash provided by (used in) financing          152,609        (34,232)               346               -          118,723
   activities
                                                   -----------    -----------     --------------   -------------    -------------
   Effect of exchange rate on cash and cash                -            (99)               339               -              240
   equivalents
   Net cash used in discontinued operations                -           (717)                 -               -             (717)
                                                   -----------    -----------     --------------   -------------    -------------
NET INCREASE (DECREASE) IN CASH AND CASH             123,967         (2,734)             1,404               -          122,637
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        90,764         11,084             10,002               -          111,850
                                                   -----------    -----------     --------------   -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD            $214,731        $ 8,350            $11,406      $        -        $ 234,487
                                                   ===========    ===========     ==============   =============    =============



                                       32


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


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



                                                                    NINE MONTHS ENDED SEPTEMBER 30, 2003
                                               -------------------------------------------------------------------------------
                                                               GUARANTOR      NONGUARANTOR                       CONSOLIDATED
                                                  PARENT      SUBSIDIARIES    SUBSIDIARIES      ELIMINATIONS        TOTAL
                                               ------------   ------------    ------------      ------------     ------------
                                                                             (IN THOUSANDS)
                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:

   Income from continuing operations              $  15,815     $ 19,866        $    940           $(21,789)       $  14,832
   Adjustments to reconcile income from
   continuing operations to cash
   provided by operating activities

   Depreciation and amortization                        974        2,972           1,434                  -            5,380
   Loss on disposal of fixed assets                       -           58             109                  -              167
   Deferred income taxes                             (4,379)       6,428           1,627                  -            3,676
   Non-cash termination charge                        2,093            -               -                  -            2,093
   Changes in operating assets &
   liabilities, net of acquisitions:
   (Increase) decrease in accounts receivable             -       (3,915)          2,359                  -           (1,556)
   Decrease (increase) in intercompany
   receivables & payables                            19,723      (19,090)           (153)              (480)               -
   Decrease in inventory                                  -        1,206             967                  -            2,173
   (Increase) decrease in prepaid expenses &
   other assets                                      (7,347)       4,848          (1,183)                 -           (3,682)
   Increase in accounts payable, accrued
   expenses and other current liabilities             5,043        2,620           4,145                  -           11,808
   (Decrease) increase in income taxes
   payable                                           (2,227)         148              80                  -           (1,999)
                                                  ---------     --------        --------           --------        ---------
   Net cash provided by operating activities         29,695       15,141          10,325            (22,269)          32,892
                                                  ---------     --------        --------           --------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Purchase of property and equipment                  (126)      (3,330)         (2,189)                 -           (5,645)
   Purchase of patents and trademarks                     -          (99)              -                  -              (99)
   Additional consideration for purchased
   businesses                                             -         (740)              -                  -             (740)
   Investment in subsidiaries                       (22,337)         203            (135)            22,269                -
   Purchase of businesses, net of cash
   acquired                                               -       (5,828)              -                  -           (5,828)
                                                  ---------     --------        --------           --------        ---------
   Net cash used in investing activities            (22,463)      (9,794)         (2,324)            22,269          (12,312)
                                                  ---------     --------        --------           --------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

   Proceeds from exercise of stock options            6,588            -               -                  -            6,588
   Treasury stock repurchases                       (22,684)           -               -                  -          (22,684)
   Cash paid for financing costs                     (4,020)           -               -                  -           (4,020)
   Proceeds from the issuance of long-term
   debt                                             147,504            -               -                  -          147,504
   Repayments of long-term debt                           -       (1,399)              -                  -           (1,399)
   Borrowings under lines of credit                  30,406          168           1,170                  -           31,744
   Repayments under lines of credit                 (30,406)        (484)         (1,180)                 -          (32,070)
                                                  ---------     --------        --------           --------        ---------
   Net cash provided by (used in) financing
   activities                                       127,388       (1,715)            (10)                 -          125,663
                                                  ---------     --------        --------           --------        ---------
   Effect of exchange rate on cash and cash
   equivalents                                        2,265         (186)         (1,601)                 -              478
   Net cash used in discontinued operations               -       (4,382)           (486)                 -           (4,868)
                                                  ---------     --------        --------           --------        ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                         136,885         (936)          5,904                  -          141,853
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD                                                7,152        3,556           2,205                  -           12,913
                                                  ---------     --------        --------           --------        ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD          $ 144,037     $  2,620        $  8,109           $      -        $ 154,766
                                                  =========     ========        ========           ========        =========




                                       33



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


NOTE 13 - CREDIT AGREEMENT AMENDMENT

         On January, 9, 2004, we amended our credit agreement to broaden our
ability make additional open-market purchases of publicly-traded securities
subject to certain limitations.

         On March 29, 2004, we amended our credit agreement to allow us to pay
dividends subject to certain limitations.


NOTE 14 - COMMITMENTS AND CONTINGENCIES

         On September 24, 2004, we entered into an off-balance sheet leasing
arrangement for an aircraft for company use. Upon expiration of this lease on
September 24, 2009, a subsidiary of the Company has the option to renew the
lease at fair market value subject to approval by the lessor, or, buy the
aircraft for approximately $10.0 million, or return the aircraft to the lessor
and, under a guarantee, pay any shortfall in sales proceeds from a third party
in an amount not to exceed $8.2 million. Annual rental expense related to this
agreement is approximately $1.0 million.






                                       34




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


NOTE 15 - WARRANTY REVISION AND PRODUCT EXCHANGE PROGRAM

         As a result of our recently announced warranty revision and product
exchange program relating to our Zylon(R)-containing vests (see Note 11), we 
have recorded a pre-tax charge of $5.0 million, which is net of $4.0 million of
cost reimbursements from our suppliers and includes all the legal costs
associated with the class action lawsuits. This liability has been classified in
accrued expenses and other current liabilities on the condensed consolidated
balance sheet and will be funded through cash provided by operating activities.
A summary of the warranty revision and product replacement accrual follows:



                                       WARRANTY REVISION
                                          AND PRODUCT
                                          REPLACEMENT
                                            ACCRUAL
                                       -----------------
                                         (IN THOUSANDS)

Beginning balance                         $   5,000
Payments                                     (1,214)
                                          ---------
   Balance at September 30, 2004          $   3,786
                                          =========






                                       35



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


NOTE 16 - ACQUISITIONS

         On March 5, 2004, Armor Holdings, through a wholly-owned subsidiary,
acquired a majority of the assets and assumed certain liabilities of Vector
Associates, Inc. (dba ODV, Inc.) , a leading manufacturer and distributor of
narcotics identification kits, for $3,289,000 in cash, of which $2,739,000 was
paid at closing with the remaining consideration of $550,000 deferred through
two hold-back tranches.

         On August 19, 2004, Armor Holdings, through a wholly-owned subsidiary,
acquired 100% of the stock of Kleen-Bore, Inc., a leading manufacturer and
distributor of firearms cleaning kits and related accessories, for $7,414,000 in
cash, of which $6,214,000 was paid at closing with the remaining consideration
of $1,200,000 deferred through two hold-back tranches.

         On September 28, 2004, we entered into a merger agreement with The
Specialty Group, Inc. pursuant to which we agreed to acquire Specialty Group for
an aggregate purchase price of $92,000,000 in cash, subject to certain
adjustments as set forth in the merger agreement.

         Specialty Group, which is based in Dunmore, Pennsylvania, is a supplier
to military and law enforcement customers in the United States and overseas.
Specialty Group manufactures, among other things, Modular Lightweight
Load-Carrying Equipment ("MOLLE") systems, Outer Tactical Vests and Warrior
Helmets. Specialty Group's core products are made of Kevlar(R) and heavy-duty
nylon fabric and webbing and require special cutting and sewing techniques.
Specialty Group and its subsidiaries own and operate a total of five
manufacturing facilities located in Pennsylvania, Kentucky and Tennessee.

         Specialty Group is currently the largest supplier of MOLLE systems for
the U.S. Army. The MOLLE system consists of a modular rucksack with removable
compartments and components, and a fighting load vest with removable pockets for
the Rifleman, Pistol, Squad Automatic Weapon Gunner, Medic and Grenadier
configurations.

         Specialty manufactures Outer Tactical Vests which, when used with SAPI
plates, provide enhanced armor protection for U.S. armed forces against mines,
grenades, mortar shells, artillery fire, and rifle projectiles.

         Specialty  Group is also one of the three largest  suppliers of Warrior
Helmets  for the U.S.  Army.  Specialty  manufactures  NATO PASGT  helmets,  the
Advanced  Combat Vehicle  Crewman helmet and the Warrior Helmet (the U.S. Army's
next generation helmet), along with related liners and accessories.

         Specialty Group currently has a funded backlog of  approximately  $90.7
million and options on existing contracts of approximately $137.1 million.

         We will pay the purchase price for Specialty Group in full in cash when
the merger closes. However, pursuant to the terms of the merger agreement among
the parties, we will place $10,000,000 of the purchase price in escrow at
closing in order to secure the indemnification obligations of the shareholders
of Specialty Group to us, which amount will be released to the sellers from
escrow in


                                       36



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


tranches ending three years and sixty days from the closing date; provided, that
no claims have been made by us. The merger agreement contains customary
indemnification provisions, which terminate at varying times unless the
indemnified party has, before the expiration of a right to indemnification,
provided notice of a claim for indemnification to the indemnifying party. In
connection with the execution of the merger agreement, certain shareholders of
Specialty Group owning, in the aggregate, approximately 57% of the issued and
outstanding shares of common stock of Specialty Group, have executed voting
agreements pursuant to which they have agreed to, among other things, vote in
favor of the acquisition and against any alternative transaction.

         We intend to close the acquisition upon the satisfaction of the
conditions to closing, which include Hart-Scott-Rodino Act clearance (the
filings for which were made on or about October 14, 2004), approval by the
shareholders of Specialty Group and other customary conditions set forth in the
merger agreement.






                                       37



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



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 and nine months ended September 30,
2004. 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/A for the year ended
December 31, 2003, as filed with the Securities and Exchange Commission.


CRITICAL ACCOUNTING POLICIES (INCLUDING NEW 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 revenue from our Aerospace & Defense Group and Mobile
Security Division when the vehicle is shipped, except for larger commercial
contracts typically longer than four months in length and the contract for the
delivery of HMMWVs to the U.S. Government, which continues through 2005. Revenue
from such contracts is recognized on the percentage of completion, units-of-work
performed method. HMMWV units sold to the U.S. Government are considered
complete when the onsite Department of Defense officer finishes the inspection
of the HMMWV and approves it for delivery. Should such contracts be in a loss
position, the entire estimated loss would be recognized for the balance of the
contract at such time. 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.

         Comprehensive income and foreign currency translation. Assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the current rate of exchange existing at period-end and revenues and expenses
are translated at the average monthly exchange rates. In accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"), we record changes in
the market value of available-for-sale securities in the accumulated other
comprehensive income caption of stockholders' equity in the condensed
consolidated balance sheet, until we dispose of the securities. Once these
securities are disposed of, either by sale or maturity, the gain or loss is
recognized in other income or expense. The cumulative translation adjustment,
which represents the effect of translating assets and liabilities of our foreign
operations is recorded as an increase of equity of $3,887,000 and $3,936,000 as
of September 30, 2004 and December 31, 2003, respectively, and is classified as
accumulated other comprehensive income, in accordance with Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130"). The current year change in the accumulated amount is included as a
component of comprehensive income.


                                       38



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


         Stock options and Grants. SFAS 123, as amended by 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 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 date for September 30, 2004 and
2003 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                      NINE MONTHS ENDED

                                                SEPTEMBER 30,  2004   SEPTEMBER 30, 2003   SEPTEMBER 30, 2004  SEPTEMBER 30, 2003
                                                -------------  ----   ------------------   ------------------  ------------------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                                             
Net income as reported:                               $ 23,874               $ 6,115              $ 54,185          $ 15,815
                                                                                              
Deduct:  Total stock-based employee                                                           
compensation expense determined under fair                                                    
value based method for all awards, net of                                                     
related tax effects                                     (1,368)                 (671)               (3,902)           (2,985)
                                                                                              
Add:  Employee compensation expense for                                                       
modification of stock option awards                                                           
included in reported net income, net of                                                       
income taxes                                                 -                   506                    57               506
                                                      --------               -------              --------          --------
                                                                                              
Pro-forma net income                                  $ 22,506               $ 5,950              $ 50,340          $ 13,336
                                                      ========               =======              ========          ========
                                                                                              
Earnings per share:                                                                           
    Basic - as reported                               $   0.73               $  0.22              $   1.79          $   0.56
                                                      ========               =======              ========          ========
    Basic - pro-forma                                 $   0.69               $  0.21              $   1.67          $   0.47
                                                                                              
                                                      ========               =======              ========          ========
    Diluted - as reported                             $   0.70               $  0.22              $   1.72          $   0.56
                                                      ========               =======              ========          ========
    Diluted - pro-forma                               $   0.66               $  0.21              $   1.60          $   0.47
                                                      ========               =======              ========          ========



                                       39



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


         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 gain or loss
recognized in accordance with SFAS 144, 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 is presented separately in the asset
and liability sections, respectively, of the statement of financial position.
See Note 2 to the Condensed Consolidated Financial Statements included in Part I
Item 1.

         Derivative Instruments and Hedging Activities. We account for
derivative instruments in accordance with SFAS 133. 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 do not hold or issue interest rate
swap agreements or other derivative instruments for trading purposes.

         Changes in the fair value of the interest rate swap agreements offset
changes in the fair value of the fixed rate debt due to changes in the market
interest rate. Accordingly, other assets on the Condensed Consolidated Balance
Sheet as of September 30, 2004 decreased by $0.2 million from December 31, 2003,
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.

         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 $124.8
million in goodwill resulting from acquisitions made subsequent to June 30, 2001
was immediately subjected to the non-amortization provisions of SFAS 142.

         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 condensed consolidated financial statements include periodic
testing of the carrying value of long-lived assets for impairment, valuation
allowances for receivables, inventories and deferred income tax assets,
liabilities for warranty revision and product replacement, liabilities for

                                       40


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



potential litigation claims and settlements, and contract contingencies and
obligations. Actual results could differ from those estimates.

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

         On June 30, 2004, our litigation support services subsidiary, New
Technologies Armor, Inc. ("NTI"), was the last remaining business in
discontinued operations. On July 2, 2004, we sold the security consulting
division of NTI. The remaining division in NTI, consisting primarily of training
services, is included as part of the Products Division segment. In the second
quarter of 2004, we recorded an impairment charge of $1.4 million in integration
and other charges in continuing operations to reduce the carrying value of
remaining portion of NTI to its estimated fair value.


NEW ACCOUNTING PRONOUNCEMENT:

         In April 2004, the FASB issued FASB Staff Position No. 129-1,
Disclosure Requirements under FASB Statement No. 129, "Disclosure of Information
about Capital Structure," relating to contingently convertible securities ("FSP
129-1"). The purpose of FSP 129-1 is to interpret how the disclosure provisions
of FASB Statement No. 129 apply to contingently convertible securities and to
their potentially dilutive effects on earnings per share. The guidance in FSP
129-1 is effective April 2004 and applies to all existing and newly created
securities. This pronouncement has no effect on us.



                                       41



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


RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED 
SEPTEMBER 30, 2003.

          Net income. Net income increased $17.8 million, or 290.4%, to $23.9
million for the three months ended September 30, 2004, compared to $6.1 million
for the three months ended September 30, 2003. Net income for the three months
ended September 30, 2003, includes income from continuing operations of $6.1
million and income from discontinued operations of $6,000 for the three months
ended September 30, 2003.


CONTINUING OPERATIONS

         Total revenues. Total revenues increased $165.9 million, or 182.6%, to
$256.8 million in the three months ended September 30, 2004, compared to $90.9
million in the three months ended September 30, 2003. For the three months ended
September 30, 2004, total revenue increased 111.9% internally, including year
over year changes in acquired businesses.

         Aerospace & Defense Group revenues. Aerospace & Defense Group revenues
increased $139.1 million, or 658.1%, to $160.2 million in the three months ended
September 30, 2004, compared to $21.1 million in the three months ended
September 30, 2003. For the three months ended September 30, 2004, Aerospace &
Defense Group revenue increased 237.4% internally, including year-over-year
changes in acquired businesses. Internal growth was primarily due to strong
demand for the M1114 Up-Armored HMMWV, supplemental armor for other military
vehicles, and small arms protective inserts (SAPI) plates, while acquired growth
was a function of the Simula, Inc. acquisition on December 9, 2003.

         Products Division revenues. Products Division revenues increased $14.9
million, or 29.8%, to $64.7 million in the three months ended September 30,
2004, compared to $49.8 million in the three months ended September 30, 2003.
For the three months ended September 30, 2004, Products Division revenue
increased 20.3% internally, including year-over-year changes in acquired
businesses. Acquired growth was a function of the acquisitions of Kleen Bore,
Inc., which was completed during the third quarter of 2004; Vector Associates,
Inc. (dba ODV, Inc.), which was completed during the first quarter of 2004; and
Hatch Imports, Inc., which was completed during the fourth quarter of 2003.
Internal growth was primarily due to strong sales of international body armor,
providing protection to troops and private sector employees within Iraq, strong
military and international sales within duty gear and the sales of ballistic
reinforced enclosures within the energy sector.

         Mobile Security revenues. Mobile Security Division revenues increased
$12.0 million, or 60.0%, to $31.9 million in the three months ended September
30, 2004, compared to $19.9 million in the three months ended September 30,
2003, primarily due to the increasing threat of terrorism. All of Mobile
Security Division's 60.0% revenue growth was internal.

         Cost of revenues. Cost of revenues increased $123.5 million, or 199.4%,
to $185.4 million for the three months ended September 30, 2004, compared to
$62.0 million for the three months ended September 30, 2003. As a percentage of
total revenues, cost of revenues increased to 72.2% of total


                                       42


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



revenues for the three months ended September 30, 2004, from 68.2% for the three
months ended September 30, 2003.

         Gross margins in the Aerospace & Defense Group were 25.7% for the three
months ended September 30, 2004, compared to 32.3% for the three months ended
September 30, 2003, primarily due to reduced selling prices for the M1114
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 35.8% for the three months
ended September 30, 2004, compared to 36.1% for the three months ended September
30, 2003. The small decrease was primarily a result of product mix.

         Gross margins in the Mobile Security Division were 21.7% in the three
months ended September 30, 2004, compared to 20.7% for the three months ended
September 30, 2003. 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.

         Cost of warranty revision. As a result of our recently announced
warranty revision and product exchange program relating to our
Zylon(R)-containing vests, we have recorded a pre-tax charge of $5.0 million,
which is net of $4.0 million of cost reimbursements from our suppliers and
includes all the legal costs associated with the class action lawsuits. This
liability has been classified in accrued expenses and other current liabilities
on the condensed consolidated balance sheet and will be funded through cash
provided by operating activities.

         In April 2004, two class action complaints 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, Safariland 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 particular purpose and duty to warn. On August 12,
2004, we announced that we had 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"), subject to final court
approval. After a fairness hearing held on September 30, 2004, the Florida
Circuit Court gave final approval to that settlement as to all purchasers of
Zylon(R)-containing body armor manufactured under the brand name American Body
Armor, and scheduled a final fairness hearing for November 5, 2004, with regard
to purchasers of all other Zylon(R)-containing body armor manufactured by our
subsidiaries, Safariland(R) and ProTech(TM).

         Pursuant to the terms of the class action settlement, the warranty on
the American Body Armor Xtreme ZX(R) vest (both NIJ threat level II and IIIA)
has been reduced from 5 years to 2 1/2 years. In addition, a purchaser of the
Xtreme ZX(R) vest has one of the following two options: (1) receive a new
American Body Armor Xtreme ZX(R) vest (either threat level II or IIIA) with a 2
1/2 year warranty, an extra carrier and a transferable rebate coupon for $100
applicable toward the next purchase of any soft body armor from American Body
Armor, Safariland, or ProTech(TM); or (2) receive any new vest of his/her
choosing from American Body Armor, Safariland, or ProTech, which must be the
same threat level as the original vest purchased, and a transferable rebate
coupon for $100 applicable toward the next purchase of any soft body armor from
American Body Armor, Safariland, or ProTech. The exchange for the new vest will
be at no additional cost to the purchaser. In addition, if the purchase price of
the new vest is less than the credit (based upon a court approved formula) for
the original vest, the purchaser will receive a cash refund for the difference.
We will also make available on our website, and pursuant to a request made from
the NIJ or a bona fide law enforcement agency to our customer service
department, testing data and protocols, and results relating to the testing of
our vests. We will 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 Xtreme
ZX(R) exchange program outlined above.

         Operating expenses. Operating expenses increased $6.7 million, or
42.0%, to $22.7 million (8.8% of total revenues) for the three months ended
September 30, 2004, compared to $16.0 million (17.6% of total revenues) for the
three months ended September 30, 2003. The decrease as a percentage of revenues
was largely a function of our ability to achieve scale as revenues have
increased, and the acquisition of Simula, 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 $3.4 million, or
199.6%, to $5.1 million (3.2% of Aerospace & Defense Group revenues) for the
three months ended September 30, 2004, compared to $1.7 million (8.1% of
Aerospace & Defense Group revenues) for the three months ended September 30,
2003. The increase in operating expenses is due primarily to the acquisition of
Simula on December 9, 2003, as well as additional operating expenses associated
with increased production of the M1114 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.

                                       43



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


         Products Division operating expenses increased $2.9 million, or 34.9%,
to $11.0 million (17.1% of Products Division revenues) for the three months
ended September 30, 2004, compared to $8.2 million (16.4% of Products Division
revenues) for the three months ended September 30, 2003. This increase is due
primarily to acquisitions, a one-time settlement charge related to the early
cancellation of an exclusive distribution agreement, higher sales expenses as
related to increased sales volumes, higher insurance cost, and bonus expenses
that in the prior year were allocated to corporate operating expenses.

         Mobile Security Division operating expenses decreased $0.2 million, or
5.0%, to $3.2 million (10.1% of Mobile Security Division revenues) for the three
months ended September 30, 2004, compared to $3.4 million (17.0% of Mobile
Security Division revenues) for the three months ended September 30, 2003.

         Corporate operating expenses increased $0.6 million, or 22.4%, to $3.3
million (1.3% of total revenues) for the three months ended September 30, 2004,
compared to $2.7 million (3.0% of total revenues) for the three months ended
September 30, 2003. This increase in administrative expenses is associated with
the overall growth of the Company, increased travel expenses, bonus provision,
and Sarbanes-Oxley requirements.

         Amortization. Amortization expense increased $912,000, or 1,266.7% to
$984,000 for the three months ended September 30, 2004, compared to $72,000 for
the three months ended September 30, 2003, primarily due to the acquisitions of
Simula and Hatch Imports in December 2003. 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
$564,000, or 153.3%, to $932,000 for the three months ended September 30, 2004,
compared to $368,000 for the three months ended September 30, 2003. Included in
integration and other charges in the third quarter of 2004 were charges for the
integration of Simula, Inc., Hatch Imports, Inc., Kleen Bore, Inc., and ODV,
Inc., which were all acquired subsequent to the third quarter of fiscal year
2003, and an increase of $381,000 in the charge related to non-cash,
performanced-based stock grants, which were expensed in the second quarter of
2004.

         Operating income. Operating income from continuing operations increased
$29.2 million, or 233.6%, to $41.7 million for the three months ended September
30, 2004, compared to $12.5 million in the three months ended September 30,
2003, due to the factors discussed above.

         Interest expense, net. Interest expense, net decreased $0.1 million, or
5.1%, to $1.4 million for the three months ended September 30, 2004, compared to
$1.5 million for the three months ended September 30, 2003. This decrease was
due primarily to additional interest income generated from our June 2004 equity
offering proceeds which partially offset interest expense associated with the
$150 million aggregate principal amount of 8.25% senior subordinated notes due
2013 issued in August 2003. On September 2, 2003, we entered into interest rate
swap agreements that effectively exchanged the 8.25% fixed rate for a variable
rate of six-month LIBOR (2.20% at September 30, 2004), set in arrears, plus a
spread of 2.735% to 2.75%.

         Other expense (income), net. Other expense, net, was $154,000 for the
three months ended September 30, 2004, compared to other expense, net, of
$96,000 for the three months ended September 30, 2003, primarily due to loss on
disposal of fixed assets and losses related to foreign currency fluctuations.


                                       44



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


         Income from continuing operations before provision for income taxes.
Income from continuing operations before provision for income taxes increased
$29.2 million, or 267.3%, to $40.2 million for the three months ended September
30, 2004, compared to $10.9 million for the three months ended September 30,
2003, due to the reasons discussed above.

         Provision for income taxes. Provision for income taxes was $16.3
million for the three months ended September 30, 2004, compared to $4.8 million
for the three months ended September 30, 2003. The effective tax rate was 40.6%
for the three months ended September 30, 2004, compared to 44.2% for the three
months ended September 30, 2003. The decreased tax rate relates primarily to the
non-recurring nature of prior year tax charges associated with, among other
things, the revaluation of certain intellectual property utilized in our
discontinued operations to comply with tax code provisions. The increased tax
expense associated with the prior year revaluation was recorded in continuing
operations as required by generally accepted accounting principles.

         Income from continuing operations. Income from continuing operations
increased $17.8 million, or 290.8%, to $23.9 million for the three months ended
September 30, 2004, compared to $6.1 million for the three months ended
September 30, 2003, due to the factors discussed above.



DISCONTINUED OPERATIONS

         On April 17, 2003, we announced that we had completed the sale of our
ArmorGroup Integrated Systems business through the sale of 100% of the stock of
ArmorGroup Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc.
to Aerwav Integration Services, Inc. ("AIS"). AIS is a wholly owned subsidiary
of Aerwav Holdings, LLC. As consideration for the integrated systems business,
we received a $4.1 million collateralized note due in two years and a warrant
for approximately 2.5% of AIS. Through September 30, 2004, we have received
$475,000 in prepayments on the note receivable. We have previously recorded a
loss of $366,000 on the sale during the second quarter of 2003.

         On November 26, 2003, we announced that we completed the sale of
ArmorGroup, our security service division, for $33.7 million in consideration to
a group of private investors led by Granville Baird Capital Partners of London,
England and Management. We received $31.4 million in cash at closing and are
scheduled to receive another $2.3 million by the end of 2004, of which we have
received $500,000 through July 23, 2004. We have previously recorded a loss of
$8.8 million on the sale in the fourth quarter of 2003. In accordance with
generally accepted accounting principles, foreign currency translation
unrealized gains and losses, which are included in equity as accumulated other
comprehensive income or loss, are not recognized until the period of disposition
of the related assets and liabilities (which was a large component of the loss).

         On June 30, 2004, our litigation support services subsidiary, New
Technologies Armor, Inc. ("NTI"), was the last remaining business in
discontinued operations. On July 2, 2004, we sold the security consulting
division of NTI. The remaining division in NTI, consisting primarily of training
services, is included as part of the Products Division segment. In the second
quarter of 2004, we recorded an impairment charge of $1.4 million in integration
and other charges in continuing operations to reduce the carrying value of
remaining portion of NTI to its estimated fair value.



                                       45



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



         We had no discontinued operations in the three months ended September
30, 2004. Please see Footnote 2, Discontinued Operations, in Part I, Item 1 for
a summary of the income statement of discontinued operations for three months
ended September 30, 2003.










                                       46



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


NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED 
SEPTEMBER 30, 2003.

          Net income. Net income increased $38.4 million, or 242.6%, to net
income of $54.2 million for the nine months ended September 30, 2004, compared
to net income of $15.8 million for the nine months ended September 30, 2003. Net
income for the nine months ended September 30, 2004, includes income from
continuing operations of $54.2 million and loss from discontinued operations of
$38,000, compared to income from continuing operations of $14.8 million and
income from discontinued operations of $983,000 for the nine months ended
September 30, 2003.


CONTINUING OPERATIONS

         Total revenues. Total revenues increased $389.1 million, or 153.8%, to
$642.1 million in the nine months ended September 30, 2004, compared to $253.0
million in the nine months ended September 30, 2003. For the nine months ended
September 30, 2004, total revenue increased 99.8% internally, including
year-over-year changes in acquired businesses.

         Aerospace & Defense Group revenues. Aerospace & Defense Group revenues
increased $318.2 million, or 602.2%, to $371.0 million in the nine months ended
September 30, 2004, compared to $52.8 million in the nine months ended September
30, 2003. For the nine months ended September 30, 2004, Aerospace & Defense
Group revenue increased 232.4% internally, including year-over-year changes in
acquired businesses. Internal growth was primarily due to strong demand for the
M1114 Up-Armored HMMWV, supplemental armor for other military vehicles, and
small arms protective inserts (SAPI) plates, while acquired growth was a
function of the Simula, Inc. acquisition on December 9, 2003.

         Products Division revenues. Products Division revenues increased $41.1
million, or 28.7%, to $184.2 million in the nine months ended September 30,
2004, compared to $143.2 million in the nine months ended September 30, 2003.
For the nine months ended September 30, 2004, Products Division revenue
increased 20.7% internally, including year-over-year changes in acquired
businesses. Acquired growth was a function of the acquisitions of Kleen Bore,
Inc., during the third quarter of 2004; Vector Associates, Inc. (dba ODV, Inc.),
which was completed during the first quarter of 2004; and Hatch Imports, Inc.,
which was completed during the fourth quarter of 2003. Internal growth was due
to strong sales of International body armor, and other soft armor and hard armor
sectors, providing protection to troops and private sector employees within
Iraq, strong military and international sales within duty gear and the sales of
ballistic reinforced enclosures within the energy sector.

         Mobile Security revenues. Mobile Security Division revenues increased
$29.9 million, or 52.4%, to $86.9 million in the nine months ended September 30,
2004, compared to $57.0 million in the nine months ended September 30, 2003. All
of the revenue growth was generated internally, primarily as a result of the
increasing threat of terrorism.

         Cost of revenues. Cost of revenues increased $280.4 million, or 158.9%,
to $456.8 million for the nine months ended September 30, 2004, compared to
$176.4 million for the nine months ended September 30, 2003. As a percentage of
total revenues, cost of revenues increased to 71.1% of total


                                       47



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



revenues for the nine months ended September 30, 2004, from 69.7% for the nine
months ended September 30, 2003.

         Gross margins in the Aerospace & Defense Group were 28.3% for the nine
months ended September 30, 2004, compared to 30.9% for the nine months ended
September 30, 2003, primarily due to reduced selling prices for the M1114
Up-Armored HMMWV, and significant changes in our product mix as we have
diversified beyond up-armored HMMWV.

         Gross margins in the Products Division were 33.7% for the nine months
ended September 30, 2004, compared to 34.5% for the nine months ended September
30, 2003. The decrease in Products Division gross margins resulted primarily
from product mix, certain large lower margin international and governmental
orders and additional inventory provisions.

         Gross margins in the Mobile Security Division were 21.1% in the nine
months ended September 30, 2004, compared to 19.2% for the nine months ended
September 30, 2003. The increase in the Mobile Security Divisions gross margins
resulted primarily from improved fixed-cost absorption benefits associated with
increased manufacturing volumes, and a richer sales mix of high-end, higher
margin vehicles.

         Cost of warranty revision. As a result of our recently announced
warranty revision and product exchange program relating to our
Zylon(R)-containing vests, we have recorded a pre-tax charge of $5.0 million,
which is net of $4.0 million of cost reimbursements from our suppliers and
includes all the legal costs associated with the class action lawsuits. This
liability has been classified in accrued expenses and other current liabilities
on the condensed consolidated balance sheet and will be funded through cash
provided by operating activities. See also three months ended September 30, 2004
compared to September 30, 2003 results of operations for further details 
regarding the warranty revision.

         Operating expenses. Operating expenses increased $24.8 million, or
55.8%, to $69.3 million (10.8% of total revenues) for the nine months ended
September 30, 2004, compared to $44.5 million (17.6% of total revenues) for the
nine months ended September 30, 2003. The decrease as a percentage of revenues
was largely a function of our ability to achieve scale as revenues have
increased, and the acquisition of Simula, 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 $11.2 million,
or 291.6%, to $15.1 million (4.1% of Aerospace & Defense Group revenues) for the
nine months ended September 30, 2004, compared to $3.9 million (7.3% of
Aerospace & Defense Group revenues) for the nine months ended September 30,
2003. The increase in operating expenses is due primarily to the acquisition of
Simula on December 9, 2003, as well as additional operating expenses associated
with increased production of the M1114 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 $8.2 million, or 33.9%,
to $32.4 million (17.6% of Products Division revenues) for the nine months ended
September 30, 2004, compared to $24.2 million (16.9% of Products Division
revenues) for the nine months ended September 30, 2003. This increase is due
primarily to acquisitions, a one time settlement charge related to the early
cancellation of


                                       48



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



an exclusive distribution agreement, increased research and development
spending, higher sales expenses as related to increased sales volumes, higher
insurance costs, increased bad debt provisions, and bonus expenses that in the
prior year were allocated to corporate operating expenses.

         Mobile Security Division operating expenses increased $0.6 million, or
6.6%, to $9.7 million (11.2% of Mobile Security Division revenues) for the nine
months ended September 30, 2004, compared to $9.1 million (16.0% of Mobile
Security Division revenues) for the nine months ended September 30, 2003. This
increase is due primarily to increased operating expenses related to significant
revenue growth and increased warranty provisions. The decrease in operating
expense as a percentage of revenue was due to leveraging the operating expenses
over larger revenue base and management's ability to scale its business.

         Corporate operating expenses increased $4.8 million, or 64.9%, to $12.1
million (1.9% of total revenues) for the nine months ended September 30, 2004,
compared to $7.3 million (2.9% of total revenues) for the nine months ended
September 30, 2003. This increase in administrative expenses is associated with
the overall growth of the Company, increased travel expenses, accounting fees,
investor relations, bonus provision, and Sarbanes-Oxley requirements.

         Amortization. Amortization expense increased $2.7 million, or 1,361.2%
to $2.9 million for the nine months ended September 30, 2004, compared to
$201,000 for the nine months ended September 30, 2003, primarily due to the
acquisitions of Simula and Hatch Imports in December 2003. 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
$5.2 million, or 113.3%, to $9.7 million for the nine months ended September 30,
2004, compared to $4.6 million for the nine months ended September 30, 2003,
primarily due to a non-cash charge of $6.3 million for the acceleration of
performance based, long-term restricted stock awards granted to certain
executives in 2002. In the second quarter of 2004, we recorded an impairment
charge of $1.4 million in integration and other charges in continuing operations
to reduce the carrying value of remaining portion of NTI to its estimated fair
value. $2.0 million of the integration and other charges in the nine months
ended September 30, 2004, were primarily for the integration of Simula, Inc.,
Hatch Imports, Inc., Kleen Bore Inc., and ODV, Inc., which were all acquired
subsequent to the third quarter of fiscal year 2003.

         Operating income. Operating income from continuing operations increased
$71.1 million, or 259.7%, to $98.4 million for the nine months ended September
30, 2004, compared to $27.3 million in the nine months ended September 30, 2003,
due to the factors discussed above.

         Interest expense, net. Interest expense, net increased $2.9 million, or
126.3%, to $5.2 million for the nine months ended September 30, 2004, compared
to $2.3 million for the nine months ended September 30, 2003. This increase was
due primarily to interest expense associated with the $150 million aggregate
principal amount of 8.25% senior subordinated notes due 2013 issued in August
2003 partially offset by interest income generated from our June 2004 equity
offering proceeds. On


                                       49



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



September 2, 2003, we entered into interest rate swap agreements that
effectively exchanged the 8.25% fixed rate for a variable rate of six-month
LIBOR (2.20% at September 30, 2004), set in arrears, plus a spread of 2.735% to
2.75%.

         Other (income) expense, net. Other (income), net, was ($121,000) for
the nine months ended September 30, 2004, compared to other expense, net, of
$181,000 for the nine months ended September 30, 2003. The other (income), net,
for the nine months ended September 30, 2004, was primarily a result of the
realization of a gain on the sale of a certain equity investment partially
offset by losses 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
$68.4 million, or 275.0%, to $93.3 million for the nine months ended September
30, 2004, compared to $24.9 million for the nine months ended September 30,
2003, due to the reasons discussed above.

         Provision for income taxes. Provision for income taxes was $39.1
million for the nine months ended September 30, 2004, compared to $10.0 million
for the nine months ended September 30, 2003. The effective tax rate was 41.9%
for the nine months ended September 30, 2004, compared to 40.4% for the nine
months ended September 30, 2003. The increased tax rate relates primarily to an
increased mix of profitability generated by our Ohio, Arizona and Massachusetts
locations, which operate in higher-taxed jurisdictions, and the non-tax
deductible charge due to the accelerated vesting of performance based, long-term
restricted stock awards.

         Income from continuing operations. Income from continuing operations
increased $39.4 million, or 265.6%, to $54.2 million for the nine months ended
September 30, 2004, compared to $14.8 million for the nine months ended
September 30, 2003 due to the factors discussed above.


DISCONTINUED OPERATIONS

         Services revenues. Services Division revenue decreased $74.0 million to
$1.7 million for the nine months ended September 30, 2004, compared to $75.7
million for the nine months ended September 30, 2003. Exclusive of ArmorGroup
Integrated Systems, which we sold on April 17, 2003, and ArmorGroup, which we
sold on November 26, 2003, revenue decreased $422,000, or 19.6%, to $1.7 million
for the nine months ended September 30, 2004, compared to $2.2 million for the
nine months ended September 30, 2003. This decrease was primarily due to the
sale of the security consulting business of NTI on July 2, 2004.

         Cost of revenues. Cost of revenues decreased $52.8 million to $697,000
for the nine months ended September 30, 2004, compared to $53.4 million for the
nine months ended September 30, 2003. Exclusive of ArmorGroup Integrated Systems
and ArmorGroup, cost of revenues decreased $103,000, or 12.9%, to $697,000 for
the nine months ended September 30, 2004, compared to $800,000 for the nine
months ended September 30, 2003. This decrease was primarily due to the sale of
the security consulting business of NTI on July 2, 2004.

         Operating expenses. Operating expenses decreased $15.5 million to
$821,000 (47.4% of Services revenues) for the nine months ended September 30,
2004, compared to $16.3 million (21.5% of


                                       50



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



Services revenues) for the nine months ended September 30, 2003. Exclusive of
ArmorGroup Integrated Systems and ArmorGroup, operating expenses decreased
$418,000, or 33.7%, to $821,000 for the nine months ended September 30, 2004,
compared to $1.2 million for the nine months ended September 30, 2003. This
decrease was primarily due to the sale of the security consulting business of
NTI on July 2, 2004.

         Charge for impairment of long-lived assets. Charge for impairment of
long-lived assets was zero for the nine months ended September 30, 2004,
compared to $11.3 million for the nine months ended September 30, 2003. The 
charge in the prior year related to a reduction in the carrying value of the
Services division to its estimated realizable value.

         Integration and other charges. Integration and other charges decreased
to zero for the nine months ended September 30, 2004, compared to $598,000 for
the nine months ended September 30, 2003. Excluding ArmorGroup Integrated
Systems and ArmorGroup, there were no integration and other charges for the nine
months ended September 30, 2003.

         Operating income (loss). Operating income was $215,000 for the nine
months ended September 30, 2004, compared to an operating loss of $(5.9) million
for the nine months ended September 30, 2003, due to the factors discussed
above. Excluding the ArmorGroup Integrated Systems and ArmorGroup, the balance
of the assets held for sale generated operating income of $215,000 for the nine
months ended September 30, 2004, compared to operating income of $117,000 for
the nine months ended September 30, 2003, due to the reasons discussed above.

         Interest expense, net. Interest expense, net, decreased $69,000, or
97.2%, to $2,000 for the nine months ended September 30, 2004, compared to
$71,000 for the nine months ended September 30, 2003, primarily due to the sale
of ArmorGroup Integrated Systems and ArmorGroup. All interest bearing
liabilities in discontinued operations have been repaid.

         Other expense, net. Other expense, net, decreased $199,000, or 42.2%,
to $273,000 for the nine months ended September 30, 2004, compared to other
expense, net, of $472,000 for the nine months ended September 30, 2003.
Excluding the ArmorGroup Integrated Systems and ArmorGroup, the balance of the
assets held for sale generated other expense, net, from discontinued operations
of $273,000 for the nine months ended September 30, 2004, compared to other
income, net, of ($17,000) for the nine months ended September 30, 2003, due to
additional accounting fees incurred in connection with the sale of ArmorGroup.

         Loss from discontinued operations before income tax benefit. Loss from
discontinued operations before income tax benefit was $60,000 for the nine
months ended September 30, 2004, compared to a loss of $6.4 million for the nine
months ended September 30, 2003, due to the reasons discussed above. Excluding
the ArmorGroup Integrated Systems and ArmorGroup, the balance of the assets held
for sale generated a loss from discontinued operations before provision for
income taxes of $60,000 for the nine months ended September 30, 2004, compared
to income of $127,000 for the nine months ended September 30, 2003, due to the
reasons discussed above.

         Income tax benefit. Income tax benefit was $22,000 for the nine months
ended September 30, 2004 compared to an income tax benefit of $7.4 million for
the nine months ended September 30, 2003. The effective tax rate for the three
months ended September 30, 2004 was a benefit of 36.7% compared to a benefit of
115.3% for the nine months ended September 30, 2003. Excluding the ArmorGroup
Integrated Systems and ArmorGroup, the balance of the assets held for sale
benefit was $22,000 for the nine months ended September 30, 2004, compared to a
provision of $49,000 for the nine months ended September 30, 2003.


                                       51



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



         (Loss) income from discontinued operations. Loss from discontinued
operations was $38,000 for the nine months ended September 30, 2004, compared to
income from discontinued operations of $983,000 for the nine months ended
September 30, 2003, due to the factors discussed above. Excluding the ArmorGroup
Integrated Systems and ArmorGroup, the balance of the assets held for sale
generated a loss from discontinued operations $38,000 for the nine months ended
September 30, 2004, compared to income of $78,000 for the nine months ended
September 30, 2003, due to the reasons discussed above.








                                       52



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


LIQUIDITY AND CAPITAL RESOURCES

         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, 75,000,000 shares of which are
common stock and 5,000,000 shares of which are 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.
Funds that are not immediately used are invested in money market funds,
certificates of deposits, and other investment grade securities until needed.
         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% senior subordinated notes due 2013
(the "Notes") for a variable interest rate equal to six-month LIBOR, set in
arrears, plus a spread ranging from 2.735% to 2.75% fixed semi-annually on the
fifteenth day of February and August. The agreements are subject to other terms
and conditions common to transactions of this type. In accordance with SFAS 133,
changes in the fair value of the interest rate swap agreements offset changes in
the fair value of the fixed rate debt due to changes in the market interest
rate. Accordingly, other assets on the Consolidated Balance Sheet as of
September 30, 2004 decreased by $193,000 from December 31, 2003, 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 Notes. The Notes are guaranteed by almost all
of our domestic subsidiaries, on a senior subordinated basis. The Notes have
been sold to qualified institutional investors in reliance on Rule 144A of the
Securities Act of 1933, as amended, and to non-U.S. persons in reliance on
Regulation S under the Securities Act of 1933, as amended. The Notes were
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., and ODV, 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, 2004, we completed a registered exchange offer for
the Notes and exchanged the Notes for new Notes that were registered under the
Securities Act of 1933, as amended.

         On August 12, 2003, in concert with our high yield 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


                                       53



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


(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.

         As of September 30, 2004, we were in compliance with all of our
negative and affirmative covenants contained in the Credit Facility and the
indenture governing the Notes.

         In March 2002, our Board of Directors approved a stock repurchase
program authorizing the repurchase of up to a maximum 3.2 million shares of our
common stock. In February 2003, the Board of Directors increased this stock
repurchase program to authorize the repurchase, from time to time depending upon
market conditions and other factors, of up to an additional 4.4 million shares.
Through October 15, 2004, we repurchased 3.8 million shares of our common stock
under the stock repurchase program at an average price of $12.49 per share,
leaving us with the ability to repurchase up to an additional 3.8 million shares
of our common stock. Repurchases may be made in the open market, in privately
negotiated transactions or otherwise. At September 30, 2004, we had 33.1 million
shares of common stock outstanding.

         We expect to continue our policy of repurchasing our common stock from
time to time, subject to the restrictions contained in our Credit Facility and
the indenture governing the Notes. Our Credit Facility permits us to repurchase
shares of our common stock with no limitation if our ratio of Consolidated Total
Indebtedness to Consolidated EBITDA (as such terms are defined in the Credit
Facility) for any rolling twelve-month period is less than 1.00 to 1. At ratios
greater than 1.00 to 1, our Credit 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. Our indenture governing the Notes also permits us to repurchase
shares of our common stock, subject to certain limitations, as long as we
satisfy the conditions to such repurchase contained therein.

         Working capital for continuing operations was $379.2 million and $168.5
million as of September 30, 2004, and December 31, 2003, respectively. The
increase in working capital is largely a


                                       54



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



function of increases in cash from our June $150.0 million equity offering and
increases in inventory of $59.3 million and accounts receivable of $53.6 million
to support the growth in revenues from demand for M1114 Up-Armored HMMWV,
supplemental armor for other military vehicles, and SAPI plates.

         Our fiscal 2004 capital expenditures for continuing operations are
expected to be approximately $13.9 million, of which we have spent approximately
$11.1 million through the nine months ended September 30, 2004. Such
expenditures include leasehold improvements, information technology and
communications infrastructure equipment and software, and manufacturing
machinery and equipment.

         We anticipate that the cash generated from operations, cash on hand and
available borrowings under the Credit Facility will enable us to meet liquidity,
working capital and capital expenditure requirements during the next 12 months.
We may, however, require additional financing to pursue our strategy of growth
through acquisitions 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.







                                       55



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.






                                       56



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


MARKET RATE RISK

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

         Interest Rate Risk. Our exposure to market rate risk for changes in
interest rates 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 2.20% on
October 14, 2004. The maturity dates of the interest rate swap agreements match
those of the underlying debt. Our objective for entering into these interest
rate swaps was to reduce our exposure to changes in the fair value of 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
$1,125,000 for a nine 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 September 30, 2004, we recorded the fair value of the interest
rate swap agreements of $5.7 million and recorded the corresponding fair


                                       57



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



value 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.


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.




                                       58





ARMOR HOLDINGS, INC. AND SUBSIDIARIES

ITEM 4.  CONTROLS AND PROCEDURES

         As of the end of the period covered by this report, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures. Our disclosure controls and procedures are designed to provide
reasonable assurance that the information that we must disclose in our reports
filed under the Securities Exchange Act of 1934, as amended, is communicated and
processed in a timely manner. Warren B. Kanders, Chairman and Chief Executive
Officer, and Glenn J. Heiar, Chief Financial Officer, participated in this
evaluation.

         Based on such evaluation, Mr. Kanders and Mr. Heiar concluded that, as
of the end of the period covered by this report, our disclosure controls and
procedures were effective. During the period covered by this report, there have
not been any significant changes in our internal controls over financial
reporting or in other factors that could significantly affect those controls.






                                       59



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"). On March 6, 1998, SIA (a
subsidiary of SHRM) filed a complaint against Defense Systems France, SA ("DSF")
before the Commercial Court of Nanterre (Tribunal de Commerce de Nanterre)
seeking to be paid an amount of $577,286 corresponding to an alleged debt of
DSIA to SIA. In October 2002, the Commercial Court of Nanterre stayed the
proceedings before it, pending the decisions of the Court of Appeal and the
Paris Commercial Court. In February 2003, the Court of Appeal ruled against SHRM
and its parent entity, Compass Group, effectively ending all further proceedings
on the merits of Compass' claims. Compass has appealed the decision before the
French Court of Cassation, which reviews only matters of law.

         In 1999 and prior to our acquisition of O'Gara-Hess & Eisenhardt
Armoring Company (which has been converted to a limited liability company and is
now known as O'Gara-Hess & Eisenhardt Armoring Company, L.L.C.) ("OHEAC") in
2001, O'Gara-Hess & Eisenhardt Armoring de Brasil Ltda. ("OHE Brazil") was
audited by the Brazilian federal tax authorities and assessed over Ten Million
Reals (US$3.5 million based on the exchange rate as of September 30, 2004). OHE
Brazil has appealed the tax assessment and the case is pending. To the extent
that there may be any liability resulting from the 1999 audit, we believe that
we are entitled to indemnification from Kroll, Inc. under the terms of our
purchase agreement dated April 20, 2001, despite the denial by Kroll, Inc. of
any such liability, because the events occurred prior to our purchase of the
O'Gara Companies from Kroll, Inc. However, to the extent that the appeal
relating to 1999 activity results in an unfavorable ruling, we could be liable
for unpaid taxes incurred subsequent to the acquisition from Kroll.

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

         In December 2001, O'Gara-Hess & Eisenhardt France S.A. ("OHE France")
sold its industrial bodywork business operated under the name Labbe/Division de
O'Gara Hess & Eisenhardt France/ Carrosserie Industriells to SNC Labbe.
Subsequent to the sale, the Labbe Family Trust ("LFT"), owner of the leasehold
interest upon which the Carrosserie business is operated, sued OHE France and
SNC Labbe claiming that the transfer of the leasehold was not valid because LFT
had not given its consent to the transfer as required under the terms of the
lease. Further, LFT seeks to have OHE France, as the sole tenant, maintain and
repair the leased building. The approximate cost of renovating the building is
estimated to be between US $3.8 and US $7.5 million, based on the exchange rate
as of September 30,


                                       60



ARMOR HOLDINGS, INC. AND SUBSIDIARIES


2004. The case is currently pending, and while we are contesting the allegations
vigorously, we are unable to predict the outcome of this matter. Although we do
not have any insurance coverage for this matter, at this time, we do not believe
this matter will have a material impact on our financial position, operations or
liquidity.

         On October 18, 2002, we were notified by the Internal Revenue Service
that our tax return for the tax year ended December 31, 2000 had been selected
for examination. Further, on January 30, 2003 we were notified that our tax
return for the tax year ended December 31, 2001 had been selected for
examination. In April 2004, we reached an agreement with the Internal Revenue
Service regarding our tax returns for the years ended December 31, 2000 and 2001
that did not have a material impact on our financial position, operations or
liquidity.

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

         In September 2003, Second Chance Body Armor, Inc. ("Second Chance"), a
body armor manufacturer and competitor to Armor Holdings, notified its customers
of a potential safety issue with its Ultima(R) and Ultimax(R) models. Second
Chance has claimed that Zylon(R) fiber, which is made by Toyobo, a Japanese
corporation, and used in the ballistic fabric construction of those two models,
degraded more rapidly than originally anticipated. Second Chance has also stated
that the Zylon(R) degradation problem affects the entire body armor industry,
not just its products. Both private claimants and State Attorneys General have
already commenced legal action against Second Chance based upon its Ultima(R)
and Ultimax(R) model vests.

         We use Zylon(R) fiber in a number of concealable body armor models for
law enforcement, but our vest design and construction are different from Second
Chance. The National Institute of Justice ("NIJ") tests and has certified each
of our body armor designs before we begin to produce or sell any particular
model.

         In the Fall of 2003, following the assertions made by Second Chance,
several law enforcement associations raised this issue to the U.S. Attorney
General ("USAG"), who then asked the U.S. Department of Justice ("DOJ") through
the NIJ to investigate these concerns and attempt to clarify the issues. We have
and continue to support the Attorney General's directive and investigation. In
2004 we received investigative demands from state agencies in Texas and
Connecticut to which we have complied, as well as letters from two private
attorneys threatening potential litigation.

         As a result of the USAG's and DOJ's initiative, the NIJ commenced an
inquiry and investigation regarding the protocol for testing used vests, as well
as the reliability of Zylon(R) and other ballistic fibers. We have consulted and
continue to cooperate fully with the NIJ in this endeavor. To date, the NIJ has
embarked only in its first phase of testing, which entails vests that have been
heavily worn or exposed to adverse conditions, and which utilized the ballistic
testing standard applicable to new vests. Although some of the vests tested,
including ours, experienced a penetration, the NIJ specifically warned


                                       61



ARMOR HOLDINGS, INC. AND SUBSIDIARIES


against the misuse and misinterpretation of these results, emphasizing that the
data produced so far is preliminary in nature, applies to a very small sample
size and therefore it is not possible to draw any definitive conclusions from
these results. The NIJ will continue to conduct further testing and analyze
these issues in order to determine if any conclusions can be reached as to the
performance and reliability of aged vests. We have requested the NIJ to provide
us with its testing data, and we intend to evaluate and review the NIJ's results
upon our receipt of such data in our continuing effort to assist the NIJ in
developing uniform standards for certification of new vests and the testing of
used vests.

         In April 2004, two class action complaints 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, Safariland 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 particular purpose and duty to warn. On August 12,
2004, we announced that we had 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"), subject to final court
approval. After a fairness hearing held on September 30, 2004, the Florida
Circuit Court gave final approval to that settlement as to all purchasers of
Zylon(R)-containing body armor manufactured under the brand name American Body
Armor, and scheduled a final fairness hearing for November 5, 2004, with regard
to purchasers of all other Zylon(R)-containing body armor manufactured by our
subsidiaries, Safariland(R) and ProTech(TM).

         Pursuant to the terms of the class action settlement, the warranty on
the American Body Armor Xtreme ZX(R) vest (both NIJ threat level II and IIIA)
has been reduced from 5 years to 2 1/2 years. In addition, a purchaser of the
Xtreme ZX(R) vest has one of the following two options: (1) receive a new
American Body Armor Xtreme ZX(R) vest (either threat level II or IIIA) with a 2
1/2 year warranty, an extra carrier and a transferable rebate coupon for $100
applicable toward the next purchase of any soft body armor from American Body
Armor, Safariland, or ProTech(TM); or (2) receive any new vest of his/her
choosing from American Body Armor, Safariland, or ProTech, which must be the
same threat level as the original vest purchased, and a transferable rebate
coupon for $100 applicable toward the next purchase of any soft body armor from
American Body Armor, Safariland, or ProTech. The exchange for the new vest will
be at no additional cost to the purchaser. In addition, if the purchase price of
the new vest is less than the credit (based upon a court approved formula) for
the original vest, the purchaser will receive a cash refund for the difference.
We will also make available on our website, and pursuant to a request made from
the NIJ or a bona fide law enforcement agency to our customer service
department, testing data and protocols, and results relating to the testing of
our vests. We will 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 Xtreme
ZX(R) exchange program outlined above.

         All of the potential class members in the other Zylon(R)-related class
action lawsuit filed against us by the National Association of Police
Organizations, Inc. ("NAPO"), in Lee County, Florida, are also among the class
members in the Southern States PBA case and are therefore covered by the terms
of the settlement. Accordingly, we believe that the NAPO lawsuit should be
dismissed and we are seeking a voluntary discontinuance from plaintiffs'
counsel, and if necessary, will move to dismiss that action.

         It should be stressed that our vests are certified by the NIJ, have
never suffered any penetration in


                                       62



ARMOR HOLDINGS, INC. AND SUBSIDIARIES


the field and continue to save lives and protect officers from injury. In fact,
neither of the two recent lawsuits alleged personal injuries of any kind, but
instead speculated that our vests which contained Zylon(R) were defective
without the benefit of any scientific studies that supported any claim of
defect.

         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 yet 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.

         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 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/A for the fiscal year ended December 31, 2003, for a
description of other legal proceedings.





                                       63



ARMOR HOLDINGS, INC. AND SUBSIDIARIES


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

         Reference is hereby made to the disclosure contained in Part II, Item
4, Submission of Matters to a Vote of Security Holders, of our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004 with respect to the matters
submitted to a vote of our security holders during the quarter ended September
30, 2004, which disclosure is incorporated herein by reference.


ITEM 6.  EXHIBITS

(a)      Exhibits

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

            2.1     Agreement and Plan of Merger, dated as of September 28,
                    2004, by and among Armor Holdings, Inc., Specialty
                    Acquisition Corp., The Specialty Group, Inc., and Joseph F.
                    Murray, Jr. and John P. Sweeney, as the Shareholders' Agent.
                    (filed as Exhibit 2.1 to our Current Report on Form 8-K
                    filed on October 4, 2004 and incorporated herein by
                    reference).

            4.1     Fifth Supplemental Indenture, dated as of August 16, 2004,
                    among Armor Holdings, Inc., the subsidiary guarantors
                    parties thereto, Kleen Bore, Inc., and Wachovia Bank,
                    National Association, a national banking association, as
                    trustee.

            4.2     Sixth Supplemental Indenture, dated as of September 24,
                    2004, among Armor Holdings, Inc., the subsidiary guarantors
                    parties thereto, Armor Holdings Aircraft, LLC, and Wachovia
                    Bank, National Association, a national banking association,
                    as trustee.

            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).




                                       64



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:  October 20, 2004


                        /s/ Glenn J. Heiar
                        -------------------------------------
                        Glenn J. Heiar
                        Chief Financial Officer
                        Dated: October 20, 2004








                                       65