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

                                    FORM 10-Q
                                   (Mark One)

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

              For the quarterly period ended March 31, 2005

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

                For the transition period from _______ to _______

                        Commission file number 333-116676

                                 AEARO COMPANY I

             (Exact name of registrant as specified in its charter)



              Delaware                                 13-3840356
     (State or other jurisdiction          IRS Employer Identification No.)
     of incorporation or organization)

         5457 West 79th Street                            46268
         Indianapolis, Indiana                         (Zip Code)
     (Address of principal executive offices)

                                 (317) 692-6666
              (Registrant's telephone number, including area code)

                             _______________________

          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 No X

          The number of shares of the registrant's  common stock, par value $.01
     per share,  outstanding as of May 9, 2005 was 100.

<PAGE>

                                 AEARO COMPANY I
                                TABLE OF CONTENTS
            Form 10-Q for the Quarterly Period Ended March 31, 2005

PART I-FINANCIAL INFORMATION...................................................3

Financial Statements...........................................................3
Consolidated Balance Sheets - Assets...........................................3
Consolidated Balance Sheets - Liabilities and Stockholder's Equity.............4
Consolidated Statements of Operations..........................................5
Consolidated Statement of Stockholder's Equity.................................6
Consolidated Statements of Cash Flows..........................................7
Notes to Consolidated Financial Statements.....................................8
Item 2.Management's Discussion and Analysis of Financial Condition and Results
       of Operations .........................................................25
Item 3.Quantitative and Qualitative Disclosures About Market Risk.............36
Item 4.Controls and Procedures ...............................................38
PART II - OTHER INFORMATION...................................................39

Item 6.Exhibits and Reports on Form 8-K.......................................39
SIGNATURES....................................................................40

EXHIBIT INDEX.................................................................41

<PAGE>


                          PART I-FINANCIAL INFORMATION
     Item 1.      Financial Statements



<TABLE>
<CAPTION>

                        AEARO COMPANY I AND SUBSIDIARIES
                      Consolidated Balance Sheets - Assets
                                 (In Thousands)

                                                                  March 31,            September 30,
                                                                    2005                   2004
                                                                ------------          -------------
                                                               (Unaudited)
  CURRENT ASSETS:
<S>                                                            <C>                     <C>
    Cash and cash equivalents                                  $     40,947             $    27,724
    Accounts receivable (net of allowance for
    doubtful accounts of$1,439 and $1,358, respectively)             56,497                  54,159
    Inventories                                                      40,913                  40,849
    Deferred and prepaid expenses                                     6,603                   4,146
                                                               --------------          ------------
        Total current assets                                        144,960                 126,878
                                                               --------------          ------------

  LONG TERM ASSETS:
    Property, plant and equipment, net                               53,213                  54,750
    Goodwill, net                                                   120,691                 133,745
    Other intangible assets, net                                    183,321                 185,855
    Other assets                                                     15,235                  15,144
                                                               --------------          ------------
        Total assets                                           $    517,420            $    516,372
                                                               ===============       ==============

</TABLE>









The accompanying notes are an integral part of these consolidated financial
statements
                                        3

<PAGE>
<TABLE>
<CAPTION>

                        AEARO COMPANY I AND SUBSIDIARIES
       Consolidated Balance Sheets - Liabilities and Stockholder's Equity
             (In Thousands, Except for Per Share and Share Amounts)



                                                             March 31,       September 30,
                                                               2005              2004
                                                       ---------------       -------------
                                                           (Unaudited)
CURRENT LIABILITIES:
<S>                                                   <C>                     <C>
   Current portion of long-term debt                  $     1,656             $    1,639
   Accounts payable and accrued liabilities                47,612                 46,730
   Accrued interest                                         6,679                  6,996
   Accrued income taxes                                     2,179                  1,648
                                                       ---------------        ----------
         Total current liabilities                         58,126                 57,013
                                                       ---------------        ----------

LONG TERM LIABILITIES:
   Long-term debt                                         304,044                302,842
   Deferred income taxes                                   40,053                 59,699
   Other liabilities                                       14,794                 14,726
                                                       ---------------        ----------
         Total liabilities                                417,017                434,280
                                                       ---------------        ----------

STOCKHOLDER'S EQUITY:
   Common stock, $.01 par value-
    Authorized--100 shares
    Issued and outstanding--100 shares                       -                      -
   Paid in capital                                        101,630                 101,610
   Accumulated deficit                                     (2,296)                (19,415)
   Accumulated other comprehensive income (loss)            1,069                    (103)
                                                      ---------------    -----------------
         Total stockholder's equity                       100,403                  82,092
                                                      ---------------    -----------------
         Total liabilities and stockholder's equity   $   517,420           $     516,372
                                                      ===============    =================

</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                        4

<PAGE>
<TABLE>
<CAPTION>


                        AEARO COMPANY I AND SUBSIDIARIES

                      Consolidated Statements of Operations
                                 (In Thousands)
                                   (Unaudited)




                                             Three Months Ended               Six Months Ended
                                                 March 31,                        March 31,
                                          2005             2004          2005         2004
                                       Successor        Predecessor   Successor    Predecessor
<S>                                  <C>              <C>             <C>            <C>
Net sales                            $  104,478       $   90,378      $ 200,239      $   169,579

Cost of sales                            52,928           47,280        101,633           89,056
                                     -----------    ------------    -----------      -----------

   Gross profit                          51,550           43,098         98,606           80,523

Selling and administrative               32,680           29,364         64,411           56,835

Research and technical services           2,211            1,883          4,431            3,623

Amortization                              1,297              134          2,615              242

Other (income) charges, net                 380              535            312             (506)

Restructuring                               --            (1,091)            --           (1,091)
                                     ------------       ----------     ---------      ------------

   Operating income                      14,982           12,273         26,837            21,420

Interest expense, net                     5,688            5,370         10,929            10,836
                                     ------------       ----------     ---------      ------------

   Income before provision for
   income taxes                           9,294            6,903         15,908            10,584

Provision (benefit) for income taxes     (2,807)           1,229         (1,211)            2,020
                                     -----------        ---------      ---------      ------------

   Net income                        $   12,101        $   5,674  $      17,119      $      8,564
                                     -----------        ---------     ----------      ------------

</TABLE>





The accompanying notes are an integral part of these consolidated financial
statements
                                        5

<PAGE>
<TABLE>
<CAPTION>

                        AEARO COMPANY I AND SUBSIDIARIES


                 Consolidated Statement of Stockholder's Equity
                      (In Thousands, Except Share Amounts)


                                                        Additional  Retained    Accumulated
                                                          Paid     Earnings/      Other                 Comprehensive
                                        Common             In      (Accumulated Comprehensive               Income
                                                                                  Income
Predecessor                         Shares  Amount       Capital    Deficit)      (Loss)       Total        (Loss)
                                    ------- --------    ---------- ----------- ------------- ---------  -------------
<S>                                  <C>    <C>         <C>         <C>         <C>           <C>          <C>

Balance, October 1, 2003             100   $    -       $ 32,531    $ 7,713    $  (6,786)    $ 33,458

  Net income                           -        -             -       8,564            -        8,564     $    8,564
  Foreign currency translation
adjustment                                                                         1,688        1,688          1,688
  Net minimum pension liability
adjustment                                                                             4            4              4
                                                                                                        -------------
   Comprehensive income                                                                                   $   10,256
                                                                                                        =============

                                    ------- --------    ---------- ----------- ------------- ---------
Balance, March 31, 2004              100  $    -       $  32,531   $ 16,277    $  (5,094)    $ 43,714
                                    ======= ========    ========== =========== ============= =========

---------------------------------------------------------------------------------------------------------------------
  Successor
                                                  $
  Capital contribution                 100  -           $ 101,610  $        -  $             $101,610
  Net loss                               -        -             -     (5,110)             -   (5,110)         (5,110)
  Foreign currency translation
adjustment                               -        -             -           -         (103)     (103)     $     (103)
  Dividend to parent for
repayment of debt                                                    (14,305)             -  (14,305)               -
                                                                                                          -------------
  Comprehensive loss                     -        -             -           -             -               $   (5,213)
                                    ------- --------    ---------- ----------- ------------- ---------    =============
Balance, September 30, 2004            100                101,610    (19,415)         (103)    82,092
                                    ------- --------    ---------- ----------- ------------- ---------

  Net income                             -        -             -      17,119             -    17,119     $    17,119
  Foreign currency translation
adjustment                               -        -             -           -         1,172     1,172           1,172
  Vesting of restricted stock            -        -            20                         -        20                -
                                                                                                          -------------
  Comprehensive income                   -        -             -           -             -         -      $   18,291
                                                                                                          =============
                                    ------- --------    ---------- ----------- ------------- ---------
Balance, March 31, 2005                100  $     -     $ 101,630  $ (2,296)   $     1,069   $100,403
                                    ======= ========    ========== =========== ============= =========

</TABLE>





The accompanying notes are an integral part of these consolidated financial
statements
                                        6
<PAGE>
<TABLE>
<CAPTION>


                        AEARO COMPANY I AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                                 (In Thousands)
                                   (Unaudited)

                                                       For the Six Months Ended
                                                               March 31,
                                                    ----------------------------
                                                         2005      |      2004
                                                    ---------------|------------
 CASH FLOWS FROM OPERATING ACTIVITIES:                  Successor  | Predecessor
<S>                                                   <C>            <C>
Net income                                            $   17,119   | $    8,564
Adjustments to reconcile net income to cash                        |
   provided by operating activities-                               |
   Depreciation                                            5,006   |       5,931
   Amortization of intangible assets                       2,615   |       2,283
   Amortization of deferred financing costs                  721   |        (15)
   Deferred income taxes                                  (4,066)  |         --
   Stock based compensation                                   20   |
   Restructuring                                              --   |     (1,091)
   Loss on disposal of assets                                 61   |         682
   Changes in assets and liabilities-                              |
      Accounts receivable                                 (1,556)  |     (1,113)
      Inventories                                            326   |     (3,464)
      Income taxes payable                                   430   |     (1,453)
      Interest payable                                      (317)  |        270
      Accounts payable and accrued liabilities            (2,118)  |     (3,491)
      Prepaid expenses and other assets                     (764)  |        633
      Other liabilities                                      (91)  |      1,299
                                                        ---------  |  ---------
       Net cash provided by operating activities          17,386   |       9,035
                                                        ---------  |  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:                              |
   Additions to property, plant and equipment             (3,189)  |     (5,006)
   Proceeds provided by disposals of property,                23   |         12
   plant and equipment                                  ---------  |  ---------
       Net cash used by investing activities              (3,166)  |     (4,994)
                                                                   |
CASH FLOWS FROM FINANCING ACTIVITIES:                              |
   Proceeds from revolving credit facility, net               --   |       3,950
   Repayment of term loans                                  (647)  |     (8,949)
   Repayment of capital lease obligations                   (132)  |       (122)
   Repayment of long term debt                              (248)  |       (119)
                                                        ---------  |   ---------
       Net cash used for financing activities             (1,027)  |     (5,240)
                                                        ---------  |   ---------
EFFECT OF EXCHANGE RATE ON CASH                               30   |       (789)
                                                                   |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          13,223   |     (1,988)
                                                                   |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD            27,724   |       7,301
                                                        ---------  |   ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD              $   40,947   |$      5,313
                                                        ---------  |   ---------
CASH PAID FOR:                                                     |
   Interest                                           $   10,969   |$      8,862
                                                         =======   |     =======
   Income taxes                                       $    2,718   |$      3,254
                                                         =======   |     =======
</TABLE>




The accompanying notes are an integral part of these consolidated financial
statements
                                        7

<PAGE>


                        AEARO COMPANY I AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                 MARCH 31, 2005

                                   (Unaudited)

1)   Consolidated Financial Statements

     In the opinion of management,  the accompanying unaudited consolidated
     financial statements of Aearo Company I (the "Company") contain all normal,
     recurring  adjustments  necessary to present  fairly,  in  accordance  with
     accounting  principles  generally accepted in the United States of America,
     the  financial  position,  results  of  operations  and cash  flows for the
     interim  periods  presented.  The  results of  operations  for the  interim
     periods shown in this report are not necessarily  indicative of results for
     any  future  interim  period or for the  entire  year.  These  consolidated
     financial statements do not include all disclosures  associated with annual
     financial statements,  and accordingly,  should be read in conjunction with
     the  consolidated  financial  statements and notes thereto  included in the
     Company's Annual Report on Form 10-K.

2)   Company Background, Merger and Basis of Presentation

     The  Company  manufactures  and sells  products  under the brand names
     AOSafety(R),  E-A-R(R), Peltor(R) and SafeWaze(TM). These products are sold
     through  three  reportable  segments,  which are  Safety  Products,  Safety
     Prescription Eyewear and Specialty Composites.

     On March 10, 2004, Aearo Corporation ("Parent"), the Company's parent,
     entered into a merger agreement ("Merger Agreement") with AC Safety Holding
     Corp. and its subsidiary,  AC Safety Acquisition Corp. that closed on April
     7, 2004 (the "Merger").  Pursuant to the terms of the Merger Agreement,  on
     April 7, 2004 ("Acquisition Date"), AC Safety Acquisition Corp. merged with
     and into Aearo Corporation with Aearo Corporation surviving the Merger as a
     wholly-owned  subsidiary of AC Safety Holding Corp. The aggregate  purchase
     price was approximately  $409.3 million,  including fees and expenses.  The
     Merger was financed with approximately  $303.7 million of debt as discussed
     in Note 6, $3.7  million  of which was  assumed,  $4.3  million of cash and
     $101.3 million of equity. The Company continues to be wholly-owned by Aearo
     Corporation  after the  Merger.  The  purpose of the Merger was to effect a
     change of control from Aearo  Corporation to the Company's  ultimate parent
     AC Safety Holding Corp.

     Approximately   $87.0   million  of  proceeds   from  the  Merger  was
     distributed to our Parent and used to pay the shareholders of the Parent to
     effect the merger  transaction.  An additional $14.3 million distributed to
     our Parent was used to pay the  outstanding  debt of the Parent as of April
     7, 2004.

     The Merger was a business  combination  under SFAS No. 141,  "Business
     Combinations," and the purchase price paid for our Parent reflects the push
     down of 100% of the purchase price resulting from the Merger.  Accordingly,
     the results of operations  subsequent to the Acquisition Date are presented
     on a different basis of accounting than the results of operations  prior to
     the Acquisition Date, and, therefore are not directly comparable.  The sale
     was  accounted  for as if it had occurred on March 31, 2004,  as management
     determined  that results of operations were not significant and no material
     transactions  occurred  during  the  period  from April 1, 2004 to April 7,
     2004.  The periods prior to April 7, 2004,  are referred to as  predecessor
     financial  statements  and the periods after April 7, 2004, are referred to
     as successor financial statements.

     The  purchase  price  is  allocated  to  the  Company's  tangible  and
     intangible  assets and  liabilities  based upon estimated fair values as of
     the date of the Merger. The adjustment made to deferred tax liabilities and
     goodwill during the six months ended March 31, 2005, reflect the adjustment

                                       8

<PAGE>

     of the purchase price allocation to identifiable  intangible assets and the
     related deferred tax liabilities for differences between book and tax basis
     of those assets as a result of finalizing the tax basis of certain  assets.
     The purchase price has been allocated as follows (dollars in thousands):



     Working capital                                     $      77,357
     Fixed assets                                               55,139
     Other assets and liabilities                               16,073
     Deferred tax liabilities                                  (45,258)
     Finite lived intangible asset                              74,104
     Indefinite lived intangible assets                        114,300
     Goodwill                                                  117,629
                                                               -------
     Purchase price                                      $     409,344
                                                               =======
     Goodwill as a result of the Merger is not deductible for tax purposes.

3)   Significant Accounting Policies

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

     Revenue  Recognition  and  Allowance  for  Doubtful  Accounts.  The Company
     recognizes  revenue when title and risk transfer to the customer,  which is
     generally when the product is shipped to customers.  At the time revenue is
     recognized,  certain  provisions  may also be  recorded  including  pricing
     discounts and  incentives.  The Company offers its customers three types of
     incentive  programs:  a sales  rebate/volume  discount program, a marketing
     incentive  program  and  a  co-operative  advertising  program.  The  sales
     rebate/volume  discount  program is based on achieved  volume  levels along
     with  growth  incentives  over  the  prior  year's  sales  dollars.  Rebate
     obligations are estimated based on current sales levels and are recorded as
     a reduction of revenue when sales to the customer make progress towards the
     required sales level. The marketing  incentive program provides  qualifying
     customers  with funds to assist the customers  with marketing the Company's
     products.  The funds provided to the qualifying customers are recorded as a
     reduction of revenue when sales to the customer make  progress  towards the
     required sales level. The co-operative  advertising  program provides funds
     to specific customers to advertise the Company's  products.  The qualifying
     customers provide specific  documentation of the advertising to the Company
     to assure that the  benefit  received  is  comparable  to other arms length
     advertising   expenditures   undertaken  by  the  Company.  The  amount  of
     co-operative advertising charged to selling and administrative expenses for
     the three  months  ended March 31, 2005 and 2004 were $0.6 million and $0.5
     million,  respectively.  The amount of co-operative  advertising charged to
     selling and administrative expenses for the six months ended March 31, 2005
     and 2004 were $1.1 million and $0.9 million, respectively.

     An allowance for doubtful  accounts is generally  recorded  based on a
     percentage of aged receivables.  However,  management  judgment is involved
     with the final  determination  of the  allowance  based on several  factors
     including specific analysis of a customer's credit  worthiness,  historical
     bad debt  experience,  changes in payment history and general  economic and
     market trends.

     Foreign Currency Translation.  Assets and liabilities of the Company's
     foreign  subsidiaries are translated at period-end  exchange rates.  Income

                                       9
<PAGE>

     and expenses are translated at the approximate average exchange rate during
     the period.  Foreign  currency  translation  adjustments  are recorded as a
     separate component of stockholder's equity.

     Foreign  Currency  Transactions.  Foreign  currency  gains and  losses
     arising  from  transactions  by  any  of  the  Company's  subsidiaries  are
     reflected in net income.

     Cost  of  Goods  Sold.  Cost of  goods  sold  includes  all  costs  to
     manufacture the Company's products  including raw materials,  which include
     inbound  freight  and  import  duties,  direct  labor,  plant  supervision,
     maintenance  labor  and  parts,  quality  control,  receiving,  purchasing,
     production planning,  manufacturing  supplies,  scrap,  rework,  utilities,
     depreciation, property taxes, sales and use taxes and insurance.

     Selling  and  Administrative  Expenses.   Selling  and  administrative
     expenses  include  salaries and benefits for selling,  marketing,  customer
     service, finance and human resources personnel,  direct marketing expenses,
     trade show expenses, commissions, selling expenses, bad debts, advertising,
     travel and entertainment,  office supplies,  recruiting,  relocation, legal
     expenses,   accounting  fees,  consulting  and  warehousing  and  logistics
     expenses incurred after the point of manufacture.

     Income Taxes.  Deferred tax assets and liabilities are determined  based on
     the difference between the financial  statement and tax bases of assets and
     liabilities  using currently  enacted tax rates. At September 30, 2004, the
     Company's  deferred tax asset from the benefit of net operating losses were
     partially offset by a valuation allowance of $7.5 million. During the three
     month  period  ended March 31, 2005,  management  determined  that based on
     current  domestic  operating  results,  it is more  likely  than  not  that
     domestic net operating  losses will be realized and  consequently  reversed
     the $7.5 million valuation allowance.

     The  Company is included in the  consolidated  tax return  filed by AC
     Safety  Holding  Corp.  All taxes are recorded as if separate,  stand alone
     returns were filed.

     Goodwill and Other Intangibles.  Under the provisions of SFAS No. 142,
     "Goodwill and Other Intangibles",  goodwill and intangible assets that have
     indefinite  useful lives are not amortized but are tested at least annually
     for  impairment.  Intangible  assets  that  have  finite  useful  lives are
     amortized  over their  useful lives and  reviewed  for  impairment  at each
     reporting date. The following  presents a summary of intangibles  assets as
     of September 30, 2004 and March 31, 2005, resulting from the Merger:



                                     Gross    Accumulated               Carrying
     September 30, 2004              Amount   Amortization  Additions    Amount
     --------------------           -------   ------------  ---------   --------
     Trademarks                  $  114,300   $      --     $ --       $ 114,300
     Customer Relationship List      73,000      (2,433)      --          70,567
     Patents                            719        (122)      82             679
     Other                              385         (76)      --             309
                                     -------     -------      --         -------
     Total Intangibles           $  188,404   $  (2,631)    $ 82        $185,855
                                    =======      =======     ===         =======





                                       10

<PAGE>

                                     Gross     Accumulated            Carrying
     March 31, 2005 (Unaudited)     Amount    Amortization Additions  Amount
     --------------------------    -------   ------------- ---------  --------
     Trademarks                  $  114,300   $      --   $  --      $   114,300
     Customer Relationship List      73,000      (4,867)     --           68,133
     Patents                            842        (245)     41              638
     Other                              385        (135)     --              250
                                    -------      -------   -----      ----------
     Total Intangibles           $  188,527   $  (5,247)  $  41      $   183,321
                                    =======      =======   =====      ==========


     Estimate of Aggregate Amortization Expense:


             Year ending September 30, 2005       $          5,230
             Year ending September 30, 2006                  5,225
             Year ending September 30, 2007                  5,114
             Year ending September 30, 2008                  4,904
             Year ending September 30, 2009                  4,913


     The following  presents the allocation of goodwill  resulting from the
     Merger  and the  changes in the  carrying  amount of  goodwill  for the six
     months ended March 31, 2005 (dollars in thousands):



                                                         Six Months
                                                            Ended
                                                          March 31,
                                                             2005
                                                             -----
     Beginning balance                             $       133,745
     Allocation adjustment                                 (15,518)
     Translation adjustment                                  2,464
                                                         ---------
     Ending balance                                $       120,691
                                                         =========

     The  allocation  adjustment  in the six months  ended March 31,  2005,
     reflects the  adjustment of the purchase price  allocation to  identifiable
     intangible  assets and the related deferred tax liabilities for differences
     between  book and tax basis of those assets as a result of  finalizing  the
     tax basis of certain assets.

     Stock-based   Compensation.   The  Company  accounts  for  stock-based
     compensation under the recognition and measurement principles of Accounting
     Principals   Board  ("APB")  No.  25,   "Accounting  for  Stock  Issued  to
     Employees". Accordingly, no compensation expense for stock options has been
     recognized as all options  granted had an exercise  price equal to or above
     the price of the  underlying  common  stock on the grant date.  The Company
     recognizes  compensation  expense  related to  restricted  stock awards and
     amortizes the expense over the vesting  period based on the estimated  fair
     value of the stock at the date of grant.



                                       11

<PAGE>


     The  following  table  illustrates  the  effect  on net  income if the
     Company had applied the fair value recognition  provisions of SFAS No. 123,
     "Accounting  for  Stock-Based  Compensation"  as  amended  by SFAS No.  148
     "Accounting for Stock-Based  Compensation - Transition and  Disclosure," to
     stock-based employee compensation (dollars in thousands):

<TABLE>

<CAPTION>

                                                 Three Months Ended       Six Months Ended
                                                      March 31,                March 31,
                                                 2005    |      2004      2005     |    2004
                                                 ----    |      ----      ----     |    ----
                                               Successor |  Predecessor  Successor | Predecessor
<S>                                            <C>           <C>       <C>           <C>
     Net income as reported                    $ 12,101  |   $ 5,674   $   17,119  | $  8,564
       Stock based compensation expense                  |                         |
       recorded under APB No. 25, net of tax         --  |        --           --  |       --
       Stock-based compensation expense                  |                         |
       determined under the fair value                   |                         |
       mthod, net of tax                           (20)  |      (34)         (51)  |      (67)
                                                ---------     ---------   -------  |   -------
     Proforma net income                       $ 12,081  |   $ 5,640   $   17,068  | $   8,497
                                                =========     =========   =======      =======
</TABLE>


     Accounting for Derivative Instruments and Hedging Activities. SFAS No.
     133,  "Accounting  for  Derivative   Instruments  and  Hedging  Activities"
     requires that every derivative  instrument be recorded in the balance sheet
     as either an asset or a liability measured at its fair value.

     The  Company  has  formally  documented  its  hedging   relationships,
     including identification of the hedging instruments and the hedge items, as
     well as its risk management  objectives and strategies for undertaking each
     hedge  transaction.  From  time to time the  Company  enters  into  foreign
     currency  exchange  contracts and interest rate swap agreements,  which are
     derivatives  as defined by SFAS No. 133.  The Company  enters into  forward
     foreign  currency  contracts  to mitigate the effects of changes in foreign
     currency  rates  on  profitability  and  enters  into  interest  rate  swap
     agreements to hedge its variable  interest rate risk. These derivatives are
     cash flow hedges. For all qualifying and highly effective cash flow hedges,
     the  changes in the fair value of the  derivatives  are  recorded  in other
     comprehensive  income.  Amounts accumulated in other  comprehensive  income
     will be  reclassified  as earnings  when the related  product  sales affect
     earnings for forward foreign  currency  contracts or when related  interest
     payments  affect  earnings for interest rate swaps.  At March 31, 2005, the
     Company  had  no  forward  foreign  currency  contracts  or  interest  rate
     derivatives  as  defined  under SFAS No.  133.  For the three and six month
     periods ended March 31, 2004,  the Company  reclassified  into earnings net
     losses of $0.4 million and $0.5 million,  respectively  resulting  from the
     exercise  of  forward  foreign  currency  contracts.  All  forward  foreign
     currency  contracts  were  determined  to be highly  effective  whereby  no
     ineffectiveness was recorded in earnings.

     The  Company had  approximately  $30.5  million of variable  rate debt
     protected under an interest rate cap  arrangement,  which expired  December
     31,  2004.  The Company did not elect hedge  accounting  treatment  for the
     interest rate cap as defined under SFAS No. 133, and, as a result, any fair
     value adjustment was charged directly to other charges (income), net. There
     was a $0.1 million  impact on earnings for the six month period ended March
     31, 2004.

     The Company also executes forward foreign currency contracts for up to
     30 day terms to protect  against the adverse  effects  that  exchange  rate
     fluctuations may have on the foreign-currency-denominated  trade activities
     (receivables,  payables and cash) of foreign subsidiaries.  These contracts
     have not been designated as hedges under SFAS No. 133, and accordingly, the
     gains and losses on both the  derivative  and  foreign-currency-denominated
     trade  activities  are  recorded  as  transaction  adjustments  in  current
     earnings.  The impact on earnings was a loss of approximately  $0.1 million


                                       12

<PAGE>

     and $0.2 million for the three and six months period ending March 31, 2005,
     respectively,  compared  to net  loss of $0.2  million  and  $0.4  million,
     respectively  for  the  three  and  six  months  ended,   March  31,  2004,
     respectively.

     The  Company's  Senior  Subordinated  Notes contain an embedded call option
     that requires  bifurcation  because it was determined to not be clearly and
     closely related to the debt host contract.  As a result of the valuation of
     the embedded  call option,  the Company has recorded a derivative  asset of
     approximately  $2.0 million and a  corresponding  liability as of September
     30, 2004. The derivative asset will be marked to market each quarter with a
     corresponding   (gain)  or  loss  to  the  statement  of  operations.   The
     corresponding  liability is amortized  using the effective  interest method
     over the term of the senior subordinated notes. For the three and six month
     period ended March 31, 2005, the mark to market revaluation of the embedded
     call  option was a loss of  approximately  $0.1  million in other  (income)
     charges,  net. The resulting  amortization of the  corresponding  liability
     resulted in a reduction in interest expense of  approximately  $0.2 million
     for the six months ended March 31, 2005.

4)   Other Comprehensive Income

     The following table presents the  reclassification  amounts related to
     unrealized   holding  gains  and  losses  presented  in  the  statement  of
     stockholder's  equity for the three and six month  periods  ended March 31,
     2005 and 2004, respectively (dollars in thousands):


<TABLE>
<CAPTION>

                                                      Three Months Ended           Six Months Ended
                                                           March 31,                   March 31,
                                                      2005    |      2004          2005    |    2004
                                                      ----    |      ----          ----     |   ----
                                                    Successor |  Predecessor    Successor  | Predecessor
     Unrealized holding losses on derivatives                 |                            |
<S>                                                <C>           <C>           <C>           <C>
       during the period                           $     --   |  $      (390)  $       --  | $  (522)
       Less:  reclassification adjustment for                 |                            |
       gains (losses) included in the statement               |                            |
       of operations                                     --   |         (390)              |    (522)
                                                      ------- |      -------       ------- |    ------
     Proforma net income                           $     --   |  $       --   $       --   | $    --
                                                      ======= |      =======       ======= |   ======

</TABLE>

5)   Inventories

     Inventories consisted of the following (dollars in thousands):



                                           March 31,               September 30,
                                              2005                      2004
                                       -------------------        --------------
                                          (Unaudited)

     Raw materials                     $        10,105           $      9,302
     Work in process                             9,130                 12,087
     Finished goods                             21,678                 19,460
                                      -------------------         --------------
                                       $        40,913           $     40,849
                                       ===================       ===============


    Inventories,   which  include   materials,   labor  and  manufacturing
    overhead,  are stated at the lower of cost or market, cost being determined
    using the first-in, first-out method.

                                       13

<PAGE>

6)       Debt

     The Company's  debt  structure  includes:  (a) $175.0 million of 8.25%
     Senior Subordinated Notes ("8.25% Notes") due 2012, which are publicly held
     and redeemable at the option of the Company, in whole or in part at various
     redemption  prices,  (b) up to an  aggregate  of $175.0  million  under its
     Credit  Agreement  with various banks  comprised of (i) a secured term loan
     facility  consisting of loans  providing  for up to $125.0  million of term
     loans  (collectively  the "Term  Loans")  with a portion  of the Term Loans
     denominated in Euros, (ii) a secured revolving credit facility  ("Revolving
     Credit Facility")  providing for up to $50.0 million of revolving loans for
     general corporate purposes, and (iii) an uncommitted  incremental term loan
     facility of up to $60.0 million for acquisitions (collectively, the "Senior
     Bank Facilities").  Since the Acquisition Date, the Company's debt has been
     negatively  impacted by $3.9 million related to the fluctuation of the Euro
     relative to the U.S dollar as of March 31, 2005.  The Company does not plan
     to take any measure to minimize  the  foreign  exchange  impact of its Euro
     denominated  debt. The amounts  outstanding on the Term Loans and Revolving
     Credit  Facility  at March  31,  2005,  were  approximately  $127.6  and $0
     million,   respectively   compared  to  $126.0   million  and  $0  million,
     respectively at September 30, 2004. The Revolving Credit Facility  provides
     for the issuance of letters of credit in an aggregate  face amount of up to
     $15.0 million.  The Company had approximately $1.4 million and $1.6 million
     of letters of credit  outstanding at September 30, 2004 and March 31, 2005,
     respectively.  The Term Loans amortize  quarterly over a seven year period.
     Amounts  repaid  or  prepaid  in  respect  of the  Term  Loans  may  not be
     re-borrowed.  Loans and  letters  of  credit  under  the  Revolving  Credit
     Facility will be available until the Revolving Loan Maturity Date, which is
     April 7, 2010. The Term Loans mature on April 7, 2011.  Effective  December
     31, 2004, the Company  received a 0.25% reduction in the interest rate paid
     on its Term Loans for meeting certain financial covenants.  The Company was
     in compliance with all financial covenants and restrictions as of March 31,
     2005.

7)   Commitments and Contingencies

     Lease Commitments. The Company leases certain transportation vehicles,
     warehouse  facilities,  office space,  and  machinery  and equipment  under
     cancelable and non-cancelable  leases, most of which expire within 10 years
     and may be renewed by the Company.

     Contingencies.  Various  lawsuits and claims arise against the Company
     in the ordinary  course of its business.  Most of these lawsuits and claims
     are products  liability matters that arise out of the use of safety eyewear
     and  respiratory  product  lines  manufactured  by the  Company  as well as
     products purchased for resale.

     The Company is a defendant  in lawsuits by  plaintiffs  alleging  that
     they suffer from  respiratory  medical  conditions,  such as  asbestosis or
     silicosis,  relating  to exposure  to  asbestos  and silica,  and that such
     conditions  result, in part, from the use of respirators  that,  allegedly,
     were negligently designed or manufactured. The defendants in these lawsuits
     are  often  numerous,   and  include,  in  addition  to  manufacturers  and
     distributors of respirators, manufacturers,  distributors and installers of
     sand (used in sand blasting),  asbestos and  asbestos-containing  products.
     Many of these claims are covered by the Asset  Transfer  Agreement  entered
     into on June 13,  1995 by the  Company  and Aearo  Corporation,  on the one
     hand,  and  Cabot   Corporation  and  certain  of  its  subsidiaries   (the
     "Sellers"), on the other hand (the "1995 Asset Transfer Agreement"). In the
     1995 Asset Transfer Agreement, so long as Aearo Corporation makes an annual
     payment of $400,000 to Cabot,  the Sellers agreed to retain,  and Cabot and
     the  Sellers  agreed to defend  and  indemnify  Aearo  Corporation  and its
     subsidiaries  against, any liability or obligation relating to or otherwise
     arising under any proceeding or other claim against Aearo  Corporation  and
     its subsidiaries or Cabot or their  respective  affiliates or other parties
     with whom any Seller  directly or indirectly  has a  contractual  liability

                                       14

<PAGE>

     sharing  arrangement which sounds in product liability or related causes of
     action  arising  out of actual or alleged  respiratory  medical  conditions
     caused or allegedly  caused by the use of  respirators  or similar  devices
     sold  by  Sellers  or  their  predecessors   (including   American  Optical
     Corporation and its  predecessors)  prior to July 11, 1995. To date,  Aearo
     Corporation has elected to pay the annual fee and intends to continue to do
     so. In  addition,  under the terms of the Merger  Agreement  with AC Safety
     Acquisition  Corp.,  Aearo Corporation agreed to make the annual payment to
     Cabot  for a  minimum  of seven  years  from the  Acquisition  Date.  Aearo
     Corporation  and its  subsidiaries  could  potentially be liable for claims
     currently  retained by Sellers if Aearo Corporation  elects to cease paying
     the  annual  fee or if Cabot and the  Sellers no longer are able to perform
     their   obligations  under  the  1995  Asset  Transfer   Agreement.   Cabot
     acknowledged  in a stock purchase  agreement that it and Aearo  Corporation
     entered  into on June 27,  2003  (providing  for the sale by Cabot to Aearo
     Corporation of all of the common and preferred  stock of Aearo  Corporation
     owned by Cabot) that the foregoing  provisions  of the 1995 Asset  Transfer
     Agreement  remain in effect.  The 1995 Asset  Transfer  Agreement  does not
     apply to claims relating to the business of Eastern Safety  Equipment,  the
     stock of which the Company acquired in 1996.

     In fiscal  2003 and 2004,  Aearo  settled  259  claims in which it was
     named as a defendant for an average  settlement  amount of $24.36 in silica
     claims and $83.24 in asbestos  claims,  while an additional 200 claims were
     dismissed  without any payment (43.6% of cases  closed),  because Aearo was
     not a proper  defendant  or did not make the  product  in  question.  As of
     September  30,  2004,  the number of open claims where Aearo was named as a
     defendant  in silica and  asbestos  related  matters  was 11,002 and 4,261,
     respectively.  For the six months  ended March 31, 2005,  the  increases in
     number  of  claims  where  Aearo was  named as a  defendant  in silica  and
     asbestos  related  matters  was 106 and 1,200  respectively.  The 1,200 new
     asbestos  claims  include 1,148 claims that allege  exposure from clothing,
     which the Company  never  manufactured.  No claims were settled where Aearo
     was named as a defendant in silica and asbestos  related matters during the
     six months ended March 31, 2005.  As of March 31, 2005,  the number of open
     claims where Aearo was named as a defendant in silica and asbestos  related
     matters was 11,108 and 5,461, respectively.

     In addition to the above claims, Aearo may agree to pay a share of the
     settlement and defense costs in particular cases even though the company is
     not named as a defendant  because of  agreements  with prior  owners of the
     brand  and/or  because  of  allegations  that  Aearo has some risk of legal
     liability as a successor ("additional claims"). During the six months ended
     March  31,  2005,  Aearo  paid a total of  $1.67  million  for  settlement,
     administrative  and defense  costs  resulting  in the  settlement  of 4,325
     silica and asbestos  claims that were settled  between  October 1, 2002 and
     September  30,  2004  involving  both  claims in which Aearo was named as a
     defendant and additional claims. During the period October 1, 2004 to March
     31, 2005 Aearo paid a total of one hundred dollars for one additional claim
     that was settled  during that time period.  In addition,  Aearo may receive
     the benefit of releases in some additional  cases settled by the AO Defense
     Group regardless of whether or not any claim was made against Aearo.

     All data was provided by an outside law firm which  tracks  numbers of
     cases and  settlements  on behalf of the "AO Defense Group" and is believed
     to be materially accurate.  The AO Defense Group is a voluntary association
     of current and former manufacturers of the "AO Safety" brand of respirators
     and certain of their insurers in which Aearo participates and through which
     all of its  settlements  have been  handled in the  relevant  years.  Also,
     between  October  1, 2004 and March 31,  2005,  there may have been  claims
     settled by and fully  funded by the  insurers of Eastern  Safety  Equipment
     Co., Inc., a dissolved former subsidiary of Aearo.

                                       15

<PAGE>


     At March 31, 2005 and  September  30,  2004,  the Company has recorded
     liabilities of approximately  $4.3 million and $5.4 million,  respectively,
     which  represents  reasonable  estimates  of its probable  liabilities  for
     product  liabilities  substantially  related to asbestos and silica-related
     claims as determined  by the Company in  consultation  with an  independent
     consultant.  The $0.7 million reduction in the reserve, net of new accruals
     which  added  to  the  reserve,  since  September  30,  2004  is  primarily
     attributed to the payment of $1.67  million,  as referenced  above,  to pay
     costs attributed to settlement,  administrative  and defense costs that had
     been  reached over a two year time  period.  This  reserve is  re-evaluated
     periodically and additional charges or credits to results of operations may
     result  as  additional  information  becomes  available.   Various  factors
     increase the difficulty in determining the Company's  potential  liability,
     if any, in such claims,  including  the fact that the  defendants  in these
     lawsuits  are often  numerous  and the claims  generally do not specify the
     amount of damages  sought.  Additionally,  the bankruptcy  filings of other
     companies with asbestos and  silica-related  litigation  could increase the
     Company's  cost  over  time.  In  light of these  and  other  uncertainties
     inherent in making long-term  projections,  the Company has determined that
     the five-year period through fiscal 2009 is the most reasonable time period
     for projecting asbestos and silica-related  claims and defense costs. It is
     possible that the Company may incur  liabilities  in an amount in excess of
     amounts  currently  reserved.   However,   taking  into  account  currently
     available information,  historical experience,  and the 1995 Asset Transfer
     Agreement,  but recognizing the inherent uncertainties in the projection of
     any future events,  it is  management's  opinion that these suits or claims
     should  not  result  in final  judgments  or  settlements  in excess of the
     Company's  reserve that, in the aggregate,  would have a material effect on
     the Company's financial condition, liquidity or results of operations.

8)       Segment Reporting

     The  Company  manufactures  and sells  products  under the brand names
     AOSafety(R),  E-A-R(R), Peltor(R) and SafeWaze(TM). These products are sold
     through  three  reportable  segments,  which are  Safety  Products,  Safety
     Prescription Eyewear and Specialty Composites.  The Safety Products segment
     manufactures and sells hearing protection devices,  communication headsets,
     non-prescription  safety  eyewear,  face shields,  reusable and  disposable
     respirators,  hard hats,  fall  protection  and first aid kits.  The Safety
     Prescription  Eyewear segment  manufactures and sells prescription  eyewear
     products  that are  designed to protect  the eyes from the typical  hazards
     encountered  in the  industrial  work  environment.  The  Company's  Safety
     Prescription  Eyewear  segment  purchases  component  parts (lenses and the
     majority of its frames) from various suppliers,  grinds, shapes and applies
     coatings to the lenses in accordance with the customer's prescription,  and
     then  assembles  the  glasses  using the  customer's  choice of frame.  The
     Specialty  Composites segment manufactures a wide array of energy-absorbing
     materials  that are  incorporated  into other  manufacturers'  products  to
     control noise,  vibration and shock.  The factors used for  determining the
     Company's  reportable  segments were predominantly  based on the nature and
     type of product sold.






                                       16

<PAGE>


     Net Sales by Business Segment (dollars in thousands):


<TABLE>
<CAPTION>

                                          Three Months Ended              Six Months Ended
                                              March 31,                      March 31,
                                          2005           2004           2005            2004
                                       Successor   |  Predecessor     Successor    |  Predecessor
                                       (Unaudited) |  (Unaudited)    (Unaudited)   |  (Unaudited)
<S>                                   <C>              <C>           <C>              <C>
     Safety Products                  $     78,612 |   $    68,184   $    149,765  |  $   127,964
     Safety Prescription Eyewear            10,239 |        10,873         19,213  |       20,337
     Specialty Composites                   15,627 |        11,321         31,261  |       21,278
                                         ----------|     ----------    ----------  |   ----------
     Total                            $    104,478 |   $    90,378   $    200,239  |  $   169,579
                                           ======= |     ==========    ==========  |   ==========
</TABLE>


     Inter-segment  sales  from the  Specialty  Composites  segment  to the
     Safety Products segment totaled $1.0 million and $0.8 million for the three
     months  ended March 31, 2005 and 2004,  respectively.  Inter-segment  sales
     from the  Specialty  Composites  segment  to the  Safety  Products  segment
     totaled  $2.1  million and $1.5  million for the six months ended March 31,
     2005 and 2004, respectively. The inter-segment sales value is determined at
     fully absorbed  inventory cost at standard rates plus 25%. The Company does
     not have a single  customer in any of its three  reportable  segments  that
     accounts  for  more  than 10% of  segment  revenues  in any of the  periods
     presented.

     Profit (loss) by business segment and  reconciliation to income before
     income taxes (dollars in thousands):


<TABLE>
<CAPTION>


                                           Three Months Ended             Six Months Ended
                                               March 31,                     March 31,
                                          2005           2004           2005           2004
                                        Successor  |   Predecessor     Successor  |   Predecessor
                                       (Unaudited) |   (Unaudited)    (Unaudited) |   (Unaudited)
<S>                                    <C>           <C>            <C>              <C>
     Safety Products                   $  15,634   | $  12,474      $     27,848  |  $     23,704
     Safety Prescription Eyewear             (16)  |       157             (341)  |           (57)
     Specialty Composites                  3,090   |     1,687            6,951   |         2,855
                                         ---------  |   ---------       --------  |       --------
     Segment profit                       18,708   |    14,318           34,458   |        26,502
                                                   |                              |
     Depreciation                          2,429   |     3,002            5,006   |         5,931
     Amortization of intangibles           1,297   |       134            2,615   |           242
     Restructuring                            --   |    (1,091)              --   |        (1,091)
     Interest                              5,688   |     5,370           10,929   |        10,836
                                        ---------  |   ---------        --------  |      ---------
     Income before income taxes        $   9,294   | $   6,903      $    15,908   |  $     10,584
                                        =========      =========       =========         =========
</TABLE>


     Segment   profit  is  defined  as  operating   income   (loss)  before
     depreciation,   amortization,   interest   expense  and  income  taxes  and
     represents the measure used by the chief operating decision maker to assess
     segment performance and make decisions about the allocation of resources to
     business segments.
                                       17

<PAGE>

9)   Pension

     The following  table presents the  components of net periodic  pension
     cost for the three  and six month  periods  ended  March 31,  2005 and 2004
     (dollars in thousands):



<TABLE>
<CAPTION>


                                                  Three Months Ended           Six Months Ended
                                                      March 31,                   March 31,
                                                  2005           2004        2005           2004
                                               Successor  |   Predecessor   Successor  |  Predecessor
                                               (Unaudited)|   (Unaudited)  (Unaudited) |  (Unaudited)
<S>                                           <C>             <C>           <C>           <C>
     Service cost                             $   364     |   $       335   $     725  |  $    670
     Interest cost                                206     |          186         412   |       371
     Expected return on plan assets              (184)    |         (166)       (368)  |      (332)
     Amortization of prior service cost            --     |            2          --   |         5
                                                --------- |    ---------     --------  |    --------
     Total                                    $   386     |  $       357   $     769   |   $    714
                                                ========= |    =========      ======== |    ========

</TABLE>

     The Company previously disclosed in its Annual Report on Form 10-K for
     the year ended  September  30, 2004,  that it expected to  contribute  $1.2
     million to its pension plan in 2005. As of March 31, 2005,  the Company has
     not made any  contributions to its pension plan and plans to contribute the
     entire $1.2 million in the fourth quarter of fiscal 2005.

10)  Subsequent Events

     On April 28, 2005, the Company  amended its credit  agreement to allow
     the Company to make, prior to September 30, 2005, up to $35 million of cash
     distributions to Aearo Corporation,  its parent corporation for the purpose
     of paying cash dividends to AC Safety Holding Corp., its parent, to be used
     by AC Safety Holding Corp.  primarily to redeem,  pro rata, its outstanding
     preferred shares and to pay accrued dividends on the preferred shares.

     On May 4, 2005, the Company's  Board of Directors  declared a cash dividend
     to be paid to the Company's parent,  Aearo Corporation,  the sole holder of
     common stock, par value $.01 per share, of approximately $35 million. Aearo
     Corporation  will in turn pay a cash dividend to AC Safety  Holding  Corp.,
     the Company's  ultimate parent, who will use the proceeds to make a partial
     redemption of its preferred  stock,  par value $.01 per share.  The Company
     will use available cash to fund the dividend.


                                       18
<PAGE>


11)  Summarized Financial Information

     The Company's 8.25% Senior  Subordinated  Notes due 2012 are fully and
     unconditionally  guaranteed, on a joint and several basis, by substantially
     all  of  the  Company's  wholly-owned  domestic  subsidiaries  ("Subsidiary
     Guarantors").  The  non-guarantor  subsidiaries  are the Company's  foreign
     subsidiaries.

     The following financial information illustrates the composition of the
     combined  Subsidiary  Guarantors.  The Company  believes that the separate,
     complete  financial  statements  of the  respective  guarantors  would  not
     provide additional material  information which would be useful in assessing
     the  financial   composition  of  the  Subsidiary  Guarantors  (dollars  in
     thousands).

     Consolidated Statement of Operations (Unaudited)
     Six Months Ended March 31, 2005


<TABLE>
<CAPTION>

                                                                 Successor
                                        -------------------------------------------------------------
                                                                     Non-
                                           Aearo     Guarantor   Guarantor
                                         Company I  SubsidiariesSubsidiariesEliminationsConsolidated

<S>                                       <C>         <C>         <C>         <C>         <C>
     Net sales..........................  $148,332    $     --    $ 73,602    $ (21,695)  $ 200,239
     Cost of sales......................    83,479          --      39,797      (21,643)    101,633
                                           -------    -------     --------     --------    --------
       Gross profit.....................    64,853          --      33,805          (52)     98,606

     Selling and administrative.........    46,215       2,527      15,669           --      64,411
     Research and technical services....     2,785          --       1,646           --       4,431
     Amortization.......................     1,851         124         640           --       2,615
     Other charges (income), net........     8,552     (13,364)      5,124           --         312
                                           -------    -------     --------     --------    --------
        Operating income (loss).........     5,450      10,713      10,726          (52)     26,837
     Interest expense (income)..........    10,687      (1,641)      1,883           --      10,929
                                           -------    -------     --------     --------    --------
     Income (loss) before taxes.........    (5,237)     12,354       8,843          (52)     15,908
     Income tax provision (benefit).....    (9,671)      5,092       3,368           --      (1,211)
     Equity in subsidiaries' earnings...    12,737       5,475                  (18,212)         --
                                            -------    -------     --------     --------    --------
        Net income......................   $17,171    $ 12,737    $  5,475    $ (18,264)  $  17,119
                                           ========   ========     ========     ========    ========
</TABLE>

                                       19
<PAGE>


     Consolidated Statement of Operations (Unaudited)
     Six Months Ended March 31, 2004


<TABLE>
<CAPTION>

                                                                       Predecessor
                                               -------------------------------------------------------------
                                                                        Non-
                                              Aearo     Guarantor   Guarantor
                                            Company I  Subsidiaries Subsidiaries Eliminations Consolidated

<S>                                          <C>         <C>         <C>         <C>         <C>
     Net sales.............................  $122,913    $     --    $ 65,030    $ (18,364)  $ 169,579
     Cost of sales.........................    71,142          --      36,348      (18,434)     89,056
                                            ---------     ------     --------     --------    --------
       Gross profit........................    51,771          --      28,682           70      80,523

     Selling and administrative............    42,612         674      13,549           --      56,835
     Research and technical services.......     2,351          --       1,272           --       3,623
     Amortization..........................       168          74          --           --         242
     Other charges (income), net...........     6,815     (12,283)      4,962           --        (506)
     Restructuring charges (income)........    (1,091)         --          --           --      (1,091)
                                            ---------     ------     --------     --------    --------
        Operating income...................       916      11,535       8,899           70      21,420
     Interest expense (income), net........    10,117        (983)      1,702           --      10,836
                                            ---------     ------     --------     --------    --------
     Income (loss) before taxes............    (9,201)     12,518       7,197           70      10,584
     Income tax provision (benefit)........    (4,642)      5,022       1,640           --       2,020
     Equity in subsidiaries' earnings......    13,053       5,557                  (18,610)         --
                                            ---------     ------     --------     --------    --------
        Net income.........................  $  8,494    $ 13,053    $  5,557    $ (18,540)  $   8,564
                                              ========   ========    ========     =========   ========
</TABLE>


     Consolidated Statement of Operations (Unaudited)
     Three Months Ended March 31, 2005


<TABLE>
<CAPTION>
                                                                      Successor
                                            ------------------------------------------------------------
                                                                        Non-
                                              Aearo     Guarantor   Guarantor
                                            Company I Subsidiaries Subsidiaries Eliminations Consolidated
                                           ---------- ------------ ------------ ------------ ------------
<S>                                          <C>         <C>         <C>         <C>         <C>
     Net sales.............................  $ 76,633    $     --    $ 38,558    $ (10,713)  $ 104,478
     Cost of Sales.........................    43,045          --      20,552      (10,669)     52,928
                                            ---------     ------     --------     --------    --------
        Gross profit.......................    33,588          --      18,006          (44)     51,550

     Selling and administrative............    24,437         127       8,116           --      32,680
     Research and technical services.......     1,442          --         769           --       2,211
     Amortization..........................       917          60         320           --       1,297
     Other charges (income), net...........     4,573      (6,905)      2,712           --         380
                                            ---------     ------     --------     --------    --------
        Operating income...................     2,219       6,718       6,089          (44)     14,982
     Interest expense (income).............     5,569      (1,294)      1,413           --       5,688
                                            ---------     ------     --------     --------    --------
     Income (loss) before taxes............    (3,350)      8,012       4,676          (44)      9,294
     Income tax provision (benefit)........    (7,893)      3,049       2,037           --      (2,807)
     Equity in subsidiaries' earnings......     7,602       2,639                  (10,241)         --
                                            ---------     ------     --------     --------    --------
        Net income.........................  $ 12,145    $  7,602    $  2,639    $ (10,285)  $  12,101
                                             ==========   ========    ========    =========   =========
</TABLE>


                                       20
<PAGE>


     Consolidated Statement of Operations (Unaudited)
     Three Months Ended March 31, 2004

                                                                     Predecessor
<TABLE>
<CAPTION>
                                               -------------------------------------------------------------
                                                                         Non-
                                                  Aearo     Guarantor   Guarantor
                                                Company I  SubsidiariesSubsidiariesEliminationsConsolidated

<S>                                              <C>         <C>         <C>         <C>         <C>
     Net sales.................................  $ 64,726    $     --    $ 34,388    $  (8,736)  $  90,378
     Cost of sales.............................    37,627          --      18,507       (8,854)     47,280
                                                ---------     ------     --------     --------    --------
       Gross profit............................    27,099          --      15,881          118      43,098

     Selling and administrative................    22,075         445       6,844           --      29,364
     Research and technical services...........     1,195          --         688           --       1,883
     Amortization..............................        84          50          --           --         134
     Other charges (income), net...............     3,728      (5,718)      2,525           --         535
     Restructuring charges (income)............    (1,091)         --          --           --      (1,091)
                                                ---------     ------     --------     --------    --------
        Operating income.......................     1,108       5,223       5,824          118      12,273
     Interest expense (income), net............     4,988        (448)        830           --       5,370
                                                ---------     ------     --------     --------    --------
     Income (loss) before taxes................    (3,880)      5,671       4,994          118       6,903
     Income tax provision (benefit)............    (1,893)      2,078       1,044           --       1,229
     Equity in subsidiaries' earnings..........     7,543       3,950                  (11,493)         --
                                                ---------     ------     --------     --------    --------
        Net income.............................  $  5,556    $  7,543    $  3,950    $ (11,375)  $   5,674
                                                ==========   ========    ========    =========   =========
</TABLE>





                                       21

<PAGE>


     Consolidated Balance Sheet (Unaudited)
     March 31, 2005


<TABLE>
<CAPTION>

                                                                           Non-
                                                  Aearo     Guarantor   Guarantor
                                                Company I  Subsidiaries Subsidiaries Eliminations Consolidated
                                                ---------  ------------ ------------ ------------ ------------
     Current Assets:
<S>                                              <C>         <C>         <C>         <C>         <C>
        Cash and cash equivalents..............  $ 32,803    $    191    $  7,953    $      --   $  40,947
        Receivables, net.......................    36,942          --      19,555           --      56,497
        Inventories............................    29,778          --      11,496         (361)     40,913
        Deferred and prepaid expenses..........     5,330          --       1,273           --       6,603
                                                ---------     ------     --------     --------    --------
     Total current assets......................   104,853         191      40,277         (361)    144,960
                                                ---------     ------     --------     --------    --------
     Long Term Assets:
        Property plan and equipment............    38,214          --      14,999           --      53,213
        Goodwill and other intangibles, net....    91,122     122,273      90,617           --     304,012
        Inter-company receivables (payables)...   (52,476)     95,877     (43,401)          --          --
        Investment in subsidiaries ............   247,066      67,292        (734)    (313,624)         --
        Other assets...........................    15,224          --          11           --      15,235
                                                ---------     ------     --------     --------    --------
     Total assets..............................  $444,003    $285,633    $101,769    $(313,985)  $ 517,420
                                                ==========   ========    ========    =========   =========
     Current Liabilities:
        Current portion of long term debt......  $  1,656    $     --    $     --    $      --   $   1,656
        Accounts payable and accrued
        liabilities............................    33,347         333      13,932           --      47,612
        Accrued interest.......................     6,679          --          --           --       6,679
        Income tax payables (receivables)......     2,451      (2,482)      2,210                    2,179
                                                ---------     ------     --------     --------    --------
     Total current liabilities.................    44,133      (2,149)     16,142           --      58,126
                                                ---------     ------     --------     --------    --------
     Long Term Liabilities:
        Long term debt.........................   304,044          --          --           --     304,044
        Deferred income taxes..................     2,955      23,860      13,238           --      40,053
        Other liabilities......................    14,794          --          --           --      14,794
                                                ---------     ------     --------     --------    --------
     Total liabilities.........................   365,926      21,711      29,380           --     417,017
                                                ---------     ------     --------     --------    --------
     Stockholder's Equity:
        Common.................................        --          --       4,222       (4,222)         --
        Paid in capital........................   101,630     267,796      41,765     (309,561)    101,630
        Accumulated deficit....................   (20,392)     (8,961)     31,643       (4,586)     (2,296)
        Accumulated other comprehensive income
        (loss).................................    (3,161)      5,087      (5,241)       4,384       1,069
                                                ---------     ------     --------     --------    --------
     Total stockholder's equity................    78,077     263,922      72,389     (313,985)    100,403
                                                ---------     ------     --------     --------    --------
     Total liabilities and stockholder's equity  $444,003    $285,633    $101,769    $(313,985)  $ 517,420
                                                ==========   ========    ========    =========   =========
</TABLE>



                                       22

<PAGE>


     Consolidated Balance Sheet
     September 30, 2004


<TABLE>
<CAPTION>

                                                                           Non-
                                                  Aearo     Guarantor   Guarantor
                                                Company I  Subsidiaries Subsidiaries Eliminations Consolidated
                                                ---------  ----------   ------------ ------------ ------------
     Current Assets:
<S>                                              <C>         <C>         <C>         <C>         <C>
        Cash and cash equivalents..............  $ 18,309    $    140    $  9,275    $      --   $  27,724
        Receivables, net.......................    34,823          --      19,336           --      54,159
        Inventories............................    29,956          --      11,202         (309)     40,849
        Deferred and prepaid expenses..........     3,014          --       1,132           --       4,146
                                                ---------     ------     --------     --------    --------
     Total current assets......................    86,102         140      40,945         (309)    126,878
                                                ---------     ------     --------     --------    --------
     Long Term Assets:
        Property plan and equipment............    40,040          --      14,710           --      54,750
        Goodwill and other intangibles, net....   134,567     131,786      53,247           --     319,600
        Inter-company receivables (payables)...    64,478     (12,147)    (52,331)          --          --
        Investment in subsidiaries ............   154,350      40,981        (713)    (194,618)         --
        Other assets...........................    15,133          --          11           --      15,144
                                                ---------     ------     --------     --------    --------
     Total Assets..............................  $494,670    $160,760    $ 55,869    $(194,927)  $ 516,372
                                                ==========   ========    ========    =========   =========
     Current Liabilities:
        Current portion of long term debt......  $  1,618    $     --    $     21    $      --   $   1,639
        Accounts payable and accrued
        liabilities............................    32,623         577      13,530           --      46,730
        Accrued interest.......................     6,996          --          --           --       6,996
        Income tax payables (receivables)......     2,324      (2,317)      1,641           --       1,648
                                                ---------     ------     --------     --------    --------
     Total current liabilities.................    43,561      (1,740)     15,192           --      57,013
                                                ---------     ------     --------     --------    --------
     Long Term Liabilities:
        Long term debt.........................   302,662          --         180           --     302,842
        Deferred income taxes..................    58,073          --       1,626           --      59,699
        Other liabilities......................    14,726          --          --           --      14,726
                                                ---------     ------     --------     --------    --------
     Total liabilities.........................   419,022      (1,740)     16,998           --     434,280
                                                ---------     ------     --------     --------    --------
     Stockholder's Equity:
        Common.................................        --          --       7,396       (7,396)         --
        Paid in capital........................   101,610     167,519      12,280     (179,799)    101,610
        Accumulated deficit....................   (24,824)     (8,664)     26,168      (12,095)    (19,415)
        Accumulated other comprehensive income
        (loss).................................    (1,138)      3,645      (6,973)       4,363        (103)
                                                ---------     ------     --------     --------    --------
     Total stockholder's equity................    75,648     162,500      38,871     (194,927)     82,092
                                                ---------     ------     --------     --------    --------
     Total liabilities and stockholder's equity  $494,670    $160,760    $ 55,869    $(194,927)  $ 516,372
                                                ==========   ========    ========    =========   =========
</TABLE>


                                       23

<PAGE>


     Consolidating Statement of Cash Flows (Unaudited)
     Six Months Ended March 31, 2005


<TABLE>
<CAPTION>

                                                                  Successor
                                                -------------------------------------------------
                                                                            Non-
                                                  Aearo     Guarantor   Guarantor
                                                Company I  Subsidiaries Subsidiaries Consolidated
                                                ---------  ------------ ------------ ------------
<S>                                              <C>         <C>         <C>         <C>
     Net cash provided by operating activities.  $  9,516    $  6,169    $  1,701    $  17,386

     Net cash used for investing activities....    (1,978)         --      (1,188)      (3,166)

     Net cash provided by (used for) financing
        activities.............................     6,734      (7,560)       (201)      (1,027)

     Effect of exchange rate on cash...........       222       1,442      (1,634)          30
                                                   ------     --------     --------    --------
     Increase (decrease) in cash and cash
        equivalents............................    14,494          51      (1,322)      13,223

     Cash and cash equivalents at the
        beginning of the period................    18,309         140       9,275       27,724
                                                  ------     --------     --------    --------
     Cash and cash equivalents at the end of
        the period.............................  $ 32,803    $    191    $  7,953    $  40,947

                                                ==========   ========    ========    =========
</TABLE>
A
     Consolidating Statement of Cash Flows (Unaudited)
     Six Months Ended March 31, 2004


<TABLE>
<CAPTION>

                                                                 Predecessor
                                               -------------------------------------------------
                                                                         Non-
                                                  Aearo     Guarantor   Guarantor
                                                Company I  Subsidiaries Subsidiaries Consolidated
                                                ---------  ------------ ------------ ------------
     Net cash provided by (used for) operating
<S>                                              <C>         <C>         <C>         <C>
        activities.............................  $ (1,359)   $  6,407    $  3,987    $   9,035

     Net cash used for investing activities....    (3,326)         --      (1,668)      (4,994)

     Net cash provided by (used for) financing
        activities.............................     3,255      (6,840)     (1,655)      (5,240)

     Effect of exchange rate on cash...........       779         978      (2,546)        (789)
                                                   ------     --------     --------    --------
     Increase (decrease) in cash and cash
        equivalents............................      (651)        545      (1,882)      (1,988)

     Cash and cash equivalents at the
        beginning of the period................     1,544         206       5,551        7,301
                                                   ------     --------     --------    --------
     Cash and cash equivalents at the end of
        the period.............................  $    893    $    751    $  3,669    $   5,313
                                                ==========   ========    ========    =========
</TABLE>



                                       24


<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

This  report  contains  forward-looking  statements  within  the  meaning of the
federal  securities laws.  Statements that are not historical  facts,  including
statements about the Company's  beliefs and  expectations,  are  forward-looking
statements. Forward-looking statements included statements preceded by, followed
by or that  include the words  "may,"  "could,"  "would,"  "should,"  "believe,"
"expect,"  "anticipate,"  "plan," "estimate,"  "target," "project," "intend," or
similar  expressions.   These  statements  include,  among  others,   statements
regarding the Company's  expected  business outlook,  anticipated  financial and
operating  results,  the Company's  business strategy and means to implement the
strategy,  the  Company's  objectives,  the amount and timing of future  capital
expenditures,  future  acquisitions,  the likelihood of the Company's success in
developing and introducing  new products and expanding its business,  the timing
of the introduction of new and modified  products or services,  financing plans,
working capital needs and sources of liquidity.

Forward-looking  statements  are  only  predictions  and are not  guarantees  of
performance. These statements are based on management's beliefs and assumptions,
which  in  turn  are  based  on  currently  available   information.   Important
assumptions  relating to the forward-looking  statements include,  among others,
assumptions  regarding demand for our products,  the cost, timing and success of
product upgrades and new product  introductions,  expected  pricing levels,  the
timing and cost of planned capital  expenditures and expected synergies relating
to  acquisitions.  These  assumptions  could prove  inaccurate.  Forward-looking
statements  also  involve  risks and  uncertainties,  which could  cause  actual
results  to  differ  materially  from  those  contained  in any  forward-looking
statements. Many of these factors are beyond the Company's ability to control or
predict. You should read this report in conjunction with the more detailed risks
included in the  Company's  Annual Report on Form 10-K for the fiscal year ended
September 30,2004..

The Company believes these forward-looking  statements are reasonable;  however,
undue reliance should not be placed on any forward-looking statements, which are
based on current expectations. Further, forward-looking statements speak only as
of the date they are made,  and  except as  otherwise  required  by the  federal
securities  laws,  the Company  undertakes  no  obligation to update any of them
publicly in light of new information or future events.

Merger Agreement

On March 10, 2004,  Aearo  Corporation  ("Parent"),  the Company's  parent,
entered into a Merger Agreement with AC Safety Holding Corp. and its subsidiary,
AC Safety  Acquisition  Corp.  that  closed  on April 7,  2004  (the  "Merger").
Pursuant  to the terms of the  Merger  Agreement,  AC Safety  Acquisition  Corp.
merged with and into Aearo  Corporation  with Aearo  Corporation  surviving  the
Merger as a  wholly-owned  subsidiary of AC Safety  Holding Corp.  The aggregate
purchase price was approximately  $409.3 million,  including  estimated fees and
expenses.  The Merger was financed with approximately $303.7 million of debt, of
which $3.7  million  was  assumed,  $4.3  million of cash and $101.3  million of
equity.

The  merger  was  a  business   combination   under  SFAS  No.  141,   "Business
Combinations," and the purchase price paid for our Parent was pushed down to the
Company.  Accordingly,  the results of operations  (unaudited) subsequent to the
Acquisition  Date are  presented  on a different  basis of  accounting  than the
results of operations  (unaudited) prior to the Acquisition Date, and therefore,
are not directly comparable. The sale was accounted for as if it had occurred on
March 31, 2004, as  management  determined  that results of operations  were not
significant and no material  transactions  occurred during the period from April
1, 2004 to April 7, 2004.

                                       25

<PAGE>


Results of  Operations  -- Three  Months  Ended March 31, 2005  Compared to
Three Months Ended March 31, 2004.

The following discussion provides a comparison of the results of operations
for the  successor  company  and that of the  predecessor  company for the three
months ended March 31, 2005 and 2004,  respectively.  The discussion is provided
for comparative  purposes only, but the value of such comparison may be limited.
Material  variances  that are caused by the different  basis of accounting  have
been disclosed where applicable.

The  following   table  sets  forth  the  major   components  of  the  Company's
consolidated statements of operations expressed as a percentage of net sales.


<TABLE>
<CAPTION>

                                                           Results of Operations
                                                           (Dollars in Thousands)
                                                                (Unaudited)



                                                         Three Months Ended March 31,
                                              2005 (1)           %             2004             %
     Net sales:                                    Successor             |       Predecessor
<S>                                        <C>                   <C>         <C>                 <C>
        Safety Products                    $       78,612        75.2    |   $    68,184         75.5
        Safety Prescription Eyewear                10,239         9.8    |        10,873         12.0
        Specialty Composites                       15,627        15.0    |        11,321         12.5
                                                  ---------     ------   |      --------    --------
           Total net sales                        104,478       100.0    |        90,378        100.0
     Cost of sales                                 52,928        50.7    |        47,280         52.3
                                                  ---------     ------   |       --------    --------
     Gross profit                                  51,550        49.3    |        43,098         47.7
                                                  ---------     ------   |       --------    --------
     Operating expenses:                                                 |
        Selling and administrative                 32,680        31.3    |        29,364         32.5
        Research and technical services             2,211         2.1    |         1,883          2.1
        Amortization                                1,297         1.2    |           134          0.1
        Other charges, net                            380         0.4    |           535          0.6
        Restructuring                                  --          --    |        (1,091)        (1.2)
                                                  ---------     ------   |       --------    --------
           Total operating expense                 36,568        35.0    |        30,825         34.1
     Operating income                              14,982        14.3    |        12,273         13.6
     Interest expense, net                          5,688         5.4    |         5,370          5.9
                                                  ---------     ------   |      --------     --------
        Income before income taxes                  9,294         8.9    |         6,903          7.6
     Provision (benefit) for income taxes          (2,807)       (2.7)   |         1,229          1.3
                                                  ---------     ------   |       --------    --------
        Net income                         $       12,101        11.6    |   $     5,674          6.3
                                                  ==========   ========  |      =========   =========
</TABLE>

(1) Reflects a new basis of  accounting  subsequent  to April 7, 2004 due to the
Merger.

Net sales for the three  months ended March 31, 2005  increased  15.6% to $104.5
million  from $90.4  million  in the three  months  ended  March 31,  2004.  The
increase  in net sales was  primarily  driven by  organic  growth in the  Safety
Products and Specialty Composites segments and foreign currency translation. The
weakness of the U.S. dollar  favorably  impacted net sales by $2.5 million.  The
Safety  Products  segment  net sales for the three  months  ended March 31, 2005
increased  15.3% to $78.6  million from $68.2  million in the three months ended
March 31, 2004.  The increase in net sales  resulted  from an 11.8%  increase in
organic growth and a 3.5% increase due to foreign currency translation.  Organic
sales  growth for the  Safety  Products  segment,  defined as net sales less the


                                       26

<PAGE>

impact of foreign  currency  translation  and  acquisitions,  has  increased for
eleven consecutive  quarters.  The Company attributes this growth to an improved
economy and its ability to successfully  introduce new products into the markets
it  serves.  The Safety  Prescription  Eyewear  segment  net sales for the three
months ended March 31, 2005  decreased  5.8% to $10.2 million from $10.9 million
for the three months ended March 31,  2004.  The decrease in net sales  resulted
from a 6.6% reduction in volume  partially  offset by 0.8% increase from foreign
currency translation. Specialty Composites' net sales for the three months ended
March 31, 2005  increased  38.0% to $15.6  million  from $11.3  million in three
months ended March 31, 2004.  The increase was primarily  driven by market share
gains  and an  improving  economy  driving  volume  increases  in the  precision
electronics, truck, aircraft and industrial markets. The Company tracks measures
such as computer and electronic  production  data and truck build rates to gauge
the momentum in the Specialty  Composites  segment,  which has been experiencing
positive sales trends in the last seven quarters.

Gross profit for the three months ended March 31, 2005 increased  19.6% to $51.6
million from $43.1  million for the three  months  ended March 31,  2004.  Gross
profit as a  percentage  of net sales for the three  months ended March 31, 2005
was 49.3% as compared to 47.7% for the three months  ended March 31,  2004.  The
improvement  in  the  gross  profit  percentage  is  primarily  due  to a  1.4 %
improvement  due to  product  mix and a 0.3%  improvement  due to the  impact of
foreign currency  translation.  The Company's gross profit may not be comparable
to the gross profit of other entities who record shipping and handling  expenses
as a component of cost of sales. The Safety Products segment gross profit in the
three months ended March 31, 2005  increased  20.6% to $40.3  million from $33.4
million in the three months  ended March 31, 2004.  The increase in gross profit
is primarily due to an  improvement  in sales volume due to an improved  economy
and the  Company's  ability to  successfully  introduce  new  products  into the
markets it serves, productivity improvements and the favorable impact of foreign
currency   translation.   Volume  and  productivity   improvements   contributed
approximately  18.9% of the  increase  in gross  profit  with  foreign  currency
translation  contributing  the  remaining  1.7%  of  the  increase.  The  Safety
Prescription  Eyewear  segment  gross profit in the three months ended March 31,
2005 decreased 10.4% to $4.7 million from $5.2 million in the three months ended
March 31, 2004. The decrease was primarily the result of a 5.8% reduction due to
a decrease in sales volume and a 4.6%  reduction  due to product mix.  Specialty
Composites'  gross  profit in the three  months  ended March 31, 2005  increased
46.5% to $6.6  million  from $4.5  million in the three  months  ended March 31,
2004.  The increase was primarily  driven by market share gains and an improving
economy driving volume increases in the precision  electronics,  truck, aircraft
and  industrial  markets,  aided  by  productivity  and  improved  manufacturing
absorption.  Approximately  38.0% of the  increase in the  Specialty  Composites
gross profit was due to volume increases with the remaining 8.5% of the increase
due to product mix.

Operating  expenses for the three months ended March 31, 2005 increased 18.6% to
$36.6 million from $30.8 million for the three months ended March 31, 2004.  The
increase in operating  expenses was  primarily  driven by an increase in selling
and  administrative,   amortization  expense,  restructuring  and  research  and
technical  partially offset by other charges,  net.  Selling and  administrative
expenses included approximately $0.6 million due to performance based incentives
related to the increase in sales  volume,  $0.5 million due to foreign  currency
translation  and $0.3  million  related to  freight  and  distribution  with the


                                       27

<PAGE>

remaining  increase  consistent  with the increase in sales volume.  Selling and
administrative  expenses as a percentage of net sales  improved to 31.3% for the
three  months  ended March 31,  2005 as  compared to 32.5% for the three  months
ended March 31, 2004.  Amortization expense increased approximately $1.2 million
due to the  allocation  of  purchase  price to finite  lived  intangible  assets
required  by SFAS No. 141 due to the Merger  Agreement.  The slight  decrease in
other charges,  net was attributed to a $0.2 million favorable impact of foreign
currency  transaction  expenses  in the three  months  ended  March 31,  2005 as
compared to March 31, 2004.

Interest expense,  net, for the three months ended March 31, 2005 increased
to $5.7 million from $5.4 million for the three months ended March 31, 2004. The
increase is due to the  increase in the level of the  Company's  debt  partially
offset by lower weighted  average  interest rates under the Company's new credit
facility and the 8.25% senior subordinated notes.

The  provision  for income taxes for the three months ended March 31, 2005 was a
benefit of $2.8 million compared to expense of $1.2 million for the three months
ended March 31, 2004.  At September 30, 2004,  the Company's  deferred tax asset
from the benefit of net operating  losses were  partially  offset by a valuation
allowance of $7.5  million.  During the three month period ended March 31, 2005,
management  determined that based on current domestic operating  results,  it is
more likely than not that  domestic  net  operating  losses will be realized and
consequently reversed the $7.5 million valuation allowance.

<TABLE>
<CAPTION>

                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)



                                                                Six Months Ended March 31,
                                                   2005 (1)           %             2004             %
     Net sales:                                        Successor             |       Predecessor
<S>                                              <C>                 <C>        <C>                 <C>
        Safety Products                          $    149,765        74.8    |  $   127,964         75.5
        Safety Prescription Eyewear                    19,213         9.6    |       20,337         12.0
        Specialty Composites                           31,261        15.6    |       21,278         12.5
                                                      ---------     ------   |      --------    --------
           Total net sales                            200,239       100.0    |      169,579        100.0
     Cost of sales                                    101,633        50.8    |       89,056         52.5
                                                      ---------     ------   |      --------    --------
     Gross profit                                      98,606        49.2    |       80,523         47.5
                                                      ---------     ------   |      --------    --------
     Operating expenses:                                                     |
        Selling and administrative                     64,411        32.2    |       56,835         33.5
        Research and technical services                 4,431         2.2    |        3,623          2.1
        Amortization                                    2,615         1.3    |          242          0.1
        Other charges (income), net                       312         0.2    |         (506)        (0.2)
        Restructuring                                      --          --    |       (1,091)        (0.6)
                                                       ---------     ------  |       --------    --------
           Total operating expense                     71,769        35.8    |       59,103         34.9
     Operating income                                  26,837        13.4    |       21,420         12.6
     Interest expense, net                             10,929         5.5    |       10,836          6.4
                                                      ---------     ------   |      --------    --------
        Income before income taxes                     15,908         7.9    |       10,584          6.2
     Provision (benefit) for income taxes              (1,211)       (0.6)   |        2,020          1.1
                                                      ---------     ------   |      --------    --------
        Net income                               $     17,119         8.5    |   $     8,564          5.1
                                                      ==========   ========  |    =========    =========
</TABLE>

(1) Reflects a new basis of  accounting  subsequent to April 7, 2004 due to
the Merger.


Net sales for the six months ended March 31, 2005 increased 18.1% to $200.2
million from $169.6 million in the six months ended March 31, 2004. The increase
in net sales was primarily  driven by organic growth in the Safety  Products and




                                       28
<PAGE>


Specialty Composites segments and foreign currency translation.  The weakness of
the U.S.  dollar  favorably  impacted  net  sales by $5.2  million.  The  Safety
Products  segment net sales for the six months  ended  March 31, 2005  increased
17.0% to $149.8  million  from $128.0  million in the six months ended March 31,
2004. The increase in net sales resulted from a 13.1% increase in organic growth
and a 3.9% increase due to foreign  currency  translation.  Organic sales growth
for the Safety Products segment, defined as net sales less the impact of foreign
currency  translation  and  acquisitions,  has increased for eleven  consecutive
quarters.  The Company  attributes  this  growth to an improved  economy and its
ability to successfully  introduce new products into the markets it serves.  The
Safety Prescription Eyewear segment net sales for the six months ended March 31,
2005 decreased 5.5% to $19.2 million from $20.3 million for the six months ended
March 31, 2004.  The  decrease in net sales  resulted  from a 6.4%  reduction in
volume  partially  offset by 0.9%  increase from foreign  currency  translation.
Specialty  Composites'  net  sales  for the six  months  ended  March  31,  2005
increased  46.9% to $31.3  million from $21.3  million in six months ended March
31,  2004.  The  increase  was  primarily  driven by market  share  gains and an
improving economy driving volume increases in the precision electronics,  truck,
aircraft and industrial  markets.  The Company tracks  measures such as computer
and  electronic  production  data and truck build rates to gauge the momentum in
the Specialty  Composites  segment,  which has been experiencing  positive sales
trends in the last seven quarters.

Gross  profit for the six months  ended March 31, 2005  increased  22.5% to
$98.6 million from $80.5 million for the six months ended March 31, 2004.  Gross
profit as a percentage  of net sales for the six months ended March 31, 2005 was
49.2% as  compared  to 47.5%  for the six  months  ended  March  31,  2004.  The
improvement  in  the  gross  profit  percentage  is  primarily  due  to a  1.5 %
improvement  due to  product  mix and a 0.3%  improvement  due to the  impact of
foreign currency  translation.  The Company's gross profit may not be comparable
to the gross profit of other entities who record shipping and handling  expenses
as a component of cost of sales. The Safety Products segment gross profit in the
six months  ended March 31, 2005  increased  21.4% to $76.2  million  from $62.8
million in the six months ended March 31, 2004.  The increase in gross profit is
primarily due to an improvement  in sales volume due to an improved  economy and
the Company's ability to successfully introduce new products into the markets it
serves,  productivity  improvements and the favorable impact of foreign currency
translation.  Volume and  productivity  improvements  contributed  approximately
16.3%  of the  increase  in  gross  profit  with  foreign  currency  translation
contributing the remaining 5.1% of the increase. The Safety Prescription Eyewear
segment  gross profit in the six months ended March 31, 2005  decreased  8.9% to
$8.7  million  from $9.6  million in the six months  ended March 31,  2004.  The
decrease was primarily the result of a 6.4% reduction due to a decrease in sales
volume and a 2.5%  reduction  due to product mix.  Specialty  Composites'  gross
profit in the six months ended March 31, 2005  increased  67.2% to $13.6 million
from $8.2  million in the six months  ended March 31,  2004.  The  increase  was
primarily  driven by market share gains and an improving  economy driving volume
increases in the precision electronics,  truck, aircraft and industrial markets,
aided by productivity and improved manufacturing absorption. Approximately 46.9%
of the  increase  in the  Specialty  Composites  gross  profit was due to volume
increases with the remaining 20.3% of the increase due to product mix.

Operating  expenses for the six months ended March 31, 2005 increased 21.4%
to $71.8 million from $59.1 million for the six months ended March 31, 2004. The
increase in operating  expenses was  primarily  driven by an increase in selling
and  administrative,   amortization  expense,  restructuring  and  research  and
technical  partially offset by other charges,  net.  Selling and  administrative


                                       29

<PAGE>

expenses included approximately $1.9 million due to performance based incentives
related to the increase in sales  volume,  $1.2 million due to foreign  currency
translation  and $0.7  million  related to  freight  and  distribution  with the
remaining  increase  consistent  with the increase in sales volume.  Selling and
administrative  expenses as a percentage of net sales  improved to 32.2% for the
six months  ended March 31,  2005 as compared to 33.5% for the six months  ended
March 31, 2004. Amortization expense increased approximately $2.4 million due to
the allocation of purchase price to finite lived  intangible  assets required by
SFAS No. 141 due to the Merger Agreement. The increase in other charges, net was
attributed to foreign currency  transaction expenses in addition to $0.3 million
of gain from the sale of assets in the six months ended March 31, 2004.

Interest expense, net, for the six months ended March 31, 2005 increased to
$10.9  million from $10.8  million for the six months ended March 31, 2004.  The
increase is due to the  increase in the level of the  Company's  debt  partially
offset by lower weighted  average  interest rates under the Company's new credit
facility and the 8.25% senior subordinated notes.

The  provision for income taxes for the six months ended March 31, 2005 was
a benefit of $1.2 million compared to expense of $2.0 million for the six months
ended March 31, 2004. At September 30, 2004, the Company's net operating  losses
were partially offset by a valuation  allowance of $7.5 million.  During the six
month period ended March 31, 2005,  management  determined that based on current
domestic  operating  results,  it is more  likely  than  not that  domestic  net
operating  losses will be realized  and  consequently  reversed the $7.5 million
valuation allowance.

Effects of Changes in Exchange Rates

In general,  the Company's results of operations are affected by changes in
exchange rates. Subject to market conditions, the Company prices its products in
Europe and Canada in local  currency.  While many of the  Company's  selling and
distribution costs are also denominated in these currencies,  a large portion of
product costs are U.S. Dollar  denominated.  As a result, a decline in the value
of the U.S. Dollar relative to other  currencies can have a favorable  impact on
the  profitability  of the  Company,  and an  increase  in the value of the U.S.
Dollar  relative to these  other  currencies  can have a negative  effect on the
profitability of the Company. The Company's Swedish operations are also affected
by changes in exchange rates  relative to the Swedish Krona.  In contrast to the
above, a decline in the value of the Krona relative to other currencies can have
a favorable  impact on the  profitability  of the Company and an increase in the
value of the Krona relative to other  currencies  can have a negative  impact on
the profitability of the Company.  The Company,  from time to time, will utilize
forward foreign currency contracts and other hedging instruments to mitigate the
effects of changes in foreign currency rates on profitability.

Effects of Inflation

In recent  years,  inflation  has been  modest  and has not had a  material
impact upon the results of the Company's operations.

Liquidity and Capital Resources

The Company's  sources of funds have consisted  primarily of operating cash
flow and debt financing.  The Company's uses of those funds consist  principally
of debt service, capital expenditures, dividends and acquisitions.

The Company's debt structure  includes:  (a) $175.0 million of 8.25% Senior
Subordinated  Notes  ("8.25%  Notes")  due  2012,  which are  publicly  held and
redeemable  at the  option  of the  Company,  in  whole  or in part  at  various
redemption  prices,  (b) up to an aggregate of $175.0  million  under its Credit
Agreement  with various  banks  comprised  of (i) a secured  term loan  facility
consisting  of  loans   providing  for  up  to  $125.0  million  of  term  loans
(collectively  the "Term Loans") with a portion of the Term Loans denominated in
Euros,  (ii) a secured revolving credit facility  ("Revolving  Credit Facility")
providing  for up to $50.0  million of  revolving  loans for  general  corporate

                                       30
<PAGE>


purposes, and (iii) an uncommitted incremental term loan facility of up to $60.0
million for acquisitions (collectively, the "Senior Bank Facilities"). Since the
Acquisition  Date,  the  Company's  debt has been  negatively  impacted  by $3.9
million  related to the fluctuation of the Euro relative to the U.S dollar as of
March 31,  2005.  The Company  does not plan to take any measure to minimize the
foreign exchange impact of its Euro denominated debt. The amounts outstanding on
the  Term  Loans  and  Revolving   Credit  Facility  at  March  31,  2005,  were
approximately $127.6 and $0 million, respectively compared to $126.0 million and
$0 million,  respectively  at September 30, 2004. The Revolving  Credit Facility
provides for the issuance of letters of credit in an aggregate face amount of up
to $15.0 million. The Company had approximately $1.4 million and $1.6 million of
letters  of credit  outstanding  at  September  30,  2004 and  March  31,  2005,
respectively.  The Term  Loans  amortize  quarterly  over a seven  year  period.
Amounts  repaid or prepaid in respect of the Term Loans may not be  re-borrowed.
Loans  and  letters  of credit  under  the  Revolving  Credit  Facility  will be
available  until the Revolving Loan Maturity  Date,  which is April 7, 2010. The
Term Loans mature on April 7, 2011.  Effective  December  31, 2004,  the Company
received  a 0.25%  reduction  in the  interest  rate paid on its Term  Loans for
meeting  certain  financial  covenants.  The Company was in compliance  with all
financial covenants and restrictions as of March 31, 2005.

On April 28, 2005,  the Company  amended its credit  agreement to allow the
Company  to  make,  prior to  September  30,  2005,  up to $35  million  of cash
distributions to Aearo  Corporation,  its parent  corporation for the purpose of
paying cash dividends to AC Safety Holding Corp.,  its parent,  to be used by AC
Safety Holding Corp.  primarily to redeem,  pro rata, its outstanding  preferred
shares and to pay accrued dividends on the preferred shares.

On May 4, 2005, the Company's Board of Directors  declared a cash dividend to be
paid to the  Company's  parent,  Aearo  Corporation,  the sole  holder of common
stock, par value $.01 per share, of approximately $35 million. Aearo Corporation
will in turn pay a cash  dividend  to AC Safety  Holding  Corp.,  the  Company's
ultimate parent,  who will use the proceeds to make a partial  redemption of its
preferred  stock,  par value $.01 per share. The Company will use available cash
to fund the dividend.

The Company typically makes capital  expenditures  related primarily to the
maintenance and improvement of manufacturing facilities. The Company's principal
source of cash to fund these capital  requirements is cash from operations.  The
Company  spent  $3.2  million  and  $5.0  million,   respectively   for  capital
expenditures for the six months ended March 31, 2005 and 2004, respectively. The
Company  anticipates  it will spend  approximately  $10.0  million  for  capital
expenditures in its fiscal year ending September 30, 2005.

The Company's net cash provided by operating  activities for the six months
ended March 31, 2005 totaled  $17.4  million as compared to $9.0 million for the
six months ended March 31, 2004.  The increase of $8.3 million was primarily due
to a $5.1  million  improvement  in net income  adjusted  for cash and  non-cash
charges  (depreciation,  amortization,  deferred  taxes and  other),  and a $3.2
million improvement in the net changes in assets and liabilities.

Net cash used for investing  activities was $3.2 million for the six months
ended March 31, 2005 as compared to $5.0  million for the six months ended March
31, 2004.  The decrease in net cash used by  investing  activities  is primarily
attributed to reduced spending for property, plant and equipment.

Net cash used for financing  activities  for the six months ended March 31,
2005 was $1.0 million  compared with $5.2 million for the six months ended March
31, 2004.  The change is primarily due to the lower debt  servicing  requirement
under the  Company's  new credit  facility  as  compared  to the debt  servicing
requirements under the old credit facility.


                                       31

<PAGE>

The Company  maintains a  non-contributory  defined  benefit  cash  balance
pension plan. The Company utilizes an outside actuarial firm to estimate pension
expense and funding based on various assumptions including the discount rate and
the expected  long-term  rate of return on plan assets.  To develop the expected
long-term rate of return on assets assumption, the Company considered historical
returns and future expectations for returns for each asset class, as well as the
target asset allocation of the pension portfolio.  Over the 11 year period ended
September 30, 2004,  the returns on the  portfolio,  assuming it was invested at
the current target asset allocation in prior periods, would have been a compound
annual average return of 9.3%.  Considering  this  information and the potential
for lower future  returns,  the Company  selected an 8.0% rate of return on plan
asset  assumption.  Actual asset returns for the Company's pension plan improved
in the last two fiscal years after two years of negative returns.  The estimated
effect of a 1% change in the  expected  long-term  rate of return on plan assets
results in a $0.1 million  impact on annual pension  expense.  The discount rate
was also  unchanged at 6.0% for the fiscal year ended  September  30, 2004.  The
Company bases the discount rate on the AA Corporate  bond yields.  The estimated
impact of a 1% change in the discount  rate results in a $0.1 million  impact on
annual pension expense.

The  variability  of asset  returns  and  discount  rates may have either a
favorable or unfavorable  impact on the Company's pension expense and the funded
status of the pension plan.  Under minimum funding rules, no additional  pension
contributions  were required to be made in fiscal 2004.  The  following  benefit
payments, which reflect expected future service, as appropriate, are expected to
be paid (in thousands of dollars):



     Fiscal year 2005                                  $   1,121
     Fiscal year 2006                                        466
     Fiscal year 2007                                        618
     Fiscal year 2008                                        830
     Fiscal year 2009                                      1,214
     Fiscal year 2010 - 2014                               6,784


The  Company's  business  is  affected by  macroeconomic  activity,  mainly
manufacturing  output in developed nations. In addition,  significant changes in
product mix and volume can impact the Company's  liquidity and capital resources
in both the short and long term. As such,  the  Company's  liquidity and capital
resources are more likely to be impacted by macroeconomic  factors.  The Company
believes that its disciplined approach to cost control, its diversification into
consumer and other channels and the available  capacity on its revolving  credit
facility  will  enable the Company to maintain  adequate  liquidity  and capital
resources in an economic downturn. The introduction of new products is likely to
continue to  favorably  impact  liquidity  and capital  resources  in periods of
economic growth although there are no assurances that these trends will continue
in the future.

The Company has a substantial amount of indebtedness. The Company relies on
internally generated funds, and to the extent necessary, on borrowings under the
Revolving Credit Facility (subject to certain  customary drawing  conditions) to
meet its liquidity needs. The Company  anticipates that operating cash flow will
be  adequate  to meet its  operating,  capital  expenditures  and  debt  service
requirements  for the next several  years,  although  there can be no assurances
that existing levels of sales and normalized  profitability,  and therefore cash
flow, will be maintained.

Product Liability Claims

The Company is a defendant  in lawsuits by  plaintiffs  alleging  that they
suffer from  respiratory  medical  conditions,  such as asbestosis or silicosis,
relating to exposure to asbestos and silica, and that such conditions result, in

                                       32

<PAGE>

part, from the use of respirators that, allegedly,  were negligently designed or
manufactured.  The defendants in these lawsuits are often numerous, and include,
in addition to  manufacturers  and  distributors of respirators,  manufacturers,
distributors  and  installers  of sand  (used in sand  blasting),  asbestos  and
asbestos-containing  products.  Many of these  claims  are  covered by the Asset
Transfer  Agreement  entered  into on June 13,  1995 by the  Company  and  Aearo
Corporation,  on  the  one  hand,  and  Cabot  Corporation  and  certain  of its
subsidiaries  (the  "Sellers"),  on the other  hand (the  "1995  Asset  Transfer
Agreement").  In the 1995 Asset Transfer Agreement, so long as Aearo Corporation
makes an annual payment of $400,000 to Cabot, the Sellers agreed to retain,  and
Cabot and the Sellers agreed to defend and indemnify  Aearo  Corporation and its
subsidiaries  against,  any  liability  or  obligation  relating to or otherwise
arising under any  proceeding or other claim against Aearo  Corporation  and its
subsidiaries or Cabot or their respective  affiliates or other parties with whom
any  Seller  directly  or  indirectly  has  a  contractual   liability   sharing
arrangement  which  sounds in  product  liability  or  related  causes of action
arising  out of actual  or  alleged  respiratory  medical  conditions  caused or
allegedly caused by the use of respirators or similar devices sold by Sellers or
their predecessors (including American Optical Corporation and its predecessors)
prior to July 11, 1995. To date, Aearo Corporation has elected to pay the annual
fee and intends to continue to do so. In addition, under the terms of the Merger
Agreement with AC Safety Acquisition Corp., Aearo Corporation agreed to make the
annual payment to Cabot for a minimum of seven years from the Acquisition  Date.
Aearo  Corporation and its subsidiaries  could  potentially be liable for claims
currently  retained by Sellers if Aearo  Corporation  elects to cease paying the
annual  fee or if Cabot and the  Sellers  no longer  are able to  perform  their
obligations  under the 1995 Asset Transfer  Agreement.  Cabot  acknowledged in a
stock purchase agreement that it and Aearo Corporation  entered into on June 27,
2003 (providing for the sale by Cabot to Aearo  Corporation of all of the common
and  preferred  stock of Aearo  Corporation  owned by Cabot) that the  foregoing
provisions of the 1995 Asset Transfer Agreement remain in effect. The 1995 Asset
Transfer  Agreement does not apply to claims relating to the business of Eastern
Safety Equipment, the stock of which the Company acquired in 1996.

In fiscal 2003 and 2004,  Aearo settled 259 claims in which it was named as
a  defendant  for an average  settlement  amount of $24.36 in silica  claims and
$83.24 in asbestos claims, while an additional 200 claims were dismissed without
any payment (43.6% of cases closed), because Aearo was not a proper defendant or
did not make the product in question.  As of September  30, 2004,  the number of
open claims where Aearo was named as a defendant in silica and asbestos  related
matters was 11,002 and 4,261,  respectively.  For the six months ended March 31,
2005,  the increases in number of claims where Aearo was named as a defendant in
silica and asbestos  related matters was 106 and 1,200  respectively.  The 1,200
new asbestos  claims  include 1,148 claims that allege  exposure from  clothing,
which the Company  never  manufactured.  No claims were settled  where Aearo was
named as a  defendant  in silica and  asbestos  related  matters  during the six
months  ended March 31, 2005.  As of March 31,  2005,  the number of open claims
where Aearo was named as a defendant in silica and asbestos  related matters was
11,108 and 5,461, respectively.

In  addition  to the  above  claims,  Aearo may agree to pay a share of the
settlement and defense costs in particular  cases even though the company is not
named as a defendant because of agreements with prior owners of the brand and/or
because  of  allegations  that  Aearo  has  some  risk of legal  liability  as a
successor  ("additional  claims").  During the six months  ended March 31, 2005,
Aearo paid a total of $1.67 million for settlement,  administrative  and defense
costs  resulting in the settlement of 4,325 silica and asbestos claims that were
settled  between October 1, 2002 and September 30, 2004 involving both claims in
which Aearo was named as a defendant and  additional  claims.  During the period
October 1, 2004 to March 31, 2005 Aearo paid a total of one hundred  dollars for
one  additional  claim that was settled  during that time  period.  In addition,
Aearo may receive the benefit of releases in some  additional  cases  settled by
the AO Defense  Group  regardless  of whether or not any claim was made  against
Aearo.
                                       33

<PAGE>

All data was provided by an outside law firm which tracks  numbers of cases
and  settlements  on behalf of the "AO  Defense  Group"  and is  believed  to be
materially accurate.  The AO Defense Group is a voluntary association of current
and former  manufacturers of the "AO Safety" brand of respirators and certain of
their  insurers  in  which  Aearo  participates  and  through  which  all of its
settlements  have been handled in the relevant years.  Also,  between October 1,
2004 and March 31, 2005,  there may have been claims settled by and fully funded
by the  insurers of Eastern  Safety  Equipment  Co.,  Inc.,  a dissolved  former
subsidiary of Aearo.

At March  31,  2005 and  September  30,  2004,  the  Company  has  recorded
liabilities of approximately $4.3 million and $5.4 million, respectively,  which
represents   reasonable  estimates  of  its  probable  liabilities  for  product
liabilities  substantially  related to  asbestos  and  silica-related  claims as
determined by the Company in consultation  with an independent  consultant.  The
$0.7 million  reduction in the reserve,  net of new accruals  which added to the
reserve,  since  September 30, 2004,  is primarily  attributed to the payment of
$1.67  million,  as referenced  above,  to pay costs  attributed to  settlement,
administrative  and  defense  costs that had been  reached  over a two year time
period.  This reserve is  re-evaluated  periodically  and additional  charges or
credits to results of operations  may result as additional  information  becomes
available.  Various factors increase the difficulty in determining the Company's
potential  liability,  if any,  in such  claims,  including  the  fact  that the
defendants in these lawsuits are often numerous and the claims  generally do not
specify the amount of damages sought.  Additionally,  the bankruptcy  filings of
other companies with asbestos and  silica-related  litigation could increase the
Company's cost over time. In light of these and other uncertainties  inherent in
making  long-term  projections,  the Company has  determined  that the five-year
period  through  fiscal 2009 is the most  reasonable  time period for projecting
asbestos and  silica-related  claims and defense costs.  It is possible that the
Company  may incur  liabilities  in an amount  in  excess of  amounts  currently
reserved.   However,   taking  into  account  currently  available  information,
historical  experience,  and the 1995 Asset Transfer Agreement,  but recognizing
the  inherent  uncertainties  in the  projection  of any  future  events,  it is
management's  opinion  that  these  suits or claims  should  not result in final
judgments  or  settlements  in  excess of the  Company's  reserve  that,  in the
aggregate,  would have a material effect on the Company's  financial  condition,
liquidity or results of operations.

Contractual Obligations

The  Company  has  the  following  minimum  commitments  under  contractual
obligations  including  purchase  obligations  by fiscal year, as defined by the
U.S. Securities and Exchange Commission as of March 31, 2005:


<TABLE>
<CAPTION>

                                            (1)                            2010 and
                                           2005     2006-2007   2008-2009    after      Total
                                           ----     ---------   ---------  --------     ------

<S>                                  <C>        <C>         <C>        <C>         <C>
 Capital lease obligations           $      176 $      705  $      368 $       32  $    1,281
 Operating lease obligations              1,702      5,794       5,043      5,573      18,113
 Mortgage obligations                       179      2,048          --         --       2,227
 Purchase obligations                       720      6,680       6,402         --      13,802
 Respiratory commitment                     200        800         800        800       2,600
 Long term debt                          10,786     43,403      43,173    320,028     417,390
                                        ---------  ------     --------     --------  --------
 Total                               $   13,764 $   59,430  $   55,786 $  326,433  $  455,414
                                        ==========  =======    ========  =========  =========
</TABLE>

(1) Amounts presented in the current fiscal year represent remaining payments
for the fiscal year.

                                       34

<PAGE>

The amounts for long term debt above  include both  interest and  principal
payments.  The Company paid  approximately  $4.7 million for taxes  worldwide in
fiscal 2004 and does not anticipate  significant  changes to its tax obligations
in the future.  The Company has approximately  $1.4 million of letters of credit
outstanding as of March 31, 2005 and does not anticipate  significant changes to
its outstanding letters of credit in the future.

The  Company  plans to fund  approximately  $1.5-$2.2  million per year for
pension  obligations  over the next 5 years.  The above  contribution  level was
determined after  consideration of many factors such as the funded status of the
plan,  the long term rate of return on plan  assets of 8%, the  duration of plan
liabilities, workforce characteristics and changes to plan features. The goal of
the funding  strategy is to achieve full funding  while  minimizing  the year to
year volatility of contribution payments.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements or financing arrangements
involving variable interest entities.









                                       35

<PAGE>


Item 3. Quantitative and Qualitative Disclosures About Market Risk

The  Company  is  exposed  to market  risks  related  to changes in foreign
currencies,  interest rates and commodity pricing.  The Company uses derivatives
to mitigate the impact of changes in foreign  currencies and interest rates. All
derivatives  from time to time are for purposes other than trading.  The Company
accounts for  derivatives  pursuant to SFAS No. 133,  "Accounting for Derivative
Instruments  and  Hedging  Activities",  as amended.  The  Company has  formally
documented  its  hedging  relationships,  including  identification  of  hedging
instruments and the hedge items, as well as its risk management objectives.

Foreign Currency Risk

The Company's  results of operations are subject to risks  associated  with
operating in foreign  countries,  including  fluctuations  in currency  exchange
rates.   While  many  of  the  Company's  selling  and  distribution  costs  are
denominated  in Canadian and  European  currencies,  a large  portion of product
costs are U.S. Dollar  denominated.  As a result,  a decline in the value of the
U.S.  Dollar  relative to other  currencies  can have a favorable  impact on the
profitability  of the Company  and an  increase in the value of the U.S.  Dollar
relative  to  these  other   currencies  can  have  a  negative  effect  on  the
profitability of the Company. The Company's Swedish operations are also affected
by changes in exchange  rates  relative to the Swedish  Krona.  A decline in the
value of the Krona relative to other  currencies can have a favorable  impact on
the  profitability  of the  Company  and an  increase  in the value of the Krona
relative to other currencies can have a negative impact on the  profitability of
the Company.

To mitigate the effects of changes in foreign  currency rates on Results of
Operations and cash flows,  the Company executes two hedging  programs,  one for
transaction  exposures,  and the  other  for  cash  flow  exposures  in  foreign
operations.  In order to implement the transaction hedging program,  the Company
utilizes  forward foreign  currency  contracts for up to 30-day terms to protect
against the adverse  effects that  exchange  rate  fluctuations  may have on the
foreign-currency-denominated  trade activities (receivables,  payables and cash)
of foreign  subsidiaries.  These  contracts  have not been  designated as hedges
under SFAS No. 133 and, accordingly, the gains and losses on both the derivative
and  foreign-currency-denominated  trade  activities are recorded as transaction
adjustments in results of operations.  The impact on results of operations was a
loss of approximately $0.1 million and $0.2 million for the three and six months
period ending March 31, 2005, respectively, compared to net loss of $0.2 million
and $0.4  million,  respectively  for the three and six months  ended  March 31,
2004. In regard to its cash flow hedging program, the Company complies with SFAS
No. 133 which  requires that  derivative  instruments be recorded in the balance
sheet as either an asset or  liability  measured at its fair value.  As of March
31, 2005, the company did not have any hedges in place for the cash flow hedging
program and therefore the Company had recorded no derivative  asset or liability
at March  31,  2005.  As a result of open  forward  foreign  currency  contracts
entered into in the  implementation  of the Company's cash flow hedging program,
the Company had a derivative  payable of $0.4  million as of March 31, 2004.  In
addition,  the Company limits the foreign  exchange  impact on the balance sheet
with debt denominated in Euros.

Interest Rates

The Company is exposed to market risk from changes in interest  rates.  The
Company, from time to time, will utilize interest rate instruments to reduce the
impact of either  increases or decreases in interest  rates on its floating rate
debt.

                                       36

<PAGE>

The Company had approximately $30.5 million of variable rate debt protected
under an interest rate cap  arrangement,  which expired  December 31, 2004.  The
Company had not elected hedge accounting  treatment for the interest rate cap as
defined under SFAS No, 133 and, as a result, fair value adjustments were charged
directly to other  charges  (income),  net.  There was a $0.1 million  impact on
earnings for the six month period ending March 31, 2004.

The Company is of the opinion that it is well positioned to manage interest
rate exposures in the short term. The Company continues to monitor interest rate
movements and has mitigated  the risks of potential  interest rate  fluctuations
through the use of the aforementioned interest rate instruments.

Commodity Risk

The Company is subject to market risks with respect to industry  pricing in
paper and crude oil as it relates to various  commodity  items.  The  Company is
also exposed to market risks for electricity,  fuel oil and natural gas consumed
in its operations. Items with potential risk of price volatility are paperboard,
packaging films, nylons, resins, propylene,  ethylene,  plasticizer and freight.
The Company  manages  pricing  exposures on larger  volume  commodities  such as
polycarbonate,  polyols and polyvinyl chloride via price negotiations  utilizing
alternative  supplier competitive pricing. The Company sources some products and
parts  from Far East  sources  where  resource  availability,  competition,  and
infrastructure  stability has provided a favorable purchasing  environment.  The
Company does not enter into derivative instruments to manage commodity risks.

                                       37

<PAGE>


Item 4.      Controls and Procedures

Disclosure  controls  and  procedures  are  defined by the  Securities  and
Exchange  Commission as those controls and other procedures that are designed to
ensure that information  required to be disclosed in the Company's filings under
the  Securities  Act of 1934 is  recorded,  processed,  summarized  and reported
within the time periods  specified in the Securities  and Exchange  Commission's
rules and forms.  The  Company's  Chief  Executive  Officer and Chief  Financial
Officer have  evaluated the Company's  disclosure  controls and procedures as of
March 31, 2005, and have determined that such disclosure controls and procedures
are effective.

There has been no change in the Company's  internal  control over financial
reporting during the quarter ended March 31, 2005, that has materially affected,
or is reasonably  likely to materially  affect,  the Company's  internal control
over financial reporting.














                                       38

<PAGE>


                          PART II - OTHER INFORMATION

Item 6.      Exhibits

(a)  Exhibits
     See Index of Exhibits on page 41 hereof.












                                       39

<PAGE>

                                   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.


     Date:  May 9, 2005                 AEARO COMPANY I


                                        /s/ Michael A. McLain

                                        _______________________________________
                                        Michael A. McLain
                                        Chairman and Chief Executive Officer
                                        (Principal Executive Officer)

                                        /s/ Jeffrey S. Kulka

                                        _______________________________________
                                        Jeffrey S. Kulka
                                        Senior Vice President, Chief Financial
                                        Officer and Secretary
                                        (Principal Financial and Accounting
                                        Officer)





                                       40

<PAGE>


                                  EXHIBIT INDEX


EXHIBITS                        DESCRIPTION


      3.2     Bylaws of Aearo Company I

     10.12    First  Amendment,  dated as of April 28,  2005,  with  respect to
              the Credit  Agreement,  dated as of April 7, 2004, among AC Safety
              Holding Corp. andAearo  Corporation,  as guarantors,  the other
              guarantors  party  thereto,  the various lenders party thereto,
              Bear Stearns Corporate  Lending,  as Syndication Agent,  National
              City Bank of Indiana and Wells Fargo Bank, N.A., as Co-Document
              Agents, and Deutsche Bank AG, New York Branch as Administrative
              Agent.

     31.1     Certification  of Chief  Executive  Officer  pursuant to Rule
              15d-14(a) of the  Securities  Exchange Act of 1934, as
              adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



     31.2     Certification  of Chief  Financial  Officer  pursuant to Rule
              15d-14(a) of the  Securities  Exchange Act of 1934, as
              adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



     32.1     Certification of Chief Executive  Officer  pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.



     32.2     Certification of Chief Financial  Officer  pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.