<PAGE>

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

                                   FORM 10-Q/A
(Mark One)

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

                  For the quarterly period ended June 30, 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 of                (IRS Employer Identification No.)
 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 August 15, 2005 was 100.

<PAGE>

Explanatory Note


We are filing this Amendment No. 1 to our Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2005 for the purpose of amending and restating
Item 1 of Part I, containing our unaudited condensed consolidated financial
statements and related notes as of June 30, 2005 and for the three and nine
months ended June 30, 2005. The restatement relates to the correction of four
errors of the final purchase accounting adjustments to deferred income taxes and
to the valuation allowance on deferred tax assets. Our revenue, cash provided by
operating activities and operating income were not affected by the restatement.

First, an entry was recorded based on an analysis that contained a mathematical
error. The correction for the mathematical error is a reduction of goodwill and
deferred tax liabilities by $1.8 million. Second, deferred tax assets were
recorded during the quarter based on estimates of the taxable loss for fiscal
year 2004 rather than actual information. Once the 2004 pre and post merger
short period tax returns were filed, the deferred tax assets required a
correction to reflect actual net operating losses. The correction for the
pre-merger 2004 net operating loss of $2.0 million is recorded as a reduction to
goodwill and a corresponding reduction to deferred tax liability and the
correction for the post-merger 2004 net operating loss of $1.1 million is
recorded as an income tax benefit and a corresponding reduction of deferred tax
liability. Third, a deferred tax asset of $2.6 million related to carryover tax
basis in goodwill was recognized as the Company finalized the purchase
accounting treatment of the merger. Under Statement of Accounting Standards No.
109, Accounting for Income Taxes, no deferred taxes should have been recognized.
As such, goodwill and deferred tax liabilities have each been increased by $2.6
million. Fourth, during the quarter ended March 31, 2005, the $7.5 million
valuation allowance on deferred tax assets was reversed as an income tax
benefit. The amount should have been recorded as a reduction to goodwill,
because it was a preacquisition contingency, as such, the Company recorded a
reduction to goodwill of $7.5 million and a corresponding increase to income tax
expense. The net effect of these items on the balance sheet was a reduction of
goodwill of $8.8 million, a reduction of deferred income tax liability of $2.3
million and a reduction in accumulated deficit of $6.5 million. These items are
further discussed in Note 12 to the restated condensed consolidated financial
statements included herein.

We have also updated Item 2 of Part I, Management's Discussion and Analysis of
Financial Condition and Results of Operations, to give effect to the
restatement, and Item 4 of Part I, Controls and Procedures. In addition, we have
amended Item 6 of Part II to reflect the filing of updated certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, and we have filed certifications pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
Other than the changes for the effects of the restatement no other information
in this Amendment No. 1 has been updated to reflect any subsequent information
of events since the original filing of this Form 10-Q on August 15, 2005. For
the convenience of the reader, the Quarterly Report has been restated in its
entirety.

<PAGE>




                                 AEARO COMPANY I
                                TABLE OF CONTENTS
             Form 10-Q for the Quarterly Period Ended June 30, 2005

<TABLE>
<CAPTION>
<S>                                                                                                             <C>
PART I-FINANCIAL INFORMATION.......................................................................................4

Item 1. Financial Statements (Restated)............................................................................4
Condensed Consolidated Balance Sheets - Assets.....................................................................4
Condensed Consolidated Balance Sheets - Liabilities and Stockholder's Equity.......................................5
Condensed Consolidated Statements of Operations....................................................................6
Condensed Consolidated Statement of Stockholder's Equity...........................................................7
Condensed Consolidated Statements of Cash Flows....................................................................8
Notes to Condensed Consolidated Financial Statements...............................................................9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................27
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................39
Item 4. Controls and Procedures...................................................................................41
PART II - OTHER INFORMATION.......................................................................................42
Item 6. Exhibits and Reports on Form 8-K..........................................................................42
SIGNATURES........................................................................................................43
EXHIBIT INDEX.....................................................................................................44

</TABLE>

<PAGE>

Part I-Financial Information

     ITEM 1. FINANCIAL STATEMENTS


                        AEARO COMPANY I AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED BALANCE SHEETS - ASSETS
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                  JUNE 30,             SEPTEMBER 30,
                                                                                                   2005                    2004
                                                                                               (AS RESTATED,
                                                                                                SEE NOTE 12)
                                                                                               -------------           -------------
<S>                                                                                                    <C>             <C>

            CURRENT ASSETS:
              Cash and cash equivalents                                                           $ 16,019                $ 27,724
              Accounts receivable (net of allowance for doubtful accounts of
              $1,463 and $1,358, respectively)                                                      60,553                  54,159
              Inventories                                                                           44,424                  40,849
              Deferred and prepaid expenses                                                          5,602                   4,146
                                                                                                  --------                --------
                  Total current assets                                                             126,598                 126,878
                                                                                                  --------                --------

            LONG TERM ASSETS:
              Property, plant and equipment, net                                                    51,317                  54,750
              Other intangible assets, net                                                         182,050                 185,855
              Other assets                                                                          13,403                  15,144
              Goodwill                                                                             107,832                 133,745
                                                                                                  --------                --------
                  Total assets                                                                    $481,200                $516,372
                                                                                                  ========                ========

</TABLE>

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

                                       4
<PAGE>

                        AEARO COMPANY I AND SUBSIDIARIES

  CONDENSED CONSOLIDATED BALANCE SHEETS - LIABILITIES AND STOCKHOLDER'S EQUITY
             (In Thousands, Except for Per Share and Share Amounts)

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                           JUNE 30,            SEPTEMBER 30,
                                                            2005                   2004
                                                        (AS RESTATED,
                                                        SEE NOTE 12)
                                                        ------------           -------------
<S>                                                     <C>                    <C>
CURRENT LIABILITIES:
   Current portion of long-term debt                     $   3,455             $   1,639
   Accounts payable and accrued liabilities                 55,684                46,730
   Accrued interest                                          3,067                 6,996
   Accrued income taxes                                      1,947                 1,648
                                                         ---------             ---------
         Total current liabilities                          64,153                57,013
                                                         ---------             ---------

LONG TERM LIABILITIES:
   Long-term debt                                          298,299               302,842
   Deferred income taxes                                    38,268                59,699
   Other liabilities                                        14,169                14,726
                                                         ---------             ---------
         Total liabilities                                 414,889               434,280
                                                         ---------             ---------


STOCKHOLDER'S EQUITY:
   Common stock, $.01 par value-
    Authorized--100 shares
    Issued and outstanding--100 shares                        --                    --
   Additional paid in capital                              101,640               101,610
   Accumulated deficit                                     (33,293)              (19,415)
   Accumulated other comprehensive loss                     (2,036)                 (103)
                                                         ---------             ---------
         Total stockholder's equity                         66,311                82,092
                                                         ---------             ---------

         Total liabilities and stockholder's equity      $ 481,200             $ 516,372
                                                         =========             =========
</TABLE>


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

                                        5
<PAGE>

                        AEARO COMPANY I AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   NINE
                                                                                  MONTHS
                                               THREE MONTHS ENDED                 ENDED            THREE                SIX
                                                    JUNE 30,                     JUNE 30,          MONTHS              MONTHS
                                         2005                                      2005            ENDED               ENDED
                                     (AS RESTATED                              (AS RESTATED       JUNE 30,           MARCH 31,
                                     SEE NOTE 12)               2004           SEE NOTE 12)         2004                2004
                                     ---------------------------------------  ---------------------------------    -----------------
                                                   SUCCESSOR                              SUCCESSOR                  PREDECESSOR
<S>                                  <C>                  <C>                 <C>              <C>                 <C>


Net sales                            $     113,198         $       97,126     $      313,437   $        97,126     $       169,579

Cost of sales                               58,124                 68,144            159,757            68,144              89,056
                                     ------------------   ------------------  ---------------  -------------------------------------

   Gross profit                             55,074                 28,982            153,680            28,982              80,523

Selling and administrative                  34,172                 28,149             98,583            28,149              56,835

Research and technical services              2,234                  1,966              6,665             1,966               3,623

Amortization                                 1,313                    101              3,928               101                 242

Other (income) charges, net                   (512)                 1,690               (200)            1,690                (506)

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

   Operating income (loss)                  17,867                 (2,924)            44,704            (2,924)             21,420

Interest expense, net                        5,856                 10,292             16,785            10,292              10,836
                                     ------------------   ------------------  ---------------  -------------------------------------

   Income (loss) before provision
   for income taxes                         12,011                (13,216)            27,919           (13,216)             10,584

Provision for income taxes                   3,124                  1,031              6,803             1,031               2,020
                                     ------------------   ------------------  ---------------  -------------------------------------

   Net income (loss)                 $       8,887        $       (14,247)    $       21,116   $       (14,247)    $         8,564
                                     ------------------   ------------------  ---------------  -------------------------------------
</TABLE>


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

                                       6
<PAGE>

                        AEARO COMPANY I AND SUBSIDIARIES

            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
                      (In Thousands, Except Share Amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                         Additional
                                                           Paid                       Other                   Comprehensive
                                      Common Stock          In      Accumulated   Comprehensive                 Income
SUCCESSOR                           Shares   Amount       Capital    Deficit          Loss       Total          (Loss)
---------                           ---------------      ---------  -----------   -------------  -----          ------
<S>                                 <C>      <C>         <C>        <C>           <C>           <C>          <C>
Balance, October 1, 2004               100   $     -     $ 101,610  $  (19,415)   $      (103)  $ 82,092


  Net income, as restated, see
Note 12                                  -         -             -      21,116              -     21,116     $    21,116
  Dividend to parent                                                   (34,994)                  (34,994)              -
  Foreign currency translation
adjustment                               -         -             -           -         (1,689)    (1,689)         (1,689)
  Unrealized loss on derivative
instruments                              -         -             -           -           (244)      (244)           (244)
  Vesting of restricted stock            -         -            30                          -         30               -
                                                                                                             ------------
  Comprehensive income, as
    restated, see Note 12                -         -             -           -              -          -     $    19,183
                                    -------  --------    ---------- -----------   ------------- ---------    ============
Balance, June 30, 2005, as
restated, see Note 12                  100   $     -     $ 101,640  $  (33,293)   $    (2,036)  $ 66,311
                                    =======  ========    ========== ===========   ============= =========

</TABLE>

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

                                       7
<PAGE>

                        AEARO COMPANY I AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        NINE          SIX            SIX
                                                                       MONTHS        MONTHS        MONTHS
                                                                       ENDED         ENDED          ENDED
                                                                      JUNE 30,      MARCH 31,      MARCH 31,
                                                               --------------------------------------------
                                                                        2005
                                                                    AS RESTATED,
                                                                   (SEE NOTE 12)      2004          2004
                                                               --------------------------------------------
<S>                                                            <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                      SUCCESSOR           PREDECESSOR
Net income (loss)                                                $     21,116  $    (14,247)   $    8,564
Adjustments to reconcile net income (loss) to cash provided by
   operating activities-
   Depreciation                                                         8,131         3,006         5,931
   Amortization of intangible assets                                    3,928           101           242
   Amortization of deferred financing costs                             1,068         4,234         2,026
   Inventory purchase accounting adjustment                                --        17,067            --
   Deferred income taxes                                                3,135            (7)           --
   Stock based compensation                                                30            10
   Restructuring                                                           --            --        (1,091)
   Loss on disposal of assets                                               3                         682
   Changes in assets and liabilities-
      Accounts receivable                                              (6,755)       (2,242)       (1,113)
      Inventories                                                      (4,166)            2        (3,464)
      Accrued income taxes                                                432           522        (1,453)
      Accrued interest                                                 (3,928)          767             3
      Accounts payable and accrued liabilities                          7,107         2,667        (3,224)
      Prepaid expenses and other assets                                   427           986           633
      Other liabilities                                                 1,012           928         1,299
                                                                 ------------  ------------  ------------
       Net cash provided by operating activities                       31,540        13,794         9,035
                                                                 ------------  ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to property, plant and equipment                          (5,404)       (2,810)       (5,006)
   Proceeds provided by disposals of property, plant and
   equipment                                                               64            --            12
                                                                 ------------  ------------  ------------
       Net cash used for investing activities                          (5,340)       (2,810)       (4,994)
                                                                 ------------- ---------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Distribution to shareholder to effect the merger                        --       (86,852)           --
   Repayment of old credit facility                                        --       (78,333)           --
   Repayment of 12.5% senior subordinated notes                            --       (98,000)           --
   Proceeds from 8.25 senior subordinated notes                            --       175,000            --
   Debt issue costs                                                        --       (10,408)
   Dividend to parent                                                 (34,994)      (14,305)           --
   Proceeds from  (repayment of) revolving credit facility, net            --       (15,600)        3,950
   Proceeds from (repayment of) term loans                               (961)      125,000        (8,949)
   Repayment of capital lease obligations                                (200)          (61)         (122)
   Repayment of long-term debt                                           (273)          (26)         (119)
                                                                 ------------- ------------- -------------

       Net cash used for financing activities                         (36,428)       (3,585)       (5,240)
                                                                 ------------- ------------- -------------

EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS                   (1,477)         (858)         (789)
                                                                 ------------- ------------- -------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (11,705)        6,541        (1,988)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                         27,724         5,313         7,301
                                                                 ------------  ------------  ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                         $     16,019  $     11,854  $      5,313
                                                                 ============  ============  ============

CASH PAID FOR:
   Interest                                                      $     19,977  $      4,787  $      8,862
                                                                 ============  ============  ============
   Income taxes                                                  $      3,674  $        552  $      3,254
                                                                 ============  ============  ============
</TABLE>

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

                                       8
<PAGE>

                        AEARO COMPANY I AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

                                   (Unaudited)

1)   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     In the opinion of management, the accompanying unaudited condensed
     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
     condensed 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
     Parent and used to pay the shareholders of the Parent to effect the merger
     transaction. An additional $14.3 million distributed to Parent was used to
     pay the outstanding debt of the Parent as of April 7, 2004.

     The Merger was a business combination under Statement of Financial
     Accounting Standards ("SFAS") No. 141, "Business Combinations," and the
     purchase price paid for 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 in
     fiscal 2005 reflect 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. The purchase price has been
     allocated as follows (dollars in thousands):

                                       9
<PAGE>

     Working capital                                        $      82,247
     Fixed assets                                                  55,139
     Other assets and liabilities                                  16,073
     Deferred tax liabilities                                     (41,384)
     Finite lived intangible assets                                74,104
     Indefinite lived intangible assets                           114,300
     Goodwill                                                     108,865
                                                            -------------
     Purchase price                                         $     409,344
                                                            =============

     Of the goodwill resulting from the Merger, $46.5 million is deductible for
     tax purposes as a result of carryover tax basis and the remaining $77.6
     million is not deductible for income tax purposes.

3)       SIGNIFICANT ACCOUNTING POLICIES

     Use of Estimates. The preparation of the condensed 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 that achieve specified volume levels 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 June 30,
     2005 and 2004 were $0.9 million and $0.4 million, respectively. The amount
     of co-operative advertising charged to selling and administrative expenses
     for the nine months ended June 30, 2005 and six months ended March 31, 2004
     were $2.0 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.

                                       10
<PAGE>

     Foreign Currency Translation. Assets and liabilities of the Company's
     foreign subsidiaries are translated at period-end exchange rates. Income
     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. 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 Intangible Assets", goodwill and intangible assets that
     have indefinite useful lives are not amortized but are tested at least
     annually for impairment. The Company will test its goodwill and indefinite
     lived intangible assets as of September 30, 2005. 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 other intangibles assets as of
     September 30, 2004 and June 30, 2005 (dollars in thousands):


<TABLE>
<CAPTION>
                                             GROSS        ACCUMULATED                    CARRYING
     SEPTEMBER 30, 2004                     AMOUNT        AMORTIZATION    ADDITIONS       AMOUNT
     ------------------                     ------        ------------    ---------   -----------
<S>                                      <C>            <C>               <C>         <C>
     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
                                         ============   ================  ==========  ===========
</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                             GROSS        ACCUMULATED                     CARRYING
     JUNE 30, 2005                          AMOUNT        AMORTIZATION    ADDITIONS        AMOUNT
     --------------                         ------        ------------    ---------   -----------
<S>                                      <C>            <C>               <C>         <C>
     Trademarks                          $    114,300   $            --   $       --  $   114,300
     Customer Relationship List                73,000            (6,083)          --       66,917
     Patents                                      802              (316)         122          608
     Other                                        385              (160)          --          225
                                         ------------   ----------------  ----------  -----------
     Total Intangibles                   $    188,487   $        (6,559)  $      122  $   182,050
                                         ============   ================  ==========  ===========
</TABLE>


ESTIMATE OF AGGREGATE AMORTIZATION EXPENSE (DOLLARS IN THOUSANDS):


                  Year ending September 30, 2005               $5,241
                  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 nine months
     ended June 30, 2005 (dollars in thousands):



<TABLE>
<CAPTION>
                                                               NINE MONTHS
                                                                  ENDED
                                                                 JUNE 30,
                                                                  2005
                                                            --------------
<S>                                                         <C>
     Beginning balance                                      $      133,745
     Allocation adjustment                                         (16,706)
     Reversal of valuation allowance                                (7,549)
     Translation adjustment                                         (1,658)
                                                            --------------
     Ending balance                                         $      107,832
                                                            ==============
</TABLE>


     The allocation adjustment in fiscal 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 bases of
     those assets as a result of finalizing the tax bases of certain assets.

     Stock-based Compensation. The Company accounts for stock-based compensation
     under the recognition and measurement principles of Accounting Principles
     Board ("APB") Opinion 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.


                                       12
<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>
                                                                     NINE         THREE          SIX
                                                                    MONTHS       MONTHS         MONTHS
                                           THREE MONTHS ENDED       ENDED         ENDED         ENDED
                                                JUNE 30,           JUNE 30      JUNE 30,      MARCH 31,
                                           2005         2004         2005         2004           2004
                                           ----         ----         ----         ----           ----
                                                SUCCESSOR                 SUCCESSOR          PREDECESSOR
<S>                                       <C>        <C>           <C>         <C>           <C>
     Net income (loss) as reported        $  8,887   $   (14,247)  $   21,116  $   (14,247)   $     8,564
       Stock based compensation expense
       recorded under APB No. 25, net
       of tax                                   10            --           30           10             --
       Stock-based compensation expense
       determined under the fair value
       method, net of tax                      (44)           --         (127)         (10)           (67)
                                          ---------  -----------   ----------- -----------    ------------
     Proforma net income (loss)           $  8,853   $   (14,247)  $   21,019  $   (14,247)   $     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 to earnings when the related product sales affect
     earnings for forward foreign currency contracts or when related interest
     payments affect earnings for interest rate swaps. During the three month
     period ended June 30, 2005, the Company entered into three new forward
     foreign currency contracts that will protect the Company against exchange
     rate movement during fiscal year 2006. As result of the new forward
     currency contracts, the Company has recorded a derivative payable of $0.4
     million at June 30, 2005. For the three month periods ended June 30, 2005
     and 2004, the Company had no gains or losses resulting from the exercise of
     forward foreign currency contracts. For the nine and six month periods
     ended June 30, 2005 and March 31, 2004, the Company reclassified into
     earnings net losses of $0 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
     $0.1 million of expense charges to earnings for the period ended, June 30,
     2004 for the change in the fair value of the interest rate cap.

                                       13
<PAGE>

     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 the derivatives are recorded as transaction adjustments
     in other charges (income), net. The impact on earnings was a gain of
     approximately $ 0.3 million and $ 0.1 million for the three and nine month
     periods ended June 30, 2005, respectively, compared to net loss of $ 0.3
     million and $0.4 million, respectively for the three and six month periods
     ended June 30, 2004 and March 31, 2004, respectively.

     On June 30, 2005, the FASB issued Derivatives Implementation Group ("DIG")
     B39, "Application of Paragraph 13(b) to Call Options That are Exercisable
     Only by the Debtor", which provides an explicit scope exception to the
     provisions of paragraph 13(b) of SFAS No. 133 when the right to accelerate
     a repayment can only be exercised by the debtor (issuer/borrower). The
     Company has adopted DIG B39 as of April 1, 2005. Prior to the adoption of
     DIG B39, the Company determined under the provisions of DIG B16, "Calls and
     Puts in Debt Instruments", that the embedded call option in the Company's
     Senior Subordinated Notes was not clearly and closely related to the debt
     host contract and therefore required bifurcation. The carrying values of
     the derivative asset and liability were $2.0 million at September 30, 2004.
     Prior to the adoption of DIG B39, the Company had recorded $0.2 million
     loss in other (income) charges, net for the mark to market revaluation of
     the embedded call option and $0.2 million for the reduction of interest due
     to the amortization of the corresponding liability during 2005. Upon the
     adoption of DIG B39, the Company reversed a derivative asset of
     approximately $1.8 million and the corresponding liability that was
     previously recorded.

     NEW ACCOUNTING PRONOUNCEMENTS

     In December 2004, the FASB enacted SFAS No. 123R, "Share-Based Payment"
     ("SFAS No. 123R") which replaces SFAS No. 123, "Accounting for Stock-Based
     Compensation" ("SFAS No. 123") and supersedes APB Opinion No. 25,
     "Accounting for Stock Issued to Employees." SFAS No. 123R requires the
     measurement of all employee share-based payments to employees, including
     grants of employee stock options, using a fair-value-based method and the
     recording of such expense in our results of operations. The accounting
     provisions of SFAS No. 123R will be adopted by the Company on October 1,
     2005. The pro forma disclosures previously permitted under SFAS No. 123 no
     longer will be an alternative to financial statement recognition. The
     Company is in the process of evaluating the impact of SFAS 123R on its
     financial position and results of operations.

     In May 2005, the FASB issued Statement No. 154, "Accounting Changes and
     Error Corrections" (SFAS No. 154). SFAS No. 154 replaces APB Opinion No.
     20, "Accounting Changes" and SFAS No. 3,"Reporting Accounting Changes in
     Interim Financial Statements" SFAS No. 154 requires that a voluntary change
     in accounting principle be applied retrospectively with all prior period
     financial statements. presented on the new accounting principle, unless it
     is impracticable to do so. SFAS No. 154 also provides that a correction of
     errors in previously issued financial statements should be termed a
     "restatement." The new standard is effective for accounting changes and
     correction of errors beginning October 1, 2005. The Company does not expect
     that the adoption of SFAS No. 154 will have a material impact on its
     consolidated financial position or results of operations.

                                       14
<PAGE>

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 month periods ended June 30, 2005 and
     2004 and the nine and six month periods ended June 30, 2005 and March 31,
     2004, respectively (dollars in thousands):


<TABLE>
<CAPTION>
                                                                     NINE         THREE           SIX
                                                                    MONTHS       MONTHS          MONTHS
                                           THREE MONTHS ENDED       ENDED         ENDED          ENDED
                                                JUNE 30,           JUNE 30      JUNE 30,       MARCH 31,
                                           2005         2004         2005         2004            2004
                                           ----         ----         ----         ----            ----
                                                SUCCESSOR                 SUCCESSOR           PREDECESSOR
<S>                                       <C>        <C>           <C>         <C>            <C>
     Unrealized holding losses on
        derivatives during the period     $   (244)  $      (138)  $     (244) $      (138)   $      (133)
       Less:  reclassification
       adjustment for gains (losses)
       included in the statements of
       operations                               --            25           --           25            523
                                          --------   -----------   ----------  -----------    -----------
     Total other comprehensive income
        (loss)                            $   (244)  $      (113)  $     (244) $      (113)   $       390
                                          =========  ============  =========== ===========    ===========

</TABLE>


5)   INVENTORIES

     Inventories consist of the following (dollars in thousands):


<TABLE>
<CAPTION>
                                                              JUNE 30,               SEPTEMBER 30,
                                                                2005                      2004
                                                         -------------------       -------------------
<S>                                                      <C>                       <C>


     Raw materials                                       $        11,029           $      9,302
     Work in process                                               9,415                 12,087
     Finished goods                                               23,980                 19,460
                                                         -------------------       -------------------
                                                         $        44,424           $     40,849
                                                         ===================       ===================
</TABLE>


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

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 $75.0 million for acquisitions (collectively, the "Senior
     Bank Facilities"). Since the Acquisition Date, the Company's debt has been
     negatively impacted by $0.3 million related to the fluctuation of the Euro
     relative to the U.S dollar as of June 30, 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 were
     approximately $123.8 million and $126.0 million at June 30, 2005 and
     September 30, 2004, respectively. There were no amounts outstanding under
     the Revolving Credit Facility at June 30, 2005 and September 30, 2004
     respectively. 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 June 30, 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 June 30, 2005.

                                       15
<PAGE>

     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. In
     addition, the amendment (i) modified the amount of the incremental Term
     Loan commitment from $60.0 million to $75.0 million (ii) eliminated the
     termination date for the incremental Term Loan commitment and (iii) allowed
     for incremental Term Loans in Euros.

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
     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.

                                       16
<PAGE>

     In fiscal 2003 and 2004, the Company 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 the Company
     was not a proper defendant or did not make the product in question. As of
     September 30, 2004, the number of open claims where the Company was named
     as a defendant in silica and asbestos related matters was 11,087 and 4,282,
     respectively. For the nine months ended June 30, 2005, the increases in
     number of claims where the Company was named as a defendant in silica and
     asbestos related matters was 2,122 and 1,010 respectively. The 1,010 new
     asbestos claims include 114 claims that allege exposure from clothing,
     which the Company never manufactured. One claim was settled for $17.85
     where the Company was named as a defendant in silica related matters during
     the nine months ended June 30, 2005. No claims were settled where the
     Company was named as a defendant in asbestos related matters during the
     nine months ended June 30, 2005. As of June 30, 2005, the number of open
     claims where the Company was named as a defendant in silica and asbestos
     related matters was 12,739 and 4,095, respectively.

     In addition to the above claims, the Company 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 nine
     months ended June 30, 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
     June 30, 2005 Aearo paid a total of $164.72 for three additional claims
     that were settled during that time period and paid a total of $0.4 million
     for administrative and defense costs involving both claims in which Aearo
     was named as a defendant and Additional Claims. In addition, Aearo may
     receive the benefit of releases in some additional cases settled by the AO
     Defense Group regardless of whether any claim was made against Aearo.

     The above information was based on data provided by Simon Peragine Smith,
     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. This
     information may be subject to future adjustment in light of new information
     becoming available. 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 June 30, 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.

                                       17
<PAGE>

     At June 30, 2005 and September 30, 2004, the Company has recorded
     liabilities of approximately $4.6 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 $0.8 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 the prior 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.

     NET SALES BY BUSINESS SEGMENT (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                     NINE         THREE          SIX
                                                                    MONTHS       MONTHS         MONTHS
                                           THREE MONTHS ENDED       ENDED         ENDED         ENDED
                                                JUNE 30,           JUNE 30      JUNE 30,      MARCH 31,
                                           2005         2004         2005         2004           2004
                                           ----         ----         ----         ----           ----
                                                SUCCESSOR                 SUCCESSOR          PREDECESSOR
<S>                                       <C>        <C>           <C>         <C>            <C>
     Safety Products                      $ 86,161   $    73,966   $  235,926  $    73,966    $   127,964
     Safety Prescription Eyewear            10,493        10,126       29,706       10,126         20,337
     Specialty Composites                   16,544        13,034       47,805       13,034         21,278
                                          --------   -----------   ----------  -----------    -----------
     Total                                $113,198   $    97,126   $  313,437  $    97,126    $   169,579
                                          ========   ===========   ==========  ===========    ===========
</TABLE>


                                       18
<PAGE>

     Inter-segment sales from the Specialty Composites segment to the Safety
     Products segment totaled $1.1 million and $0.7 million for the three months
     ended June 30, 2005 and 2004, respectively. Inter-segment sales from the
     Specialty Composites segment to the Safety Products segment totaled $3.1
     million and $1.5 million for the nine and six months ended June 30, 2005
     and March 31, 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 (LOSS)
     BEFORE INCOME TAXES (DOLLARS IN THOUSANDS):


<TABLE>
<CAPTION>
                                                                     NINE         THREE          SIX
                                                                    MONTHS       MONTHS         MONTHS
                                           THREE MONTHS ENDED       ENDED         ENDED         ENDED
                                                JUNE 30,           JUNE 30,     JUNE 30,      MARCH 31,
                                           2005         2004         2005         2004           2004
                                           ----         ----         ----         ----           ----
                                                SUCCESSOR                 SUCCESSOR          PREDECESSOR
<S>                                       <C>        <C>           <C>         <C>            <C>
     Safety Products                      $ 18,526   $    16,122   $   46,374  $    16,122    $    23,704
     Safety Prescription Eyewear               275            37          (66)          37            (57)
     Specialty Composites                    3,504         2,623       10,455        2,623          2,855
                                          --------   -----------   ----------  -----------    -----------
     Segment profit                         22,305        18,782       56,763       18,782         26,502

     Depreciation                            3,125         3,006        8,131        3,006          5,931
     Amortization of intangibles             1,313           101        3,928          101            242
     Inventory purchase accounting              --        17,067           --       17,067             --
     Bond call premium                          --         1,532           --        1,532             --
     Restructuring                              --            --           --           --         (1,091)
     Interest                                5,856        10,292       16,785       10,292         10,836
                                          --------   -----------   ----------  -----------    -----------
     Income (loss) before income taxes      12,011   $   (13,216)  $   27,919  $   (13,216)   $    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.


9)   PENSION

     The following table presents the components of net periodic pension cost
     for the three month periods ended June 30, 2004 and 2005, and the nine and
     six month periods ended June 30, 2005 and March 31, 2004, respectively
     (dollars in thousands):



<TABLE>
<CAPTION>
                                                                     NINE         THREE          SIX
                                                                    MONTHS       MONTHS         MONTHS
                                           THREE MONTHS ENDED       ENDED         ENDED         ENDED
                                                JUNE 30,           JUNE 30      JUNE 30,      MARCH 31,
                                           2005         2004         2005         2004           2004
                                           ----         ----         ----         ----           ----
                                                SUCCESSOR                 SUCCESSOR          PREDECESSOR
<S>                                       <C>        <C>           <C>         <C>            <C>
     Service cost                         $    364   $       335   $    1,089  $       335    $       669
     Interest cost                             206           186          618          186            371
     Expected return on plan assets           (184)         (167)        (552)        (167)          (332)
     Amortization of prior service cost         --             2           --            2              5
                                          --------   -----------   ----------  -----------    -----------
     Total                                $    386   $       356   $    1,155  $       356    $       713
                                          ========   ===========   ==========  ===========    ===========
</TABLE>

                                       19
<PAGE>

     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 June 30, 2005, the Company has not made
     any contributions to its pension plan and plans to contribute a revised
     amount of $1.8 million in the fourth quarter of fiscal 2005.


10)  DIVIDEND

     On May 5, 2005, the Company's Board of Directors declared and paid a cash
     dividend to the Company's parent, Aearo Corporation, the sole holder of
     common stock, of approximately $35 million. Aearo Corporation then paid a
     cash dividend to AC Safety Holding Corp., the Company's ultimate parent,
     who used the proceeds to make a partial redemption of its preferred stock.
     The Company used available cash to fund the dividend.


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).

     CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
     NINE MONTHS ENDED JUNE 30, 2005
     (AS RESTATED, SEE NOTE 12)


<TABLE>
<CAPTION>
                                                                        SUCCESSOR
                                                --------------------------------------------------------------
                                                                            NON-
                                                  AEARO     GUARANTOR    GUARANTOR
                                                COMPANY I  SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                                                ---------  ------------ ------------ ------------ ------------
<S>                                             <C>        <C>          <C>          <C>          <C>
     Net sales.................................  $234,381    $     --      $114,004    $ (34,948)   $ 313,437
     Cost of sales.............................   132,127          --        62,454      (34,824)     159,757
                                                 --------    --------      --------    ----------   ---------
       Gross profit............................   102,254          --        51,550         (124)     153,680

     Selling and administrative................    71,843       2,871        23,869           --       98,583
     Research and technical services...........     4,186          --         2,479           --        6,665
     Amortization..............................     2,774         194           960           --        3,928
     Other charges (income), net...............    13,686     (20,911)        7,025           --         (200)
                                                 --------    ---------     --------    ---------    ----------
        Operating income (loss)................     9,765      17,846        17,217         (124)      44,704
     Interest expense (income).................    16,374      (2,172)        2,583           --       16,785
                                                 --------    ---------     --------    ---------    ---------
     Income (loss) before income taxes.........    (6,609)     20,018        14,634         (124)      27,919
     Income tax provision (benefit)............    (5,539)      8,232         4,110           --        6,803
     Equity in subsidiaries' earnings..........    22,310      10,524                    (32,834)          --
                                                 --------    --------      --------    ----------   ---------
        Net income.............................  $ 21,240    $ 22,310      $ 10,524    $ (32,958)   $  21,116
                                                 ========    ========      ========    ==========   =========

</TABLE>

                                       20
<PAGE>

     CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
     THREE MONTHS ENDED JUNE 30, 2004

<TABLE>
<CAPTION>
                                                                        SUCCESSOR
                                                --------------------------------------------------------------
                                                                            NON-
                                                  AEARO     GUARANTOR    GUARANTOR
                                                COMPANY I  SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                                                ---------  ------------ ------------ ------------ ------------
<S>                                             <C>        <C>          <C>          <C>          <C>
     Net sales.................................  $ 72,522    $     --    $ 35,388    $ (10,784)   $  97,126
     Cost of sales.............................    52,065          --      26,893      (10,814)      68,144
                                                 --------    --------    --------    ----------   ---------
       Gross profit............................    20,457          --       8,495           30       28,982

     Selling and administrative................    20,797         344       7,008           --       28,149
     Research and technical services...........     1,251          --         715           --        1,966
     Amortization..............................        83          18          --           --          101
     Other charges (income), net...............     5,582      (6,743)      2,851           --        1,690
                                                 --------    ---------   --------    ---------    ---------
        Operating income.......................    (7,256)      6,381      (2,079)          30       (2,924)
     Interest expense (income), net............    10,152        (399)        539           --       10,292
                                                 --------    ---------   --------    ---------    ---------
     Income (loss) before income taxes.........   (17,408)      6,780      (2,618)          30      (13,216)
     Income tax provision (benefit)............    (2,875)      2,700       1,206           --        1,031
     Equity in subsidiaries' earnings..........       256      (3,824)                   3,568           --
                                                 --------    ---------   --------    ---------    ---------
        Net income (loss)......................  $(14,277)   $    256    $ (3,824)   $   3,598    $ (14,247)
                                                 =========   ========    =========   =========    ==========
</TABLE>

     CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
     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 income 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>

                                       21
<PAGE>

     CONSOLIDATING STATEMENT OF OPERATION INFORMATION
     THREE MONTHS ENDED JUNE 30, 2005
     (AS RESTATED, SEE NOTE 12)


<TABLE>
<CAPTION>
                                                                        SUCCESSOR
                                                --------------------------------------------------------------
                                                                            NON-
                                                  AEARO     GUARANTOR    GUARANTOR
                                                COMPANY I  SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                                                ---------  ------------ ------------ ------------ ------------
<S>                                             <C>        <C>          <C>          <C>          <C>
     Net sales.................................  $ 86,049    $     --    $ 40,402    $ (13,253)   $ 113,198
     Cost of Sales.............................    48,648          --      22,657      (13,181)      58,124
                                                 --------    --------    --------    ----------   ---------
        Gross profit...........................    37,401          --      17,745          (72)      55,074

     Selling and administrative................    25,628         344       8,200           --       34,172
     Research and technical services...........     1,401          --         833           --        2,234
     Amortization..............................       923          70         320           --        1,313
     Other charges (income), net...............     5,134      (7,547)      1,901           --         (512)
                                                 --------    ---------   --------    ---------    ----------
        Operating income.......................     4,315       7,133       6,491          (72)      17,867
     Interest expense (income).................     5,687        (531)        700           --        5,856
                                                 --------    ---------   --------    ---------    ---------
     Income (loss) before income taxes.........    (1,372)      7,664       5,791          (72)      12,011
     Income tax provision (benefit)............      (758)      3,140         742           --        3,124
     Equity in subsidiaries' earnings..........     9,573       5,049          --      (14,622)          --
                                                 --------    --------    --------    ----------   ---------
        Net income.............................  $  8,959    $  9,573    $  5,049    $ (14,694)   $   8,887
                                                 ========    ========    ========    ==========   =========
</TABLE>

                                       22
<PAGE>

     CONSOLIDATING BALANCE SHEET INFORMATION
     JUNE 30, 2005
     (AS RESTATED, SEE NOTE 12)


<TABLE>
<CAPTION>
                                                                            NON-
                                                  AEARO     GUARANTOR    GUARANTOR
                                                COMPANY I  SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                                                ---------  ------------ ------------ ------------ ------------
<S>                                             <C>        <C>          <C>          <C>          <C>
     Current Assets:
        Cash and cash equivalents..............  $  6,169    $    397    $  9,453    $      --    $  16,019
        Receivables, net.......................    39,813         229      20,511           --       60,553
        Inventories............................    33,091          --      11,766         (433)      44,424
        Deferred and prepaid expenses..........     4,533          --       1,069           --        5,602
                                                 --------    --------    --------    ---------    ---------
     Total current assets......................    83,606         626      42,799         (433)     126,598
                                                 --------    --------    --------    ----------   ---------

     Long Term Assets:
        Property plant and equipment...........    37,349          --      13,968           --       51,317
        Goodwill and other intangibles, net....    81,464     122,243      86,175           --      289,882
        Inter-company receivables (payables)...   (54,417)     94,199     (39,782)          --           --
        Investment in subsidiaries ............   242,966      67,292        (664)    (309,594)          --
        Other assets...........................    13,392          --          11           --       13,403
                                                 --------    --------    --------    ---------    ---------
     Total assets..............................  $404,360    $284,360    $102,507    $(310,027)   $ 481,200
                                                 ========    ========    ========    ==========   =========

     Current Liabilities:
        Current portion of long-term debt......  $  3,455    $     --    $     --    $      --    $   3,455
        Accounts payable and accrued
        liabilities............................    40,675         435      14,574           --       55,684
        Accrued interest.......................     3,067          --          --           --        3,067
        Income tax payables (receivables)......     2,012      (2,150)      2,085                     1,947
                                                 --------    ---------   --------    ---------    ---------
     Total current liabilities.................    49,209      (1,715)     16,659           --       64,153
                                                 --------    ---------   --------    ---------    ---------

     Long Term Liabilities:
        Long-term debt.........................   298,299          --          --           --      298,299
        Deferred income taxes..................     1,400      23,860      13,008           --       38,268
        Other liabilities......................    14,169          --          --           --       14,169
                                                 --------    --------    --------    ---------    ---------
     Total liabilities.........................   363,077      22,145      29,667           --      414,889
                                                 --------    --------    --------    ---------    ---------

     Stockholder's Equity:
        Common stock...........................        --          --       4,222       (4,222)          --
        Additional paid in capital.............   101,640     267,796      41,865     (309,661)     101,640
        Accumulated deficit....................   (60,890)     (8,638)     36,695         (460)     (33,293)
        Accumulated other comprehensive income
        (loss).................................       533       3,057      (9,942)       4,316       (2,036)
                                                 --------    --------    ---------   ---------    ----------
     Total stockholder's equity................    41,283     262,215      72,840     (310,027)      66,311
                                                 --------    --------    --------    ----------   ---------
     Total liabilities and stockholder's equity  $404,360    $284,360    $102,507    $(310,027)   $ 481,200
                                                 ========    ========    ========    ==========   =========
</TABLE>

                                       23
<PAGE>

     CONSOLIDATING BALANCE SHEET INFORMATION
     SEPTEMBER 30, 2004

<TABLE>
<CAPTION>
                                                                            NON-
                                                  AEARO     GUARANTOR    GUARANTOR
                                                COMPANY I  SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                                                ---------  ------------ ------------ ------------ ------------
<S>                                             <C>        <C>          <C>          <C>          <C>
     Current Assets:
        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 plant 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 stock...........................        --          --       7,396       (7,396)          --
        Additional 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>

                                       24
<PAGE>

     CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
     NINE MONTHS ENDED JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                             SUCCESSOR
                                                           ---------------------------------------------------
                                                                                        NON-
                                                             AEARO     GUARANTOR     GUARANTOR
                                                           COMPANY I  SUBSIDIARIES  SUBSIDIARIES  CONSOLIDATED
                                                           ---------  ------------  ------------  ------------
<S>                                                        <C>        <C>           <C>           <C>
     Net cash provided by operating activities.             $ 16,140    $ 12,605    $  2,795      $  31,540

     Net cash used for investing activities....               (3,508)         --      (1,832)        (5,340)

     Net cash provided by (used for) financing
        activities.............................              (24,768)    (11,660)         --        (36,428)

     Effect of exchange rate on cash and cash
        equivalents............................                   (4)       (688)       (785)        (1,477)
                                                            ---------   ---------   ---------     ----------
     Increase (decrease) in cash and cash
        equivalents............................              (12,140)        257         178        (11,705)

     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.............................             $  6,169    $    397    $  9,453      $  16,019
                                                            ========    ========    ========      =========
</TABLE>

     CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
     THREE MONTHS ENDED JUNE 30, 2004


<TABLE>
<CAPTION>
                                                                         PREDECESSOR
                                                        ---------------------------------------------------
                                                                                     NON-
                                                          AEARO     GUARANTOR     GUARANTOR
                                                        COMPANY I  SUBSIDIARIES  SUBSIDIARIES  CONSOLIDATED
                                                        ---------  ------------  ------------  ------------
<S>                                                     <C>        <C>           <C>           <C>
     Net cash provided by operating activities.          $  5,096    $  5,352    $  3,346      $  13,794

     Net cash used for investing activities....            (2,196)         --        (614)        (2,810)

     Net cash provided by (used for) financing
        activities.............................            (2,814)     (5,796)      5,025         (3,585)

     Effect of exchange rate on cash and cash
        equivalents............................             2,051        (210)     (2,699)          (858)
                                                         --------    ---------   ---------     ----------
     Increase (decrease) in cash and cash
        equivalents............................             2,137        (654)      5,058          6,541

     Cash and cash equivalents at the
        beginning of the period................               893         751       3,669          5,313
                                                         --------    ---------   ---------     ----------

     Cash and cash equivalents at the end of
        the period.............................          $  3,030    $     97    $  8,727      $  11,854
                                                         ========    =========   =========     ==========
</TABLE>

                                       25
<PAGE>

     CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
     SIX MONTHS ENDED MARCH 31, 2004

<TABLE>
<CAPTION>
                                                                 PREDECESSOR
                                                ---------------------------------------------------
                                                                             NON-
                                                  AEARO     GUARANTOR     GUARANTOR
                                                COMPANY I  SUBSIDIARIES  SUBSIDIARIES  CONSOLIDATED
                                                ---------  ------------  ------------  ------------
<S>                                             <C>        <C>           <C>           <C>
     Net cash provided by (used for) operating
        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 and cash
        equivalents............................       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>


12)  RESTATEMENT

     Subsequent to the issuance of the Company's condensed consolidated
     financial statements for the three and nine month periods ended June 30,
     2005 the Company's management determined that the tax effects of the Merger
     were accounted for incorrectly, as follows: a valuation allowance was
     recorded as an income tax benefit and should have been recorded as a
     reduction of goodwill, a mathematical error in the deferred tax
     calculation, pre and post Merger net operating loss carryforwards were not
     properly adjusted reflect actual 2004 taxable loss amounts from income tax
     returns filed during the quarter, and the deferred tax asset and goodwill
     for carryover tax basis goodwill was incorrect. As a result, the
     accompanying condensed consolidated financial statements have been restated
     from amounts previously reported. A summary of the significant effects of
     the restatement is as follows:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                        NINE MONTHS ENDED
                                                     JUNE 30, 2005                            JUNE 30, 2005
                                          AS PREVIOUSLY                               AS PREVIOUSLY
                                            REPORTED             AS RESTATED            REPORTED          AS RESTATED
                                          -------------          -----------          -------------       -----------
<S>                                       <C>                    <C>                  <C>                 <C>
For the period ended:
Provision (benefit) for income
taxes                                     $       1,569          $     3,124          $         358       $     6,803
Net Income                                       10,442                8,887                 27,561            21,116


As of June 30, 2005:
Goodwill, net                                   116,596              107,832
Total assets                                    489,964              481,200
Deferred income taxes                            40,587               38,268
Total liabilities                               417,208              414,889
Accumulated deficit                             (26,848)             (33,293)
Total stockholder's equity                       72,756               66,311
Total liabilities and
stockholder's equity                            489,964              481,200
</TABLE>


                                       26
<PAGE>

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

     The accompanying management's discussion and analysis of financial
     condition and results of operations gives effect to the restatement of the
     condensed consolidated financial statements as of and for the three and
     nine months ended June 30, 2005 as discussed in Note 12 to the Company's
     condensed financial statements in Item 1 of Form 10-Q/A.

     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 ("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.

                                       27
<PAGE>

     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 was pushed down
     to the Company. 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.


RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2004.

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


                              RESULTS OF OPERATIONS
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED JUNE 30,
                                                 ---------------------------------------------------------
                                                     2005             %             2004             %
                                                 --------------   ---------    --------------     --------
<S>                                              <C>              <C>          <C>                <C>
     Net sales:
        Safety Products                          $       86,161        76.1    $       73,966         76.2
        Safety Prescription Eyewear                      10,493         9.3            10,126         10.4
        Specialty Composites                             16,544        14.6            13,034         13.4
                                                 --------------   ---------    --------------     --------
           Total net sales                              113,198       100.0            97,126        100.0
     Cost of sales                                       58,124        51.3            68,144         70.2
                                                 --------------   ---------    --------------     --------
     Gross profit                                        55,074        48.7            28,982         29.8
                                                 --------------   ---------    --------------     --------

     Operating expenses:
        Selling and administrative                       34,172        30.1            28,149         29.0
        Research and technical services                   2,234         2.0             1,966          2.0
        Amortization                                      1,313         1.2               101          0.1
        Other charges (income), net                        (512)       (0.4)            1,690          1.7
                                                 ---------------  ----------   --------------     --------
           Total operating expense                       37,207        32.9            31,906         32.8
     Operating income (loss)                             17,867        15.8            (2,924)        (3.0)
     Interest expense, net                                5,856         5.2            10,292         10.6
                                                 --------------   ---------    --------------     --------
        Income (loss) before income taxes                12,011        10.6           (13,216)       (13.6)
     Provision for income taxes                           3,124         2.8             1,031          1.1
                                                 --------------   ---------    --------------     --------
        Net income (loss)                        $        8,887         7.8    $      (14,247)       (14.7)
                                                 ==============   =========    ===============    =========
</TABLE>

                                       28
<PAGE>

     Net sales for the three months ended June 30, 2005 increased 16.6% to
     $113.2 million from $97.1 million in the three months ended June 30, 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 $1.8 million. The Safety Products segment net sales for the three months
     ended June 30, 2005 increased 16.5% to $86.2 million from $74.0 million in
     the three months ended June 30, 2004. The increase in net sales resulted
     from a 14.2% increase in organic growth and a 2.3% increase due to foreign
     currency translation. Organic sales for the Safety Products segment,
     defined as net sales less the impact of foreign currency translation and
     acquisitions, have increased for thirteen consecutive quarters, when
     compared to the same quarter of the prior year. 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 June 30, 2005 increased 3.6%
     to $10.5 million from $10.1 million for the three months ended June 30,
     2004. The increase in net sales resulted from a 2.8% increase in organic
     growth and a 0.8% increase from foreign currency translation. Specialty
     Composites' net sales for the three months ended June 30, 2005 increased
     26.9% to $16.5 million from $13.0 million in three months ended June 30,
     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 eight quarters.

     Gross profit for the three months ended June 30, 2005 increased to $55.1
     million from $29.0 million for the three months ended June 30, 2004. Gross
     profit in the three months ended June 30, 2004 was negatively impacted by
     the non-recurring charge of $17.1 million resulting from the write-up in
     inventory required by SFAS No. 141 on the merger date and subsequent sale
     of such inventory. Excluding the effects of the SFAS No. 141 adjustment,
     gross profit as a percentage of net sales for the three months ended June
     30, 2005 was 48.7% as compared to 47.4% for the three months ended June 30,
     2004. The 130 basis point improvement in the gross profit percentage is
     primarily due to product mix and productivity, accounting for approximately
     100 basis points, with the remainder due primarily 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 June 30, 2005 increased 20.0% to $43.3
     million from $36.1 million in the three months ended June 30, 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 16.9% of the
     increase in gross profit with foreign currency translation contributing the
     remaining 3.1% of the increase. The Safety Prescription Eyewear segment
     gross profit in the three months ended June 30, 2005 increased 0.4% to $4.6
     million from $4.5 million in the three months ended June 30, 2004. The
     increase was primarily the result of a 3.6% improvement due to sales volume
     and a 3.2% reduction due to product mix. Specialty Composites' gross profit
     in the three months ended June 30, 2005 increased 33.3% to $7.2 million
     from $5.4 million in the three months ended June 30, 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 26.9% of the increase in the Specialty Composites
     gross profit was due to volume increases with the remaining 6.4% of the
     increase due to product mix.

                                       29
<PAGE>

     Operating expenses for the three months ended June 30, 2005 increased 16.6%
     to $37.2 million from $31.9 million for the three months ended June 30,
     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 $2.1 million due to
     variable selling expenses such as freight, commissions, travel and
     marketing, $1.5 million of legal and consulting fees related to strategic
     alternatives such as acquisitions and debt financing and a $0.4 million
     increase due to foreign currency translation. In addition, in the three
     months ended June 30, 2004, the Company adjusted approximately $1.0 million
     of expenses incurred as a result of the merger due to the allocation of
     purchase price as required by SFAS No. 141. Selling and administrative
     expenses as a percentage of net sales increased to 30.1% for the three
     months ended June 30, 2005 as compared to 29.0% for the three months ended
     June 30, 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. Other charges
     (income), net included approximately $0.5 million favorable impact of
     foreign currency transaction expenses in the three months ended June 30,
     2005 as compared to $1.7 million of expense in the three months ended June
     30, 2004, which included approximately $1.5 million of expense to call the
     Company's 12.5% senior subordinated notes to effect the Merger.

     Interest expense, net, for the three months ended June 30, 2005 decreased
     to $5.9 million from $10.3 million for the three months ended June 30,
     2004. Interest expense in the three months ended June 30, 2004 included
     approximately $4.0 million of expense related to the write off of deferred
     financing fees and approximately $1.0 million of incremental interest
     expense related to the redemption of the 12.5% senior subordinated notes as
     a result of the Merger.

     The provision for income taxes for the three months ended June 30, 2005
     increased to $3.1 million from $1.0 million for the three months ended June
     30, 2004.

     The following discussion provides a comparison of the results of operations
     for the successor company and that of the predecessor company for the nine
     months ended June 30, 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.


                                       30
<PAGE>

                              RESULTS OF OPERATIONS
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED JUNE 30,
                                                 ---------------------------------------------------------
                                                   2005 (1)           %           2004 (1)           %
                                                 --------------   ---------    --------------     --------
     Net sales:                                          SUCCESSOR                     PREDECESSOR
                                                 --------------   ---------    --------------     --------
<S>                                              <C>              <C>          <C>                <C>
        Safety Products                          $      235,926        75.3    $      201,930         75.7
        Safety Prescription Eyewear                      29,706         9.5            30,463         11.4
        Specialty Composites                             47,805        15.2            34,312         12.9
                                                 --------------   ---------    --------------     --------
           Total net sales                              313,437       100.0           266,705        100.0
     Cost of sales                                      159,757        51.0           157,200         58.9
                                                 --------------   ---------    --------------     --------
     Gross profit                                       153,680        49.0           109,505         41.1
                                                 --------------   ---------    --------------     --------

     Operating expenses:
        Selling and administrative                       98,583        31.5            84,984         31.9
        Research and technical services                   6,665         2.1             5,589          2.1
        Amortization                                      3,928         1.3               343          0.1
        Other charges (income), net                        (200)       (0.1)            1,184          0.4
        Restructuring                                        --          --            (1,091)        (0.4)
                                                 --------------   ---------    ---------------    ---------
           Total operating expense                      108,976        34.8            91,009         34.1
     Operating income                                    44,704        14.2            18,496          6.9
     Interest expense, net                               16,785         5.3            21,128          7.9
                                                 --------------   ---------    --------------     --------
        Income (loss) before income taxes                27,919         8.9            (2,632)        (1.0)
     Provision for income taxes                           6,803         2.2             3,051          1.1
                                                 --------------   ---------    --------------     --------
        Net income (loss)                        $       21,116         6.7    $       (5,683)        (2.1)
                                                 ==============   =========    ===============    =========
</TABLE>


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


     Net sales for the nine months ended June 30, 2005 increased 17.5% to $313.4
     million from $266.7 million in the nine months ended June 30, 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 $7.0 million. The Safety Products segment net sales for the nine months
     ended June 30, 2005 increased 16.8% to $235.9 million from $201.9 million
     in the nine months ended June 30, 2004. The increase in net sales resulted
     from a 13.5% increase in organic growth and a 3.3% increase due to foreign
     currency translation. Organic sales for the Safety Products segment,
     defined as net sales less the impact of foreign currency translation and
     acquisitions, have increased for thirteen consecutive quarters, when
     compared to the same quarter of the prior year. 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 nine months ended June 30, 2005 decreased 2.5% to
     $29.7 million from $30.5 million for the nine months ended June 30, 2004.
     The decrease in net sales resulted from a 3.3% reduction in volume
     partially offset by 0.8% increase from foreign currency translation.
     Specialty Composites' net sales for the nine months ended June 30, 2005
     increased 39.3% to $47.8 million from $34.3 million in nine months ended
     June 30, 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 eight quarters.

                                       31
<PAGE>

     Gross profit for the nine months ended June 30, 2005 increased 40.3% to
     $153.7 million from $109.5 million for the nine months ended June 30, 2004.
     Gross profit in the nine months ended June 30, 2004 was negatively impacted
     by the non-recurring charge of $17.1 million resulting from the write-up in
     inventory required by SFAS No. 141 on the merger date and subsequent sale
     of such inventory. Excluding the effects of the SFAS No. 141 adjustment,
     gross profit as a percentage of net sales for the nine months ended June
     30, 2005 was 49.0% as compared to 47.5% for the nine months ended June 30,
     2004. The 150 basis point improvement in the gross profit percentage is
     primarily due to product mix and productivity, accounting for approximately
     120 basis points, with the remainder due primarily 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 nine months ended June 30, 2005 increased 20.9% to $119.5
     million from $98.9 million in the nine months ended June 30, 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 19.8% of the
     increase in gross profit with foreign currency translation contributing the
     remaining 1.0% of the increase. The Safety Prescription Eyewear segment
     gross profit in the nine months ended June 30 2005 decreased 6.3% to $13.3
     million from $14.2 million in the nine months ended June 30, 2004. The
     decrease was primarily the result of a 2.5% reduction due to a decrease in
     sales volume and a 3.9% reduction due to product mix. Specialty Composites'
     gross profit in the nine months ended June 30, 2005 increased 52.9% to
     $20.8 million from $13.6 million in the nine months ended June 30, 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 39.3% of the increase in the
     Specialty Composites gross profit was due to volume increases with the
     remaining 14.3% of the increase due to product mix.

     Operating expenses for the nine months ended June 30, 2005 increased 19.7%
     to $109.0 million from $91.0 million for the nine months ended June 30,
     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 $2.2 million due to
     performance based incentives related to the increase in sales volume, $2.0
     million related to variable marketing programs and travel, $1.6 million due
     to foreign currency translation, $1.8 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 31.5% for the nine months ended June 30, 2005 as compared
     to 31.9% for the nine months ended June 30, 2004. Amortization expense
     increased approximately $3.6 million due to the allocation of purchase
     price to finite lived intangible assets required by SFAS No. 141 due to the
     Merger Agreement. The decrease in other charges, net was attributed to
     foreign currency transaction expenses in the nine months ended June 30,
     2005 as compared to $1.2 million of expense in the nine months ended June
     30, 2004, which included approximately $1.5 million of expense to call the
     Company's 12.5% senior subordinated notes to effect the merger. The
     restructuring provision adjustment of $1.1 million of income in the nine
     months ended June 30, 2004 was the result of a change in estimate relating
     to non-cancelable leases.

                                       32
<PAGE>

     Interest expense, net, for the nine months ended June 30, 2005 decreased to
     $16.8 million from $21.1 million for the nine months ended June 30, 2004.
     Interest expense in the nine months ended June 30, 2004 included
     approximately $4.0 million of expense related to the write off of deferred
     financing fees and approximately $1.0 million of incremental interest
     expense related to the redemption of the 12.5% senior subordinated notes as
     a result of the Merger.

     The provision for income taxes for the nine months ended June 30, 2005
     increased to $6.8 million from $3.1 million for the nine months ended June
     30, 2004.

     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 purposes, and (iii) an uncommitted incremental term loan
     facility of up to $75.0 million for acquisitions (collectively, the "Senior
     Bank Facilities"). Since the Acquisition Date, the Company's debt has been
     negatively impacted by $ 0.3 million related to the fluctuation of the Euro
     relative to the U.S dollar as of June 30, 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 were
     approximately $123.8 million and $126.0 million at June 30, 2005 and
     September 30, 2004, respectively. There were no amounts outstanding under
     the Revolving Credit Facility at June 30, 2005 and September 30, 2004,
     respectively. 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 June 30, 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 June 30, 2005.

                                       33
<PAGE>

     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. In
     addition, the amendment (i) modified the amount of the incremental Term
     Loan commitment from $60.0 million to $75.0 million (ii) eliminated the
     termination date for the incremental Term Loan commitment and (iii) allowed
     for incremental Term Loans in Euros.

     On May 5, 2005, the Company's Board of Directors declared a cash dividend
     of approximately $35 million to be paid to the Company's parent, Aearo
     Corporation, the sole holder of common stock. On May 7, 2005 Aearo
     Corporation paid a cash dividend to AC Safety Holding Corp., the Company's
     ultimate parent, who used the proceeds to make a partial redemption of its
     preferred stock. The Company used 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 $5.4 million and $7.8 million, respectively,
     for capital expenditures for the nine months ended June 30, 2005 and 2004,
     respectively. The Company anticipates it will spend approximately $9.5
     million for capital expenditures in its fiscal year ending September 30,
     2005.

     The Company's net cash provided by operating activities for the nine months
     ended June 30, 2005 totaled $31.5 million as compared to $22.8 million for
     the nine months ended June 30, 2004. The increase of $8.7 million was
     primarily due to a $26.8 million improvement in net income adjusted for
     non-cash charges (depreciation, amortization, deferred taxes and other),
     partially offset by a $18.1 million reduction from the net changes in
     assets and liabilities.

     Net cash used for investing activities was $5.3 million for the nine months
     ended June 30, 2005 as compared to $7.8 million for the nine months ended
     June 30, 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 nine months ended June 30,
     2005 was $36.4 million compared with $8.8 million for the nine months ended
     June 30, 2004. The change is primarily due to the cash dividend paid to our
     Parent as mentioned above.

     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 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.

                                       34
<PAGE>

     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 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.

                                       35
<PAGE>

     In fiscal 2003 and 2004, the Company 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 the Company
     was not a proper defendant or did not make the product in question. As of
     September 30, 2004, the number of open claims where the Company was named
     as a defendant in silica and asbestos related matters was 11,087 and 4,282,
     respectively. For the nine months ended June 30, 2005, the increases in
     number of claims where the Company was named as a defendant in silica and
     asbestos related matters was 2,122 and 1,010 respectively. The 1,010 new
     asbestos claims include 114 claims that allege exposure from clothing,
     which the Company never manufactured. One claim was settled for $17.85
     where the Company was named as a defendant in silica related matters during
     the nine months ended June 30, 2005. No claims were settled where the
     Company was named as a defendant in asbestos related matters during the
     nine months ended June 30, 2005. As of June 30, 2005, the number of open
     claims where the Company was named as a defendant in silica and asbestos
     related matters was 12,739 and 4,095, respectively.

     In addition to the above claims, the Company 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 nine
     months ended June 30, 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 June
     30, 2005 Aearo paid a total of $164.72 for three additional claims that
     were settled during that time period and paid a total of $0.4 million for
     administrative and defense costs involving both claims in which Aearo was
     named as a defendant and Additional Claims. 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.

     The above information was based on data provided by Simon Peragine Smith,
     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. This
     information may be subject to future adjustment in light of new information
     becoming available. 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 June 30, 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.

                                       36
<PAGE>

     At June 30, 2005 and September 30, 2004, the Company has recorded
     liabilities of approximately $4.6 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 $0.8 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 the prior 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 June 30, 2005:


<TABLE>
<CAPTION>
                                              (1)                              2010 AND
                                             2005      2006-2007   2008-2009     AFTER       TOTAL
                                         ----------  ----------  ----------  ----------  ----------
<S>                                      <C>         <C>         <C>         <C>         <C>
     Capital lease obligations           $       88  $      705  $      368  $       32  $    1,193
     Operating lease obligations                905       5,711       4,972       5,434      17,022
     Mortgage obligations                        90       2,048          --          --       2,138
     Purchase obligations                     1,021       6,680       6,402          --      14,103
     Respiratory commitment                     100         800         800         800       2,500
     Long term debt                           5,626      43,403      43,173     320,028     412,230
                                         ----------  ----------  ----------  ----------  ----------
     Total                               $    7,830  $   59,347  $   55,715  $  326,294  $  449,186
                                         ==========  ==========  ==========  ==========  ==========

</TABLE>

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

     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 $1.6 million of
     letters of credit outstanding as of June 30, 2005 and does not anticipate
     significant changes to its outstanding letters of credit in the future.

                                       37
<PAGE>

     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.

     NEW ACCOUNTING PRONOUNCEMENTS

     In December 2004, the FASB enacted Statement of Financial Accounting
     Standards No. 123R, "Share-Based Payment" ("SFAS No. 123R") which replaces
     Statement of Financial Accounting Standards No. 123, "Accounting for
     Stock-Based Compensation" ("SFAS No. 123") and supersedes APB Opinion No.
     25, "Accounting for Stock Issued to Employees." SFAS No. 123R requires the
     measurement of all employee share-based payments to employees, including
     grants of employee stock options, using a fair-value-based method and the
     recording of such expense in our results of operations. The accounting
     provisions of SFAS No. 123R will be adopted by the Company on October 1,
     2005. The pro forma disclosures previously permitted under SFAS No. 123 no
     longer will be an alternative to financial statement recognition. The
     Company is in the process of evaluating the impact of SFAS 123R to its
     financial position and results of operations.

     In May 2005, the FASB issued Statement No. 154, "Accounting Changes and
     Error Corrections" (SFAS 154). SFAS 154 replaces APB Opinion No. 20,
     "Accounting Changes" and FASB Statement No. 3,"Reporting Accounting Changes
     in Interim Financial Statements" SFAS 154 requires that a voluntary change
     in accounting principle be applied retrospectively with all prior period
     financial statements. presented on the new accounting principle, unless it
     is impracticable to do so. SFAS 154 also provides that a correction of
     errors in previously issued financial statements should be termed a
     "restatement." The new standard is effective for accounting changes and
     correction of errors beginning October 1, 2005. The Company does not expect
     that the adoption of SFAS 154 will have a material impact on our
     consolidated financial position or results of operations.

                                       38
<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 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 gain of approximately
     $ 0.3 million and $ 0.1 million for the three and nine month periods ended
     June 30, 2005, respectively, compared to net loss of $ 0.3 million and $
     0.6 million, respectively for the three and nine month periods ended June
     30, 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. During the three month period ended June 30, 2005, the Company
     entered into three new forward foreign currency contract derivatives that
     protect the Company against exchange rate movement during fiscal 2006. As
     result of the new forward currency contracts, the Company has recorded a
     derivative payable of $0.4 million at June 30, 2005. For the three and nine
     month periods ended June 30, 2004, the Company reclassified into earnings
     net losses of $0 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. 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.

                                       39
<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 nine-month period ending June 30,
     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.


                                       40
<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 June 30, 2005,
and, based on the material weakness in our internal control over financial
reporting described below, have determined that such disclosure controls and
procedures were ineffective. In response to this material weakness, management
performed additional analysis and other procedures to ensure that our restated
condensed consolidated financial statements included in this Form 10-Q/A were
prepared in accordance with generally accepted accounting principles.
Accordingly, management, including our Chief Executive Officer and Chief
Financial Officer, believes that the restated condensed consolidated financial
statements included in this Form 10-Q/A fairly present in all material respects
our financial condition, results of operations and cash flows for the periods
presented. The material weakness identified had no effect on our cash provided
by operating activities or operating income.

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the Exchange
Act. Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
material misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies
and procedures may deteriorate.

A material weakness is a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. As of the end of the period covered by this Form 10-Q/A, we
identified the following material weakness in our internal control over
financial reporting: there was a deficiency in the design of our internal
control for interim reporting of the tax effects of book and tax bases
differences for complex, non-routine business combinations. As more fully
explained in Note 12 to the condensed consolidated financial statements
contained in this Form 10-Q/A, goodwill, deferred income taxes, net income,
accumulated deficit and income tax provision (benefit) were misstated in the
Form 10-Q originally filed for the quarterly period ended June 30, 2005 as a
result of this deficiency.

To remediate the material weakness referred to above, the Company implemented
additional controls and procedures to ensure that interim reporting of the tax
effects of book and tax bases differences for complex, non-routine business
combinations in the future will be properly recorded.

Other than the changes referred to above, there has been no change in the
Company's internal control over financial reporting during the quarter ended
June 30, 2005, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.


                                       41
<PAGE>

Part II - Other Information

     ITEM 6. EXHIBITS

(a)  Exhibits
     See Index of Exhibits on page 44 hereof.


                                       42
<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:  November 21, 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)


                                       43
<PAGE>

Exhibit Index


     EXHIBITS                           DESCRIPTION
     --------                           -----------

     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.


                                       44