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

                                    FORM 10-Q


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

                  For the quarterly period ended June 30, 2004

                                       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                                13-3840456
     (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 __ No X
     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 14, 2004 was 100.





<PAGE>

                                 Aearo Company I
                                TABLE OF CONTENTS
             Form 10-Q for the Quarterly Period Ended June 30, 2004

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

Item 1.Financial Statements...................................................3

Condensed Consolidated Balance Sheets - Assets................................3
Condensed Consolidated Balance Sheets - Liabilities
  and Stockholder's Equity....................................................4
Consolidated Statement of Stockholder's Equity................................5
Condensed Consolidated Statements of Operations...............................6
Condensed Consolidated Statements of Cash Flows...............................7
Notes To Condensed Consolidated Financial Statements..........................8

Item 2. Management's Discussion and Analysis of Financial Condition
   and Results of Operations.................................................23

Item 3. Quantitative and Qualitative Disclosures About Market Risk...........34

Item 4. Controls and Procedures..............................................36

PART II - OTHER INFORMATION..................................................37

Item 6.Exhibits and Reports on Form 8-K......................................37

SIGNATURES...................................................................38

EXHIBIT INDEX................................................................39



<PAGE>
                          PART I-FINANCIAL INFORMATION
Item 1.Financial Statements


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




                                                 Successor          Predecessor
                                               ------------          ----------
                                                  June 30,        September 30,
                                                    2004                   2003
                                               ------------          ----------
                                               (Unaudited)    |
CURRENT ASSETS:                                               |
 Cash and cash equivalents                     $    11,854    |       $   7,301
 Accounts receivable (net of allowance                        |
  for doubtful accounts of                                    |
  $1,464 and $1,358, respectively)                  53,650    |          49,146
 Inventories                                        41,343    |          37,269
 Deferred and prepaid expenses                       4,212    |           7,321
                                               -----------    |       ---------
  Total current assets                             111,059    |         101,037
                                               -----------    |       ---------
                                                              |
LONG TERM ASSETS:                                             |
 Property, plant and equipment, net                 47,398    |          48,869
 Goodwill, net                                     209,240    |          81,770
 Other intangible assets, net                       57,665    |          57,887
 Other assets                                       13,139    |           3,953
                                               -----------    |       ---------
                                                              |
  Total assets                                 $   438,501    |       $ 293,516
                                                ===========   |       =========



                                      -3-
<PAGE>


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



                                           Successor        Predecessor
                                          ----------       --------------
                                           June 30,         September 30,
                                             2004              2003
                                          ----------   |    --------------
                                         (Unaudited)   |
                                                       |
CURRENT LIABILITIES:                                   |
 Current portion of long-term debt        $  1,621     |     $      17,767
 Accounts payable and                                  |
  accrued liabilities                       44,033     |            44,043
 Accrued interest                            3,336     |             2,566
 U.S. and foreign income taxes               1,088     |             1,746
                                          ---------    |      ------------
   Total current liabilities                50,078     |            66,122
                                          ---------    |      ------------
                                                       |
LONG TERM LIABILITIES:                                 |
 Long-term debt                            302,281     |           180,786
 Deferred income taxes                       1,674     |             1,609
 Due to parent                                         |               207
 Other liabilities                          12,864     |            11,334
                                          ---------    |      ------------
  Total liabilities                        366,897     |           260,058
                                          ---------    |      ------------
                                                       |
                                                       |
STOCKHOLDER'S EQUITY:                                  |
 Common stock, $.01 par value-                         |
  Authorized--100 shares                               |
  Issued and outstanding--100 shares             -     |                 -
 Paid in capital                           101,300     |            32,531
 Retained earnings (deficit)               (28,552)    |             7,713
 Accumulated other comprehensive loss       (1,144)    |            (6,786)
                                         -----------   |      ------------
   Total stockholder's equity               71,604     |            33,458
                                         -----------   |      ------------
   Total liabilities                                   |
    and stockholder's equity             $ 438,501     |      $    293,516
                                         ===========         =============



                                      -4-
<PAGE>

                        AEARO COMPANY I AND SUBSIDIARIES
                 Consolidated Statement of Stockholder's Equity
                      (In Thousands, Except Share Amounts)

<TABLE>

                                                        Additional             Accumulated
                                                          Paid      Retained      Other                 Comprehensive
                                        Common             In       Earnings   Comprehensive               Income
                                    Shares  Amount       Capital   (Deficit)       Loss       Total        (Loss)
<S>                                 <C>     <C>         <C>        <C>         <C>           <C>        <C>
                                    ------- --------    ---------- ----------- ------------- --------   -------------
Balance, October 1, 2002               100   $    -     $  32,531  $    6,532  $  (17,536)   $21,527

  Foreign currency translation
   adjustment                            -        -             -           -         9,080    9,080    $     9,080
  Unrealized loss on derivative
   instruments                           -        -             -           -         (390)    (390)           (390)
  Net minimum pension liability
   adjustment                                                                         2,060    2,060          2,060
  Dividend to parent                                                  (19,506)               (19,506)
  Net income                             -        -             -      20,687             -   20,687         20,687
                                                                                                        -------------
  Comprehensive income                   -        -             -           -             -             $    31,437
                                    ------- --------    ---------- ----------- ------------- --------   =============
Balance, September 30, 2003            100        -         32,531      7,713       (6,786)   33,458
                                    ------- --------    ---------- ----------- ------------- --------

  Net income                             -        -             -       8,564             -    8,564           8,564
  Foreign currency translation
   adjustment                                                                         1,688    1,688           1,688
  Net minimum pension liability
   adjustment                                                                             4        4               4
                                                                                                        -------------
  Comprehensive income                                                                                    $   10,256
                                                                                                        =============
                                    ------- --------    ---------- ----------- ------------- --------
Balance, March 31, 2004                 100        -        32,531     16,294        (5,094)   43,714
                                    ------- --------    ---------- ----------- ------------- --------



 Capital contribution                  100        -       101,300                            101,300
 Unrealized loss on derivative
  instruments                            -        -             -           -         (112)     (112)     $     (112)
 Foreign currency translation
  adjustment                             -        -             -           -       (1,032)   (1,032)         (1,032)
 Dividend to parent                                                   (14,305)               (14,305)
 Net loss                                 -        -             -    (14,247)           -   (14,247)       (14,247)
                                                                                                        -------------
 Comprehensive loss                     -        -             -           -             -        -     $  (15,391)
                                                                                                        =============
                                    ------- --------    ---------- ----------- ------------- --------
Balance, June 30, 2004                 100  $     -     $ 101,300  $(28,552)    $    (1,144)  $71,604
                                    ======= ========    ========== =========== ============= ========





                                      -5-
<PAGE>


</TABLE>

                        AEARO COMPANY I AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations
                                 (In Thousands)
                                   (Unaudited)
<TABLE>

                                                                       Three        Six         Nine
                                                                       Months      Months      Months
                                               Three Months Ended      Ended       Ended       Ended
                                                    June 30,          June 30,   March 31,    June 30,
                                            -------------------------------------------------------------
                                             Successor  Predecessor  Successor        Predecessor
                                            -------------------------------------------------------------
                                                2004   |    2003        2004     |   2004        2003
                                                ----   |    ----        ----     |   ----        ----
<S>                                           <C>          <C>         <C>          <C>         <C>
           Net Sales                          $ 97,126 |   $ 86,723    $ 97,126  |  $ 169,579   $ 232,126
           Cost of sales                        68,144 |     45,768      68,144  |     89,056     121,325
                                              -------- |   --------    --------  |  ---------   ---------
             Gross profit                       28,982 |     40,955      28,982  |     80,523     110,801
                                                       |                         |
           Selling and administrative           28,149 |     26,218      28,149  |     56,835      75,406
           Research and technical services       1,966 |      1,462       1,966  |      3,623       4,671
           Amortization                            101 |         62         101  |        242         194
           Other charges                         1,690 |        734       1,609  |       (506)      1,691
           Restructuring                            -- |         --          --  |     (1,091)          -
                                              -------- |   --------    --------  |  ----------  ---------
              Operating income (loss)           (2,924)|     12,479      (2,924) |     21,420      28,839
           Interest expense                     10,292 |      4,737      10,292  |     10,836      14,701
                                              -------- |   --------    --------  |  ---------   ---------
              Income (loss) before                     |                         |
              provision for income taxes       (13,216)|      7,742     (13,216) |     10,584      14,138
           Provision for income taxes            1,031 |      1,364       1,031  |      2,020       4,039
                                              -------- |   --------    --------  |  ---------   ---------
              Net income (loss).............  $(14,247)|   $  6,378    $(14,247) |  $   8,564   $  10,099
                                              =========|   ========    ========= |  =========   =========



</TABLE>

                                      -6-
<PAGE>




                        AEARO COMPANY I AND SUBSIDIARIES
                 Condensed Consolidated Statements of Cash Flows
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
                                                                      Three        Six         Nine
                                                                      Months      Months      Months
                                                                      Ended       Ended       Ended
                                                                     June 30,   March 31,    June 30,
                                                                   -------------------------------------
                                                                         Successor        Predecessor
                                                                   -------------------------------------
                                                                       2004    |    2004        2003
                                                                       ----    |    ----        ----
CASH FLOWS FROM OPERATING ACTIVITIES:                                          |
<S>                                                                  <C>          <C>         <C>
Net income (loss)                                                    $(14,247) |  $  8,564    $ 10,099
Adjustments to reconcile net income (loss) to cash provided by                 |
   operating activities-                                                       |
   Depreciation                                                         3,006  |     5,931       8,175
   Amortization of intangible assets and deferred financing costs       4,335  |     2,283       1,422
   Inventory purchase accounting adjustment                            17,067  |        --          --
   Restructuring adjustment                                                --  |    (1,091)         --
   Deferred income taxes                                                   (7) |       (15)        (14)
   Other, net                                                             139  |       682         386
   Changes in assets and liabilities-(net of effects of                        |
   acquisitions)                                                               |
      Accounts receivable                                              (2,242) |    (1,113)      2,015
      Inventories                                                           2  |    (3,464)     (1,083)
      Income taxes payable                                                522  |    (1,168)      3,001
      Accounts payable and accrued liabilities                          4,513  |    (3,221)      5,261
      Other, net                                                          706  |     1,647      (1,223)
                                                                     --------  |  --------    ---------
       Net cash provided by operating activities                       13,794  |     9,035      28,029
                                                                     --------  |  --------    --------
                                                                               |
CASH FLOWS FROM INVESTING ACTIVITIES:                                          |
   Additions to property, plant and equipment                          (2,810) |    (5,006)     (7,525)
   Acquisitions, net of cash                                               --  |        --     (11,062)
   Proceeds provided by disposals of property, plant and equipment         --  |        12          22
                                                                     --------  |  --------    --------
       Net cash used by investing activities                           (2,810) |    (4,994)    (18,565)
                                                                     --------- |  ---------   ---------
                                                                               |
CASH FLOWS FROM INVESTING ACTIVITIES:                                          |
   Distribution to shareholders of parent                             (86,852) |        --          --
   Repayment of revolving credit facility                             (15,600) |     3,950          --
   Repayment of old credit facility                                   (78,333) |    (8,949)     (9,580)
   Proceeds from new credit facility                                  125,000  |        --          --
   Repayment of 12.50% senior subordinated notes                      (98,000) |        --          --
   Proceeds from 8.25% senior subordinated notes                      175,000  |        --          --
   Debt issue costs                                                   (10,408) |        --          --
   Dividend to parent                                                 (14,305) |        --          --
   Repayment of capital lease obligations                                 (61) |      (122)       (164)
   Repayment of long term debt                                            (26) |      (119)        (57)
                                                                     --------- |  ---------   ---------
       Net cash used for financing activities                          (3,585) |    (5,240)     (9,801)
                                                                     --------- |  ---------   ---------
                                                                               |
EFFECT OF EXCHANGE RATE ON CASH                                          (858) |      (789)        914
                                                                     --------- |  ---------   --------
                                                                               |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        6,541  |    (1,990)        577
                                                                               |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          5,313  |     7,301      14,480
                                                                     --------  |  --------    --------
                                                                               |
CASH AND CASH EQUIVALENTS, END OF PERIOD                             $ 11,854  |  $  5,313    $ 15,057
                                                                     ========  |  ========    ========

NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Capital Lease Obligations                                         $     --    $           $    430
                                                                     ========    ========    ========

CASH PAID FOR:
Interest                                                             $  4,787    $  8,862    $ 10,538
                                                                     ========    ========    ========
Income Taxes                                                         $    552    $  3,254    $  1,332
                                                                     ========    ========    ========


</TABLE>

                                      -7-
<PAGE>

                        AEARO COMPANY I AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                  JUNE 30, 2004

                                   (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
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  included in the  registration  statement filed on June 18, 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.

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,  the Company's parent, entered into a
merger  agreement  with AC Safety Holding Corp.  and its  subsidiary,  AC Safety
Acquisition  Corp.  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  $408.4  million,  including  fees and  expenses.  The  merger was
financed with  approximately  $303.4 million of new debt as discussed in Note 6,
$3.7 million of assumed debt and $101.3 million of equity. The Company continues
to be wholly-owned by Aearo Corporation after the merger.

     Approximately $86.9 million of proceeds from the merger was used to pay the
shareholders of the parent to effect the merger transaction. An additional $14.3
million 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 unaudited  balance sheet as of June 30, 2004 and the
results  of  operations  (unaudited)  subsequent  to the  Acquisition  Date  are
presented  on a  different  basis of  accounting  than the  balance  sheet as of
September  30,  2003 and the  results  of  operations  (unaudited)  prior to the
Acquisition  Date,  and  therefore  are not  directly  comparable.  The sale was
accounted for as if it had occurred on March 31, 2004, as management  determined
that results of operations  were not  significant  and no material  transactions
occurred during the period from April 1, 2004 to April 7, 2004.



                                      -8-
<PAGE>


     The  purchase  price  is  allocated  to  the  Company's  net  tangible  and
intangible assets based upon estimated fair values as of the date of the merger.
The preliminary  allocation  included a $17.1 million adjustment to inventory as
of March 31, 2004 which was charged to cost of goods sold during the three month
period  ended  June  30,  2004.  The  purchase  price  allocation  is  based  on
preliminary  estimates  and  valuations  and may be revised at a later date when
additional information concerning assets and liability valuations are finalized.
The preliminary purchase price allocation is as follows (dollars in thousands):


     Current assets and other tangibles assets              $    306,125
     Liabilities assumed                                        (161,629)
     Identifiable intangible assets                               57,725
     Goodwill                                                    206,165
                                                            ------------
     Purchase Price                                         $    408,386
                                                            ------------


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.

     Reclassifications.  Certain amounts  included in the prior period financial
statements  may  have  been  reclassified  to  conform  to  the  current  period
presentation.  The  reclassifications  have  no  impact  on  net  income  (loss)
previously reported.

     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.  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.


                                      -9-
<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 (loss).

     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 effective tax rate in the
three  and nine  months  ended  June 30,  2004 and 2003 was  different  from the
statutory  rate due to the mix of  income  between  the  Company's  foreign  and
domestic subsidiaries.  The Company's foreign subsidiaries had taxable income in
their foreign  jurisdictions while the Company's domestic  subsidiaries have net
operating loss carry-forwards for income tax purposes. Due to the uncertainty of
realizing  these tax benefits,  the tax benefits  generated by the net operating
losses have been fully offset by a valuation allowance.  The Company is included
in the  consolidated  tax  return  filed by Aearo  Corporation.  All  taxes  are
recorded as if  separate,  stand alone  returns were filed.  Deferred  taxes are
based  on  preliminary  purchase  price  allocations  and  may  be  subsequently
adjusted.

     Goodwill  and Other  Intangibles.  Effective  October 1, 2002,  the Company
adopted SFAS No. 142, "Goodwill and Other Intangibles".  Under the provisions of
SFAS No. 142,  goodwill and intangible  assets that have indefinite useful lives
are no  longer  amortized  but are  tested  at least  annually  for  impairment.
Intangible  assets that have finite  useful lives will  continue to be amortized
over their useful lives and reviewed for impairment at each reporting  date. The
following  presents a summary of  intangibles  assets as of June 30, 2004 before
final allocations resulting from the April 7, 2004 merger:



                      Gross       Accumulated               Carrying
                     Amount       Amortization  Additions    Amount
                      -------     ---------     ---------   ---------

 Trademarks           $ 54,313    $     -      $              54,313
 Customer
  Relationship List      1,758         (47)                    1,711
 Patents                 1,271         (18)            41      1,294
 Other                     383         (36)                      347
                      --------    ---------     ---------   --------
 Total Intangibles    $ 57,725    $   (101)     $      41   $ 57,665
                      ========    =========     =========   ========

Aggregate Estimate of Amortization Expense:

    Six months ending September 30, 2004          $240
    Year ending September 30, 2005                 401
    Year ending September 30, 2006                 405
    Year ending September 30, 2007                 417
    Year ending September 30, 2008                 328
    Year ending September 30, 2009                 340



                                      -10-
<PAGE>

     The following presents the changes in the carrying amount of goodwill for
the period ended June 30, 2004:


    Goodwill pushed down in merger transaction    $  206,165
    Translation adjustment                             3,075
                                                  ----------
    Balance June 30, 2004                         $  209,240
                                                  ==========

     Stock-based Compensation.  All stock option activity represent awards under
Aearo  Corporation's  stock option plan and all options were cancelled effective
April 7, 2004. As such, this disclosure relates only to the predecessor company.
The Company currently accounts for stock-based  compensation under the intrinsic
method of  Accounting  Principles  Board  ("APB")  Opinion No. 25. The following
table  illustrates  the effect on net income  (loss) as if the fair value  based
method had been applied to all outstanding awards (dollars in thousands):


                                          Three      Six         Nine
                                          Months    Months      Months
                                          Ended     Ended       Ended
                                         June 30,   March 31,   June 30,
                                          2004      2004         2004
                                          ----      ----         ----
 Net Income (loss) as reported          $  6,378  $  8,564   $   10,099

 Deduct:  Total stock-based
 employee compensation expense
 determined under the fair value
 method for all awards, net of
 tax                                          37        67          111
                                         --------  -------    ---------
 Proforma net income (loss)              $  6,341  $ 8,497    $   9,988
                                         --------- -------    ---------


     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 forward foreign currency
contracts  and  interest  rate  swap,  cap  and  collar  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 and collar  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 (loss).
Amounts accumulated in other comprehensive income (loss) will be reclassified to
results of operations when the related product sales affect earnings for forward
foreign  currency  contracts.  As a  result  of  the  forward  foreign  currency
contracts, the Company has recorded a derivative payable of $0.1 million at June
30, 2004 and $0.4 million at September 30, 2003.  All forward  foreign  currency
contracts will expire over the next three months.

     During the three month period ended June 30, 2004,  the Company's  earnings
were unaffected by the exercise of forward foreign  currency  contracts.  During
the six month period ended March 31, 2004, the Company reclassified into results
of operations a loss of approximately  $0.5 million  resulting from the exercise
of forward foreign currency  contracts  compared to a loss of approximately $1.0
million for the three month and $1.7  million for the nine month  periods  ended
June 30,  2003,  respectively.  All  forward  foreign  currency  contracts  were
determined to be highly effective; therefore, no ineffectiveness was recorded in
results of operations.

     The Company also  executes  forward  foreign  currency  contracts for up to
30-day  terms  to  protect  against  the  adverse  effects  that  exchange  rate
fluctuations  may  have  on the  foreign-currency-denominated  trade  activities
(receivables,  payables and cash) of foreign subsidiaries.  These contracts have
not been designated as hedges under SFAS No. 133, and accordingly, the gains and
losses on both the derivative and foreign-currency-denominated  trade activities


                                      -11-
<PAGE>

     are  recorded as  transaction  adjustments  in results of  operations.  The
impact on results of operations was a gain of  approximately  $0.3 million and a
loss $0.9  million  for the three and six month  periods  ended  June 30,  2004,
respectively, compared to a gain of approximately $0.2 million for the three and
nine month periods ended June 30, 2003, respectively.

     The Company has approximately $30.5 million of variable rate debt protected
under  an  interest  rate  cap  arrangement   through  December  31,  2004.  The
approximate  fair value of the interest  rate cap at June 30, 2004 and September
30,  2003 was  $0.1  million.  The  Company  has not  elected  hedge  accounting
treatment  for the  interest  rate cap as defined  under SFAS No. 133 and,  as a
result, any fair value adjustment is charged directly to other income (expense).
During the three months ended June 30, 2004, the fair value of the interest rate
cap increased by approximately $0.1 million.

4)   COMPREHENSIVE INCOME (LOSS)

     Comprehensive   income  (loss)  consisted  of  the  following  (dollars  in
thousands):

<TABLE>

                                                                          Three       Six         Nine
                                                                         Months      Months      Months
                                                  Three Months Ended      Ended      Ended       Ended
                                                       June 30,         June 30,   March 31,    June 30,
                                               ------------------------------------------------------------
                                                Successor   Predecessor  Successor       Predecessor
                                               ------------------------------------------------------------
                                                   2004   |     2003       2004    |    2004        2003
                                                   ----   |     ----       ----    |    ----        ----
<S>                                              <C>          <C>         <C>         <C>         <C>
     Net Income (loss)                           $(14,247)|   $  6,378    $(14,247)|  $   8,564   $  10,099
                                                          |                        |
     Foreign currency translation adjustment       (1,032)|      2,996      (1,032)|      1,688       7,181
     Unrealized gain (loss) on derivative                 |                        |
     instruments                                     (112)|        116        (112)|          4        (538)
                                                 ---------|   --------    ---------|  ---------   ----------
     Comprehensive income (loss)                 $(15,391)|   $  9,490    $(15,391)|  $  10,256   $  16,742
                                                 ---------|   ----------  ---------|  ---------   ---------

</TABLE>

5)       INVENTORIES
     Inventories consisted of the following (dollars in thousands):


                                     June 30,      September 30,
                                       2004             2003
                                ---------------  |    ------------
                                   (Unaudited)   |
                                                 |
          Raw materials         $         9,400  |    $      8,301
          Work in process                10,983  |          11,976
          Finished goods                 20,960  |          16,992
                                ---------------  |    ------------
                                $        41,343  |    $     37,269
                                ===============  |    ============


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

6)   DEBT

     At September 30, 2003,  the Company's debt  structure  included:  (a) $98.0
million of 12.50% Senior Subordinated Notes due 2005 (the "12.50% Notes") issued
under an indenture dated as of July 11, 1995 (the "Notes  Indenture") and (b) up
to an aggregate of $130.0  million under a credit  agreement  with various banks
comprised of (i) a secured term loan facility  consisting of loans providing for

                                      -12-
<PAGE>

     up to $100.0 million of term loans  (collectively  the "Term Loans") with a
portion  of the  Term  Loans  denominated  in  foreign  currencies  and (ii) the
Revolving  Credit Facility  providing for up to $30.0 million of revolving loans
for general corporate purposes (collectively the "Senior Bank Facilities").  The
amounts  outstanding  under the Term Loans,  Revolving  Credit  Facility and the
12.50% Notes at September 30, 2003,  were  approximately  $85.1  million,  $11.7
million and $98.0 million,  respectively. The Company elected to call the 12.50%
Notes effective May 6, 2004.

     As noted in Note 2, on March 10, 2004,  Aearo  Corporation,  the  Company's
parent,  entered into a merger  agreement  with AC Safety  Holding Corp. and its
subsidiary,  AC Safety  Acquisition  Corp.  Pursuant  to the terms of the Merger
Agreement,  on April 7, 2004, 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. In connection with this  transaction,  (i)
the Company  repaid all  outstanding  amounts under the Senior Bank  Facilities,
terminated all commitments under that facility and redeemed the 12.50% Notes and
(ii) entered into a new senior credit  facility,  consisting of a $125.0 million
term loan  facility  due 2011 at a  variable  interest  rate based on the London
Interbank  Offering  Rate  ("LIBOR")  (1.54%)  plus 275 basis points and a $50.0
million  revolving credit facility  (collectively the "New Credit Facility") and
issued $175.0 million  aggregate  principal amount of 8.25% senior  subordinated
notes due 2012 (the "8.25% Notes") in a private placement  pursuant to Rule 144A
and  Regulation S under the  Securities  Act of 1933.  The 8.25% Notes have call
provisions that apply in certain  circumstances.  The amounts  outstanding under
the New Credit  Facility  and 8.25% Notes at June 30, 2004,  were  approximately
$125.4 million and $175.0 million,  respectively.  The Company makes semi-annual
interest  payments on the 8.25% Notes and  quarterly  payments of  approximately
$0.3 million of principal  plus interest on the New Credit  Facility.  Under the
terms of the New Credit  Facility and the  indenture  governing the 8.25% Notes,
the  Company  is  required  to  comply  with  certain  financial  covenants  and
restrictions.  The Company was in compliance  with all  financial  covenants and
restrictions as of June 30, 2004.

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.

     In addition,  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. Most 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 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


                                      -13-
<PAGE>


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,  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 the 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.

     At June  30,  2004  and  September  30,  2003,  the  Company  has  recorded
liabilities of approximately $4.8 million and $4.5 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.  This
reserve  is  re-evaluated  periodically  and  additional  charges  or credits to
results of operations may result as additional  information  becomes  available.
Consistent with the current  environment being experienced by companies involved
in asbestos  and  silica-related  litigation,  there has been an increase in the
number of asserted claims that could  potentially  involve Aearo Corporation and
its subsidiaries, including the Company. 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 2008 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


                                      -14-
<PAGE>


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.

     Net Sales by Business Segment (dollars in thousands):

<TABLE>
                                                                          Three       Six         Nine
                                                                         Months      Months      Months
                                                  Three Months Ended      Ended      Ended       Ended
                                                       June 30,         June 30,   March 31,    June 30,
                                               ------------------------------------------------------------
                                                 Successor  Predecessor  Successor       Predecessor
                                               ------------------------------------------------------------
                                                   2004   |     2003       2004   |     2004        2003
                                                   ----   |     ----       ----   |     ----        ----
<S>                                              <C>         <C>         <C>        <C>         <C>
     Safety Products                             $ 73,966 |   $ 68,269    $ 73,966|   $ 127,964   $ 176,953
     Safety Prescription Eyewear                   10,126 |     10,165      10,126|      20,337      30,463
     Specialty Composites                          13,034 |      8,289      13,034|      21,278      24,710
                                                 -------- |   --------    --------|   ---------   ---------
     Total                                       $ 97,126 |   $ 86,723    $ 97,126|   $ 169,579   $ 232,126
                                                 -------- | ----------    --------|   ---------   ---------

</TABLE>

     Inter-segment  sales from the  Specialty  Composites  segment to the Safety
Products  segment  totaled  $0.6  million and $0.8  million for the three months
ended  June 30,  2004  and  2003,  respectively.  Inter-segment  sales  from the
Specialty Composites segment to the Safety Products segment totaled $1.6 million
and $2.3  million for the six and nine months  ended March 31, 2004 and June 30,
2003,  respectively.  The  inter-segment  sales  value  is  determined  at fully
absorbed inventory cost at standard rates plus 25%.

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

<TABLE>
                                                                          Three       Six         Nine
                                                                         Months      Months      Months
                                                  Three Months Ended      Ended      Ended       Ended
                                                       June 30,         June 30,   March 31,    June 30,
                                               ------------------------------------------------------------
                                                 Successor  Predecessor  Successor       Predecessor
                                               ------------------------------------------------------------
                                                   2004   |      2003       2004    |    2004        2003
                                                   ----   |      ----       ----    |    ----        ----
<S>                                              <C>          <C>         <C>         <C>         <C>
     Safety Products                             $ 16,122 |    $ 14,473    $ 16,122 | $  23,704   $  35,678
     Safety Prescription Eyewear                       37 |         249          37 |        (57)       612
     Specialty Composites                           2,623 |         631       2,623 |      2,855        918
                                                 -------- |    --------    -------- |  ---------   --------
     Segment profit                                18,782 |      15,353      18,782 |     26,502     37,208


     Depreciation                                   3,006 |       2,812       3,006 |      5,931      8,175
     Amortization of intangibles                      101 |          62         101 |        242        194
     Inventory purchase accounting                 17,067 |          --      17,067 |         --         --
     Bond call premium                              1,532 |          --       1,532 |         --         --
     Restructuring                                     -- |          --          -- |     (1,091)        --
     Interest                                      10,292 |       4,737      10,292 |     10,836     14,701
                                                 -------- |    --------    -------- |  ---------   --------
     Income (loss) before provision for income            |
        taxes                                    $(13,216)|   $  7,742    $(13,216) | $  10,584   $  14,138
                                                 =========|   ========    ========= | =========   =========
</TABLE>

     Segment profit is defined as operating  income (loss) before  depreciation,
amortization,  interest expense, inventory purchase accounting adjustment,  bond
call  premium  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.

<PAGE>

9)   PENSION

     The following  table presents the  components of net periodic  pension cost
for the three and nine month periods ended June 30, 2004 and 2003,  respectively
(dollars in thousands):


<TABLE>

                                                                  Three       Six         Nine
                                                                 Months      Months      Months
                                          Three Months Ended      Ended      Ended       Ended
                                                June 30,         June 30,   March 31,    June 30,
                                         ------------------------------------------------------
                                          Successor  Predecessor  Successor       Predecessor
                                         ---------------------------------------------------------
                                              2004   |     2003       2004    |    2004        2003
                                              ----   |     ----       ----    |    ----        ----
<S>                                         <C>         <C>         <C>         <C>         <C>
     Service cost                           $    335 |   $    378    $    335 |  $     669   $   1,133
     Interest cost                               186 |        208         186 |        371         625
     Expected return on plan assets             (167)|       (168)       (167)|       (332)       (504)
     Amortization of:                                |                        |
        Prior service cost                         2 |          2           2 |          5           7
        Loss                                      -- |         16          -- |         --          47
                                            -------- |   --------    -------- |  ---------   ---------
     Total                                  $    356 |   $    436    $    356 |  $     713   $   1,308
                                            ======== |   ========    ======== |  =========   =========


</TABLE>


10)  RESTRUCTURING CHARGE

     During fiscal 2001, the Company  recorded a  restructuring  charge of $11.4
million relating to a restructuring plan announced by the Company to improve its
competitive position and long-term profitability.  The plan includes the closure
of its Ettlingen,  Germany plant,  significantly  reorganizing operations at the
Company's  Varnamo,  Sweden plant,  rationalizing the  manufacturing  assets and
product  mix of its  Specialty  Composites  business  unit  and a  reduction  of
products and product lines.

     During the six month period ended March 31, 2004, the Company reversed $1.1
million of reserves related to the September 30, 2001  restructuring  provision.
The  adjustment   represents  a  change  in  estimate  related  to  amounts  for
non-cancelable  lease  obligations due to the renegotiation of the subject lease
that was completed during the second quarter.  The balance of the  restructuring
accrual as of June 30, 2004 was zero.

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 condensed financial  information  illustrates the composition
of the combined  Subsidiary  Guarantors  based on the preliminary  allocation of
purchase  price.  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).



<PAGE>





     Condensed  Consolidated Statement of Operations
     Three Months Ended June 30, 2004

<TABLE>

                                                                        Successor
                                               -------------------------------------------------------------
                                                                    Non-
                                                     Guarantor   Guarantor
                                          Parent   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
     Restructuring income..............        --          --          --           --          --
                                         --------    --------    --------    ---------   ---------
        Operating income (loss)........    (7,256)      6,381      (2,079)          30      (2,924)
     Interest expense (income).........    10,152        (399)        539           --      10,292
                                         --------    ---------   --------    ---------   ---------
     Income (loss) before 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............       256      (3,824)         --        3,568          --
                                          --------    ---------   --------    ---------   ---------
        Net income (loss)..............  $(14,277)   $    256    $ (3,824)   $   3,598   $ (14,247)
                                         =========   ========    =========   =========   ==========

</TABLE>

     Condensed Consolidated Statement of Operations
     Six Months Ended March 31, 2004

<TABLE>
                                                                       Predecessor
                                               -------------------------------------------------------------
                                                                            Non-
                                                            Guarantor   Guarantor
                                                  Parent   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, net.............................    10,117        (983)      1,702           --      10,836
                                                 --------    ---------   --------    ---------   ---------
     Income (loss) before taxes................    (9,201)     12,518       7,197           70      10,584
     Income tax provision (benefit)............    (4,642)      5,022       1,640           --       2,020
     Equity in subsidiaries....................    13,053       5,557                  (18,610)         --
                                                 --------    --------    --------    ----------  ---------
        Net income (loss)......................  $  8,494    $ 13,053    $  5,557    $ (18,540)  $   8,564
                                                 ========    ========    ========    ==========  =========





</TABLE>
<PAGE>


     Condensed  Consolidated  Statement  of  Operations
     Nine Months Ended June 30,2003


<TABLE>


                                                                       Predecessor
                                               -------------------------------------------------------------
                                                                           Non-
                                                            Guarantor   Guarantor
                                                  Parent   Subsidiaries Subsidiaries Eliminations Consolidated

<S>                                              <C>         <C>         <C>         <C>         <C>
     Net Sales.................................  $168,143    $     --    $ 90,379    $ (26,396)  $ 232,126
     Cost of sales.............................    97,850          --      49,975      (26,500)    121,325
                                                 --------    --------    --------    ----------  ---------
       Gross profit............................    70,293          --      40,404          104     110,801

     Selling and administrative................    57,416         847      17,143           --      75,406
     Research and technical services...........     3,364          --       1,307           --       4,671
     Amortization..............................       113          81          --           --         194
     Other charges (income), net...............    10,229     (15,534)      6,996           --       1,691
                                                 --------    ---------   --------    ---------   ---------
        Operating income (loss)................      (829)     14,606      14,958          104      28,839
     Interest expense (income), net............    13,585      (2,354)      3,470           --      14,701
                                                 --------    ---------   --------    ---------   ---------
     Income (loss) before taxes................   (14,414)     16,960      11,488          104      14,138
     Income tax provision (benefit)............    (6,682)      6,774       3,947           --       4,039
     Equity in subsidiaries....................    17,727       7,541          --      (25,268)         --
                                                 --------    --------    --------    ----------  ---------
        Net income (loss)......................  $  9,995    $ 17,727    $  7,541    $ (25,164)  $  10,099
                                                 ========    ========    ========    ==========  =========

</TABLE>
<PAGE>

     Condensed Consolidated Balance Sheet
     Period Ended June 30, 2004

<TABLE>

                                                                        Successor
                                                 -------------------------------------------------------------
                                                                           Non-
                                                            Guarantor   Guarantor
                                                  Parent   Subsidiaries Subsidiaries Eliminations Consolidated


     Current Assets:
<S>                                              <C>         <C>         <C>         <C>         <C>
        Cash and cash equivalents..............  $  3,030    $     97    $  8,727    $      --   $  11,854
        Receivables, net.......................    33,865          --      19,785           --      53,650
        Inventories............................    29,767          --      11,913         (337)     41,343
        Deferred and prepaid expenses..........     2,880          --       1,332           --       4,212
                                                 --------    --------    --------    ---------   ---------
     Total current assets......................    69,542          97      41,757         (337)    111,059
                                                 --------    --------    --------    ----------  ---------

     Long term assets:
        Property plan and equipment............    35,616          --      11,782           --      47,398
        Goodwill and other intangibles, net....   188,276      24,756      53,873           --     266,905
        Inter-company receivables (payables)      (40,950)     95,008     (54,058)          --          --
        Investment in subsidiaries ............   158,429      40,981        (690)    (198,720)         --
        Other assets...........................    13,128          --          11           --      13,139
                                                 --------    --------    --------    ---------   ---------
     Total assets..............................   424,041     160,842      52,675     (199,057)    438,501
                                                 ========    ========    ========    ==========  =========

     Current Liabilities:
        Current portion of long term debt......     1,601          --          20                    1,621
        Accounts payable and accrued
        liabilities............................    29,593         581      13,859           --      44,033
        Accrued interest.......................     3,336          --          --           --       3,336
        Income tax payables (receivables)......     2,049      (2,038)      1,077                    1,088
                                                 --------    ---------   --------    ---------   ---------
     Total current liabilities.................    36,579      (1,457)     14,956           --      50,078
                                                 --------    ---------   --------    ---------   ---------

     Long Term Liabilities:
        Long term debt.........................   302,102          --         179           --     302,281
        Deferred income taxes..................       227          --       1,447           --       1,674
        Other liabilities......................    12,864          --          --           --      12,864
                                                 --------    --------    --------    ---------   ---------
     Total Liabilities.........................   351,772      (1,457)     16,582           --     366,897
                                                 --------    ---------     ------    ---------   ---------

     Stockholder's Equity:
        Common.................................        --          --       7,396       (7,396)         --
        Paid in capital........................   101,300     167,519      15,454     (182,973)    101,300
        Retained earnings......................   (28,469)     (8,513)     20,173      (11,743)    (28,552)
        Accumulated other comprehensive income
        (loss).................................      (562)      3,293      (6,930)       3,055      (1,144)
                                                 ---------   --------    ---------   ---------   ----------
     Total Stockholder's Equity................    72,269     162,299      36,093     (199,057)     71,604
                                                 --------    --------    --------    ----------  ---------
     Total Liabilities and Stockholder's Equity  $424,041    $160,842    $ 52,675    $(199,057)  $ 438,501
                                                 ========    ========    ========    ==========  =========



</TABLE>
<PAGE>


     Condensed Consolidated Balance Sheet
     Year Ended September 30, 2003


<TABLE>
                                                                       Predecessor
                                                 -------------------------------------------------------------
                                                                           Non-
                                                            Guarantor   Guarantor
                                                  Parent   Subsidiaries Subsidiaries Eliminations Consolidated

     Current Assets:
<S>                                              <C>         <C>         <C>         <C>         <C>
        Cash and cash equivalents..............  $  1,545    $    206    $  5,550    $      --   $   7,301
        Receivables, net.......................    29,139          96      19,911           --      49,146
        Inventories............................    24,678          --      13,029         (438)     37,269
        Deferred and prepaid expenses..........     5,806          --       1,515           --       7,321
                                                 --------    --------    --------    ---------   ---------
     Total current assets......................    61,168         302      40,005         (438)    101,037
                                                 --------    --------    --------    ----------  ---------

     Long term Assets:
        Property plan and equipment............    37,097          --      11,772           --      48,869
        Goodwill and other intangibles, net....    26,717      54,452      58,488           --     139,657
        Inter-company receivables (payables)      (50,485)     93,411     (42,926)          --          --
        Investment in subsidiaries ............    54,145      11,255        (670)     (64,730)         --
        Other assets...........................     3,942          --          11           --       3,953
                                                 --------    --------    --------    ---------   ---------
     Total assets..............................   132,584     159,420      66,680      (65,168)    293,516
                                                 ========    ========    ========    ==========  =========

     Current Liabilities:
        Current portion of long term debt......    14,752          --       3,015                   17,767
        Accounts payable and accrued
        liabilities............................    31,434         803      11,806           --      44,043
        Accrued interest.......................     2,562          --           4           --       2,566
        Income tax payables....................     2,556      (2,378)      1,568                    1,746
                                                 --------    ---------   --------    ---------   ---------
     Total current liabilities.................    51,304      (1,575)     16,393           --      66,122
                                                 --------    ---------   --------    ---------   ---------

     Long Term Liabilities:
        Long term debt.........................   165,305          --      15,481           --     180,786
        Due to parent..........................       207          --          --           --         207
        Deferred income taxes..................       228          --       1,381           --       1,609
        Other liabilities......................    11,334          --          --           --      11,334
                                                 --------    --------    --------    ---------   ---------
     Total Liabilities.........................   228,378      (1,575)     33,255           --     260,058
                                                 --------    ---------     ------    ---------   ---------

     Stockholder's Equity:
        Common.................................         -          --          --           --           -
        Paid in capital........................    32,531     167,519      20,773     (188,292)     32,531
        Retained earnings......................  (126,149)     (9,049)     20,646      122,265       7,713
        Accumulated other comprehensive income.    (2,176)      2,525      (7,994)         859      (6,786)
                                                 ---------   --------    ---------   ---------   ----------
     Total Stockholder's Equity................   (95,794)    160,995      33,425      (65,168)     33,458
                                                 ---------   --------    --------    ----------  ---------
     Total Liabilities and Stockholder's Equity  $132,584    $159,420    $ 66,680    $ (65,168)  $ 293,516
                                                 ========    ========    ========    ==========  =========


</TABLE>
<PAGE>

     Condensed Consolidating Statement of Cash Flows
     Three Months Ended June 30, 2004


<TABLE>
                                                                  Successor
                                               -------------------------------------------------
                                                                           Non-
                                                            Guarantor   Guarantor
                                                  Parent   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...........     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>

     Condensed Consolidating Statement of Cash Flows
     Six Months Ended March 31, 2004

<TABLE>


                                                                 Predecessor
                                               -------------------------------------------------
                                                                           Non-
                                                            Guarantor   Guarantor
                                                  Parent   Subsidiaries Subsidiaries Consolidated

<S>                                              <C>         <C>         <C>         <C>
     Net cash provided by operating activities.  $ (1,359)   $  6,407    $  3,987    $   9,035

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

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

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

     Cash and cash equivalents at the
        beginning of the period................     1,544         206       5,551        7,301
                                                 --------    --------    --------    ---------

     Cash and cash equivalents at the end of
        the period.............................  $    893    $    751    $  3,669    $   5,313
                                                  =======     =======     =======     ========


</TABLE>
<PAGE>




     Condensed Consolidating Statement of Cash Flows
     Nine Months Ended June 30, 2003

<TABLE>

                                                                 Predecessor
                                              -------------------------------------------------
                                                                           Non-
                                                            Guarantor   Guarantor
                                                  Parent   Subsidiaries Subsidiaries Consolidated

<S>                                              <C>         <C>         <C>         <C>
     Net cash provided by operating activities.  $ 15,911    $  7,216    $  4,902    $  28,029

     Net cash used for investing activities....   (16,138)         --      (2,427)     (18,565)

     Net cash provided by (used for) financing
        activities.............................     1,470      (9,655)     (1,616)      (9,801)

     Effect of exchange rate on cash...........      (318)      2,158        (926)         914
                                                 ---------   --------    ---------   ---------
     Increase (decrease) in cash and cash
        equivalents............................       925        (281)        (67)         577
                                                 ========    =========   =========   =========

     Cash and cash equivalents at the
        beginning of the period................     7,322         475       6,683       14,480

     Cash and cash equivalents at the end of
        the period.............................  $  8,247    $    194    $  6,616    $  15,057

</TABLE>
<PAGE>

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

     The  following   discussion   should  be  read  in  conjunction   with  the
Consolidated  Financial  Statements  of the  Company,  including  notes  thereto
included in its registration statement filed June 18, 2004. 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.  Such factors  include,  but are not limited to: risks  associated with
indebtedness;   risks  related  to  acquisitions;   risks  associated  with  the
conversion to a new management  information system; high level of competition in
the  Company's  markets;  importance  and  costs of  product  innovation;  risks
associated  with   international   operations;   product   liability   exposure;
unpredictability  of patent protection and other  intellectual  property issues;
dependence  on key  personnel;  the  risk of  adverse  effect  of  economic  and
regulatory conditions on sales; and risks associated with environmental matters.

     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,  the Company's parent, entered into a
merger  agreement  with AC Safety Holding Corp.  and its  subsidiary,  AC Safety
Acquisition  Corp.  that  closed on April 7, 2004.  Pursuant to the terms of the
Merger  Agreement,  AC  Safety  Acquisition  Corp.  merged  with and into  Aearo
Corporation  with  Aearo  Corporation  surviving  the  merger as a  wholly-owned
subsidiary  of  AC  Safety  Holding  Corp.  The  aggregate  purchase  price  was
approximately $408.4 million,  including estimated fees and expenses. The merger
was financed with approximately  $303.4 million of new debt consisting of $175.0
<PAGE>

million of 8.25% senior  subordinated  notes and $125.0 million of senior credit
facility,  $3.7 million of assumed debt and $101.3 million of equity.

        The merger was a business combination under SFAS No. 141,
"Business Combinations," and the purchase price paid for our parent
was pushed down to the Company. Accordingly, the unaudited balance
sheet as of June 30, 2004 and the results of operations (unaudited)
subsequent to the Acquisition Date are presented on a different basis
of accounting than the balance sheet as of September 30, 2003 and the
results of operations (unaudited) prior to the Acquisition Date, and
therefore are not directly comparable. The sale was accounted for as
if it had occurred on March 31, 2004, as management determined that
results of operations were not significant and no material
transactions occurred during the period from April 1, 2004 to April 7,
2004.

Critical Accounting Policies

        The Company's discussion and analysis of its financial condition
and results of operations are based upon the Company's condensed
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America ("GAAP"). GAAP requires the use of
estimates, judgments, assumptions and subjective interpretations
of accounting principles that affect the reported amounts of
assets, liabilities, revenues and expenses. The Company believes
its use of estimates and underlying accounting assumptions adhere
to GAAP and are consistently applied. The Company revises its
estimates and assumptions as new information becomes available.

        The Company believes that of its significant accounting policies
the following policies involve a higher degree of judgment and/or
complexity.

Income Taxes - The Company is included in the consolidated tax returns
filed by Aearo Corporation. All taxes are recorded as if separate,
standalone returns are filed. The Company accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes", which
requires deferred tax assets and liabilities be recognized using
enacted tax rates for the effect of temporary differences between book
and tax bases of recorded assets and liabilities. SFAS No. 109 also
requires deferred tax assets be reduced by a valuation allowance if it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. Recognition of a deferred tax asset is
dependent on generating sufficient future taxable income in the United
States prior to the expiration of the tax loss and credit
carryforwards, which expire over various periods ranging from 2010 to
2021. In its evaluation of the adequacy of the valuation allowance,
the Company assesses prudent and feasible tax planning strategies. Due
to the uncertainties of realizing these tax benefits, the Company has
recorded a full valuation allowance against these losses and credit
carryforwards. The ultimate amount of deferred tax assets realized
could be different from those recorded, as influenced by potential
changes in enacted tax laws and the availability of future taxable
income.

     Product  Liabilities  -The Company has  established  reserves for potential
product  liabilities  that  arise out of the use of the  Company's  products.  A
significant  amount of judgment is required to quantify the  Company's  ultimate
exposure in these  matters and the  valuation of reserves is estimated  based on
currently available information, historical experience and from time to time the
Company may seek the assistance of an independent consultant.  While the Company
believes that the current  level of reserves is adequate,  changes in the future
could impact these determinations.

     Pension Plan - The valuation of the Company's pension plan requires the use
of assumptions  and estimates that are used to develop  actuarial  valuations of
expenses and  assets/liabilities.  These  assumptions  include  discount  rates,
<PAGE>


investment  returns,   projected  salary  increases  and  mortality  rates.  The
actuarial  assumptions  used in the  Company's  pension  reporting  are reviewed
annually and compared with external  benchmarks and internal operating trends to
assure that they accurately account for future pension  obligations.  Changes in
assumptions  and future  investment  returns could  potentially  have a material
impact on the Company's  pension expense and funding  requirements.  The Company
adopted the provisions SFAS No. 132R effective January 1, 2004.

     Impairment of Long-Lived Assets - The Company evaluates  long-lived assets,
including other  intangibles and goodwill,  of identifiable  reporting units for
impairment  when events or changes in  circumstances  indicate,  in management's
judgment,  that the carrying value of such assets may not be  recoverable.  Cash
flows used in the  potential  impairment  evaluation  are based on  management's
estimates and  assumptions.  Changes in business  conditions  could  potentially
require future adjustments to asset valuations.

     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.  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.

     Goodwill - SFAS No. 142,  "Goodwill and Other Intangible  Assets," requires
that goodwill no longer be amortized, and instead, be tested for impairment on a
periodic basis. In testing for a potential impairment of goodwill,  SFAS No. 142
requires the Company to  individually  allocate and assign the carrying value of
assets and  liabilities  (including  goodwill)  to specific  reporting  units or
business  segments,  estimate the fair value of the reporting  units or business
segments,  and determine  goodwill  impairment  by comparing the estimated  fair
value to the assigned  carrying  value.  The process of evaluating the potential
impairment is highly subjective and requires significant judgment at many points
during the analysis.


<PAGE>



     Results of Operations -- Three Months Ended June 30, 2004 Compared to Three
Months Ended June 30, 2003.

     Management  has based its  narrative  analysis of the results of operations
for the three and nine month period ended June 30, 2004 and June 30, 2003 on the
combined  results of operations  for the entire period.  Material  variances are
caused  by  the  different   basis  of  accounting  have  been  disclosed  where
applicable.


                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>

                                                             Three months ended June 30,
                                           ------------------------------------------------------
                                           2004     (1)       %                2003           %
                                           --------       ----------      ----------    ---------
<S>                                        <C>               <C>                 <C>          <C>
Net sales:
   Safety Products                        $ 73,966          76.2             $ 8,269        78.7
   Safety Prescription Eyewear              10,126          10.4              10,165        11.7
   Specialty Composites                     13,034          13.4               8,289         9.6
                                           ---------      --------         ----------    -------
       Total net sales                      97,126         100.0              86,723       100.0
Cost of sales                               68,144          70.2              45,768        52.8
                                           ---------      --------         ----------    -------
Gross profit                                28,982          29.8              40,955        47.2
Operating expenses:
   Selling and administration               28,149          29.0              26,218        30.2
   Research and technical services           1,966           2.0               1,462         1.7
   Amortization                                101           0.1                  62         0.1
   Other charges (income), net               1,690           1.7                 734         0.8
                                           ---------      --------         ----------    -------
       Total operating expenses             31,906          32.9              28,476        32.8
Operating income (loss)                    (2,924)          (3.0)             12,479        14.4
Interest expense                            10,292          10.6               4,737         5.5
                                           ---------      --------         ----------    -------
Income (loss) before provision for
income taxes                               (13,216)         (13.6)             7,742         8.9
Provision for income taxes                   1,031            1.1              1,364         1.6
                                           ---------      --------         ----------    -------
Net income (loss)                        $ (14,247)         (14.7)           $ 6,378         7.4
                                          ==========     =========         ==========    =======

</TABLE>

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

Net sales in the three months ended June 30, 2004 increased 12.0% to $97.1
million from $86.7 million in the three months ended June 30, 2003. The
increase in net sales was primarily driven by organic growth in the Safety
Products and Speciality Composites segments and foreign currency translation.
The weakness of the U.S. dollar favorably impacted net sales by $2.2 million.
The safety Products segment net sales in the three months ended June 30, 2004
increased 8.3% to $74.0 million from $68.3 million in the three months ended
June 30, 2003. The increase in net sales resulted from organic growth of 5.2%
and a 3.1% increase due to foreign currency translation. Organic sales growth
for the Safety Products segment, defined as net sales less the impact of
foreign currency translation and acquisitions, has increased for eight
<PAGE>

consecutive quarters. The Company attributes this growth to its ability to
successfully introduce new products into the markets it serves. The Safety
Prescription Eyewear segment net sales in the three months ended June 30, 2004
were essentially flat at $10.1 million as compared to $10.2 million in the
three months ended June 30, 2003. Specialty Composites' net sales in the three
 months ended June 30, 2004 increased 57.2% to $13.0 million from $8.3 million
 in the three months ended June 30, 2003. The increase was primarily driven by
 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 four quarters.

    Gross  profit in the three months  ended June 30, 2004  decreased  29.2% to
$29.0  million from $41.0  million in the three months ended June 30, 2003.  The
decrease in gross profit is primarily due to 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 in the three
months  ended June 30, 2004  improved to 47.4% as compared to 47.2% in the three
months  ended June 30, 2003.  The  improvement  in the gross profit  percentage,
exclusive  of  the   non-recurring   charge,   is  primarily  due  to  continued
productivity  improvements  and the  impact  of  foreign  currency  translation,
partially offset by movements in product mix.

     Operating  expenses in the three months ended June 30, 2004 increased 12.0%
to $31.9 million from $28.5 million in the three months ended June 30, 2003. The
increase in operating  expenses was  primarily  driven by an increase in selling
and  administrative  expense,  research and technical services and other charges
(income),  net. Selling and administrative  expenses included approximately $0.6
million of expenses due to foreign currency translation, $0.9 of expenses due to
variable selling and marketing expenses.  Selling and administrative expenses as
a percentage  of net sales  improved to 29.0% in the three months ended June 30,
2004 as compared to 30.2% in the three months ended June 30, 2003.  Research and
technical  services  expense  increased $0.5 million  primarily due to increased
product development. Other charges (income), net was expense of $1.7 million for
the three  months  ended June 30, 2004 as compared to expense of $0.7 million in
the three months  ended June 30, 2003.  The expense of $1.7 million in the three
months ended June 30, 2004 was  primarily  due to a $1.5 million call premium to
redeem the  Company's  12.50%  Senior  Subordinated  Notes due 2005 (the "12.50%
Notes") in connection with the merger.

     Interest expense, net, in the three months ended June 30, 2004 increased to
$10.3  million  from $4.7  million  in the three  months  ended  June 30,  2003.
Interest expense for the three months ended June 30, 2004 included the write-off
of  approximately  $4.0  million  for  deferred  financing  fees  related to the
redemption of the 12.50% Notes and the  repayment of the  Company's  senior bank
facilities. In addition, the Company incurred an incremental 30 days of interest
on the  12.50%  Notes  between  the  call  date  for the  12.50%  Notes  and the
redemption  date.  The  balance of the  increase  is due to the higher  level of
borrowings  under the Company's new credit facility and its Senior  Subordinated
Notes due 2012 (the "8.25% Notes").

     The  provision for income taxes in the three months ended June 30, 2004 was
$1.0  million as compared  to $1.4  million in the three  months  ended June 30,
2003.  The  effective  tax rate in the three months ended June 30, 2004 and 2003
was  different  from the  statutory  rate due to the mix of income  between  the
Company's foreign and domestic subsidiaries.  The Company's foreign subsidiaries
had taxable income in their foreign  jurisdictions  while the Company's domestic
subsidiaries have net operating loss carry-forwards for income tax purposes. Due
to the uncertainty of realizing these tax benefits,  the tax benefits  generated
by the net operating losses have been fully offset by a valuation allowance.


<PAGE>



     Results of  Operations  -- Nine Months Ended June 30, 2004 Compared to Nine
Months Ended June 30, 2003.

     Management  has based its  narrative  analysis of the results of operations
for the three and nine month period ended June 30, 2004 and June 30, 2003 on the
combined  results of operations  for the entire period.  Material  variances are
caused  by  the  different   basis  of  accounting  have  been  disclosed  where
applicable.




                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
                                                              Nine months ended June 30,
                                           ----------------------------------------------------------
                                           2004     (1)       %                2003            %
                                         -----------       ----------      ----------    ----------
<S>                                        <C>              <C>                <C>          <C>
Net sales:
   Safety Products                       $  201,930          75.7        $  176,953          76.2
   Safety Prescription Eyewear               30,463          11.4            30,463          13.1
   Specialty Composites                      34,312          12.9            24,710          10.7
                                           ----------       ------        ---------      --------
        Total net sales                     266,705         100.0           232,126         100.0
Cost of sales                               157,200          58.9           121,325          52.3
                                           ----------       ------        ---------      --------
Gross profit                                109,505          41.1           110,801          47.7
Operating expenses:
   Selling and administration                84,984          31.9            75,406          32.5
   Research and technical services            5,589           2.1             4,671           2.0
   Amortization                                 343           0.1               194           0.1
   Other charges (income), net                1,184           0.4             1,691           0.7
   Restructuring                             (1,091)          0.4)               --            --
                                           ----------       -------       ----------    ---------
       Total operating expenses              91,009          34.1            81,962          35.3
Operating income                             18,496           6.9            28,839          12.4
Interest expense                             21,128           7.9            14,701           6.3
                                           ----------       --------        ----------    -------
Income (loss) before provision for
income taxes                                 (2,632)         (1.0)           14,138           6.1
Provision for income taxes                    3,051           1.1             4,039           1.7
                                           ----------       --------        ----------    -------
     Net income (loss)                    $  (5,683)         (2.1)       $   10,099           4.4
                                           ===========       ==========     ==========    =======
</TABLE>


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

     Net sales in the nine months ended June 30, 2004 increased  14.9% to $266.7
million from $232.1 million in the nine months ended June 30, 2003. The increase
in net sales was primarily  driven by organic growth in the Safety  Products and
Specialty Composites  segments,  the impact of the SafeWaze acquisition on March
14, 2003 and foreign currency  translation.  The weakness of the U.S. dollar and
the SafeWaze  acquisition  favorably impacted net sales by $9.6 million and $5.0
million,  respectively. The Safety Products segment net sales in the nine months
ended June 30, 2004 increased 14.1% to $201.9 million from $177.0 million in the
nine months ended June 30, 2003.  The increase in net sales resulted from a 6.2%
increase in organic growth, a 5.1% increase due to foreign currency  translation
and a 2.8% increase due to the acquisition of SafeWaze. Organic sales growth for
<PAGE>

the  Safety  Products  segment,  defined as net sales less the impact of foreign
currency  translation  and  acquisitions,  has increased  for eight  consecutive
quarters.  The Company  attributes  this  growth to its ability to  successfully
introduce  new  products  into the  markets it serves.  The Safety  Prescription
Eyewear  segment net sales in the nine months ended June 30, 2004 were unchanged
at $30.5 million.  Specialty Composites' net sales in the nine months ended June
30, 2004 increased  38.9% to $34.3 million from $24.7 million in the nine months
ended June 30, 2003.  The increase was primarily  driven by 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 four quarters.

     Gross  profit in the nine  months  ended June 30,  2004  decreased  1.2% to
$109.5  million from $110.8  million in the nine months ended June 30, 2003. The
decrease in gross profit is primarily due to the  non-recurring  charge of $17.1
million resulting from the write-up of inventory required by SFAS No. 141 on the
merger date and subsequent sale of such inventory.  Excluding the effects of the
purchase accounting adjustment, gross profit as a percentage of net sales in the
three  months  ended June 30,  2004 was 47.5% as  compared to 47.7% in the three
months ended June 30, 2003. The slight  decline in the gross profit  percentage,
exclusive of the non-recurring  charge, is primarily due to unfavorable  product
mix  partially  offset by  productivity  improvements  and the impact of foreign
currency translation.

     Operating  expenses in the nine months ended June 30, 2004 increased  11.0%
to $91.0 million from $82.0 million in the nine months ended June 30, 2003.  The
increase in operating  expenses was  primarily  driven by an increase in selling
and  administrative,  research and technical  services expenses and amortization
expense,  partially offset by the restructuring  provision  adjustment and other
charges,  net. Selling and administrative  expenses included  approximately $1.1
million of expenses  due to the  acquisition  of  SafeWaze,  $2.6 million due to
foreign currency translation,  $1.1 million due to variable selling expenses, as
well as increased  marketing  expenses to support new product launches and build
brand support.  Selling and administrative expenses as a percentage of net sales
improved to 31.9% in the nine months ended June 30, 2004 as compared to 32.5% in
the nine months ended June 30, 2003. The restructuring  provision  adjustment of
$1.1  million  of income  was the  result of a change in  estimate  relating  to
non-cancelable leases.

     Interest expense,  net, in the nine months ended June 30, 2004 increased to
$21.1  million  from $14.7  million  in the nine  months  ended  June 30,  2003.
Interest  expense for the nine months ended June 30, 2004 included the wrote-off
of  approximately  $4.0  million  for  deferred  financing  fees  related to the
redemption of the 12.50% Notes and the  repayment of the  Company's  senior bank
facilities. In addition, the Company incurred an incremental 30 days of interest
on the  12.50%  Notes  between  the  call  date  for the  12.50%  Notes  and the
redemptions  date.  The balance of the  increase  is due to the higher  level of
borrowings under the Company's new credit facility and the 8.25% Notes.

     The  provision  for income taxes in the nine months ended June 30, 2004 was
$3.1 million as compared to $4.0 million in the nine months ended June 30, 2003.
The  effective  tax rate in the nine  months  ended  June 30,  2004 and 2003 was
different from the statutory rate due to the mix of income between the Company's


<PAGE>

foreign and  domestic  subsidiaries.  The  Company's  foreign  subsidiaries  had
taxable  income in their  foreign  jurisdictions  while the  Company's  domestic
subsidiaries have net operating loss carry-forwards for income tax purposes. Due
to the uncertainty of realizing these tax benefits,  the tax benefits  generated
by the net operating losses have been fully offset by a valuation allowance.

                      Effects of Changes in Exchange Rates

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

     At September 30, 2003,  the Company's debt  structure  included:  (a) $98.0
million of 12.50% Senior Subordinated Notes due 2005 (the "12.50% Notes") issued
under an indenture dated as of July 11, 1995 (the "Notes  Indenture") and (b) up
to an aggregate of $130.0  million under a credit  agreement  with various banks
comprised of (i) a secured term loan facility  consisting of loans providing for
up to $100.0  million  of term  loans  (collectively  the "Term  Loans")  with a
portion  of the  Term  Loans  denominated  in  foreign  currencies  and (ii) the
Revolving  Credit Facility  providing for up to $30.0 million of revolving loans
for general corporate purposes (collectively the "Senior Bank Facilities").  The
amounts  outstanding  under the Term Loans,  Revolving  Credit  Facility and the
12.50% Notes at September 30, 2003,  were  approximately  $85.1  million,  $11.7
million and $98.0  million,  respectively.  Under the terms of the Senior Credit
Facility  and the  Notes  Indenture,  the  Company  was in  compliance  with all
financial covenants and restrictions as of September 30, 2003.

     As noted in Note 2, on March 10, 2004,  Aearo  Corporation,  the  Company's
parent,  entered into a merger  agreement  with AC Safety  Holding Corp. and its
subsidiary,  AC Safety  Acquisition  Corp.  Pursuant  to the terms of the Merger
Agreement,  on April 7, 2004, 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. In connection with this  transaction,  (i)
the Company  repaid all  outstanding  amounts under the Senior Bank  Facilities,
terminated all commitments under that facility and redeemed the 12.50% Notes and
(ii) entered into a new senior credit  facility,  consisting of a $125.0 million
term loan  facility  due 2011 at a  variable  interest  rate based on the London

<PAGE>

Interbank  Offering  Rate  ("LIBOR")  (1.54%)  plus 275 basis points and a $50.0
million  revolving credit facility  (collectively the "New Credit Facility") and
issued $175.0 million  aggregate  principal amount of 8.25% senior  subordinated
notes due 2012 (the "8.25% Notes") in a private placement  pursuant to Rule 144A
and Regulation S under the Securities Act of 1933. The amounts outstanding under
the New Credit  Facility  and 8.25% Notes at June 30, 2004,  were  approximately
$125.4  million  and $175.0  million,  respectively.  Under the terms of the New
Credit  Facility and the  indenture  governing  the 8.25% Notes,  the Company is
required  to comply with  certain  financial  covenants  and  restrictions.  The
Company was in compliance  with all financial  covenants and  restrictions as of
June 30, 2004.

     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  $7.8  million  and  $7.5  million,   respectively   for  capital
expenditures for the nine months ended June 30, 2004 and 2003, respectively. The
Company  anticipates  it will a spend  approximately  $11.0  million for capital
expenditures in its fiscal year ended September 30, 2004.

     The Company's net cash provided by operating activities for the nine months
ended June 30, 2004 totaled  $22.8  million as compared to $28.0 million for the
nine months ended June 30, 2003.  The decrease of $5.2 million was due primarily
to an  $12.9  million  decrease  related  to  the  net  changes  in  assets  and
liabilities,  partially  offset  by a $7.7  million  improvement  in net  income
adjusted  for  cash  and  non-cash  charges  (depreciation,  inventory  purchase
accounting  adjustment,  amortization,  deferred taxes and other). The Company's
net changes in assets and liabilities was primarily driven by a decrease in cash
from  receivables,  inventory and accounts  payable and accrued  liabilities and
income taxes, partially offset by an increase in cash from other, net.

     Net cash used by investing  activities was $7.8 million for the nine months
ended June 30, 2004 as compared to $18.6  million for the nine months ended June
30, 2003.  The decrease in net cash used by  investing  activities  is primarily
attributed to acquisitions in the nine months ended June 30, 2003.

     Net cash  provided by financing  activities  for the nine months ended June
30, 2004 was $8.8 million  compared  with net cash used by financing  activities
for the nine months ended June 30, 2003 of $9.8 million. The change is primarily
due to the financing of the merger agreement on April 7, 2004.

     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. In developing the expected
long-term rate of return assumption,  the Company's  management  evaluates input
from outside  investment  advisors and  actuaries  as of the  measurement  date.
Actual asset  returns for the  Company's  pension  plan  improved in fiscal 2003
after two years of negative returns.  Although recent trends have been positive,
the  Company  lowered the  long-term  rate of return on plan assets from 8.5% to
8.0% for the year ended  September 30, 2003. The Company's  management  believes
that  this rate is  reasonable  based on  historical  trends  over a 20-30  year
period.  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 lowered from 6.75% to 6.00% for the fiscal
year ended  September  30, 2003.  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 $0.2 million impact on annual pension expense.

<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.  However,  contributions
may increase in future years.  Due to the  uncertainty  of the future returns of
the equity and corporate bond markets, it is difficult to estimate the impact of
pension contributions 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 and capital  expenditure  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.

<PAGE>





                            Contractual Obligations

     The  Company  has  the  following  minimum  commitments  under  contractual
obligations  including purchase  obligations,  as defined by the U.S. Securities
and Exchange Commission as of June 30, 2004:

<TABLE>

                                     2004         2005-2006       2007-2008       2009 and after           Total
<S>                             <C>             <C>            <C>               <C>                 <C>
Capital lease obligations       $        69     $    552   $           552   $           126     $         1,299
Operating lease obligations           1,241        6,937             7,864              6,347             22,389
Mortgage obligations                     43          112             2,052                 16              2,223
Purchase obligations                    976        6,402             6,402              3,201             16,981
Respiratory commitment                  100          800               800              1,100              2,800
Long term debt                          313        2,500             2,500            295,067            300,380
                                -----------     ------------   ---------------   ----------------    -----------
Total                           $     2,742     $ 17,303       $    20,170   $        305,857        $   346,072
                                ===========     ========       ===============   ================    ===========


Off-Balance Sheet Arrangements

     The Company  has no  financing  arrangements  involving  variable  interest
entities.




</TABLE>
<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  adopted  the
provisions of SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities" on October 1, 2000, 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
profitability,  the Company executes two hedging  programs,  one for transaction
exposures,  and the other for cash flow  exposures  in foreign  operations.  The
Company utilizes  forward foreign currency  contracts for transaction as well as
cash flow  exposures.  For the nine  months  ended June 30,  2004 and 2003,  net
transaction  exposures  were a loss of $0.5 million and a gain of $2.0  million,
respectively.  Cash  flow  exposures  for the  same  period  were a loss of $0.5
million and $1.7  million,  respectively.  In addition,  the Company  limits the
foreign  exchange impact on the balance sheet with foreign  denominated  debt in
Great Britain Pound Sterling, Euros and Canadian dollars.

     SFAS No. 133 requires that every  derivative  instrument be recorded in the
balance sheet as either an asset or liability  measured at its fair value.  As a
result of the forward  foreign  currency  contracts,  the Company has recorded a
derivative  payable  of $0.1  million  at June  30,  2004 and  $0.4  million  at
September 30, 2003. All forward foreign currency  contracts will expire over the
next nine months.

     The Company also  executes  forward  foreign  currency  contracts for up to
30-day  terms  to  protect  against  the  adverse  effects  that  exchange  rate
fluctuations  may  have  on the  foreign-currency-denominated  trade  activities
(receivables,  payables and cash) of foreign subsidiaries.  These contracts have
not been designated as hedges under SFAS No. 133 and accordingly,  the gains and
losses on both the derivative and foreign-currency-denominated  trade activities
are recorded as transaction adjustments in results of operations.  The impact on
results of  operations  was a loss of  approximately  $1.1 million and a gain of
$0.2 million for the nine months ended June 30, 2004 and 2003, respectively.

                                 Interest Rates

     The Company is exposed to market risk changes in interest rates through its
debt.  The Company  utilizes  interest rate  instruments to reduce the impact of
either increases or decreases in interest rates on its floating rate debt.


<PAGE>

     The Company has approximately $30.5 million of variable rate debt protected
under  an  interest  rate  cap  arrangement   through  December  31,  2004.  The
approximate  fair value of the cap at June 30, 2004 and  September  30, 2003 was
$0.1 million. The Company has not elected to take hedge accounting treatment for
the interest rate cap as defined  under SFAS No, 133 and, as a result,  any fair
value adjustment is charge directly to other  income/(expense).  During the nine
months ended June 30, 2004 there was no change in the value of the interest rate
cap.

     The Company is of the opinion that it is well positioned to manage interest
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.


<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, 2004, and have determined that such disclosure  controls and procedures
are effective.

     There has been no change in the Company's  internal  control over financial
reporting during the quarter ended June 30, 2004, that has materially  affected,
or is reasonably  likely to materially  affect,  the Company's  internal control
over financial reporting.



<PAGE>
<


                           PART II - OTHER INFORMATION

Item 6...Exhibits and Reports on Form 8-K

(a)......Exhibits
         See Index of Exhibits on page 36 hereof.



<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:  August 16, 2004              AEARO COMPANY I


                                     /s/ Michael A. McLain

                                     ---------------------------------------
                                     Michael A. McLain
                                     Chairman, President and
                                     Chief Executive Officer
                                     (Principal Executive Officer)

                                     /s/ Jeffrey S. Kulka

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




<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.