UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K
      (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                    For the fiscal year ended March 31, 1997
                                       OR
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934 [NO FEE
                       REQUIRED] For the transition period
                                     from to
                         Commission File Number 0-23938

                      SAFETY COMPONENTS INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

                                    DELAWARE
                         (State or other jurisdiction of
                         incorporation or organization)

                               3190 Pullman Street
                             Costa Mesa, California
                              (Address of principal
                               executive offices)
   
                                   33-0596831
                                (I.R.S. Employer
                               Identification No.)

                                      92626
                                   (Zip Code)

        Registrant's telephone number, including area code (714) 662-7756

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     Common Stock, par value $.01 per share
                                (Title of Class)

         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 at least the past 90 days.

                           Yes [X]     No [ ]

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].

         The  aggregate  market value of the common stock held by persons  other
than  affiliates  of the  registrant,  as of June 19,  1997,  was  approximately
$52,661,522.

         The number of shares  outstanding of the registrant's  common stock, as
of June 19, 1996, is as follows:


         Class                                                 Number of Shares
-------------------------------------------------------------------------------
Common Stock, par value $.01 per share                             5,015,383

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the  Registrant's  proxy  statement in connection  with its
1997 annual meeting of shareholders (the "Proxy  Statement") are incorporated by
reference into Part III.

                                        

<PAGE>

                                     PART I

ITEM 1.           BUSINESS

THE COMPANY

         Safety  Components  International,   Inc.  (the  "Company"  or  "Safety
Components"),  a Delaware  corporation which was formed on January 12, 1994 as a
wholly-owned  subsidiary  of  Valentec  International  Corporation,  a  Delaware
corporation  ("Valentec"),  is a  leading,  low  cost  independent  supplier  of
automotive  airbag cushions with  operations in North America,  Europe and Asia.
The Company sells airbag  cushions  worldwide to most of the major airbag module
integrators  that  outsource  for such  products.  In addition to the  Company's
airbags products, the Company also produces defense related products,  primarily
projectiles and other metal  components for small to medium caliber training and
tactical  ammunition,  which  account for $15.1  million or 18% of the Company's
consolidated fiscal 1997 net sales.

SIGNIFICANT TRANSACTIONS

         The JPS  Acquisition.  On June 30,  1997,  the Company  entered  into a
definitive  agreement  to acquire  the air  restraints  and  technical  products
division (the  "Business") of JPS Automotive L.P. ("JPS  Automotive")  for $56.3
million  (including 18 looms  scheduled for delivery  prior to closing) plus the
assumption of $797,000 in  indebtedness,  subject to a  post-closing  adjustment
(the "JPS  Acquisition").  The JPS Acquisition is subject to certain conditions,
including the ability of the Company to obtain  financing for such  acquisition.
The  Company  expects  to  finance  the JPS  Acquisition  with a portion  of the
proceeds of a private  placement  (the  "Offering") of $80,000,000 of its Senior
Subordinated  Notes. Such Senior Subordinated Notes will not be registered under
the  Securities  Act of 1933, as amended,  and may not be offered or sold in the
United States absent registration or an applicable  exemption from registration.
There  can  be no  assurance  that  such  financing  will  be  consummated.  JPS
Automotive is a leading, low cost supplier of airbag fabric in North America and
is also a  leading  manufacturer  of  value-added  synthetic  fabrics  used in a
variety of niche  industrial and commercial  applications.  The Company believes
the  acquisition  of JPS  Automotive  represents an important step in its airbag
growth strategy because it will enable the Company to: (i) combine strong market
positions  in  fabric  and  cushions;   (ii)  integrate  low-cost  manufacturing
capabilities  in airbag fabric and cushions to exploit the continued  demand for
airbag modules;  (iii) interchange airbag and specialty industrial fabrics using
the same equipment and  manufacturing  processes thereby allowing the Company to
effectively  utilize  manufacturing  assets  and (iv)  enhance  and  expand  its
customer base.

         The  Valentec  Acquisition.  Pursuant to a  definitive  Stock  Purchase
Agreement,  dated as of May 22, 1997, the Company  acquired in a stock for stock
transaction  all of the  outstanding  capital stock of Valentec  (the  "Valentec
Acquisition").  Valentec is a high-volume  manufacturer of stamped and precision
machined  products for the automotive,  commercial and defense  industries.  The
Company believes that Valentec's  machining  capabilities and relationships with
airbag  module  producers  will  enable the  Company to  increase  the amount of
content per airbag module  supplied by the Company.  Pursuant to this  strategy,
the Company has begun  producing  end caps and retainer  brackets for two of its
larger airbag module customers.  In addition,  the Company believes that it will
be able to  eliminate  certain  duplicative  corporate  functions  at  Valentec,
resulting in improved efficiencies and cost savings.

         The foregoing contains  forward-looking  statements.  There are certain
important  factors  that could  cause  results to  materially  differ from those
anticipated from the statements made above.  These factors include,  but are not
limited  to: the  ability  of Safety  Components  to  consummate  the  financing
necessary  for  the  JPS  Acquisition  and  the  continued  performance  by  JPS
Automotive  at  historical  levels;  the  ability  to realize  anticipated  cost
savings; the ability to achieve earnings projected by Valentec; the continuation
of favorable trends in the metal stamping business; world-wide automotive sales;
automotive  labor strikes or business  interruptions;  fluctuation in world-wide
economic conditions;  dependence of revenues upon several major module suppliers
and pricing pressures.


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<PAGE>

         The Credit  Agreement  with KeyBank - As of May 21, 1997,  the Company,
Phoenix Airbag GmbH ("Phoenix") and Automotive Safety  Components  International
Limited entered into a Credit  Agreement with KeyBank National  Association,  as
administrative  agent, and the lending  institutions  named therein (the "Credit
Agreement").  The Credit Agreement provides for (i) a term loan in the principal
amount of $15.0  million and (ii) a revolving  credit  facility in the aggregate
principal amount of up to $12.0 million (including letter of credit facilities).
See "Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations -- Liquidity and Capital Resources."

AIRBAG RELATED PRODUCTS

AIRBAG INDUSTRY

Airbag Module Growth.  The worldwide market for airbag modules has grown rapidly
in recent  years  from  approximately  3.6  million  installed  units in 1991 to
approximately  57.2 million  installed  units in 1996.  According to  automotive
research firm Tier One, Inc.,  installed module sales are projected to more than
double from  approximately  57.2  million in 1996 to 123.1  million in 2000 as a
result of increasing  penetration in Europe and Asia,  growth in demand for side
and  rear-impact  bags  and  growth  in  automotive   demand  within  developing
countries.  National Highway  Transportation  Safety  Administration  (" NHTSA")
regulations  require  installation of driver-side and passenger-side  airbags in
all U.S.  passenger  cars  beginning  in model year 1998 and on light  trucks in
model year 1999. Canadian-produced cars are also being built to these standards,
as are all Mexican-built vehicles that are exported to the United States, Canada
and Europe.  The adoption of airbags in Europe is consumer  demand driven rather
than governmentally mandated. The European market is quickly moving towards 100%
installation of driver-side and passenger-side  airbags as a result of declining
unit costs and safety  consciousness  of Europeans.  Approximately  21.7% of the
Company's  net sales in  fiscal  year 1997  were  from  Europe  and the  Company
believes its three  European  facilities  provide ample  capacity to service the
projected increase in demand for airbag units in the region.  Installation rates
on Japanese  vehicles are expected to approach those of the United States by the
year 2000. The Company currently sells directly to KIA Motors Corp.  ("KIA") and
the Company's  airbag  cushions are currently sold for  installation  in Toyota,
Nissan and Mazda  automobile  models.  The Company has  recently  entered into a
Chinese joint venture to meet the increasing requirements of Asian automakers.

         The foregoing contains  forward-looking  statements.  There are certain
important  factors  that could  cause  results to  materially  differ from those
anticipated form the statements made above.  These factors include,  but are not
limited to: the Company's  ability to maintain or increase its market share; the
growth in demand for  airbags in Europe and Asia;  and the growth in  automotive
demand within developing countries.

Structure of the Airbag Industry. Airbag systems consist of an airbag module and
an electronic control module,  which are currently integrated by automakers into
their  respective  vehicles.  Airbag  modules  consist of  inflators,  cushions,
housing and trim covers and are assembled by module integrators,  of which there
are currently seven. All but one of these module integrators  produce all of the
components required for a complete module. However, as the industry has evolved,
all but one also outsource a portion of their cushion  requirements  from Tier 2
suppliers such as the Company.

AUTOMOTIVE PRODUCTS

         The Company's  automotive  products include passenger,  driver side and
side impact airbags  manufactured for installation in 35 different car and truck
models sold worldwide  (including models  manufactured by General Motors,  Ford,
Chrysler,  Toyota,  Mazda,  Nissan, KIA, Mercedes,  BMW,  Volkswagen,  Rover and
Audi);  and stamped and machined  components used in airbag  systems,  including
passenger  airbag  retainers  that  attach  the airbag  cushion to the  module's
reaction  can, as well as driver side module  products  and  components  used in
airbag inflators.

                                        3

<PAGE>
         The  Company  also  manufactures   computer   peripheral   devices  and
anti-theft devices for the garment and retail industries.

CUSTOMERS

         Sales of airbag related  products to TRW Vehicle Safety  Systems,  Inc.
("TRW") and Petri accounted for approximately 47% and 23%, respectively,  of the
Company's consolidated fiscal 1997 net sales.

         The Company sells its airbag cushions to airbag module  integrators for
inclusion in specified model cars generally pursuant to requirements  contracts.
Certain of these customers also manufacture  airbag cushions to be used in their
production of airbag modules.

         The following describes the Company's contractual relationship with its
significant customers.

         TRW. The Company has one requirements contract with TRW with respect to
TRW's North  American  airbag  cushion  requirements  and  another  requirements
contract with TRW with respect to TRW's European  airbag  cushion  requirements.
Under these  contracts,  TRW has agreed to purchase its  requirements for airbag
cushions for specific models of automobiles at prices to be agreed upon prior to
the beginning of each model year.  Each agreement  provides that cost reductions
of the  Company  will  result  in price  reductions  to TRW.  Neither  agreement
requires the customer to purchase a specified  number of airbag  cushions.  Each
agreement is terminable by the customer on 90 days' prior  written  notice.  The
North  American  requirements  agreement is for driver and passenger side airbag
cushions for specified  models in model years 1996 through 1999 and requires the
Company to maintain  capacity to manufacture  and ship 25% more airbag  cushions
than actual  quantity  estimates  provided  by TRW.  The  European  requirements
agreement  contains penalty payments in the event that the Company is delayed in
delivering the airbag cushion quantities required.

         Petri.  The Company's  "evergreen"  agreement  with Petri provides that
prior to  commencement  of each calendar year the parties will negotiate  price,
quantity and other relevant terms of the airbag cushion supply contract for such
calendar  year.  Petri is under no  contractual  obligation  to enter  into such
annual supply agreements with the Company.  The Company's current agreement with
Petri provides for the supply of all of Petri's airbag requirements,  which were
3.0 million airbag cushions during calendar year 1997.

                                        4

<PAGE>
SUPPLIERS

         The Company's  principal airbag cushion customers generally approve all
suppliers  of major  airbag  components.  These  suppliers  are  approved  after
undergoing a rigorous  qualification process on their products and manufacturing
capabilities.  In many  cases,  only one  approved  source of supply  exists for
certain airbag components.  In the event that a sole source supplier experiences
prolonged delays in product shipments or no longer qualifies as a supplier,  the
Company would work together  with its  customers to identify  another  qualified
source of supply.  Although  alternative  sources of supply  exist,  a prolonged
delay in the approval by the Company's customers of any such alternative sources
of supply could  adversely  affect the Company's  operating  results.  Under the
Company's  agreements  with  its  customers,  any  changes  in the cost of major
components are passed through to the customers.

CAPACITY

         The Company's  Mexican  facility has a current  capacity to manufacture
5.0 million airbag cushions per year and manufactured 5.0 million passenger side
and driver  side  airbag  cushions in fiscal  year 1997.  The  Company's  United
Kingdom  facility  has current  capacity to  manufacture  approximately  440,000
airbag cushions per year and manufactured  350,000 driver side airbags in fiscal
1997.  The Company's  German  facility  manufactured  approximately  3.0 million
driver  side and side  impact  airbags  in  fiscal  1997 and is at or near  full
capacity.  The Company's Czech Republic facility which began production in 1997,
has a current  capacity  of 4.0  million  airbags  per year and is  expected  to
produce 1.2 million  passenger  side and driver side airbags in fiscal 1998. The
Company  believes that its present  capacity is sufficient to meet its currently
forecasted expansion in production for the foreseeable future.

         The Company has recently  entered into a joint venture  agreement which
establishes a joint venture for the production of airbag cushions in China.  The
Company owns an 80% interest in the joint  venture.  The plant and labor for the
joint venture is provided by the  Company's  joint  venture  partner.  The joint
venture has the capacity to produce  approximately  2.0 million airbag  cushions
per year and  operations  are expected to commence in June 1998.  The Company is
contemplating the introduction of weaving  capabilities at this facility through
the JPS Acquisition.

         Since  1993,  the  Business  has  invested  $19.4  million in  capacity
expansion,   significant  modernization  of  its  manufacturing  facilities  and
equipment upgrades.  In addition,  pursuant to the JPS Acquisition,  the Company
will  acquire 18  additional  looms  which is  expected  to further  enhance the
Company's manufacturing capacity and flexibility.

SALES AND MARKETING

         The Company  markets and sells airbag  cushions  through a direct sales
force based in Costa Mesa, California.  Prior to 1996, the Company conducted its
airbag  cushion sales and marketing  through the efforts of its  management  and
through  Champion Sales & Service Co.  ("Champion"),  an outside  marketing firm
engaged by the Company  since May 1992.  Champion and Mr.  Zummo,  the Company's
Chief  Executive  Officer,  were  instrumental  in  establishing  the  Company's
relationship  with TRW. The Company is obligated to pay Champion a commission of
1.5% and [2%] on all sales of airbags and airbag  components,  respectively,  to
TRW. The Company believes its reputation and existing  relationships with airbag
customers diminish the need for an outside marketing firm, and accordingly,  the
Company and Champion are in the process of renegotiating the terms of Champion's
Representation  Agreement with respect to TRW. Under its current  Representation
Agreements  with the Company,  Champion is restricted  from selling or marketing
products of other companies which compete with the products sold by the Company.
The Company's direct sales force includes certain affiliates of Champion.

COMPETITION

         The Company  competes  with  several  independent  suppliers  of airbag
cushions in the United States and Europe for sales to airbag module integrators.
The Company also  competes with TRW which is an airbag  module  integrator  that
produces  a  substantial  portion  of  its  own  airbag  cushions  for  its  own
consumption. However, TRW does not generally manufacture airbag cushions for the
same vehicle  models that the Company  manufactures  for TRW. Many airbag module
integrators subcontract a portion of their requirements for airbag cushions. The
Company believes that its good working relationship with its

                                        5

<PAGE>



customers,  the  Company's  high volume and low cost  manufacturing  capability,
consistency and level of quality products,  the existence of the agreements with
TRW, the lengthy  process  necessary  to qualify as a supplier to an  automobile
manufacturer  and the  desire in the  automotive  industry  to avoid  changes in
established  suppliers due to  substantial  costs of such changes create certain
barriers  to entry for  potential  competitors  for the airbag  business  of the
Company's customers.

         The  automotive  airbag  cushion and airbag  module  markets are highly
competitive.  Some of the  Company's  current  and  potential  competitors  have
greater  financial and other  resources than the Company.  The Company  competes
primarily  on  the  basis  of  its  price,  product  quality,  reliability,  and
capability to produce a high volume of many models of passenger  side and driver
side  airbags.  Increased  competition,  as well as price  reductions  of airbag
systems, would adversely affect the Company's revenues and profitability.

QUALIFICATION AND QUALITY CONTROL

         The Company  successfully  completed the rigorous process of qualifying
as an airbag supplier to TRW in 1992. Each of the Company's airbags manufactured
for TRW is required  to pass design  validation  and  process  validation  tests
established  by the automobile  manufacturers  and supervised by TRW relating to
the  product's  design and  manufacture.  TRW  participates  in these design and
process  validations  and must be satisfied with the product's  reliability  and
performance  prior to awarding a production  order.  The Company  satisfies  the
QPS-0100 standard set by TRW for design and process validation,  which qualifies
it to be a supplier to TRW.

         The  Company  has  extensive  quality  control  systems  in its  airbag
manufacturing facilities,  including the inspection and testing of all products.
The Company also  undertakes  process  capability  studies to determine that the
Company's  manufacturing  processes  have the  capability  of  producing  at the
quality levels required by its customers.

         The Company's  United  Kingdom  facility  operates  under TRW's quality
system which meets or exceeds ISO 9000, an  international  standard for quality.
The  Company's   German  facility  also  satisfies  ISO  9000  standards.   This
qualification  has enabled the  Company's  European  operations  to  manufacture
airbags  under the  Company's  agreement  with TRW. As is the case in the United
States,  however, the automobile  manufacturers may conduct their own design and
process validation tests of the Company's operations.

GOVERNMENTAL REGULATIONS

         Airbag systems  installed in automobiles sold in the United States must
comply with certain  government  regulations,  including  Federal  Motor Vehicle
Safety   Standard  208,   promulgated   by  the  United  States   Department  of
Transportation. The Company's customers are required to self-certify that airbag
systems   installed  in  vehicles  sold  in  the  United  States  satisfy  these
requirements.  The Company's  operations  are subject to various  environmental,
employee safety and wage and  transportation  related  statutes and regulations.
The Company believes that it is in substantial compliance with existing laws and
regulations and has obtained or applied for the necessary permits to conduct its
business operations.

PRODUCT LIABILITY

         The Company is engaged in a business  which could expose it to possible
claims for injury  resulting from the failure of products sold by it.  Recently,
there has been increased public attention to injuries and deaths of children and
small adults due to the force of the inflation of airbags. To date, however, the
Company has not been named as a defendant in any product  liability  lawsuit nor
threatened  with any such  lawsuit.  The  Company  maintains  product  liability
insurance  coverage  which  management  believes  to  be  adequate.  However,  a
successful  claim brought  against the Company  resulting in a final judgment in
excess of its insurance  coverage  could have a material  adverse  effect on the
Company.


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<PAGE>



DEFENSE RELATED PRODUCTS

         The  Company is a  supplier  of  military  ordnance  and other  related
products  as well as of  projectiles  and other  metal  components  for small to
medium  caliber  training  and  tactical  ammunition.  Sales of defense  related
products accounted for $15.1 million or 18% of the Company's consolidated fiscal
1997 net sales.

SYSTEMS CONTRACT

         In September  1994, the Company was awarded  Contract  DAAA09-94-C-0532
(the "Systems Contract") by the United States Army. The Systems Contract backlog
was $18.6  million at March 31,  1997,  and the  Company  expects to reduce such
backlog to $10.8 million by late fiscal 1998. The mortar  cartridges sold by the
Company to the United  States  Army  pursuant to the  Systems  Contract  will be
utilized in free standing,  long-range  artillery weapons in support of infantry
units.  As a systems  integrator,  the Company does not  manufacture  the mortar
cartridges itself,  but is a prime contractor,  coordinating the manufacture and
assembly of the product components by various subcontractors.  Accordingly,  the
Systems  Contract  has not  necessitated  a  significant  investment  in capital
equipment.  As the prime  contractor,  the Company is responsible for conducting
quality  control  inspections  and ensuring  that the contract is fulfilled in a
timely and efficient manner.

         The deliveries of completed mortar  cartridges were initially  expected
to  begin in  September  1995,  and the  Systems  Contract  was  expected  to be
completed by September  1996. Due to a delay by one of its  subcontractors,  the
Company has experienced  delays in the shipment of mortar cartridges against the
original  shipment   schedule.   The  delay  relates  to  matters  between  such
subcontractor  and the United  States  Army.  As a result of these  issues,  the
United  States  Army has  extended  the  time for  delivery  under  the  Systems
Contract,  and the Company now anticipates that the initial deliveries of mortar
cartridges will commence in late fiscal 1998.

OTHER

         The  Company  manufactures   projectiles  and  other  metal  components
primarily  for 20  millimeter  ammunition  and to a lesser  extent for 25 and 30
millimeter ammunition used by the United States Armed Forces. This ammunition is
fired from guns mounted on aircraft,  naval  vessels and armored  vehicles.  The
metal components  manufactured by the Company are shipped to a loading facility,
operated either by the United States  Government or a prime defense  contractor,
which loads the explosives, assembles the rounds and packages the ammunition for
use. The Company  primarily  manufactures  components  that are used in training
rounds,  which are  similar  to  tactical  rounds  but do not  contain  the same
explosive or incendiary  devices  contained in tactical  rounds.  Because of the
continuous use of training  ammunition,  the majority of the rounds purchased by
the U.S.  Armed  Forces are training  rounds.  The U.S.  Armed Forces  regularly
replenishes its inventory of training ammunition.

MARKETS AND CUSTOMERS

         The Company's defense related sales are made to the United States Armed
Forces, certain prime defense contractors for the United States Armed Forces and
foreign  governments or contractors  for foreign  governments.  The Company is a
principal or sole source  supplier for many of the  projectiles  and other metal
components  it  manufactures.  There can be no  assurance,  however,  that other
companies will not begin to manufacture  such products in the future and replace
part or all of the sales by the Company of these products.

MANUFACTURING AND PRODUCTION

         The Company  manufactures  projectiles  and other metal  components for
inclusion   in  small  to  medium   caliber   ammunition   utilizing   primarily
multi-spindle screw machines at its manufacturing  facility in Galion, Ohio. The
manufacturing  process  includes the impact  extrusion of steel bars to form the
blank or rough form shape of the metal  components,  the machining of the inside
and outside of the metal components to form their final shape,  various heat and
phosphate  treatments and painting.  The Company believes that its manufacturing
equipment,  machinery and processes are sufficient for its current needs and for
its needs in the foreseeable future, with minimal preventive maintenance.


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<PAGE>

SUPPLIERS

         The Company  believes that adequate  supplies of the raw materials used
in the  manufacture of its small to medium  caliber  products are available from
existing  and,  in most  cases,  alternative  sources,  although  the Company is
frequently  limited to procuring  such  materials  and  components  from sources
approved by the United States Government.

QUALITY CONTROL

         The Company's defense  operations employ  Statistical  Process Controls
extensively throughout its manufacturing process to ensure that required quality
levels are  maintained  and that products are  manufactured  in accordance  with
specifications.  The Company  satisfies  the United  States  Government  quality
control standard  Million-Q-9858A and ISO-9002.  Under the Systems Contract, the
Company is responsible for conducting  inspections of the subcontractors for the
program to ensure that they meet these same standards.

COMPETITION

         The Company competes for contracts with other potential suppliers based
on price and the ability to manufacture  superior  quality  products to required
specifications  and  tolerances.  The  Company  believes  that  it  has  certain
competitive advantages including its high volume,  cost-efficient  manufacturing
capability,  its  co-development  of new products  with its  customers,  and the
United  States  Government's  inclination  to  remain  with  long-term  reliable
suppliers.  Since the Company's processes do not include a significant amount of
proprietary information, however, there can be no assurance that other companies
will not, in time, be able to duplicate the Company's  manufacturing  processes.
Many of the Company's  competitors  have greater  financial  resources  than the
Company.

UNITED STATES GOVERNMENT CONTRACTS

         Virtually all of the Company's defense related contracts, including the
Systems  Contract,  are  firm  fixed  price  contracts  with the  United  States
Government or certain of the United States Government's prime contractors. Under
fixed price  contracts,  the Company agrees to perform  certain work for a fixed
price and, accordingly,  realizes all of the benefit or detriment resulting from
decreases or increases in the costs of performing the contract.

         A majority of the Company's  manufacturing  agreements  with the United
States Armed Forces and its prime defense  contractors  are for the provision of
components for a one year term (two years in the case of the Systems  Contract),
subject, in certain cases, to the right of the United States Government to renew
the  contract  for an  additional  term.  Renewals of United  States  Government
contracts  depend  upon  annual  Congressional  appropriations  and the  current
requirements  of the  United  States  Armed  Forces.  United  States  Government
contracts and contracts with defense contractors are, by their terms, subject to
termination  by the United States  Government for its  convenience.  Fixed price
contracts  provide for  payment  upon  termination  for items  delivered  to and
accepted  by the  United  States  Government,  and,  if the  termination  is for
convenience,  for payment of the contractor's costs incurred through the date of
termination  plus  the  costs  of  settling  and  paying  claims  by  terminated
subcontractors,  other settlement  expenses and a reasonable profit on the costs
incurred.

SEASONALITY

         The Company's  automotive  products business is subject to the seasonal
characteristics  of the  automotive  industry in which there are seasonal  plant
shutdowns in the third and fourth  quarters of each calendar year.  Although the
Systems Contract is not seasonal in nature, there have been and will continue to
be variations in revenues from the Systems Contract based upon costs incurred by
the Company in fulfilling the Systems Contract in each quarter.  The majority of
the  Company's  manufacturing  under  its  agreements  with  the  United  States
Government and prime defense contractors has historically  occurred from January
through  September  and there is  generally a lower level of  manufacturing  and
sales during the fourth quarter of the calendar year.


                                        8

<PAGE>


BACKLOG

         The Company  does not reflect an order for airbags or airbag  fabric in
backlog  until it has  received  a  purchase  order and a  material  procurement
release  which  specifies  the  quantity  ordered and specific  delivery  dates.
Generally, these orders are shipped within four to eight weeks of receipt of the
purchase order and material release.  As a result,  the Company does not believe
backlog is a reliable measure of future airbag sales.

         As of March 31,  1997,  the  Company had a  defense-related  backlog of
approximately  $24.4  million of which $10.8 million is expected to be completed
before the end of fiscal year 1998.

RISKS OF FOREIGN OPERATIONS

         Certain of the Company's  consolidated  sales are generated  outside of
the United States. Foreign operations and exports to foreign markets are subject
to a number of special risks, including,  but not limited to, risks with respect
to   fluctuations   in  currency   exchange   rates,   economic  and   political
destabilization,  other  disruption of markets,  restrictive  actions by foreign
governments  (such as  restrictions  on  transfer  of funds,  export  duties and
quotas,  foreign  customs  and  tariffs  and  unexpected  changes in  regulatory
environments),   changes  in  foreign  laws  regarding   trade  and  investment,
difficulty in obtaining distribution and support, nationalization,  the laws and
policies of the United States affecting trade, foreign investment and loans, and
foreign tax laws.  There can be no assurance  that one or a combination of these
factors  will not have a material  adverse  effect on the  Company's  ability to
increase or maintain its foreign sales or on its results of operations.

         In addition,  the Company has significant  manufacturing  operations in
foreign  countries  and  purchases a portion of its raw  materials  from foreign
suppliers.  The production costs, profit margins and competitive position of the
Company are affected by the  strength of the  currencies  in countries  where it
manufactures  or purchases  goods  relative to the strength of the currencies in
countries where its products are sold.

         Certain  of the  Company's  operations  generate  net  sales  and incur
expenses  in  foreign   currencies.   The  Company's   financial   results  from
international  operations may be affected by fluctuations  in currency  exchange
rates.  Certain  exchange  rate risks to the Company are limited by  contractual
clauses in the  Company's  agreement  with TRW for  European  supply of airbags.
Future  fluctuations in certain  currency  exchange rates could adversely affect
the Company's financial results.

EMPLOYEES

         At March 31, 1997, the Company employed  approximately  1,572 employees
with 1,477 of such employees employed with respect to its automotive  operations
and 95 employees  employed with respect to its defense related  operations.  The
Company's  hourly  employees  in Mexico are  unionized  and,  in  addition,  are
entitled to a  federally-regulated  minimum wage, which is adjusted, at minimum,
every two years.  None of the  Company's  other  employees  are  unionized.  The
Company has not  experienced  any work  stoppages  related to its work force and
considers its relations with its employees to be good.

ENVIRONMENTAL MATTERS

         The Company has identified two areas of  underground  contamination  at
the Company's  facility in Galion,  Ohio. One area involves a localized  plating
solution  spill.  The second area  involves a  chlorinated  solvent spill in the
vicinity of a former  above  ground  storage  area.  The  Company  has  retained
environmental   consultants  to  quantify  the  extent  of  this  problem.  Such
environmental   consultants  estimate  that  the  Company's  voluntary  plan  of
remediation  could take three to five years to implement,  followed up by annual
maintenance.  The  consultant  also  estimates  that  remediation  costs will be
approximately $300,000. However, depending on the actual extent of impact to the
Company or more stringent  regulatory  criteria,  these costs could be higher.In
addition,  a site  remediation  plan has been  approved  by the  Regional  Water
Quality Control Board for the Company's Costa Mesa,  California  facility.  Such
plan will take  approximately  five years to implement  at an estimated  cost of
approximately $250,000. The remediation plan currently includes

                                        9

<PAGE>



the simultaneous  operation of a groundwater and vapor extraction system. In the
opinion  of  management,  no  material  expenditures  will be  required  for its
environmental  control  efforts and the final  outcome of these matters will not
have a  material  adverse  effect on the  Company's  results  of  operations  or
financial position. The Company believes that it currently is in compliance with
applicable  environmental  regulations in all material  respects.  See Note 8 to
Notes to Consolidated Financial Statements included elsewhere in this Report.

JPS AUTOMOTIVE

         JPS  Automotive,  through its air  restraints  and  technical  products
division  (the  "Business"),  is a  leading  low cost  independent  supplier  of
automotive airbag fabric in North America and is also a leading  manufacturer of
value-added  synthetic  fabrics  used  in a  variety  of  niche  industrial  and
commercial  applications.  Of the seven  current  module  integrators,  only one
weaves airbag fabric; the rest purchase fabric from the Business. See " - Airbag
Related Products - Airbag Industry - Structure of the Airbag Industry."

         The Business' largest airbag fabric customers include TRW, AlliedSignal
Inc.  ("AlliedSignal"),  Delphi  Interior  and Lighting  ("Delphi")  and AutoLiv
(Morton)   International   ("AutoLiv").   The  Business  also  sells  to  Reeves
Industries,  Inc., Bradford,  ABC, Mexican Industries of Michigan Inc. ("Mexican
Industries") and BREED Technologies, Inc. Of the four largest module integrators
of systems  (which  include the airbag and  inflator),  three use the  Business'
airbag fabric and the fourth sources all of its fabrics internally. The Business
sells its fabric either directly to a module  integrator or, in some cases, to a
fabricator  (such as the  Company),  which  sells a sewn  airbag  to the  module
integrator.  Because driver-side fabric historically has been coated (to prevent
the driver's exposure to high temperatures) before fabrication into airbags, the
Business  also sells fabric to coating  companies,  which then resell the coated
fabric to either an airbag fabricator or systems manufacturer.  Sales are either
made against purchase orders,  to releases on open purchase orders,  or pursuant
to  short-term  supply  contracts  generally  having a duration  of up to twelve
months.

         The Business has a facility in South Carolina which manufactures airbag
fabric.  The Business utilizes rapier weaving machines that are highly versatile
in their  ability to produce a broad array of specialty  industrial  fabrics for
use in a large number of applications.  In addition, the Business' machinery and
equipment  have the  capability  to weave  all types of yarns  specified  by air
module  integrators.  The ability to easily interchange the machines between air
restraint fabric and other specialty  industrial  fabrics allows the Business to
maximize returns on plant assets.

         The Business  shares the U.S.  airbag  fabric market with another major
competitor,  Milliken & Co. and three smaller fabric manufacturers. In addition,
Takata  Inc.  (which is also known as  Highland  Industries),  an airbag  module
integrator, produces fabric for its airbag cushions. Barriers to entry into this
market  include the  substantial  capital  requirements  and lengthy  lead-times
required for certification of a new participant's fabrics by buyers.

         The  Business   underwent   rigorous  design   validation  and  process
validation tests, similar to the tests undergone by the Company in qualifying as
a supplier to TRW, in order to qualify as a supplier to TRW and  AutoLiv,  which
recently  granted a purchase order to the Business.  The Business' airbag fabric
operations have been certified as a Quality Assurance  Approved Supplier by each
of  AlliedSignal,   TRW,  AutoLiv  and  Mexican  Industries.  In  addition,  the
laboratory of the Business' airbag fabric operations has obtained  Accreditation
Against ISO-Guide 25 to ASTM and DIN Test Methods from the American  Association
of Laboratory Accreditation and GP-10 certification from General Motors.

         The Business  also  manufactures  a wide array of  specialty  synthetic
fabrics for consumer and industrial  uses.  These fabrics  include:  (i) luggage
fabrics,  including  "ballistics"  fabric  used  in  Tumi  brand  luggage;  (ii)
filtration fabrics used in the aluminum,  coal, steel,  cement, clay and brewing
industries;  (iii) woven fabrics for use by  manufacturers  of coated  products;
(iv)  specialty  fabrics  used in police  jackets,  fuel  cells,  bomb and cargo
chutes,  oil  booms,  gas  diaphragms;  and  (v)  release  liners  used  in tire
manufacturing. Sales are made against purchase orders, releases on open purchase
orders, or pursuant to short-term

                                       10

<PAGE>

supply contracts of up to twelve months.  Manufacturing of these products occurs
at the Business' South Carolina facility, using the same machines that weave the
airbag   fabrics  which  enables  the  Business  to  take  advantage  of  demand
requirements  for the various  products with minimal  expenditure  on production
retooling costs.  Manufacture of the industrial  products with the same machines
that  weave  airbag  fabric  allows the  Business  to more  effectively  utilize
capacity at its South Carolina plant and lower per unit overhead costs.

ITEM 2.  PROPERTIES

                  The Company  maintains  its  corporate  headquarters  in Costa
Mesa,  California.   The  Company  manufactures   automotive  products  in  five
locations, with total plant area of approximately 519,500 square feet (including
administrative,  engineering and research and development  areas housed at plant
sites).  Below  is  an  overview  of  the  Company's  manufacturing  and  office
facilities:
<TABLE>
<CAPTION>

 
                                                            Floor Area         Owned/    Lease      Number of
                     Location                                (Sq. Ft.)         Leased  Expiration   Employees
     ----------------------------------------------         ----------         ------  ----------   ---------

<S>                                                          <C>      <C>     <C>         <C>         <C>      
Airbag
    Ensenada, Mexico (airbags).....................           97,000  (1)      Leased     1998 (2)     971
    Germany (airbags)..............................           55,000  (3)      Leased     1998 (4)     248
    Czech Republic (airbags).......................          100,000  (5)       Owned      N/A         233
    Gwent, Wales (airbags).........................           20,000  (5)      Leased     2003          58
    Costa Mesa, California (airbags and defense)...          139,000  (6,7)    Leased     1999         181
    Otay Mesa, California8.........................            7,900           Leased     1998           3
Defense (9)
    Mount Arlington, New Jersey
    (defense systems)..............................            3,600  (10)     Leased                   10
    Galion, Ohio (defense products)................           97,000  (6)       Owned      N/A          75
</TABLE>

------------------------
1   Office, manufacturing and research and development space.
2   Lease is subject to two one-year renewal options.
3   Manufacturing, sales and administration space.
4   The lease with respect to the 40,000  square feet  comprising  manufacturing
    space  expires in 1998.  The lease with  respect to the 15,000  square  feet
    comprising sales and administrative space expires in 2001.
5   Manufacturing and office space.
6   Manufacturing and administrative space.
7   Consists of two facilities.
8   Finished goods distribution center.
9   Defense  related  products are  also manufactured at the Costa Mesa facility
    listed above.
10  Office space.



ITEM 3.  LEGAL PROCEEDINGS

         None.

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

         None.


                                       11

<PAGE>
                                     PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

         The  Common  Stock is  listed on the  Nasdaq  National  Market  (Nasdaq
symbol:  ABAG).  The  following  table sets forth the high and low reported sale
prices of the Common Stock for each full  quarterly  period  within the two most
recent fiscal years.


                                                             High        Low
                                                            -------    -------
Year Ended March 31, 1997
     First Quarter ......................................   $14 3/4    $ 9 1/4
     Second Quarter .....................................   $13 1/4    $ 9 1/2
     Third Quarter ......................................   $13        $ 8 3/4
     Fourth Quarter .....................................   $13        $10


Year Ended March 31, 1996
     First Quarter ......................................   $20 3/4     $16 1/2
     Second Quarter .....................................   $21 1/4     $15
     Third Quarter ......................................   $19 1/2     $13 3/4
     Fourth Quarter .....................................   $15 3/4     $12 1/2


         As of June 26, 1997,  there were  approximately 88 holders of record of
the Common Stock.  

         The  Company  has,  to  date,  not  paid  any  cash  dividends  to  its
stockholders  and  presently  intends to continue  its policy of  retaining  its
earnings to support the growth and  development  of its business.  The Company's
existing credit agreement restricts the Company's ability to pay dividends.



                                       12
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The selected  financial data as of and for the fiscal years ended March
31, 1997, 1996 and 1995 and for the period from April 28, 1993 through March 31,
1994 are derived from the combined and consolidated  financial statements of the
Company and the  Automotive  and Galion  divisions  of Valentec  (the  "Valentec
Divisions")  which  have  been  audited  by Price  Waterhouse  LLP,  independent
accountants.  Subsequent to the management buy-out of Valentec on April 27, 1993
(the  "Management  Buy-Out"),  Valentec and the Company changed their respective
fiscal  year ends from  December  31 to March 31.  The  accounting  bases of the
Valentec  Divisions  subsequent to the Valentec  Management Buy-Out on April 27,
1993 differs from the historical accounting bases of these divisions.

         
         During the 1997 fiscal year,  the Company  changed its  accounting  for
product launch costs from the deferral method to the expense as incurred method.
The  Company  recorded  the  cumulative  effect  of this  change  in  accounting
principle  in the  amount of $1.3  million,  net of income  taxes,  or $0.25 per
share.  During fiscal year 1997 $1.8 million ($1.1 million net of tax benefit of
$704,000) of product launch costs were expensed. In addition, in connection with
a  new  loan  agreement  with  Bank  of  America   National  Trust  and  Savings
Association,  which  replaced the revolving  credit with Citicorp US, Inc.,  the
Company  recorded an  extraordinary  loss of $383,000,  net of income taxes,  or
$0.08 per share,  relating to the write-off of deferred financing costs incurred
for the previous credit facility.


         The  information  set forth below  should be read in  conjunction  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and the Company's  consolidated  financial  statements and the notes
thereto, included elsewhere in this Report.


(in thousands, except share and per share data and footnotes)

INCOME STATEMENT DATA
<TABLE>
<CAPTION>
                                                                                                Eleven
                                                                                                Months
                                                                                               April 28,
                                                                                                 1993
                                                                 Years Ended March 31,         Through
                                                          ----------------------------------   March 31,
                                                             1997 (1)    1996 (1)    1995 (1)    1994
                                                          ----------------------------------------------

<S>                                                       <C>         <C>         <C>         <C>
Net sales .............................................   $ 83,958    $ 94,942    $ 51,779    $ 22,444
Cost of goods sold ....................................     67,934      81,908      44,553      18,895
Gross profit ..........................................     16,024      13,034       7,226       3,549
Selling, general and administrative expenses ..........      7,420       5,430       4,050       2,738
Non-recurring consulting charge .......................       --          --          --         1,250
Operating income (loss) ...............................      8,604       7,604       3,176        (439)
Other expense (income) ................................        208        (807)       (484)        (83)
Interest expense ......................................      1,555         381         244         235
Income (loss) before income taxes .....................      6,841       8,030       3,416        (591)
Income tax provision (benefit) ........................      2,995       3,116       1,283        (207)
Income (loss) before extraordinary item and cumulative
     Effect of accounting change ......................      3,846       4,914       2,133        (384)
Extraordinary item - deferred financing costs (less tax
     Benefit of $255) .................................       (383)          -           -           -
Cumulative effect of change in accounting for deferred
      Product launch costs (less tax benefit of $718) .     (1,259)          -           -           -
Net income (loss) .....................................   $  2,204    $  4,914    $  2,133    $   (384)

</TABLE>


                                       13
<PAGE>

<TABLE>
<CAPTION>

                                                                                                           Eleven
                                                                                                           Months
                                                                                                          April 28,
                                                                                                            1993
                                                                                 March 31,                Through
                                                                 --------------------------------------   March 31,
                                                                    1997 (1)      1996 (1)     1995 (1)    1994
                                                                 --------------------------------------------------
PER SHARE DATA (3)

<S>                                                              <C>           <C>           <C>            <C>
  Income before extraordinary item and cumulative effect of
     accounting change .......................................     $0.77         $0.99         $0.53         -
  Extraordinary item .........................................     (0.08)            -             -         -
  Cumulative effect of change in accounting for deferred
     product launch costs ....................................     (0.25)            -             -         -
  Net income per share .......................................     $0.44         $0.99         $0.53
  Weighted average common shares outstanding .................   5,026,501     4,980,884     4,030,787       -


Pro forma amounts assuming the new accounting method is applied retroactively:

Income before extraordinary item .............................    $3,846              -            -         -
                                                                  ======                                      
  Earnings per common share ..................................    $ 0.77              -            -         -
                                                                  ======                                      

Net Income ...................................................    $3,463         $5,017        $ 950         -
                                                                  ======         ======        =====          
  Earnings per common share ..................................    $ 0.69         $ 1.01        $0.24         -
                                                                  ======         ======        =====          

</TABLE>

<TABLE>
<CAPTION>

BALANCE SHEET DATA

                                                                              March 31,
                                                                 -------------------------------------
                                                                   1997      1996      1995      1994
                                                                 -------------------------------------
                                                                             (in thousands)

<S>                                                              <C>       <C>       <C>       <C>
Working capital ..............................................   $11,755   $25,067   $ 8,206   $ 1,504
Total assets .................................................    73,407    49,831    28,311    12,837
Long-term debt, net of current portion .......................    21,296     3,087     2,043     4,760
Division equity ..............................................         -         -         -       866
Stockholders' equity .........................................    35,274    35,344    15,971         -
</TABLE>

--------------------------------------------
(1)       The Company did not declare dividends during fiscal year 1997, 1996 or
          1995.
(2)       As  more  fully  described  in  Note  5  to  Notes  to  the  Company's
          Consolidated  Financial Statements,  the Valentec Divisions incurred a
          $1.3 million  non-recurring,  non-cash expense related to the issuance
          of shares of Common Stock to certain stockholders and affiliates of
          Champion.
(3)       The weighted  average number of common shares  outstanding as of March
          31,  1996 and 1995  includes  the  weighted  average  of the pro forma
          number of shares assumed issued prior to the Company's  initial public
          offering in May 1994 to retire  inter-company and other  indebtedness.
          The Valentec  Divisions did not have a defined capital  structure and,
          as a result,  earnings  per share  amounts are not  presented  for the
          periods prior to the fiscal year ended March 31, 1995.


                                       14
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

OVERVIEW

         Due to the Company's  historical and  anticipated  growth,  the Company
believes that  period-to-period  comparisons  of its  financial  results are not
necessarily  meaningful and should not be relied upon as an indication of future
performance.  The following  discussion  should be read in conjunction  with the
Company's consolidated financial statements and notes thereto, appearing herein.

         The  Company  is a  leading  low cost  independent  supplier  of airbag
cushions for a variety of  automobiles  and light trucks to Tier 1 airbag system
suppliers.

         During fiscal year 1997, the Company  expanded its production and sales
in Europe through its acquisition of Phoenix Airbag in Germany and  construction
of its manufacturing  facility in the Czech Republic. The acquisition of Phoenix
Airbag was  accounted  for as a purchase  and,  accordingly,  the  operations of
Phoenix Airbag are included in the historical  consolidated financial statements
of the Company from August 6, 1996. In May 1997, the Company acquired all of the
outstanding  capital  stock of  Valentec  in a stock for stock  exchange,  which
enables  the  Company  to  manufacture  and  supply   additional  airbag  system
components.  In connection  with such  acquisition,  the Company  assumed and/or
caused  to  be  paid  off  approximately  $11.7  million  of  indebtedness,  The
acquisition  of Valentec will be accounted  for as a purchase and,  accordingly,
included in the Company's accounts beginning May 22, 1997.  Currently,  Valentec
manufactures  metal airbag  components  using machining and stamping  processes,
among other commercial and defense products.

         On June 30, 1997,  the Company  entered into a definitive  agreement to
acquire the air restraints and technical products division of JPS Automotive for
$56.3 million,  which is subject to certain conditions,  including the Company's
ability to obtain financing.  The Company intends to finance the JPS Acquisition
through a private  placement of senior  subordinated  notes. JPS Automotive is a
leading  manufacturer of automotive  airbag fabrics,  as well as other specialty
fabrics.  Currently,  the  Company is required  by certain of its  customers  to
purchase  airbag fabric from other vendors.  Should the Company obtain  approval
from certain of its vendors to purchase fabric from JPS Automotive,  the Company
may improve its overall operating results.

CHANGE IN ACCOUNTING PRINCIPLE AND EXTRAORDINARY ITEM

         During the 1997 fiscal year,  the Company  changed its  accounting  for
product launch costs from the deferral method to the expense as incurred method.
The  Company  recorded  the  cumulative  effect  of this  change  in  accounting
principle in the amount of $2.0 million  effective  April 1, 1996, in accordance
with  Accounting  Principles  Board  Opinion  No. 20. The fiscal  1997  deferred
product  launch  costs of $1.8  million  would have been  capitalized  under the
previously used accounting method rather than expensed as part of costs of goods
sold.  Total product  launch costs expensed in fiscal year 1997 was $2.3 million
after income  taxes,  or $.46 per share.  Management  believes its new method is
considered the preferable method of accounting.

         Additionally,  in connection  with a loan agreement in August 1996 with
Bank of America  National  Trust and Savings  Association,  which  replaced  the
revolving  credit with Citicorp US, Inc., the Company  recorded an extraordinary
loss of $383,000  (net of benefit for income  taxes of  $255,000),  or $0.08 per
share,  relating to the write-off of deferred  financing  costs incurred for the
previous credit facility.


                                       15
<PAGE>


RESULTS OF OPERATIONS

         The  following  table  sets  forth  certain   operating  results  as  a
percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>


                                                                        Year ended March 31,
                                                          -------------------------------------------
                                                             1997             1996              1995
                                                          -------------------------------------------

<S>                                                       <C>                <C>               <C>
Net sales                                                   100.0%           100.0%            100.0%
Cost of goods sold                                           80.9              86.3              86.0
Gross profit                                                 19.1              13.7              14.0
Selling, general and administrative expense                   8.4               5.7               7.8
Income from operations                                       10.2               8.0               6.1
Interest expense (income), net                                1.6              (0.2)               .2
Income before extraordinary item and
     cummulative effect of change in accounting               4.6               5.2               4.1
Net income                                                    2.6               5.2               4.1

</TABLE>


YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996


         NET  SALES.  Net sales  decreased  by $11.0  million  or 11.6% to $84.0
million in fiscal  year 1997  compared  to fiscal year 1996.  The  decrease  was
primarily  attributable  to lower  revenues in the Company's  defense  operation
("Defense   Operation")  partially  offset  by  an  increase  in  the  Company's
automotive  operation  ("Automotive  Operation").  The  decrease  in the Defense
Operation  of $30.7  million  reflects  the current  contract  schedule  for the
Systems Contract which has been delayed as a result of the failure of one of the
Company's  subcontractors to meet the U.S. Army's revised engineering  standards
and obtain government  process approval for final load,  assembly and pack. As a
result of these issues, the U.S. Army has extended the time for delivery and the
Company now anticipates,  based upon discussions with the  subcontractor and the
U.S.  Army,  that  deliveries  will begin in late fiscal 1998. The reduced sales
under the Systems Contract were partially offset by the increased sales of metal
ordnance products. The increase in the Automotive Operation of $19.7 million was
primarily  attributable to the acquisition of Phoenix Airbag,  which contributed
approximately  $25.4 million,  partially  offset by lower sales to TRW under the
European  requirements  agreement.  Sales to TRW under the European requirements
agreement  decreased  as a result of lower  unit  prices  reflecting  redesigned
products and lower fabric  prices.  The Company's  sales of passenger and driver
side airbags  produced for the North American market  decreased by approximately
$242,000, primarily as a result of increased sales to Delphi and increased sales
of driver  side bags to TRW under  the  North  American  requirements  contract,
partially offset by lower sales of passenger side airbags to TRW under the North
American requirements contract.

         GROSS PROFIT.  Gross profit increased by $3.0 million or 22.9% to $16.0
million in fiscal  year 1997  compared  to fiscal year 1996.  The  increase  was
primarily  attributable  to the Automotive  Operation,  which  increased by $5.8
million.  The increase was primarily  attributable  to increased sales volume in
Europe due to the acquisition of Phoenix Airbag, which contributed approximately
$6.9 million to gross profit. This increase was offset by lower margins in North
America and the Defense  Operation.  The decrease of  approximately  $996,000 in
North America was  primarily  the result of the change in  accounting  principle
discussed above,  offset by lower costs due to ongoing cost reduction  programs.
The  impact of the  change in  accounting  principle  was to  currently  expense
product launch costs,  previously  deferrable,  of $1.8 million. The decrease in
the Defense  Operation of $2.8 million was  primarily a result of the delays due
to the Systems  Contract  discussed  earlier.  See "Defense  Related  Products -
Systems Contract."

         Gross profit as a percentage of sales increased to approximately  19.1%
for fiscal year 1997 from 13.7% for fiscal year 1996. Exclusive of the impact of
the change in accounting principle,  gross profit as a percentage of sales would
have been approximately 21.2% for fiscal year 1997.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses  increased  by $1.6 million or 30.2% to $7.1 million in
fiscal year 1997  compared  to fiscal  year 1996.  The  increase  was  primarily


                                       16
<PAGE>

attributable to the Automotive  Operation,  specifically from the acquisition of
Phoenix Airbag, which was approximately $1.9 million,  partially offset by lower
costs in the U.K.  due to  lower  sales.  Selling,  general  and  administrative
expenses as a  percentage  of sales  increased  slightly to 8.4% for fiscal year
1997 from 5.7% for  fiscal  year 1996.  The  increase  related to the  continued
expansion of the Company's  automotive  operation,  including additional support
personnel and marketing.

         OPERATING  INCOME.  Operating income increased by $1.0 million or 13.2%
to $8.6 million in fiscal year 1997 compared to fiscal year 1996. The Automotive
Operation increased by $3.6 million primarily attributable to the acquisition of
Phoenix Airbag, which contributed  approximately $4.8 million. This increase was
partially  offset by lower  operating  income in North America.  The decrease of
approximately  $876,000 in North  America was primarily the result of the change
in accounting  principle  discussed above,  offset by lower costs due to ongoing
cost reduction programs. The impact of the change in accounting principle was to
currently  expense product launch costs,  which were previously  deferred in the
comparable period. The increase in the Automotive Operation was partially offset
by a decrease in the Defense  Operation of $2.6 million  which  reflected  lower
sales due to delays in the current contract  schedule for the Systems  Contract,
partially offset by improved margins on metal ordnance products,  resulting from
increased sales volumes,  improved  overhead  absorption and a change in product
mix.

         INTEREST EXPENSE.  Interest expense increased $1.2 million or 308.1% to
$1.6 million for fiscal year 1997  compared to fiscal year 1996.  This  increase
was a direct result of the $20.0 million term loan used for the  acquisition  of
Phoenix  Airbag.  The  increase of other  expense is primarily  attributable  to
losses on foreign currency transactions.

         INCOME TAXES.  The income tax rate applied  against  pre-tax income was
43.7% for fiscal year 1997 compared to 38.8% for fiscal year 1996.  The tax rate
increased as compared to prior year due to the  increasing  percentage of income
generated from European operations, which have higher tax rates than U.S.
operations.

         NET INCOME.  Net income  decreased to $2.2 million for fiscal year 1997
compared to $4.9 million in fiscal year 1996.  Net income  decreased  due to the
impact of the extraordinary  item and the cumulative effect of accounting change
as discussed above.  Income before  extraordinary  item and cumulative effect of
accounting change was $3.8 million for fiscal year 1997 compared to $4.9 million
for fiscal year 1996.  The  decrease was  primarily  the impact of the change in
accounting  principle for product  launch costs during  fiscal year 1997.  These
costs, which were previously deferrable, are currently expensed as incurred. The
impact on fiscal year 1997 was to expense $1.8 million  ($1.1 million net of tax
benefit  of  $704,000)  of  product  launch  costs. 


YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995

         NET SALES.  Net sales increased $43.2 million or 83.4% to $94.9 million
in fiscal year 1996  compared to fiscal year 1995.  The increase  was  primarily
attributable to the Defense Operation, which increased $37.1 million as a result
of  significantly  higher  revenues  from the Systems  Contract and, to a lesser
extent,  increased shipments of metal ordnance  components.  The increase at the
Automotive  Operation was $6.0 million as a result of increase  production.  The
Automotive  Operation's unit sales increased  approximately 23.3% over the prior
year, while overall sales increased by 14.0%. The Company's unit sales continued


                                       17
<PAGE>

to increase  reflecting  higher sales of both passenger and driver side airbags.
Sales were  unfavorably  impacted in the current  period by the  softening  U.S.
automotive market and a changing product mix in Europe,  and to a lesser extent,
decreases  in material  prices,  delays on certain  model year 1996  programs by
certain original equipment  manufacturers and the GM labor dispute in the fourth
quarter of fiscal year 1996.

         GROSS PROFIT.  Gross profit increased by $5.8 million or 80.4% to $13.0
million in fiscal  year 1996  compared  to fiscal year 1995.  The  increase  was
primarily  attributable to the Defense Operation,  which increased $4.0 million.
Gross  profit  increased  primarily as a result of higher sales from the Systems
Contract,  partially offset by changes in the metal ordnance  component  product
mix, with decreased sales of several older,  higher margin defense  programs and
higher  sales of newer,  lower  margin  defense  and  commercial  programs.  The
Automotive  Operation increased $1,773,000 for fiscal year 1996. The improvement
in gross profit  resulted  primarily from the increased  sales volume,  and to a
lesser extent from greater  efficiencies related to higher levels of production.
Gross  profit was  unfavorably  impacted in the  current  fiscal year by certain
program delays and the GM labor dispute in the fourth fiscal quarter. During the
year ended March 31, 1995, the continued  improvement in the gross profit of the
Automotive Operation's North American operations was partially offset by certain
expenses  related  to the  expansion  of  the  Automotive  Operation's  European
operations.  Specifically,  during the year ended March 31, 1995, TRW, under the
European  requirements  contract,  accelerated  demand  for  airbags  in  Europe
required the Company to operate,  on a temporary  basis, a high cost facility in
Germany  pending the transfer of certain  manufacturing  operations to two Czech
subcontractors. Certain costs relating to the launching of new programs in North
America and Europe were capitalized during this period.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses  increased  by $1.4 million or 34.1% to $5.4 million in
fiscal year 1996  compared  to fiscal  year 1995.  The  increase  was  primarily
attributable to the Defense  Operation,  which increased $868,000 in fiscal year
1996 reflecting  increased expenses related to the Systems Contract,  higher bid
and  proposal  costs  associated  with  potential  future  contracts  and higher
corporate  overhead  expenses.   The  Automotive  Operation  increased  $512,000
primarily from greater  expenditures  related to the continued  expansion of the
Company's  automotive   operations,   including  additional  support  personnel,
increased  marketing and  professional  services and higher  corporate  overhead
expenses,   including  increased  staffing,   legal,  accounting  and  insurance
expenses.

         OPERATING INCOME.  Operating income increased by $4.4 million or 139.4%
to $7.6 million in fiscal year 1996  compared to fiscal year 1995.  The increase
was  primarily  attributable  to the Defense  Operation,  which  increased  $3.2
million  primarily  as a result  of higher  income  from the  Systems  Contract,
partially offset by higher corporate  overhead expenses and, to a lesser extent,
lower margins on metal ordnance  components.  The Automotive Operation increased
$1.3  million  primarily  as a result  from  the  continued  improvement  in the
profitability  of the  manufacturing  operations  due to higher sales volume and
greater efficiencies, partially offset by increased expenses for administrative,
marketing and  professional  services  supporting  the ongoing  expansion of the
Company's automotive operations.

         NET INCOME.  Net income  increased to $4.9 million for fiscal year 1996
compared to $2.1 million in fiscal year 1995 for the reasons discussed above.


LIQUIDITY AND CAPITAL RESOURCES

         As the Company's  business  grows,  its  equipment and working  capital
requirements  will also  continue  to  increase  as a result of the  anticipated
growth of the  Automotive  Operations.  This  growth  will be  funded  through a
combination of cash flow from operations,  equipment financing, revolving credit
borrowings and the proceeds from potential future Company public offerings.


                                       18
<PAGE>

         On August 6, 1996 the Company  acquired  Phoenix  Airbag (the  "Phoenix
Acquisition"),   a  major  European  airbag  cushion   manufacturer  located  in
Hildesheim,  Germany.  The  acquisition was funded through a loan agreement with
Bank of America  National Trust and Savings  Association  ("Bank of America NT &
SA").  Outstandings  on the Bank of America NT & SA term loan ($17.3  million at
March  31,  1997)  bore  interest  at  8.79%,  and the Bank of  America  NT & SA
revolving  credit  facility  ($2.9  million at March 31, 1997) bore  interest at
8.54%. The proceeds of the Credit Agreement,  defined herein, were used to repay
and  terminate  the Bank of America NT & SA  Facility.  Pursuant  to the Phoenix
Acquisition,  the Company  initially  acquired 80% of Phoenix  AG's  interest in
Phoenix Airbag for a purchase price of approximately $22.0 million, subject to a
net worth  adjustment.  The Company  will  acquire the  remaining  20%  interest
effective  December  31,  1998,  but is entitled to all of the income of Phoenix
Airbag from the date of the acquisition.  The additional purchase price of up to
approximately  $7.5  million for the  remaining  20% interest is  contingent  on
Phoenix Airbag meeting certain annual performance targets for the calendar years
1996 through 1998. Phoenix Airbag met the performance  targets for calendar year
1996 and $2.2 million of the contingent  purchase price was paid April 28, 1997.
If the annual performance  targets for calendar years 1997 and 1998 are not met,
the Company will acquire the remaining 20% without any additional consideration.
Additionally,  the Company  will,  under certain  circumstances,  be required to
provide  a bank  guaranty,  in  August  1997,  to secure  the  payment  of up to
approximately $4.0 million of the contingent purchase price.

         As of  May  21,  1997,  the  Company,  Phoenix  and  Automotive  Safety
Components  International  Limited ("ASCIL" and  collectively,  the "Borrowers")
entered  into  the  Credit  Agreement  with  KeyBank  National  Association,  as
administrative  agent  ("KeyBank"),  and the lending  institutions named therein
(the "Credit  Agreement").  The Credit Agreement provides for (i) a term loan in
the  principal  amount of $15.0  million  (the "Term Loan") and (ii) a revolving
credit facility in the aggregate  principal  amount of $12.0 million  (including
letter of credit  facilities).  The  indebtedness  under the Credit Agreement is
secured by  substantially  all the assets of the Company and bears interest at a
rate equal to either (i) the greater of KeyBank's  prime rate or (ii) the sum of
LIBOR  plus 1.00% for term loans  (and  1.25% for  revolving  loans,  subject to
reduction  to 1.00% upon  consummation  of the offering so long as no default or
event of default shall have occurred and be continuing). The principal amount of
the Term Loan is payable quarterly  commencing September 30, 1997, in the amount
of $750,000,  with the last payment due on May 31, 2002  provided  that the Term
Loan must be prepaid out of the proceeds of the private placement Offering.  The
revolving  loans under the Credit  Agreement  will mature on May 31,  2002.  The
Credit Agreement contains certain restrictive  covenants that impose limitations
upon, among other things,  the Company's ability to change its business;  merge,
consolidate or dispose of assets; incur liens; make loans and investments; incur
indebtedness;   pay  dividends  and  other  distributions;   engage  in  certain
transactions with affiliates; engage in sale and lease-back transactions;  enter
into lease  agreements;  and make  capital  expenditures.  On June 30,  1997 the
Company entered into a definitive  agreement to acquire all of the assets of JPS
Automotive for $56.3 million (including 18 looms scheduled for delivery prior to
closing)  plus  the  assumption  of  $797,000  in  indebtedness,  subject  to  a
post-closing  adjustment.  The  acquisition  is subject  to certain  conditions,
including a financing condition. The financing is expected to be provided from a
portion  of the  proceeds  of a private  placement  of $80.0  million  in senior
subordinated  notes.  The remaining  proceeds of the Offering are expected to be
used to repay the term loan, to pay  transaction  fees and expenses,  to be used
for the contemplated  purchase a building in South Carolina  adjacent to the JPS
Automotive  facility,  and for working capital and general  corporate  expenses.
Pursuant  to a  commitment  letter  with  KeyBank,  an  amendment  to the Credit
Agreement  shall convert the Credit  Agreement  into a $27.0  million  revolving
credit facility for a five year term bearing interest at LIBOR plus 1.00% with a
commitment fee of 0.25% for any unused portion.
         
         The Company generated (used) net cash from operations of $11.1 million,
($3.5) million and ($901,000) in the fiscal years ended March 31, 1997, 1996 and
1995,  respectively.  The net cash in fiscal  year 1997 was used for net capital
expenditures  of $8.6  million,  while  during  fiscal  years  1996 and 1995 the
Company used an additional $4.6 million and $2.5 million,  respectively, for net
capital expenditures. In fiscal year 1997, $24.3 million of net cash was used to
acquire Phoenix Airbag. Net cash provided by financing activities in fiscal year
1997 includes  $22.9  million in proceeds  from term note,  and the net proceeds
from the revolving credit facility, which was used in part to repay $3.8 million
long-term  debt and  obligations,  and  purchase  of  treasury  stock.  Net cash
provided by financing  activities in fiscal year 1996 includes  $18.0 million in
proceeds from the sale of common stock and proceeds from long-term  debt,  which

                                       19
<PAGE>

was used in part to  purchase  $1.4  million of  treasury  stock and  $94,000 of
common stock warrants.  Net cash provided by financing activities in fiscal year
1995 includes $14.6 million in proceeds from the sale of common stock, which was
used in part to pay for  consideration  of  transferred  assets of $1.9 million,
repay $3.3 million long-term debt and obligations and repay certain intercompany
accounts totaling $2.3 million.  These activities  resulted in a net decrease in
cash of $3.7 million in fiscal year 1997, a net increase in cash of $8.2 million
in fiscal year 1996,  and a net  increase in cash of $3.8 million in fiscal year
1995.

         Capital expenditures were $8.6 million in fiscal year 1997, compared to
$4.6  million  and $2.5  million in fiscal  years  1996 and 1995,  respectively.
Capital expenditures in fiscal year 1997 were used to construct the new facility
in the Czech Republic, and the acquisition of additional equipment to expand the
Company's  production capacity worldwide.  Capital  expenditures for fiscal year
1998 are estimated to be $8.7 million,  which includes $1.2 million  outstanding
commitments  for  capital  expenditures  for  additional  property,   plant  and
equipment  from  fiscal  year 1997.  Capital  expenditures  for fiscal year 1998
includes the completion of the Czech facility and the  acquisition of additional
equipment to further expand the Company's  production  capacity  worldwide.  The
Company expects to fund these capital  expenditures  through  operations and the
revolving credit facility.

         The  above  discussion  may  contain  forward-looking  statements  that
involve risks and  uncertainties,  including,  but not limited to, the impact of
competitive  products and pricing,  product demand and market  condition  risks,
costs associated with integration and administration of acquired operations, the
timing of  introduction  of new  models  of  automobiles  for which the  Company
manufactures  airbags,  changes in  consumer  vehicle  preferences,  major labor
disputes in the  automotive  industry,  changes in the  strategic  direction  of
defense  spending,  the ability of a subcontractor of the Company to resolve its
disputes with the U.S. Army, the timing of defense procurement, specific defense
program  appropriation  decisions  and  the  ability  of  Safety  Components  to
consummate the financing necessary for the JPS Acquisition.


NEW ACCOUNTING PRONOUNCEMENT

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting Standards No. 128, "Earnings per Share" ("FAS
128"). FAS 128 establishes  standards for computing and presenting  earnings per
share ("EPS").  It replaces the  presentation of primary EPS with a presentation
of basic EPS.  Basic EPS excludes  dilution  and is computed by dividing  income
available to common stockholders by the weighted-average number of common shares
outstanding for the period.  It also requires a reconciliation  of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.  Diluted EPS is computed similarly to fully diluted
EPS pursuant to Accounting  Principles  Board Opinion No. 15. This  statement is
effective  for the Company  beginning  in the fiscal year ending March 31, 1998,
earlier  adoption is not  permitted.  Since the Company is  considered to have a
simple capital  structure for reporting EPS, the adoption of this principle will
have no material impact on reported EPS.

SEASONALITY AND INFLATION

         The  Automotive   Operation's  business  is  subject  to  the  seasonal
characteristics  of the  automotive  industry in which there are seasonal  plant
shutdowns in the third and fourth calendar  quarters of each year.  Although the
Systems Contract is not seasonal in nature, there will be variations in revenues
from the Systems Contract based upon costs incurred by the Company in fulfilling
the Systems  Contract in each quarter.  The majority of the Defense  Operation's
ordnance  manufacturing for U.S. Government and prime defense contractors occurs
from  January  through  September  and  there  is  generally  a lower  level  of
manufacturing and sales during the fourth calendar quarter. The Company does not
believe that its operations to date have been materially affected by inflation.


                                       20
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  response  to this item  appears in Item  14(a)(1)  and (2) of this
Report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.


                                    PART III


ITEMS    10, 11, 12 AND 13.

         The information called for by Items 10, 11, 12 and 13 of this Form 10-K
is  incorporated  by reference  to those  portions of the  Company's  1997 Proxy
Statement which contains such information.


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1)  The  financial  statements,  related   notes   thereto  and  report  of
         independent   accountants   required by   Item 8 are listed on page F-1
         herein.
    (2)  All  financial  statement  schedules  are omitted  because they are not
         applicable  or the  required  information  is  shown  in the  Company's
         consolidated financial statements or the notes thereto.
    (3)  Exhibits:


          2.1(12)   Agreement,  dated  June 6, 1996,  among AB 9607  Verwaltungs
                    GmbH  & Co.  KG.,  Phoenix  Aktiengesellschaft  and  Phoenix
                    Airbag GmbH (the "Phoenix Purchase Agreement") (confidential
                    treatment requested as to part)
          2.2(12)   Amendment  Agreement,  dated June 28,  1996,  to the Phoenix
                    Purchase Agreement
          3.1(1)    Certificate    of    Incorporation    of   Safety    Systems
                    International, Inc.
          3.2(1)    Amended and Restated  Certificate of Incorporation of Safety
                    Systems International, Inc.
          3.3(1)    Certificate   of  Amendment  of  the  Amended  and  Restated
                    Certificate    of    Incorporation    of   Safety    Systems
                    International, Inc.
          3.4(11)   Certificate   of  Amendment  to  the  Amended  and  Restated
                    Certificate  of  Safety   Components   International,   Inc.
                    ("Safety Components")
          3.5(1)    By-laws of Safety Components
          4.1(2)    Warrant  Agreement,   dated  as  of  May  13,  1994  between
                    Hampshire Securities Corporation and Safety Components
          4.2(15)   Registration Rights Agreement,  dated as of May 22, 1997, by
                    and among  Safety  Components,  Robert A. Zummo,  Francis X.
                    Suozzi and the Valentec  International  Corporation Employee
                    Stock Ownership Plan
          4.3       Form of Pledge Agreement,  dated as of May 21, 1997, made by
                    the  Pledgors  named  therein in favor of  KeyBank  National
                    Association,  as  collateral  agent for the  benefit  of the
                    Secured Creditors (as defined therein)
          10.2(3)   Airbag Purchase  Agreement by and between TRW Vehicle Safety
                    Systems,   Inc.  and  Valentec   International   Corporation
                    ("Valentec")  dated March 31, 1993  (confidential  treatment
                    granted as to part)
          10.3(3)   Long-Term  Contract for the Supply of Airbags by and between
                    TRW REPA GmbH and Valentec  International  Limited  ("VIL"),
                    dated September 20, 1993 (confidential  treatment granted as
                    to part)
          10.4(2)   Representation  Agreement,  effective as of May 13, 1994, by
                    and between Automotive Safety Components International, Inc.
                    ("Automotive  Safety")  and  Champion  Sales and Service Co.
                    ("Champion")
         *10.5(4)   Employment Agreement,  effective as of May 13, 1994, between
                    Safety Components and Robert A. Zummo
         *10.6(4)   Employment Agreement,  effective as of May 13, 1994, between
                    Safety Components and W. Hardy Myers
         *10.7(4)   Stock Option Plan of Safety Components
          10.8(2)   Master Asset Transfer  Agreement,  dated May 13, 1994, among
                    Valentec,  Safety Components,  Galion, Inc. ("Galion"),  and
                    Automotive Safety


                                       21

<PAGE>

          10.9(2)   Asset Purchase  Agreement,  dated May 13, 1994,  between VIL
                    and  Automotive  Safety  Components   International  Limited
                    ("Automotive Limited")
          10.10(9)  Corporate  Services  Agreement,  dated as of April 1,  1995,
                    between  Valentec and Safety  Components  10.11(2)  Facility
                    Agreement,   dated  May  13,  1994,   between  Valentec  and
                    Automotive Safety 10.12(2) Facility Agreement, dated May 13,
                    1994,   between   VIL  and   Automotive   Limited   10.13(2)
                    Representation  Agreement,  effective as of May 13, 1994, by
                    and between Automotive Limited and Champion
          10.14(5)  Form of Sublease Agreement,  dated May 13, 1994, between VIL
                    and Automotive Limited *10.15(6) Employment Agreement, dated
                    as of September  29, 1994 by and between  Safety  Components
                    and Paul L. Sullivan
          10.16(7)  Contract  DAAA09-94-C-0532 (Systems Contract) between Safety
                    Components and the U.S. Army (the "Systems Contract")
         *10.17(8)  Employment  Agreement,  effective as of September  19, 1994,
                    between Safety Components and Victor Guadagno
          10.18(8)  Lease Agreement, dated February 15, 1995 between Inmobiliara
                    Calibert,  S.A. de C.V.  and  Automotive  Safety  Components
                    International SA. de C.V.
          10.19     Credit  Agreement,  dated as of March 15, 1996, among Safety
                    Components,  Automotive  Safety,  Galion,  Valentec Systems,
                    Inc. and CUSA
          10.20     Pledge and Security  Agreement,  dated as of March 15, 1996,
                    made by Safety  Components,  Automotive  Safety,  Galion and
                    Valentec Systems in favor of CUSA
         *10.21(10) Employment   Agreement,   dated   June  1,   1995,   between
                    Automotive Limited and John Laurence Hakes
          10.22(10) Underwriting  Agreement,  dated  June  15,  1995,  among  BT
                    Securities   Corporation,   Prime   Charter   Ltd.,   Safety
                    Components,  Valentec  and the  other  selling  stockholders
                    named therein
          10.23(13) Loan Agreement  between the Company,  Automotive  Safety and
                    ASCI  Holdings  Germany  (DE),  Inc.  and  Bank  of  America
                    National Trust and Savings Association dated August 1, 1996
          10.24(14) TRW/SCI Multi Year Agreement dated as of April 1, 1996 among
                    TRW Vehicle  Safety  Systems,  Inc.,  TRW,  Inc.  and Safety
                    Components.  Confidential  treatment requested as to certain
                    portions of this exhibit. Such portions have been redacted
          10.25(14) Exhibits  to Credit  Agreement  dated as of March  15,  1996
                    among Safety Components, Automotive Safety, Galion, Valentec
                    Systems, Inc. and Citicorp USA, Inc.
          10.26(14) Amendment No. 1 to Loan Agreement  among Safety  Components,
                    Automotive Safety, ASCI Holdings Germany (DE), Inc. and Bank
                    of America National Trust & Savings  Association dated as of
                    September 30, 1996
          10.27(14) Amendment No. 2 to Loan Agreement  among Safety  Components,
                    Automotive Safety, ASCI Holdings Germany (DE), Inc. and Bank
                    of America National Trust & Savings  Association dated as of
                    October 31, 1996
          10.28(14) Amendment No. 3 to Loan Agreement  among Safety  Components,
                    Automotive  Safety.,  ASCI Holdings  Germany (DE),  Inc. and
                    Bank of America National Trust & Savings  Association  dated
                    as of December 31, 1996
          10.29(15) Stock Purchase  Agreement,  dated as of May 22, 1997, by and
                    among  Robert A.  Zummo,  Francis X.  Suozzi,  the  Valentec
                    International  Corporation Employee Stock Ownership Plan and
                    Safety Components
         *10.30     Employment Agreement, dated as of February 15, 1997, between
                    Safety Components and Jeffrey J. Kaplan
         *10.31     Employment  Agreement,  dated  as of May 19,  1997,  between
                    Safety Components and Thomas W. Cresante
          10.32     Consulting  Agreement,  dated  as of May 31,  1997,  between
                    Safety Components and W. Hardy Myers



                                       22

<PAGE>



          10.33     Credit Agreement (the "Credit  Agreement"),  dated as of May
                    21, 1997, by and among Safety Components, Phoenix Airbag and
                    Automotive   Limited,  as  borrowers  and  KeyBank  National
                    Association,   as  administrative  agent,  and  the  lending
                    institutions named therein
          10.34     Form of Subsidiary Guaranty, dated as of May 21, 1997, among
                    the guarantors named therein,  KeyBank National Association,
                    as administrative agent for itself and the other Lenders (as
                    defined in the Credit Agreement)
          10.35     Form of Security Agreement,  dated as of May 21, 1997, among
                    the   assignors   named   therein   and   KeyBank   National
                    Association,  as  collateral  agent for the  benefit  of the
                    Secured Creditors (as defined therein)
          18.1      Letter  from  Price   Waterhouse  LLP  regarding  change  in
                    accounting principles
          21.1      Subsidiaries of Safety Components
          27        Financial Data Schedule


(b)      Reports on Form 8-K.

         None.



*       Indicates exhibits relating to executive compensation.
(1)     Incorporated  by reference to the  Company's  Registration  Statement on
        Form S-1 (the "1994  Registration  Statement") filed with the Securities
        and Exchange Commission (the "Commission") on February 11, 1994.
(2)     Incorporated  by reference to the Company's  Report on Form 10-K for the
        fiscal year ended March 31, 1994, filed with the Commission.
(3)     Incorporated  by reference to Amendment  No. 2 to the 1994  Registration
        Statement, filed with the Commission on March 18, 1994.
(4)     Incorporated  by reference to Amendment  No. 3 to the 1994  Registration
        Statement, filed with the Commission on April 20, 1994.
(5)     Incorporated  by reference to Amendment  No. 4 to the 1994  Registration
        Statement, filed with the Commission on May 3, 1994.
(6)     Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended September 30, 1994 filed with the Commission.
(7)     Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended December 31, 1994, filed with the Commission.
(8)     Incorporated  by reference to the Company's  Report on Form 10-K for the
        fiscal year ended March 31, 1995.
(9)     Incorporated   by  reference  to  Amendment   No.  1  to  the  Company's
        Registration Statement on Form S-1, filed with the Commission on May 19,
        1995.
(10)    Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended June 30, 1995.
(11)    Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended September 30, 1995.
(12)    Incorporated  by reference to the Company's  Report on Form 10-K for the
        fiscal year ended March 31, 1996.
(13)    Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended June 30, 1996.
(14)    Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended December 31, 1996.
(15)    Incorporated  by reference to the Company's  Current Report on Form 8-K,
        filed with the Commission on June 6, 1997.

                                       23


<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.



                                           SAFETY COMPONENTS INTERNATIONAL, INC.


                                           By:  /S/ ROBERT A. ZUMMO
                                                -------------------------------
                                                Robert A. Zummo
                                                Chairman of the Board, President
                                                and Chief Executive Officer

                                                Date:    June 30, 1997

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.


Name and Signature          Title                                       Date
--------------------------  -----------------------------          -------------


/S/ ROBERT A. ZUMMO         Chairman of the Board,                 June 30, 1997
-----------------------     President and Chief Executive
Robert A. Zummo             Officer (Principal Executive Officer)



/S/ JEFFREY J. KAPLAN       Executive Vice President, Chief        June 30, 1997
---------------------       Financial Officer and Director
Jeffrey J. Kaplan           (Principal Financial Officer)



/S/ GEORGE D. PAPADOPOULOS  Corporate Controller and Secretary     June 30, 1997
--------------------------  (Principal Accounting Officer)
George D. Papadopoulos



/S/ JOSEPH J. DIOGUARDI     Director                               June 30, 1997
-----------------------
Joseph J. DioGuardi


/S/ FRANCIS X. SUOZZI       Director                               June 30, 1997
---------------------
Francis X. Suozzi


/S/ ROBERT J. TOROK         Director                               June 30, 1997
-------------------
Robert J. Torok





                                       24
<PAGE>

             SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

                                                                     Page Number
                                                                     -----------


REPORT OF INDEPENDENT ACCOUNTANTS                                        F-2

FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of March 31, 1997 and 1996.               F-3

Consolidated Statements of Operations for the Years ended March 31,
   1997, 1996 and 1995.                                                  F-4

Consolidated Statements of Stockholders' Equity for the Years ended
  March 31, 1997, 1996 and 1995.                                         F-5

Consolidated Statements of Cash Flows for the Years ended March 31,
   1997, 1996 and 1995.                                                  F-6

Notes to Consolidated Financial Statements.                              F-7






                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Directors and Stockholders
    of Safety Components International, Inc.:

         In  our  opinion,  the  consolidated  financial  statements  of  Safety
Components  International,  Inc.  and  Subsidiaries  listed in the  accompanying
"Index to Financial  Statements"  appearing on page F-1, present fairly,  in all
material  respects,  the consolidated  financial  position of Safety  Components
International,  Inc. and its subsidiaries as of March 31, 1997 and 1996, and the
consolidated  results of their  operations  and their cash flows for each of the
three  years in the period  ended March 31, 1997 in  conformity  with  generally
accepted accounting principles.  These consolidated financial statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our  audits.  We
conducted our audits of these  consolidated  financial  statements in accordance
with  generally  accepted  auditing  standards  which  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for the
opinion expressed above.

         As discussed in Note 2 to the consolidated  financial  statements,  the
Company changed its method of accounting for product launch costs in fiscal year
1997.



PRICE WATERHOUSE LLP


Costa Mesa, California
May 22, 1997 except for Notes 1, 6 and 13, which are as of June 30, 1997





                                      F-2
<PAGE>
                                   SAFETY COMPONENTS INTERNATIONAL, INC.

                                         CONSOLIDATED BALANCE SHEETS

                                  As of March 31, 1997 and March 31, 1996

                            (in thousands, except per share and per share data)

<TABLE>
<CAPTION>
                                                                                1997          1996
                                                                              -------       -------
ASSETS
<S>                                                                           <C>           <C>
Current assets:
             Cash and cash equivalents ..................................     $ 8,320       $12,033
             Accounts receivable, net (Notes 2 and 4) ...................      11,751        16,597
             Inventories (Notes 2 and 4) ................................       6,378         5,315
             Prepaid and other ..........................................         870           925
                                                                              -------       -------
                          Total current assets ..........................      27,319        34,870

Property, plant and equipment, net (Notes 2 and 4) ......................      28,295        12,192
Receivable from affiliate (Note 5) ......................................       4,348            17
Intangible assets, net (Note 2) ........................................      10,991             -
Other assets ............................................................       2,454         2,752
                                                                              -------       -------
                          Total assets ..................................     $73,407       $49,831
                                                                              =======       =======
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
             Accounts payable ...........................................     $ 7,792       $ 8,066
             Earnout payable (Note 1) ...................................       2,211             -
             Accrued liabilities ........................................       2,476         1,057
             Current portion of long-term obligations (Note 6) ..........       3,085           697
                                                                              -------       -------
                          Total current liabilities .....................      15,564         9,820


Long-term obligations (Note 6) ..........................................      21,296         3,087
Other long-term liabilities .............................................       1,273         1,580
                                                                              -------       -------
                          Total liabilities .............................      38,133        14,487
                                                                              -------       -------

Commitments and contingencies (Note 8)

Stockholders' equity (Note 3 and 11):
             Preferred stock: $.10 par value per share - 2,000,000 shares
                    authorized;  no shares outstanding at
                    March 31, 1997 and 1996 .............................           -             -

             Common stock:  $.01 par value per share - 10,000,000 shares
                    authorized; 5,025,383 and 5,048,500 shares issued and
                    outstanding at March 31, 1997 and 1996, respectively           51            51

             Common stock warrants ......................................           1             1
             Additional paid-in-capital .................................      30,062        30,058
             Treasury stock, 113,492 and 90,000 shares, at March 31, 1997
                    and 1996, respectively, at cost .....................      (1,647)       (1,379)
             Retained earnings ..........................................       9,183         6,979
             Cumulative translation adjustment (Note 2) .................      (2,376)         (366)
                                                                              -------       -------
                          Total stockholders' equity ....................      35,274        35,344
                                                                              -------       -------
                          Total liabilities and stockholders' equity ....     $73,407       $49,831
                                                                              =======       =======
</TABLE>

                                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        F-3

<PAGE>

                                    SAFETY COMPONENTS INTERNATIONAL, INC.

                                    CONSOLIDATED STATEMENTS OF OPERATIONS

                              For the Years Ended March 31, 1997, 1996 and 1995

                             (in thousands, except per share and per share data)

<TABLE>
<CAPTION>
                                                                        1997         1996         1995
                                                                      -------      -------      -------

<S>                                                                 <C>          <C>          <C>
Net Sales (Notes 2 and 5) ......................................      $83,958      $94,942      $51,779


Cost of sales, excluding depreciation and product launch costs .       64,130       80,804       43,810


Depreciation ...................................................        2,043        1,104          743

Product launch costs (Note 2) ..................................        1,761            -            -
                                                                      -------      -------      -------
             Gross profit ......................................       16,024       13,034        7,226


Selling and marketing expenses .................................        1,375        1,102          894


General and administrative expenses ............................        5,697        4,328        3,156


Amortization of goodwill (Note 2) ..............................          348            -            -
                                                                      -------      -------      -------
             Income from operations ............................        8,604        7,604        3,176


Other expense (income) .........................................          208         (807)        (484)

Interest expense ...............................................        1,555          381          244
                                                                      -------      -------      -------
             Income before income taxes ........................        6,841        8,030        3,416

Provision for income taxes (Notes 2 and 7) .....................        2,995        3,116        1,283
                                                                      -------      -------      -------
Income before extraordinary item and cumulative effect
     of accounting change ......................................        3,846        4,914        2,133

Extraordinary item - financing costs (less tax
     benefit of $255) (Note 2) .................................         (383)           -            -

Cumulative effect of change in accounting for 
     product launch costs (less tax benefit of $718) (Note 2) ..       (1,259)           -            -
                                                                      -------      -------      -------
Net income .....................................................      $ 2,204      $ 4,914      $ 2,133
                                                                      =======      =======      =======

Earnings per common share (Note 2):
     Income before extraordinary item and cumulative effect of
          change in accounting .................................      $  0.77      $  0.99      $  0.53
     Extraordinary item ........................................        (0.08)           -            -
     Cumulative effect of change in accounting for deferred
          product launch costs .................................        (0.25)           -            -
                                                                      -------      -------      -------
     Net income per share ......................................      $  0.44      $  0.99      $  0.53
                                                                      =======      =======      =======

Weighted average number of shares outstanding ..................    5,026,501    4,980,884    4,030,787
                                                                    =========    =========    =========


Note:   Pro forma amounts assuming the new accounting method is applied retroactively are reflected in tabular form in Note 2.
</TABLE>


                                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                      F-4


<PAGE>

                               SAFETY COMPONENTS INTERNATIONAL, INC.

                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                         For the Years Ended March 31, 1995, 1996 and 1997

                                    (in thousands, except shares)

<TABLE>
<CAPTION>
                                                   Common    Common   Common   Additional                      Cummulative
                                                   Stock     Stock    Stock     Paid-in    Treasury  Retained  Translation  Division
                                                   Shares    Amount  Warrants   Capital     Stock    Earnings   Adjustment   Equity
                                                 ---------   ------  --------  ---------- ---------  --------  -----------  --------

<S>                                              <C>          <C>      <C>     <C>        <C>         <C>        <C>         <C>
Balance at March 31, 1994 ...................... 2,400,000    $24      $-      $     -    $     -     $    -     $     -     $ 866
    Net income for the period from
       April 1, 1994 to May 13, 1994 ...........         -      -       -            -          -          -           -        68
    Transfer of Assets (Note 3 .................         -      -       -          934          -          -           -      (934)
    Capital contribution from
       Valentec (Note 3) .......................  (100,000)    (1)      -            -          -          -           -         -
    Issuance of common stock (Note 3) .......... 1,760,000     18       -       12,661          -          -           -         -
    Issuance of warrants for 128,000
       shares of common stock (Note 3) .........         -      -       1            -          -          -           -         -
    Net income for the period from
       May 14, 1994 to March 31, 1995 ..........         -      -       -            -          -      2,065           -         -
    Foreign currency translation adjustment ....         -      -       -            -          -          -         269         -
                                                 ---------   ------  --------  ---------- ---------  --------  -----------  --------
Balance at March 31, 1995 ...................... 4,060,000     41       1       13,595          -      2,065         269         -
    Issuance of common stock ................... 1,078,500     10       -       16,557          -          -           -         -
    Purchase of treasury stock .................   (90,000)     -       -            -     (1,379)         -           -
    Repurchase of warrants for 23,600
       shares of common stock ..................         -      -       -          (94)         -          -           -         -
    Net Income for the year ended
       March 31, 1996 ..........................         -      -       -            -          -      4,914           -         -
    Foreign currency translation adjustment ....         -      -       -            -          -          -        (635)        -
                                                 ---------   ------  --------  ---------- ---------  --------  -----------  --------
Balance at March 31, 1996 ...................... 5,048,500     51       1       30,058     (1,379)     6,979        (366)        -
    Issuance of common stock ...................       375      -       -            4          -          -           -         -
    Purchase of treasury stock .................   (23,492)     -       -            -       (268)         -           -
    Net Income for the year ended
       March 31, 1997 ..........................         -      -       -            -          -      2,204           -         -
    Foreign currency translation adjustment ....         -      -       -            -          -          -      (2,010)        -
                                                 ---------   ------  --------  ---------- ---------  --------  -----------  --------
Balance at March 31, 1997 ...................... 5,025,383    $51      $1      $30,062    $(1,647)    $9,183      (2,376)    $   -
                                                 =========   ======  ========  ========== =========  ========  ===========  ========
</TABLE>

                                  SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                            F-5
<PAGE>


                               SAFETY COMPONENTS INTERNATIONAL, INC.

                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                         For the Years Ended March 31, 1997, 1996 and 1995

                                           (in thousands)

<TABLE>
<CAPTION>
                                                                           1997      1996       1995
                                                                        --------   -------     ------
<S>                                                                     <C>        <C>        <C>
Cash Flows From Operating Activities:
    Net income ..................................................       $  2,204   $ 4,914    $ 2,133
      Adjustments  to  reconcile  net  income  to  net  cash
       provided by (used in) operating activities:
         Depreciation ...........................................          2,043     1,104        743
         Amortization ...........................................            348         -          -
         Extraordinary item .....................................            638         -          -
         Cumulative effect of change in accounting principle ....          1,977         -          -
         Deferred income taxes ..................................           (280)        -          -
         Changes in operating assets and liabilities:
            Accounts receivable .................................          5,968    (9,662)    (4,607)
            Inventories .........................................            375       532     (3,024)
            Prepaid and other current assets ....................             55      (268)       (60)
            Other assets ........................................         (2,309)     (440)    (1,500)
            Accounts payable ....................................         (1,547)      749     (4,938)
            Accrued liabilities .................................          1,643       429        476
                                                                        --------   -------    -------
              Net cash provided by (used in) operating activities         11,115    (3,500)      (901)
                                                                        --------   -------    -------
Cash Flows From Investing Activities:
         Additions to property, plant and equipment .............         (8,613)   (4,588)    (2,473)
         Purchase of Phoenix Airbag, net of cash acquired .......        (24,257)        -          -
                                                                        --------   -------    -------
              Net cash (used in) investing activities ...........        (32,870)   (4,588)    (2,473)
                                                                        --------   -------    -------

Cash Flows From Financing Activities:
         Net proceeds from sale of common stock .................              4    16,568     14,564
         Purchase of treasury stock .............................           (268)   (1,379)         -
         Repurchase of common stock warrants ....................              -       (94)         -
         Payment to parent company inconsideration
                 for transfer of assets .........................              -         -     (1,885)

         Proceeds from term note ................................         20,000         -          -
         (Repayments) borrowing of debt and long-term obligations         (3,764)    1,460     (3,269)
         Net borrowing on revolving credit facility .............          2,931         -          -
         Changes in intercompany accounts .......................              -         -     (2,326)
                                                                        --------   -------    -------
              Net cash provided by financing activities .........         18,903    16,555      7,084
                                                                        --------   -------    -------
Effect of exchange rate changes on cash .........................           (861)     (280)        96
                                                                        --------   -------    -------
Change in cash and cash equivalents .............................         (3,713)    8,187      3,806
Cash and cash equivalents, beginning of period ..................         12,033     3,846         40
                                                                        --------   -------    -------
Cash and cash equivalents, end of period ........................       $  8,320   $12,033     $3,846
                                                                        ========   =======    =======
Supplemental  disclosure of cash flow  information:  Cash paid during the period
         for:
              Interest ..........................................         $1,555    $  381       $134
              Income taxes ......................................          1,819     2,344        993

Supplemental disclosure of non-cash transactions:
         Equipment acquired under capital lease obligations .....         $1,430    $    -       $  -

</TABLE>

                                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                     F-6
<PAGE>

                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1  ORGANIZATION AND BUSINESS

         Safety  Components  International,  Inc.  (the  "Company" or "SCI") was
formed to acquire  certain assets and assume certain  liabilities  from Valentec
International   Corporation  ("Valentec  Oldco").  RAZ  Acquisition  Corporation
("RAZ") was formed to acquire all of the  outstanding  common  stock of Valentec
Oldco from  Insilco  Corporation  ("Insilco").  Subsequent  to the  acquisition,
Valentec  Oldco was  merged  into RAZ  which  subsequently  changed  its name to
Valentec International Corporation ("Valentec") which was effected on August 27,
1993. The acquisition was accounted for as a purchase. The operations from April
1, 1994 to May 12, 1994 are  reflected  as division  equity in the  accompanying
consolidated  stockholders'  equity. On May 13, 1994, upon the completion of its
initial  public  offering  ("Initial  Public  Offering" ), the Company  acquired
certain  assets  and  assumed  certain  liabilities  from  Valentec  which  were
accounted for utilizing the  historical  bases of Valentec  similar to that of a
pooling of interest.

         On August 6, 1996, Automotive Safety Components International ("ASCI"),
a  wholly-owned  subsidiary  of the  Company,  acquired  80% of the  outstanding
capital stock of Phoenix  Airbag GmbH ("Phoenix  Airbag").  Phoenix Airbag was a
corporation organized under the laws of the Republic of Germany, and at the time
of the acquisition,  was a wholly-owned subsidiary of Phoenix Aktiengesellschaft
("Phoenix  AG") in Hamburg,  Germany.  The purchase  from Phoenix AG was made in
accordance  with the terms and  conditions of the Agreement  Concerning the Sale
and  Transfer  of all  the  Shares  in  Phoenix  Airbag  GmbH  ("Stock  Purchase
Agreement")  dated June 6, 1996, as amended.  The  acquisition  was completed on
August 5, 1996.

         Pursuant to the Stock  Purchase  Agreement,  eighty  percent of Phoenix
AG's interest in Phoenix  Airbag was acquired for an initial  purchase  price of
$20.0 million,  subject to a net worth  adjustment  which  decreased the initial
purchase  price by $2.0  million.  Additional  purchase  consideration  of up to
approximately  $7.0  million  for  the  remaining  twenty  percent  interest  is
contingent on Phoenix Airbag meeting certain performance targets during calendar
years 1996 through 1998. If the annual targets are met,  payments are to be paid
annually  commencing April 30, 1997.  Phoenix Airbag met its performance  target
for calendar 1996, and ASCI paid its first contingent  purchase price payment of
$2.2 million subsequent to March 31, 1997. Accordingly,  such payment is accrued
in the  accompanying  consolidated  balance  sheet at  March  31,  1997.  If the
remaining  performance  targets are not met,  ASCI would  acquire the  remaining
twenty   percent   without   the  payment  of  any   additional   consideration.
Additionally,  ASCI may, under certain  circumstances,  be required to provide a
bank  guaranty  to Phoenix  AG, in August  1997,  to secure the payment of up to
approximately $4.8 million of the contingent purchase price.

         The  acquisition  was accounted  for as a purchase.  Although ASCI will
acquire the remaining 20% interest  effective  December 31, 1998, it is entitled
to 100% of the income or losses,  risks and rewards of Phoenix Airbag commencing
August 6, 1996.  Accordingly,  all assets and liabilities were reflected at fair
value at the date of acquisition,  and no minority  interest was recorded in the
accompanying  consolidated  financial  statements for Phoenix AG's remaining 20%
interest.  Through March 31, 1997,  the  cumulative  purchase  price amounted to
approximately $24.2 million, including $3.1 million of direct acquisition costs.
Management  of the Company  allocated  the  purchase  consideration  for Phoenix
Airbag assets at fair market value, net of liabilities assumed,  with the excess
allocated to goodwill.  The  unaudited  pro forma  revenues,  net income and net
income  per  common  share,  assuming  the  acquisition  of  Phoenix  Airbag was
consummated on April 1, 1996 are as follows (in thousands):

                                                             Pro forma March 31,
                                                            --------------------
                                                               1997        1996
                                                            --------------------
Revenues ...............................................    $ 96,339    $128,118
                                                            ========    ========
Income before extraordinary item and cumulative
      effect of accounting change ......................    $  4,473    $      -
                                                            ========    ========
Net income .............................................    $  2,831    $  5,469
                                                            ========    ========
Income before extraordinary item and cumulative
      effect of accounting change per common share .....    $   0.89    $      -
                                                            ========    ========
Net income per common share ............................    $   0.56    $   1.10
                                                            ========    ========



                                      F-7
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         The Company's  Automotive segment  manufactures  automotive airbags for
specific models of several domestic and foreign automobile  manufacturers  under
contracts with major airbag systems producers.  The Company's Automotive segment
operates in the United  States,  Europe and Mexico.  Through March 31, 1997, the
majority of the Company's  sales have been made in the United  States.  To date,
TRW  Vehicle  Safety  Systems,  Inc.  ("TRW") and its  affiliates  have been the
Company's  major  automotive   airbag  customer  (see  Note  2);  however,   the
acquisition  of  Phoenix  Airbag has  significantly  diversified  the  Company's
concentration  of sales to this customer and in the United States.  In addition,
the Company recently formed a subsidiary to manufacture  certain of its products
in a newly constructed facility in the Czech Republic.

         The Defense segment  consists of two main operating  units:  Galion and
Systems. Galion manufactures projectiles and other metal components for small to
medium  caliber  training and tactical  ammunition  for the U.S.  Armed  Forces.
Galion also manufactures metal components for use in the automotive and consumer
products industries.  Systems was established in June 1994 to serve as the prime
contractor  under a $60.0 million  systems  contract for mortar  cartridges (the
"Systems Contract") for the U.S. Army, coordinating the manufacture and assembly
of components supplied by various subcontractors.

         Effective  as of  May  22,  1997,  the  Company  acquired  all  of  the
outstanding  stock of  Valentec  in a stock  for stock  exchange.  Prior to such
transaction,  Valentec  divested  Valentec  International  Limited ("VIL"),  its
majority-owned   subsidiary.   See  Note  13  "Subsequent  Events"  for  further
discussion.  Valentec is a high  volume  manufacturer  of stamped and  precision
machine products in the automotive, commercial and defense industries, including
the manufacture of belted links for small to medium caliber ammunition and other
defense-related industries.

         On June 30, 1997,  the Company  entered into a definitive  agreement to
acquire substantially all of the net assets of the Air Restraints and Industrial
Fabrics  Division  ("JPS")  for  $56.3  million,   subject  to  a  post  closing
adjustment.  In  addition,  the Company  will incur  certain  acquisition  costs
related to the JPS acquisition  (see Note 13). JPS is one of the world's largest
manufacturers  and  suppliers  of airbag  fabrics as well as  other-value  added
synthetics fabrics used in a variety of industrial and commercial applications.

         The acquisitions of Valentec and JPS, assuming JPS is consummated, will
be accounted for using the purchase method of accounting and, accordingly,  will
be included in the accounts from the dates of close.


NOTE  2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of the majority-owned subsidiaries of Safety Components International,  Inc. All
significant intercompany transactions have been eliminated.

REVENUE RECOGNITION

         Revenues are generally recognized as units are shipped to customers.

         The  Company  accounts  for  certain  long-term   contracts  under  the
percentage of completion method,  whereby progress toward contract completion is
measured  on a cost  incurred  basis  (including  direct  labor,  materials  and
allocable indirect manufacturing overhead and general and administrative costs).
Losses on long-term  contracts are recognized in the period when such losses are
identified.  On certain  contracts  with the U.S.  Government,  contract  costs,
including  indirect  costs,  are subject to audit and adjustment by negotiations
between the Company and government representatives.  Contract revenues have been
recorded in amounts  which are  expected to be  realized  upon final  settlement
based on historical results.

                                      F-8
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


ANNUAL REVENUES FROM MAJOR CUSTOMERS

         The Company had sales to two customers in fiscal year 1997  aggregating
47% and 23% of net revenues,  respectively. In fiscal year 1996, the Company had
sales from two customers aggregating 48% and 39% of net revenues,  respectively.
In fiscal year 1995,  the Company had sales to one customer  aggregating  83% of
net revenues.

CONCENTRATION OF CREDIT RISK

         The Company is subject to a concentration  of credit risk consisting of
its  trade  receivables.   At  March  31,  1997,  two  customers  accounted  for
approximately 15% and 17% of its trade receivables,  respectively;  at March 31,
1996,  two  customers  accounted  for  21%  and  51% of its  trade  receivables,
respectively.  The Company performs ongoing credit  evaluations of its customers
and  generally  does not require  collateral.  The Company  evaluates  potential
losses  for  uncollectible  accounts  and such  losses  have  historically  been
immaterial and within management's expectations.

ENVIRONMENTAL EXPENDITURES

         Environmental  expenditures  that  result  from the  remediation  of an
existing condition caused by past operations that will not contribute to current
or future  revenues  are  expensed.  Expenditures  which  extend the life of the
related property or prevent future environmental  contamination are capitalized.
Liabilities are recognized for remedial  activities when the cleanup is probable
and the cost can be reasonably estimated.

INVENTORIES

         Inventories  represent  direct  labor,  materials  and  overhead  costs
incurred  for  products  not yet  delivered  and are stated at the lower of cost
(first-in, first-out) or market.

PROPERTY, PLANT AND EQUIPMENT

         Property,  plant and  equipment  are  stated at cost.  Depreciation  is
calculated using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of their estimated
lives or the term of the underlying  lease.  Estimated  useful lives by class of
assets are as follows:

   Machinery and Equipment..............................        5 - 10 years
   Furniture and Fixtures...............................        3 -  5 years
   Leasehold improvements...............................       10 - 20 years
   Buildings............................................       25 - 40 years

         Expenditures  for  repairs  and  maintenance  are charged to expense as
incurred.  Renewals or betterments of significant  items are  capitalized.  When
assets  are sold or  otherwise  disposed  of, the cost and  related  accumulated
depreciation  or amortization  are removed from the respective  accounts and any
resulting gain or loss is recognized.

         The  Company  assesses  the  recoverability  of  long-lived  assets  by
determining  whether the  depreciation  or amortization of the balances over its
remaining life can be recovered  through  projected  undiscounted cash flows. If
there is an indication of impairment of such assets,  the amount of  impairment,
if any,  will be  measured  based on  projected  discounted  cash flows and,  if
available,  comparable  market values,  and will be charged to operations in the
period in which  impairment is determined by management.  The  methodology  that
management is expected to use to project  results of operations will be based on
a trend line of expected  cash flows  generated  from the assets in service.  No
impairment  of assets will be  recorded  below their  estimated  net  realizable
value.

                                      F-9
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


INTANGIBLE ASSETS

         Intangible  and other assets consist of goodwill and patents (see Notes
1 and 3) associated  with the  acquisition  of Phoenix  Airbag and are stated at
cost less accumulated amortization.  Goodwill and patents are amortized over the
expected  periods to be benefited,  which have been  determined to be between 15
and 25 years, respectively.

         The  Company  assesses  the  recoverability  of  intangible  assets  by
determining whether the amortization of the balances over its remaining life can
be  recovered  through  projected  undiscounted  cash  flows.  If  there  is  an
indication of impairment of such assets, the amount of impairment,  if any, will
be  measured  based on  projected  discounted  cash flows and will be charged to
operations in the period in which impairment is determined by management.

PRODUCT LAUNCH COSTS

         During the 1997 fiscal year,  the Company  changed its  accounting  for
product launch costs from the deferral method to the expense as incurred method.
Management  believes  expensing such costs is comparable  with its industry peer
group.  Expensing such costs as incurred is considered the preferable  method of
accounting and,  accordingly,  management recorded the cumulative effect of this
change in accounting  principle totaling $2.0 million ($1.3 million after income
taxes or $0.25 per share) effective April 1, 1996, in accordance with Accounting
Principles  Board  Opinion No. 20.  During the fiscal year ended March 31, 1997,
the Company incurred  approximately  $1.8 million of product launch costs which,
under the previously  used  accounting  method,  would have been  capitalized to
deferred product launch costs. Under the new accounting policy,  such costs were
expensed as incurred.  The pro forma  amounts shown below have been adjusted for
the effect of retroactive  application  for product launch costs and the related
change in provision for income taxes.

         Pro  forma  amounts  assuming  the new  accounting  method  is  applied
retroactively are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                      March 31,
                                                         ------------------------------
                                                             1997       1996       1995
                                                         ------------------------------

<S>                                                      <C>           <C>        <C>
Income before extraordinary item .....................   $   3,846     $    -     $   -
                                                         =========     ======     =====
    Income before extraordinary item  per common share   $    0.77     $    -     $   -
                                                         =========     ======     =====
Net Income ...........................................   $   3,463     $5,017     $ 950
                                                         =========     ======     =====
    Net Income per common share ......................   $    0.69     $ 1.01     $0.24
                                                         =========     ======     =====

</TABLE>

FOREIGN CURRENCY TRANSLATION

         The Company follows the principles of Statement of Financial Accounting
Standards No. 52, "Foreign Currency  Translation,"  ("FAS 52") in accounting for
foreign  operations.  The financial  statements  of  the Company's  subsidiaries
whose  functional  currency is the local  currency,  except the  accounts of the
Mexican  subsidiary,  have been translated into U.S. dollars.  Accordingly,  all
assets and liabilities  outside the United States are translated to U.S. Dollars
at the rate of exchange in effect at the balance sheet date.  Income and expense
items are translated at the weighted average exchange rate prevailing during the
period.  Translation  adjustments  are  recorded  as  a  separate  component  of
stockholders'  equity.  During  the  year  ended  March  31,  1997,  translation
adjustments,  primarily  attributable to the Company's German and Czech Republic
subsidiaries,  accounted  for  substantially  all of the  change  in  cumulative
translation  adjustment  activity as reflected in the accompanying  consolidated
financial statements.

         The financial  statements of the Company's  subsidiary in Mexico, whose
functional  currency  is the U.S.  Dollar,  are  remeasured  into U.S.  Dollars.
Accordingly,  monetary  assets and  liabilities  are  translated  at the rate of
exchange  in  effect at the  balance  sheet  date and  non-monetary  assets  and
liabilities  at historical  rates.  Income and expense items are translated at a



                                      F-10
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


weighted  average  exchange rate prevailing  during the period,  except expenses
related  to  non-monetary   assets  and  liabilities  which  are  translated  at
historical  rates. The effect of foreign currency  adjustment for this entity is
included in the results of operations.  During the reported periods herein, such
amounts were not significant.


         Foreign  currency   transaction   gains  or  losses  are  reflected  in
operations.  During the year ended March 31, 1997, transaction losses charged to
operations  amounted to $379,000;  in 1996 and 1995,  such gains and losses were
not significant.

INCOME TAXES

         The Company  accounts for income taxes in accordance  with Statement of
Financial  Accounting  Standards  No. 109,  "Accounting  for Income Taxes" ("FAS
109").  Under the  liabilities  method  specified  by FAS 109,  the deferred tax
assets and  liabilities  are measured each year based on the difference  between
the  financial  statement  and  tax  bases  of  assets  and  liabilities  at the
applicable enacted tax rates.  Additionally,  a valuation  allowance is recorded
for that  portion of  deferred  tax assets for which it is more  likely than not
that the assets will not be realized.  The deferred tax  provision is the result
of changes in the deferred tax assets and liabilities.

CASH EQUIVALENTS

         The Company  considers all highly liquid  investments  with an original
maturity of three months or less to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The consolidated  financial  statements  include financial  instruments
whereby  the fair  market  value of such  instruments  may differ  from  amounts
reflected on a historical basis. Financial instruments of the Company consist of
cash deposits,  accounts receivable,  advances to affiliates,  accounts payable,
certain accrued  liabilities,  long-term debt and capital  leases.  The carrying
amount of the Company's long term debt  approximates  fair market value based on
prevailing  market rates.  The Company's other financial  instruments  generally
approximate their fair values at March 31, 1997 and 1996 based on the short-term
nature  of  these   instruments.   Advances  to   affiliates   have  no  readily
ascertainable  fair  market  value and ,  accordingly,  their fair value are not
readily determinable.

DEFERRED FINANCING COSTS

       Costs  incurred in connection  with  financing  activities  (Note 6), are
capitalized and amortized using the effective  interest  method,  and charged to
interest  expense in the  accompanying  consolidated  statements of  operations.
Total costs  deferred  and  included in the  accompanying  consolidated  balance
sheets at March 31,  1997 and 1996 were  $405,000  and  $589,000,  respectively.
During fiscal 1997, the Company terminated its line of credit with a bank. Costs
deferred  at March  31,  1996  were  charged  in the  accompanying  consolidated
statement of  operations as an  extraordinary  item,  net of  applicable  income
taxes.

EARNINGS PER SHARE

         Earnings  per share  amounts  have  been  computed  using the  weighted
average  number of common  shares  outstanding  during each period.  In February
1997, the Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards  No.  128,  "Earnings  per  Share"  ("FAS  128").  FAS 128
establishes  standards for computing and presenting  earnings per share ("EPS").
It replaces the  presentation  of primary EPS with a presentation  of basic EPS.
Basic EPS  excludes  dilution  and is computed by dividing  income  available to
common stockholders by the weighted-average  number of common shares outstanding
for  the  period.  It  also  requires  a  reconciliation  of the  numerator  and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.  Diluted EPS is computed similarly to fully diluted EPS
pursuant to  Accounting  Principles  Board  Opinion No. 15.  This  statement  is

                                      F-11

<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


effective for the Company  beginning with its quarterly  period ending  December
31,  1997,  earlier  adoption  is not  permitted.  Since the  Company's  capital
structure is considered simple for reporting EPS, the adoption of this principle
is not expected to have a material impact on EPS reporting.


RECLASSIFICATIONS

         Certain  reclassifications have been made to the consolidated financial
statements for prior periods to conform to the March 31, 1997 presentation.

USE OF ESTIMATES

         The consolidated  financial statements have been prepared in conformity
with generally accepted accounting principles,  which require management to make
estimates and assumptions  that effect the amounts and  disclosures  reported in
the financial statements and accompanying notes.  Significant  estimates made by
management  include  allowances for doubtful accounts  receivable,  reserves for
inventories,  legal actions and environmental  issues,  and costs to complete on
long term contracts. Actual results could differ from those estimates.

NOTE  3   PUBLIC OFFERINGS

INITIAL PUBLIC OFFERING

         On May 13, 1994, the Company  completed its Initial Public  Offering by
selling 1.6 million  shares of  previously  unissued  common stock at $10.00 per
share (the "Initial Public  Offering  Price").  In conjunction  with the Initial
Public Offering, the underwriter was granted warrants to purchase 128,000 shares
of the  Company's  common  stock at 130% of the Initial  Public  Offering  Price
($13.00)  exercisable  over a  four-year  period  commencing  one year after the
effective date of the registration  statement (May 6, 1994). The net proceeds to
the Company from the Initial  Public  Offering of  approximately  $14.6  million
(including the proceeds  received pursuant to the exercise of the over allotment
option described below) were used to retire the Company's  portion of Valentec's
short and long-term debt, pay off its  intercompany  debt balances with Valentec
(such debt  balances  were  assumed in  connection  with the  transfer of assets
described in Note 1) and pay cash  consideration to Valentec for the transfer of
assets.  The remaining  proceeds have been used to fund the additional growth of
the business.  In conjunction with the Initial Public Offering,  the underwriter
was granted a 30 day option to purchase up to an aggregate of 240,000 additional
shares (of which  80,000  were to be sold by  Valentec)  at the  Initial  Public
Offering Price, less underwriting discounts and accountable expenses. The entire
option was exercised within the 30 day period.

ADDITIONAL OFFERING

         On June 21, 1995,  the Company  completed an  additional  offering (the
"Offering")  of 1.5  million  shares of common  stock at $17.00  per share  (the
"Offering  Price"),  of which the Company sold 1.0 million  shares of previously
unissued common stock and Valentec and other selling  shareholders  sold 500,000
shares. The net proceeds to the Company from the Offering of approximately $16.5
million  (including the proceeds  received  pursuant to the exercise of the over
allotment  option  described  below) has been,  and will continue to be, used to
fund the future growth of the business.  In conjunction  with the Offering,  the
underwriter  was  granted a 30 day  option to  purchase  up to an  aggregate  of
225,000  additional shares (of which 75,000 shares and 150,000 shares were to be
sold by the Company and Valentec and other selling shareholders respectively) at
the Offering Price, less underwriting discounts. The entire option was exercised
within the 30 day period.


                                      F-12
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  4  COMPOSITION OF CERTAIN CONSOLIDATED BALANCE SHEET COMPONENTS

                                 (in thousands)
                                    March 31,
                                                         ----------------------
                                                            1997          1996
                                                         ----------------------
Accounts receivable:
      Billed receivables ...........................     $  9,152      $  4,779
      Unbilled receivables (net of unliquidated
       progress payments of $9,846 and $30,94
       in 1997 and 1996, respectively) .............        1,834         8,588
      Other ........................................          765         3,230
                                                         --------      --------
                                                         $ 11,751      $ 16,597
                                                         ========      ========

Inventories:
      Raw materials ................................     $  3,339      $  2,297
      Work-in-process ..............................        2,073         1,958
      Finished goods ...............................          966         1,060
                                                         --------      --------
                                                         $  6,378      $  5,315
                                                         ========      ========

Property, plant and equipment:
      Land and building ............................     $  8,435      $  1,241
      Machinery and equipment ......................       18,768        10,001
      Furniture and fixtures .......................        2,074           749
      Construction in process ......................        2,822         2,373
                                                         --------      --------
                                                           32,099        14,364
      Less -  accumulated depreciation
                and amortization ...................       (3,804)       (2,172)
                                                         --------      --------
                                                         $ 28,295      $ 12,192
                                                         ========      ========

NOTE  5  RELATED PARTY TRANSACTIONS

         For  periods  prior to the  Initial  Public  Offering,  the Company was
allocated a portion of Valentec's corporate general and administrative  expenses
(excluding  interest)  based on a formula of revenue,  fixed  assets and payroll
costs. In the opinion of management,  the allocation method used was reasonable.
Corporate  charges  totaled  $60,000 for the year ended March 31,  1995.  During
fiscal  years 1997 and 1996,  the  Company  allocated  certain of its  corporate
general and administrative  expenses to Valentec totaling $726,000 and $659,000,
respectively,  using a  similar  basis for  allocating  expenses  as  previously
discussed.

         The Company  purchases  certain  components  used in its products  from
affiliates.  Purchases from affiliates  totaled $2.6 million,  $774,000 and $1.3
million for the years ended March 31, 1997, 1996 and 1995, respectively.

         The Company  sells certain  components  to affiliates  for use in their
products.  Sales to affiliates  totaled $104,000,  $4.3 million and $1.0 million
for the years ended March 31, 1997, 1996 and 1995, respectively.

         The  Company  subleases  space  from  VIL for its  European  automotive
operations.  Sublease payments for the years ended March 31, 1997, 1996 and 1995
were $117,000, $121,000 and $112,000,  respectively. In addition, the Company is
allocated its pro-rata portion of certain manufacturing  overhead expenses based
on  square  footage,  as  well as a  pro-rata  portion  of  shared  general  and
administrative expenses. Such costs totaled $358,000,  $254,000 and $248,000 for
the years ended March 31, 1997, 1996 and 1995, respectively.

         At March 31, 1997 and 1996, the Company has a receivable  from Valentec
aggregating $4.3 million, which was realized through the merger on May 22, 1997.

                                      F-13
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  6  LONG-TERM OBLIGATIONS

         Long-term obligations outstanding were as follows (in thousands):

                                                                  March 31,
                                                            -------------------
                                                              1997        1996
                                                            -------------------

Bank of  America  NT & SA term loan and  revolving  credit
  facility,  bearing interest at 2.25% and 2.0% over
  LIBOR (6.54% at March 31, 1997),
  respectively, refinanced May 21, 1997 ................   $ 20,192    $   --

Note payable, principal due in annual installments of
  $205,000 beginning January 12, 1999 to January 12, 2002,
  with  interest  at  7.22%  in  semiannual
  installments, secured by assets of the
  Company's United Kingdom subsidiary ..................        820         764

Capital equipment notes payable, due in monthly
  installments  with interest at 9.0% to 11.32%
  maturing at various rates through April
  2001, secured by machinery and equipment .............      3,369       3,020
                                                           --------    --------
                                                             24,381       3,784
Less - current portion .................................     (3,085)       (697)
                                                           --------    --------
                                                           $ 21,296    $  3,087
                                                           ========    ========


         On August 1, 1996, the Company  entered into a loan agreement with Bank
of America National Trust and Savings  Association  ("Bank of America NT & SA").
This  credit  facility  was  refinanced  on May  21,  1997 as  discussed  in the
following  paragraph.  The proceeds  provided the Company with financing for the
acquisition  of Phoenix Airbag in the form of a $20.0 million  acquisition  term
loan, to be amortized over a four-year period.  The loan agreement also provided
for a $5.5 million revolving credit facility and a non-revolving stand-by letter
of credit facility to secure payment, if necessary,  for the contingent purchase
price for the acquisition of Phoenix  Airbag.  The term loan,  revolving  credit
facility and stand-by letter of credit facility are collectively  referred to as
the "Bank of America NT & SA Facility".  Indebtedness  under the Bank of America
NT & SA Facility  was secured by  substantially  all the assets of the  Company.
Outstanding  borrowings  on the Bank of America NT & SA  Facility  term loan and
revolving credit facility at March 31, 1997 were $17.3 million and $2.9 million,
respectively.

         On May 21, 1997,  the Company,  Phoenix  Airbag and  Automotive  Safety
Components International Limited ("ASCIL" collectively, the "Borrowers") entered
into an agreement with KeyBank National  Association,  as  administrative  agent
("KeyBank"),   and  the  lending   institutions   named   therein  (the  "Credit
Agreement").  The Credit Agreement provides for (i) a term loan in the principal
amount of $15.0 million (the "Term Loan") and (ii) a revolving  credit  facility
in the aggregate  principal amount of $12.0 million  (including letter of credit
facilities).   The  indebtedness  under  the  Credit  Agreement  is  secured  by
substantially  all the assets of the Company and bears  interest at a rate equal
to either (i) the greater of KeyBank's  prime rate or (ii) the sum of LIBOR plus
1.00% for term loans (and 1.25% for  revolving  loans,  subject to  reduction to
1.00% upon  consummation of the proposed offering of senior  subordinated  notes
(see Note 13), so long as no default or event of default shall have occurred and
be  continuing).  The  principal  amount of the Term Loan is  payable  quarterly
commencing September 30, 1997, in the amount of $750,000,  with the last payment
due on May 31,  2002  provided  that the Term  Loan must be  prepaid  out of the
proceeds of the offering senior  subordinated notes (see Note 13). The revolving
loans  under the  Credit  Agreement  will  mature on May 31,  2002.  The  Credit
Agreement contains certain  restrictive  covenants that impose limitations upon,
among  other  things,  the  Company's  ability  to change its  business;  merge,
consolidate or dispose of assets; incur liens; make loans and investments; incur
indebtedness;   pay  dividends  and  other  distributions;   engage  in  certain
transactions with affiliates; engage in sale and lease-back transactions;  enter
into lease  agreements;  and make capital  expenditures.  Upon completion of the
offering of senior  subordinated  notes (see Note 13),  pursuant to a commitment
letter with KeyBank, the Credit Agreement will be converted into a $27.0 million
revolving credit facility with a five year term,  bearing interest at LIBOR plus
1.00% with a commitment fee of 0.25% per annum for any unused portion.

                                      F-14
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Future annual minimum  principal  payments,  under the refinanced terms
through KeyBank at March 31, 1997, are as follows (in thousands):

      1998 ................................       $ 3,085
      1999 ................................         4,019
      2000 ................................         3,811
      2001 ................................         3,739
      2002 ................................         3,617
      Thereafter ..........................         6,110
                                                  -------
                                                  $24,381
                                                  =======

         During fiscal year 1997, the Company entered into a  sale-leaseback  of
certain  equipment  which is  accounted  for as a  capital  lease.  The  Company
received  proceeds  (which  approximated  the carrying value of the asset at the
time of sale) of  approximately  $1.5  million;  no gain or loss was recorded in
connection  with  this  transaction.   The  agreement  requires  that  specified
machinery  and  equipment  used  in  the  Company's  operations  be  pledged  as
collateral, among other criteria. The Company imputed interest at 9% per annum.

         On May 22, 1997,  the Company  completed  the  acquisition  of Valentec
(Notes 1 and 13). The Company assumed all of Valentec's outstanding  obligations
as of that date,  including  two term notes of  approximately  $5.1  million,  a
revolving line of credit of approximately $1.4 million, as of March 31, 1997 and
equipment  financings  of  approximately  $1.1 million as of March 31, 1997.  In
addition,  the Company  issued a $2.0  million  note payable and has or will pay
$800,000 to VIL to repay intercompany amounts at the time of the sale.

         On June 4, 1997,  the  Company  secured a $7.5  million  mortgage  note
facility with Bank Austria.  The note is payable in semi-annual  installments of
$375,000 beginning  September 30, 1997 through March 31, 2007 and bears interest
at a rate of 7.5%.  The note is  secured by the  assets of the  Company's  Czech
Republic facility.

         In May and June 1997,  the Company paid  approximately  $6.5 million of
the  obligations  assumed in the Valentec  acquisition  with the proceeds of the
KeyBank  credit  facility,  Bank  Austria  mortgage  note and the  $2.0  million
equipment  financing.  The $2.0 million  equipment  financing  bears interest at
9.38% and is payable monthly  beginning July 1, 1997 through June 1, 2002 and is
secured by certain fixed assets of Valentec.


NOTE  7  INCOME TAXES

         Income before income taxes comprises the following (in thousands):

                                                             March 31,
                                                  ------------------------------
                                                   1997        1996        1995
                                                  ------------------------------

Domestic ...................................      $2,670      $6,291      $2,379
Foreign ....................................       4,171       1,739       1,037
                                                  ------      ------      ------
                                                  $6,841      $8,030      $3,416
                                                  ======      ======      ======



                                      F-15
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         The income tax provision comprises the following (in thousands):

                                                          March 31,
                                            ------------------------------------
                                              1997           1996           1995
                                            ------------------------------------

Taxes currently payable:
     Federal ........................       $   935        $ 1,934       $   602
     State ..........................           154            327           114
     Foreign ........................           916            124           372
Deferred taxes:
     Federal ........................          (177)           311           148
     State ..........................           (49)            47            47
     Foreign ........................         1,216            373          --
                                            -------        -------       -------
                                            $ 2,995        $ 3,116       $ 1,283
                                            =======        =======       =======


         The income tax provision  differs from the amount  computed by applying
the federal income tax rate to income before income taxes as follows:

<TABLE>
<CAPTION>

                                    March 31,
                                                          ---------------------
                                                          1997    1996     1995
                                                          ---------------------

<S>                                                        <C>     <C>      <C>
Expected taxes at federal statutory rate .............     34%     34%      34%
State income taxes, net of federal benefits ..........      2       5        5
Foreign earnings taxed at different rates ............      7       -        1
Change in deferred tax asset valuation allowance .....      -       -       (4)
Other, net ...........................................      1       -        2
                                                          ---     ---      ---
                                                           44%     39%      38%
                                                          ===     ===      ===
</TABLE>


         The primary components of deferred tax assets and liabilities, included
in other long-term  liabilities in the accompanying  consolidated balance sheet,
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  March 31,
                                                         -----------------------
                                                            1997           1996
                                                         -----------------------
<S>                                                      <C>            <C>
Deferred tax assets (liabilities):
      Accrued liabilities ........................       $   103        $    37
      Inventory ..................................           193            203
      Property, plant and equipment ..............        (1,552)          (862)
      Deferred product launch costs ..............             -           (688)
      Other ......................................            (7)             -
                                                         -------        -------
                                                         $(1,263)       $(1,310)
                                                         =======        =======
</TABLE>


         No taxes have been provided  relating to the possible  distribution  of
approximately   $4.2  million  of  undistributed   earnings   considered  to  be
permanently  reinvested.  The  amount of such  additional  taxes  that  would be
payable if such  earnings  were  distributed  is estimated  to be  approximately
$950,000.


                                      F-16
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  8  COMMITMENTS AND CONTINGENCIES


Operating leases

         The Company has noncancelable operating leases for equipment and office
space that expire at various dates through 2002.  Certain of the lease  payments
are  subject  to  adjustment  for  inflation,  which  have  been  normalized  to
operations. The Company incurred rent expense of $927,000, $612,000 and $272,000
for the years ended March 31, 1997, 1996 and 1995, respectively.

         Future annual  minimum lease payments for all  noncancelable  operating
leases as of March 31, 1997 are as follows (in thousands):


         1998 .................................             $1,130
         1999 .................................              1,068
         2000 .................................              1,092
         2001 .................................                573
         2002 .................................                308
         Thereafter ...........................                403
                                                            ------
                                                            $4,574
                                                            ======

ENVIRONMENTAL ISSUES

         This Company has identified two areas of underground  contamination  at
its facility in Galion,  Ohio.  One area involves a localized  plating  solution
spill,  which is currently  being handled by the existing waste water  treatment
system. The second area involves a chlorinated  solvent spill in the vicinity of
a former  above ground  storage  area.  The Company has  retained  environmental
consultants  to  quantify  the extent of this  problem.  The Company has accrued
$243,000 for the estimated cost of additional  testing and remediation which are
included in the long-term  liabilities in the accompanying  consolidated balance
at March 31, 1997.  The Company's  environmental  consultants  estimate that the
Company's  voluntary  plan of  remediation  will  take  three  to five  years to
complete.  In the opinion of  management,  the total  remediation  costs are not
expected  to  have a  material  adverse  effect  on  the  Company's  results  of
operations or financial position. Management's opinion is based on the advice of
an independent consultant on environmental matters.


LEGAL PROCEEDINGS

         From time to time, the Company is the subject of legal  proceedings for
various matters. In management's opinion, there are no material claims currently
pending.


                                      F-17
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  9  BUSINESS SEGMENT INFORMATION

         The  Company's  operations  have  been  classified  into  two  business
segments:  automotive  and  defense.  See Note 1 for a  description  of business
segments.

         Summarized financial  information by business segment is as follows (in
thousands):
                                                           March 31,
                                               ---------------------------------
                                                 1997        1996         1995
                                               ---------------------------------

Net Sales:
      Automotive ........................      $68,827      $49,091      $43,073
      Defense ...........................       15,131       45,851        8,706
                                               -------      -------      -------
                                               $83,958      $94,942      $51,779
                                               =======      =======      =======

Operating income:
      Automotive ........................      $ 7,255      $ 3,658      $ 2,397
      Defense ...........................        1,349        3,946          779
                                               -------      -------      -------
                                               $ 8,604      $ 7,604      $ 3,176
                                               =======      =======      =======

Total assets at period end:
      Automotive ........................      $60,800      $21,518      $20,429
      Defense ...........................        8,251       16,924        5,899
      Corporate .........................        4,356       11,389        1,983
                                               -------      -------      -------
                                               $73,407      $49,831      $28,311
                                               =======      =======      =======

Depreciation and amortization:
      Automotive ........................      $ 2,036      $   796      $   489
      Defense ...........................          355          308          254
                                               -------      -------      -------
                                               $ 2,391      $ 1,104      $   743
                                               =======      =======      =======

Capital expenditures:
      Automotive ........................      $ 8,092      $ 3,863      $ 1,979
      Defense ...........................          521          725          494
                                               -------      -------      -------
                                               $ 8,613      $ 4,588      $ 2,473
                                               =======      =======      =======


                                      F-18
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Summarized  financial  information by geographic area is as follows (in
thousands):

                                                            March 31,
                                               ---------------------------------
                                                 1997         1996         1995
                                               ---------------------------------
Net Sales (1):
      North America .....................      $46,371      $77,333      $34,274
      Europe ............................       37,587       17,609       17,505
                                               -------      -------      -------
                                               $83,958      $94,942      $51,779
                                               =======      =======      =======

Operating income:
      North America .....................      $ 3,089      $ 6,555      $ 3,143
      Europe ............................        5,515        1,049           33
                                               -------      -------      -------
                                               $ 8,604      $ 7,604      $ 3,176
                                               =======      =======      =======

Total assets at period end:
      North America .....................      $24,930      $37,974      $16,251
      Europe ............................       48,477       11,857       12,060
                                               -------      -------      -------
                                               $73,407      $49,831      $28,311
                                               =======      =======      =======
-----------------------------------------
(1) Foreign and domestic sales are representative of amounts reported by
    geographic region


NOTE 10  BENEFIT PLAN

         SCI  participates  in Valentec's  defined  contribution  plan qualified
under Section 401(k) of the Internal  Revenue Code for eligible  employees.  The
plan  provides for  discretionary  employer  contributions.  The Company made no
employer  contributions  during any of the periods presented in the consolidated
financial statements.


NOTE 11   COMMON STOCK AND STOCK OPTIONS

COMMON STOCK

         During fiscal years 1997 and 1996, the Company  purchased 23,492 shares
and 90,000 shares of common stock, respectively. The shares are held in treasury
and are  accounted  for at cost.  See Note 13 for common stock issued to acquire
Valentec and treasury shares obtained in connection with such acquisition.

STOCK OPTIONS

        In conjunction with the Initial Public Offering, SCI established a stock
option plan ("Plan"). The Plan, as amended, provides for the issuance of options
to  purchase  an  aggregate  of  550,000  shares  of SCI's  common  stock to key
officers,  employees of SCI or its affiliates,  directors and consultants.  Each
award is determined by the  Compensation  Committee of the Board of Directors on
an  individual  basis,  except for awards to  non-officer  directors,  which are
determined  pursuant to a formula.  The Company  accounts  for these plans under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized.

        Had  compensation  cost for these plans been determined  consistent with
FASB  Statement  No. 123, the  Company's net income and earnings per share would
have been reduced to the following pro forma amounts (in  thousands,  except per
share data):

                                                       March 31,
                                            ------------------------------
                                             1997        1996        1995
                                            ------------------------------
Net Income:
   As Reported .......................      $2,204      $4,914      $2,133
                                            ======      ======      ======
   Pro Forma .........................      $1,941      $4,756      $2,133
                                            ======      ======      ======
Net Income Per Share:
   As Reported .......................      $ 0.44      $ 0.99      $ 0.53
                                            ======      ======      ======
   Pro Forma .........................      $ 0.39      $ 0.95      $ 0.53
                                            ======      ======      ======


                                      F-19
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         A summary of the status of the Company's stock option plan at March 31,
1997,  1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:

<TABLE>
<CAPTION>


                                           March 31, 1997           March 31, 1996             March 31, 1995
                                       ------------------------ -----------------------  ---------------------------
                                                    Weighted                 Weighted                    Weighted
                                         Number     Average      Number      Average       Number        Average
                                           of       Exercise       Of        Exercise        of          Exercise
                                         Shares      Price       Shares       Price        Shares         Price
                                       ---------    --------    -------      --------      -------       --------

<S>                                     <C>          <C>        <C>           <C>          <C>            <C>
Outstanding at beginning of year        288,625      $13.06     210,500       $10.79             -        $    -
Granted                                 244,499       11.97      84,500        18.65       243,500         10.68
Exercised                                  (375)      10.00           -            -             -             -
Forfeited                                  (750)      10.00      (6,375)       12.06       (33,000)        10.00
                                        -------                 -------                    -------
Outstanding at end of year              531,999       12.57     288,625        13.06       210,500         10.79
                                        -------       =====     -------        =====       -------         =====
Exercisable at end of year              122,250       12.04      50,750        10.57             -             -
                                        =======       =====      ======        =====       =======         =====
Weighted average fair value
     of options granted                   $5.48                   $8.85                      $4.94

</TABLE>

        Of the 531,999  options  outstanding  at March 31,  1997,  200,000  have
exercise  prices between  $10.00 and $14.88,  with a weighted  average  exercise
price of $10.15 and a weighted average remaining  contractual life of 6.1 years;
98,375 of these options are exercisable  with a weighted  average exercise price
of $10.28.  An additional 87,500 options have exercise prices between $17.13 and
$21.00 with a weighted  average  exercise price of $19.28 and a weighted average
remaining contractual life of 6.6 years; 23,875 of these options are exercisable
with a weighted average exercise price of $19.30.  The remaining 244,499 options
have exercise prices between $10.25 and $14.17 with a weighted  average exercise
price of $11.97 and a weighted average remaining  contractual life of 9.3 years;
none of these options are currently  exercisable.  The fair value of each option
grant is estimated on the date of grant using the  Black-Scholes  option pricing
model with the following  weighted-average  assumptions used for grants in 1997,
1996 and  1995,  respectively:  risk-free  interest  rates  of 6.7,  6.5 and 7.2
percent;  dividends for all years; expected lives of 6.2, 6.8 and 6.0 years; and
expected volatility of 32.4 percent for all years.



                                      F-20
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 UNAUDITED QUARTERLY RESULTS

         Unaudited quarterly financial information for fiscal year 1996 and 1997
is set forth below (See Note 2). The Company  recorded the cumulative  effect of
the change in accounting  principle and the extraordinary item during the fourth
quarter of fiscal  year 1997 (see Note 2). The  Company  did not  restate  prior
quarters. All dollar amounts are in thousands except per share data.

<TABLE>
<CAPTION>

                                                                          Quarter Ended
                                                ----------------------------------------------------------------
                                                                            Company
                                                ----------------------------------------------------------------
                                                   June 30,    September 30,     December 31,        March 31,
                                                    1995           1995              1995              1996
                                                ----------------------------------------------------------------
<S>                                               <C>             <C>              <C>                <C>
Fiscal 1996
  Revenues .................................      $23,683         $25,317          $24,447            $21,495
  Income from operations ...................      $ 1,562         $ 1,952          $ 1,943            $ 2,147
  Net income ...............................      $ 1,047         $ 1,343          $ 1,297            $ 1,227
  Net income per share .....................      $  0.24         $  0.26          $  0.25            $  0.24

</TABLE>

<TABLE>
<CAPTION>


                                                                         Quarter Ended
                                                ----------------------------------------------------------------
                                                                            Company
                                                ----------------------------------------------------------------
                                                   June 30,     September 30,    December 31,        March 31,
                                                    1996            1996             1996              1997
                                                ----------------------------------------------------------------
<S>                                               <C>             <C>              <C>                <C>
Fiscal 1997
  Revenues .................................      $16,172         $18,877          $24,662            $24,247
  Income from operations ...................      $ 1,446         $ 2,248          $ 3,150            $ 1,760
  Income before extraordinary item and
   cumulative effect of accounting change...      $   853         $ 1,148          $ 1,420            $   425
  Net income ...............................      $   853         $ 1,148          $ 1,420            $(1,217)
  Income before extraordinary item and
   cumulative effect of accounting
         change per share ..................      $  0.17         $  0.23          $  0.28            $  0.09
  Net income per share .....................      $  0.17         $  0.23          $  0.28            $ (0.24)
</TABLE>


<TABLE>
<CAPTION>


                                                                     AMENDED Quarter Ended
                                                ----------------------------------------------------------------
                                                                            Company
                                                ----------------------------------------------------------------
                                                   June 30,     September 30,    December 31,        March 31,
                                                    1996            1996             1996              1997
                                                ----------------------------------------------------------------
<S>                                               <C>             <C>              <C>                <C>
AMENDED Fiscal 1997
  Revenues .................................      $16,172         $18,877          $24,662            $24,247
  Income from operations ...................      $ 1,416         $ 1,971          $ 2,627            $ 2,590
  Income before extraordinary item and
   cumulative effect of accounting change...      $   835         $   982          $     -            $     -
  Net (loss) income ........................      $  (424)        $   599          $ 1,106            $   923
  Income before extraordinary item and
   cumulative effect of accounting
         change per share ..................      $  0.17         $  0.20          $     -            $     -
  Net (loss) income per share ..............      $ (0.08)        $  0.12          $  0.22            $  0.20
</TABLE>




                                      F-21
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13  SUBSEQUENT EVENTS


         Pursuant to a definitive Stock Purchase Agreement,  effective as of May
22, 1997, the Company  acquired all of the outstanding  common stock of Valentec
in a tax-free  stock-for-stock  exchange.  Valentec  was the  Company's  largest
shareholder  immediately prior to the acquisition  owning  approximately 27%, or
1,379,200  shares of the issued and outstanding  shares of the Company's  common
stock.  The Company issued the  shareholders of Valentec  1,369,200 newly issued
shares of its common stock.
        
         The purchase price for the Valentec  acquisition was negotiated between
Valentec and a special committee  consisting of independent members of the Board
of Directors of the Company.  The special  committee was advised by  independent
legal counsel and an  independent  financial  advisor.  The  Company's  Board of
Directors received an opinion from the special committee's  financial advisor as
to the  fairness  from a  financial  point  of view of the  consideration  to be
received by the Company to the Company's shareholders other than Valentec.

         The  acquisition  will be accounted  for as a purchase.  The  aggregate
purchase price amounted to  approximately  $14.3  million,  including  estimated
direct acquisition costs of approximately  $600,000. No significant  adjustments
to assets and  liabilities  acquired  will be recorded as their  carrying  value
approximates  their fair value,  except for common  stock of the Company held by
Valentec,  which common shares have been  recorded as treasury  shares at market
value of $13.7  million.  These shares were  previously  accounted for under the
equity method of accounting for the investment by Valentec.  Management  intends
to merge  Valentec  during the first  quarter of fiscal 1998.  The excess of the
purchase price over the fair value of the net assets  acquired will be allocated
to goodwill.

         On June 30, 1997,  the Company  entered into a definitive  agreement to
acquire  substantially  all of the  assets of the air  restraint  and  technical
products  division of JPS for $56.3  million plus the  assumption of $797,000 in
indebtedness  subject to post-closing  adjustments (the "JPS Acquisition").  The
Company expects to finance the JPS Acquisition with a portion of the proceeds of
a private placement of $80.0 million of senior subordinated notes.

         Unaudited pro forma condensed  balance sheet  information  assuming the
acquisitions and the senior  subordinated  notes were effected on March 31, 1997
is as follows (in thousands):


     Current assets ...........................................        $ 50,679
                                                                       ========
     Noncurrent assets ........................................        $108,887
                                                                       ========

     Current liabilities ......................................        $ 26,082
                                                                       ========
     Total liabilities ........................................        $124,292
                                                                       ========

         Unaudited  pro  forma  condensed  consolidated  operations  information
assuming the acquisition and the senior subordinated notes were(and  acquisition
of Phoenix  Airbag - see Note 1)  effected  on April 1, 1996 is as  follows  (in
thousands, except per share data):


     Revenues .................................................       $173,208
                                                                      ========
     Income before extraordinary item
        and change in accounting principle ....................       $  2,011
                                                                      ========
     Income per share before extraordinary
        item and change in accounting principle ...............       $   0.40
                                                                      ========

         The unaudited pro forma condensed  consolidated  operations information
is not  necessarily  indicative  of the  actual  results  which  would have been
attained if the acquisition would have been consummated on April 1, 1996.

                                      F-22
<PAGE>
                     SAFETY COMPONENTS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS









                                      F-23