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 28, 1998
                                       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)

                                   33-0596831
                      (I.R.S. Employer Identification No.)
 
                             2160 North Central Road
                              Fort Lee, New Jersey
                    (Address of principal executive offices)

                                      07024
                                   (Zip Code)

        Registrant's telephone number, including area code (201) 592-0008

           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)
               10 1/8% Senior Subordinated Notes due 2007, Series B
                                (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  22,  1998,  was   approximately
$67,619,281.

     The number of shares  outstanding of the  registrant's  common stock, as of
June 22, 1998, is as follows:

Class                                                  Number of Shares
-----------------------------------------------------------------------
Common Stock, par value $.01 per share                        5,084,216
                       
                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the  Registrant's  proxy  statement in connection with its 1998
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 fabric and cushions,  with operations in North America, Europe
and Asia. The Company sells airbag fabric domestically and cushions worldwide to
all of the major airbag module  integrators  that outsource  such products.  The
Company believes it produces  approximately  50% of all outsourced airbag fabric
utilized in North  America  and that it  manufactures  approximately  49% of all
outsourced airbag cushions in North America.

         The Company believes the JPS Acquisition (as defined herein) represents
an important step in its airbag growth strategy because it has and will continue
to enable the Company to combine SCFTI's (as defined herein) low-cost operations
and strong  market  position in airbag fabric with its low-cost  operations  and
strong market position in airbag cushions to exploit  worldwide growth in demand
for airbag  module  systems  ("airbags" or "airbag  modules").  According to the
automotive  research firm, Tier One, the worldwide market for automotive  airbag
modules has grown from  approximately  3.6 million  installed  airbag modules in
1991 to  approximately  87.7  million  in 1997.  According  to the same  source,
installed  airbag  modules are  projected  to more than double to  approximately
158.0  million  by the year 2000 as a result of  increasing  usage of airbags in
Europe and Asia and growth in demand for side-impact airbags.  EBITDA represents
income from operations before interest, taxes, depreciation and amortization and
excludes the current year's impact of  reorganization  and relocation  expenses.
The Company's  consolidated fiscal 1998 net sales and EBITDA were $170.3 million
and $26.0 million, respectively.

         As part  of its  airbag  growth  strategy,  the  Company  has  recently
commenced  manufacturing  and supplying  metal airbag  module  components to its
customers,  further  increasing  the content per airbag  module  supplied by the
Company. Sales of airbag fabric, cushions and related metal components accounted
for approximately $125.8 million or 73.9% of consolidated fiscal 1998 net sales.
Sales of airbag cushions accounted for approximately  $68.8 million or 82.0% and
approximately  $49.1 million or 51.7% of the Company's  fiscal 1997 and 1996 net
sales,  respectively.  The Company  believes that it is also, as a result of the
JPS Acquisition, a leading manufacturer of value-added technical fabrics used in
a variety of niche  industrial  and commercial  applications  such as ballistics
material for luggage,  filtration,  aircraft  escape slides,  military tents and
certain technical apparel.  Such fabrics accounted for $17.4 million or 10.2% of
consolidated  fiscal 1998 net sales and are  produced  using the same  machinery
that  produces  airbag  fabric.  The unique  ability to  interchange  airbag and
specialty  technical fabrics using the same equipment and similar  manufacturing
processes allows the Company to effectively utilize its manufacturing assets and
lower per unit  overhead  costs.  The  Company  also  produces  defense  related
products,  primarily  projectiles and other metal components for small to medium
caliber training and tactical  ammunition and continues as a systems  integrator
and  manufacturer  for ordnance  programs,  which accounted for $27.2 million or
15.9% of the Company's  consolidated  fiscal 1998 net sales and $19.7 million or
11.4%,  and $45.9  million or 48.3% of the  Company's  fiscal  1997 and 1996 net
sales, respectively.

Significant Transactions

         The  JPS  Acquisition.  On  July  24,  1997,  the  Company,  through  a
newly-formed,  wholly-owned  subsidiary,  Safety Components Fabric Technologies,
Inc.,  acquired (the "JPS  Acquisition")  all of the assets and assumed  certain
liabilities of the Air Restraint/Technical  Fabrics Division (the "Division") of
JPS  Automotive  L.P.  ("JPS  Automotive"),  a  subsidiary  of  Collins & Aikman
Corporation, for approximately $58.8 million after giving effect to post-closing
adjustments. The purchase price included the repayment of approximately $650,000
of capital lease obligations, direct acquisition costs of approximately $900,000
and  approximately  $1.2 million for the  purchase of a building in  conjunction
with the JPS Acquisition (the Division is sometimes  hereinafter  referred to as
"JPS" or "SCFTI").  The Debt Offering (as defined herein) was conditioned  upon,
and a significant portion of the proceeds thereof were used to finance,  the JPS
Acquisition.  SCFTI is a leading,  low-cost  supplier of airbag  fabric in North
America and is also a leading manufacturer of value-added technical fabrics used
in a variety  of niche  industrial  and  commercial  applications.  The  Company
believes the JPS  Acquisition  represents an important step in its airbag growth


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<PAGE>


strategy  because it has enabled,  and will continue to enable,  the Company to:
(i)  combine  strong  market  positions  in airbag  fabric  and  cushions;  (ii)
integrate low-cost  manufacturing  capabilities in airbag fabric and cushions to
exploit the worldwide  growth in demand for airbag  modules;  (iii)  interchange
airbag  and  specialty   technical   fabrics   using  the  same   equipment  and
manufacturing  processes thereby allowing the Company to effectively utilize its
manufacturing assets; and (iv) enhance and expand its customer base.

         The Debt Offering.  On July 24, 1997,  the Company  issued  $90,000,000
aggregate  principal amount of its 10 1/8% Senior  Subordinated  Notes due 2007,
Series A (the "Old  Notes") to BT  Securities  Corporation,  Alex.  Brown & Sons
Incorporated  and  BancAmerica  Securities,  Inc.  (collectively,  the  "Initial
Purchasers") in a transaction  not registered  under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon an exemption thereunder (the
"Debt  Offering").  The Debt Offering was  conditioned  upon,  and a significant
portion of the proceeds  thereof was used to finance,  the JPS  Acquisition.  On
September 2, 1997,  the Company  commenced an offer to exchange  (the  "Exchange
Offer") the Old Notes for $90,000,000  aggregate principal amount of its 10 1/8%
Senior  Subordinated  Notes due 2007,  Series B (the "Exchange  Notes," together
with the Old  Notes,  the  "Notes").  All of the Old Notes  were  exchanged  for
Exchange  Notes  pursuant to the terms of the Exchange  Offer,  which expired on
October 1, 1997.  The  Exchange  Notes  evidence  the same debt as the Old Notes
(which they  replaced).  However the  issuance  of the  Exchange  Notes has been
registered  under the  Securities  Act, and therefore the Exchange  Notes do not
bear legends restricting the transfer thereof.

         The  Valentec  Acquisition.  Pursuant to a  definitive  Stock  Purchase
Agreement,  effective  as of May 22,  1997,  the Company  acquired in a tax-free
stock for stock  transaction  all of the  outstanding  capital stock of Valentec
(the "Valentec  Acquisition").  Valentec was the Company's  largest  shareholder
immediately  prior  to the  Valentec  Acquisition  owning  approximately  27% or
1,379,200 shares of Common Stock. Immediately prior to the Valentec Acquisition,
Robert A. Zummo,  the President,  Chief Executive  Officer and a director of the
Company,  was also the  President,  Chief  Executive  Officer,  a  director  and
majority  shareholder  approximately  (74.2%) of Valentec,  Francis X. Suozzi, a
consultant  to and  director of Valentec  and a director of the  Company,  was a
minority  shareholder  approximately  (21.2%)  of  Valentec,  and  the  Valentec
International  Corporation  Employee  Stock  Ownership  Plan (the  "ESOP") was a
minority  shareholder  approximately  (4.6%) of Valentec.  The Company issued an
aggregate of 1,369,200  newly issued shares of Common Stock to the  shareholders
of  Valentec.  The  purchase  price  aggregated   approximately  $15.1  million,
including  estimated direct  acquisition  costs of  approximately  $1.3 million.
Valentec  is a  high-volume  manufacturer  of  stamped  and  precision  machined
products  for the  automotive,  commercial  and defense  industries.  Valentec's
machining  capabilities  and  relationships  with airbag module  integrators has
enabled 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.

Airbag Related Products

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,  most of whom  produce  most of the
components required for a complete module. However, as the industry has evolved,
module integrators have increasingly outsourced  non-proprietary components such
as cushions to those  companies  specializing  in the  production  of individual
components.  The Company  believes  that its module  integrator  customers  will
continue to outsource the majority of their cushion  requirements  as they focus
on the  development of proprietary  technologies  such as inflators and sensors.
Only one of the module  integrators  currently  weaves its own airbag fabric and
the remainder purchase fabric from airbag fabric producers such as the Company.

         A  characteristic  of the industry is that certain  customers of airbag
cushion suppliers are also competitors.  The Company supplies airbag cushions to
module  integrators,  most of which  also  produce  a portion  of their  cushion
requirements  internally.  While none of the module  integrators  produce airbag
cushions for third parties, the Company may compete with its customers to supply
their  own  internal  cushion  requirements.  However,  most  of  the  Company's
suppliers  do not produce  cushions for the same  car/truck  model for which the
Company produces cushions.


                                        3

<PAGE>




         Another  characteristic  of the airbag  industry  is the  existence  of
potential barriers to entry. New entrants that wish to produce and supply airbag
cushions or airbag fabric must undergo a rigorous  qualification  process, which
can take as long as three  years.  The  Company  believes  that in  addition  to
deterring new entrants,  the existence of this qualification  process represents
switching  costs for  module  integrators  that are  required  to assist the new
supplier in meeting automakers' requirements. Additionally, the Company believes
module  integrators  are, like their  automaker  customers,  trying to limit the
number of suppliers.

Products

         The Company's  automotive  products include passenger,  driver side and
side impact airbag  cushions  manufactured  for  installation in over 40 car and
truck models sold worldwide; airbag fabric for sale to airbag manufacturers; and
stamped and machined  components  used in airbag  modules,  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.
Sales of airbag  related  products  (inclusive  of sales of airbag  fabric)  for
fiscal year 1998 accounted for approximately 73.9% of the Company's consolidated
fiscal 1998 net sales.  Sales of airbag  related  products for fiscal years 1997
and 1996  accounted  for  approximately  82.0% and 51.7%,  respectively,  of the
Company's consolidated fiscal 1997 and 1996 net sales, respectively.

         The  Company  also  manufactures  a wide array of  specialty  technical
fabrics for consumer and industrial uses.  These fabrics  include:  (i) high-end
luggage fabrics,  including  "ballistics" fabric used in Hartman and Tumi brands
of 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,  protective
apparel worn by firefighters, fuel cells, bomb and cargo chutes, oil containment
booms,  aircraft escape slides,  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  supply  contracts of up to twelve
months.  Sales of technical related products  accounted for approximately  $17.4
million or 10.2% of the  Company's  consolidated  fiscal  1998 net sales and are
produced  using the same  equipment and  manufacturing  process that the Company
uses to produce airbag fabric.  The market for the Company's  technical  related
products  is  highly  segmented  by  product  line.  Marketing  and sales of the
Company's technical related products is conducted by the Company's marketing and
sales staff based in Greenville, South Carolina. Manufacturing of these products
occurs at the South  Carolina  facility,  using the same machines that weave the
airbag   fabrics  which  enables  the  Company  to  take   advantage  of  demand
requirements  for the various  products with minimal  expenditure  on production
retooling costs. By manufacturing technical products with the same machines that
weave airbag fabric, the Company is able to more effectively utilize capacity at
its South Carolina plant and lower per unit overhead costs.

Customers

         Sales  of  airbag  related  products  to TRW and  Petri  accounted  for
approximately  36.1% and  15.6%,  respectively,  of the  Company's  consolidated
fiscal  1998 net  sales.  See  Note 9 to the  Company's  Notes  to  Consolidated
Financial  Statements  included  elsewhere in this Report for certain disclosure
regarding the Company's industry segments.

         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  Company's  largest  airbag  fabric  customers  include TRW,  Breed
Technologies (as successor in interest to AlliedSignal)  ("Breed"),  AutoLiv and
Delphi  and the  Company  also  sells  to  Reeves,  Bradford,  ABC  and  Mexican
Industries.  The Company 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 Company also sells fabric to coating  companies,
which then  resell the coated  fabric to either an airbag  fabricator  or module
integrator.  Sales are either made against purchase orders, pursuant to releases
on open purchase orders,  or pursuant to short-term  supply contracts  generally
having a duration of up to twelve months. 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 respect to TRW's European airbag cushion requirements. Under these


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<PAGE>


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
provided  to 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 25.0% 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.

         The Company also has a one-year supply agreement with TRW,  terminating
January 1, 1999, for the supply of airbag fabric, which has been in the past and
can be in the future renewed on an annual basis.

         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  cushion  requirements,
which are expected to be approximately 5.3 million airbag cushions during fiscal
year 1999.

     AutoLiv.  The Company has also entered  into  requirements  contracts  with
AutoLiv. This agreement is substantially similar to the Petri contract. Pursuant
to the AutoLiv  contract,  the Company has agreed to manufacture  390,000 airbag
cushions  for model year 1999.  In addition,  the Company was  recently  awarded
significant airbag cushion orders from AutoLiv, pursuant to which the Company is
expected to manufacture  an additional 3.1 million airbag  cushions on an annual
basis, representing an additional $39.0 million in annual revenues. The approval
of the automobile  manufacturers is required prior to commencement of production
of such airbag cushions by the Company.

         Breed.  Breed's  supply  agreement  has  a  duration  of  three  years,
terminating  in November 1998 for the supply of all airbag fabric  outsourced by
Breed. The Company cannot predict what the actual quantity  requirements will be
under this agreement.

Suppliers

         The Company's  principal  airbag  cushion  fabric  customers  generally
approve all suppliers of major airbag components or airbag fabric raw materials,
as the case may be. 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  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.

         The raw materials for the Company's fabric  operations  largely consist
of synthetic yarns provided by AZKO, DuPont,  Breed, Unifi and Hoechst Celanese,
among others.  The primary yarns include nylon,  polyester and Nomex.  DuPont is
the leading  supplier of airbag  fabric yarn to both the market and the Company.
Approximately  90.0% of the  nylon  yarn  used in the  Company's  airbag  fabric
operations is supplied by DuPont pursuant to purchase orders or releases on open
purchase orders. There is no underlying supply agreement with DuPont.

Capacity

         The  Company's  Mexican  facility has the capacity to  manufacture  5.0
million airbag cushions per year and manufactured 2.3 million passenger side and
driver side  airbag  cushions  in fiscal  year 1998.  The  Company has  budgeted
approximately  $13.0 of capital  expenditures  required  to  manufacture  airbag
cushions  currently in backlog.  The Company's  United Kingdom  facility has the
current  capacity to manufacture  approximately  2.3 million airbag cushions per
year and  manufactured  approximately  100,000  driver side  airbag  cushions in
fiscal 1998. The Company's


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<PAGE>


German  facility  manufactured  approximately  3.6 million  driver side and side
impact  airbag  cushions  in  fiscal  1998  and  has  the  current  capacity  to
manufacture  approximately  2.8 million  airbag  cushions per year.  The Company
intends to relocate  such facility and expects to move certain  operations  from
such  facility to its  facility in the Czech  Republic  and its  facility in the
United Kingdom by early fiscal year 2000. The Company's Czech Republic facility,
which began production in 1997,  produced  approximately  850,000 passenger side
and driver side airbag  cushions in fiscal 1998,  and has a current  capacity to
manufacture  approximately  3.5 million  airbag  cushions per year.  The Company
believes  that  its  present  capacity  is  sufficient  to  meet  its  currently
forecasted expansion in production for the foreseeable future.

     The Company entered into a joint venture agreement during fiscal year 1997,
which  establishes a joint  venture,  based in Hong Kong,  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 a  separate  company
owned by the Company's joint venture partner. The joint venture has the capacity
to produce  approximately  2.0 million airbag  cushions per year, and expects to
begin  production  in  fiscal  year  1999.  The  Company  is  contemplating  the
introduction of weaving  capabilities at this facility through its operations at
its South Carolina facility.

         The  Company's  South  Carolina  facility  has a  current  capacity  to
manufacture approximately 30.0 million yards of fabric per year and manufactured
17.4 million yards of fabric in fiscal year 1998.  The Company  utilizes  rapier
weaving  machines that are highly  versatile in their ability to produce a broad
array of specialty  technical fabrics for use in a large number of applications.
In addition,  the Company's machinery and equipment have the capability to weave
all types of yarns specified by airbag module integrators. The ability to easily
interchange  the  machines  between  air  restraint  fabric and other  specialty
technical fabrics allows the Company to maximize returns on plant assets.

         Since  1993,  the  Company  has  invested  $34.5  million  in  capacity
expansion,   significant  modernization  of  its  manufacturing  facilities  and
equipment upgrades.

Sales and Marketing

     The Company markets and sells airbag cushions and airbag fabric through its
direct  marketing  and sales  forces  based in  Greenville,  South  Carolina and
Germany.  Prior to fiscal year 1998,  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  Chairman of the
Board,  President and Chief Executive Officer, were instrumental in establishing
the Company's relationship with TRW. The Company was obligated to pay Champion a
commission of 2% on all sales of airbag  cushions and airbag related  components
to TRW in North  America.  The Company  and the  shareholders  of Champion  have
entered into a definitive agreement,  dated as of December 22, 1997, pursuant to
which, the Company  acquired all of the issued and outstanding  capital stock of
Champion for an aggregate  purchase  price of  $2,960,000  plus certain  amounts
previously  paid to Champion and the  shareholders  of Champion  (the  "Champion
Transaction").  In connection  with the Champion  Transaction,  the Company also
entered  into a  definitive  Put  Agreement  (the  "Put  Transaction")  with  an
associate of Champion (the "Associate") who had the right to a portion of any of
the above-referenced  commissions actually received by Champion. Pursuant to the
Put Transaction,  the Associate has the option to put to the Company, subject to
certain  conditions,  all of the issued and outstanding capital stock of Duchi &
Associates,  Inc.,  an  entity  affiliated  with  Champion,  for a put  price of
$740,000.  The Champion  Transaction  includes,  and the Put  Transaction  (as a
condition to its  exercise)  will  include,  a twenty year  management  services
agreement  between  the Company and each of the  Champion  shareholders  and the
Associate,  respectively.  The terms of each such management  services agreement
prohibits the Champion shareholders,  or the Associate, as the case may be, from
competing  with  certain  businesses  of the Company for a period of five years.
Each such management  services  agreement also provides that the Company has the
option, at its sole discretion,  to extend the non-competition  period for three
successive five year periods, upon payment of a nominal extension fee. See Notes
1 and 8 to the Company's Notes to  Consolidated  Financial  Statements  included
elsewhere in this Report.


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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 and AutoLiv,  each of which are airbag module
integrators that produce a substantial  portion of their own airbag cushions for
their own consumption.  While TRW does not generally manufacture airbag cushions
for the same  vehicle  models that the  Company  manufactures  for TRW,  AutoLiv
manufactures  airbag cushions for the same models that the Company  manufactures
for  AutoLiv.  Most airbag  module  integrators  subcontract  a portion of their
requirements  for airbag  cushions.  The Company  believes that its good working
relationship  with  its  customers,  the  Company's  high  volume  and  low-cost
manufacturing  capabilities,  consistency  and level of  quality  products,  the
agreements with TRW, the lengthy  process  necessary to qualify as a supplier to
an automobile  manufacturer and the costs in the automotive  industry associated
with  changes in  established  suppliers  create  certain  barriers to entry for
potential competitors.

         In  1997,  the  total  North  American  airbag  fabric  market  totaled
approximately  $151.0  million,  up from $148.0  million in the prior year.  The
Company  shares this market with another  major  competitor,  Milliken and three
smaller fabric manufacturers.  In addition, Takata, 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 automotive airbag cushion,  airbag fabric 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.  In
addition,  the Company  believes that SCFTI will provide it with some measure of
vertical integration,  enhancing its ability to compete in the automotive airbag
industry.

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  airbag  cushions
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  underwent  similar,
rigorous design validation and process validation tests in order to qualify as a
supplier to AutoLiv,  which recently granted a purchase order to the Company for
airbag cushions.

         The Company has extensive quality control systems in its airbag related
manufacturing  facilities,  including the inspection and testing of all products
and is QS9000 certified.  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
airbag  cushions  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.

         The  Company's  airbag fabric  operations  also seek to maintain a high
level of  quality  throughout  the  manufacturing  process.  The  airbag  fabric
operations have been certified as a Quality Assurance  Approved Supplier by each
of Breed, TRW, AutoLiv and Mexican  Industries.  In addition,  the airbag fabric
operations'  laboratory 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.  Moreover,  the Company is the only
airbag  fabric   manufacturer   to  have  its  entire  business  (not  just  its
manufacturing facility) certified under QS9000.



                                        7

<PAGE>


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.


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 $27.2  million or 15.9% of the  Company's  consolidated
fiscal 1998 net sales and $19.7 million or 11.4%,  and $45.9 million or 48.3% of
the Company's  fiscal 1997 and 1996 net sales,  respectively.  See Note 9 to the
Company's Notes to Consolidated  Financial Statements included elsewhere in this
Report for certain disclosure regarding the Company's industry segments.

Systems Contract

         In  September  1994,  the  Company was awarded a contract by the United
States Army (the "Systems  Contract").  The Systems  Contract  backlog was $14.5
million at March 28,  1998,  and the Company  expects to reduce such  backlog to
$2.6 million by late fiscal 1999. 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.  The Company  resumed  shipments  in  February  1998 and expects to be
completed with all deliveries  under the Systems  Contract in early fiscal 2000.
In  connection  with the delays,  the  Company,  after  consultation  with legal
counsel, has filed a claim with the Government of approximately $5.6 million, of
which the Company has recognized, based upon its assessment of the likelihood of
success,  approximately  $3.8  million in net sales in  fiscal  year 1998 on the
percentage of completion basis, proportionate to the Systems Contract.


                                        8

<PAGE>

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 United States Armed Forces are training rounds.  In the past the Company has
regularly received  replenishment orders from the United States Armed Forces for
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.

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.



                                        9

<PAGE>


United States Government Contracts

     Virtually all of the Company's  defense  related  contracts,  including the
Systems  Contract,  are negotiated as firm fixed price contracts with the United
States   Government  or  certain  of  the  United  States   Government's   prime
contractors.   These  contracts  are  subject  to  audit  and  may  be  adjusted
accordingly.

         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.  See "-- Markets and Customers."
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 Defense Operation's ordnance  manufacturing for 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.

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 28,  1998,  the  Company had a  defense-related  backlog of
approximately  $23.2  million of which $20.6 million is expected to be completed
before the end of fiscal  year 1999.  As of March 31,  1997,  the  Company had a
defense-related backlog of approximately $24.4 million.

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.


                                       10

<PAGE>



         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 28, 1998, the Company employed  approximately 2,365 employees.
The Company's hourly  employees in Mexico are entitled to a  federally-regulated
minimum  wage,  which is  adjusted,  at  minimum,  every two years.  None of the
Company's  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

         Like similar  companies,  the Company's  operations  and properties are
subject to a wide variety of increasingly complex and stringent federal,  state,
local and international laws and regulations, including those governing the use,
storage,  handling,  generation,  treatment,  emission,  release,  discharge and
disposal  of certain  materials,  substances  and  wastes,  the  remediation  of
contaminated  soil and  groundwater,  and the  health  and  safety of  employees
(collectively,  "Environmental  Laws"). Such laws, including but not limited to,
those  under  CERCLA may impose  joint and  several  liability  and may apply to
conditions at properties presently or formerly owned or operated by an entity or
its  predecessor as well as to conditions of properties at which wastes or other
contamination  attributable  to an entity or its  predecessor  have been sent or
otherwise come to be located.  The nature of the Company's operations exposes it
to the risk of claims with respect to such matters and there can be no assurance
that  violations  of such  laws  have not  occurred  or will  not  occur or that
material  costs or  liabilities  will not be  incurred in  connection  with such
claims.  Based upon its experience to date, the Company believes that the future
cost of  compliance  with  existing  Environmental  Laws and liability for known
environmental  claims  pursuant  to such  Environmental  Laws,  will  not have a
material  adverse  effect on the  Company's  financial  position  or  results of
operations  and cash flows.  However,  future events,  such as new  information,
changes  in  existing  Environmental  Laws or  their  interpretation,  and  more
vigorous  enforcement  policies  of  regulatory  agencies,   may  give  rise  to
additional expenditures or liabilities that could be material.

         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  consultants  also  estimate  that  remediation  costs will be
approximately $250,000. However, depending on the actual extent of impact to the
Company or more  stringent  regulatory  criteria,  these  costs could be higher.
Additionally,  an underground contamination involving machinery fluids exists at
the Valentec facility in Costa Mesa,  California and a site remediation plan has
been approved by the Regional Water Quality  Control Board.  Such plan will take
approximately  five years to  implement at an  estimated  cost of  approximately
$368,000. To date, the Company has spent approximately  $244,000 on implementing
such plan. The remediation plan currently includes the simultaneous operation of
a groundwater and vapor extraction  system.  In addition,  the Division has been
identified along with numerous other parties as a Potentially  Responsible Party
at the Aquatech Environmental, Inc. Superfund Site. The Company believes that it
is a de minimis  party with respect to the site and that future  clean-up  costs
incurred by the Company will not be material.  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 the  Company's  Notes  to  Consolidated
Financial Statements included elsewhere in this Report.

Patents

         The  Company  holds  four  patents  and three  additional  patents  are
pending. All of such patents relate to technical improvements for enhancement of
product  performance with respect to the Company's airbag,  fabric and technical


                                       11

<PAGE>


related products.  Provided that all requisite maintenance fees are paid, two of
the patents held by the Company  expire in 2013 and the third and fourth patents
held by the Company expire in 2014 and 2017, respectively.

Engineering, Research & Development

         The Company's  fabric  operations  have maintained an active design and
development  effort focused toward new and enhanced  products and  manufacturing
processes.  The Company  specifically  designs and engineers its fabrics to meet
its  customers'  applications  and needs.  While most  design  requirements  are
originated by the component manufacturer,  the Company is dedicated to improving
the quality of existing  products,  as well as  developing  new products for all
applications.  Costs associated with design and development were not material to
the Company's financial statements.


ITEM 2.  PROPERTIES

     The Company  maintains its corporate  headquarters in Fort Lee, New Jersey.
The Company  manufactures  automotive and industrial  products in six locations,
with  total  plant  area  of  approximately  1,382,025  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  as of  March  28,  1998.  See  Note  6 to  the  Company's  Notes  to
Consolidated  Financial  Statements  included  elsewhere in this Report for more
information  regarding certain of the Company's  obligations that are secured by
certain assets of the Company,  including its owned  facilities.  



<TABLE>
<CAPTION>

                                                           Floor Area     Owned/          Lease    
                       Location                             (Sq. Ft.)     Leased       Expiration  
<S>                                                       <C>             <C>          <C>         
Airbag and Technical Fabrics Related
  Products
  Ensenada, Mexico (airbag cushions) .................     97,000(1)      Leased         1998(2)   
  Greenville, South Carolina (airbag and
    technical related fabrics; warehouse).............    820,040(1)(6)    Owned           NA      
  Germany (airbag cushions)...........................     55,000(3)      Leased         1998(4)   
  Czech Republic (airbag cushions)....................    100,000(5)       Owned           NA      
  Gwent, Wales (airbag cushions)......................     60,000(5)      Leased         2003      
  Costa Mesa, California (metal airbag                                
    components and defense products)..................    129,000(6)(7)   Leased         1999      
  Otay Mesa, California (warehouse)(8)................     15,700         Leased         1998      
  Fort Lee, New Jersey (10)...........................      4,685         Leased         2007      
Defense(9)
  Mount Arlington, New Jersey (defense
    systems)..........................................      3,600(10)     Leased         2000      
  Galion, Ohio (defense products).....................     97,000(6)       Owned           NA      

</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.

                                       12

<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

         Valentec,  which was  acquired  by the Company in May 1997 has been the
subject of an investigation by the Department of Justice regarding a bid-rigging
and  kickbacks  scheme  alleged  to have  occurred  between  1988 and 1992.  The
Department of Justice Antitrust Division has contended that former  subsidiaries
or divisions of the former  Valentec  participated  in such  misconduct  in part
through the actions of a former marketing agent and former  employees,  in order
to obtain  certain  government  contracts.  The  Government  has contended  that
Valentec  is liable for the acts of its  predecessors  on a theory of  successor
corporate criminal liability. The Government contends that the alleged kickbacks
were made through the former Valentec Kisco and Valentec Galion operations while
those  operations  were owned and operated by the former  Valentec from the late
1980's through 1992, prior to Mr. Zummo's 1993 leveraged buy-out of Valentec. No
officer  or  director  of the  Company  or its  subsidiaries  is alleged to have
participated  in, or known  about,  such  conduct.  The  Company has no recourse
against the entity which owned Valentec  during the operative time period due to
contractual  restrictions in the purchase  agreement  between Mr. Zummo and such
entity.  The Company has  determined  that it is in its best  interest to settle
such  matter  in order to avoid  the  costs  and  distractions  associated  with
contesting  the Department of Justice's  legal theories on successor  liability.
Therefore,  a plea agreement has been negotiated with the Antitrust  Division of
the Department of Justice (the "Plea Agreement").  Among other things, the terms
of the Plea  Agreement  provide  for the entry of a guilty plea by Valentec to a
one-count criminal violation of participating in a combination and conspiracy to
suppress  competition in violation of the Sherman  Antitrust Act, 15 U.S.C.ss.1,
the payment by Valentec of a $500,000 fine and an agreement by the Government to
not further criminally prosecute the Company, its subsidiaries,  or any of their
respective  officers,  directors or employees as to the alleged  bid-rigging and
kickback  scheme.  The Plea Agreement will remain subject to the approval of the
United States  District  Court for the Western  District of  Tennessee,  Eastern
Division (the "Court"). The Plea Agreement,  if approved by the Court, would not
release  Valentec or its affiliates  from  potential  civil claims that might be
asserted by the United  States  Department  of Justice  Civil  Division  against
Valentec or its  affiliates  arising out of the  Government's  investigation  of
conduct that is alleged to have occurred in the time frame prior to Mr.  Zummo's
1993 leveraged buy-out of Valentec. The Company has had preliminary  discussions
with the Civil Division regarding the resolution of such potential civil claims.
As of March 28,  1998 no  understanding  has been  reached as to such  potential
civil  claims.  See  Note 8 to the  Company's  Notes to  Consolidated  Financial
Statements included elsewhere in this Report.


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

         None.








                                       13

<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 range of high and low bid
information  for the Common Stock for each full quarterly  period within the two
most fiscal years.


                                    High                Low

Year Ended March 28, 1998
     First Quarter               $  11  1/4          $   8  5/8
     Second Quarter              $  17  1/8          $   9  3/4
     Third Quarter               $  17  1/2          $  10  1/2
     Fourth Quarter              $  15  1/4          $  11  3/4


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


        As of June 24,  1998 there were  approximately  61 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.

         As of July 1, 1997, the Company  entered into a one year Agreement (the
"Market Pathways Agreement") for Financial Public Relations Services with Market
Pathways Financial Relations Incorporated ("Market Pathways"), pursuant to which
the Company  issued to Market  Pathways,  in exchange for certain  financial and
public relations services,  options to purchase 15,000 shares of Common Stock at
an exercise price per share of $9.75, the closing bid price of the Common Stock,
as  quoted by the  NASDAQ  Stock  Market  on July 1,  1997.  Such  options  were
exercisable  immediately  after the issuance thereof and expire on the date that
is twelve months from the date of the Market  Pathways  Agreement.  In addition,
the Company agreed to register,  at the Company's expense,  the shares of Common
Stock underlying such options upon the written request of Market Pathways.

         Pursuant to each the of Company's  Agreements with Corporate  Relations
Group,  an affiliate of Market  Pathways  ("CRG"),  dated as of July 1, 1996 and
1995,  the Company  issued to CRG 3,500  shares of Common  Stock in exchange for
certain financial and public relations services rendered thereunder.

         The issuance of the  Company's  securities  under its  agreements  with
Market  Pathways and CRG were issued in reliance upon the exemption  provided by
Section 4(2) of the Securities Act of 1933, as amended.

         Effective as of May 22, 1997, the Company  acquired in a tax-free stock
for stock  transaction  all of the  outstanding  capital  stock of  Valentec  in
consideration  for the issuance to the  stockholders of Valentec of an aggregate
of 1,369,200  newly issued  shares of Common  Stock.  Such  transaction  was not
registered under the Securities Act in reliance upon the exemption under Section
4(2) thereof. See "Business - Significant Transactions".


                                       14
<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA

         The selected  financial data as of and for the fiscal years ended March
28, 1998,  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"). The consolidated financial statements of the Company
as of and for the year ended March 28, 1998 has been audited by Arthur  Andersen
LLP, independent accountants. The combined and consolidated financial statements
of the Company and the Valentec Divisions,  for the fiscal years ended March 31,
1997,  1996 and 1995 and for the period  from April 28, 1993  through  March 31,
1994 have been audited by Price Waterhouse LLP, independent accountants.

         During the 1998 fiscal year, the Company  incurred  approximately  $1.8
million ($1.2 million net of tax benefit of $600,000) of costs  associated  with
the  reorganization  and relocation of its foreign  operations.  These costs are
investments  toward  consolidating   production  within  the  Company's  foreign
operations to its low-cost facilities located within the foreign market.

         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 per share data and footnotes)

INCOME STATEMENT DATA
<TABLE>
<CAPTION>


                                                                                                        Eleven
                                                                                                        Months
                                                                                                       April 28,
                                                                                                         1993
                                              Year Ended                                                Through
                                               March 28,             Years Ended March 31,             March 31,
                                              ------------------------------------------------------------------
                                                 1998 (1)       1997 (1)       1996 (1)      1995 (1)    1994
                                              ------------------------------------------------------------------
<S>                                            <C>           <C>            <C>           <C>          <C>    
Net Sales                                      $170,310      $ 83,958       $ 94,942      $ 51,779     $ 22,444
Cost of Goods Sold                              138,573        67,934         81,908        44,553       18,895
Gross Profit                                     31,737        16,204         13,304         7,226        3,549
Selling, general and administrative
Expenses                                         10,729         7,072          5,430         4,050        2,738
Relocation and reorganization costs               1,789             -              -             -            -
Amortization                                      1,742           348              -             -            -
Non-recurring consulting charge                      -              -              -             -        1,250 (2)
Operating income (loss)                          17,477         8,604          7,604         3,176         (439)
Other expense (income)                               33           208           (807)         (484)         (83)
Interest expense                                  7,747         1,555            381           244          235
Income (loss) before income taxes                 9,697         6,841          8,030         3,416         (591)
Income tax provision (benefit)                    3,689         2,995          3,116         1,283         (207)
Income (loss) before extraordinary
Item and cumulative effect of
Accounting change                                 6,008         3,846          4,914         2,133         (384)
Extraordinary item-deferred
  financing costs (less tax benefit of $225)          -          (383)             -             -            -
Cumulative effect of change in accounting
  for deferred product launch costs (less
  tax benefit of $718)                                -        (1,259)             -             -            -
Net Income (loss)                              $  6,008      $  2,204       $  4,914      $  2,133     $   (384)
</TABLE>

                                       15

<PAGE>


PER SHARE DATA (3)

<TABLE>
<CAPTION>
                                                                                                        Eleven
                                                                                                        Months
                                                                                                       April 28,
                                                                                                         1993
                                              Year Ended                                                Through
                                               March 28,             Years Ended March 31,             March 31,
                                              ------------------------------------------------------------------
                                                 1998 (1)       1997 (1)       1996 (1)      1995 (1)    1994
                                              ------------------------------------------------------------------
<S>                                              <C>            <C>            <C>           <C>         <C>
Basic per share data:
Income before extraordinary item and
  cumulative effect of accounting change         $1.20          $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, basic                      $1.20          $0.44          $0.99          $0.53          -
                                                 =====          =====          =====          =====      =====


Diluted per share data:
Income before extraordinary item and
  cumulative effect of accounting change         $1.17          $0.76          $0.97          $0.52          -
Extraordinary item                                   -          (0.08)             -              -          -
Cumulative effect of change in accounting
  for deferred product launch costs                  -          (0.25)             -              -          -
                                                 -----          -----          -----          -----      -----       
Net income per share, assuming dilution          $1.17          $0.43          $0.97          $0.52          -
                                                 =====          =====          =====          =====      =====


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

Net income                                      $6,008          $3,463        $5,017          $ 950          -
                                                 =====           =====         =====          =====      =====
Net income per share, basic                     $ 1.20          $ 0.69        $ 1.01          $0.24          -
                                                 =====           =====         =====          =====      =====
Net income per share, assuming dilution         $ 1.17          $ 0.69         $ .99          $0.23          -
                                                 =====           =====         =====          =====      =====

Weighted average common shares
  outstanding, basic                             5,027           5,027         4,981          4,031          -
                                                 =====           =====         =====          =====
Weighted average common shares
  outstanding, assuming dilution                 5,147           5,050         5,083          4,112          -
                                                 =====           =====         =====          =====

</TABLE>

                                       16
<PAGE>




BALANCE SHEET DATA
(in thousands)


<TABLE>
<CAPTION>
                                                 March 28,                         March 31,
                                                 ---------      --------------------------------------------------
                                                   1998           1997          1996          1995          1994
                                                 ---------      --------------------------------------------------
<S>                                              <C>            <C>            <C>           <C>          <C>
Working capital                                  $ 29,488       $ 11,755       $ 25,067      $  8,206     $  1,504
Total assets                                      198,897         73,407         49,831        28,311       12,837
Long-term debt, net of current portion             24,739         21,296          3,087         2,043        4,760
Senior subordinated debt                           90,000              -              -             -            -
Stockholders' equity                               39,194         35,274         35,344        15,971            -
Division equity                                         -              -              -             -          866

</TABLE>

----------------------------------------------
Notes to Selected Financial Data:

 (1)     The Company did not declare dividends during fiscal year 1998, 1997,
         1996 or 1995.
 
 (2)     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. In September 1993, in order to
         recognize these key sales and marketing  representatives'  contribution
         to the growth of the Company's  Automotive  Division and to incentivize
         them to continue serving in that capacity, the Valentec division agreed
         to issue common  stock in the company at an aggregate  price lower than
         fair  market  value of the  shares  at the time  (as  determined  by an
         independent  appraiser) by $1.3 million. The aggregate number of shares
         of stock issued was 268,800,  representing a fair market value of $4.65
         per share,  as determined by the  independent  appraiser.  Accordingly,
         this  amount was  recorded  as an expense in the period  from April 28,
         1993  through  March 31,  1994.  The shares of common stock were issued
         during the period from April 28, 1993 through March 31, 1994.
  (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 period
         prior to the fiscal year ended March 31, 1995.



                                       17
<PAGE>


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

Overview

         The Company is a leading  low-cost  independent  supplier of automotive
airbag fabric and cushions,  with operations in North America,  Europe and Asia.
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.

         During fiscal year 1997, the Company  expanded its production and sales
in Europe through its  acquisition of Phoenix Airbag GmbH ("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.

         During fiscal year 1998, the Company further expanded its operations in
the  automotive  sector with  strategic  acquisitions.  Effective May 1997,  the
Company acquired all of the outstanding capital stock of Valentec  International
Corporation   ("Valentec")   in  a  stock  for  stock  exchange  (the  "Valentec
Acquisition"),  enabling the Company to manufacture and supply additional airbag
system  components.  Immediately  prior to the Valentec  Acquisition,  Robert A.
Zummo, the President,  Chief Executive  Officer,  and a director of the Company,
was also the  President,  Chief  Executive  Officer,  a  director  and  majority
shareholder  approximately (74.2%) of Valentec,  Francis X. Suozzi, a consultant
to and  director  of  Valentec  and a director  of the  Company,  was a minority
shareholder  approximately (21.2%) of Valentec,  and the Valentec  International
Corporation   Employee  Stock   Ownership  Plan  (the  "ESOP")  was  a  minority
shareholder  approximately  (4.6%) of Valentec.  The acquisition of Valentec was
accounted  for as a purchase  and,  accordingly,  is 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.

         Additionally, on July 24, 1997, the Company purchased all of the assets
and assumed  certain  liabilities  of the Air Restraint and  Industrial  Fabrics
Division of JPS Automotive  L.P., now referred to as SCFTI.  SCFTI is a leading,
low-cost  supplier  of  airbag  fabric  in North  America  and is also a leading
manufacturer  of  value-added  technical  fabrics  used in a  variety  of  niche
industrial and commercial  applications.  The acquisition was accounted for as a
purchase and,  accordingly,  is included in the Company's  accounts beginning on
July 24, 1997.

         During the 1998 fiscal year, the Company  incurred  approximately  $1.8
million  ($1.2  million  net of tax benefit of  $600,000,  or $.23 per share) of
costs  associated  with  the   reorganization  and  relocation  of  its  foreign
operations.  These costs are investments toward consolidating  production within
the Company's foreign  operations to its low-cost  facilities located within the
foreign market.


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.  These product launch costs are included
in cost  of  sales.  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,  related to the write-off of deferred  financing  costs  incurred for the
previous credit facility.


                                       18

<PAGE>


Results of Operations

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

<TABLE>
<CAPTION>
                                                                        Years Ended
                                                      -------------------------------------------------- 
                                                        March 28,          March 31,         March 31, 
                                                          1998               1997              1996
                                                      --------------------------------------------------
<S>                                                      <C>                <C>               <C>    
Net sales                                                100.0%             100.0%            100.0%
Cost of goods sold                                        81.4               80.9              86.3
Gross profit                                              18.6               19.1              13.7
Selling, general and administrative expense                6.3                8.4               5.7
Income from operations                                    10.3               10.3               8.0
Interest expense (income), net                             4.6                1.6              (0.2)
Income before extraordinary item and
    cumulative effect of change in accounting              3.5                4.6               5.2
Net income                                                 3.5                2.6               5.2

</TABLE>

Year Ended March 28, 1998 Compared to Year Ended March 31, 1997


         Net Sales.  Net sales  increased  by $86.4  million or 102.9% to $170.3
million in fiscal  year 1998  compared  to fiscal year 1997.  The  increase  was
primarily  attributable  to  the  acquisition  of  SCFTI  and  Valentec,   which
contributed  approximately  $75.1  million on a combined  basis.  The  remaining
increase  was  primarily  attributable  to the European  operations.  During the
fourth  quarter of fiscal year 1998,  the Company  resumed  shipment to the U.S.
Army under the Systems  Contract,  which had previously  been delayed due to 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. In connection therewith, the Company, after consultation with
legal  counsel,  has filed a claim  related to the delay of  approximately  $5.6
million,  of which the Company has recognized,  based upon its assessment of the
likelihood  of success,  approximately  $3.8 million in net sales during  fiscal
year 1998 on the percentage of completion  basis,  proportionate  to the Systems
Contract.  Additionally,  the  German  mark has  devalued  approximately  13% in
comparison  to fiscal  year 1997,  which  impacts the  comparability  of results
throughout  this  discussion.  The  impact on net sales was a  decrease  of $3.0
million or 1.8%.

         Gross Profit. Gross profit increased by $15.7 million or 98.1% to $31.7
million in fiscal  year 1998  compared  to fiscal year 1997.  The  increase  was
primarily  attributable  to  the  acquisition  of  SCFTI  and  Valentec,   which
contributed  approximately  $12.0  million on a combined  basis,  the  remaining
increase was primarily  attributable  to the Defense  Operation  which completed
certain programs and resumed shipments on the Systems Contract.

         Gross profit as a percentage of sales decreased to approximately  18.6%
for  fiscal  year 1998 from  19.1% for  fiscal  year  1997.  The  decrease  as a
percentage was due to the inclusion of SCFTI, which has historically lower gross
margins  compounded by the price reductions at Phoenix Airbag,  partially offset
by an increase in Defense  Operations.  The textile industry  generally produces
margins  in the  range  of 13% to 14% due to the  capital  intensive  production
process. In accordance with the Phoenix Airbag relocation  strategy,  production
is currently  being  shifted from Germany to the  Company's  Czech  Republic and
Wales  facilities.  The Company  expects  margins to improve in Europe in fiscal
year 1999 upon the completion of the wind down of the Phoenix Airbag  operations
in Germany. The devaluation of the German mark impacted gross profit unfavorably
by $665,000 or 2.1%.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased by $3.7 million or 51.7% to $10.7 million in
fiscal year 1998  compared  to fiscal  year 1997.  The  increase  was  primarily
attributable  to the  acquisitions  of SCFTI  and  Valentec.  However,  selling,
general and  administrative  expenses as a percentage of sales decreased to 6.3%
in fiscal year 1998 from 8.4% in fiscal year 1997.


                                       19

<PAGE>


         Reorganization  and Relocation  Costs.  In fiscal year 1998 the Company
incurred  approximately $1.8 million of costs associated with the reorganization
and relocation of its foreign  operations.  These costs are  investments  toward
consolidating production within the Company's foreign operations to its low-cost
facilities located within the foreign market.

         Operating Income.  Operating income increased by $8.9 million or 103.1%
to $17.5  million in fiscal year 1998  compared  to fiscal year 1997.  Operating
income increased  primarily due to the acquisitions of SCFTI and Valentec and by
the improved results of the Defense Operation.  This was partially offset by the
Company's  North American  (exclusive of SCFTI and Valentec) which yielded lower
operating  income  compared to fiscal year 1997  primarily  as a result of price
reductions.  Operating  income was also partially offset by price reductions and
reorganization  and relocation costs in Europe as well as the devaluation of the
German  mark.  The  devaluation  of the German mark  impacted  operating  income
unfavorably by approximately $492,000 or 2.8%.

         Interest  Expense.  Interest  expense  increased  $6.2  million to $7.7
million in fiscal  year 1998  compared to fiscal year 1997.  This  increase  was
attributable  to the  issuance  of the 10 1/8%  Senior  Subordinated  Notes (the
"Notes"),  the proceeds of which were used  primarily to acquire SCFTI and repay
amounts then outstanding under the Company's credit facilities with KeyBank.

         Income Taxes.  The  effective  tax rate on pre-tax  income was 38.0% in
fiscal year 1998 compared to 43.7% in fiscal year 1997.  The tax rate  decreased
compared to the prior year due to the increasing  percentage of income generated
from domestic  operations,  primarily SCFTI, which have lower tax rates than the
European operations and the reversal of foreign tax reserves no longer needed.

         Net Income.  Net income  increased  to $6.0 million in fiscal year 1998
from $2.2 million in fiscal year 1997. This increase was a result of the factors
identified  above.  The  devaluation  of the  German  mark  impacted  net income
unfavorably by approximately $208,000 or 3.5%.


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 inability to ship the Systems  Contract
which  had 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. 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 airbags 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,  the gross profits of 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."

                                       20

<PAGE>

         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
attributable  to the Automotive  Operation,  specifically  from the costs of 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 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.  Operating
income  in  the  Automotive   Operation  increased  by  $3.6  million  primarily
attributable   to  the  acquisition  of  Phoenix   Airbag,   which   contributed
approximately $4.8 million.  This increase in European  Operations 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 shipments of 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  effective  tax rate applied on 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 the 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.

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 is  expected  to be funded
through a  combination  of cash  flows  from  operations,  equipment  financing,
revolving  credit  borrowings  and the proceeds from  potential  future  Company
public offerings.

         On July 24, 1997, the Company issued $90.0 million aggregate  principal
amount of its 10 1/8%  Senior  Subordinated  Notes due 2007,  Series A (the "Old
Notes")  to BT  Securities  Corporation,  Alex.  Brown & Sons  Incorporated  and
BancAmerica  Securities,  Inc.  (collectively,  the "Initial  Purchasers")  in a
transaction  not  registered  under the  Securities Act of 1933, as amended (the
"Securities  Act"),  in  reliance  upon  an  exemption   thereunder  (the  "Debt
Offering").  On  September 2, 1997,  the Company  commenced an offer to exchange
(the "Exchange Offer",  together with the Debt Offering, the "Offering") the Old
Notes  for  $90.0  million  aggregate  principal  amount  of its 10 1/8%  Senior
Subordinated  Notes due 2007, Series B (the "Exchange Notes",  together with the
Old Notes, the "Notes").  All of the Old Notes were exchanged for Exchange Notes
pursuant to the terms of the Exchange  Offer,  which expired on October 1, 1997.
Interest on the Notes accrues from July 24, 1997 and is payable semi-annually in
arrears on each of January 15 and July 15 of each year,  commencing  January 15,
1998.  The  Notes are  general  unsecured  obligations  of the  Company  and are


                                       21

<PAGE>

subordinated in right of payment to all existing and future senior  indebtedness
and to all existing and future  indebtedness of the Company's  subsidiaries that
are not  guarantors.  All of the  Company's  direct  and  indirect  wholly-owned
domestic  subsidiaries  are guarantors.  The Indenture with respect to the Notes
contains certain restrictive covenants that impose limitations upon, among other
things, the Company's ability to incur additional indebtedness.

                  As of May 21, 1997, the Company, Phoenix Airbag 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").  Prior  to the  consummation  of the
Offering,  the Credit  Agreement  provided for (i) a term loan in the  principal
amount of $15.0 million (the "Term Loan") and (ii) a revolving  credit  facility
(the "Revolving  Credit  Facility") in the aggregate  principal  amount of $12.0
million  (including  letter of credit  facilities).  The indebtedness  under the
Credit  Agreement  bore  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).  Upon the  consummation  of the Offering,  the Company used the
proceeds thereof to repay the Term Loan and amounts then  outstanding  under the
Revolving  Credit  Facility.  In  connection  therewith,  the  Company's  credit
facility  with  KeyBank was  converted  into a $27.0  million  Revolving  Credit
Facility, bearing interest at LIBOR plus 1.00% with a commitment fee of 0.25% on
any unused portion, with the remaining terms and conditions being similar to the
previous Revolving Credit Facility.  Any indebtedness under the Credit Agreement
will be secured by substantially all the assets of the Company.  As of March 28,
1998,  total  borrowings  under the Credit Agreement were $14.2 million  bearing
interest  at LIBOR  (5.68750%  as of March 28,  1998)  plus  1.00%.  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.

                  Net cash generated from operations was approximately  $600,000
during fiscal year 1998.  Cash used in investing  activities in fiscal year 1998
was $80.9 million. Net cash provided by financing activities in fiscal year 1998
was $78.4 million.  The Company's operations provided an unusually low source of
funds due to the extraordinary growth the Company experienced, primarily related
to  the  recent  acquisitions,  and  the  relocation  and  reorganization  costs
associated  with  foreign  operations.  The Company  paid  additional  costs and
consideration  in connection with the  acquisition of Phoenix Airbag,  primarily
the $2.2 million  earn-out  accrued at the end of fiscal year 1997 during fiscal
year 1998.  In addition,  the annual  performance  targets for 1997 were met and
approximately $2.0 million of additional  purchase price is accrued at March 28,
1998,  and paid  subsequently,  in connection  with the  acquisition  of Phoenix
Airbag. The Company incurred certain costs in connection with the acquisition of
Valentec of approximately $2.5 million. Included in these costs were advances to
Valentec  prior  to  the  Valentec   Acquisition  for  the  purpose  of  funding
operations. The Company used approximately $58.8 million to purchase SCFTI, (see
discussion below). Cash proceeds from financing activities were used to purchase
SCFTI, repay the Term Loan and Revolving Credit Facility with KeyBank, and repay
certain  liabilities  of Valentec in connection  with the Valentec  Acquisition.
These  activities  resulted  in a net  decrease  in cash of $2.3 for fiscal year
1998.

                  Capital  expenditures  were $13.8 million in fiscal year 1998.
Capital  expenditures in fiscal year 1998 were used to complete the construction
of the new facility in the Czech  Republic  and the  acquisition  of  additional
equipment to expand the Company's  production  capacity worldwide to fulfill new
orders from new and existing  customers in fiscal year 1999 and beyond.  Capital
expenditures  for fiscal year 1999 are  anticipated  to be  approximately  $13.0
million.

         Pursuant to a definitive Stock Purchase Agreement,  effective as of May
22, 1997, the Company acquired all of the outstanding  common stock of Valentec.
Valentec was the Company's largest shareholder immediately prior to the Valentec
Acquisition  owning  approximately  27%, or  1,379,200  shares of the issued and
outstanding  shares  of  the  Company's  Common  Stock  to the  shareholders  of
Valentec.  The Company  issued an aggregate of 1,369,200  newly issued shares of
Common Stock to the shareholders of Valentec.  The acquisition was accounted for
as a purchase.  The  purchase  price  aggregated  approximately  $15.1  million,
including  estimated direct acquisition costs of approximately $1.3 million.  In
addition,  the Company  advanced  Valentec  approximately  $1.3  million for the
purpose of funding operations prior to the Valentec Acquisition.


                                       22

<PAGE>



         Pursuant to a definitive  Asset Purchase  Agreement,  on July 24, 1997,
the Company  purchased all of the assets and assumed certain  liabilities of the
Division.  The acquisition  was accounted for as a purchase.  The purchase price
aggregated   approximately  $58.8  million.  The  purchase  price  included  the
repayment  of  approximately  $650,000  of  capital  lease  obligations,  direct
acquisition costs of approximately  $900,000, and approximately $1.2 million for
the purchase of a building in conjunction with the Asset Purchase Agreement. The
Company  funded  the  purchase  of the  Division  out of the  proceeds  from the
issuance of the Notes.

                  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,
the  ability  of Safety  Components  to realize  anticipated  cost  savings  and
earnings  projections  by the Valentec  division;  the ability of the Company to
realize the proceeds of the delay claim  against the  Government  related to the
Systems  Contract;  the continued  performance  by SCFTI at or above  historical
levels;  world-wide  economic  conditions;  dependence  of revenues upon several
major module suppliers and pricing pressures.


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. The Company adopted
the statement effective December 31, 1997.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards  No. 130,  "Reporting  Comprehensive  Income
Summary" ("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of general- purpose financial statements. It also requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial   statement  and  (b)  display  the   accumulated   balance  of  other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the  equity  section  of a  statement  of  financial  position.  This
statement is effective for the Company's  annual and interim  financial  reports
beginning in the fiscal year ending March 27, 1999.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information" ("FAS 131"). FAS 131 establishes  standards
for  reporting   information  about  operating   segments  in  annual  financial
statements and requires  selected  information  about  operating  segments to be
reported in interim financial reports. It also establishes standards for related
disclosures about products and services,  geographic areas, and major customers.
This  statement  is effective  for the  Company's  annual and interim  financial
reports beginning in the fiscal year ending March 27, 1999.

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.


                                       23

<PAGE>



Year 2000

         The Year 2000 issue is the result of computer  programs  written  using
two digits rather than four to define the applicable  year. Any of the Company's
computer programs that have  time-sensitive  software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could  result in a system
failure or miscalculations causing disruptions of operations,  including,  among
other things, a temporary inability to process transactions or engage in similar
normal business activities.

         The Company does not believe that the future costs relating to the Year
2000 issues will have a material impact on the Company's  consolidated financial
position,  results of  operations  or cash  flows.  The  Company is not yet in a
position to assess whether its customers  will attain Year 2000  compliance in a
timely manner or the impact of any such non-compliance.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not Applicable.

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

     Not Applicable.


                                       24
<PAGE>

                                     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 1998 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 Purcahse 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
3.6(18)     Certificate  of  Incorporation  of  Automotive   Safety   Components
            International,Inc.(f/k/a  Automotive  Safety Systems  International,
            Inc.)
3.7(18)     Certificate  of Amendment to the  Certificate  of  Incorporation  of
            Automotive  Safety  Components   International,   Inc.  ("Automotive
            Safety")
3.8(18)     Bylaws of Automotive Safety
3.9(18)     Certificate of  Incorporation  of ASCI Holdings  Germany (DE),  Inc.
            ("Holdings Germany")
3.10(18)    Bylaws of Holdings Germany
3.11(18)    Certificate  of   Incorporation  of  ASCI  Holdings  UK  (DE),  Inc.
            ("Holdings UK")
3.12(18)    Bylaws of Holdings UK
3.13(18)    Certificate  of  Incorporation  of ASCI Holdings  Mexico (DE),  Inc.
            ("Holdings Mexico")
3.14(18)    Bylaws of Holdings Mexico
3.15(18)    Certificate  of  Incorporation  of ASCI  Holdings  Czech (DE),  Inc.
            ("Holdings Czech")
3.16(18)    Bylaws of Holdings Czech
3.17(18)    Certificate  of  Incorporation  of ASCI  Holdings  Asia  (DE),  Inc.
            ("Holdings Asia")
3.18(18)    Bylaws of Holdings Asia
3.19(18)    Certificate of Incorporation of Valentec  International  Corporation
            (f/k/a   RAZ   Acquisition   Corporation)    ("Valentec")   
3.20(18)    Certificate  of Amendment to the  Certificate  of  Incorporation  of
            Valentec
3.21(18)    Bylaws of Valentec
3.22(18)    Certificate of Incorporation of Galion, Inc. ("Galion")
3.23(18)    Bylaws of Galion
3.24(18)    Certificate of Incorporation of Valentec  Systems,  Inc.  ("Valentec
            Systems")
3.25(18)    Bylaws of Valentec Systems
3.26(18)    Certificate   of   Incorporation   of   Safety   Components   Fabric
            Technologies, Inc.


                                       25

<PAGE>

3.27(18)    Bylaws of Safety Components Fabric Technologies, Inc.
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(16)     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)
4.4(18)     Form of  Indenture,  dated as of July 24, 1997,  by and among Safety
            Components, the Subsidiary Guarantors named therein and IBJ Schroder
            Bank & Trust Company.
4.5(18)     Registration  Rights  Agreement,  dated as of July  24,  1997 by and
            among Safety Components, the guarantors named therein, BT Securities
            Corporation,   Alex  Brown  &  Sons   Incorporated  and  BancAmerica
            Securities, Inc.
4.6(18)     Form  of  101/8%  Senior  Subordinated  Note  Due  2007,  Series  A,
            including  Form  of  Guarantee   
4.7(18)     Form of  101/8 %  Senior  Subordinated  Note  Due  2007,  Series  B,
            including Form of Guarantee
4.8(18)     Form of Amendment  No. 2 to Pledge  Agreement,  dated as of July 15,
            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 and Automotive Safety
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  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(16)   Credit  Agreement,   dated  as  of  March  15,  1996,  among  Safety
            Components,  Automotive Safety,  Galion,  Valentec Systems, Inc. and
            CUSA
10.20(16)   Pledge and Security  Agreement,  dated as of March 15, 1996, made by
            Safety Components, Automotive Safety, Galion and Valentec Systems in
            favor of CUSA


                                       26
<PAGE>

*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 Holdings
            Germany and Bank of America  National Trust and Savings  Association
            ("BANT & SA") 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 and Citicorp
            USA, Inc.
10.26(14)   Amendment  No.  1  to  Loan  Agreement   among  Safety   Components,
            Automotive  Safety,  Holdings  Germany  and  BANT & SA  dated  as of
            September 30, 1996
10.27(14)   Amendment  No.  2  to  Loan  Agreement   among  Safety   Components,
            Automotive  Safety,  Holdings  Germany  and  BANT & SA  dated  as of
            October 31, 1996
10.28(14)   Amendment  No.  3  to  Loan  Agreement   among  Safety   Components,
            Automotive  Safety,  Holdings  Germany  and  BANT & SA  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(16)  Employment Agreement,  dated as of February 15, 1997, between Safety
            Components and Jeffrey J. Kaplan
*10.31(16)  Employment  Agreement,  dated  as of May 19,  1997,  between  Safety
            Components and Thomas W. Cresante
10.32(16)   Consulting  Agreement,  dated  as of May 31,  1997,  between  Safety
            Components and W. Hardy Myers
10.33(16)   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(16)   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(16)   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)
10.36(17)   Asset Purchase Agreement,  dated as of June 30, 1997, between Safety
            Components and JPS Automotive L.P.
10.37(18)   Purchase  Agreement,  dated as of July 21, 1997, by and among Safety
            Components,   BT   Securities   Corporation,   Alex   Brown  &  Sons
            Incorporated and BankAmerica Securities, Inc.
10.38(18)   Form of Amendment  No. 2 to Credit  Agreement,  dated as of July 15,
            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
10.39(18)   Form of Amendment No. 2 to Subsidiary Guaranty, dated as of July 15,
            1997,   among  the  guarantors   named  therein,   KeyBank  National
            Association,  as  administrative  agent  for  itself  and the  other
            Lenders (as defined in the Credit Agreement)
10.40(18)   Form of Amendment No. 2 to Security Agreement , dated as of July 15,
            1997,  among  the  assignors  named  therein  and  KeyBank  National
            Association,  as  collateral  agent for the  benefit of the  Secured
            Creditors  (as  defined  therein) 
*10.41      Offer Letter,  dated January 23, 1998, between Safety Components and
            Philip Lelliot
*10.42      Employment  Agreement,  dated as of March 9, 1998,  between Valentec
            International Corporation LLC (as successor in interest to Valentec)
            and Paul M. Betz
*10.43      Employment  Agreement,  dated as of March 4,  1998,  between  Safety
            Components and Robert Sepulveda
10.44       Consulting  Agreement,  dated  as of May 14,  1998,  between  Safety
            Components and Thomas W. Cresante

                                       27

<PAGE>

10.45       Severance  Agreement,  dated as of May 18,  1998,  among  Automotive
            Safety  Components  International  Limited,  Valentec  International
            Limited and John L. Hakes
*10.46      Safety Components Senior Management Incentive Plan
*10.47      Safety Components Management Incentive Plan
*10.48      Safety Components Stock Appreciation Rights Award Plan
21.1        Subsidiaries of Safety Components
23.1        Consent of Arthur Andersen LLP
27          Financial Data Schedule


(b)  Reports on Form 8-K.

     Form 8-K, dated January 16, 1998,  regarding Safety  Component's  change in
independent accountants.



*        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.
(16) Incorporated by reference to the Company's  Annual Report on Form 10-K, for
     the fiscal year ended March 31, 1997.
(17) Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed with the Commission on August 4, 1997.
(18) Incorporated by reference to the Company's  Registration  Statement on Form
     S-4, filed with the Commission on August 12, 1997.





                                       28

<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 25, 1998

         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 25, 1998
-----------------------     President and Chief Executive
Robert A. Zummo             Officer (Principal Executive Officer)



/S/ JEFFREY J. KAPLAN       Executive Vice President, Chief        June 25, 1998
---------------------       Financial Officer and Director
Jeffrey J. Kaplan           (Principal Financial Officer)



/S/ GEORGE D. PAPADOPOULOS  Corporate Controller and Secretary     June 25, 1998
--------------------------  (Principal Accounting Officer)
George D. Papadopoulos



/S/ JOSEPH J. DIOGUARDI     Director                               June 25, 1998
-----------------------
Joseph J. DioGuardi


/S/ FRANCIS X. SUOZZI       Director                               June 25, 1998
---------------------
Francis X. Suozzi


/S/ ROBERT J. TOROK         Director                               June 25, 1998
-------------------
Robert J. Torok



                                       29
<PAGE>


<TABLE>
<CAPTION>

                                                 
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
<S>                                                                              <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE                          Page Number

REPORTS OF INDEPENDENT ACCOUNTANTS                                                   F-2

FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of March 28, 1998 and March 31, 1997.                 F-4

Consolidated Statements of Operations for the Years ended March 28,
  1998, March 31, 1997 and 1996.                                                     F-5

Consolidated Statements of Stockholders' Equity for the Years ended
  March 31, 1996 and 1997 and March 28, 1998.                                        F-6

Consolidated Statements of Cash Flows for the Years ended March 28,
   1998, March 31, 1997 and 1996.                                                    F-7

Notes to Consolidated Financial Statements.                                          F-8

</TABLE>

                                      F-1

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS




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


We have audited the accompanying consolidated balance sheet of Safety Components
International,  Inc. (a Delaware  corporation)  and subsidiaries as of March 28,
1998,  and the related  consolidated  statements  of  operations,  stockholders'
equity and cash flows for the year then ended.  These  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all   material   respects,   the   financial   position  of  Safety   Components
International,  Inc. and  subsidiaries  as of March 28, 1998, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.



/S/ ARTHUR ANDERSEN LLP

ARTHUR ANDERSEN LLP


New York, New York
June 5, 1998





                                      F-2
<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. listed in the accompanying  "Index to Financial
Statements" on page F-1, present fairly, in all material respects, the financial
position of Safety  Components  International,  Inc. and its  subsidiaries as of
March 31,  1997,  and the results of their  operations  and their cash flows for
each of the two 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.



/S/  PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP


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





                                      F-3

<PAGE> 
       
                      SAFETY COMPONENTS INTERNATIONAL, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                    AS OF MARCH 28, 1998 AND MARCH 31, 1997
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                            1998        1997
                                                                           -------     -------
<S>                                                                        <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.............................................. $  6,049     $ 8,320  
  Accounts receivable, net (Notes 2 and 4)...............................   39,208      11,751  
  Inventories (Notes 2 and 4)............................................   19,935       6,378     
  Prepaid and other......................................................    4,196         870        
                                                                           -------     -------
          Total current assets...........................................   69,388      27,319  
Property, plant and equipment, net (Notes 2 and 4).......................   66,279      28,295  
Receivable from affiliate (Note 5).......................................    1,206       4,348      
Intangible assets, net (Note 2)..........................................   55,923      10,991        
Other assets.............................................................    6,101       2,454
                                                                           -------     -------
          Total assets................................................... $198,897     $73,407
                                                                           =======     =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................................... $ 23,009     $ 7,792 
  Earnout payable (Note 1)...............................................    1,958       2,211
  Accrued liabilities....................................................   12,558       2,476 
  Current portion of long-term obligations (Note 6)......................    2,375       3,085  
                                                                           -------     -------
          Total current liabilities......................................   39,900      15,564
Long-term obligations (Note 6)...........................................   24,739      21,296      
Senior subordinated debt (Note 6)........................................   90,000          --
Other long-term liabilities..............................................    5,064       1,273
                                                                           -------     -------
          Total liabilities..............................................  159,703      38,133      
                                                                           -------     -------
Commitments and contingencies (Note 8)
Stockholders' equity (Notes 3 and 11):
  Preferred stock: $.10 par value per share -- 2,000,000 shares
     authorized; no shares outstanding at March 28, 1998 and
     March 31, 1997, respectively........................................       --          --
  Common stock: $.01 par value per share -- 10,000,000 shares authorized;
     6,538,075 and 5,138,875 shares issued at March 28, 1998
     and March 31, 1997, respectively....................................       65          51
  Common stock warrants..................................................        1           1
  Additional paid-in-capital.............................................   44,040      30,062     
  Treasury stock, 1,492,692 and 113,492 shares, at March 28, 1998 and 
  March 31, 1997, respectively, at cost..................................  (15,439)     (1,647) 
  Retained earnings......................................................   15,191       9,183   
  Cumulative translation adjustment (Note 2).............................   (4,664)     (2,376) 
                                                                           -------     -------
          Total stockholders' equity.....................................   39,194      35,274 
                                                                           -------     -------
          Total liabilities and stockholders' equity..................... $198,897     $73,407 
                                                                           =======     =======
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       F-4

<PAGE>
 
                     SAFETY COMPONENTS INTERNATIONAL, INC.
 
                      CONSOLIDATED STATEMENTS OF OPERATIONS
         FOR THE YEARS ENDED MARCH 28, 1998 and March 31, 1997 AND 1996

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

 
<TABLE>
<CAPTION>
                                                            1998           1997           1996
                                                         ----------     ----------     ----------
<S>                                                      <C>            <C>            <C>
Net sales (Notes 2 and 5)..............................  $  170,310      $  83,958     $   94,942    
Cost of sales, excluding depreciation (Note 2).........     133,572         65,891         80,804         
Depreciation...........................................       5,001          2,043          1,104            
                                                         ----------     ----------     ----------
          Gross profit.................................      31,737         16,024         13,034          
Selling and marketing expenses.........................       1,829          1,375          1,102          
General and administrative expenses....................       8,900          5,697          4,328        
Amortization of intangible assets (Note 2).............       1,742            348             --           
Relocation and reorganization costs (Note 1)...........       1,789             --             -- 
                                                         ----------     ----------     ----------
          Income from operations.......................      17,477          8,604          7,604         
Other expense (income).................................          33            208           (807)          
Interest expense.......................................       7,747          1,555            381          
                                                         ----------     ----------     ----------
          Income before income taxes...................       9,697          6,841          8,030         
Provision for income taxes (Notes 2 and 7).............       3,689          2,995          3,116         
                                                         ----------     ----------     ----------
Income before extraordinary item and cumulative effect
  of accounting change.................................       6,008          3,846          4,914         
Extraordinary item--deferred 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.............................................  $    6,008     $    2,204     $    4,914     
                                                         ==========     ==========     ==========
Earnings per common share (Note 2):
  Income before extraordinary item and cumulative
     effect of change in accounting....................  $     1.20     $     0.77     $     0.99     
  Extraordinary item...................................          --          (0.08)            --            
  Cumulative effect of change in accounting for
     product launch costs..............................          --          (0.25)            --            
                                                         ----------     ----------     ----------
  Net income per share.................................  $     1.20     $     0.44     $     0.99   
                                                         ==========     ==========     ==========
Weighted average number of shares outstanding, basic...       5,027          5,027          4,981      
                                                         ==========     ==========     ==========
Earnings per common share, assuming dilution (Notes 2
  and 12):
  Income before extraordinary item and cumulative 
     effect of change in accounting....................  $     1.17     $     0.76     $     0.97        
  Extraordinary item...................................          --          (0.08)            --    
  Cumulative effect of change in accounting for
     product launch costs..............................          --          (0.25)            -- 
                                                         ----------     ----------     ----------  
  Net income per share, assuming dilution..............  $     1.17     $     0.43     $     0.97 
                                                         ==========     ==========     ==========                 
Weighted average number of shares outstanding, assuming
  dilution.............................................       5,147          5,050          5,083     
                                                         ==========     ==========     ==========       
</TABLE>
 
Note: Pro forma amounts assuming the new accounting method in 1997 is applied
      retroactively are reflected in tabular form in Note 2.
 
                See notes to consolidated financial statements.
 
                                       F-5

<PAGE>
 
                     SAFETY COMPONENTS INTERNATIONAL, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
           FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND MARCH 28, 1998
                         (IN THOUSANDS, EXCEPT SHARES)
 
<TABLE>
<CAPTION>
                                       COMMON     COMMON    COMMON     ADDITIONAL                          CUMULATIVE
                                        STOCK     STOCK      STOCK      PAID-IN     TREASURY   RETAINED    TRANSLATION  
                                       SHARES     AMOUNT   WARRANTS     CAPITAL      STOCK     EARNINGS    ADJUSTMENT    
                                      ---------   ------   ---------   ----------   --------   ---------   ----------  
<S>                                   <C>          <C>       <C>        <C>          <C>       <C>           <C>          
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)   
  Issuance of common stock..........  1,399,200       14          --       13,978         --          --           -- 
  Acquisition of treasury stock..... (1,379,200)      --          --           --    (13,792)         --           --        
  Net Income for the year ended
    March 28, 1998..................         --       --          --           --         --       6,008           --        
  Foreign currency translation
    adjustment......................         --       --          --           --         --          --       (2,288)      
                                      ---------   ------   ---------     --------   --------   ---------   ----------      
Balance at March 28, 1998...........  5,045,383   $   65   $       1     $ 44,040   $(15,439)  $  15,191   $   (4,664)   
                                      =========   ======   =========     ========   ========   =========   ==========      

</TABLE>
 
                See notes to consolidated financial statements.
 
                                       F-6

<PAGE>
 
                      SAFETY COMPONENTS INTERNATIONAL, INC.
 
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
         FOR THE YEARS ENDED MARCH 28, 1998 and March 31, 1997 AND 1996
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 1998        1997        1996
                                                               --------     -------     -------
<S>                                                            <C>          <C>         <C>
Cash Flows From Operating Activities:
  Net income.................................................  $  6,008     $ 2,204     $ 4,914     
  Adjustments to reconcile net income to net cash provided by
     (used in) operating activities:
     Depreciation............................................     5,001       2,043       1,104         
     Amortization............................................     1,742         348          --         
     Extraordinary item......................................        --         638          --         
     Cumulative effect of change in accounting principle.....        --       1,977          --          
     Deferred taxes..........................................     1,024        (280)         --         
     Changes in operating assets and liabilities:
       Accounts receivable...................................   (14,873)      5,968      (9,662)     
       Inventories...........................................    (3,132)        375         532      
       Prepaid and other current assets......................    (1,114)         55        (268)       
       Other assets..........................................       (62)     (2,309)       (440)     
       Accounts payable......................................     7,917      (1,547)        749       
       Accrued liabilities...................................    (1,896)      1,643        (429)        
                                                               --------     -------     -------
          Net cash provided by (used in) operating
            activities.......................................       615      11,115      (3,500)       
                                                               --------     -------     -------
Cash Flows From Investing Activities:
     Additions to property, plant and equipment..............   (13,765)     (8,613)     (4,588)     
     Acquisition costs and advances to Valentec..............    (2,522)         --          --
     Acquisition of Champion.................................    (3,398)         --          --
     Acquisition of SCFTI....................................   (58,768)         --          --
     Acquisition of Phoenix Airbag, net of cash acquired.....    (2,455)    (24,257)         --   
                                                               --------     -------     -------
          Net cash (used in) investing activities............   (80,908)    (32,870)     (4,588)     
                                                               --------     -------     -------
Cash Flows From Financing Activities:
     Net proceeds from Notes.................................    86,053          --          --     
     Net proceeds from sale of common stock..................       230           4      16,568      
     Purchase of treasury stock..............................        --        (268)     (1,379)        
     Repurchase of common stock warrants.....................        --          --         (94)        
     (Repayments)proceeds from term notes....................   (16,812)     20,000          --        
     (Repayments) borrowings of debt and long-term
       obligations...........................................   (11,849)     (3,764)      1,460      
     Net borrowing on revolving credit facility..............    11,245       2,931          --         
     Proceeds from mortgage and financing notes..............     9,500          --          --     
                                                               --------     -------     -------
          Net cash provided by financing activities..........    78,367      18,903      16,555      
                                                               --------     -------     -------
Effect of exchange rate changes on cash......................      (345)       (861)       (280)     
                                                               --------     -------     -------
Change in cash and cash equivalents..........................    (2,271)     (3,713)      8,187      
Cash and cash equivalents, beginning of period...............     8,320      12,033       3,846      
                                                               --------     -------     -------
Cash and cash equivalents, end of period.....................  $  6,049     $ 8,320     $12,033     
                                                               ========     =======     =======
Supplemental disclosure of cash flow information:
  Cash paid during the period for:
     Interest................................................  $  4,790    $  1,555     $   381       
     Income taxes............................................     1,665       1,819       2,344         
Supplemental disclosure of non-cash transactions:
  Equipment acquired under capital lease obligations.........  $     --    $  1,430     $    --        
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       F-7



<PAGE>



Note  1  Organization and Business


         Safety  Components  International,  Inc. (the  "Company" or "SCI") is a
leading,  low cost independent supplier of automotive airbag fabric and cushions
with operations in North America, Europe and Asia. The Company is also a leading
manufacturer  of  value-added  technical  fabrics  used in a  variety  of  niche
industrial and commercial applications.  In addition, the Company supplies metal
airbag  components to its airbag customers  utilizing its machining and stamping
capabilities.  In addition,  the Company also produces defense related products,
primarily  projectiles  and other metal  components  for small to medium caliber
training and tactical  ammunition,  and  continues as a systems  integrator  for
ordnance programs.

         On May 13, 1994,  upon the  completion of its initial  public  offering
("Initial  Public  Offering"),  SCI acquired  certain assets and assumed certain
liabilities  from  Valentec  International   Corporation   ("Valentec"),   which
represented the airbag cushion operation of Valentec at that time. Also, at that
time and up to the fiscal year 1998 Valentec Acquisition, defined herein, Robert
A. Zummo, the President,  Chief Executive Officer and a director of the Company,
was also the  President,  Chief  Executive  Officer,  a  director  and  majority
shareholder (74.2%) of Valentec, Francis X. Suozzi, a consultant to and director
of Valentec and a director of the Company, was a minority shareholder (21.2%) of
Valentec,  and the Valentec  International  Corporation Employee Stock Ownership
Plan (the "ESOP") was a minority shareholder (4.6%) of Valentec.

         On August 6, 1996,  Automotive  Safety Components  International,  Inc.
("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 dated
June 6, 1996, as amended (the "Agreement").  In accordance with the terms of the
Agreement, 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 during fiscal
year 1998. The annual  performance  targets for 1997 were met and  approximately
$2.0 million of  additional  purchase  price is accrued at March 28,  1998.  The
Company  intends to relocate  the Phoenix  Airbag  facility  and expects to move
certain  operations from such facility to its facility in the Czech Republic and
its facility in the United  Kingdom by early  fiscal year 2000.  During the 1998
fiscal year, the Company incurred  approximately  $1.8 million ($1.2 million net
of tax benefit of  $600,000) of costs  associated  with the  reorganization  and
relocation  of its  foreign  operations.  These  costs  are  investments  toward
consolidating production within the Company's foreign operations to its low-cost
facilities located within the foreign market.

         The  acquisition  was accounted  for as a purchase.  Although ASCI will
acquire the remaining 20% interest  effective  December 31, 1998,  ASCI has been
and continues to be entitled to 100% of the income or losses,  risks and rewards
of Phoenix Airbag since 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 28, 1998,  the  cumulative
purchase price amounted to approximately  $26.5 million,  including $3.4 million
of direct  acquisition  costs.  Management of the Company allocated the purchase
consideration  for Phoenix Airbag assets,  net of liabilities  assumed,  at fair
market value,  with the excess allocated to goodwill.  Goodwill of $14.4 million
will be amortized over twenty-five years on a straight line basis.

         Effective  as of  May  22,  1997,  the  Company  acquired  all  of  the
outstanding  capital  stock of Valentec in a tax free  stock-for-stock  exchange
(the "Valentec Acquisition").  Valentec is a high-volume manufacturer of stamped
and  precision-machined  products  for the  automotive,  commercial  and defense
industries.  Valentec was the Company's largest shareholder immediately prior to
the Valentec  Acquisition  owning  approximately 27%, or 1,379,200 shares of the
issued and outstanding  shares of the Company's common stock to the shareholders
of Valentec. The Company issued an aggregate of 1,369,200 newly issued shares of
Common Stock to the shareholders of Valentec.  The acquisition was accounted for
as a purchase.  The  purchase  price  aggregated  approximately  $15.1  million,
including  estimated direct acquisition costs of approximately $1.3 million.  In


                                      F-8

<PAGE>

addition,  the Company  advanced  Valentec  approximately  $1.3  million for the
purpose of funding operations prior to the Valentec Acquisition.  The operations
of Valentec  are  included in the  accounts of the Company  beginning on May 22,
1997.  Management  of the  Company  allocated  the  purchase  consideration  for
Valentec  assets,  net of liabilities  assumed,  at fair market value,  with the
excess  allocated to goodwill.  Goodwill of $18.7 million will be amortized over
twenty-five years on a straight line basis.

                  On  July  24,  1997,  the  Company,  through  a  newly  formed
wholly-owned subsidiary, Safety Components Fabric Technologies,  Inc. ("SCFTI"),
aqcuired  (the  "JPS  Acquisition")  all  of  the  assets  and  assumed  certain
liabilities of the Air  Restraint/Technical  Fabrics  Division of JPS Automotive
L.P. (the "Division"). SCFTI is a leading, low-cost supplier of airbag fabric in
North  America  and is also a  leading  manufacturer  of  value-added  technical
fabrics used in a variety of niche industrial and commercial  applications.  The
JPS Acquisition was accounted for as a purchase.  The purchase price  aggregated
approximately  $58.8 million,  after giving effect to post-closing  adjustments.
The purchase  price also  included the  repayment of  approximately  $650,000 of
capital lease obligations,  direct acquisition costs of approximately  $900,000,
and  approximately  $1.2 million for the  purchase of a building in  conjunction
with the JPS  Acquisition.  The operations of SCFTI are included in the accounts
beginning on July 24, 1997.  Management  of the Company  allocated  the purchase
consideration  for SCFTI  assets,  net of  liabilities  assumed,  at fair market
value, with the excess allocated to goodwill.  Goodwill of $18.4 million will be
amortized over forty years based on a straight line method.

         Additionally,  on December  22, 1997,  the Company  acquired all of the
issued and  outstanding  capital stock of the Champion Sales and Service Company
("Champion")  for  an  aggregate   amount  of  $3.4  million   including  direct
acquisition  costs of approximately  $125,000 (the "Champion  Transaction").  In
conjunction  with  the  Champion  Transaction,  the  Company  has  entered  into
management  services  agreements with the former  shareholders of Champion.  The
terms  of  each  such  management  services  agreement  prohibits  the  Champion
shareholders from competing with certain  businesses of the Company for a period
of five years.  Each such management  services  agreement also provides that the
Company has the option,  at its sole discretion,  to extend the  non-competition
period  for  three  successive  five year  periods,  upon  payment  of a nominal
extension fee. Accordingly, the Company has allocated the purchase consideration
to these non-compete agreements.

         The unaudited pro forma revenues,  net income and net income per common
share, assuming: (i) the Valentec Acquisition;  (ii) the JPS Acquisition;  (iii)
the  completion of the debt offering  (Note 6) and  application  of the proceeds
therefrom;  (iv) the Phoenix  Acquisition;  and (v) the Champion Transaction was
consummated on April 1, 1996 are as follows below (in thousands).  The Unaudited
Pro Forma  Financial  Data does not  purport  to  represent  what the  Company's
results of operations  actually would have been if those  transactions  had been
consummated on the date or for the periods indicated,  or what such results will
be for any future date or for any future period.


                                                   Pro Forma Years Ended
                                                 -------------------------- 
                                                 March 28,         March 31,
                                                   1998              1997
                                                 --------          --------
Revenues                                         $194,635          $173,208
                                                 ========          ========
Net income                                       $  5,420          $  1,040
                                                 ========          ========
Net income per common share, basic               $   1.08          $   0.21
                                                 ========          ========
Net income per common share, assuming dilution   $   1.05          $   0.21
                                                 ========          ========



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.



                                      F-9

<PAGE>

Revenue recognition

         Revenues are generally recognized as units are shipped to customers.

         The Company  accounts for 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.


Annual revenues from major customers

         The Company had sales to two customers in fiscal year 1998  aggregating
approximately  36% and 16% of net revenues,  respectively.  In fiscal year 1997,
the Company had sales to two customers aggregating  approximately 47% and 23% of
net revenues,  respectively.  In fiscal year 1996,  the Company had sales to two
customers aggregating approximately 48% and 39% of net revenues, respectively.

Concentration of credit risk

         The Company is subject to a concentration  of credit risk consisting of
its  trade  receivables.   At  March  28,  1998,  two  customers  accounted  for
approximately 25% and 7% of its trade  receivables,  respectively;  at March 31,
1997,  two  customers  accounted  for  15%  and  17% 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
useful 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
     Buildings................................         25  -  40 years
     Leasehold improvements...................       Lesser of useful life
                                                         or lease term

 
                                      F-10

<PAGE>

         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.

Intangible assets

         Intangible and other assets primarily consist of goodwill,  non-compete
agreements  and patents  associated  with the  Company's  acquisitions,  and are
stated at cost less accumulated  amortization.  Intangible  assets are amortized
over the expected  periods to be benefited,  which have been  determined to have
lives between 15 and 40 years.  Accumulated  amortization  at March 28, 1998 and
March 31, 1997 was approximately $2.1 million and $348,000, 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 and is included in cost of sales.  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):

                                                     March 31,      March 31, 
                                                       1997           1996
                                                     --------      --------  
Income before extraordinary item                       $3,846        $5,017
                                                       ======        ======
Income before extraordinary item per
  common share,basic                                   $ 0.77        $ 1.01
                                                       ======        ======
Income before extraordinary item per
  common share, assuming dilution                      $ 0.76        $ 0.99
                                                       ======        ======


Net income                                             $3,463        $5,017
                                                       ======        ======
Net income per common share, basic                     $ 0.69        $ 1.01
                                                       ======        ======
Net income per common share, assuming
  dilution                                             $ 0.69        $ 0.99
                                                       ======        ======


                                      F-11

<PAGE>
      
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,  whose functional  currency is the U.S. Dollar, 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 28, 1998, 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
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 years ended March 28, 1998 and March 31, 1997 transaction
losses charged to operations amounted to $72,000 and $379,000,  respectively. In
1996, 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 28, 1998 and March 31, 1997 based on the
short-term nature of these  instruments.  Advances to affiliates have no readily
ascertainable  fair market  value,  and  accordingly,  their fair values 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.


                                      F-12

<PAGE>


Total  costs  deferred  and  included  under  other  assets in the  accompanying
consolidated  balance  sheets  at March 28,  1998 and  March 31,  1997 were $4.5
million and $405,000,  respectively.  During fiscal 1997, the Company terminated
its line of credit with a bank and 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  Statement  of
Financial  Accounting  Standards No. 128,  "Earnings per Share" ("FAS 128"). FAS
128  establishes  standards  for  computing  and  presenting  earnings per share
("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 includes  unexercised  stock  options
using the treasury stock method (Note 12).

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 affect 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.

Accounting changes

         In  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  No.  128,  "Earnings  Per Share,"  which  revises the manner in which
earnings per share is calculated. The Company adopted this statement as of March
28,  1998,  and all  per  share  amounts  included  herein  have  been  restated
accordingly. The effect of the adoption was not material. Additionally, in 1997,
the FASB  issued  Statement  No.  130,  "Reporting  Comprehensive  Income,"  and
Statement No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information."  These  statements,  which are effective for the Company in fiscal
year 1999, expand and modify disclosures and,  accordingly,  will have no impact
on the  Company's  reported  financial  position,  results of operations or cash
flows.

Fiscal year

         Effective in fiscal year 1998,  the Company  changed its fiscal year to
end on the last Saturday of March. The impact on the current year of three fewer
days of operations was not material.

Reclassifications

         Certain  reclassifications have been made to the consolidated financial
statements for prior periods to conform to the March 28, 1998 presentation.

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


                                      F-13


<PAGE>




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  Company
repurchased  warrants to purchase  23,600  shares of Common Stock during  fiscal
year 1996.  The remaining  warrants at March 28, 1998 are  outstanding.  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  were 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
"Additional 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  $16.6 million  (including the proceeds  received  pursuant to the
exercise of the over allotment option described below) has been used to fund the
future growth of the business. In conjunction with the Additional 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 Additional Offering Price, less underwriting discounts. The entire option
was exercised within the 30 day period.

Note 4   Composition Of Certain Consolidated Balance Sheet Components


<TABLE>
<CAPTION>


                                                                                        (in thousands)

                                                                            March 28, 1998         March 31, 1997
                                                                            --------------         --------------    
<S>                                                                         <C>                    <C>
Accounts receivable:
      Billed receivables, net of reserves of $245 at March 28, 1998             $29,034                $ 9,152
      Unbilled receivables (net of unliquidated progress payments of
         $12,795 and $9,846 in 1998 and 1997, respectively)                       8,759                  1,834
      Other                                                                       1,415                    765
                                                                                -------                -------
                                                                                $39,208                $11,751
                                                                                =======                =======

Inventories:
      Raw materials                                                             $ 6,072                $ 3,339
      Work-in-process                                                             6,743                  2,073
      Finished goods                                                              7,120                    966
                                                                                -------                -------
                                                                                $19,935                $ 6,378
                                                                                =======                =======

Property, plant and equipment:
      Land and building                                                         $ 9,134                $ 8,435
      Machinery and equipment                                                    50,571                 18,768
      Furniture and fixtures                                                      2,319                  2,074
      Construction in process                                                    12,956                  2,822
                                                                                -------                -------
                                                                                 74,980                 32,099
      Less -  accumulated depreciation and amortization                          (8,701)                (3,804)
                                                                                -------                -------
                                                                                $66,279                $28,295
                                                                                =======                =======
</TABLE>

                                      F-14
<PAGE>

     Included in unbilled  receivables,  at March 28, 1998, is $3.9 million of a
claim the company filed with the  Government  for delays  incurred  related to a
systems  contract  the Company has with the U.S.  Army.  The Company  expects to
realize this receivable in fiscal 1999.


Note 5   Related Party Transactions

     During fiscal years 1998, 1997 and 1996, prior to the Valentec Acquisition,
the  Company  allocated  certain of its  corporate  general  and  administrative
expenses to Valentec  totaling  $47,000,  $726,000 and  $659,000,  respectively,
based on a formula of revenue, fixed assets and payroll costs. In the opinion of
management, the allocation method used was reasonable.

     The Company purchases from Valentec certain components that are used in its
products.  Prior to the Valentec  Acquisition  purchases totaled $405,000,  $2.6
million and  $774,000  for the years ended  March 28,  1998,  March 31, 1997 and
1996, respectively.

     The Company sells certain  components to and performed certain services for
affiliates. Sales to affiliates totaled $566,000, $104,000, and $4.3 million for
the years ended March 28, 1998, March 31, 1997 and 1996, respectively.  Included
in sales that are to  affiliates  in fiscal year 1998 is $500,000  for  services
rendered to Valentec  International  Limited ("VIL"),  a U.K. company,  majority
owned  by  the  President  of  the  Company.  The  Company  served  as  a  sales
representative  in  procuring  a  defense  contract  for VIL and  arranging  its
sub-contractors.  At March  28,  1998,  the  Company  had  receivables  from VIL
aggregating  $1.2  million,  which  includes  approximately  $700,000  of  costs
incurred by the Company on behalf of VIL. The Company's management believes this
amount  is  collectable  based on a letter  of  credit,  which  VIL has with its
customer related to its defense contract.

     In connection with the Valentec  Acquisition,  the Company assumed a demand
note payable to VIL of $800,000 and a five-year term note payable to VIL of $2.0
million. The Company paid all amounts related to these notes during fiscal 1998.

     The  Company   subleases  space  from  VIL  for  its  European   automotive
operations. Sublease payments for the years ended March 28, 1998, March 31, 1997
and 1996 were $195,000,  $117,000 and $121,000,  respectively.  In addition, the
Company  has been  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  $570,000,
$358,000 and  $254,000  for the years ended March 28,  1998,  March 31, 1997 and
1996, respectively.


                                      F-15


<PAGE>


Note  6  Long-Term Obligations (in thousands)
<TABLE>
<CAPTION>


                                                                       March 28, 1998           March 31, 1997
                                                                       --------------           --------------
<S>                                                                    <C>                      <C>
Senior Subordinated Notes due July 15, 2007, bearing
  interest at 10 1/8%                                                      $ 90,000                 $      -
 
KeyBank revolving credit facility due May 05, 2002, bearing
  interest at 1.0% over LIBOR                                                14,176                        -

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

Bank Austria mortgage note, due March 31, 2007, bearing
  interest at 1.0% over LIBOR                                                 7,125                        -

Note  payable,  principal due in annual  installments of $212
  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                                       847                      820   

Capital equipment notes payable,  due in monthly  installments
  with interest at 8.53% to 16.0% maturing at various rates
  through June 2002, secured by machinery and equipment                       4,966                    3,369
                                                                           --------                 --------
                                                                            117,114                   24,381
Less - current portion                                                       (2,375)                  (3,085)
                                                                           --------                 -------- 
                                                                           $114,739                 $ 21,296
                                                                           ========                 ========
</TABLE>

         On July 24, 1997, the Company issued $90.0 million aggregate  principal
amount of its 10 1/8%  Senior  Subordinated  Notes due 2007,  Series A (the "Old
Notes")  to BT  Securities  Corporation,  Alex.  Brown & Sons  Incorporated  and
BancAmerica  Securities,  Inc.  (collectively,  the "Initial  Purchasers")  in a
transaction  not  registered  under the  Securities Act of 1933, as amended (the
"Securities  Act"),  in  reliance  upon  an  exemption   thereunder  (the  "Debt
Offering").  On  September 2, 1997,  the Company  commenced an offer to exchange
(the "Exchange Offer",  together with the Debt Offering, the "Offering") the Old
Notes  for  $90.0  million  aggregate  principal  amount  of its 10 1/8%  Senior
Subordinated  Notes due 2007, Series B (the "Exchange Notes",  together with the
Old Notes, the "Notes").  All of the Old Notes were exchanged for Exchange Notes
pursuant to the terms of the Exchange  Offer,  which expired on October 1, 1997.
Interest on the Notes accrue from July 24, 1997 and is payable  semi-annually in
arrears on each of January 15 and July 15 of each year. The first    semi-annual
interest payment was made on January 15, 1998 to the holders for an aggregate of
$4.4  million.  The  Company  incurred  approximately  $3.9  million of fees and
expenses  related  to the  Offering.  Such fees have been  deferred  and will be
charged to  operations  over the  expected  term of the Notes,  not to exceed 10
years.  The Notes are  general  unsecured  obligations  of the  Company  and are
subordinated in right of payment to all existing and future Senior  Indebtedness
(as defined in the  Indenture,  pursuant to which the Notes were  issued) and to
all existing and future indebtedness of the Company's  subsidiaries that are not
Guarantors.  All of the  Company's  direct and  indirect  wholly-owned  domestic
subsidiaries are Guarantors (Note 14).

         The  Company,   Phoenix   Airbag  and  Automotive   Safety   Components
International   Limited   entered  into  an  agreement  with  KeyBank   National
Association,  as administrative  agent ("KeyBank"),  dated as of May 21, 1997 as
amended  (the  "Credit  Agreement").  The Credit  Agreement  consists of a $27.0
million  revolving  credit  facility for a five year term,  bearing  interest at
LIBOR  (5.68750% as of March 28, 1998) plus 1.00% with a commitment fee of 0.25%
per annum for any unused  portion.  The proceeds from KeyBank were used to repay
the  Bank  of  America  NT&SA  term  loan  and  revolving  credit.  KeyBank  was
subsequently  repaid with the proceeds from the Offering.  The Company  incurred
approximately  $470,000 of financing  fees and related  costs.  These costs have
been  deferred and will be charged to  operations  over the expected term of the
Credit  Agreement  not to exceed 5 years.  The  indebtedness  under  the  Credit
Agreement is secured by substantially all the assets of the Company.  The Credit
Agreement contains certain  restrictive  covenants that impose limitations upon,

                                      F-16

<PAGE>

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.  The Company will use the
revolving credit facility to fund working capital. Letters of credit outstanding
at March 28, 1998 was $3.4 million.

         On June 4, 1997,  the  Company  secured a $7.5  million  mortgage  note
facility with Bank of Austria.  The note is payable in semi-annual  installments
of $375,000  through March 31, 2007 and bears  interest at 1.0% over LIBOR.  The
note is secured by the assets of the  Company's  Czech  Republic  facility.  The
Company  incurred  approximately  $437,000 of financing  fees and related costs.
These  costs  have been  deferred  and will be charged  to  operations  over the
expected term of the note not to exceed 5 years.

                  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.

         Future  annual  minimum  principal  payments  at March 28,  1998 are as
follows (in thousands):

         1999                                    $  2,375
         2000                                       2,540
         2001                                       2,055
         2002                                       1,719
         2003                                      15,050
         Thereafter                                93,375
                                                 --------           
                                                 $117,114
                                                 ========      


Note  7  Income Taxes

         The income tax provision is comprised of the following (in thousands):
                                    
                         March 28, 1998      March 31, 1997      March 31, 1996
                         --------------      --------------      --------------
Current taxes:
     Federal                $ 1,313             $  935              $ 1,934
     State                      204                154                  327
     Foreign                    (48)               916                  124
Deferred taxes:
     Federal                    986               (177)                 311
     State                      130                (49)                  47
     Foreign                  1,104              1,216                  373
                              -----              -----                 ---- 
                            $ 3,689            $ 2,995              $ 3,116
                            =======            =======              =======

     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 28, 1998      March 31, 1997      March 31, 1996
                                                            --------------      --------------      --------------

<S>                                                         <C>                 <C>                 <C>    
Expected taxes at federal statutory rate                          34%                 34%                  34%
State income taxes, net of federal benefits                        3                   2                    5
Foreign earnings taxed at different rates                          3                   7                    -
Reversal of  foreign contingency reserve                          (4)                  -                    - 
Non-deductible intangibles and other, net                          2                   1                    -
                                                                  --                   -                    -
                                                                  38%                 44%                  39%
                                                                  ==                  ==                   ==
</TABLE>


                                      F-17

<PAGE>

         The  primary  components  of net  current  deferred  tax assets of $1.8
million is included in other current assets at March 28, 1998, and net long-term
deferred tax  liabilities of $2.3 million and $1.3 million which are included in
other long-term liabilities at March 28, 1998 and March 31, 1997,  respectively,
in the accompanying consolidated balance sheet, are as follows (in thousands):

<TABLE>
<CAPTION>



                                                            March 28, 1998         March 31, 1997
                                                            --------------         --------------           
<S>                                                         <C>                    <C>
Deferred tax assets (liabilities):
      Accrued liabilities                                      $  714                $   103
      Inventory                                                 1,093                    193
      Property, plant and equipment                            (3,182)                (1,552)
      Intangibles                                              (1,334)                     -
      Net operating loss acquired from Valentec                 1,674                      -
      Foreign net operating loss                                  335                      -
      Other                                                       179                     (7)
                                                               ------                 ------
                                                               $ (521)               $(1,263)
                                                               ======                =======      
</TABLE>
                                                                               

         In  addition,  net tax  benefits of $784,000  and $859,000 at March 28,
1998 and March 31, 1997, respectively,  were recorded directly through equity as
part of the cumulative  translation  adjustment account. These amounts relate to
translation losses resulting from  inter-company  note receivable  balances from
Phoenix Airbag to one of the Company's domestic subsidiaries.

         No taxes have been provided  relating to the possible  distribution  of
approximately   $5.7  million  of  undistributed   earnings   considered  to  be
permanently  reinvested  in foreign  operations.  The amount of such  additional
taxes that would be payable if such earnings were distributed is estimated to be
approximately $1.8 million.


Note 8   Commitments and Contingencies

Operating leases

         The Company  has  non-cancelable  operating  leases for  equipment  and
office space that expire at various  dates  through  2003.  Certain of the lease
payments are subject to  adjustment  for  inflation.  The Company  incurred rent
expense of $1.6  million,  $927,000  and  $612,000 for the years ended March 28,
1998, March 31, 1997 and 1996, respectively.

     Future  annual  minimum  lease  payments for all  non-cancelable  operating
leases as of March 28, 1998 are as follows (in thousands):

         1999                                       $1,314
         2000                                          974
         2001                                          447
         2002                                          439
         2003                                          474
      Thereafter                                       549
                                                    ------
                                                    $4,197
                                                    ======   

Environmental issues

         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


                                      F-18
<PAGE>




maintenance.  The  consultant  also  estimates  that  remediation  costs will be
approximately  $250,000,  for which the Company had accrued prior to fiscal year
1998 and is included in other long-term  liabilities at March 28, 1998. However,
depending  on the  actual  extent  of impact to the  Company  or more  stringent
regulatory criteria, these costs could be higher.  Additionally,  an underground
contamination  involving  machinery  fluids  exists at the Valentec  facility in
Costa Mesa,  California  and a site  remediation  plan has been  approved by the
Regional Water Quality  Control Board.  Such plan will take  approximately  five
years to implement at an estimated cost of approximately $368,000, for which the
Company had  accrued as part of accrued  liabilities.  To date,  the Company has
spent  approximately  $244,000 on implementing  such plan. The remediation  plan
currently  includes  the  simultaneous  operation  of a  groundwater  and  vapor
extraction  system.  In addition,  the Division has been  identified  along with
numerous  other  parties  as a  Potentially  Responsible  Party at the  Aquatech
Environemental,  Inc.  Superfund  Site.  The  Company  believes  that it is a de
minimis party with respect to the site and that future  clean-up  costs incurred
by the Company will not be material.  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. Management's opinion is based on the advice of an independent
consultant on environmental matters.

Champion Transaction 

       In  connection  with the Champion  Transaction,  the Company also entered
into a definitive  Put Agreement  (the "Put  Transaction")  with an associate of
Champion  (the  "Associate")  who had the right to a portion of any of the sales
commissions actually received by Champion. Pursuant to the Put Transaction,  the
Associate has the option to put to the Company,  subject to certain  conditions,
all of the issued and outstanding capital stock of Duchi & Associates,  Inc., an
affiliated entity, for a put price of $740,000. The Put Transaction will include
(as a condition to its exercises),  a twenty year management  services agreement
and non-compete between the Company and the Associate.  The Company believes the
Put Transaction will be exercised, and accordingly,  has recorded $740,000 as an
intangible  asset and accrued for the Put  Transaction at March 28, 1998 as part
of accrued liabilities.

Legal proceedings

         Valentec,  which was  acquired  by the Company in May 1997 has been the
subject of an investigation by the Department of Justice regarding a bid-rigging
and  kickbacks  scheme  alleged  to have  occurred  between  1988 and 1992.  The
Department of Justice Antitrust Division has contended that former  subsidiaries
or divisions of the former  Valentec  participated  in such  misconduct  in part
through the actions of a former marketing agent and former  employees,  in order
to obtain  certain  government  contracts.  The  Government  has contended  that
Valentec  is liable for the acts of its  predecessors  on a theory of  successor
corporate criminal liability. The Government contends that the alleged kickbacks
were made through the former Valentec Kisco and Valentec Galion operations while
those  operations  were owned and operated by the former  Valentec from the late
1980's through 1992, prior to Mr. Zummo's 1993 leveraged buy-out of Valentec. No
officer  or  director  of the  Company  or its  subsidiaries  is alleged to have
participated  in, or known  about,  such  conduct.  The  Company has no recourse
against the entity which owned Valentec  during the operative time period due to
contractual  restrictions in the purchase  agreement  between Mr. Zummo and such
entity.  The Company has  determined  that it is in its best  interest to settle
such  matter  in order to avoid  the  costs  and  distractions  associated  with
contesting  the Department of Justice's  legal theories on successor  liability.
Therefore,  a plea agreement has been negotiated with the Antitrust  Division of
the Department of Justice (the "Plea Agreement").  Among other things, the terms
of the Plea  Agreement  provides for the entry of a guilty plea by Valentec to a
one-count criminal violation of participating in a combination and conspiracy to
suppress  competition in violation of the Sherman  Antitrust Act, 15 U.S.C.ss.1,
the payment by Valentec of a $500,000 fine and an agreement by the Government to
not further criminally prosecute the Company, its subsidiaries,  or any of their
respective  officers,  directors or employees as to the alleged  bid-rigging and
kickback  scheme.  The Plea Agreement will remain subject to the approval of the
United States  District  Court for the Western  District of  Tennessee,  Eastern
Division (the  "Court").  In connection  with the Plea Agreement the Company has
accrued   approximately   $500,000  as  part  of  accrued   liabilities  with  a
corresponding  increase  to  goodwill.  The Plea  Agreement,  if approved by the
Court,  would not release Valentec or its affiliates from potential civil claims
that might be asserted by the United States Department of Justice Civil Division



                                      F-19
<PAGE>
against Valentec or its affiliates arising out of the Government's investigation
of  conduct  that is  alleged to have  occurred  in the time frame  prior to Mr.
Zummo's  1993  leveraged  buy-out of  Valentec.  In addition the Company has had
preliminary discussions with the Civil Division regarding the resolution of such
potential  civil claims.  The Company has accrued an additional  amount equal to
that of the  Plea  Agreement  included  as part of  accrued  liabilities  with a
corresponding increase to goodwill.

         During fiscal year 1998 the Company  settled a separate matter relating
to Valentec, which arose prior to the Valentec Acquisition,  for $600,000. As of
March 28,  1998,  $300,000  was paid and  $300,000 is accrued as part of accrued
liabilities with a corresponding increase to goodwill.

Note 9   Business Segment Information

         The  Company's  operations  have  been  classified  into  two  business
segments:  (i) Automotive - The Company  manufactures airbag fabric and cushions
and metal components for several domestic and foreign  automobile  manufacturers
under  contracts  with major  airbag  systems  integrators.  (ii)  Defense - The
Company  acts as a  systems  integrator  for the  U.S.  Army,  coordinating  the
manufacture and assembly of components supplied by various  subcontractors.  The
Company's  Defense  Operations  also  manufactures  projectiles  and other metal
components for small to medium caliber training and tactical  ammunition for the
U.S. Armed Forces.

     Summarized  financial  information  by  business  segment is as follows (in
thousands):
<TABLE>
<CAPTION>

                                         March 28, 1998         March 31, 1997        March 31, 1996
                                         --------------         --------------        --------------
<S>                                      <C>                    <C>                   <C>    
Net Sales:
    Automotive                              $143,190               $ 68,827               $ 49,091
    Defense                                   27,120                 15,131                 45,851
                                            --------               --------               --------
                                            $170,310               $ 83,958               $ 94,942
                                            ========               ========               ========
Operating income:
    Automotive                              $ 14,788               $  8,549               $  4,324
    Defense                                    6,690                  1,853                  4,604
    Corporate                                 (4,001)                (1,798)                (1,324)
                                            --------               --------               --------
                                            $ 17,477               $  8,604               $  7,604
                                            ========               ========               ========
Total assets at period end:
    Automotive                              $173,622                $60,800               $ 21,518
    Defense                                   16,433                  8,251                 16,924
    Corporate                                  8,842                  4,356                 11,389
                                            --------               --------               --------
                                            $198,897               $ 73,407               $ 49,831
                                            ========               ========               ========
Depreciation and amortization:
    Automotive                              $  6,346               $  2,036               $    796
    Defense                                      397                    355                    308
                                            --------               --------               --------
                                            $  6,743               $  2,391               $  1,104
                                            ========               ========               ========
Capital expenditures:
      Automotive                            $ 13,159               $  8,092               $  3,863
      Defense                                    606                    521                    725
                                            --------               --------               --------
                                            $ 13,765               $  8,613               $  4,588
                                            ========               ========               ========

</TABLE>

                                      F-20
<PAGE>


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

<TABLE>
<CAPTION>

                                          March 28, 1998         March 31, 1997        March 31, 1996
                                          --------------         --------------        --------------
<S>                                          <C>                    <C>                   <C>    
Net Sales (1):
    North America                            $124,507               $46,371               $77,333
    Europe                                     45,803                37,587                17,609
                                             --------               -------               ------- 
                                             $170,310               $83,958               $94,942
                                             ========               =======               =======
Operating income:
    North America                            $ 11,833               $ 3,089               $ 6,555
    Europe                                      5,644                 5,515                 1,049
                                             --------               -------               -------    
                                             $ 17,477               $ 8,604               $ 7,604
                                             ========               =======               =======

Total assets at period end:
    North America                            $149,140               $24,930               $37,974
    Europe                                     49,757                48,477                11,857
                                             --------               -------               -------
                                             $198,897               $73,407               $49,831
                                             ========               =======               =======
</TABLE>

----------------------------------------
     (1) Foreign and domestic sales are  representative  of amounts  reported by
geographic region


Note 10  Employee Benefit Plans

         The Company has two defined  contribution plans qualified under Section
401(k) of the Internal Revenue Code for eligible  employees.  Both plans provide
for  discretionary  employer  contributions.  One plan,  referred to as the "SCI
Plan", had been Valentec's prior to the Valentec  acquisition.  The SCI Plan, in
fiscal  year  1998  provided  a  company  match  equal to 25% of the  employee's
contribution  up to 6% of the  employee's  salary.  The second plan, the "Galion
Plan",  in  fiscal  year  1998  provided  a  company  match  equal to 25% of the
employee's   contribution   up  to  8%  of  the  employee's   salary.   Employer
contributions  become 100% vested after six years of vested service. The Company
contributed an aggregate of  approximately  $140,000  during fiscal year 1998 to
the SCI Plan and Galion Plan. The Company made no contributions during any prior
years presented in the consolidated financial statements.


Note 11  Common Stock and Stock Options

Common Stock

         During fiscal year 1998, the Company acquired an aggregate of 1,379,200
shares of Common Stock and issued an  aggregate  of  1,369,200  shares of Common
Stock, each in connection with the Valentec  Acquisition (Note 1). The remainder
of shares of Common Stock issued  during fiscal year 1998 were from stock option
agreements  exercised.  During fiscal year 1997,  the Company  purchased  23,492
shares of Common  Stock.  The  purchased  shares  are held in  treasury  and are
accounted for at cost.

Stock Options

         The Company's stock option plan ("Plan"), as amended,  provides for the
issuance of options to purchase up to an aggregate of 1,050,000  shares of SCI's
Common Stock to key officers, employees of SCI or its affiliates,  directors and
consultants.  The options granted vest in three equal  installments on the first
three  anniversary  dates  of  the  grant.  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

                                      F-21
<PAGE>

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):


<TABLE>
<CAPTION>


                                                           March 28, 1998         March 31, 1997        March 31, 1996
                                                           --------------         --------------        --------------
<S>                                 <C>                        <C>                    <C>                   <C> 
Net income:                         As Reported                $6,008                 $2,204                $4,914
                                                               ======                 ======                ======
                                    Pro Forma                  $5,390                 $1,941                $4,756
                                                               ======                 ======                ======


Net income per share, basic:        As Reported                 $1.20                  $0.44                 $0.99
                                                                =====                  =====                 =====
                                    Pro Forma                   $1.07                  $0.39                 $0.95
                                                                =====                  =====                 =====

</TABLE>


     A summary of the status of the  Company's  stock  option  plan at March 28,
1998,  March  31,  1997 and 1996 and  changes  during  the years  then  ended is
presented in the table and narrative below:

<TABLE>
<CAPTION>

                                           March 28, 1998            March 31, 1997             March 31, 1996
                                        ----------------------    ----------------------   --------------------------
                                                     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          531,999     $12.57        288,625     $13.06        210,500       $10.79
Granted                                   611,500      11.86        244,499      11.97         84,500        18.65
Exercised                                 (23,000)     10.00           (375)     10.00              -            -                 
Forfeited                                 (40,566)     14.11           (750)     10.00         (6,375)       12.06
                                        ---------                 ---------                 ---------      
Outstanding at end of year              1,079,933      12.16        531,999      12.57        288,625        13.06
                                        ---------      =====      ---------      =====      =========        =====
Exercisable at end of year                312,865      12.43        122,250      12.04         50,750        10.57
                                        =========      =====      =========      =====      =========        =====
Weighted average fair value
        of options granted                 $4.61                     $5.48                     $8.85

</TABLE>

     Of the 1,079,933  options  outstanding  at March 28, 1998,  179,500 have an
exercise price of $10.00, with a weighted average exercise price of $10.00 and a
weighted  average  remaining  contractual  life of 5.85 years;  129,500 of these
options are exercisable  with a weighted  average  exercise price of $10.00.  An
additional 476,000 options have exercise prices between $10.25 and $11.50 with a
weighted  average  exercise  price of $10.82  and a weighted  average  remaining
contractual  life of 8.47 years;  90,831 of these options are exercisable with a
weighted  average exercise price of $11.19.  An additional  344,933 options have
exercise prices between $12.13 and $14.88 with a weighted average exercise price
of $13.51 and a  weighted  average  remaining  contractual  life of 8.98  years;
34,700 of these options are exercisable  with a weighted  average exercise price
of $13.23.  The remaining 79,500 options have exercise prices between $17.13 and
$21.73 with a weighted  average  exercise price of $19.26 and a weighted average
remaining   contractual  life  of  4.81  years;  57,834  of  these  options  are
exercisable with a weighted average exercise price of $19.33.  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 1998, 1997 and 1996,  respectively:  risk-free  interest rates of 6.1,
6.7 and 6.5 percent;  zero percent  dividends for all years;  expected  lives of
5.0, 6.2 and 6.8 years; and expected volatility of 31.4, 32.4 and 32.4 percent.

                                      F-22
<PAGE>

        At  March  28,  1998  the  Company  had  granted  to key  employees  and
non-employee  directors  certain  options  to  purchase  shares of Common  Stock
("Certain Options"),  subject to approval by the Company's shareholders,  to the
extent necessary, of an increase in the number of shares authorized to be issued
under the Plan.  Subsequent to March 28, 1998,  options to purchase an aggregate
of approximately 140,000 shares of Common Stock were forfeited. Accordingly, the
Certain  Options  granted to key employees are no longer  subject to shareholder
approval.  The portion of the Certain Options  granted to non-employee directors
remain subject to shareholder approval.


Note 12 - Reconciliation to Diluted Earnings Per Share (in thousands)

         The  following  data show the amounts  used in  computing  earnings per
share and the  effect on income  and the  weighted  average  number of shares of
dilutive potential common stock.

<TABLE>
<CAPTION>

                                                                              Year Ended
                                                       ------------------------------------------------------
                                                           March 28,                  March 31,
                                                                        -------------------------------------
                                                             1998              1997              1996
                                                       ------------------------------------------------------

<S>                                                         <C>               <C>               <C>             
Net income                                                  $6,008            $2,204            $4,914
                                                            ======            ======            ======
Weighted average number of common shares used
  in basic earnings per share                                5,027             5,027             4,981
Effect of dilutive securities:
  Stock options                                                117                23                77
  Warrants                                                       3                 -                25
                                                             -----             -----             -----
Weighted average number of common shares and
  dilutive potential common stock used in diluted
  earnings per share                                         5,147             5,050             5,083
                                                             =====             =====             =====


</TABLE>

         Options on 285,500, 185,499, and 62,500 shares of Common Stock were not
included in computing diluted earnings per share as of March 28, 1998, March 31,
1997 and 1996, respectively,  because their effects were antidilutive.  Warrants
to  purchase  104,400  shares of Common  Stock were not  included  in  computing
diluted  earnings  per share as of March 31, 1997  because  their  effects  were
antidilutive.


                                      F-23

<PAGE>
Note 13 Unaudited Quarterly Results

         Unaudited quarterly financial information for fiscal year 1997 and 1998
is set forth below. The Company recorded the cumulative  effect of the change in
accounting  principle and the  extraordinary  item during the fourth  quarter of
fiscal year 1997. The Company did not restate quarters in fiscal 1997,  however,
an  amended  quarterly  table is  included  below.  All  dollar  amounts  are in
thousands except per share data.

<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, basic                         $  0.17         $  0.23           $  0.28           $  0.09
 Net income per share, basic                       $  0.17         $  0.23           $  0.28           $ (0.24)
 Income before extraordinary item and
   cumulative effect of accounting
   change per share, assuming dilution             $  0.17         $  0.23           $  0.28           $  0.08
 Net income per share, assuming dilution           $  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, basic                          $  0.17       $  0.20           $     -           $     -      
 Net (loss) income per share, basic                 $ (0.08)      $  0.12           $  0.22           $  0.20               
 Income before extraordinary item and
   cumulative effect of accounting
   change per share, assuming dilution              $  0.17       $  0.20           $     -           $     -           
 Net (loss) income per share, assuming             
   dilution                                         $ (0.08)      $  0.12           $  0.22           $  0.18

</TABLE>

<TABLE>
<CAPTION>

                                                                         Quarter Ended
                                                ----------------------------------------------------------------
                                                                            Company
                                                ----------------------------------------------------------------
                                                  June 30,      September 30,     December 31,      March 28,
                                                    1997            1997              1997            1998
                                                    ----            ----              ----            ----        
<S>                                              <C>              <C>               <C>             <C>  
Fiscal 1998  
 Revenues                                        $ 27,629         $ 42,728          $ 47,370        $ 52,583
 Income from operations                          $  3,032         $  4,129          $  4,725        $  5,591
 Net income                                      $  1,435         $  1,282          $  1,386        $  1,905
 Net income per share, basic                     $   0.29         $   0.26          $   0.28        $   0.38
 Net income per share, assuming dilution         $   0.29         $   0.25          $   0.27        $   0.38
                                                                                               
</TABLE>


                                      F-24
<PAGE>
Note 14 - Supplemental Guarantor Condensed Consolidating Financial Statements

     In connection with the Offering (see Note 3), the Notes are guaranteed on a
senior  unsecured  basis,  jointly  and  severally,  by  each  of the  Company's
principal  wholly-owned  domestic  operating  subsidiaries  and  certain  of its
indirect   wholly-owned   subsidiaries   (the   "Guarantors").   The   condensed
consolidating  financial  statements  of the  Guarantors  are  presented  below.
Management believes the condensed  consolidating  financial statements presented
are meaningful in understanding  the financial  position,  results of operations
and cash flows of the Guarantor subsidiaries.

<TABLE>
<CAPTION>
                                                                     MARCH 28, 1998
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NON-GUARANTOR    PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>             <C>           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents............    $    794       $  5,172       $     83      $    --       $  6,049
  Accounts receivable, net.............      31,918          7,188            102           --         39,208
  Inventories..........................      17,068          2,867             --           --         19,935
  Prepaid and other....................       1,309            343          2,544           --          4,196
                                            -------        -------        -------      -------        -------
          Total current assets.........      51,089         15,570          2,729           --         69,388
                                            -------        -------        -------      -------        ------- 
Property, plant and equipment, net.....      42,677         22,585          1,017           --         66,279
Receivable from affiliates.............         500            252            454           --          1,206
Intangible assets, net.................      40,136         15,787             --           --         55,923
Other assets...........................       7,432            386          7,453       (9,170)         6,101
                                            -------        -------        -------      -------        -------
          Total assets.................    $141,834       $ 54,580       $ 11,653      $(9,170)      $198,897
                                            =======        =======        =======      =======        =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.....................    $ 17,200       $  5,351       $    458      $    --       $ 23,009
  Earnout payable......................          --          1,958             --           --          1,958
  Accrued liabilities..................       4,575          4,357          3,626           --         12,558
  Intercompany accounts short-term.....       4,788          2,262         (7,050)          --             --
  Current portion of long-term
     obligations.......................       1,333            289            753           --          2,375
                                            -------        -------        -------      -------        -------
          Total current liabilities....      27,896         14,217         (2,213)          --         39,900
                                            -------        -------        -------      -------        -------
Long-term obligations..................       2,517          1,661         20,561           --         24,739
Senior subordinated debt...............          --             --         90,000           --         90,000
Intercompany accounts long term........      99,278         26,830       (126,108)          --             --
Other long-term liabilities............         553          1,668          2,843           --          5,064
                                            -------        -------        -------      -------        -------
          Total liabilities............    $130,244       $ 44,376       $(14,917)    $     --       $159,703
                                            -------        -------        -------      -------        -------
Commitments and contingencies
Stockholders' equity
  Preferred stock: $.10 par value per
   share -- 2,000,000 shares authorized;
   no shares outstanding at March 28,1998        --            --              --           --              --
  Common stock: $.01 par value per
   share -- 10,000,000 shares authorized;
   6,538,075 shares issued at
   March 28, 1998......................          --         5,578              65        (5,578)            65
  Common stock warrants................          --            --               1            --              1
  Additional paid-in-capital...........          --         2,807          44,040        (2,807)        44,040
  Treasury stock, 1,492,692 at March 28,
   1998 at cost........................          --            --         (15,439)           --        (15,439)
  Retained earnings, (accumulated      
   deficit)............................      11,590         6,483          (2,097)         (785)        15,191
  Cumulative translation adjustment....          --        (4,664)             --            --         (4,664)  
                                            -------       -------         -------       -------        -------
          Total stockholders' equity...      11,590        10,204        $ 26,570      $ (9,170)      $ 39,194
                                            -------       -------         -------       -------        -------
          Total liabilities and
            stockholders' equity.......    $141,834       $54,580        $ 11,653      $ (9,170)      $198,897
                                            =======       =======         =======       =======        =======
</TABLE>
                See notes to consolidated financial statements.

                                      F-25
<PAGE>


                     SAFETY COMPONENTS INTERNATIONAL, INC.


<TABLE>
<CAPTION>
                                                                     MARCH 31, 1997
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NON-GUARANTOR    PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>            <C>           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents............    $     13       $  8,250      $      57      $    --       $  8,320
  Accounts receivable, net.............       5,641          6,081             29           --         11,751
  Inventories..........................       3,682          2,696             --           --          6,378
  Prepaid and other....................         123            402            345           --            870
                                            -------        -------       --------      -------        -------
          Total current assets.........       9,459         17,429            431           --         27,319
                                            -------        -------       --------      -------      
Property, plant and equipment, net.....       8,075         19,072          1,457         (309)        28,295
Receivable from affiliates.............       1,488          1,179          1,681                       4,348
Goodwill...............................          --         10,991             --           --         10,991
Other assets...........................       6,559            938          3,906       (8,949)         2,454
                                            -------        -------       --------      -------        -------
          Total assets.................    $ 25,581       $ 49,609      $   7,475      $(9,258)      $ 73,407
                                            =======        =======       ========      =======        =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.....................    $  3,268       $  3,979      $     545      $    --       $  7,792
  Earnout payable......................       2,211             --             --           --          2,211
  Accrued liabilities..................       2,037          2,546         (1,983)        (124)         2,476
  Intercompany accounts short term.....      (3,023)         2,280            743           --             --
  Current portion of long-term
     obligations.......................       2,832            250              3           --          3,085
                                            -------        -------       --------      -------        -------
          Total current liabilities....       7,325          9,055           (692)        (124)        15,564
                                            -------        -------       --------      -------   
Long-term obligations..................      15,920          3,662          1,714           --         21,296
Other long-term liabilities............          --            727            546           --          1,273
Intercompany accounts long term........      (5,871)        26,013        (20,142)          --             --
                                            -------        -------       --------      -------        -------
          Total liabilities............      17,374         39,457        (18,574)        (124)        38,133
                                            -------        -------       --------      -------        -------
Commitments and contingencies
Stockholders' equity
  Preferred stock: $.10 par value per
  share -- 2,000,000 shares authorized;
  no shares outstanding at March 31,
  1997.................................          --             --             --           --             --
  Common stock: $.01 par value per share
  10,000,000 shares authorized;
  5,138,875 issued at March 31,
  1997.................................          --          5,578             51       (5,578)            51
  Common stock warrants................          --             --              1           --              1
  Additional paid-in-capital...........          --          2,807         30,062       (2,807)        30,062
  Treasury stock, 113,492 shares at
  March 31, 1997.......................          --             --         (1,647)          --         (1,647)
  Retained earnings (accumulated
  deficit).............................       8,207          4,143         (2,418)        (749)         9,183
  Cumulative translation adjustment....          --         (2,376)            --           --         (2,376)
                                            -------        -------       --------      -------        -------
          Total stockholders' equity...       8,207         10,152         26,049       (9,134)        35,274
                                            -------        -------       --------      -------        -------
          Total liabilities and
            stockholders' equity.......    $ 25,581       $ 49,609      $   7,475      $(9,258)      $ 73,407
                                            =======        =======       ========      =======        =======
</TABLE>


                                      F-26


<PAGE>

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED MARCH 28, 1998
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NON-GUARANTOR    PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>            <C>           <C>           <C>
Net sales..............................    $124,507      $  52,895       $    --      $ (7,092)      $170,310
Cost of sales..........................      98,650         40,922            --        (6,000)       133,572
Depreciation...........................       3,440          1,601            86          (126)         5,001
                                            -------        -------       -------       -------        -------
          Gross profit.................      22,417         10,372           (86)         (966)        31,737
                                            -------        -------       -------       -------        -------
Selling and marketing expenses.........       1,478            126            --           225          1,829
General and administrative.............       3,524          2,555         3,641          (820)         8,900
Amortization of goodwill...............         926            542           274            --          1,742
Relocation and reorganization costs....         655          1,134            --            --          1,789
                                            -------        -------       -------       -------        -------
          Income from operations.......      15,834          6,015        (4,001)         (371)        17,477
                                            -------        -------       -------       -------        -------                  
Other expense .........................       9,004            533        (9,463)          (41)            33
Interest expense ......................        (680)         2,099         6,328            --          7,747
                                            -------        -------       -------       -------        -------
          Income before income taxes...       7,510          3,383          (866)         (330)         9,697
Provision for income taxes.............       3,142          1,056          (399)         (110)         3,689
                                            -------        -------       -------       -------        -------
Net income (loss)......................    $  4,368       $  2,327       $  (467)      $  (220)      $  6,008
                                            =======        =======       =======       =======        =======
</TABLE>


                                      F-27
<PAGE>

<TABLE>
<CAPTION>

                                                           FOR THE YEAR ENDED MARCH 31, 1997
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NONGUARANTOR     PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>            <C>           <C>           <C>
Net sales..............................    $ 46,371       $ 43,645       $    --       $(6,058)      $ 83,958
Cost of sales..........................      38,383         32,846            --        (5,338)        65,891
Depreciation...........................       1,013          1,030            --            --          2,043
                                            -------        -------       -------       -------        -------
          Gross profit.................       6,975          9,769            --          (720)        16,024
                                            -------        -------       -------       -------        -------          
Selling and marketing expenses.........         730            366           279            --          1,375
General and administrative.............       2,390          2,462         1,382          (537)         5,697
Amortization of goodwill...............          --            348            --            --            348
                                            -------        -------       -------       -------        -------
          Income from operations.......       3,855          6,593        (1,661)         (183)         8,604
                                            -------        -------       -------       -------        -------      
Other expense .........................        (274)           451            (6)           37            208
Interest expense ......................         851          1,064          (669)          309          1,555
                                            -------        -------       -------       -------        -------
          Income before income taxes...       3,278          5,078          (986)         (529)         6,841
                                            -------        -------       -------       -------        -------           
Provision for income taxes.............       1,244          2,250          (375)         (124)         2,995
Income before extraordinary item and
  cumulative effect of accounting
  change...............................       2,034          2,828          (611)         (405)         3,846
Extraordinary item.....................          --             --          (383)           --           (383)
Cumulative effect of change in
  accounting for deferred product
  launch costs.........................        (564)          (695)           --            --         (1,259)
                                            -------        -------       -------       -------        -------
Net income (loss)......................    $  1,470       $  2,133       $  (994)      $  (405)      $  2,204
                                            =======        =======       =======       =======        =======
</TABLE>

                                      F-28

<PAGE>

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED MARCH 31, 1996
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NON-GUARANTOR     PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>            <C>           <C>           <C>
Net sales..............................    $ 77,333       $ 22,748       $    --       $(5,139)      $ 94,942
Cost of sales..........................      65,782         19,634            --        (4,612)        80,804
Depreciation...........................         797            307            --            --          1,104
                                            -------        -------       -------       -------        -------
          Gross profit.................      10,754          2,807            --          (527)        13,034
                                            -------        -------       -------       -------        -------
Selling and marketing expenses.........       1,088             14            --            --          1,102
General and administrative.............       2,268          1,263         1,324          (527)         4,328
                                            -------        -------       -------       -------        -------
          Income from operations.......       7,398          1,530        (1,324)           --          7,604
                                            -------        -------       -------       -------  
Other expense .........................        (298)          (254)         (561)          306           (807)
Interest expense ......................         158             49           174            --            381
                                            -------        -------       -------       -------        -------
          Income before income taxes...       7,538          1,735          (937)         (306)         8,030
Provision for income taxes.............       3,075            442          (401)           --          3,116
                                            -------        -------       -------       -------        -------            
Net income (loss)......................    $  4,463       $  1,293       $  (536)      $  (306)      $  4,914
                                            =======        =======       =======       =======        =======
</TABLE>

                                      F-29

<PAGE>

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED MARCH 28, 1998
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NON-GUARANTOR    PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>            <C>           <C>           <C>
Net cash provided by (used in)
  operating activities.................   $  (5,509)       $ 4,312     $   1,812      $     --      $     615

Cash Flows From Investing Activities:
  Additions to property, plant and
     equipment.........................      (6,294)        (6,796)         (675)           --        (13,765)
  Acquisition costs, net of cash
     acquired..........................     (64,688)        (2,455)           --            --        (67,143)
                                           --------        -------       -------       -------       --------
Net cash used in investing
  activities...........................     (70,982)        (9,251)         (675)           --        (80,908)
                                           --------        -------       -------       -------       --------
Cash Flows From Financing Activities:
  Proceeds from notes..................          --             --        86,053            --         86,053
  Net proceeds from issuance of stock..          --             --           230            --            230
 (Repayments) proceeds from term notes.     (16,812)            --           --             --        (16,812)
 (Repayments) borrowing of debt and
     long-term obligations.............      (1,117)          (732)      (10,000)           --        (11,849)
  Net borrowing on revolving credit
     facility..........................          --         (1,230)       12,475            --         11,245
  Proceeds from mortgage and financing
     notes.............................       2,000             --         7,500            --          9,500
  Change in investment in subsidiary...          (1)            --             1            --             --
  Changes in intercompany accounts.....      93,151          4,170       (97,321)           --             --
                                           --------        -------       -------       -------       --------
Net cash provided by
  financing activities.................      77,221          2,208        (1,062)           --         78,367
                                           --------        -------       -------       -------       --------
Effect of exchange rate changes on
  cash.................................          --           (345)           --            --           (345)
                                           --------        -------       -------       -------       --------
Change in cash and cash equivalents....         730         (3,076)           75            --         (2,271)
Cash and cash equivalents, beginning of
  period...............................          13          8,250            57            --          8,320
                                           --------        -------       -------       -------       --------
Cash and cash equivalents, end of
  period...............................    $    743        $ 5,174       $   132       $    --       $  6,049
                                           ========        =======       =======       =======       ========
</TABLE>

                                      F-30

<PAGE>

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED MARCH 31, 1997
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NONGUARANTOR     PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>            <C>           <C>           <C>
Net cash provided by (used in)
  operating activities.................    $ 13,740       $  5,430       $(1,968)      $(6,087)      $ 11,115
                             
Cash Flows From Investing Activities:
  Additions to property, plant and
     equipment.........................      (1,468)        (6,097)       (1,357)          309         (8,613)
  Purchase of Phoenix Airbag, net of
     cash acquired.....................     (24,257)            --            --            --        (24,257)
                                           --------        -------       -------       -------       --------
Net cash used in investing
  activities...........................     (25,725)        (6,097)       (1,357)          309        (32,870)
                                           --------        -------       -------       -------       --------
Cash Flows From Financing Activities:
  Net proceeds from sale of stock......          --             --             4            --              4
  Purchase of treasury stock...........          --             --          (268)           --           (268)
  Proceeds from term note..............      20,000             --            --            --         20,000
  (Repayments) borrowing of debt and
     long-term obligations.............      (3,764)            --            --            --         (3,764)
  Net borrowing on revolving credit
     facility..........................          --          1,230         1,701            --          2,931
  Change in investment in subsidiary...      (5,778)            --            --         5,778             --
  Changes in intercompany accounts.....       1,535          6,530        (8,065)           --             --
                                           --------        -------       -------       -------       --------
Net cash provided by
  financing activities.................      11,993          7,760        (6,628)        5,778         18,903
                                           --------        -------       -------       -------       --------
Effect of exchange rate changes on
  cash.................................          --           (861)           --            --           (861)
                                           --------        -------       -------       -------       --------
Change in cash and cash equivalents....           8          6,232        (9,953)           --         (3,713)
Cash and cash equivalents, beginning of
  period...............................           5          2,018        10,010            --         12,033
                                           --------        -------       -------       -------       --------
Cash and cash equivalents, end of
  period...............................    $     13       $  8,250       $    57       $    --       $  8,320
                                           ========        =======       =======       =======       ========
</TABLE>

                                      F-31

<PAGE>


<TABLE>
<CAPTION>

                                                           FOR THE YEAR ENDED MARCH 31, 1996
                                         ----------------------------------------------------------------------
                                          GUARANTOR     NON-GUARANTOR     PARENT      ELIMINATION   CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   CORPORATION     ENTRIES        TOTAL
                                         ------------   ------------   -----------   -----------   ------------
<S>                                      <C>            <C>            <C>           <C>           <C>
Net cash provided by (used in)
  operating activities.................    $ (2,544)      $    756       $(2,485)      $   773       $ (3,500)

Cash Flows From Investing Activities:
  Additions to property, plant and
     equipment.........................      (2,407)        (1,279)         (133)         (769)        (4,588)
                                            -------        -------       -------       -------        -------
Net cash used in investing
  activities...........................      (2,407)        (1,279)         (133)         (769)        (4,588)
                                            -------        -------       -------       -------        -------
Cash Flows From Financing Activities:
  Net proceeds from sale of stock......          --          1,861        16,568        (1,861)        16,568
  Purchase of treasury stock...........          --             --        (1,379)           --         (1,379)
  Repurchase of common stock
     warrants..........................          --             --           (94)           --            (94)
  (Repayments) borrowings of debt and
     long-term obligations.............       1,633           (173)           --            --          1,460
  Change in investment in subsidiary...        (306)            --        (1,865)        2,171             --
  Changes in intercompany accounts.....       3,620         (1,838)       (1,501)         (281)            --
                                            -------        -------       -------       -------        -------
Net cash provided by
  financing activities.................       4,947           (150)       11,729            29         16,555
                                            -------        -------       -------       -------        -------
Effect of exchange rate changes on
  cash.................................          --           (280)           --            --           (280)
                                            -------        -------       -------       -------        -------
Change in cash and cash equivalents....          (4)          (953)        9,111            33          8,187
Cash and cash equivalents, beginning of
  period...............................           9          2,938           899            --          3,846
                                            -------        -------       -------       -------        -------
Cash and cash equivalents, end of
  period...............................    $      5       $  1,985       $10,010       $    33       $ 12,033
                                            =======        =======       =======       =======        =======
</TABLE>


                                      F-32