PUROFLOW INC, POS AM, 1997-05-22

PUROFLOW INC
POS AM, 1997-05-22
GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC

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As filed with the Securities and Exchange Commission on May 22, 1997
Registration No. 333-19701
- - - - ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

PUROFLOW INCORPORATED
(Name of Small Business Issuer in its Charter)

Delaware 508599 13-1947195
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Classification Identification No.)
organization) Code Number)

16559 SATICOY STREET
VAN NUYS, CALIFORNIA 91406
(818) 756-1388
(Address and telephone number of principal
executive offices and principal place of business)

MICHAEL H. FIGOFF, PRESIDENT COPIES TO:
16599 SATICOY STREET LAWRENCE M. BRAUN, ESQUIRE
VAN NUYS, CALIFORNIA 91406 JAMES M. RENE, ESQUIRE
(818) 756-1388 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
(Name, address and telephone 333 SOUTH HOPE STREET
number of agent for service) LOS ANGELES, CALIFORNIA 90071
(213) 620-1780

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

Page 1 of 59
<PAGE>

PUROFLOW INCORPORATED
---------------------

CROSS REFERENCE SHEET
Showing Location in Prospectus of Information
Required by Items of Form SB-2
--------------------

FORM SB-2 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
- - - - --------------------------------- ------------------
1. Front of Registration Statement and
Outside Front Cover of Prospectus Outside Front Cover Page of Prospectus

2. Inside Front and Outside Back Co Inside Front Cover Page of Prospectus;
Pages of Prospectus Outside Back Cover Page of Prospectus;
Additional Information

3. Summary Information and Prospectus Summary; Risk Factors
Risk Factors

4. Use of Proceeds Use of Proceeds

5. Determination of Offering Price Not Applicable

6. Dilution Not Applicable

7. Selling Security Holders Selling Security Holders and Plan of
Distribution

8. Plan of Distribution Selling Security Holders and Plan of
Distribution

9. Legal Proceedings Legal Proceedings

10. Directors, Executive Officers,
Promoters and Control Persons Management

11. Security Ownership of Certain
Beneficial Owners and Management Principal Stockholders

12. Description of Securities Dividend Policy; Capitalization;
Description of Capital Stock

13. Interest of Named Experts and Related Party Transactions
Counsel

14. Disclosure of Commission Position
on Indemnification for Securities Management - Limitation of Directors'
Act Liabilities and Officers' Liability and
Indemnification

15. Organization Within Last Five Years Related Party Transactions

Page 2 of 59
<PAGE>

16. Description of Business Prospectus Summary; Risk Factors;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business

17. Management's Discussion and Management's Discussion and Analysis
Analysis or Plan of Operation of Financial Condition and Results of
Operations

18. Description of Property Business

19. Certain Relationship and Related
Transactions Related Party Transactions

20. Market for Common Equity and Outside Front Cover Page of Prospectus;
Related Stockholder Matters Dividend Policy; Capitalization;
Description of Capital Stock; Principal
Stockholders

21. Executive Compensation Management

22. Financial Statements Financial Statements

23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure Changes in Accountants

Page 3 of 59

<PAGE>
SUBJECT TO COMPLETION, _______, 1997
PROSPECTUS

PUROFLOW INCORPORATED

2,807,100 SHARES

COMMON STOCK, $.01 PAR VALUE

This Prospectus relates to (i) 2,530,000 shares of Common Stock, $.01 par
value ("Common Stock") of Puroflow Incorporated, a Delaware corporation (the
"Company"), heretofore issued to certain persons listed as the Selling Security
Holders in a private placement consummated in July 1996, (ii) options ("Options"
and together with the shares of Common Stock underlying such Options, the
"Securities") to purchase 277,100 shares of Common Stock issued to certain
persons associated with Toluca Pacific Securities Corporation, which acted as
placement agent (collectively, "Placement Agents"), and a consultant
("Optionholder"), in connection with the foregoing private placement, and (iii)
277,100 shares of Common Stock (subject to adjustment) issuable upon exercise of
the Options. See "Selling Security Holders and Plan of Distribution." The
Securities are being offered for the respective accounts of the Selling Security
Holders, the Placement Agents and the Optionholder, and will be sold from time
to time by the Selling Security Holders, the Placement Agents and the
Optionholder in the national over-the-counter market or otherwise at their
prevailing prices, or in negotiated transactions. The Company will receive no
proceeds from the sale of the Securities.

The Securities offered hereby were acquired by the Selling Security
Holders, the Placement Agents and the Optionholder from the Company in private
transactions and are "restricted securities" under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus has been prepared for the
purpose of registering the Securities under the Securities Act to allow for
future sales by the Selling Security Holders, the Placement Agents and the
Optionholder to the public without restriction. The Selling Security Holders,
the Placement Agents and the Optionholder may be deemed to be "underwriters"
within the meaning of the Securities Act. Any commissions received by a broker
or dealer in connection with resales of the Securities may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Selling
Security Holders and Plan of Distribution."

The Common Stock of the Company is traded on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board System (the "Bulletin Board
System") under the symbol "PURO." On May 20, 1997, the closing price of the
Common Stock as reported on the Bulletin Board System was $0.75.

THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is __________, 1997

Page 4 of 59
<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission (the "Commission"). These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.

---------------

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports,
proxy statements and other information filed by the Company with the Commission
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 75 Park Place, New York, New York
10007; and the Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621; and copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W. Judiciary
Plaza, Washington, D.C. 20549 at prescribed rates. The Commission also maintains
an Internet Web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the Commission
at http://www.sec.gov.

The Company intends to distribute to its stockholders annual reports
containing audited financial statements with a report thereon by independent
certified public accountants after the end of each fiscal year. In addition, the
Company will furnish to its stockholders quarterly reports for the first three
quarters of each fiscal year containing unaudited financial and other
information after the end of each fiscal quarter, upon written request to the
secretary of the Company.

The Company has filed with the Commission a registration statement on Form
SB-2 (together with all amendments and exhibits, herein referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.

Page 5 of 59
<PAGE>

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE
"RISK FACTORS."

The Company designs and manufactures specialized filtration devices. The
Company's specialty high performance filtration products are designed and
manufactured to meet specific customer needs. The Company's products are used
in automobile airbag inflators, aerospace, petrochemical and a wide range of
commercial and industrial applications. The Company believes its products are
state-of-the-art in filtration technology, and the Company believes each such
product achieves effectiveness of performance through a careful selection of
materials ranging from all welded titanium construction to epoxy assembled
paper elements.

The Company produces filters which are an integral part of conventional
pyrotechnic automotive airbag inflators. The primary functions of the airbag
filter is to control the expansion of the hot gas into the inflating bag, to
prevent hot particles of combustion from entering the expanding bag, and to
cool the hot expanding gas. The Company's filters are comprised of a blend of
woven wire meshes and random fiber materials.

The Company also designs, manufactures and operates high precision
machines for its own use to fabricate airbag filters. Because such machines
require minimal time for tooling changes between production runs of different
filter types, the Company believes that these methods result in greater
flexibility and lower unit costs without compromising the high reliability
which the Company believes is essential for automotive airbag filters.

The Company designs, develops and produces new filters in response to
requests for proposals made by various airbag inflator manufacturers, both
domestic and foreign. The Company intends to continue to enhance its technology
and product development in order to meet the changing needs of airbag
manufacturers and their customers. The Company is developing filters for the
next generation azide and non-azide passenger and side impact airbag
applications. No assurance can be given when, if ever, such products will be
available for commercial sale, or whether such products will be successful.

The Company also designs and manufactures precision filtration products
for critical applications. Specializing in highly reliable, all metallic filters
of standard and custom design, the Company's products range from filters in
hydraulic, fuel and pneumatic systems, and large cryogenic and petrochemical
filters. The Company also designs and manufactures surface tension devices for
propellant management in missiles and satellites using porous metal,
high-performance filter media and specialized gas tungsten arc welding
processes.

The Company supplies filters for United States space applications,
including the Space Shuttle program, various commercial and military
satellites, launch vehicles and boosters, and ground support equipment. The
Company, through its "Michigan Dynamics" brand, supplies lightweight airframe

Page 6 of 59
<PAGE>

fuel filters for helicopters and sells these products to the United States Army,
Bell Helicopter and several offshore helicopter manufacturers. The Company is
also exploring new applications with McDonnell Douglas Helicopter and Sikorsky
Helicopter. The Company's discussions, however, are preliminary discussions
only, and no assurance can be given, when, if ever, any agreement can be reached
with any of such parties, or if reached that any ensuring agreement would be on
terms favorable to the Company.

The Company also supplies aftermarket filtration products used in jet
aircraft and turboshaft powered aircraft and helicopters. Utilizing reverse
engineering techniques, the Company produces "generic plain wrap" filters for
use in the aftermarket. The Company has, and tries to obtain, exclusive
agreements with its distributors for a particular market segment.

The Company was incorporated in Delaware in 1961 and has its principal
offices located at 16559 Saticoy Street, Van Nuys, California 91406. The
Company's telephone number is (818) 756-1388.

THE OFFERING

Securities Offered.................... 2,530,000 shares of Common Stock held
by the Selling Security Holders, 277,100
Options to purchase shares of Common
Stock and 277,100 shares of Common
Stock underlying such Options held by
the Placement Agents and the
Optionholder. See "Selling Security
Holders and Plan of Distribution."

Risk Factors.......................... The securities offered hereby involve a
high degree of risk. See "Risk Factors."

Bulletin Board System Symbol.......... PURO

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<PAGE>

SUMMARY FINANCIAL INFORMATION

Year Ended January 31
---------------------
1995 1996 1997
----------- ----------- -----------
(Unaudited)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales.......................... $ 9,044,707 $ 8,815,889 $ 8,458,454
Gross profit....................... 1,400,285 2,569,629 2,569,629
Income (loss) from continuing
operations before taxes.......... (521,242) 668,585 668,585
Net income (loss) from continuing
operations....................... (526,842) $ 662,985 $ 662,985
Net income (loss) $(2,372,156) $ 898,119 $ 662,985
=========== =========== ===========
Earnings (loss) per share(1) $ (0.53) $ 0.19 $ 0.11
=========== =========== ===========
Weighted average common and dilutive
common equivalent shares outstanding 4,508,521 4,631,740 6,107,812

January 31, 1997
----------------

CONSOLIDATED BALANCE SHEET DATA:
Cash....................................................... $ 164,415
Current assets............................................. 3,123,630
Current liabilities........................................ 605,879
Working capital............................................ 2,517,751
Total assets............................................... 4,094,945
Total debt................................................. 0
Stockholders' investment................................... 3,489,066

(1) The computation of the net income (loss) per common share (primary) is
based on the weighted average number of common shares and common share
equivalents outstanding.

Page 8 of 59
<PAGE>

RISK FACTORS

An investment in the Securities being offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following risk factors should be considered in evaluating the Company and its
business before purchasing the Securities offered hereby.

RECENT SUBSTANTIAL LOSSES; NO ASSURANCE OF FUTURE PROFITABILITY

As recently as the fiscal years ended January 31, 1995 and 1994, the
Company incurred substantial losses of $2,372,156 and $565,926, respectively.
In its efforts to return to profitability, the Company sold off three divisions
to focus on its traditional strength in high performance filtration. In
November 1994, the Company sold its ultraviolet water product subsidiary,
Ultra Dynamics Corporation. In the year ended January 31, 1996, the Company
sold its valve product subsidiary, Decca Valves Corporation and shut down
operations of its Michigan Dynamics subsidiary. There is no assurance that the
Company's efforts and strategy will result in profitable operations in the
future.

RECENT TERMINATION OF RECEIVERSHIP RESULTING FROM DEFAULT IN CREDIT AGREEMENT;
POTENTIAL DEFAULT

The Company was a party to a credit agreement (the "Credit Agreement")
with Imperial Bank (the "Bank"). The terms of the Credit Agreement included
certain restrictive covenants including maintenance of minimum working capital,
net worth and ratios of current assets to current liabilities and debt to net
worth. As a result of the Company's default of certain such covenants, the Bank
filed a lawsuit against the Company in 1995 in the Superior Court of California.
As a result of such lawsuit, on May 1, 1995, the Superior Court of California
appointed and the Company entered into a stipulation for the establishment of a
receivership (the "Receivership") and the appointment of a receiver (the
"Receiver"). The Receiver then assumed jurisdiction over all of the Company's
assets and operated the Company with the assistance of existing management until
August 22, 1996 when the Receivership was terminated by order of the Superior
Court of California and control of the Company was returned to the Board of
Directors and management. The Company has obtained a new $750,000 revolving bank
credit line and a $300,000 non-revolving, equipment acquisition credit line. The
terms of both loan agreements contain certain restrictive covenants, including
maintenance of minimum working capital, net worth and ratios of current assets
to current liabilities and debt to net worth. There is no assurance that the
Company will not default under any of such restrictive covenants. Any such
default could have a material adverse effect on the Company and its operations.

LITIGATION

As set forth under "Legal Proceedings," the Company is a party to various
legal proceedings. At January 31, 1997, the Company had a reserve recorded of
$242,000 in anticipation of certain judgments against the Company and may record
additional accruals. The Company believes it will prevail in its defenses and
does not expect that such litigation will have a material adverse effect on its
financial position or results of operations. However, there can be no assurance
that the Company will prevail in its defenses. In the event that one or more of
such cases is decided against the Company, the effect of such decisions could
have a material adverse effect upon the Company and its financial position and
results of operations.

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<PAGE>
DEPENDENCE ON THE AUTOMOTIVE INDUSTRY

As a supplier to the automotive industry, the Company's business is
dependent on many factors including the level of domestic vehicle sales, which
are cyclical and dependent on, among other things, the economy, consumer
spending, potential work stoppages, adverse weather conditions, potential
problems with obtaining supplies and other risks of production. In addition, the
Company's business is subject to the seasonal characteristics of the automotive
industry in which there are seasonal shutdowns in the third and fourth calendar
quarters of each year, which typically result in lower shipments of airbag
filters during these quarters. Reduced growth or contraction in the automotive
industry may have a material adverse effect on the Company's future operating
results.

PRICING OF AUTOMOTIVE FILTERS

The continued sale of the Company's airbag filters is conditioned upon,
among other things, the Company's prices remaining competitive. The Company
anticipates that there will be continued downward pressure on the price of its
products over the next several years as a result of competition and slackening
demand by automakers. As the Company's volume of sales of airbag filters has
increased, the price per unit has decreased and is expected to continue to
decrease. If the unit price declines in the future are not accompanied by
corresponding decreases in production costs, the Company's profit margin may be
adversely affected. The Company's future profitability will depend on, among
other things, its ability to continue to improve its manufacturing efficiencies
and maintain a cost structure that will enable the Company to offer competitive
prices. The Company anticipates that it will continue to incur capital
expenditures to accomplish these objectives. There is no assurance that the
Company will have the resources to meet such objectives. The inability of the
Company to offer competitive prices for its products would have a material
adverse effect on its business.

PRODUCT LIABILITY

The Company maintains general liability, automobile, product liability,
workers' compensation, and employer's liability insurance coverage. The Company
is engaged in various businesses which could expose it to claims for injury,
resulting from the failure of products sold by it. The Company has product
liability insurance, covering in such amounts and against such risk as
management believes advisable, in light of the Company's business and the terms
and cost of such insurance. There is no assurance that claims will not arise in
the future in excess of such insurance or that the Company will maintain the
same level of insurance coverage in the future.

DEPENDENCE ON THE AUTOMOTIVE AIRBAG BUSINESS AND CUSTOMER CONCENTRATION

The Company's sale of airbag filters is dependent upon the continued
increased demand for automotive airbag systems. Sales of airbag filters
accounted for approximately 43% and 50% of net sales during fiscal 1997 and
fiscal 1996, respectively. There is no assurance that airbag systems will
continue to be the commercially preferred system for supplemental passenger
restraints. In addition, new technologies for airbags (such as hybrid inflation
of inert gases rather than pyrotechnic ignition) may be developed which, if
successful, could render the Company's products obsolete or, at a minimum,

Page 10 of 59
<PAGE>

compete with current airbag systems. In recent years, substantially all of the
Company's airbag filters manufactured have been sold to certain manufacturers on
a purchase order basis, although the Company has supplied prototype filters to
other manufacturers and is in the process of qualifying its airbag filters for a
third automotive airbag systems manufacturer. Additionally, while the Company is
in the process of designing and developing new filters for possible use in
advanced driver and passenger side airbags, the Company presently has no
commitment from third parties to purchase such filters.

COMPETITION

A broad range of companies produce products or are capable of producing
products that compete with products manufactured by the Company in its various
markets. Many of these companies have significantly greater financial resources
than the Company. Morton International, Inc. ("MII") and other major domestic
airbag manufacturers produce their airbag filter components in-house, and TRW
Vehicle Safety Systems, Inc., a significant global manufacturer of airbag
inflator assemblies ("TRW"), produces passenger side airbag filters for its own
use. Other companies may choose to enter the automotive airbag filter market.
There is no assurance that the Company's airbag manufacturer customers will not
manufacture all their own filters or that the Company will be able to compete
effectively in the future against independent manufacturers of airbag filters or
of the Company's other products.

DEFENSE INDUSTRY AND GOVERNMENT SPENDING

The Company has been supplying components for United States defense and
space programs for over 30 years. Sales by the Company under contracts directly
with the government accounted for approximately 7% of net sales in the fiscal
year ended January 31, 1997. In addition, in many cases the Company's contracts
are with prime or second-tier contractors to the United States government, and,
while the Company is not able to track the end-user of its products in all
cases, it estimates that approximately 29% of net sales during these periods
were directly or indirectly to the United States government. While the Company
is not dependent on any particular program, reliance upon defense and government
space programs has certain inherent risks. The Company's contracts, direct or
indirect, with respect to United States government agencies are subject to
unilateral termination at the convenience of the government, subject only to the
reimbursement of certain costs plus a termination fee. In addition, recent
changes in governmental policies and political developments are expected to lead
to a significant overall decrease in defense spending. These policy developments
have impacted and are expected to continue to affect the Company, including new
programs which otherwise might have utilized the Company's high performance
filters. The Company intends to focus on commercial applications of such
products and the continued supply of replacement parts to the government.

GOVERNMENT REGULATION; LIMITED NUMBER OF PERSONS ELIGIBLE TO PARTICIPATE IN
GOVERNMENT CONTRACT BIDDING

Demand for the Company's airbag filters is affected by federal safety
regulations requiring the installation of' passive restraint systems in certain
vehicles by certain dates. Although the Company believes that automotive safety
requirements will not be relaxed, an extension of compliance deadlines or other
regulatory changes could have an adverse effect on the demand for the Company's
products.

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<PAGE>

Moreover, demand for the Company's airbag filters was initially affected
by federal regulations requiring installation of airbags in passenger cars,
light trucks, and vans. Consumer demand is now the leading force in the growth
of this product segment. Demand for the Company's commercial aerospace products
is affected by the Federal Aviation Administration ("FAA") Regulations for
National and International Operations. While the Company believes that the
trends in automotive safety are toward increased regulation and are beneficial
to the Company, a decline in enforcement or compliance expenditures, a change in
the regulations, or an emerging technology that would deem airbags as obsolete
could have a significant adverse effect on the demand for the products offered
by the Company.

United States government contracts and related customer orders subject the
Company to various laws and regulations governing United States government
contractors and subcontractors, generally which are more restrictive than for
non-government contractors. This includes subjecting the Company to examinations
by government auditors, and investigators, from time to time, to insure
compliance and review costs. Violations may result in costs disallowed, and
substantial civil or criminal liabilities (including, in severe cases, denial of
future contracts). The United States government may limit the competitive
bidding of any contract under a small business or minority set-aside, in which
bidding is limited to companies meeting the criteria for a small business or
minority business, respectively. The Company is currently qualified for small
business, but not minority ownership, set-asides. To the extent bidding may be
so limited, the Company has an opportunity to benefit from the reduced number of
qualified bidders. No assurance can be given, however, that in the future the
government will not expand the number of persons eligible to bid for such
business or choose to open such bidding to a larger array of persons, which
could have a material adverse effect upon the Company.

DEPENDENCE UPON KEY PERSONNEL

The Company's success depends to a significant degree upon the continued
contributions of its management team, including Michael H. Figoff, and
technical, marketing and sales personnel. While the Company has entered into an
employment agreement with Mr. Figoff, the Company's employees may voluntarily
terminate their employment with the Company at any time. Competition for
qualified employees and personnel in the filtration devices industry is intense
and, from time to time, there are a limited number of persons with knowledge of
and experience in particular sectors of the filtration devices industry. The
Company's success also will depend on its ability to attract and retain
qualified management, marketing, technical and sales executives and personnel.
The process of locating such personnel with the combination of skills and
attributes required to carry out the Company's strategies is often lengthy. The
loss of the services of key personnel, or the inability to attract additional
qualified personnel, could have a material adverse effect on the Company's
results of operations, development efforts and ability to expand. There can be
no assurance that the Company will be successful in attracting and retaining
such executives and personnel. Any such event could have a material adverse
effect on the Company.
See "Management."

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALES AND OUTSTANDING STOCK OPTIONS

As of May 6, 1997, there were 7,108,721 shares of Common Stock outstanding
of which 2,530,000 shares are "restricted securities" as defined under Rule 144
under the Securities Act. Sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market price of the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. In addition, as of January 31, 1997, the Company had
granted stock options to purchase in the aggregate 249,860 shares of its Common
Stock at exercise prices ranging from $.25 to $.75, and under its Stock Option
Plan, the Company has an additional 266,000 shares available for issuance
pursuant to stock options. The exercise of currently outstanding options in the
future would increase the number of shares of Common Stock outstanding and could
have a dilutive effect on the Common Stock and prevent the Company from raising
additional financing if required.

NO CASH DIVIDENDS

The holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefor.
To date, the Company has not paid any cash dividends. The Board does not intend
to declare any cash dividends in the foreseeable future, but instead intends to
retain all earnings, if any, for use in the Company's business operations.

ISSUANCE OF PREFERRED STOCK

The Company's Certificate of Incorporation permits its directors to
designate the terms of and issue shares of Preferred Stock. The issuance of
shares of Preferred Stock by the Board of Directors could adversely affect the
rights of holders of Common Stock by, among other matters, establishing
preferential dividends, liquidation rights and voting power. Although the
Company has no present intention to issue shares of Preferred Stock, the
issuance thereof might render it more difficult, and therefore discourage, an
unsolicited takeover proposal such as a tender offer, proxy contest or the
removal of incumbent management, even if such actions would be in the best
interest of the Company's stockholders.

COMMON STOCK NOT ELIGIBLE FOR NASDAQ SMALLCAP MARKET SYSTEM; LIMITED TRADING
MARKET FOR COMMON STOCK

The Company does not meet the qualifications to have its Common Stock
approved for quotation on the NASDAQ SmallCap Market system (the "NASDAQ
System"). There can be no assurance when, if ever, the Company will qualify for
the NASDAQ System. The Company's Common Stock was delisted from trading on the
NASDAQ System on June 9, 1995 as a result of the Company's failure to meet
minimum capital requirements of $1,000,000. Since such time, the Company's
Common Stock has traded, and continues to trade, on the Bulletin Board System,
and reported by the National Quotation Service (Pink Sheets) under the symbol
"PURO." The Company's Common Stock is thinly and sporadically traded and no
assurance can be given a larger market will ever develop, or if developed, that
it will be maintained. As a result, an investor in the shares of Common Stock
offered hereby may not be able to dispose of its shares on favorable terms, or
to obtain accurate quotations as to the value of its shares.

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<PAGE>

RISKS OF LOW-PRICED SECURITIES

Because the Company's Common Stock is not approved for quotation on the
NASDAQ System, the Common Stock is subject to rules under the Exchange Act which
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established clients and "accredited investors".
For transactions covered by such rules, a broker-dealer must make a special
suitability determination of the purchaser and have received the purchaser's
written consent to the transaction prior to the sale. Consequently, such rules
may affect the ability of broker-dealers to sell the Company's Common Stock and
the ability of purchasers in this offering to sell any of their respective
shares acquired in this offering in any secondary market that may develop for
such Common Stock.

The Commission has enacted rules that define a "penny stock" to be any
equity security that has a price of less than $5 per share or an exercise price
of less than $5 per share, subject to certain exceptions, including, securities
listed on the NASDAQ System or on designated exchanges. For any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
any transaction in a penny stock, of a disclosure statement prepared by the
Commission relating to the penny stock market. Disclosure also has to be made
about the risks of investing in penny stocks in both public offerings and in
secondary trading, and about commissions payable to both the broker-dealer and
the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Because the Company's shares of Common Stock are
not listed on the NASDAQ System, or are not otherwise exempt from the provisions
of the Commission's "penny stock" rules, such rules may also affect the ability
of broker-dealers to sell the Company's securities and the ability of purchasers
in this offering to sell any of their shares acquired hereby in any secondary
market that may develop.

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains certain forward-looking statements, including
among others (i) anticipated trends in the Company's financial condition and
results of operations; (ii) the Company's business strategy for expanding its
presence in the specialized filtration devices industry; and (iii) the Company's
ability to distinguish itself from its current and future competitors. These
forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. In
addition to the other risks described elsewhere in this "Risk Factors"
discussion, important factors to consider in evaluating such forward-looking
statements include (i) changes in external competitive market factors or in the
Company's internal budgeting process which might impact trends in the Company's
results of operations; (ii) unanticipated working capital or other cash
requirements; (iii) changes in the Company's business strategy or an inability
to execute its strategy due to unanticipated change in the specialized
filtration devices industry; and (iv) various competitive factors that may
prevent the Company from competing successfully in the marketplace. In light of
these risks and uncertainties, many of which are described in greater detail

Page 14 of 59
<PAGE>

elsewhere in this "Risk Factors" discussion, there can be no assurance that the
events predicted in forward-looking statements contained in this Prospectus will
in fact transpire.

DIVIDEND POLICY

Since its inception, the Company has not paid any dividends on its Common
Stock. The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and, accordingly, does not plan, for the reasonably
foreseeable future, to pay dividends to holders of the Common Stock. Any
decision as to the future payment of dividends will depend on the results of
operations and financial position of the Company and such other factors as the
Company's Board of Directors, in its discretion, deems relevant. As of the date
of this Prospectus, there are no contractual limitations on the Company's
ability to pay dividends.

USE OF PROCEEDS

All of the Securities offered hereby are being offered by the Selling
Security Holders and the Placement Agents. The Company will not receive any of
the proceeds from the sale of the Securities. See "Selling Security Holders and
Plan of Distribution."

Page 15 of 59
<PAGE>

SELECTED FINANCIAL DATA
Year Ended January 31,
----------------------
1995 1996 1997
------ ------ ------
STATEMENTS OF OPERATIONS DATA (1): (in thousands, except per share data)
(Unaudited)

Net sales $ 9,045 $ 8,816 $8,458
Cost of goods sold 7,645 5,957 5,889
-------- -------- -------
Gross profit 1,400 2,859 2,570
Selling, general & administrative
expense 1,630 1,443 1,446
-------- --------- -------
Operating income (loss) (230) 1,416 1,124
Other income (expense) 14 (3) (10)
Interest expense (305) (279) (71)
Nonrecurring expenses(2) - (253) (394)
-------- --------- -------
Income (loss) from continuing
operations before income taxes (521) 881 669
Income tax expense 6 6 6
-------- -------- -------
Income (loss) from continuing operations (527) 875 663
Income (loss) from discontinued
operations (1,845) 23 -
-------- -------- -------
Net income (loss) $ (2,372) $ 898 $ 663
======== ======== =======
Net income (loss) per common share:
From continuing operations $ (0.12) $ 0.19 $ 0.11
From discontinued operations (0.41) 0.00 0.00
--------- -------- -------
Primary earnings per share $ (0.53) $ 0.190 $ 0.11
========= ======== =======

Weighted average number of shares 4,509 4,632 6,109

BALANCE SHEET DATA:

Working Capital $(1,214) $ (13) $ 2,518
Total Assets 4,721 3,962 4,095
Long-Term Debt 71 - -
Stockholders' Equity 185 1,083 3,489

(1) In November 1994, the Company sold its ultraviolet water product
subsidiary, Ultra Dynamics Corporation. The Company had originally
reported a loss from discontinued operations of $542,930 for this
subsidiary in the fiscal year ended January 31, 1995. In the year ended
January 31, 1996, the Company sold the assets of its valve product
subsidiary, Decca Valves Corporation, for $305,000 in cash and shut down
operation of its Michigan Dynamics subsidiary. These two subsidiaries
have been accounted for as discontinued operations. The selected data

Page 16 of 59
<PAGE>
related to the year ended January 31, 1995 was adjusted to reflect these
additional discontinued operations.

(2) Nonrecurring expenses are comprised of a one-time fee of $89,834 charged
by the Bank during August 1996, and the monthly administrative fees
charged by the Receiver during the receivership period. The Receivership
Estate began on May 1, 1995 and ended on August 22, 1996.

SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION

The Selling Security Holders, the Placement Agents and the Optionholder
have advised the Company that sales of the Securities may be effected from time
to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, through the writing of
options on or a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Security Holders, the Placement Agents and the Optionholder
may effect such transactions by selling the Securities directly to purchasers or
through broker-dealers that may act as agents or principals. Such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the Selling Security Holders, the Placement Agents and the Optionholder
and/or the purchasers of securities for which such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).

The Selling Security Holders, the Placement Agents, and the Optionholder
and any broker-dealers that act in connection with the sale of the Securities as
principals may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the securities and/or as principals might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Security Holders, the Placement Agents and the Optionholder may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the Securities against certain liabilities, including
liabilities arising under the Securities Act. The Company will not receive any
proceeds from sales of the Securities by the Selling Security Holders, the
Placement Agents or the Optionholder. Sales of the Securities by the Selling
Security Holders, the Placement Agents and the Optionholder, or even the
potential of such sales, would likely have an adverse effect on the market price
of the Common Stock.

The can be no assurance that the Selling Security Holders, the Placement
Agents or the Optionholder will be able to sell some or all of the Securities
listed for sale herein. See "Risk Factors."

The following table sets forth certain information with respect to the
Selling Security Holders, the Placement Agents and the Optionholder for whom the
Company is registering the Securities for sale to the public. The Company will
not receive any of the proceeds from the sale of the Securities. There are no
material relationships between any of the Selling Security Holders, the
Placement Agents or the Optionholder, on the one hand, and the Company, on the
other hand. Beneficial ownership of the Securities by each Selling Security
Holder, the Placement Agents and the Optionholder after the sale will depend on
the number of Securities sold by each Selling Security Holder, the Placement
Agents and the Optionholder. The Securities offered by the Selling Security
Holders, the Placement Agents and the Optionholder are not being underwritten.

Page 17 of 59
<PAGE>
SELLING SECURITY HOLDERS

Number
of Shares Number Beneficial
Beneficially of Shares Ownership
Name of Selling Owned Prior Being After
Stockholder to Offering Offered Offering
- - - - --------------- ------------ --------- ----------

Milton Koffman 62,500 62,500 0
Dr. Eugene Snowden 62,500 62,500 0
Dr. Eugene Snowden KEOGH 62,500 62,500 0
Jack McLeod 50,000 50,000 0
Andre W. Iseli 62,500 62,500 0
Ron Berger 30,000 30,000 0
Timary K. Koller/Richard E. Koller 15,625 15,625 0
William Hurd 30,000 30,000 0
Delaware Charter Guarantee &
Trust FBO: Ronald I. Heller; IRA 312,500 312,500 0
Bette Nagelberg 312,500 312,500 0
Lyonshare Venture Capital/
Alan R. Lyons, Managing Ptnr. 250,000 250,000 0
Vestal Venture Capital/
Alan R. Lyons, Managing Ptnr. 100,000 100,000 0
Alan Jablon 25,000 25,000 0
Edda Brown 15,000 15,000 0
Peter Blowitz(1) 40,000 40,000 0
Camden Research Corp. 30,000 30,000 0
Marlin M. Merhab 15,000 15,000 0
John P. Konop 15,000 15,000 0
Boston Safe Deposit Trust Co. FFC:
Virginia Retirement System 625,000 625,000 0
Joy A. Svenson 30,000 30,000 0
Victoria R. Miller 15,000 15,000 0
James A. Cavaricci 300,000 300,000 0
Conrad S. Haythorne & Elaine E.
Haythorne Trustees FBO Elaine E.
Haythorne Trust D/T/D 11/23/93 15,000 15,000 0
Manhattan Group Funding 64,375 64,375 0
Howard Falco(1) 13,190 13,190 0
Patrick Sheedy(1) 15,000 15,000 0
Ron Heller(1) 20,300 20,300 0
Rick Smith(1) 10,500 10,500 0
Cynthia Keefover(1) 40,000 40,000 0
Paul Fiorini(1) 68,110 68,110 0
Coffin-KCSA(1) 100,000 100,000 0

TOTALS: 2,807,100 2,807,100 0

(1) The securities being offered by such securityholder includes Options to
purchase shares of Common Stock and the shares of Common Stock underlying
such Options.

Page 18 of 59
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The Company was incorporated in Delaware in 1961, under the name Ultra
Dynamics Corporation, and was originally engaged in the water purification
business.

In November 1968, the Company organized Puroflow Corporation to acquire
all of the assets and liabilities of a business established in 1961, under the
name Aerospace Components Corporation, and was primarily engaged in the
manufacture of high performance filters for the aerospace industry. In 1980, the
Company acquired Decca Valves Corporation, a corporation engaged in the
manufacture of fluid control valves. The Company changed its name to Puroflow
Incorporated in 1983. The Company acts as the holding company, directly or
indirectly, for Puroflow Corporation.

In fiscal 1989, the Company began designing, testing and producing filters
for automotive airbag systems, primarily as an outgrowth of its expertise in
aerospace filtration. During September 1992, the Company disposed of its
Chemical Process Industry ("CPI") division, including CPI assets it had acquired
from Michigan Dynamics Inc. ("MDI") in June 1992. During November 1994, the
Company settled litigation with Glasco Ultraviolet Systems, Inc. and disposed of
the operating assets of Ultra Dynamics Corporation, its ultraviolet water
products subsidiary. During June 1995, the Company disposed of the inventory and
intangible assets of Decca Valve Corporation and shut down its MDI subsidiary.
The Company still markets certain filters under the MDI brand name. The disposal
of these assets have been accounted for as a discontinued operation.

The Company's principal products consist of automotive airbag filters and
high performance filters. Net sales for each of these products lines for the
fiscal years ended January 31, 1995, 1996 and 1997 are as follows:

Year Ended January 31,
----------------------
(in thousands)
1995 1996 1997
-------- -------- --------

Net Sales:
Airbag Filters $ 6,361 $ 4,175 $ 3,639
High Performance 2,684 4,641 4,819
------- ------- -------

TOTAL $ 9,045 $ 8,816 $ 8,458
======= ======= =======

Page 19 of 59
<PAGE>

RESULTS OF OPERATIONS

The following table reflects the percentage relationship to net sales of
certain items included in the Company's statement of operations for each of the
three years in the period ended January 31, 1997.

Year Ended January 31,
--------------------------------
(in thousands)
1995 1996 1997
------- ------- ------
Net Sales: 100.0% 100.0% 100.0%

Cost and expenses:
Cost of goods sold 84.6 67.5 69.6
Selling, general and administrative 18.0 16.4 17.1
Other (income) expense (0.2) (.1)
Non-recurring expenses 2.9 4.7
Interest expense 3.4 3.2 .8
Income (loss) from continuing ------- ------- ------
operations be income taxes (5.8) 10.0 7.9
Provision for income taxes (.1) (.1) (.1)
Income (loss) from discontinued
operations 20.3 0.3 -
------- ------- ------
Net income (loss) (26.2)% 10.2% 7.8%
======= ======= ======

COMPARISON OF THE FISCAL YEARS ENDED JANUARY 31, 1997 AND 1996

Net sales in fiscal 1997 decreased 4.1%, compared to fiscal 1996, due
primarily to a decrease in sales of airbag filters from $4,175,000 to $3,639,000
resulting from a continuance of customer supplied raw materials and price
adjustments. Sales of high performance filters increased in the current fiscal
year to $4,819,000 from $4,641,000, due primarily to continued concentration on
expanding the PMA program. The Company has obtained FAA approval for 40 part
numbers and there are 11 applications pending for parts qualification as of
January 31, 1997. The year-to-year decrease in sales was also due to a minimum
marketing effort by management during the receivership period which ended
August 22, 1996.

Gross profit as a percentage of net sales was 30.4% for fiscal 1997,
compared to 32.5% in fiscal 1996. The reduction in gross profit was due to the
increase in material costs and price adjustments for airbag business.

For the fiscal year ended 1997 and 1996, selling, general and
administrative expenses were $1,446,000 and $1,443,000, respectively, due to
continued cost control of overhead despite payroll adjustment for annual
salaries for employees and year end bonuses for key personnel.

Interest expense decreased by $207,000 in fiscal 1997 due to elimination
of bank debt in the middle of fiscal 1997.

Page 20 of 59
<PAGE>

Non recurring expenses of $394,000 and $253,000 in fiscal 1997 and 1996,
respectively, were a direct result of the Receivership which was terminated on
August 22, 1996.

A provision for income taxes of $5,600 for minimum franchise taxes to the State
of California was recorded. No additional provision is necessary due to the
Company's federal net operating loss carryforwards of approximately $2,728,000
for federal income tax purposes and $1,852,000 for California state income tax
purposes at January 31, 1997. Such operating loss carryforwards expire from 2008
to 2011.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations from the placement of bank
financing, sale of Common Stock and, in profitable years, income from
operations. In fiscal 1997, cash provided by operating activities was $339,000,
consisting of $663,000 from net income, non-cash operating income and expenses
of $209,000 and an increase in inventories, prepaid expenses, and a reduction in
accounts payable and accrued expenses offset by a reduction in accounts
receivable.

The Company's working capital was $2,518,000 and $(13,000) as of January 31,
1997 and 1996 respectively. An improvement in the current ratio to 5.2 at
January 31, 1997 from 1.0 at January 31, 1996 provided for a change in the
Company's ability to pay its obligations.

Cash used in investing activities was used to purchase plant equipment of
$253,000, offset by collection on notes receivable of $63,000.

On March 26, 1996, the Company entered into an agreement with Toluca Pacific
Securities Corporation ("TPSC") to raise equity through a private placement
offering. On July 24, 1996, such offering was completed. The Company sold
2,530,000 shares of Common Stock and received $1,742,900 of net proceeds,
including $1,300 of interest. The purchase price of the Common Stock was $.80
per share. From the gross proceeds, TPSC received a fee of $202,400. TPSC (or
its designees) also received 24-month options to purchase 177,100 common shares,
at a price of $.80 per share. Proceeds received by the Company were used to
retire bank debt and other pre-Receiver debt. Pursuant to the terms of a
Registration Rights Agreement, the Company is obligated to register the
Securities under the Securities Act.

On August 13, 1996, all bank debt owed by the Company was repaid. On August 22,
1996, the Receivership Estate was terminated by order of the Superior Court of
the State of California and control of the Company was returned to the Board of
Directors and management.

Additionally, the Company entered into a new banking relationship. The Company
obtained a $750,000 revolving credit line. This credit line bears interest at
the rate of prime plus 1.5% per annum, and is secured primarily by the Company's
accounts receivable and inventories. The Company also obtained a $300,000,
non-revolving equipment acquisition credit line, which bears interest at the
rate of prime plus 1.75% per annum, and is secured by all of the Company's
assets. Both of these loans are cross-collateralized. The terms of these loan
agreements contain certain restrictive covenants, including maintenance of (i)

Page 21 of 59
<PAGE>

aggregate net worth (plus subordinated debt, less any intangible assets and less
any amount due from shareholders, officers and affiliates of the Company) of not
less than $3,250,000, (ii) a ratio of current and non-current liabilities (less
subordinated debt) to net worth of not more than 0.50 to 1.00, (iii) working
capital of not less than $2,000,000, and (iv) debt service coverage ratio of not
less than 1.75 to 1.00. The Company is currently in compliance with the
foregoing covenants.

COMPARISON OF THE FISCAL YEARS ENDED JANUARY 31, 1996 AND 1995

Net sales in fiscal 1996 decreased 2.5% compared to fiscal 1995. This is
due primarily to a decrease in sales of airbag filters from $6,361,000 to
$4,175,000 due to a change in customer supplied raw material in the current year
compared to prior year practice of the Company supplying the raw material. Sales
of high performance filters, including the Parts Manufacturing Authority program
("PMA") administered by the FAA, increased in the current year to $4,641,000
compared to $2,684,000 in the prior year.

The Company supplied the airbag filters on an exclusive basis to two
customers, who in turn sell airbags to various automobile manufacturers
(including Honda, General Motors, Mazda, Mitsubishi, Chrysler, Fiat, Ford of
Australia and Jaguar). Several other major inflator manufacturers indicated an
interest in the Company's R&D program for developing passenger and side impact
non- azide programs. The increased sales of high performance filters is due
primarily to the developing market for parts manufactured under PMA and the
signing of exclusive distributorship agreements. Under PMA, the Company submits
an application to the FAA which contains a proposal by the Company to
manufacture a specified part, the fabrication of which is subject to regulation
by the FAA. Following manufacture, the part is distributed by a distributor with
whom the Company has entered into an exclusive distribution agreement. The
Company is not authorized to manufacture the part until it has obtained PMA
certification. As noted above, parts manufactured by the Company under PMA
represent an increasing proportion of the Company's business and the Company
anticipates that this trend will continue.

The variation in the gross margins of 32.5% in fiscal 1996, compared to
15.4% in fiscal 1995, is a result of a combination of factors. The Company
consolidated its manufacturing facilities in September 1995 with reduced rental
and manufacturing costs; increased prices in the PMA program line, and increased
margins in high-performance filters with cost controls and manufacturing
efficiencies. The gross margins in fiscal 1995 were affected by high
manufacturing and other costs incurred during the program start-up phase of the
PMA products due to the learning curve and the time lag in securing
qualification of the PMA products. Because the Company has gained experience
with the application process associated with PMA, it is more familiar with the
requirements of PMA and, as such, is able to anticipate the documentation and
other information which is required to be submitted to the FAA in order to
obtain FAA approval. As a result, the Company is more efficient in handling the
processing of PMA submissions and consequently expends less time and expense in
the PMA approval process.

Selling, general and administrative expenses were $1,443,000 and 1,630,000
for fiscal 1996 and 1995 respectively, a decrease of 11.5%, due primarily to
overhead cost controls, the move to the new facility, and head-count reduction
from 102 employees to 72 employees.

Page 22 of 59
<PAGE>

Interest expense decreased to $279,000 in fiscal 1996 from $305,000 in
fiscal 1995 due to the reduction of the principal balance outstanding. This
occurred despite an increase in the interest rate to 12% by the lending
institution.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations from the placement of
bank financing, sale of Common Stock and, in profitable years, operating cash
flows. In fiscal 1996, cash provided by operating activities was $1,312,000,
consisting of $898,000 from income, non-cash operating expenses of $660,000, and
a reduction in inventories and prepaid expense and other assets, offset by an
increase in accounts receivable, and reduction of accounts payable and accrued
expense.

Cash provided by investing activities was primarily from proceeds from
sale of property and equipment. Cash provided by operations and investing
activities was used to reduce bank debt by $1,669,000.

The Company's debt at January 31, 1996 was $1,764,000, consisting of line
of credit and notes payable to the bank of $1,080,000 and notes payable to
vendors of $684,000 representing a reduction in debt of $1,669,000 from
January 31, 1995.

In addition, the Company had a revolving line of credit with its bank,
under which it could borrow up to the lesser of $1,200,000 or 65% of eligible
accounts receivable. Outstanding balances accrued interest at the bank's prime
rate plus 3.5% (12% at January 31, 1996). This line was secured by the Company's
accounts receivable, inventories and a first priority interest in all
unencumbered assets. The Company had an outstanding balance of $236,000 under
this agreement at January 31, 1996.

The terms of the credit agreements contained certain restrictive covenants
including maintenance of minimum working capital, net worth and ratios of
current assets to current liabilities and debt to net worth. The Company was in
default on various loan covenants. As a result, on May 1, 1995, the Company
entered into a stipulation for the immediate appointment of a Receiver. The
appointment was based upon the default of the Company on its obligations under
these agreements with the Bank. The Receiver then assumed jurisdiction over all
of the Company's assets and operated the Company with the assistance of existing
management until August 22, 1996 when the Receivership was terminated by order
of the Superior Court of California and control of the Company was returned to
the Board of Directors and management.

The Company has obtained a new $750,000 revolving bank credit line and a
$300,000 non-revolving equipment acquisition credit line.

EFFECTS OF INFLATION ON BUSINESS

Management believes that inflation has not had a material effect on the
Company's operations.

BUSINESS

The Company designs and manufactures specialized filtration devices. The
Company's specialty high performance filtration products are designed and

Page 23 of 59
<PAGE>

manufactured to meet specific customer needs. The Company's products are used in
automobile airbag inflators, aerospace, petrochemical and a wide range of
commercial and industrial applications. The Company believes its products are
state-of-the-art in filtration technology, and the Company believes each such
product achieves effectiveness of performance through a careful selection of
materials ranging from all welded titanium construction to epoxy assembled paper
elements.

The Company produces filters which are an integral part of conventional
pyrotechnic automotive airbag inflators. The primary functions of the airbag
filter is to control the expansion of the hot gas into the inflating bag, to
prevent hot particles of combustion from entering the expanding bag, and to cool
the hot expanding gas. The Company's filters are comprised of a blend of woven
wire meshes and random fiber materials.

An entire pyrotechnic airbag system includes the bag, the inflator
(initiator, filter and gas generant), the module for the steering wheel or
dashboard, the sensors, and the diagnostics. When the crash sensors (located in
the front of the vehicle) detect a rapid deceleration equivalent to hitting a
stationary object at a predetermined speed, an electrical impulse is transmitted
to the initiator. The initiator triggers a chemical reaction of the airbag's gas
generant, which inflates the bag, forcing open the module's cover (located
either in the center of the steering wheel or in the dashboard on the
passenger-side). The inflation sequence is designed to take place in less than
one-tenth of a second without interfering with control of the car. After
inflation, the airbag automatically deflates in less than one second.

The Company also designs, manufactures and operates high precision
machines for its own use to fabricate airbag filters. Because such machines
require minimal time for tooling changes between production runs of different
filter types, the Company believes that these methods result in greater
flexibility and lower unit costs without compromising the high reliability which
the Company believes is essential for automotive airbag filters.

The Company supplies filters for United States space applications,
including the Space Shuttle program, various commercial and military satellites,
launch vehicles and boosters, and ground support equipment. The Company, through

Page 24 of 59
<PAGE>

its "Michigan Dynamics" brand supplies lightweight airframe fuel filters for
helicopters and sells these products to the United States Army, Bell Helicopter
and several offshore helicopter manufacturers. The Company is also exploring new
applications with McDonnell Douglas Helicopter and Sikorsky Helicopter. The
Company's discussions, however, are preliminary discussions only, and no
assurance can be given, when, if ever, any agreement can be reached with any of
such parties, or if reached that any ensuring agreement would be on terms
favorable to the Company.

The Company was incorporated in Delaware in 1961 and has its principal
offices located at 16559 Saticoy Street, Van Nuys, California 91406. The
Company's telephone number is (818) 756-1388.

RECENT TERMINATION OF RECEIVERSHIP RESULTING FROM DEFAULT IN CREDIT AGREEMENT

The terms of the Credit Agreement with the Bank included certain
restrictive covenants including maintenance of minimum working capital, net
worth and ratios of current assets to current liabilities and debt to net worth.
As a result of the Company's default of certain such covenants, the Bank filed a
lawsuit against the Company in 1995 in the Superior Court of California. As a
result of such lawsuit, on May 1, 1995, the Superior Court of California
appointed and the Company entered into a stipulation for the immediate
appointment of the Receiver. The Receiver then assumed jurisdiction over all of
the Company's assets and operated the Company with the assistance of existing
management until August 22, 1996 when the Receivership Estate was terminated by
order of the Superior Court and control of the Company was returned to the Board
of Directors and management.

RAW MATERIALS AND SUPPLIES

The principal raw materials utilized by the Company in connection with its
filter operations include stainless steel and other man-made or natural
products, which are standard items available from a number of sources.
Additionally, the Company subcontracts out a significant portion of the
fabricated or machine parts required to produce components used in the Company's
products, which it designs and assembles. The Company believes that these
services are rapidly available from a wide variety of sources. The Company
engineers, manufactures and assembles its products at its facility in Van Nuys,
California. This facility does not handle or store hazardous substances and thus
does not incur significant costs relating to compliance with applicable
environmental laws.

PATENTS AND TRADEMARKS

Although management believes that patents and trademarks associated with
the Company's various product lines are of value to the Company, it does not
consider any of them to be essential to its business.

Page 25 of 59
<PAGE>

MAJOR CUSTOMERS

Sales to the three customers identified below represented approximately
53% of net sales during fiscal year 1997 and 60% of net sales during fiscal year
1996. For fiscal year 1997 and fiscal year 1996, sales to Breed Automotive
Technologies, Inc. were $2,200,127 and $2,047,315; sales to Inflation Systems,
Inc. were $1,438,355 and $2,213,823; and sales to Norcross Air, Inc. were
$818,372 and $1,037,135; respectively. These customers purchased airbag filters
and filters for commercial and aerospace applications. The loss of any of' these
customers would have a material adverse effect on the automotive airbag filter
or the high performance filter segments of the Company's business.

BACKLOG

As of February 28, 1997 and February 29, 1996, the Company had a firm
order backlog of approximately $5,900,000 and $5,165,000, respectively. The
backlog figures include firm purchase orders and, with respect to airbag
filters, six-month planning requirements prepared by the Company's customers. As
is generally the case in the automotive industry, the Company's airbag filter
customers provide the Company, on a monthly basis, with firm commitment purchase
orders for the upcoming three months and their best estimate for planning
purposes of their requirements for the following six-month period. These rolling
nine-month statements of firm commitment purchase orders and planning
requirements are revised and updated each month.

The Company's customer purchase orders may be revised or canceled by the
customer, subject to reimbursement of certain costs in the case of cancellation
of scheduled shipments or other commitments. The Company's contracts (direct or
indirect) with respect to United States government agencies, are subject to
unilateral termination at the convenience of the government, subject only to the
reimbursement of certain costs plus a termination fee.

MARKETING

The Company markets its airbag filters directly to airbag manufacturers
through its executive offices. The Company markets its commercial aerospace
products through exclusive distributorships on assigned PMA applications.
Typically, the terms of these distribution agreements provide that the
distributor will act as the exclusive distributor for specific parts
manufactured by the Company for a period between 3 to 5 years with minimum
monthly requirements for number and dollar amount of units purchased. The
purchase price of the parts is subject to mutual agreement of the parties and
may be adjusted to take into account inflation, market changes, changes in costs
of production and sales, and other factors. Such agreements may be terminated by
the Company if the distributor does not comply with these purchase requirements
or by either party if the other party is rendered insolvent. The Company markets
its high performance filters through manufacturers representatives and, to a
lesser extent, the Company's own sales force.

GOVERNMENT CONTRACTS

The Company has a number of direct contracts with the United States
government, and substantial sales of high performance filters are made to
companies that are prime contractors of the United States government. Sales to
the United States government accounted for approximately 7% of net sales for

Page 26 of 59
<PAGE>

fiscal 1997, 1996 and 1995. While separate figures are not maintained, the
Company believes that when added to sales to the United States government's
prime contractors, government sales accounted for approximately 29% of the
Company's net sales for fiscal 1997 and 1996 and 16% of the Company's net sales
for fiscal 1995.

COMPETITIVE CONDITIONS

The business of manufacturing automotive airbag filters and high
performance filters is highly competitive and, with respect to high performance
filters, the industry is highly fragmented. The Company believes there are
currently three principal manufacturers of airbag filters in the United States:
Morton International, Inc. ("MII"), which manufactures the filter component of
its own airbag system; National-Standard Company and the Company. Both MII and
TRW have greater financial capabilities and personnel than the Company.
Additional companies are attempting to enter the automotive airbag filter
market; however, there are substantial monetary, time, costs and quality issues
associated with product qualification, as well as development and start-up. No
assurance can be given that the Company will be able to compete in its industry
or that any airbag manufacturer which purchases the Company's products will not
choose to produce airbag filters internally in the future or to use a different
supplier.

The Company believes that the primary competitive factors in its business
are performance and price in the case of high performance filters, and airbag
filters, which are now subject to commodity pricing. While the Company believes
its prices are competitive, it does not position itself as the lowest price
supplier in all of its markets. The Company relies on the quality of its
products and customer service in order to compete with companies which in many
cases have substantially greater resources.

PRODUCT WARRANTIES

In all product lines, the Company provides standard commercial warranties,
consistent with its products and industry and typically with a duration of
twelve months. Although claims under product warranties have been minimal during
the past five years, no assurance can be given such claims will not increase in
the future.

RESEARCH AND DEVELOPMENT

In fiscal 1997, 1996 and 1995, the Company incurred research and development
expenditures of approximately $6,500, $28,000 and $381,000, respectively.
Research and development expenditures were significantly curtailed during
fiscal 1996 and 1997 while the Company was in receivership. The Company charges
research and development expenditures to operations as a production expense as
such expenditures occur. The Company intends to expand research and development
activities in its core businesses, including passenger side, advanced
driver-side and side impact airbag filters and Parts Manufacturing Authority
for the commercial aerospace products group.

REGULATION

Demand for the Company's airbag filters was initially affected by federal
regulations requiring installation of airbags in passenger cars, light trucks,

Page 27 of 59
<PAGE>

and vans. Consumer demand is now the leading force in the growth of this product
segment. Demand for the Company's commercial aerospace products is affected by
the FAA Regulations for National and International Operations. While the Company
believes that the trends in automotive safety is toward increased regulation and
are beneficial to the Company, a decline in enforcement or compliance
expenditures, a change in the regulations, or an emerging technology that would
deem airbags as obsolete, could have a significant adverse effect on the demand
for the products offered by the Company.

The Company's products produced under PMA are subject to substantial
oversight by the FAA, including review and approval by the FAA of proposals by
the Company to produce aircraft parts. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Comparison of the Fiscal
Years Ended January 31, 1996 and 1995."

EMPLOYEES

At May 6, 1997, the Company had 77 full-time employees, including 3
employed in sales and marketing, 14 employed in engineering and quality control,
and 50 employed in production. The remaining employees are administrative and
support staff. No employees are represented by a collective bargaining unit.
Management considers its relationship with its employees to be good.

INSURANCE

The Company maintains general liability, automobile, product liability,
workers' compensation, and employer's liability insurance coverage. The Company
is engaged in various businesses which could expose it to claims for injury,
resulting from the failure of products sold by it. During the last decade, the
Company has had only one claim for injury filed as a result of an Ultra Dynamics
product installation, wherein the distributor failed to service the
installation, and the Company was joined in the action. The Company has product
liability insurance, covering in such amounts and against such risk as
management believes advisable, in light of the Company's business and the terms
and cost of such insurance. There is no assurance that claims will not arise in
the future in excess of such insurance or that the Company will maintain the
same level of insurance coverage.

Page 28 of 59
<PAGE>

PROPERTIES

The following table sets forth information as to the location and general
character of the facility of the Company:

Approximate Lease Exp.
Location Principal Use Sq.Ft. Date
- - - - --------- ------------- ----------- ----------
16559 Saticoy Street Headquarters and 50,000 August 30, 2000
Van Nuys, CA 91406 manufacturing facilites
for airbag components,
government and aerospace
filtration

The Company's current sub-lease from Kaiser Aerospace & Electronics Corporation
includes the use of gas, electric, water, telephone service, real estate taxes
and parking at an annual rental of $291,000. The Company has an option to extend
the lease for 29 months until December 31, 2002, at an annual rental of
$312,000, inclusive of the above services. The Company believes its facilities
are adequate for its current needs and that suitable additional or substitute
space will be available as needed.

LEGAL PROCEEDINGS

On July 2, 1993, Ultra Dynamics, a former wholly owned subsidiary of the
Company was named as one of six co-defendants in a civil action filed by
Cynthia H. Meals in the Court of Common Pleas of Chester County, Pennsylvania
for unspecified damages resulting from improper maintenance of a treatment
system for drinking water. Ultra Dynamics is included as a co-defendant because
it supplied the equipment to a co-defendant distributor. Ultra Dynamics has
filed a cross-complaint against all co-defendants and plaintiff.

Reliable Metallurgical Processes Inc. ("Reliable") commenced an action
against the Company and Michigan Dynamics Inc., a former wholly owned subsidiary
of the Company, in September 1995, in Los Angeles County Superior Court for
breach of contract, open account, and anticipatory breach. The contract related
to the performance by Reliable of heat-treatment services which the Company
believes Reliable did not perform adequately. The plaintiff is seeking damages
in the principal sum of $133,821.37, interest at the rate of 18 percent per
annum from net thirty days after delivery of the goods and attorneys' fees and
cost of litigation.

Jerome Pearlman d.b.a. J&F Enterprises, a former director of the Company,
commenced an action in the Los Angeles County Superior Court in December 1995
for breach of an alleged promissory note for money borrowed. The plaintiff
claims that the Company has not repaid amounts due under the alleged note which
the Company disputes. The complaint seeks approximately $73,000 in damages.

J&F Management Inc., controlled by Jerome Pearlman, a former director of
the Company, commenced an action in Municipal Court of Santa Monica Judicial
District in December 1995 against the Company, and the Receiver for possession
and conversion of personal property. The complaint alleges the Company is
wrongfully in possession of a computer owned by the plaintiff under an alleged
capital lease, which claim the Company disputes. The complaint seeks damages not
to exceed $25,000.

Page 29 of 59
<PAGE>

Memtec America Corporation obtained a confession of judgment from the
Circuit Court for Baltimore County, Maryland, on December 19, 1995, against the
Company for approximately $220,000, based upon the execution of a promissory
note by a former chief executive officer of the Company, which note was executed
in exchange for goods and services delivered by the plaintiff. The Company
disputes that any amounts are due under the note as a result of the Company's
right of set-off. The judgment was obtained without due notice to the Company.
The Receiver retained counsel in Baltimore, Maryland, for the purpose of setting
aside the confession of judgment and to assert a number of counter-claims
against Memtec America Corporation. The confession of judgment was vacated by
order of the Circuit Court for Baltimore County on June 24, 1996. The Company
filed an amended counterclaim and third party complaint on August 12, 1996
against Memtec America Corporation and four former employees of the Company now
employed by Memtec America Corporation.

At January 31, 1997, an accrual in the amount of approximately $242,000
has been recorded in anticipation of judgments which may result against the
Company as a result of the foregoing. Although the Company cannot determine the
potential liability which may result from the foregoing, it believes it will
prevail in its defenses, and does not expect that such litigation will have a
material adverse effect on its financial position or results of operation. See
"Financial Statements - Note 7".

The Company is not a party, nor are its properties subject to, any
material pending legal proceedings other than ordinary routine litigation
incidental to the Company's business and the matters described above.

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The directors (each of whom is elected on an annual basis), executive officers
and key employees of the Company are as follows:

NAME AGE POSITIONS(S)
- - - - ---- --- ------------
Michael H. Figoff 53 Chief Executive Officer, President and
Director

Sandy Yoshisato 33 Corporate Secretary and Director of
Human Resources

Reuben M. Siwek 77 Chairman of the Board of Directors

Robert A. Smith 57 Vice Chairman of the Board of
Directors

Dr. Tracy K. Pugmire 66 Director

Leo S. Unger 79 Director

Page 30 of 59
<PAGE>

Michael H. Figoff is the President and Chief Executive Officer of the
Company. Mr. Figoff joined the Company in November 1988 as the Director of
Marketing, leaving his position as Director of Marketing for a division of
Ferranti International. In 1993, Mr. Figoff was elected a director and appointed
Executive Vice President of the Company. Mr. Figoff was appointed President of
the Company in February 1995 and in May 1995 was appointed President and Chief
Executive Officer. Mr. Figoff became a director in January 1993. Mr. Figoff has
more than 30 years of experience in the marketing and manufacture of aerospace
and defense related products. Mr. Figoff holds a B.S. Degree in Business
Administration with a minor in marketing.

Sandy Yoshisato joined the Company as its Corporate Secretary on July
1991. Ms. Yoshisato was promoted to Director of Human Resources of the Company
on May 15, 1995.

Reuben M. Siwek, Esq. was elected to the Board of Directors in March 1982.
Mr. Siwek is a practicing attorney in the State of New York for more than 46
years. Mr. Siwek received his Bachelor Degree in Business Administration from
St. Johns University in January 1943 and his Juris Doctor from St. Johns
University in November 1949. He holds a C.P.A. Certificate from the State of New
York issued in November 1943.

Robert A. Smith was elected to the Board of Directors in July 1994. Mr.
Smith received his B.S. Degree in Mechanical Engineering from Polytechnic
Institute of Brooklyn and a Masters in Business Administration from UCLA. His
continuing education included Harvard's Advanced Management Program and UCLA's
Executive Program. He is currently President of Haskel International Inc.'s
Industrial Products Group. Prior positions included President of Engineered
Filtration Company from October 1992 to January 1994, President of Puroflow
Corporation from February 1991 to October 1992, and President of RTS Systems
Incorporated from May 1988 to February 1991 when the Company was acquired by
Telex Communications Inc. Mr. Smith served as President of Purolator
Technologies Inc. from 1980 to 1988, and served HR Textron Inc. from 1964 to
1980 where he was General Manager of the Filter Division. He started his career
with Pall Corporation in 1960 as a design and applications engineer and was
there until 1964. Mr. Smith is a Certified Professional Manager with extensive
engineering, marketing and general management experience in the filter industry.

Dr. Tracy Kent Pugmire, Ph.D. in Chemistry, was elected to the Board of
Directors in April 1991. Dr. Pugmire was formerly employed by ARDE Inc., from
1985 through April 1991 as an Executive Vice President and Program Manager for
the development of auxiliary and emergency gas supply systems for Space Station
Freedom. Dr. Pugmire was employed as a Program Manager by Technion Inc. from
1981 to 1985, and prior thereto spent thirteen years with AVCO Company, an
aerospace company, with responsibility in all areas of propulsion engines and
system development, vehicle integration and flight operation. Dr. Pugmire's
formal education was in the fields of Engineering Physics and Physical
Chemistry.

Leo S. Unger was elected to the Board of Directors in March 1995. Mr.
Unger received his BA Degree in Math and Chemistry in 1940 from Drake University
in Iowa. Mr. Unger served with distinction in the United States Marine Corps
from 1940 to 1958, retiring with the rank of Lt. Colonel. Mr. Unger established
his executive and marketing abilities in 1953 as a Manufacturers Representative
when he created Leo Unger & Associates and various wholly owned subsidiaries

Page 31 of 59
<PAGE>

engaged in the importation of fishing tackle and small screw machine parts for
distribution through wholesale distributors in the United States. He served as
President from 1953 through 1985 when he retired. Mr. Unger brings his executive
organized marketing skills to the Board and its management team.

DIRECTORS' COMPENSATION

The Company's directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

Pursuant to Section 145 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation, as amended, provides that the Company
shall, to the fullest extent permitted by law, indemnify all directors,
officers, incorporators, employees and agents of the Company against liability
for certain of their acts. The Company's Certificate of Incorporation also
provides that, with certain exceptions, no director of the Company will be
liable to the Company for monetary damages as a result of certain breaches of
fiduciary duties as a director. Exceptions to this include a breach of the
director's duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, improper declaration of
dividends and transactions from which the director derived an improper personal
benefit.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to any arrangement, provisions or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by the director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

EXECUTIVE COMPENSATION

The table below presents the compensation of the Company's chief executive
officer and former chief executive officer (each, a "Named Executive Officer")
for services rendered to the Company in all capacities for the periods shown. No
other executive officer of the Company earned in excess of $100,000 during this
period.

Page 32 of 59
<PAGE>
Annual Compensation
-------------------------------------------
FISCAL ALL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS COMPENSATION
- - - - --------------------------- ---- ------ ------- ------------

Michael H. Figoff 1997 $150,000 -0- $ 16,748
Chief Executive Officer and 1996 105,213 100,000 16,748
President 1995 105,213 55,000 16,748

Joseph B. Jasso 1997 -0- -0- -0-
Former Chief Executive Officer 1996 -0- -0- -0-
and President 1995 96,596 -0- 17,420

TOTAL 1997 $150,000 -0- $ 16,748(1)

(1) Includes auto allowance, life insurance and disability premiums.

PRINCIPAL STOCKHOLDERS

The following table sets forth information as to the number of shares of
Common Stock beneficially owned as of the date of this Prospectus by (i) each
beneficial owner of more than five percent of the Company's outstanding Common
Stock, (ii) each current Named Executive Officer and director and (iii) all
current executive officers and directors of the Company as a group. All shares
are owned both of record and beneficially unless otherwise indicated.

Name and Address of Number And Percentage of Shares of Common Stock
Beneficial Owner(1) Beneficially Owned(2)
- - - - -------------------
Shares Owned Percentage Owned
------------ ----------------
Michael H. Figoff 157,000(3) 2.1%
Sandy Yoshisato 10,000(3) *
Reuben M. Siwek 143,750(3) 1.9%
Robert A. Smith 34,000(3) *
Dr. Tracy K. Pugmire 43,555(3) *
Leo S. Unger 126,000(3) 1.7%
Virginia Retirement System 625,000 8.5%
George Solymar 450,650 6.0%
All Directors and Executive
Officers as a Group (6 persons) 514,305 6.9%

____________________
* Less than 1%

(1) The address of each officer and director is c/o Puroflow Incorporated,
16559 Saticoy Street, Van Nuys, California 91406.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power
with respect to all shares of Common stock shown as beneficially owned by
them.

Page 33 of 59
<PAGE>

(3) Includes as to Mr. Figoff, Ms. Yoshisato, Messrs. Siwek, Smith, Pugmire
and Unger options exercisable within 60 days to purchase 155,000, 10,000,
50,000, 30,000, 30,000, and 15,000 shares, respectively.

PRICE RANGE OF COMMON STOCK

The Common Stock of the Company is traded on the Bulletin Board System
under the symbol "PURO."

The following table sets forth the high and low bid quotations for the
Common Stock for the periods indicated as reported by the NASDAQ System and the
Bulletin Board System, as applicable. These quotations represent inter-dealer
prices and do not include retail markups, markdowns or commissions, and may not
necessarily represent actual transactions.

High Low
---- ---
Fiscal Year Ended January 31, 1995
1st Quarter.............................. 1 1/2 1
2nd Quarter.............................. 1 5/16 1 1/16
3rd Quarter.............................. 1 5/16 13/16
4th Quarter.............................. 1 3/16 23/32

Fiscal Year Ended January 31, 1996
1st Quarter.............................. 23/32 21/32
2nd Quarter (1).......................... 11/32 8/32
3rd Quarter (1).......................... N/A N/A
4th Quarter ............................. 1 3/8 5/8

Fiscal Year Ended January 31, 1997
1st Quarter.............................. 1 3/8 1 3/8
2nd Quarter.............................. 1 5/8 1 3/8
3rd Quarter.............................. 1 1/4 1 1/4
4th Quarter.............................. 1 15/16

Fiscal Year Ended January 31, 1998
1st Quarter.............................. 3/4 5/8

(1) The Common Stock of the Company was delisted by NASDAQ on June 9,
1995, as a result of the Company not meeting the minimum capital
requirement. Trading in the Common Stock resumed on November 17, 1995,
with a listing on the Bulletin Board System.

On May 20, 1997, the closing price for the Company's Common Stock on the
Bulletin Board System was $.75 per share. As of May 6, 1997, the Company had
approximately 328 stockholders of record.

As a result of its current financial condition and prior operating loss,
the Company will not be in a position to pay cash dividends in the foreseeable
future. See "Dividend Policy."

Page 34 of 59
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 12,000,000 shares of
Common Stock, $.01 par value per share, and 500,000 shares of Preferred Stock.
As of the date of this Prospectus, there were 7,108,821 shares of Common Stock
issued and outstanding, held of record by approximately 3,600 stockholders.
There are no shares of Preferred Stock issued and outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. The holders of outstanding shares of
Common Stock are entitled to receive dividends out of assets legally available
therefor at such times and in such amounts as the Board of Directors may, from
time to time, determine. See "Dividend Policy." The Common Stock is not entitled
to preemptive rights and is not subject to redemption. In the event of
liquidation, dissolution or winding-up of the Company, the holders of the Common
Stock shall be entitled to receive pro rata all of the remaining assets of the
Company available for distribution to its stockholders. All outstanding shares
of Common stock are validly issued, fully paid and nonassessable.

OPTIONS

Holders of the Options may initially exercise such Options at an exercise
price of $0.80 per share (the "Exercise Price"). Except for certain exempted
issuances or sales of its Common Stock, if the Company issues or sells any
shares of its Common Stock for a consideration per share less than the Exercise
Price, the Exercise Price shall be reduced to the price equal to the quotient
derived by dividing (i) an amount equal to the sum of (x) the number of shares
of Common Stock outstanding immediately prior to such issuance or sale
multiplied by the Exercise Price in effect immediately prior to such issuance or
sale, plus (y) the aggregate of the amount of all consideration, if any,
received by the Company upon such issuance or sale, by (ii) the number of shares
of Common Stock outstanding immediately after such issuance or sale. The Options
expire at or before 5:00 p.m., New York Time, July 18, 1998. The Options expire
on July 18, 1998.

RELATED PARTY TRANSACTIONS

Reuben M. Siwek, Chairman of the Board of the Company, renders legal
services to the Company. The Company incurred expenses of approximately $62,033,
$42,284 and $80,625 during fiscal years 1997, 1996 and 1995, respectively, for
legal services rendered by Mr. Siwek.

The Company incurred expenses of approximately $62,033, $68,155 and
$150,000 during fiscal years 1997, 1996 and 1995, respectively for rental of the
former principal manufacturing and corporate offices of the Company from a
company owned by a former member of the Board of Directors. The Company has
moved from such facilities and all payments relating to the rental of such
offices have been terminated. The Receiver also terminated all payments under an
alleged capital lease of computer equipment by a former director of the Company.
As a result of the termination of the payments relating to such computer

Page 35 of 59
<PAGE>

equipment, the Company is involved in a lawsuit brought by the former director
seeking damages not to exceed $25,000. See "Legal Proceedings." There is
currently no litigation with respect to the termination of rental payments
relating to the Company's former premises. Upon termination of the Receivership,
the Receiver no longer exercises any authority over the affairs of the Company
(although the Receiver is representing the Company in the litigation with the
Company's former director).

CHANGE IN ACCOUNTANTS

In its report on Form 8-K/A dated November 22, 1995 and filed with the
Commission, the Company reported that it changed its auditors from Deloitte &
Touche LLP ("D&T") to Rose, Snyder & Jacobs, CPA's, Burbank, California for the
fiscal year ended January 31, 1996. D&T audited the financial statements for the
Company for the fiscal year ended January 31, 1995 (the "1995 Financial
Statements") and issued a modified report as to uncertainty as a going concern.
Upon informing D&T that it intended to file the Registration Statement of which
this Prospectus forms a part, the Company was advised by D&T that D&T would not
provide its consent to the filing of the 1995 Financial Statements. The Company
believes D&T's refusal to provide such consent may be related to a prior fee
dispute between D&T and the Company. D&T has not advised the Company, nor does
the Company have any reason to believe, that D&T's refusal to consent to the
filing of the 1995 Financial Statements is related in any manner to any
disagreement with D&T as to accounting principles or practices, financial
statement disclosure or auditing scope or procedure relating to the 1995
Financial Statements. In addition, the Company is not aware of any facts that
would cause D&T to withdraw its report on the 1995 Financial Statements or, if
reissued, to modify the report with respect to the opinion expressed or the
scope of the audit.

LEGAL MATTERS

The legality of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Sheppard, Mullin, Richter & Hampton LLP,
Los Angeles, California.

EXPERTS

The consolidated financial statements of the Company as of January 31,
1997 and January 31, 1996 have been included herein and in the registration
statement in reliance upon the report of Rose, Snyder & Jacobs, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.

Page 36 of 59
<PAGE>

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Stockholders of
Puroflow Incorporated

We have audited the accompanying consolidated balance sheets of Puroflow
Incorporated (a Delaware corporation), and subsidiaries at January 31, 1997 and
1996, and the related statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Puroflow Incorporated and
Subsidiaries at January 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

Rose, Snyder & Jacobs
A Corporation of Certified Public Accountants

Burbank, California

April 1, 1997

F-1

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<PAGE>

PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1997 and 1996

1997 1996
---- ----
ASSETS

CURRENT ASSETS:
Cash, note 9 $ 164,415
Accounts receivable
Net of allowance for doubtful
accounts of $49,504
(January 31, 1997) and $140,000
(January 31, 1996), note 3 $ 1,462,170 $ 1,548,495
Inventories 1,398,561 1,239,467
Current portion of note receivable, note 2 40,889 43,831
Prepaid expenses and deposits 57,595 33,700
----------- -----------
TOTAL CURRENT ASSETS 3,123,630 2,865,493
----------- -----------
PROPERTY AND EQUIPMENT - note 3
Leasehold improvements 11,660
Machinery and equipment 2,988,092 2,880,343
Automobile 1,679
Tooling and dies 262,480 253,921
Construction in progress 143,542 20,000
----------- -----------
3,407,453 3,154,264
Less accumulated depreciation
and amortization 2,452,888 2,134,836
----------- -----------
NET PROPERTY AND EQUIPMENT 954,565 1,019,428
----------- -----------

NOTE RECEIVABLE, note 2 60,276

OTHER ASSETS 16,750 16,750
----------- -----------
TOTAL ASSETS $ 4,094,945 $ 3,961,947
=========== ===========

See independent auditors' report and notes to financial statements.

F-2

Page 38 of 59
<PAGE>

PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1997 and 1996

1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES:
Bank overdraft $ 59,363
Line of credit, note 3 235,857
Current portion of long-term debt,
notes 4 & 7 207,087 1,763,681
Accounts payable 212,397 582,393
Accrued expenses 186,395 237,472
----------- -----------
TOTAL CURRENT LIABILITIES 605,879 2,878,766
----------- -----------
LONG-TERM DEBT, note 4
----------- -----------

COMMITMENTS AND CONTINGENCIES, note 7

STOCKHOLDERS' EQUITY, notes 5 and 10
Preferred stock, par value $.10 per share
authorized - 500,000 shares
issued - None
Common stock, par value $.01 per share
authorized - 12,000,000 shares
issued and outstanding - 7,108,621 shares
at January 31, 1997 and 4,578,521
shares at January 31, 1996 430,579 405,279
Additional paid-in capital 947,727 3,230,127
Accumulated deficit (1,889,240) (2,552,225)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY $ 3,489,066 $ 1,083,181
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,094,945 $ 3,961,947
=========== ===========

See independent auditors' report and notes to financial statements.

F-3

Page 39 of 59
<PAGE>

PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED JANUARY 31, 1997 1996 1995
---- ---- ----
Net Sales $ 8,458,454 $ 8,815,889 $ 9,044,707
Cost of goods sold 5,888,825 5,957,007 7,644,422
----------- ----------- -----------
Gross profit 2,569,629 2,858,882 1,400,285
Selling, general and administrative
expenses 1,445,626 1,442,926 1,630,032
----------- ----------- -----------
Operating income (loss) 1,124,003 1,415,956 (229,747)
Other income and (expense)
Other income (expense) 10,173 (2,895) 14,132
Interest expense (71,407) (279,237) (305,627)
Nonrecurring expenses (394,184) (253,085)
----------- ----------- -----------
Income (loss) from continuing
operations before tax 668,585 880,739 (521,242)
Income tax expense, note 6 5,600 5,600 5,600
----------- ----------- -----------
Income (loss) from continuing operations 662,985 875,139 (526,842)

Discontinued operations, note 13
Loss from operations (67,264) (1,845,314)
Gain from write-off of excess
reserves, note 11 235,404
Loss on sale of property and equipment (145,160)
----------- ----------- -----------

22,980 (1,845,314)
----------- ----------- -----------
Net income (loss) $ 662,985 $ 898,119 $(2,372,156)
=========== =========== ===========
Net income (loss) per common share:
Continuing operations $ 0.11 $ 0.19 $ (0.12)
Discontinued operations (0.41)
----------- ----------- -----------
Primary earnings per share $ 0.11 $ 0.19 $ (0.53)
=========== =========== ===========
Weighted average number of shares 6,107,812 4,631,740 4,508,521
=========== =========== ===========

See independent auditors' report and notes to financial statements.

F-4

Page 40 of 59
<PAGE>

PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended January 31, 1997 1996 and 1995

COMMON ADDITIONAL RETAINED
STOCK PAID-IN EARNINGS
PAR VALUE CAPITAL TOTAL TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at January 31, 1994 $ 391,280 $ 2,994,126 $(1,078,188) $ 2,307,218
Sale of common stock 13,999 236,001 250,000
Net loss (2,372,156) (2,372,156)
----------- ----------- ----------- -----------

Balance at January 31, 1995 405,279 3,230,127 (3,450,344) 185,062
Net Income 898,119 898,119
----------- ----------- ----------- -----------

Balance at January 31, 1996 405,279 3,230,127 (2,552,225) 1,083,181
Sale of common stock 25,300 1,717,600 1,742,900
Net income 662,985 662,985
----------- ----------- ----------- -----------

Balance at January 31, 1997 $ 430,579 $ 4,947,727 $(1,889,240) $ 3,489,066
=========== =========== =========== ===========

</TABLE>

See independent auditors' report and notes to financial statements.

F-5

Page 41 of 59
<PAGE>
PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW

Years ended January 31, 1997 1996 1995
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 662,985 $ 898,119 $(2,372,156)
Adjustments to reconcile net income
(loss) to net cash provided by/
used in operating activities:
Depreciation and amortization 318,052 340,103 365,934
Provision for losses on accounts
receivable (20,000) 104,205 134,069
Inventory valuation allowance 35,150 59,000 999,305
Loss on sale of assets 157,057
Gain on vendor notes settlements (124,482)
Changes in operating assets and
liabilities:
Accounts receivable 106,325 (386,550) 242,305
Inventories (194,244) 73,073 1,154,010
Prepaid expenses and other assets (23,895) 114,421 (83,328)
Accounts payable and accrued
expenses (421,073) (46,962) 288,426
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 338,818 1,312,466 728,565
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (253,189) (131,336) (122,182)
Proceeds from sale of assets 326,700
Payments received on notes receivable 63,218 23,906
Other assets (3,109)
----------- ----------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES (189,971) 219,270 (125,291)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft (59,363) 59,363 250,000
Proceeds from sale of common stock 1,742,900
Net borrowing (repayments) under
line of credit (235,857) (574,146) 65,412
Principal payments on long-term debt (1,432,112) (1,095,262) (838,761)
Principal payments under capital
lease obligations (26,346)
ADVANCES TO OFFICERS AND EMPLOYEES 3,868 1,941
----------- ----------- -----------
NET CASH (USED IN) FINANCING
ACTIVITIES 15,568 (1,606,177) (547,754)
----------- ----------- -----------
Net increase (decrease) in cash 164,415 (74,441) 55,520
Cash at beginning of period -0- 74,441 18,921
----------- ----------- -----------
Cash at end of period $ 164,415 $ -0- $ 74,441
=========== =========== ===========

See independent auditors' report and notes to financial statements.

F-6
Page 42 of 59
<PAGE>

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Puroflow Incorporated was organized on May 15, 1961 under the laws of the State
of Delaware. Puroflow Incorporated and its wholly owned subsidiaries (together
referred therein as the "Company") specializes primarily in designing and
manufacturing automotive airbag filters and high performance filters. The
Company is located in Van Nuys, California, and does business with customers
throughout the world, most of which are located in the United States.

RECEIVERSHIP

On May 1, 1995, the Superior Court of California appointed a Receiver as a
result of a lawsuit filed by the Company's bank. The Company was in default of
its obligations under various credit agreements with the bank. The Receiver
assumed jurisdiction over all the Company's assets, which were in the possession
of the Receiver's estate, and held for the benefit of all creditors and
shareholders. The Receiver was not obligated to pay liabilities that existed
prior to their appointment; however, the Receiver could elect to pay certain of
those liabilities with the leave of the Court.

CONSOLIDATED SUBSIDIARIES

The consolidated financial statements include the accounts of the Company's
wholly-owned subsidiaries, Puroflow Corporation, Decca Valves Corporation,
Michigan Dynamics, Inc., and Ultra Dynamics Corporation. Material intercompany
transactions and balances have been eliminated. Only Puroflow Corporation is
presently active and the accounts of the other companies are included in
discontinued operations.

INVENTORIES

Inventories are stated at the lower of cost of market on a first-in, first-out
basis, and consists of the following items:

January 31, January 31,
1997 1996
------------- -------------

Raw materials and purchased parts $ 729,740 $ 757,921
Work in progress 247,868 235,404
Finished goods 420,953 246,142
------------ ------------
Total $ 1,398,561 $ 1,239,467
============ ============

See independent auditors' report.

F-7

Page 43 of 59
<PAGE>

PROPERTY AND EQUIPMENT

Depreciation and amortization of property and equipment is computed using the
straight line method based upon the estimated useful lives of the assets, except
for leasehold improvements which are amortized over the shorter of the life of
the lease or the improvements. The estimated useful lives are as follows:

Classification Life
---------------------------- -----------------

Machinery and equipment 5-15 years
Automobile 5 years
Tooling and dies 5 years
Leasehold improvements 5 years

REVENUE RECOGNITION

Revenues are recognized when finished products are shipped.

INCOME TAXES

The Company complies with Financial Accounting Standards No. 109, Accounting
for Income Taxes.

CASH FLOWS

For the purpose of the statement of cash flows, the Company considers cash
equivalents to include cash only and to exclude any near-cash short-term
investments.

ESTIMATES

Generally accepted accounting principles require that financial statements
include estimates by management in the valuation of certain assets and
liabilities. The Company's management estimates the reserve for doubtful
accounts, the reserve for obsolete inventory and the useful lives of property
and equipment. Management uses its historical record and knowledge of its
business in making these estimates.

RECLASSIFICATION

Certain amounts previously reported in the Company's January 31, 1996, and
January 31, 1995 financial statements have been reclassified to conform to the
presentation adopted in the year ended January 31, 1997. The most significant
reclassification is nonrecurring expenses for the year ended January 31, 1996.
Such reclassifications had no effect on the net profits or losses as previously
reported.

See independent auditors' report.

F-8

Page 44 of 59
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenditures are expensed as incurred and are
approximately as follows for the years ended January 31, :

1997 1996 1995
------------------ ------------------ ------------------
$ 6,500 $ 28,000 $ 381,000
================== ================== ==================

NON-RECURRING EXPENSES

Non-recurring expenses are comprised of a one-time fee of $89,834 charged by
the Company's former bank for its costs related to the Receivership during
August, 1996, and the monthly administrative fees charged by the Receiver
during the receivership period. Administrative fees were billed monthly by the
Receiver for its role as monitor for the bank of all of the Company's cash
disbursements and receipts and for its handling of all court reports, filings
and related Receivership matters. The Receivership Estate began on May 1, 1995
and ended August 22, 1996.

EARNINGS PER SHARE

The computation of the net income (loss) per common share (primary) is based on
the weighted average number of common shares and common share equivalents
outstanding.

NOTE 2 - NOTE RECEIVABLE

January 31, January 31,
1997 1996
----------- -----------
8 1/2% note receivable, monthly
principal and interest payments of
$4,250, secured by equipment of the
debtor, maturing in November, 1997 $ 40,889 $ 104,107

Less current portion 40,889 43,831
--------- ---------
$ -0- $ 60,276
========= =========

NOTE 3 - LINE OF CREDIT

On November 5, 1993, the Company entered into a security and loan agreement with
its bank under which it could obtain credit up to 65% of certain accounts
receivable, but not in excess of $1,200,000, at prime plus 3 1/2%. This loan was
secured by accounts receivable, inventories and a first priority interest in
all unencumbered assets, and matured in June, 1996. In August, 1996, the
outstanding balance was repaid in full.

See independent auditors' report.

F-9
Page 45 of 59
<PAGE>

In August, 1996, the Company entered a new banking relationship. The Company
obtained a $750,000 revolving credit line. This credit line bears interest at
the rate of prime plus 1.5% per annum, and is secured primarily, by the
Company's accounts receivable and inventories. The Company also obtained a
$300,000 non-revolving equipment acquisition credit line, which bears interest
at the rate of prime plus 1.75% per annum, and is secured by all the Company's
assets. Both of these loans are cross-collateralized. The terms of these loan
agreements contain certain restrictive covenants, including maintenance of
minimum working capital, net worth, and ratios of current assets to current
liabilities and debt to net worth.

NOTE 4 - LONG-TERM DEBT

January 31, January 31,
1997 1996
----------- -----------
Note payable to bank at prime rate $ $ 107,900
plus 3 1/2%, secured by all assets
of the Company, matured in June, 1996.

Note payable to bank at prime rate plus
3 1/2%, secured by all assets of the
Company, matured in June, 1996 971,297

Notes payable to vendors bearing no
interest maturing at various dates.
These notes were negotiated with
vendors to convert accounts payable
balances into notes with terms varying
from three months to three years. All
these notes existed when the Receiver
was appointed on May 1, 1995. All the
notes have been paid in full or written-
off, except for two which are in
dispute (see Note 7). $ $ 684,483
---------- ----------
207,087 1,763,680
Less current portion 207,087 1,763,680
---------- ----------
Long-term debt $ -0- $ -0-
========== ==========

All the above bank debt was repaid in August, 1996 and replaced by the new loan
commitments (See Notes 3 and 12).

Interest paid in cash totaled as follows, for the years ended January 31, :

1997 1996 1995
------------ ------------ ------------
$ 87,017 $ 263,627 $ 305,627
============ ============ ============

See independent auditors' report.

F-10
Page 46 of 59
<PAGE>

NOTE 5 - STOCK OPTION PLANS

In the year ended January 31, 1996, the Company implemented stock option plans
which provide for the granting of options to certain officers and key employees
to purchase shares of its common stock within prescribed periods at prices that
vary from $0.25 to $0.75. The weighted average fair value of the options
granted was $0.87 per option. Fair value was determined by estimating the
future sale of the underlying stock and discounting the gain on the options
based on a risk free rate of return adjusted for equity risk. Share activity
under the Company's stock option plans is summarized below:

Shares
------

Held at January 31, 1995 (outstanding and unexercised) -0-
Granted 359,000
Exercised -0-
Canceled or expired -0-

Held at January 31, 1996 (outstanding and unexercised) 359,000

Granted -0-
Exercised 100
Canceled or expired 9,000
Held at January 31, 1997(outstanding and unexercised) 349,900

Shares exercisable, January 31, 1997 249,860
===========

Shares available for future grants, end of period 266,000
===========

Price range of options held, January 31, 1997 $.025-$.075

Statement of Financial Accounting No. 123, "Accounting for Stock-Based
Compensation," requires companies to measure employee stock compensation plans
based on the fair value method of accounting. However, the statement allows the
alternative of continued use of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," with pro-forma disclosure of net
income earnings per share determined as if the fair value based method had been
applied in measuring compensation cost. The Company has elected the alternative
of continued use of APB No. 25. No pro-forma disclosure is presented because the
change in compensation cost is immaterial.

See independent auditors' report.

F-11

Page 47 of 59
<PAGE>

NOTE 6 - INCOME TAXES

The following is a reconciliation of the tax provision, computed by applying
the statutory federal income tax rates, and the income tax provision per the
financial statements for the years ended January 31, :

1997 1996
---- ----
Income tax provision at 34% $ 227,319 $ 305,360
Meals and entertainment 2,048
Officer's life insurance 2,803
Excess book (tax) depreciation and
amortization 30,707 (39,658)
Excess book loss on disposition 20,252
Change in allowance for doubtful account (30,769) (21,920)
Write-off of obsolete inventory (51,396) (338,358)
Reserve for legal matters 9,059 11,975
Other 2,608 11,440
State taxes for prior year (1,632)
Benefit of net operating loss carryforwards (190,747)
--------- ---------
Current federal tax benefit -0- (50,909)
Current State tax benefit -0- (12,106)
--------- ---------
Net current tax benefit -0- (63,015)

Unrecognized benefit of losses 63,015
Minimum California franchise tax 5,600 5,600
--------- ---------
Provision for income taxes $ 5,600 $ 5,600
========= =========

Deferred tax benefits reflect the impact of loss carryforwards and, temporary
differences between the assets and liabilities recorded for financial reporting
purposes and tax purposes. These differences are as follows:

1997 1996
---- ----
Allowance for doubtful accounts $ 16,831 $ 60,620
Allowance for inventory obsolescence 78,426 165,332
Less valuation allowance (95,257) (225,952)
---------- ----------
Current $ -0- $ -0-
========== ==========

Tax loss carryforward 927,362 1,422,366
Depreciation and amortization (47,071) (41,741)
Reserve for legal matters 43,059 43,300
Less valuation allowance (923,350) (1,423,925)
---------- ---------
Non current $ -0- $ -0-
========== ==========

See independent auditors' report.

F-12

Page 48 of 59
<PAGE>

Realization of the deferred benefit is contingent upon future taxable earnings.
In accordance with SFAS No. 109, the valuation allowance is 100% of the benefit
based on the uncertainty that the Company will realize this benefit.

The Company estimates it had available net operating loss carryforwards of
approximately $2,728,000 for federal income tax purposes and $1,852,000 for
state income tax purposes at January 31, 1997. The Company's net operating loss
carryforwards expire from 2008 to 2011.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company is committed to minimum lease payments on a non-cancelable operating
lease for its facility, which expires in August, 2000, as follows:

Twelve Months Ending January 31,
---------------------------------

1998 $ 291,000
1999 291,000
2000 291,000
2001 169,750
2002 -0-
----------

TOTAL $ 1,042,750
===========

The leases with respect to the former location were terminated under the powers
of the Receiver.

Total rental expense under the facility lease (including expenses) is as follows
in the years ending January 31,:

1997 1996 1995
------------ ------------ ------------
$ 305,000 $ 275,000 $ 410,000
============ ============ ============

CAPITAL LEASES

All of the Company's capital leases for machinery and equipment were terminated
under the powers of the Receiver during the year ended January 31, 1995. At
January 31, 1995, the obligation under capital leases was $51,366.

See independent auditors' report.

F-13

Page 49 of 59
<PAGE>

LEGAL MATTERS

The Company is party to various legal proceedings. Except as noted below, the
outcome of these proceedings and the potential liability cannot be determined;
however, the Company believes it will prevail in its defenses, and does not
expect that such litigation will have a material adverse effect on its financial
position or results of operations. Additionally, the Company has filed
counterclaims in some of the actions. At January 31, 1997 and January 31, 1996,
an accrual in the amount of approximately $242,000 and $332,000 has been
recorded in anticipation of certain judgments against the Company related to
these matters. $207,807 of the accrual remains in notes payable to vendors at
January 31, 1997 (see Note 4).

NOTE 8 - RELATED PARTY TRANSACTIONS

The Company is using the legal expertise of a lawyer who is a director of the
Company. Related legal expenses totaled $62,033, $42,284 and $80,625 for the
years ended January 31, 1997, 1996, and 1995, respectively. The amount due to
this director was $0 at January 31, 1997, and $27,500 at January 31, 1996.

NOTE 9 - CONCENTRATIONS

MAJOR CUSTOMER INFORMATION

Concentration of sales in the Company's three largest customers is as follows in
the years ending January 31,:

1997 1996 1995
------------- ------------- -------------
Breed Automotive Technologies $ 2,200,127 $ 2,047,315 $ 2,666,281
Inflation Systems, Inc. 1,438,355 2,213,823 4,470,337
Norcross Air, Inc. 818,372 1,037,135 333,734
----------- ----------- -----------
$ 4,456,854 $ 5,298,273 $ 7,470,352
=========== ============ ===========

CONCENTRATION OF CREDIT RISK

Concentration of receivables due from the Company's three largest customers is
as follows at January 31,:

1997 1996
------------ ------------
Breed Automotive Technologies $ 276,566 $ 118,340
Inflation Systems, Inc. 369,073 422,028
Norcross Air, Inc. 88,511 52,942
------------ ------------
$ 734,150 $ 593,310
============ ============

See independent auditor's report.

F-14

Page 50 of 59
<PAGE>
Breed Automotive Technologies and Inflation Systems, Inc. are U.S. based major
suppliers to the automobile industry. Norcross Air, Inc., is a U.S. based
distributor of spare parts to the airline industry. The Company grants trade
credit to these customers on an unsecured basis.

MAJOR SUPPLIERS

The Company is dependent on three suppliers for the majority of its material
needs for automotive airbag filter production.

CASH IN BANK

At January 31, 1997, the Company had cash in a bank in excess of federally
insured limits by $28,695.

NOTE 10 - STOCKHOLDERS' EQUITY

During the year ended January 31, 1997, the Company sold 2,530,000 shares of
common stock and received $1,742,900 of net proceeds, including $1,300 of
interest. The purchase price of the common stock was $.80 per share. From the
gross proceeds, the underwriter received $202,400 as a fee. The Company incurred
$80,000 of legal, printing and accounting costs related to registration of the
shares. The underwriter also received a 24 month option to purchase 177,100
shares, at a price of $.80 per share. Proceeds received by the Company have been
used to retire bank debt (See Note 12) and other pre-Receiver debt.

During the year ended January 31, 1995, the Company issued 210,000 shares of
common stock, the net proceeds of which were $250,000.

NOTE 11 - FOURTH QUARTER ADJUSTMENTS

During the quarter ended January 31, 1996, the Company wrote-off all abandoned
fixed assets and recorded a gain on recovery of excess inventory reserves.

During the quarter ended January 31, 1995, the Company recorded an inventory
write-down of $1,000,000, resulting from the re-evaluation of inventory
requirements caused by the discontinuation of the Michigan Dynamics' Dynapore
product line.

NOTE 12 - CESSATION OF RECEIVERSHIP

See independent auditors' report.

F-15

Page 51 of 59
<PAGE>

NOTE 13 - DISCONTINUED OPERATIONS

On June 15, 1995, the Company sold certain inventory, equipment, trade name,
contracts and work in progress, of its wholly owned subsidiary, Decca Valves
Corporation, leading to a discontinuation of its related operations. The assets
were sold for a consideration of $305,000 cash. During the year ended January
31, 1996, the operations of its wholly owned subsidiary, Michigan Dynamics,
Inc., were also discontinued. The remaining assets of this subsidiary have been
transferred to Puroflow Corporation.

In November, 1994, the Company sold the operating assets of its ultraviolet
water purification products subsidiary, Ultra Dynamics, including inventories,
property and intangible assets for 234,629, consisting of $100,000 cash and a
note receivable of $134,629.

The disposition of these assets have been accounted for as discontinued
operations and accordingly, the operating results of the subsidiaries are
aggregated and reported as discontinued operation in the accompanying
consolidated statement of operations. The 1995 financial statements have been
restated to reflect the discontinued operations. Revenue applicable to the
discontinued operations were $326,509 for the year ended January 31, 1996 and
$2,615,540 for the year ended January 31, 1995.

NOTE 14 - VENDOR NOTE SETTLEMENTS

The Company paid $352,915 as settlement for $477,397 of vendor notes in the year
ended January 31, 1997.

See independent auditors' report.

F-16

Page 52 of 59
<PAGE>

NO DEALER, SALES REPRESENTATIVE OR ANY
OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST 2,807,100 Common Shares
NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY 277,100 Options to
UNDERWRITER. THIS PROSPECTUS DOES NOT Purchase Common Shares
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF
COMMON STOCK TO WHICH IT RELATES OR
AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR PUROFLOW INCORPORATED
SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
- - - - ---------------------------------

TABLE OF CONTENTS
Page
----
Prospectus Summary..................
Risk Factors........................ ---------------------------
Dividend Policy.....................
Use of Proceeds..................... PROSPECTUS
Selected Financial Data.............
Selling Security Holders and Plan of ---------------------------
Distribution........................
Selling Security Holders............
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..........
Business............................
Legal Proceedings...................
Management..........................
Principal Stockholders..............
Price Range of Common Stock.........
Description of Capital Stock........ , 1997
Related Party Transactions..........
Change in Accountants...............
Legal Matters.......................
Experts.............................
Financial Statements................

Page 53 of 59
<PAGE>

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provided that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by
Delaware law.

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer employee
or agent of the corporation or was serving at the request of the corporation
against expenses actually and reasonably incurred by him or her in connection
with such action if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and with respect to any criminal action, had no reasonable cause to
believe his or her conduct was unlawful.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

Item 25. Other Expenses of Issuance and Distribution

The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:

Amount
------
SEC Registration Fee...................................... $ 850.72
Accounting Fees and Expenses.............................. $39,000.00*
Legal Fees and Expenses................................... $25,000.00*
Miscellaneous Expenses ................................... $ 5,000.00*
----------
Total $69,850.72*
==========
*Estimated

Item 26. Recent Sales of Unregistered Securities

The Company has sold the following unregistered securities within the last
three years:

1. In July 1996, the Company issued 2,530,000 shares of Common Stock for
$1,772,900 cash to accredited investors. The issuance of such securities was
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof and Regulation D promulgated thereunder.

II-1

Page 54 of 59
<PAGE>

2. In connection with the July 1996 private placement, the Company issued
to the Placement Agents in consideration of the efforts of the Placement Agents,
options to purchase 177,100 shares of Common Stock at a price (subject to
adjustment) of $0.80 per share. The issuance of such securities was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof.

3. During the fiscal year ended January 31, 1995, the registrant issued
210,000 shares of Common Stock to a single purchaser, a corporation domiciled
outside the United States, the net proceeds of which were $250,000. The Company
relied on Section 4(2) of the Securities Act of 1933, as amended, as a
transaction not involving a public offering.

Item 27. Exhibits.

Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation of the Company.
(Incorporated by reference to the Company's
Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on October 15, 1991,
Registration No. 33-43228).

3.2 Bylaws (Incorporated by reference to the Company's
Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on October 15, 1991,
Registration No. 33-43228).

4.1 Form of Placement Agent Purchase Option.*

4.2 Form of Registration Rights Agreement.*

4.3 Form of Common Stock Certificate.*

5.1 Opinion of Sheppard, Mullin, Richter & Hampton LLP.*

10.1 1991 Key Employee Incentive Stock Option Plan.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, filed with the Securities and
Exchange Commission on October 15, 1991, Registration
No. 33-43228).

10.2 Sublease dated July 27, 1995 between Kaiser Marquardt
and the Company with sublease guarantor Kaiser Aerospace
and Electronics (Incorporated by reference to
exhibit 10.26 of the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-5622)).

10.3 Employment Agreement dated March 11, 1993 between the
Company and Michael H. Figoff (Incorporated by reference
to the Company's Form 10-K filed with the Securities and
Exchange Commission on May 15, 1993).

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<PAGE>

10.4 Form of Directors Stock Option Agreement dated July 9,
1987 (Incorporated by reference to the Company's
Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on October 15, 1991,
Registration No. 33-43228).

10.5 Form of Directors Stock Option Agreement dated
February 14, 1991(Incorporated by reference to the
Company's Registration Statement on Form S-1, filed with
the Securities and Exchange Commission on October 15,
1991, Registration No. 33-43228).

21.1 Subsidiaries of the Company (Incorporated by reference
to exhibit 22 of the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1996
(File No. 0-5622)).

23.1 Consent of Sheppard, Mullin, Richter & Hampton LLP
(included in Exhibit 5.1).*

23.2 Consent of Rose, Snyder & Jacobs.

24.1 Power of Attorney (included on page S-1).*

_________________

* Filed Previously

Item 28. Undertakings.

(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Company pursuant to the provisions described in Item 24, or otherwise,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by the director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(b) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

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<PAGE>

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the Offering.

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<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Van Nuys, State of California, on May 21, 1997.

PUROFLOW INCORPORATED

By: /s/ Michael H. Figoff
---------------------------------
Michael H. Figoff
President and Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.

Signature Title Date
--------- ----- ----

/s/ Michael H. Figoff
- - - - ---------------------- President, Chief Executive Officer
Michael H. Figoff and Director (principal executive
officer, principal financial officer,
and principal accounting officer) May 21, 1997

/s/ Reuben M. Siwek*
- - - - ---------------------- Chairman of the Board and
Reuben M. Siwek General Counsel May 21, 1997

/s/ Robert A. Smith*
- - - - ---------------------- Vice Chairman of the Board May 21, 1997
Robert A. Smith

/s/Dr. Tracy K. Pugmire* Director May 21, 1997
- - - - -----------------------
Dr. Tracy K. Pugmire

/s/ Leo S. Unger* Director May 21, 1997
- - - - -----------------------
Leo S. Unger

*By: /s/ Michael H. Figoff
- - - - --------------------------
Michael H. Figoff
Attorney-in-Fact**

** By authority of power of attorney previously filed.

S-1
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<PAGE>

EXHIBIT 23.2
------------

[Rose, Snyder & Jacobs Letterhead]

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use, in this Post-Effective Amendment No. 1 to
Registration Statement on Form SB-2, of our report dated April 1, 1997,
relating to the consolidated financial statements of Puroflow Incorporated
(a Delaware corporation), and Subsidiaries, and to the reference to our Firm
under the heading "Experts" in the Prospectus.

/s/ Rose, Snyder & Jacobs
A Corporation of Certified Public Accountants

Burbank, California

May 21, 1997

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