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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended September 30, 2003



Commission File No. 333-72321



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BGF Industries, Inc.

(Exact name of registrant as specified in its charter)



|Delaware                 |  | 2221                                                     |  | 56-1600845                          
|------------------------ |  | -------------------------------------------------------- |  | ------------------------------------
|(State of incorporation) |  | (Primary Standard Industrial Classification Code Number) |  | (I.R.S. Employer Identification No.)



|3802 Robert Porcher Way, Greensboro, North Carolina  |  | 27410     
|---------------------------------------------------- |  | ----------
|(Address of registrants principal executive office) |  | (Zip Code)



(336) 545-0011

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes ̈No   x



APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest practicable date: 1,000 shares of common stock, $1.00 par value, as of November 12, 2003.



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##### Table of Contents

BGF INDUSTRIES, INC.

QUARTERLY REPORT FOR THE THREE MONTHS AND SIX MONTHS

ENDED September 30, 2003



TABLE OF CONTENTS



|         |  |                                                                                                                                                          |  | Page No.
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                                    |  |         
|         |  |                                                                                                                                                         
|Item 1.  |  | Consolidated Financial Statements                                                                                                                        |  |         
|         |  |                                                                                                                                                         
|         |  | Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002                                                                   |  | 3       
|         |  |                                                                                                                                                         
|         |  | Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months and nine months ended September 30, 2003 and 2002 (unaudited) |  | 4       
|         |  |                                                                                                                                                         
|         |  | Consolidated Statements of Cash Flows for the three months and nine months ended September 30, 2003 and 2002 (unaudited)                                 |  | 5       
|         |  |                                                                                                                                                         
|         |  | Notes to the Consolidated Financial Statements                                                                                                           |  | 6       
|         |  |                                                                                                                                                         
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                    |  | 12      
|         |  | Overview                                                                                                                                                 |  | 12      
|         |  | Critical Accounting Policies                                                                                                                             |  | 13      
|         |  | Environmental Issues                                                                                                                                     |  | 13      
|         |  | Results of Operations                                                                                                                                    |  | 14      
|         |  | Liquidity and Capital Resources                                                                                                                          |  | 16      
|         |  | Recent Accounting Pronouncements                                                                                                                         |  | 17      
|         |  | Disclosure Regarding Forward Looking Statements                                                                                                          |  | 17      
|         |  |                                                                                                                                                         
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                               |  | 18      
|         |  |                                                                                                                                                         
|Item 4.  |  | Controls and Procedures                                                                                                                                  |  | 18      
|         |  |                                                                                                                                                         
|PART II. |  | OTHER INFORMATION                                                                                                                                        |  |         
|         |  |                                                                                                                                                         
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                                         |  | 19      



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##### Table of Contents

PART I - FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements



BGF INDUSTRIES, INC.

(a wholly owned
subsidiary of Glass Holdings Corp.)

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)



|                                                                                                           |  | September 30,2003 |         |   | December 31,2002 |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | -
|                                                                                                           |  | (unaudited)       |         |   |                  |  
|ASSETS                                                                                                     |  |                   |         |   |                  |  
|Current assets:                                                                                            |  |                   |         |   |                  |  
|Cash and cash equivalents                                                                                  |  | $                 | 3,461   |   |                  | $
|Trade accounts receivable, less allowance for returns and doubtful accounts of $309 and $316, respectively |  |                   | 11,581  |   |                  |  
|Inventories                                                                                                |  |                   | 22,182  |   |                  |  
|Other current assets                                                                                       |  |                   | 4,693   |   |                  |  
|                                                                                                           |  |                   |         |   |                  |  
|Total current assets                                                                                       |  |                   | 41,917  |   |                  |  
|Net property, plant and equipment                                                                          |  |                   | 44,162  |   |                  |  
|Other noncurrent assets, net                                                                               |  |                   | 4,660   |   |                  |  
|                                                                                                           |  |                   |         |   |                  |  
|Total assets                                                                                               |  | $                 | 90,739  |   |                  | $
|                                                                                                           |  |                   |         |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                             |  |                   |         |   |                  |  
|                                                                                                           |  |                  
|Current liabilities:                                                                                       |  |                   |         |   |                  |  
|Accounts payable                                                                                           |  | $                 | 5,092   |   |                  | $
|Accrued liabilities                                                                                        |  |                   | 8,719   |   |                  |  
|Current portion of capital lease obligation                                                                |  |                   | 335     |   |                  |  
|Current portion of long-term debt, net of discount of $0 and $1,217, respectively                          |  |                   | 1,200   |   |                  |  
|                                                                                                           |  |                   |         |   |                  |  
|Total current liabilities                                                                                  |  |                   | 15,346  |   |                  |  
|Capital lease obligation, net of current portion                                                           |  |                   | 1,911   |   |                  |  
|Deferred income taxes                                                                                      |  |                   | 3,206   |   |                  |  
|Long-term debt, net of discount of $1,021                                                                  |  |                   | 99,220  |   |                  |  
|Postretirement benefit and pension obligations                                                             |  |                   | 9,070   |   |                  |  
|                                                                                                           |  |                   |         |   |                  |  
|Total liabilities                                                                                          |  |                   | 128,753 |   |                  |  
|                                                                                                           |  |                   |         |   |                  |  
|Commitments and contingencies                                                                              |  |                   |         |   |                  |  
|                                                                                                           |  |                  
|Stockholders equity (deficit):                                                                            |  |                   |         |   |                  |  
|Common stock, $1.00 par value. Authorized 3,000 shares; issued and outstanding 1,000 shares                |  |                   | 1       |   |                  |  
|Capital in excess of par value                                                                             |  |                   | 34,999  |   |                  |  
|Accumulated deficit                                                                                        |  |                   | (71,194 | ) |                  |  
|Accumulated other comprehensive loss                                                                       |  |                   | (1,476  | ) |                  |  
|Loan to parent                                                                                             |  |                   | (344    | ) |                  |  
|                                                                                                           |  |                   |         |   |                  |  
|Total stockholders equity (deficit)                                                                       |  |                   | (38,014 | ) |                  |  
|                                                                                                           |  |                   |         |   |                  |  
|Total liabilities and stockholders equity (deficit)                                                       |  | $                 | 90,739  |   |                  | $
|                                                                                                           |  |                   |         |   |                  |  



The accompanying
notes are an integral part of the consolidated financial statements.



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)



|                                                                                 |  | For the Three Months Ended September 30, |        |   | For the Nine Months EndedSeptember 30, |  
|-------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | -------------------------------------- | -
|                                                                                 |  | 2003                                     |        |   | 2002                                   |  
|                                                                                 |  | (unaudited)                              |        |   | (unaudited)                            |  
|Net sales                                                                        |  | $                                        | 28,145 |   |                                        | $
|Cost of goods sold                                                               |  |                                          | 24,161 |   |                                        |  
|                                                                                 |  |                                          |        |   |                                        |  
|Gross profit                                                                     |  |                                          | 3,984  |   |                                        |  
|Selling, general and administrative expenses                                     |  |                                          | 2,071  |   |                                        |  
|Asset impairment charges                                                         |  |                                          |       |   |                                        |  
|Restructuring charge                                                             |  |                                          |       |   |                                        |  
|                                                                                 |  |                                          |        |   |                                        |  
|Operating income (loss)                                                          |  |                                          | 1,913  |   |                                        |  
|Interest expense                                                                 |  |                                          | 2,983  |   |                                        |  
|Other income, net                                                                |  |                                          | (770   | ) |                                        |  
|                                                                                 |  |                                          |        |   |                                        |  
|Loss before income taxes and cumulative effect of change in accounting principle |  |                                          | (300   | ) |                                        |  
|Income tax expense (benefit)                                                     |  |                                          |       |   |                                        |  
|                                                                                 |  |                                          |        |   |                                        |  
|Net loss before cumulative effect of change in accounting principle              |  |                                          | (300   | ) |                                        |  
|Cumulative effect of change in accounting principle                              |  |                                          |       |   |                                        |  
|                                                                                 |  |                                          |        |   |                                        |  
|Net loss                                                                         |  |                                          | (300   | ) |                                        |  
|Other comprehensive income net of tax:                                           |  |                                          |        |   |                                        |  
|Reclassification to earnings                                                     |  |                                          |       |   |                                        |  
|Change in fair value of cash flow hedge                                          |  |                                          |       |   |                                        |  
|                                                                                 |  |                                          |        |   |                                        |  
|Total comprehensive loss                                                         |  | $                                        | (300   | ) |                                        | $
|                                                                                 |  |                                          |        |   |                                        |  



The accompanying
notes are an integral part of the consolidated financial statements.



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)



|                                                                               |  | For the Nine Months Ended September 30, |        
|------------------------------------------------------------------------------ |  | --------------------------------------- | -------
|                                                                               |  | 2003                                    |        
|                                                                               |  | (unaudited)                             |        
|Cash flows from operating activities:                                          |  |                                         |        
|Net loss                                                                       |  | $                                       | (2,602 
|Adjustment to reconcile net loss to net cash provided by operating activities: |  |                                         |        
|Depreciation                                                                   |  |                                         | 4,650  
|Cumulative effect of change in accounting principle                            |  |                                         |       
|Asset impairment charges                                                       |  |                                         |       
|Amortization of noncurrent assets                                              |  |                                         | 988    
|Amortization of discount on notes                                              |  |                                         | 149    
|Write off of debt issuance costs                                               |  |                                         | 1,152  
|Deferred income taxes                                                          |  |                                         |       
|Postretirement benefit and pension obligations                                 |  |                                         | 359    
|(Gain) loss on disposal of equipment                                           |  |                                         | (19    
|(Gain) on extinguishment of Senior Subordinated Notes                          |  |                                         | (1,178 
|Change in assets and liabilities:                                              |  |                                         |        
|Trade accounts receivable, net                                                 |  |                                         | (1,384 
|Other current assets                                                           |  |                                         | 150    
|Inventories                                                                    |  |                                         | 453    
|Current income tax refundable                                                  |  |                                         | 5,981  
|Other assets                                                                   |  |                                         | (35    
|Accounts payable                                                               |  |                                         | 766    
|Accrued liabilities                                                            |  |                                         | (2,675 
|                                                                               |  |                                         |        
|Net cash provided by operating activities                                      |  |                                         | 6,755  
|                                                                               |  |                                         |        
|Cash flows from investing activities:                                          |  |                                         |        
|Purchases of property, plant and equipment                                     |  |                                         | (941   
|Proceeds from sale of equipment                                                |  |                                         | 29     
|                                                                               |  |                                         |        
|Net cash used in investing activities                                          |  |                                         | (912   
|                                                                               |  |                                         |        
|Cash flows from financing activities:                                          |  |                                         |        
|Book overdraft                                                                 |  |                                         |       
|Proceeds from revolving credit facility                                        |  |                                         | 10,000 
|Payments on revolving credit facility                                          |  |                                         | (17,573
|Proceeds received from term loan                                               |  |                                         | 6,000  
|Payments received loan to parent                                               |  |                                         |       
|Payments on term loan                                                          |  |                                         | (309   
|Proceeds received on loan receivable from parent                               |  |                                         | 10,624 
|Payments on capital lease obligation                                           |  |                                         | (246   
|Payment on note payable to parent                                              |  |                                         | (5,000 
|Debt issuance costs                                                            |  |                                         | (4,024 
|Purchases of Senior Subordinated Notes                                         |  |                                         | (3,025 
|                                                                               |  |                                         |        
|Net cash provided by (used in) financing activities                            |  |                                         | (3,553 
|Net increase in cash and cash equivalents                                      |  |                                         | 2,290  
|Cash and cash equivalents at beginning of period                               |  |                                         | 1,171  
|                                                                               |  |                                         |        
|Cash and cash equivalent at end of period                                      |  | $                                       | 3,461  
|                                                                               |  |                                         |        
|Supplemental disclosures of cash flow information:                             |  |                                         |        
|Cash paid during the period for interest                                       |  | $                                       | 11,109 
|                                                                               |  |                                         |        
|Cash received during the period for income taxes                               |  | $                                       | 5,980  
|                                                                               |  |                                         |        
|Supplemental disclosure of non-cash investing and financing activities:        |  |                                         |        
|Property and equipment financed in accounts payable                            |  | $                                       | 143    
|                                                                               |  |                                         |        



The accompanying
notes are an integral part of the consolidated financial statements



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)



1. Basis of Presentation



The accompanying unaudited interim consolidated financial statements of BGF Industries, Inc.
(the Company) have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly, they do not include all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and nine
months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.



These financial statements should be read in conjunction with the audited consolidated
financial statements of BGF Industries, Inc. as of and for the year ended December 31, 2002 on file with the Securities and Exchange Commission in the 2002 Annual Report on Form 10-K.



The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes in the facts and circumstances could have a significant impact on the resulting financial statements. The critical accounting policies that
affect the Companys more complex judgments and estimates are described in the Companys Annual Report on Form 10-K for the year ended December 31, 2002 and in this Report under Managements Discussion and Analysis of Financial
Condition and Results of Operations  Critical Accounting Policies.



Certain amounts from the prior consolidated financial statements have been reclassified to conform to current presentation.



2. Liquidity and Financial Condition



The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate
the Companys continued existence as a going concern. Industry and economic conditions have had an adverse effect on the Companys operations beginning in 2001. The Company incurred net losses for the year ended December 31, 2002 of
approximately $140,573 and had an $82,719 working capital deficiency and a $46,115 stockholders deficit as of December 31, 2002. The Company incurred net losses of $300 and $2,602 for the three and nine months ended September 30, 2003 and had
a $38,014 stockholders deficit as of September 30, 2003. The Companys working capital was $26,751 as of September 30, 2003.



On June 6, 2003, the Company entered into a five year financing arrangement with Wells Fargo Foothill, Inc. (WFF). This arrangement (the WFF Loan)
is for a maximum revolver credit line of $40,000 with a letter of credit (L/C) sub-line of $4,000, an inventory sub-line of $15,000 and a term loan sub-line of $6,000 of which the principal is amortized over 60 months. (See Note 7).



During the three months ended September 30, 2003, the Company continued to
operate under its restructured business plan which was implemented during 2002. The Companys South Hill heavyweight fabrics facility has remained closed to reduce excess capacity and the Company has maintained its cost cutting initiatives.



The Companys continued existence is dependent upon several factors
including its ability to continue to generate sufficient operating cash flow to fund its operations and interest payments on its Senior Subordinated Notes and its ability to continue to meet its financial covenants and make required payments under
the WFF loan. While the Companys performance in the first nine months of 2003 has been consistent with its restructured business plan, there can be no assurance that the Company will be able to sustain its current level of operations. The
Company continues to evaluate its current business plan in light of the current market conditions.



As discussed further in Note 11, an affiliate and major supplier of the Company, Advanced Glassfiber Yarns LLC (AGY) filed for bankruptcy under Chapter 11 of the US Bankruptcy Code in December 2002. This
could result in the risk that obtaining raw materials from sources other than AGY would be more costly and could be disruptive to the Companys business. There has been no impact on the Companys operations through third quarter of 2003.
The Company has not fully implemented contingency plans to secure alternative supplies of raw materials. However, the Company believes it can secure alternative sources of raw materials without significant disruption to its business.



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(dollars in thousands)



3. Inventories



Inventories consist of the following:



|                 |  | September 30, 2003 |        | December 31, 2002
|---------------- |  | ------------------ | ------ | -----------------
|                 |  | (unaudited)        |        |                  
|Supplies         |  | $                  | 1,437  |                  
|Raw materials    |  |                    | 1,857  |                  
|Stock-in-process |  |                    | 3,486  |                  
|Finished goods   |  |                    | 15,402 |                  
|                 |  |                    |        |                  
|                 |  | $                  | 22,182 |                  
|                 |  |                    |        |                  



4. Property, Plant and Equipment,
Net



Net property, plant and equipment consists of the following:



|                                    |  | September 30, 2003 |         |   | December 31, 2002 |  
|----------------------------------- |  | ------------------ | ------- | - | ----------------- | -
|                                    |  | (unaudited)        |         |   |                   |  
|Land                                |  | $                  | 3,155   |   |                   | $
|Buildings                           |  |                    | 42,215  |   |                   |  
|Machinery and equipment             |  |                    | 81,598  |   |                   |  
|                                    |  |                    |         |   |                   |  
|Gross property, plant and equipment |  |                    | 126,968 |   |                   |  
|Less: accumulated depreciation      |  |                    | (82,806 | ) |                   |  
|                                    |  |                    |         |   |                   |  
|Net property, plant and equipment   |  | $                  | 44,162  |   |                   | $
|                                    |  |                    |         |   |                   |  



In 2002, the Company closed its South
Hill heavyweight fabric facility as part of its restructuring plan. The net book value of the assets at this facility was $2,596 and $ 3,266 as of September 30, 2003 and December 31, 2002, respectively.



5. Other Noncurrent Assets, Net



Other noncurrent assets consist of the following:



|                                        |  | September 30, 2003 |        |   | December 31, 2002 |  
|--------------------------------------- |  | ------------------ | ------ | - | ----------------- | -
|                                        |  | (unaudited)        |        |   |                   |  
|Debt issuance costs                     |  | $                  | 6,013  |   |                   | $
|Prepaid lease costs                     |  |                    | 82     |   |                   |  
|Accumulated amortization                |  |                    | (1,783 | ) |                   |  
|                                        |  |                    |        |   |                   |  
|                                        |  |                    | 4,312  |   |                   |  
|Unrecognized pension prior service cost |  |                    | 25     |   |                   |  
|Other noncurrent assets                 |  |                    | 323    |   |                   |  
|                                        |  |                    |        |   |                   |  
|Total noncurrent assets, net            |  | $                  | 4,660  |   |                   | $
|                                        |  |                    |        |   |                   |  



Debt issuance costs are amortized over
the lives of the respective debt instruments. Prepaid lease costs are amortized over the lease term.



In connection with obtaining new financing in 2003, the Company incurred $1,215 of debt issuance costs related to a short term financing arrangement with CIT Business Credit (CIT). These costs were written
off in the second quarter 2003 due to the termination of the CIT Facility, as discussed in Note 7. In connection with efforts to pursue long-term financing, the Company incurred $2 and $2,809 of debt issuance costs during the three and nine months
ended September 30, 2003, respectively. $2,565 of these costs relate to the long-term financing obtained from WFF and will be amortized over the life of the WFF Loan. $244 of these costs related to long term financing that was not obtained and were
written off to interest expense in the nine months ended September 30, 2003.



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(dollars in thousands)



5. Other Noncurrent Assets, Net - (Continued)



Amortization of debt issuance costs of $229 and $591 for the three months ended September 30, 2003 and 2002, respectively, has been included
in interest expense. Amortization of debt issuance costs of $988 and $966 for the nine months ended September 30, 2003 and 2002, respectively, has been included in interest expense. In the three months and nine months ended September 30, 2003, BGF
wrote off $86 and $1,152 of net debt issuance costs, respectively. These costs have been classified as interest expense in the accompanying financial statements.



The Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 142 effective January 1, 2002. In
accordance with SFAS No. 142, the Company completed its transitional goodwill impairment test in the second quarter of 2002. In performing this test, the Company estimated the fair value of its business on a discounted cash flow basis. Based on this
analysis, the Company determined that recorded goodwill exceeded its implied fair value and an impairment charge was recorded. Accordingly, the Company recorded a noncash charge of $4.7 million, which is recognized as the cumulative effect of a
change in accounting principle in the Consolidated Statement of Operations in 2002. There was no income tax benefit recognized for this charge.



6. Accrued Liabilities



Accrued liabilities consist of the following:



|                          |  | September 30,2003 |       | December 31, 2002
|------------------------- |  | ----------------- | ----- | -----------------
|                          |  | (unaudited)       |       |                  
|Interest                  |  | $                 | 2,081 |                  
|Environmental             |  |                   | 2,736 |                  
|Payroll                   |  |                   | 561   |                  
|Other employee benefits   |  |                   | 861   |                  
|Restructuring             |  |                   | 21    |                  
|Medical benefits          |  |                   | 650   |                  
|Other                     |  |                   | 1,809 |                  
|                          |  |                   |       |                  
|Total accrued liabilities |  | $                 | 8,719 |                  
|                          |  |                   |       |                  



Other employee benefits.In
2002, the Company approved a management bonus of $1,050 payable in 2003 when liquidity permitted. This bonus was paid in the first quarter of 2003.



Restructuring. In August 2002, the Company announced the closure of its South Hill heavyweight fabrics facility, which became effective on October 1, 2002. This
resulted in a reduction of the Companys salary and wage workforce by approximately 10%. Cash payments applied against the restructuring reserve in the nine months ended September 30, 2003 were approximately $78.



Environmental. A September 1998 environmental site assessment discovered reportable
quantities of polychlorinated biphenyls (PCBS) in soil at the Altavista plant in and around the former site of a heat transfer oil tank that the previous owner of the facility had removed in 1986, before the Companys 1988
acquisition by the Porcher Group.



The Company immediately reported the
contamination to United States Environmental Protection Agency (EPA) and the Virginia Department of Environmental Quality (VDEQ).



The Company worked with the EPA and VDEQ to establish a sampling protocol. The assessment revealed that the plant was contaminated with PCBs inside in several rooms,
outside in the soil, on the roof, in the sanitary and storm sewers, and in the creeks to which the storm sewers drain. The Company has also been informed that PCBs may have migrated their way into the citys water treatment plant. A Site
Characterization Report (SCR) was submitted to the EPA in April 2001. The EPA responded to that report in May 2002 with a request for additional assessment. The Company responded to the EPAs request in late June 2002 and proposed
actions consistent with the EPAs request. The Company completed the additional assessment in January 2003 and filed a final SCR in the second quarter of 2003. The EPA has not responded to the final SCR. The Companys



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(dollars in thousands)



6. Accrued Liabilities - (Continued)



environmental reserve reflects the estimated remediation costs for the Altavista plant as obtained from an environmental specialist.
However, such remediation costs are subject to approval of a remediation plan by the EPA that has not been obtained at this time The Company also has contamination issues at its Cheraw facility. The estimated loss due to this contamination is $354,
which is also reflected in the reserve.



The Company believes that these
reserves may need to be increased, but the Company is unable to derive a more reliable estimate at this time as actual costs remain uncertain. The Company does not anticipate significant cash outflows associated with this liability in the next
twelve months as the remediation plan has not been submitted to and approved by the EPA. However, there can be no assurance that the Company will not be required to respond to its environmental issues on a more immediate basis and that such
response, if required, will not result in significant cash outlays that would have a material adverse effect on the Companys financial condition.



7. Debt



Debt consists of the following:



|                                                                                          |  | September 30,2003 |         | December 31,2002
|----------------------------------------------------------------------------------------- |  | ----------------- | ------- | ----------------
|                                                                                          |  | (unaudited)       |         |                 
|Term loan                                                                                 |  | $                 | 5,691   |                 
|Senior Credit Facility:                                                                   |  |                   |         |                 
|Revolving Credit Facility                                                                 |  |                   |        |                 
|Senior Subordinated Notes, net of unamortized discount of $1,021 and $1,217, respectively |  |                   | 94,729  |                 
|                                                                                          |  |                  
|Note payable to parent                                                                    |  |                   |        |                 
|                                                                                          |  |                   |         |                 
|Total debt                                                                                |  | $                 | 100,420 |                 
|Current Maturies                                                                          |  |                   | 1,200   |                 
|                                                                                          |  |                   |         |                 
|Long-term debt                                                                            |  | $                 | 99,220  |                 
|                                                                                          |  |                   |         |                 



During 2002, the Company had a Senior
Credit Facility with a syndicate of lenders expiring in September 2003. On August 13, 2002, the Company and its senior lenders executed a forbearance agreement with respect to breaches of certain financial covenants under the Senior Credit Facility.
On February 14, 2003, the Company entered into a short-term financing arrangement with CIT Business Credit (the CIT Facility). This provided the Company with the financing to reimburse all senior lenders under the Senior Credit Facility
prior to the expiration of the forbearance agreement discussed above. Also, on February 14, 2003, BGF was able to make the interest payment originally due on January 15, 2003 on the Senior Subordinated Notes within the 30 day grace period. The CIT
Facility was scheduled to expire on June 30, 2003. However, in March 2003, the Company repaid the full amount of its borrowings under the CIT Facility and in April 2003, the Company terminated its arrangement with CIT. The Company paid CIT an early
termination fee of $100 in April 2003.



On June 6, 2003, the Company obtained a
five year financing arrangement with Wells Fargo Foothill, Inc.(WFF), formerly Foothill Capital Corporation. The loan with WFF (WFF Loan) is for a maximum revolver credit line of $40,000 with a letter of credit
(L/C) sub-line of $4,000, an inventory sub-line of $15,000 and a term loan sub-line of $6,000 of which the principal is amortized over 60 months. WFF has a first priority, perfected security interest in the Companys assets. The WFF
Loan provides for the following: (1) a borrowing base with advance rates on eligible accounts receivable and eligible finished goods and raw materials inventory of 85%, 45% and 35%, respectively, with inventory to be capped at the lesser of the
eligible inventory calculation, $15,000 or 80% of the net orderly liquidation value; (2) borrowing rates of LIBOR + 3.25% or the Wells Fargo Prime Rate (RR) + 1.00% for the revolver with a 50 basis points increase if outstanding advances exceed
$7,000 and of LIBOR + 3.5% or RR + 1.00% for the term loan with, at all times, a minimum rate of 5% for both facilities; (3) certain financial covenants including (i) a minimum excess availability at all times, (ii) a minimum EBITDA level in 2003
building to a trailing 12 month calculation in 2004 and (iii) a cap on yearly capital expenditures of $2,000 and; (4) an early termination fee of 5% in year one decreasing by 1% each year thereafter. The WFF Loan proceeds will be used to finance
ongoing working capital, capital expenditures, and general corporate needs of the Company and retire other outstanding debt. The WFF Loan is guaranteed by the Companys parent, Glass Holdings. As of September 30, 2003, amounts outstanding under
the WFF Loan totaled $5,691 consisting only of the term loan as no advances were outstanding under the revolver. The interest rate on the WFF Loan at



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(dollars in thousands)



7. Debt - (Continued)



September 30, 2003 was 5.25%. Availability under the revolver at September 30, 2003 was $10,773. This availability has been reduced by a
reserve to allow for the two annual interest payments on the Senior Subordinated Notes as well as a reserve of $550 for potential environmental liabilities. The reserve for interest payments is increased by $200 a week and is reset to $0 when such
payment is made. As of September 30, 2003, the total outstanding reserves amounted to $2,750.



The Senior Subordinated Notes were classified as a current liability as of December 31, 2002 because payment of interest due in 2003 was contingent upon the Companys ability to improve its liquidity in 2003. Due
to the long term financing arrangement obtained in June 2003, the Senior Subordinated Notes are classified as a long term liability as of September 30, 2003. The Senior Subordinated Notes bear interest at a rate of 10.25% which is payable
semi-annually in January and July through the maturity date of January 15, 2009. The fair value of the Senior Subordinated Notes as of September 30, 2003 was approximately $69,419.



On June 20, 2003, the Company repurchased $1,250 (face amount) of Senior Subordinated Notes for $812 plus accrued interest of $55. This
transaction resulted in a gain on extinguishment of $422, which is included as other income on the Consolidated Statements of Operations. On August 25, 2003, the Company repurchased $3,000 (face amount) of Senior Subordinated Notes for $2,175 plus
accrued interest of $34. This transaction resulted in a gain on extinguishment of $755, which is included as other income on the Consolidated Statements of Operations.



On August 13, 2002, the Company received $5,000 from Glass Holdings under a loan agreement whereby the loan is payable on demand at anytime
after June 30, 2003. Interest on the loan was 3.25% and was payable quarterly in arrears beginning September 2002. In June 2003, the Company repaid the full amount of the loan to Glass Holdings.



8. Segment Information



The Company operates in one business segment that manufactures specialty woven and non-woven fabrics for use in a variety of industrial and
commercial applications. The Companys principal market is the United States. Net sales information by geographic area is presented below, with sales based on the location of the customer. The Company does not have any long-lived assets outside
the United States.



|              |  | For the Three Months Ended September 30, |        | For the Nine Months Ended September 30,
|------------- |  | ---------------------------------------- | ------ | ---------------------------------------
|              |  | 2003                                     |        | 2002                                   
|              |  | (unaudited)                              |        | (unaudited)                            
|United States |  | $                                        | 26,337 |                                        
|Foreign       |  |                                          | 1,808  |                                        
|              |  |                                          |        |                                        
|              |  | $                                        | 28,145 |                                        
|              |  |                                          |        |                                        



9. Commitments and Contingencies



As discussed in Note 6, the Company has environmental exposures
associated with two of its manufacturing facilities.



From time to time, the
Company is involved in various other legal proceedings and environmental matters arising in the ordinary course of business. Management believes, however, that the ultimate resolution of such matters will not have a material adverse impact of the
Companys financial position or results of operations.



As permitted by
Delaware law, the Company has entered into indemnification agreements pursuant to which the Company indemnifies its directors and officers for certain events or occurrences while the director or officer is, or was, serving at the Companys
request, in such capacity. The maximum potential amount of future payments that the Company could be required to make under these agreements is limited. As a result of its insurance coverage, the Company believes that the estimated fair value of the
Companys indemnification agreements with directors and officers is minimal. No liabilities have been recorded for these agreements as of September 30, 2003.



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(dollars in thousands)



10. Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standard Board (FASB), issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51. The primary objective of the Interpretation is to provide guidance on the identification of entities for which control is achieved through means other than voting rights and how to
determine when and where business enterprises should consolidate the variable interest entity. Management does not believe this Interpretation will have a material impact on the financial position of the Company.



11. Related Party Transactions



An affiliate of the Company, AGY, is also a major supplier and filed for bankruptcy under
Chapter 11 of the US Bankruptcy Code in December 2002. This could result in the risk that obtaining raw materials from sources other than AGY would be more costly and could be disruptive to the Companys business. The Company has not fully
implemented contingency plans to secure alternative supplies of raw materials as of September 30, 2003. The Company purchased approximately $3,300 and $11,500 of raw materials from AGY in the three months and nine months ended September 30, 2003,
respectively.



During the first quarter of 2003, the Companys parent,
Glass Holdings, received a tax refund related to the filing of the 2002 consolidated tax return. In March 2003, $15,619 of this tax refund was remitted to BGF, of which $9,624 was applied to the loan receivable from Glass Holdings. The remaining
balance of $5,995 reduced the Companys income tax receivable. An additional $500 from Glass Holdings was received in January 2003 and another $500 in June 2003. These amounts were also applied against the loan receivable.



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##### Table of Contents

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



This Quarterly Report contains forward-looking statements with respect to our operations, industry, financial condition and liquidity. These statements reflect our
assessment of a number of risks and uncertainties. Our actual results could differ materially from the results anticipated in these forward looking statements as a result of certain factors set forth in this Quarterly Report. An additional statement
made pursuant to the Private Securities Litigation Reform Act of 1995 and summarizing certain of the principal risks and uncertainties inherent in our business is included herein under the caption Disclosure Regarding Forward Looking
Statements. You are encouraged to read this statement carefully.



You
should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and related notes, and with our audited consolidated financial statements and related notes as of and for the year ended
December 31, 2002 set forth in our 2002 Annual Report on Form 10-K.



Overview



Our business focuses on the production
of value-added specialty woven and non-woven fabrics made from glass, carbon and aramid yarns. Our fabrics are a critical component in the production of a variety of electronic, filtration, composite, insulation, construction and commercial
products. Our glass fiber fabrics are used by our customers in printed circuit boards, that are integral to virtually all advanced electronic products, including computers and cellular telephones. Our fabrics are also used by our customers to
strengthen, insulate and enhance the dimensional stability of hundreds of products that they make for their own customers in various markets, including aerospace, transportation, construction, power generation and oil refining.



Sales of our electronics fabrics remain depressed in 2003 compared to 2002 as a result of the
economic downturn in the electronics industry that began in 2001. Sales of electronics fabrics decreased $2.7 million, or 27.8%, and $9.4 million, or 29.4%, for the three and nine months ended September 30, 2003 as compared to September 30, 2002.



Sales of composite fabrics decreased slightly by $0.3 million for the three
months ended September 30, 2003 as compared to the three months ended September 30, 2002. Sales of composite fabrics increased slightly by $0.3 million, or 1.0%, for the nine months ended September 30, 2003 as compared to the nine months ended
September 30, 2002. At this time, we expect the composite market to remain relatively flat through 2003.



Sales of our filtration fabrics increased $1.0 million, or 20.4%, for the three months ended September 30, 2003 as compared to the three months ended September 30, 2002. Sales of filtration fabrics increased $3.1
million, or 17.9%, for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. This increase is due to an increase in demand for replacement filtration bags.



Sales of commercial fabrics decreased $0.6 million, or 23.1%, for the three months ended
September 30, 2003 as compared to the three months ended September 30, 2002. Sales of commercial fabrics decreased $0.9 million, or 10.8%, for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002.



Sales of construction products decreased $0.7 million, or 46.7%, for the three
months ended September 30, 2003 as compared to the three months ended September 30, 2002. Sales of construction products decreased $1.5 million, or 35.7%, for the nine months ended September 30, 2003 as compared to the nine months ended September
30, 2002



In 2003, we have continued to operate in our restructured
environment. The South Hill heavyweight fabrics facility is still closed and we have continued our efforts to reduce inventory and maximize our asset utilization. Inventory decreased $0.4 million, or 1.8%, to $22.2 million as of September 30, 2003
as compared to December 31, 2002. As of September 30, 2003, we reduced our debt by $11.0 million, or 9.9%, to $100.4 million as compared to $111.4 million as of December 31, 2002. On June 20, 2003, we repurchased $1.3 million (face amount) of Senior
Subordinated Notes for $0.8 plus accrued interest of $0.1 million. This transaction resulted in a gain on extinguishment of $0.4 million. On August 25, 2003, we repurchased an additional $3.0 million (face amount) of Senior Subordinated Notes for
$2.2 million plus accrued interest. This transaction resulted in a gain on extinguishment of $0.8 million.



On June 6, 2003, we obtained a long-term financing arrangement with Wells Fargo Foothill (WFF). The loan with WFF (the WFF loan) is for a maximum revolver credit line of $40.0 million with an
L/C sub-line of $4.0 million, an inventory sub-line of $15.0 million and a term loan sub-line of $6.0 million of which the principal is amortized over 60 months (see Liquidity and Capital Resources). We currently expect to use borrowings
under the WFF Loan to finance our ongoing working capital, capital expenditure and general corporate needs, as well as retire other outstanding debt.



While our performance in the first nine months of 2003 has been consistent with our restructured business plan, there can be no assurance that we will be able to continue
to generate sufficient operating cash flow to fund our operations and interest payments on our Senior Subordinated Notes or that we will be able to continue to meet the financial covenants and make required loan payments under the WFF loan.



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Critical Accounting Policies



The preparation of
financial statements and accompanying notes in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported. Changes in the facts and circumstances could have a significant
impact on the resulting financial statements. The critical accounting policies that affect our more complex judgments and estimates are described in the Annual Report on Form 10-K for the year ended December 31, 2002.



Environmental Issues



We are engaged in an
Environmental Protection Agency (the EPA)-supervised Voluntary Remediation Program at our Altavista facility, to address reportable quantities of polychlorinated biphenyls (PCBs) discovered during a 1998 environmental site
assessment at the former site of a heat transfer oil tank that the previous owner of the facility had removed before BGFs 1988 acquisition. A 1998 Phase Two Environmental Site Assessment revealed PCB contamination in several areas inside the
plant and on its roof, in the soil, in the sanitary and storm sewers within the plant, and in the surface waters to which the storm sewers drain. In addition, testing confirmed that measurable quantities of PCBs may have migrated into citys
water treatment plant.



In 2003, we submitted to the EPA a final Site
Characterization Report (SCR), documenting the assessment of the BGF property and the creek draining from the property. The EPA has not yet responded to the SCR.



A 1998 Phase Two Environmental Site Assessment at the Cheraw facility revealed chlorinated solvents and hydrocarbons in soil and
groundwater. The contamination resulted from the previous owners printing operations. Assessment and cleanup are regulated by South Carolinas DHEC, which has notified us that the chlorinated solvent residuals constitute the sole
remediation concern. Recent tests indicate reduced levels of solvent concentrations.



Each of our facilities is in compliance with applicable air quality control requirements. We recently instituted improvements to streamline and reduce costs associated with our air emission tracking and reporting
system. Operations at the Cheraw facility do not require an air permit. The Multilayer Facility recently qualified as a True Minor source, reflecting its low emissions. The Altavista facility qualifies as a Synthetic Minor, with emissions falling
well below Title V permitting requirements.



Each of our facilities is in
compliance with wastewater emission requirements, stormwater requirements, solid waste disposal requirements and with hazardous waste transfer requirements.



As of September 30, 2003, we have recorded a reserve of $2.7 million for environmental exposure, which reflects the estimated remediation costs for the Altavista
facility, as obtained from the environmental consulting firm that has conducted the site assessment and submitted the SCR to EPA. Remediation costs are estimates, subject to EPAs approval of the SCR and of a remediation plan. Estimated
remediation costs at the Cheraw facility are $0.4 million, which also is reflected in the reserve.



We believe that these reserves may need to be increased, but we are unable to derive a more reliable estimate at this time, as actual costs remain uncertain. We do not anticipate significant cash outflows associated
with this liability in the next twelve months, as we must await the EPAs approval of the final SCR before preparing and submitting the remediation plan for agency approval. However, there can be no assurance that we will not be required to
respond to our environmental issues on a more immediate basis and that such response, if required, will not result in significant cash outlays that would have a material adverse effect on our financial condition.



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Results of Operations



The
following table summarizes our historical results of operations as a percentage of net sales:



|                                                                                 |  | For the Three Months Ended September 30, |    |  | For the Nine Months Ended September 30, |   
|-------------------------------------------------------------------------------- |  | ---------------------------------------- | -- |  | --------------------------------------- | --
|                                                                                 |  | 2003                                     |    |  | 2002                                    |   
|                                                                                 |  | (unaudited)                              |    |  | (unaudited)                             |   
|Net sales                                                                        |  | 100.0                                    | %  |  | 100.0                                   | % 
|Cost of goods sold                                                               |  | 85.8                                     | %  |  | 93.2                                    | % 
|                                                                                 |  |                                          |    |  |                                         |   
|Gross profit                                                                     |  | 14.2                                     | %  |  | 6.8                                     | % 
|Selling, general and administrative expenses                                     |  | 7.4                                      | %  |  | 13.4                                    | % 
|Restructuring charge                                                             |  |                                         |    |  | 0.8                                     | % 
|Asset impairment charges                                                         |  |                                         |    |  |                                        |   
|                                                                                 |  |                                          |    |  |                                         |   
|Operating income (loss)                                                          |  | 6.8                                      | %  |  | (7.4                                    | )%
|Interest expense                                                                 |  | 10.6                                     | %  |  | 13.1                                    | % 
|Other (income), net                                                              |  | (2.7                                     | )% |  |                                        |   
|                                                                                 |  |                                          |    |  |                                         |   
|Loss before income taxes and cumulative effect of change in accounting principle |  | (1.1                                     | )% |  | (20.4                                   | )%
|Income tax (expense benefit)                                                     |  |                                         |    |  | (8.0                                    | )%
|Cumulative effect of change in accounting principle                              |  |                                         |    |  |                                        |   
|                                                                                 |  |                                          |    |  |                                         |   
|Net loss                                                                         |  | (1.1                                     | )% |  | (12.4                                   | )%
|                                                                                 |  |                                          |    |  |                                         |   



Three Months Ended September 30,
2003 Compared to Three Months Ended September 30, 2002



Net
Sales. Net sales decreased $3.0 million, or 9.6%, to $28.1 million in the three months ended September 30, 2003 from $31.1 million in the three months ended September 30, 2002. This decrease was primarily due to a decrease in sales of
electronics fabrics used in multi-layer and rigid printed circuit boards which decreased $2.7 million, or 27.8%, a decrease in sales of commercial fabrics used in commercial applications such as ceiling tile, window coverings and acoustical facing
fabrics, which decreased $0.6 million or 23.1%, and a decrease in sales of construction products which decreased $0.7 million, or 46.7%, during the third quarter of 2003 as compared to the third quarter of 2002. These decreases were partially offset
by an increase in sales of filtration fabrics, used by our industrial customers to control emissions into the environment, of $1.0 million, or 20.4%, over the comparable period in 2002. The decrease in sales of electronics fabrics was primarily a
result of lower demand in the electronics industry that has continued throughout 2002 and 2003. In addition, the decrease in capital spending in the information technology and telecommunications industries has led fabricators of printed circuit
boards to reduce production, thus negatively impacting our sales to these customers. The decrease in sales of commercial and construction products was due to a decrease in demand for these products due to an overall decrease in spending in the
commercial construction industry. The increase in sales of filtration fabrics was due to an increase in demand for replacement filtration bags.



Gross Profit Margins. Gross profit margins increased to 14.2% in the three months ended September 30, 2003 from 6.8% in the three months ended September 30, 2002.
During 2003, we have had successful cost reductions and lower raw material prices. In the third quarter of 2002, we incurred a settlement charge for the retirement plan of $1.0 million, of which $0.6 million was allocated to cost of goods sold.
There was no settlement charge incurred during the third quarter of 2003.



Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $2.1 million to $2.1 million in the three months ended September 30, 2003 from $4.2 million in the three months ended September 30,
2002. This was primarily due to a decrease from 2002 in legal, professional and consulting fees associated with restructuring operations of $2.5 million. Also, in the third quarter of 2002, we incurred a settlement charge for the retirement plan of
$1.0 million, of which $0.4 million was allocated to selling, general and administrative expenses. There was no settlement charge incurred during the third quarter of 2003. These decreases were partially offset by an increase in employee benefits
expenses and advertising and promotional costs.



Restructuring Charge.In the three months ended September 30, 2002, we accrued a retirement charge of $0.2 million related to the severance payments to the employees of our South Hill heavyweight fabrics facility.



Operating Income (Loss). As a result of the aforementioned factors, operating income
(loss) increased $4.2 million to $1.9 million, or 6.8% of net sales, in the three months ended September 30, 2003, from $(2.3) million, or (7.4)%, of net sales in the three months ended September 30, 2002.



Interest Expense. Interest expense decreased $1.1 million to $3.0 million, or 10.6% of
net sales, in the three months ended September 30, 2003 from $4.1 million, or 13.1% of net sales, in the three months ended September 30, 2002, due to a decrease in outstanding debt and interest rates.



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Other (income) net.Other income, net, increased $0.8 million to $0.8 million in the three months ended September
30, 2003 from $0.0 million in the three months ended September 30, 2002. This was primarily the result of a gain on extinguishment of debt due to the purchase of $3.0 million of Senior Subordinated Notes in August 2003.



Income Tax Expense. The effective tax rates in the three months ended September 30,
2003 and 2002 were 0.0% and 39.2%, respectively. Due to the fact that we have a full valuation allowance against our deferred tax assets, we did not realize a tax benefit for the three months ended September 30, 2003.



Net Loss. As a result of the aforementioned factors, our net loss decreased $3.6
million to a net loss of $0.3 million in the three months ended September 30, 2003, from a net loss of $3.9 million in the three months ended September 30, 2002.



Nine Months Ended September 30, 2003 Compared to Nine Months Ended September30, 2002



Net Sales. Net sales decreased $8.8 million, or 8.6%, to $93.2 million in the nine
months ended September 30, 2003 from $102.0 million in the nine months ended September 30, 2002. This decrease was primarily due to a decrease in sales of electronics fabrics used in multi-layer and rigid printed circuit boards of $9.4 million, or
29.4%, a decrease in sales of commercial fabrics used in commercial applications such as ceiling tile, window coverings and acoustical facing fabrics, of $0.9 million, or 10.8%, and a decrease in sales of construction products of $1.5 million, or
35.7%, during the first nine months of 2003 as compared to the first nine months of 2002. These decreases were partially offset by an increase in sales of filtration fabrics of $3.1 million, or 17.9%, over the comparable period in 2002. The decrease
in sales of electronics fabrics was primarily a result of lower demands in the electronics industry that has continued throughout 2002 and 2003. In addition, the decrease in capital spending in the information technology and telecommunications
industries has led fabricators of printed circuit boards to reduce production, thus negatively impacting our sales to these customers. The decrease in sales of commercial and construction products was due to a decrease in demand for these products
due to an overall decrease in spending in the commercial construction industry. The increase in sales of composite fabrics was primarily the result of a slight increase in market share for composites. The increase in sales of filtration fabrics was
due to an increase in demand for replacement filtration bags.



Gross Profit
Margins. Gross profit margins increased to 14.0% in the nine months ended September 30, 2003 from 0.5% in the nine months ended September 30, 2002. In June 2002, we incurred charges to costs of goods sold for additional inventory reserves of
$4.5 million. In the nine months ended September 2003, we had no comparable charges related to inventory reserves. In the nine months ended September 30, 2002, we incurred a settlement charge for the retirement plan of $1.0 million, of which $0.6
million was allocated to cost of goods sold. There was no settlement charge incurred during the nine months ended September 30, 2003. In addition, during 2003 we have had successful cost reductions, lower raw material prices, and a higher capacity
utilization allowing for a better absorption of fixed costs.



Selling,
General and Administrative Expenses. Selling, general and administrative expenses decreased $4.3 million to $6.3 million in the nine months ended September 30, 2003 from $10.6 million in the nine months ended September 30, 2002. This was
primarily due to a decrease in legal, professional and consulting fees associated with restructuring operations of $3.1 million, and a decrease in charges for environmental reserves of $2.0 million. Also, in the nine months ended September 30, 2002,
we incurred a settlement charge for the retirement plan of $1.0 million, of which $0.4 million was allocated to selling, general and administrative expenses. There was no settlement charge incurred during the nine months ended September 30, 2003.
These decreases were partially offset by an increase in management bonuses and employee benefit expenses.



Asset Impairment Charges.In the nine months ended September 30, 2003, we had no asset impairment charges. During the nine months ended September 30, 2002, we recorded a $1.0 million impairment charge on the
sale of equipment to an affiliate and a $4.7 million impairment charge on machinery and equipment at our South Hill heavyweight fabric manufacturing facility.



Restructuring Charge.In the three months ended September 30, 2002, we accrued a retirement charge of $0.2 million related to the severance payments to the
employees of our South Hill heavyweight fabrics facility.



Operating Income
(Loss). As a result of the aforementioned factors, operating income (loss) increased $23.0 million to $6.8 million, or 7.2% of net sales, in the nine months ended September 30, 2003, from $(16.2) million, or (15.9)%, of net sales in the nine
months ended September 30, 2002.



Interest Expense. Interest expense
decreased $0.1 million to $10.6 million, or 11.3% of net sales, in the nine months ended September 30, 2003 from $10.7 million, or 10.5% of net sales, in the nine months ended September 30, 2002, due to a decrease in outstanding debt and a decrease
in interest rates, partially offset by an increase in write off of debt issuance costs charged to interest expense.



Other (Income) Net.Other income, net, increased $1.2 million to $1.2 million in the nine months ended September 30, 2003 from $0.0 million in the nine months
ended September 30, 2002. This was primarily the result of a gain on extinguishment of debt due to the purchase of $1.3 million of Senior Subordinated Notes in June, 2003 and $3.0 million of Senior Subordinated Notes in August, 2003.



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Income Tax Expense (Benefit). The effective tax rates in the nine months ended September 30, 2003 and 2002 were
0.0% and (25.2)%, respectively. Due to the fact that we have a full valuation allowance against our deferred tax assets, we did not realize a tax benefit for the nine months ended September 30, 2003.



Cumulative Effect of Change in Accounting Principle. We adopted SFAS No. 142 effective
January 1, 2002 and recorded a noncash charge of $4.7 million for impairment of goodwill in the nine months ended September 30, 2002.



Net Loss. As a result of the aforementioned factors, our net loss decreased $35.8 million to a net loss of $2.6 million in the nine months ended September 30,
2003, from a net loss of $38.4 million in the nine months ended September 30, 2002.



Liquidity and Capital Resources



Our primary
sources of liquidity are cash flows from operations and borrowings under our financing arrangements. Our future need for liquidity will arise primarily from interest payments on our 101/4% Series B Senior Subordinated Notes due 2009, principal and interest payments on other financing arrangements, and the funding of our capital expenditures
and working capital requirements. There are no mandatory payments of principal on the Senior Subordinated Notes scheduled prior to their maturity.



On February 14, 2003, we entered into a financing arrangement with CIT Business Credit (the CIT Facility). This allowed us to reimburse all senior lenders
under the previously existing Senior Credit Facility prior to the expiration of the forbearance agreement executed on August 13, 2002 with the lenders under the Senior Credit Facility. Also on February 14, 2003, we were able to make the interest
payment originally due on January 15, 2003 on the Senior Subordinated Notes within the 30 day grace period. The CIT Facility was scheduled to expire on June 30, 2003. In March 2003, we paid the full amount of our borrowing under the CIT Facility and
in April 2003, we terminated our arrangement with CIT. In connection with the termination, we paid an early termination fee to CIT of $0.1 million.



On June 6, 2003, we obtained a five year financing arrangement with WFF. The WFF loan is for a maximum revolver credit line of $40.0 million with a letter of credit
(L/C) sub-line of $4.0 million, an inventory sub-line of $15.0 million and a term loan sub-line of $6.0 million of which the principal is amortized over 60 months. WFF has a first priority, perfected security interest in all assets. The
WFF Loan provides for the following: (1) a borrowing base with advance rates on eligible accounts receivable and eligible finished goods and raw materials inventory of 85%, 45% and 35%, respectively, with inventory to be capped at the lesser of the
eligible inventory calculation, $15.0 million, or 80% of the net orderly liquidation value; (2) borrowing rates of LIBOR + 3.25% or the Wells Fargo Prime Rate (RR) + 1.00% for the revolver with a 50 basis points increase if outstanding advances
exceed $7.0 million and of LIBOR + 3.5% or RR + 1.00% for the term loan with, at all times, a minimum rate of 5% for both facilities; (3) certain financial covenants including (i) a minimum excess availability at all times, (ii) a minimum monthly
EBITDA level in 2003 building to a trailing 12 month calculation in 2004 and (iii) a cap on yearly capital expenditures of $2.0 million and; (4) an early termination fee of 5% in year one decreasing by 1% each year thereafter. We expect to use the
WFF proceeds to finance our ongoing working capital, capital expenditures, and general corporate needs and retire other outstanding debt. The WFF Loan is guaranteed by our parent, Glass Holdings. Fees incurred in conjunction with entering into the
WFF Loan totaled $2.6 million. As of September 30, 2003, the balance on the term loan was $5.7 million.



Availability under the revolver as of September 30, 2003 and November 7, 2003 was $10.8 million and $10.5 million, respectively. This availability has been reduced by a reserve to allow for the annual interest
payments on the Senior Subordinated Notes as well as a reserve of $0.6 million for potential environmental liabilities. The reserve for interest payments is increased by $0.2 million per week and is reset to $0 when such payment is made. As of
September 30, 2003 and November 7, 2003, the outstanding reserves totaled $2.8 million and $3.8 million, respectively.



The Senior Subordinated Notes were classified as a current liability as of December 31, 2002 due to the fact that payment of interest due in 2003 was contingent upon our
ability to improve our liquidity in 2003. Due to the long-term financing arrangement obtained in June 2003, the Senior Subordinated Notes are now classified as a long-term liability. The fair value of the Senior Subordinated Notes as of November 7,
2003 and September 30, 2003 was approximately $69.9 million and $69.4 million, respectively. We are aware that our Senior Subordinated Notes are currently trading at substantial discounts to their face amount. In order to reduce future cash interest
payments, as well as future amounts due at maturity or upon redemption, we or our affiliates may, from time to time, purchase such securities for cash in open market purchases, privately negotiated transactions or otherwise. On June 20, 2003, we
repurchased $1.3 million (face amount) of Senior Subordinated Notes for $0.8 plus accrued interest of $0.1 million. This transaction resulted in a gain of $0.4 million which is included in other income. On August 25, 2003, we repurchased $3.0
million (face amount) of Senior Subordinated Notes for $2.2 million plus accrued interest. This transaction resulted in a gain of $0.8 million, which is included in other income.



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While our performance in the first nine months of 2003 has been consistent with our restructured business plan, there can
be no assurance that we will be able to continue to generate sufficient operating cash flow to fund our operations and interest payments on our Senior Subordinated Notes or that we will be able to continue to meet the financial covenants and make
required payments under the WFF Loan.



One of our affiliates, Advanced
Glassfiber Yarns LLC (AGY), is also a major supplier. AGY filed for protection under Chapter 11 of the US Bankruptcy Code on December 10, 2002 and is now operating with Debtor In Possession (DIP) financing. However, there can
be no assurance that AGYs liquidity will remain adequate in the long term, which may negatively impact AGYs ability to operate and to deliver products to us.



During the first quarter of 2003, our parent, Glass Holdings, received a tax refund related to the filing of the 2002 consolidated tax
return. In March 2003, $15.6 million of this tax refund was remitted to us, $9.6 million of which was applied to the loan receivable from Glass Holdings. The remaining balance of $6.0 million reduced our income tax receivable. An additional $0.5
million was received from Glass Holdings in the first quarter of 2003 that was also applied to the loan receivable from Glass Holdings. In the second quarter of 2003, we received an additional $0.5 million from Glass Holdings that was also applied
to the loan receivable.



On August 13, 2002, we received $5.0 million from
Glass Holdings under a loan agreement whereby the loan is payable on demand at anytime after June 30, 2003. Interest on the loan was 3.25% and was payable quarterly in arrears beginning December 2002. In June 2003, the Company repaid the full amount
of the loan to Glass Holdings.



Net Cash Provided by Operating
Activities. Net cash provided by operating activities for the nine months ended September 30, 2003 was $6.8 million, compared with $1.2 million in the nine months ended September 30, 2002, and was primarily the result of improvements in
operating results due to a lower cost structure from reduced operating capacity during the nine months ended September 30, 2003 compared to the same period in 2002 as well as receipt of tax refunds of approximately $6.0 million in 2003, offset by
fluctuations in working capital balances.



Net Cash Used in Investing
Activities. Net cash used in investing activities was $0.9 million for the nine months ended September 30, 2003 and was primarily the result of purchases of property, plant and equipment. We currently expect our capital expenditures during 2003
to be approximately $2.0 million.



Net Cash Provided by (Used In)Financing
Activities. Net cash used in financing activities was $3.6 million for the nine months ended September 30, 2003 and was primarily the result of proceeds from the CIT Facility of $10.0 million, payments on the Senior Credit Facility and CIT
Facility of $17.6 million, receipt of $10.6 million on the loan to our parent, proceeds from the WFF Loan of $6.0 million payment of $5.0 million on loan from parent, purchases of Senior Subordinated Notes of $3.0 million, and debt issuance costs of
$4.0 million.



Recent Accounting Pronouncements



In January
2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. The primary objective of the Interpretation is to provide guidance on the identification of entities for
which control is achieved through means other than voting rights and how to determine when and which business enterprise should consolidate the variable interest entity. We do not believe this Interpretation will have a material impact on us.



Disclosure Regarding Forward-Looking Statements



Some of the information in this Quarterly Report may contain forward-looking statements. These statements include, in particular, statements about our plans, strategies and prospects within the meaning of Section 27A of the Securities
Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify forward-looking statements by our use of forward-looking terminology such as may, will, expect, anticipate,
estimate, continue or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans,
intentions or expectations will be achieved. Such statements are based on our current plans and expectations and are subject to risks and uncertainties that exist in our operations and our business environment that could render actual outcomes and
results materially different from those predicted. When considering such forward-looking statements, you should keep in mind the following important factors that could cause our actual results to differ materially from those contained in any
forward-looking statements:



| |  | whether or not our cash flows from operations are sufficient to meet ongoing operations;
| | - | ----------------------------------------------------------------------------------------



| |  | the impact of AGYs unpredictable bankruptcy proceeding on the ongoing operations and the resultant risk that obtaining raw materials from sources other than AGY would be more
costly;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our significant level of indebtedness and limitations on our ability to incur additional debt;
| | - | ----------------------------------------------------------------------------------------------



| |  | our dependence upon some of our suppliers to provide us with materials and services;
| | - | ------------------------------------------------------------------------------------



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| |  | downturns in the electronics industry and the movement of electronics industry production outside of North America;
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | the effect of highly competitive markets and recent competition from Asia for heavyweight glass fiber fabrics;
| | - | --------------------------------------------------------------------------------------------------------------



| |  | our concentrated customer base and the competitive nature of our markets;
| | - | -------------------------------------------------------------------------



| |  | a disruption of production at one of our facilities;
| | - | ----------------------------------------------------



| |  | an easing of import restrictions and duties with respect to glass fiber fabrics;
| | - | --------------------------------------------------------------------------------



| |  | whether or not we are able to comply with environmental and safety and health laws and requirements;
| | - | ----------------------------------------------------------------------------------------------------



| |  | whether or not we are able to address technological advances in the markets we serve;
| | - | -------------------------------------------------------------------------------------



| |  | changes in economic conditions generally; and
| | - | ---------------------------------------------



| |  | whether or not we are able to continue to satisfy the covenants and other provisions under our various financing arrangements.
| | - | ------------------------------------------------------------------------------------------------------------------------------



This list of risks and uncertainties, however, is not intended to be exhaustive. You should
also review the other cautionary statements we make in this Quarterly Report and other reports and registration statements we file with the SEC. All forward-looking statements attributable to us or persons acting for us are expressly qualified in
their entirety by our cautionary statements.



We do not have, and expressly
disclaim, any obligation to release publicly any updates or changes in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



The effects of potential changes in interest rates are discussed below. Our market risk discussion includes forward-looking statements and represents an estimate of possible changes in interest rates that
would occur assuming hypothetical future movements in interest rates. These disclosures are not precise indicators of expected future losses, but only indicators of reasonably possible losses. As a result, actual future results may differ materially
from those presented. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Disclosure Regarding Forward-Looking Statements.



Our financing arrangements are subject to market risks, including interest rate risk. As of September 30, 2003, we had $5.7 million of
variable rate debt outstanding that was not protected by interest rate hedge contracts. If the weighted average interest rate on this debt is 100 basis points higher or lower during the next twelve months, our interest expense would be increased or
decreased by approximately $0.1 million. Our financial instruments are not currently subject to commodity price risk. Our risk management strategy is to use derivative financial instruments, such as swaps, to hedge interest rate exposures. However,
we currently do not have any outstanding interest rate hedge contracts. We do not enter into derivatives for trading or speculative purposes.



Item 4. Controls and Procedures



We maintain
disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms. These disclosure controls and procedures are further designed to ensure that such information is accumulated and communicated to our management, including our president and chief financial officer, to allow timely
decisions regarding required disclosure.



Based on the most recent evaluation,
which was completed as of September 30, 2003, our president and chief financial officer believe that our disclosure controls and procedures are effective to ensure that material information relating to us and our consolidated subsidiaries is made
known to management, including the president and chief financial officer, particularly during the period when our periodic reports are being prepared, and that our disclosure controls and procedures are effective to provide reasonable assurance that
our financial statements are fairly presented in conformity with generally accepted accounting principles.



There have been no significant changes in our internal controls or in any other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.



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PART II - OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------
|    |  |         
|    |  | 10.1    
|    |  |         
|    |  | 31.1    
|    |  |         
|    |  | 32.1    
|    |  |         
|    |  | 33.1    
|    |  |         
|    |  | 33.2    

---

|* | Incorporated by reference from the Companys Current Report on Form 8-K dated June 6, 2003
|- | ------------------------------------------------------------------------------------------



|(b) |  | Reports on Form 8-K
|--- |  | -------------------
|    |  | None               



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



BGF INDUSTRIES, INC./s/ Philippe R. DorierPhilippe R. DorierChief Financial Officer(Principal Financial and Accounting Officer)/s/ James R.
HendersonJames R. HendersonPresident




Date: November 12, 2003



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