<PAGE>


================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

                          Commission File No. 333-72321

                              BGF Industries, Inc.
             (Exact name of registrant as specified in its charter)

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

 3802 Robert Porcher Way, Greensboro, North Carolina         27410
(Address of registrants' principal executive office)       (Zip Code)

                                 (336) 545-0011
              (Registrants' telephone number, including area code)

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

Securities registered pursuant to Sections 12(b) or 12(g) of the Act: None

Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. Yes [X] No [ ]

There is no established trading market for the Common Stock of the registrant.
All shares of Common Stock are held by an affiliate of the registrant at March
27, 2002.

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 March 27, 2002.

================================================================================

<PAGE>


                              BGF INDUSTRIES, INC.
               ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2001

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      Page No.
                                                                                      --------
<S>          <C>                                                                        <C>
PART I.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

Item 1.      Business                                                                    2
Item 2.      Properties                                                                  8
Item 3.      Legal Proceedings                                                           8
Item 4.      Submission of Matters to a Vote of Security Holders                         9

PART II.
Item 5.      Market for Registrant's Common Equity and Related Stockholder Matters      10
Item 6.      Selected Financial Data                                                    10
Item 7.      Management's Discussion and Analysis of Financial Condition                11
             and Results of Operations
Item 7A.     Quantitative and Qualitative Disclosure About Market Risk                  22
Item 8.      Financial Statements and Supplementary Data                                22
Item 9.      Changes in and Disagreements with Accountants on Accounting                22
             and Financial Disclosure

PART III.
Item 10.     Directors and Executive Officers of the Registrant                         23
Item 11.     Executive Compensation                                                     24
Item 12.     Security Ownership of Certain Beneficial Owners and Management             28
Item 13.     Certain Relationships and Related Transactions                             29

PART IV.
Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K            31

SIGNATURE
</TABLE>

<PAGE>




                                     PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Annual 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 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:

     .    the impact of Owens Corning's unpredictable bankruptcy proceeding on
          the ongoing operations of Advanced Glassfiber Yarns, an affiliate
          experiencing financial difficulties and a major supplier, which could
          result in the risk that obtaining raw materials from sources other
          than Advanced Glassfiber Yarns 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;
     .    a downturn 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 satisfy the covenants and other
          provisions under our various financial instruments.

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 Annual
Report and in other reports and registration statements we file with the
Securities and Exchange Commission. All forward-looking statements attributable
to us or persons acting for us are expressly qualified in their entirety by our
cautionary statements.

                                       1

<PAGE>

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 1. Business

General

Our business focuses on the production of value-added specialty woven and
non-woven fabrics made from glass, carbon and aramid yarns. In both revenue and
market share, we believe we are the second largest manufacturer of glass fiber
fabrics and a leading producer of other high performance fabrics in North
America. 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, which 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. In the course of our normal operations, we are engaged in various
related party transactions. See Item 13 for further discussion.

BGF is a Delaware corporation. Our headquarters are located at 3802 Robert
Porcher Way, Greensboro, North Carolina 27410, and our telephone number is (336)
545-0011.

Limited Number of Domestic Producers. We are one of a limited number of major
domestic manufacturers of glass fiber fabrics. Our major competitors in the
global glass fabric weaving industry are Hexcel/Clark-Schwebel, Nitto Boseki
(Japan), Nan Ya Plastics (Taiwan) and Taiwan Glass (Taiwan). We and
Hexcel/Clark-Schwebel are the primary manufacturers based in the United States.
Although direct imports of glass fiber fabrics into the U.S. have been limited,
increasing imports of laminates and rigid printed circuit boards from Asia have
been impacting demand for domestically produced heavyweight glass fiber fabrics
used in rigid printed circuit boards.

Barriers to Entry. There are a limited number of major global suppliers of glass
and carbon yarns to fabric producers such as BGF, and we have experienced supply
shortages from time to time. Accordingly, we believe that it would be difficult
for new competitors to ensure a constant and adequate supply of glass and carbon
yarns. Additionally, the process of producing high quality glass fiber and other
high performance fabrics requires extensive technological expertise and research
and development capability, both of which require substantial know-how and
capital compared to many less complex businesses.

Diversified Markets and Uses. The unique characteristics of our fabrics make
them critical components in a variety of products manufactured for sale in the
electronics, composites, filtration, commercial, insulation and construction
markets. Within each of these markets, our fabrics have a variety of
applications, including:

                                       2

<PAGE>

     .    Printed circuit boards
     .    Helicopter blades
     .    Telecommunications equipment
     .    Reinforced concrete
     .    Filtration bags
     .    Roofing materials
     .    Heat shields
     .    Wall coverings
     .    Welding curtains
     .    Filtration equipment
     .    Aircraft laminates
     .    Sporting goods

Lack of Product Substitutes. For many applications of our products, there are a
limited number of economical product substitutes, if any. For example,
substantially all printed circuit boards for high-end electronics applications
use glass fiber fabrics. The unique properties of glass fiber also make it a
critical component in high temperature filtration and insulation products. In
many composite products, only glass, carbon and aramid fibers can meet the
requisite strength-to-weight ratios.

Glass fiber fabrics offer an excellent combination of properties, from high
strength to fire resistance. Wide ranges of yarn sizes and weave patterns
provide broad design potential, enabling customers to choose the best
combination of material performance, economics and product flexibility. Carbon
fiber fabrics possess many of the same characteristics of glass fiber fabrics
and provide higher strength and lighter weight in the products in which they are
incorporated. Aramid fiber fabrics also share many of the same characteristics
as glass fiber fabrics and are lighter in weight and provide greater impact
resistance in the products in which they are incorporated.

Business Strategy

Our goal is to be the preferred supplier to markets that require a technically
complex application of fabrics made of glass, carbon and aramid yarns. To
achieve this goal, we intend to pursue the following long-term strategies:

Continue to Focus on Lightweight Fabrics for the Multi-Layer Printed Circuit
Board Market. We seek to continue to expand our sales of lightweight glass fiber
fabrics to meet the growing demand for multi-layer printed circuit boards. Our
investment in the South Hill, Virginia, lightweight fabrics facility is an
important part of this strategy. In addition, we have leased a portion of this
facility to Advanced Glassfiber Yarns to manufacture glass yarns exclusively for
our production of lightweight glass fiber fabrics. We believe that this
arrangement strengthens the compatibility between our weaving process and the
glass yarns we use in our weaving process, thereby enabling us to produce the
highest quality lightweight glass fiber fabrics. We also believe that the
quality of the products we manufacture at the South Hill facility will enable us
to enhance and expand our relationships with customers in the multi-layer
printed circuit board market.

                                       3

<PAGE>

Capitalize on the Growth in the Filtration and Composites Markets. We believe
substantial opportunities exist to increase our sales and market share in both
the filtration and composites markets. We intend to leverage our already strong
position in the high temperature filtration market by developing new woven and
non-woven high performance fabrics for environmental applications in power
generation, steel mills and other industries that are subject to strict
environmental regulations. In addition, we believe that there may be increased
opportunities internationally in this market as lesser developed countries adopt
stricter environmental regulations.

We also believe that we have substantial opportunities to increase our sales in
the composites market for applications in the transportation industry. In the
composites market, we are pursuing strategic relationships with key suppliers to
the aerospace and automobile industries for the design and manufacture of new
products.

Develop New Applications for Fabrics. We plan to continue to leverage the
technical expertise and experience of our research and development and sales and
marketing staff to develop new applications for existing fabrics and to develop
new fabrics that meet customer requirements for strength, weight, fire
resistance and durability. We believe that many opportunities exist to continue
to develop both woven and non-woven fabrics to replace traditional materials in
markets which have historically not utilized the fabrics we produce. For
example, we have begun selling fabrics for use in the reinforcement of metal
automobile body parts.

Products and Markets

We sell our products primarily in the United States and focus on the following
markets:

Electronics. We produce glass fiber fabrics for multi-layer and rigid printed
circuit boards for use in the electronics industry. The demand for multi-layer
printed circuit boards, which primarily use lightweight glass fiber fabrics,
decreased from 2000 to 2001 primarily as a result of significant inventory
adjustments in the electronics industry that began during the first quarter of
2001. In addition, the decrease in capital spending in the information
technology and telecommunications industry led fabricators of printed circuit
boards to reduce production which negatively impacted our sales to these
customers. Furthermore, the demand for our heavyweight fabrics has decreased due
to competitive pressures from Asian laminate producers. Sales of glass fabrics
to the electronics industry were $52.8 million in 2001 and $100.4 million in
2000. These sales represented 35.9% and 49.8% of our net sales in 2001 and 2000,
respectively.

Composites. Our glass, carbon and aramid fiber fabrics are used in various
composite materials, which are used in various applications, including
structural aircraft parts and interiors, helicopter rotor blades, tooling, brake
linings and ducting. Net sales of fabrics for composites were $50.2 million in
2001, representing 34.2% of our net sales. Our sales in this market held up well
prior to September 11, 2001. During the last quarter of 2001, we experienced a
decline in orders from customers in the aerospace industry due to uncertainly
over airline traffic recovery. At this point, the decrease has not been fully
offset by the market for refurbishing existing aircraft or increased purchases
by the military.

                                       4

<PAGE>

Filtration. We produce fabrics for high temperature dust filtration used by
industrial customers to control emissions into the environment. Our filtration
bags are sold to utilities, producers of asphalt and carbon black, cement plants
and steel mills. Sales of our filtration fabrics were $19.6 million in 2001 and
$29.0 million in 2000. These sales represented 13.3% and 14.4% of our net sales
in 2001 and 2000, respectively. The decrease in sales of filtration fabrics is
due to fewer large utility projects that have replaced filter bags, as well as a
downturn in the steel and foundry industries.

Commercial. Our glass fiber fabrics are used in commercial applications where
fire resistance and dimensional stability are critical. Applications for these
products include ceiling tile and acoustical facing fabrics, window coverings
and movie screens. Sales in this segment in 2001 were comparable to 2000.

Insulation. We produce materials for high-temperature, fire-resistant
insulation. Applications for these products include insulation for joints,
pipes, valves, transportation exhaust systems, heat shields and home appliances.
Sales in this segment in 2001 were comparable to 2000.

Construction. The fire resistant qualities of glass fiber fabrics make them a
critical component of products used in the construction industry. Applications
for these products include smoke and fire barrier curtains, drywall bonding
tape, rubber mat backing and fabric structures, such as commercial tents and
roofs. Sales in 2001 were down compared to 2000 due to the overall slow down in
the U.S. economy.

Sales and Marketing

We sell our products through an experienced direct sales force of six sales
representatives, four market managers and two telemarketing representatives. Our
sales representatives have specific customer groups, while the market managers
are responsible for specific product lines. The sales representatives are
compensated on a salary and commission basis and the market managers are
compensated on a salary and bonus basis. Each sales representative has a
technical orientation and the necessary expertise to sell our full line of
products. We maintain an internet web site, located at www.bgf.com, which
contains extensive product information.

We sell our products to over 400 customers, including many leading companies in
their respective industry segments, including Cytec Engineered Materials,
Polyclad Laminates, Isola USA, BHA, and Saint Gobain. We continually seek to
strengthen and expand our relationships with our customers. Due to the stringent
quality, delivery and performance standards demanded by many of our customers
and the ultimate users of our products in various markets, our customers are
increasingly moving toward collaborative agreements among both fabric producers,
such as BGF, and their own customers. We believe that we are well positioned to
benefit from this trend because of our strong competitive position within the
industry, our investment in technical and manufacturing expertise and our
long-term relationships with customers and suppliers. Our markets remain
competitive, however, and this competitiveness is exemplified by continual and
rapid technological change. To effectively compete, we must process and utilize
effectively extensive technological and manufacturing capabilities. We could

                                       5

<PAGE>

face even further competition if cost effective alternatives to glass, carbon or
aramid fiber fabrics are developed.

Two of our customers, Cytec Engineered Materials and Polyclad Laminates, each
accounted for more than 10% of our net sales and together accounted for 25.0%
and 23.1% of our net sales, respectively, in 2001 and in 2000. Our top ten
customers in 2001 and in 2000 accounted for 45.5% and 51.9% of our net sales,
respectively. Our customers are not contractually required to purchase any of
our products and may terminate their relationship with us at any time.

Industry Segments

We operate in one business segment that manufactures specialty woven and
nonwoven fabrics for use in a variety of industrial and commercial applications.
Information related thereto can be found in footnote 11 of the consolidated
financial statements under Item 8 of this Report.

Research and Development

We maintain a modern, well-equipped research and development facility, located
at our headquarters in Greensboro, North Carolina, that divides its efforts
among developing new products and improving current products. The research and
development facility is divided into seven state-of-the-art laboratories
focusing on the following strategic areas of product development:

     .    Applications and development;
     .    Pilot processing;
     .    Physical testing;
     .    Composites development;
     .    Microscopy;
     .    Analytical testing; and
     .    Filtration technology

We have several United States patents, patent applications and trademarks. While
we consider our patents to be valuable assets, we do not believe that our
competitive position is dependent on patent protection or that our operations
are dependent on any individual patent or group of related patents. However, in
some instances, patents and patent protection may serve as a barrier to entry in
some of our product lines, such as commercial and insulation. Our policy is to
obtain patents on our new products and enforce our patent rights.

Raw Materials

The principal materials we use to manufacture our products are glass, aramid and
carbon yarns. We purchase glass yarns from Advanced Glassfiber Yarns, PPG
Industries, Dupont Company and Cytec Engineered Materials. Beginning in
September 1998, Advanced Glassfiber Yarns began to supply us with glass yarns
produced at the South Hill, Virginia lightweight fiber fabrics facility. The
supply agreement expires on December 31, 2008, unless extended by Advanced
Glassfiber Yarns. Glass Holdings, our parent corporation, through a wholly owned
subsidiary,

                                       6

<PAGE>

purchased a 51% interest in Advanced Glassfiber Yarns from Owens Corning on
September 30, 1998. Our main suppliers of carbon yarns are Amoco, Toho and Cytec
Engineered Materials and our main supplier of aramid yarns is DuPont.

Employees

As of December 31, 2001, we employed approximately 954 full time and part time
employees, 764 of which are hourly employees and 190 of which are paid on a
salary basis. All of our employees are located in the United States. None of our
employees is represented by a labor union. In response to the downturn in market
conditions experienced beginning the second quarter of 2001, we furloughed
production employees as well as eliminated several salaried positions thereby
reducing our equivalent number of employees by approximately 25%. This workforce
reduction occurred during the third and fourth quarters of 2001. We incurred a
pre-tax restructuring charge of $502,000 in October 2001 as a result of the
elimination of salaried positions.

Environmental and Health Matters

Our past and present operations, including our ownership and operation of real
properties, are subject to extensive and changing federal, state, local and
foreign environmental laws and requirements including those governing discharges
to air and water, the handling and disposal of soils and hazardous substances
and wastes, and the remediation of contamination associated with releases of
hazardous substances at our facilities and off-site disposal locations. Our
operations are also governed by laws and requirements relating to workplace
safety and health. We believe that we are generally in material compliance with
currently applicable environmental laws and requirements.

In the course of a September 1998 environmental site assessment, we 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 BGF's 1988
acquisition. We immediately reported the contamination to the United States
Environmental Protection Agency ("USEPA") Region 3 and the Virginia Department
of Environmental Quality ("VDEQ").

The agencies have required additional sampling and site characterization, which
is ongoing. With USEPA and VEDQ oversight, we have assessed the site to
determine the extent of the contamination. In the spring of 2001, we submitted
to USEPA a Site Assessment Report, which documents the full extent of the
progressive assessment activities and currently is under agency review. Based
upon the results of the site assessment, we are developing a cleanup plan, which
we will begin to implement upon receiving USEPA's approval of the site
assessment. All assessment and cleanup activities have been and will be
conducted in compliance with applicable state and federal regulatory
requirements. Cleanup costs remain uncertain, as we have not received any
estimates of ultimate costs. We may incur costs or liabilities relating to this
and other environmental or safety and health matters in the future, including
those relating to compliance with laws and requirements, remediation of
contamination or claims by third parties.

                                       7

<PAGE>

Like all weavers of glass, carbon and aramid fibers, we are subject to laws and
regulations designed to reduce solid wastes by requiring, among other things,
regulated wastes to be degradable in landfills, minimum levels of recycled
content, various recycling requirements, disposal fees and limits on the use of
our products. In addition, various consumer and special interest groups have
lobbied from time to time for the implementation of additional environmental
protection measures. We do not believe that the legislation promulgated to date
and currently pending initiatives will have a material adverse effect on our
business, financial condition and results of operations. We cannot assure you,
however, that any future legislation or regulatory efforts will not have a
material adverse effect on our business, financial condition and results of
operations.

Item 2. Properties

We own and operate four manufacturing facilities and a research and development
facility, together occupying over 786,000 square feet. We believe that these
facilities are suitable for manufacturing the products we offer and have
capacities appropriate to meet existing production requirements. The following
table sets forth a description of our facilities.

<TABLE>
<CAPTION>
                                                          Approximate   Leased or
Facility                     Use                          Square Feet   Owned
--------------------------   --------------------------   -----------   ------------
<S>                          <C>                          <C>           <C>
Greensboro, North Carolina   Headquarters; Research and    36,000       Owned
                             Development facility
Altavista, Virginia          Weaving glass fiber and      399,000       Owned
                             aramid fibers
South Hill, Virginia         Weaving heavyweight glass    147,000       Owned
Heavyweight Fiber Fabrics    fibers
Facility
South Hill, Virginia         Weaving lightweight glass    128,000       Owned
Lightweight Fiber Fabrics    fibers                       136,000       Owned/under
Facility                                                                construction
Cheraw, South Carolina       Weaving carbon fibers         76,000       Owned
Altavista, Virginia          Warehouse                    101,000       Leased
Altavista, Virginia          Warehouse                     12,000       Leased
Altavista, Virginia          Warehouse                     65,000       Leased
South Hill, Virginia         Warehouse                     38,500       Leased
Los Angeles, California      Warehouse                     20,000       Leased
</TABLE>

Item 3. Legal Proceedings

From time to time, we may become involved in various legal proceedings arising
in the ordinary course of business. We believe that such ordinary course of
business matters will not have a material adverse effect on our business,
financial condition, liquidity or results of operations. See also "Item 1.
Business - Environmental and Safety and Health Matters."

                                       8

<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders

None

                                       9

<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

There is no established trading market for BGF's common stock. All shares of
BGF's issued and outstanding common stock are held by Glass Holdings.

We did not declare any dividends or make any distributions on our common stock
in 2001. Further, we have no commitment or current plans to make dividends or
other distributions in 2002 and our senior credit facility restricts our ability
to pay dividends on other distributions.

Item 6. Selected Financial Data

The following table sets forth certain selected financial information derived
from our audited consolidated financial statements for the five-year period
ended December 31, 2001. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and our consolidated financial statements and related notes and
other financial information included elsewhere in this Report.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                   Year Ended

                                    December 31,   December 31,   December 31,   December 31,   December 31,
                                        2001           2000           1999           1998           1997

                                                            (dollars in thousands)
------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>            <C>            <C>
Statement of Operations Data:
   Net sales/(1)/                     $146,842       $201,419       $181,681       $205,515       $222,066
   Cost of goods sold/(1)/             131,639        165,830        151,491        166,239        174,663
                                      --------       --------       --------       --------       --------
   Gross profit                         15,203         35,589         30,190         39,276         47,403
   Selling, general and
     administrative expenses             7,071          9,333          7,492          9,700          9,739
   Restructuring charges/(2)/              502             --            769             --             --
                                      --------       --------       --------       --------       --------
   Operating income                      7,630         26,256         21,929         29,576         37,664
   Interest expense                     13,972         14,168         15,817          4,517          2,355
   Other income, net                    (1,396)        (1,844)        (1,485)          (112)           (73)
                                      --------       --------       --------       --------       --------
   Income (loss) before taxes
     and extraordinary loss             (4,946)        13,932          7,597         25,171         35,382
   Income tax expense (benefit)         (1,868)         5,602          2,880          9,854         13,652
                                      --------       --------       --------       --------       --------
   Income (loss) before effect
     of  extraordinary loss             (3,078)         8,330          4,717         15,317         21,730
   Extraordinary loss on
     write-off of debt
     issuance costs, net of
     income taxes of $639/(3)/              --             --          1,029             --             --
                                      --------       --------       --------       --------       --------
   Net income (loss)                  $ (3,078)      $  8,330       $  3,688       $ 15,317       $ 21,730
                                      ========       ========       ========       ========       ========

Other Data:
   Depreciation and
   amortization/(4)/                   $ 8,744       $  8,584       $  8,206       $  7,399       $  6,759
   Capital Expenditures                 15,739          6,764          6,531         11,299          7,275
   EBITDA/(5)/                          17,770         36,684         31,620         37,087         44,496
   Cash flows from operating
     activities                          1,064          6,851         28,266         29,471         19,898
   Cash flows from investing
     activities                        (15,657)        (6,728)        (6,472)       (11,283)        (7,275)
   Cash flows from financing
     activities                         14,607           (132)       (21,795)       (18,199)       (12,759)
   Ratio of earnings to fixed
     charges/(6)/                          0.6x           2.0x           1.5x           6.1x          14.5x
</TABLE>

                                       10

<PAGE>

<TABLE>
<S>                                   <C>            <C>            <C>            <C>            <C>
Balance sheet data
 (at period end):
   Working capital                    $ 42,121       $ 34,635       $ 35,228       $ 53,424       $ 51,799
   Total assets                       $135,599       $136,806       $127,567       $136,766       $136,476
   Current debt                             --       $  3,106       $      0       $  1,000       $  5,000
   Long-term debt                     $125,583       $114,477       $132,383       $150,000       $ 20,000
   Total debt                         $125,583       $117,583       $132,383       $151,000       $ 25,000
   Stockholder's equity (deficit)     $ (9,740)      $(16,251)      $(35,061)      $(38,749)      $ 83,297
</TABLE>

/(1)/ In order to conform with recent technical literature from the Emerging
     Issues Task Force, shipping and handling costs are now included in cost of
     goods sold and not presented as a part of net sales. The prior period
     financial statements have been reclassified to conform to the current
     presentation.

/(2)/ During 1999, the Company terminated salaried employees in connection with
     a restructuring plan. In 2001, the Company terminated additional salaried
     employees in addition to reducing the production workforce by approximately
     25%. As a result of the restructuring plan, BGF incurred charges for
     salaried employee severance.

/(3)/ On January 21, 1999, BGF issued $100 million of senior subordinated notes
     ($98 million net of discount) due 2009. Net proceeds of approximately $95.3
     million were used to repay outstanding indebtedness of $65.0 million under
     the senior subordinated credit facility, interest of $0.5 million under the
     senior subordinated credit facility, and $29.8 million under the revolver.
     Interest is payable semiannually beginning in July 1999. In addition, debt
     issuance costs of $1.7 million ($1.0 million net of tax) associated with
     the termination of the senior subordinated credit facility were written off
     in the first quarter of 1999 and recorded as an extraordinary charge in the
     financial statements. Debt issuance costs of $0.3 million associated with
     the amendment dated December 16, 1999 were written off in the fourth
     quarter of 1999 and recorded as an additional amortization charge in the
     financial statements. Debt issuance costs of $0.6 million associated with
     the amendment dated September 28, 2001, were written off in the third
     quarter of 2001 and recorded as an additional amortization charge in the
     financial statements.

/(4)/ Amounts do not include amortization of debt issuance costs and original
     issue discount, which is included in interest expense.

/(5)/ EBITDA is defined as net income before interest expense, income taxes,
     depreciation, amortization expense and non-recurring, non-cash charges. We
     believe that EBITDA is a widely accepted financial indicator of a company's
     ability to service and/or incur indebtedness. EBITDA does not represent and
     should not be considered as an alternative to net income or cash flow from
     operations as determined by generally accepted accounting principles, and
     EBITDA does not necessarily indicate whether cash flow will be sufficient
     for cash requirements. Not every company calculates EBITDA in exactly the
     same fashion. As a result, EBITDA as presented may not necessarily be
     comparable to similarly titled measures of other companies. See also
     Exhibit 99.1 to this Report for a reconciliation of net income to EBITDA.

/(6)/ The ratio of earnings to fixed charges is computed by dividing earnings by
     fixed charges. Earnings consist of income before taxes and changes in
     accounting principles and fixed charges, excluding capitalized interest.
     Fixed charges consists of interest expense, capitalized interest,
     amortization of debt issuance costs and one-third of rental expense (the
     portion deemed representative of the interest factor).

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion should be read together with our consolidated financial
statements and related notes contained in this Report. The forward-looking
statements under this section are subject to risks and uncertainties that exist
in our operations and business environment. See Item 1, "Disclosure Regarding
Forward-Looking Statements".

Overview

Over the last 10 years, the demand for multi-layer printed circuit boards, which
primarily use lightweight glass fiber fabrics, has generally been increasing. In
contrast, over the last 3 years, the demand for our heavyweight fabrics has
generally been decreasing due to competitive pressures from Asian laminate
producers. As a result, we have shifted our electronics glass fiber fabrics
manufacturing capacity mix in recent years from heavyweight fabrics, which are
typically used in rigid printed circuit boards, toward more technologically
advanced and higher-margin lightweight fabrics. Since the fourth quarter of
1997, we have experienced downward pricing

                                       11

<PAGE>

pressures on our heavyweight glass fiber fabrics due to foreign exchange
fluctuations between the dollar and various Asian currencies and over-capacity
in Asian heavyweight fabrics manufacturing, which has led to increased imports
of laminates and printed circuit boards into the U.S. from Asia. However, our
sales of the higher-margin, lightweight glass fiber fabrics used in multi-layer
printed circuit boards have continued to increase except during the calendar
year 2001 as a result of a significant inventory adjustment at the OEM level
combined with a drop in information technology expenditures by businesses as
explained above. We are unable to determine if further declines in this business
will continue.

Critical Accounting Policies

The SEC recently issued two releases, FR 60 and 61, relating to critical
accounting policies and financial statement disclosure.

We have selected accounting policies that we believe are appropriate to
accurately and fairly report our operating results and financial position, and
we apply those accounting policies in a consistent manner. The significant
accounting policies are summarized in Note 1 to the consolidated financial
statements.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires that we make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. These estimates and assumptions are based on
historical and other factors believed to be reasonable under the circumstances.
We evaluate these estimates and assumptions on an ongoing basis and may retain
outside consultants, engineers, lawyers and actuaries to assist in our
evaluation. We believe the following accounting policies are the most critical
because they involve the most significant judgments and estimates used in
preparation of our consolidated financial statements:

     .    Allowance for doubtful accounts - We maintain an allowance for
          doubtful receivables for estimated losses resulting from the inability
          of our trade customers to make required payments. We provide an
          allowance for specific customer accounts where collection is doubtful
          and also provide a general allowance for other accounts based on
          historical collection and write-off experience. Judgment is critical
          because some customers are currently operating in bankruptcy or have
          experienced financial difficulties. If the financial condition of any
          of our customers worsens, additional allowances may be required.

     .    Inventories - Our inventories are valued at the lower of cost or
          market value. We evaluate all of our inventory styles to determine
          obsolete or slow-moving items. Finished goods are written down based
          on quality and age. Second quality goods are also written down from
          their original value. Our methodology recognizes projected inventory
          losses at the time such losses are anticipated rather than at the time
          goods are actually sold. The adequacy of this estimate is dependent on
          a number of future factors, including, but not limited to, the state
          of the economy and the level of customer demand. These factors could
          cause our inventory reserve to change by a material amount in the near
          term.

                                       12

<PAGE>

     .    Long-lived assets - We periodically review our property and intangible
          assets for possible impairment whenever events or circumstances
          indicate that the carrying amount of an asset may not be recoverable
          and calculate this impairment based on estimated future undiscounted
          cash flows. Assumptions and estimates used in evaluation of impairment
          may affect the carrying value of long-lived assets, which could result
          in impairment charges in future periods. In addition, our depreciation
          and amortization policies reflect judgments on the estimated useful
          lives of assets.

     .    Valuation allowances for deferred income tax assets - We have recorded
          deferred income tax assets related to the realization of intercompany
          interest income and the reversal of certain reserves, and have
          determined that a valuation allowance is not necessary. An adjustment
          to income tax expense would be required in a future period if we
          determined that the amount of deferred tax assets to be realized
          differs from the net recorded amounts.

Results of Operations

The following table summarizes our historical results of operations as a
percentage of net sales for the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                  Year Ended
                                                                                 December 31,
                                                                          -------------------------
                                                                           2001      2000      1999
                                                                          -----     -----     -----
<S>                                                                       <C>       <C>       <C>
Net sales                                                                 100.0%    100.0%    100.0%
Cost of goods sold                                                         89.6      82.3      83.4
                                                                          -----     -----     -----
      Gross profit                                                         10.4      17.7      16.6
Selling, general and administrative expenses                                4.8       4.6       4.1
Restructuring charge                                                        0.3       --        0.4
                                                                          -----     -----     -----
Operating income                                                            5.3      13.1      12.1
Other (income) expenses:
      Interest expense                                                      9.5       7.0       8.7
      Other income, net                                                    (1.0)     (0.9)     (0.8)
                                                                          -----     -----     -----
           Income (loss) before taxes and extraordinary loss
                                                                           (3.2)      7.0       4.2
Income tax expense (benefit)                                               (1.2)      2.8       1.6
                                                                          -----     -----     -----
           Income (loss) before extraordinary loss                         (2.0)      4.2       2.6
Extraordinary  loss write-off of debt issuance  costs,  net of income
taxes of $0.6 million                                                        --        --       0.6
                                                                          -----     -----     -----
           Net income (loss)                                               (2.0%)     4.2%      2.0%
                                                                          =====     =====     =====
</TABLE>

Fiscal Year 2001 Compared to Fiscal Year 2000

Net sales. Net sales decreased $54.6 million, or 27.1%, to $146.8 million in
2001 from $201.4 million in 2000. Sales of glass, carbon and aramid fibers used
in various composite materials increased $4.0 million during 2001 as compared to
2000. However, for the same period, our sales of electronics fabrics used in
multi-layer and rigid printed circuit boards decreased $47.6

                                       13

<PAGE>

million, or 47.5%, and sales of fabrics used in filtration products decreased
$9.4 million, or 32.5%. The decrease in sales of electronics fabrics was
primarily a result of significant inventory adjustments in the electronics
industry that began during the first quarter of 2001. In addition, the decrease
in capital spending in the information technology and telecommunications
industry has led fabricators of printed circuit boards to reduce production,
thus negatively impacting our sales to these customers. We do not expect sales
to the electronics market to increase significantly during the first quarter of
2002.

The decrease in sales of filtration fabrics was due to fewer large utility
projects that have replaced filter bags as well as a downturn in the steel and
foundry industries. Our second largest market, fabrics used in composite
materials, held up well prior to September 11, 2001. We now expect to confront a
decline in orders from customers in the aerospace industry due to uncertainty
over airline traffic recovery. It is unknown if this decrease will be fully or
partially offset by the market for refurbishing existing aircraft or increased
purchases by the military.

In response to these market conditions, we have reduced production schedules and
focused on operating cost reductions and working capital management. In the
third and fourth quarters of 2001, we furloughed additional production employees
thereby reducing our production workforce by approximately 25% since January
2001. In addition, to the furlough of production employees, we reduced a number
of salaried positions in order to cut costs in future periods. The reduction of
production schedules resulted in a $8.1 million decrease in inventories during
the fourth quarter. We have also amended our senior credit facility as more
fully described under "Liquidity and Capital Resources."

Gross profit. Gross profit margins decreased to 10.4% in 2001 from 17.7% in
2000, due primarily to the shifts in product mix, discussed above as well as
lower sales and production volumes resulting in less absorption of fixed costs.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased to 4.8% of net sales in 2001 from 4.6% of net
sales in 2000. This was primarily due to lower sales volumes for 2001, offset by
decreased accruals for profit sharing, management fees and bonuses.

Operating income. As a result of the aforementioned factors and charges of
$502,000 incurred in 2001 due to the restructuring charge associated with the
salaried workforce reduction, operating income decreased $18.7 million to $7.6
million, or 5.3% of net sales, in 2001 from $26.3 million, or 13.1% of net
sales, in 2000.

Interest expense. Interest expense decreased $0.2 million to $14.0 million, or
9.5% of net sales, in 2001 from $14.2 million, or 7.0% of net sales, in 2000,
due to lower interest rates offset by a write-off of $0.6 million of deferred
financing fees relating to our senior credit facility.

Other income, net. Other income decreased $0.4 million to $1.4 million, or 1.0%
of net sales, in 2001 from $1.8 million, or 0.9% of net sales, in 2000. During
2001 and 2000, we received payments from Glass Holdings totaling $11.0 million
and $11.7 million, respectively, on the loan held by us. We and Glass Holdings
have agreed that any payments made on the loan balance

                                       14

<PAGE>

will be allocated approximately 90% to principal and 10% to interest.
Accordingly, we reflected $1.1 million and $1.3 million as interest income
recorded in other income on the consolidated statement of operations in 2001 and
2000, respectively.

Income tax expense (benefit). The effective tax rate in 2001 and 2000 of 37.8%
and 40.2%, respectively, was higher than the federal statutory rate of 35.0%
primarily due to the effect of state income taxes.

Net income (loss). As a result of the aforementioned factors, net income
decreased $11.5 million to a loss of $(3.1) million in 2001 from $8.4 million in
2000.

Fiscal Year 2000 Compared to Fiscal Year 1999

Net sales. Net sales increased $19.7 million, or 10.8% to $201.4 million in
2000, from $181.7 million in 1999, primarily due to an increase of $8.9 million
or 14.2%, in the sales of lightweight fabrics used in multilayer printed circuit
boards, and an increase of $5.7 million, or 24.7%, in the sales of heavyweight
fabrics used in rigid printed circuit boards.

Sales of our products in the composites market increased $4.1 million, or 9.7%
from $42.1 million in 1999 to $46.2 million in 2000 due to an increase in demand
for aerospace products.

Sales of our filtration products increased by $2.4 million, or 9.0%, from $26.6
million in 1999 to $29.0 million in 2000, due to incentive programs and large
replacement orders.

Gross profit. Gross profit margins increased from 16.6% in 1999 to 17.7% in 2000
due primarily to shifts in product mix and higher volumes resulting in more
absorption of fixed costs, as well as price increases in the specialty markets
and some electronics accounts in August of 2000.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased to 4.6% of net sales in 2000 from 4.1% of net
sales in 1999. This was primarily due to an increase in sales commissions and
employee profit sharing awards.

Operating income. As a result of the aforementioned factors and charges of
$769,000 incurred in 1999 due to a restructuring plan that eliminated several
salary positions across the company, operating income increased $4.4 million, to
$26.3 million, or 13.1% of net sales in 2000 from $21.9 million, or 12.1% of net
sales, in 1999.

Interest expense. Interest expense decreased $1.6 million or 10.1%, to $14.2
million in 2000, from $15.8 million in 1999, due to payments on the senior
credit facility.

Income tax expense. The effective tax rate in 2000 and 1999 of 40.2% and 37.9%
respectively, was higher than the federal statutory rate of 35.0% primarily due
to state income tax.

Net income. As a result of the aforementioned factors, and the write-off of debt
issuance costs of $1.0 million after tax associated with the repayment of
outstanding indebtedness in connection

                                       15

<PAGE>

with the issuance of senior subordinated notes in 1999, net income increased
$4.5 million to $8.3 million in 2000, from $3.7 million in 1999.

Balance Sheets

Accounts receivable. Accounts receivable declined $16.0 million, or 55.7%, from
December 31, 2000 to 2001. This decline was a result of lower sales in 2001 than
in 2000.

Inventory. Inventory increased $2.3 million, or 6.2%, from December 31, 2000 to
2001. This is mainly due to lower sales of fabrics for electronic products.
However, during the second half of 2001, we focused on working capital
management and reduced our inventory from a high of $50.0 million at the end of
July 2001 to $39.0 million at the end of December 2001. We intend to continue to
decrease inventories throughout the first half of 2002.

Net property, plant and equipment. Net property, plant and equipment increased
$7.7 million, or 14.1%, from December 31, 2000 to 2001. The net increase is the
result of purchases of capital assets, offset by disposals and depreciation.

The principal capital expenditures during 2001 and 2000 included:

     (1)  $5.9 million and $1.0 million in 2001 and 2000, respectively,
          converting old looms at our heavyweight fabrics facility in South
          Hill, Virginia, in order to run lightweight fabrics;

     (2)  $5.3 million and $1.4 million in 2001 and 2000, respectively, for the
          beginning of the second phase of our lightweight fabrics facility in
          South Hill, Virginia; and

     (3)  $1.5 million and $0.9 million in 2001 and 2000, respectively, for new
          looms and finishing unit upgrades at our facility in Altavista,
          Virginia.

Accounts payable and accrued liabilities. Accounts payable and accrued
liabilities declined $13.3 million, or 53.0%, from December 31, 2000 to 2001.
This decline was primarily the result of reduced inventory purchases near the
end of 2001 and a decrease in income taxes payable. In addition, the profit
sharing accrual was reduced $2.5 million as a result of the decrease in our
profitability.

Deferred compensation arrangements. As disclosed in the consolidated financial
statements and related notes herein, we restated our December 31, 2000 balance
sheet to reflect liabilities associated with deferred compensation arrangements.
These liabilities were recorded in postretirement benefit and pension
obligations and totalled approximately $1.2 million and $1.1 million at December
31, 2001 and December 31, 2000, respectively.

During the fourth quarter of 2000, we approved the expansion of our lightweight
fabrics facility in South Hill, Virginia, as well as the purchase of new looms
to be installed in our heavyweight production facility in South Hill, Virginia.
The new looms were installed in order to change part of the fabric production at
that facility from heavyweight fabrics to lightweight fabrics. These

                                       16

<PAGE>

capital projects were approved to meet the forecasted growth that was projected
in 2000 for 2001 and thereafter. Given the current environment in the
electronics industry, in the third quarter of 2001, we stopped all capital
expenditure projects that could be suspended and completed only those open
projects that were in a state of completion that made them impossible to
suspend. At this point, we cannot provide any assurances as to when we will
complete the remainder of the South Hill expansion, if at all. We will evaluate
the completion of this project as market conditions warrant.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and borrowings
under our credit facility. Our future need for liquidity will arise primarily
from interest payments on our 10 1/4% Series B Senior Subordinated Notes due
2009 ($100.0 million outstanding at December 31, 2001 net of unamortized
discount of $1.4 million), principal and interest payments on the senior credit
facility, and the funding of capital expenditures and working capital
requirements. There are no mandatory payments of principal on the senior
subordinated notes scheduled prior to their maturity.

Net cash provided by operating activities. Net cash provided by operating
activities was $1.1 million for 2001, compared with $6.9 million in 2000 and was
primarily the result of a net loss of $(3.0) million, adjusted for non-cash
charges/(credits) to net income for depreciation of $8.6 million, amortization
of $1.7 million, deferred income taxes of $(5.7) million, an increase in
inventory of $(2.3) million, a decrease in accounts payable and accrued expenses
of $(15.1) million and a decrease in trade accounts receivable of $16.0 million.
These operating results were driven by reduced customer demand, especially in
the electronics and filtration product industries where sales declined over 47%
and 32%, respectively, as described above, from 2000 to 2001. This reduced
demand caused unfavorable absorption resulting from reduced production schedules
in the fourth quarter of 2001 and also caused a reduction in accounts receivable
and accounts payable. We expect operating cash flows to improve throughout
fiscal 2002 as a result of working capital management and an increase in sales.

Net cash used in investing activities. Net cash used in investing activities was
$15.7 million and $6.7 million in 2001 and 2000, respectively, and was the
result primarily of purchases of property, plant and equipment. Capital
expenditures in 2001 were related to a large expansion project at the South Hill
facility. This project was suspended in late 2001, as discussed above. We have
historically financed our capital expenditures through cash flow from operations
and borrowings under our credit facilities. We expect our capital spending
during 2002 to be limited primarily to maintenance purposes, which will result
in lower capital expenditures compared to 2001.

Net cash provided by financing activities. Net cash provided by financing
activities was $14.6 million for 2001, compared with net cash used of $0.1
million for 2000, and consisted primarily of net payments on the term loan of
$19.2 million, net proceeds on the revolver of $27.0 million, payments received
on a loan to Glass Holdings of $9.9 million, and a decrease in the book
overdraft of $3.1 million. During 2002, as a result of forecasted positive cash
flows from the business, we expect the outstanding balance on the revolver to be
reduced. In addition, as a

                                       17

<PAGE>

result of a recently signed Job Creation and Worker Assistance Act of 2002,
which allows us to carry back our 2001 consolidated tax loss for five years, we
expect to receive approximately $6.0 million in federal tax refunds during 2002
through an intercompany loan payment from Glass Holdings, our parent and tax
filer.

At December 31, 2001, we had outstanding debt of $27.0 million under our senior
credit facility, with additional available borrowings of up to $6.0 million.
Based upon current and anticipated levels of operations, we believe that our
cash flows from operations, combined with short term availability under the
senior credit facility, will be adequate to meet short term liquidity needs with
respect to existing obligations and operations. We are continuing our efforts to
reduce inventory levels and improve working capital, while implementing
additional cost-saving initiatives. Overall, BGF's business plan anticipates
continued improvements in our operations that will improve liquidity and provide
a return to profitability. However, our future performance is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. See "Cautionary Statements Regarding Forward-Looking
Statements."

On September 28, 2001, we amended our senior credit facility. As a result of the
amendment, we wrote off $573,000 of deferred financing fees relating to the
original borrowings in 1998 under the senior credit facility which was charged
to interest expense. Under the terms of the amendment, we paid off the existing
term loan of $15.6 million, reduced the availability under the revolver from $60
million to $50 million, and locked in the interest rate to 2.75 points over
LIBOR (1.87% at December 31, 2001) through 2002 at which time the rate will
revert back to the initial rate under the senior credit facility. The
availability under the revolver is subject to a borrowing base calculation,
which is based on specified percentages of eligible accounts receivable and
inventories.

The senior credit facility, as amended, requires us to satisfy various covenants
such as a certain maximum senior leverage ratio, minimum consolidated net worth,
interest coverage ratio, and maximum capital expenditure levels. The amendment
has significantly eased the financial covenants through the end of 2002. Based
on our current operating performance we believe that BGF will be able to achieve
the amended financial covenant levels through December 2002, although no
assurances can be provided. If we are able to continue to satisfy such covenants
under our senior credit facility, we believe that we will operate with
sufficient liquidity throughout the current downturn in the lightweight
electronics and filtration industries.

The senior credit facility contains a cross-default provision related to the
indebtedness of an affiliate. In the event that this affiliate does not remain
in compliance with its covenants throughout 2002, we have received a waiver
under our senior credit facility from our lenders through April 1, 2003 of any
such cross default.

We are currently negotiating a new longer term financing arrangement with
another lender and expect it to be finalized in April 2002. However, there can
be no assurance that such a refinancing will be consummated.

                                       18

<PAGE>

On January 21, 1999, BGF issued $100.0 million of 10 1/4% Senior Subordinated
Notes ($98 million net of discount) due 2009. The net proceeds to us from the
sale of these notes were approximately $94.9 million, after deducting the
initial purchaser's discount and expenses. We used the net proceeds from the
offering to repay all $65.0 million of indebtedness under the senior
subordinated credit facility and $29.9 million of indebtedness under the
revolver under our senior credit facility, which was incurred on September 30,
1998 to fund the purchase by AGY Holdings of a 51% interest in Advanced
Glassfiber. Upon the repayment of the $65.0 million of indebtedness under the
senior subordinated credit facility, the facility was terminated. On July 23,
1999, we exchanged the old notes for substantially identical new notes that have
been registered under the Securities Act. There are no cross-default provisions
for these senior subordinated notes in conjunction with the covenants discussed
above for the senior credit facility.

On September 30, 1998, AGY Holdings, an affiliate of BGF, purchased a 51%
ownership interest in Advanced Glassfiber Yarns LLC ("Advanced Glassfiber") for
aggregate consideration of $338.9 million, including post-closing adjustments.
In connection with the acquisition, BGF loaned Glass Holdings approximately
$138.6 million to provide Glass Holdings a portion of the capital necessary to
fund the acquisition. The balance is payable on October 31, 2008 or such later
date as may be agreed to by us and Glass Holdings. We have not accrued interest
income earned under the terms of the loan agreement due to the fact that full
repayment of the loan and related interest by Glass Holdings is contingent upon
Glass Holdings' receipt of dividends and other distributions from its two
subsidiaries, we and Advanced Glassfiber, which are currently restricted from
paying dividends and other distributions under their debt agreements. Interest
in arrears as of December 31, 2001 and 2000 totaled $38.1 million, and $27.4
million, respectively. See also "Item 13. Certain Relationships and Related
Transactions." During 2001 and 2000, we received payments from Glass Holdings
totaling $11.0 million and $11.7 million, respectively. While there are interest
amounts in arrears, we and Glass Holdings have agreed that any payments made on
the loan balance will be allocated approximately 90% to principal and 10% to
interest. Accordingly, we reflected $9.9 million and $10.5 million of the cash
payment received as a reduction of principal and $1.1 million and $1.2 million
was recognized as interest income (recorded in other income on the consolidated
statement of operations) in 2001 and 2000, respectively.

Following is a summary of our fixed obligations at the end of 2001 and will
require the use of funds:

                                            Payments due by year
                                               In thousands
                                  2002    2003   2004   2005   Thereafter
-------------------------------------------------------------------------
Long-term debt/(1)/               $ --   $27.0   $ --   $ --     $100.0
Operating leases                   0.8     0.7    0.6    0.5        0.4
                                  ----   -----   ----   ----     ------
                                  $0.8   $27.7   $0.6   $0.5     $100.4

/(1)/ 10 1/4% Senior Subordinated Notes, due 2009 of $100.0 million and revolver
      balance of $27.0 million due 2003.

                                       19

<PAGE>

Restructuring Charge

In 2001, management approved a restructuring plan which resulted in the
reduction of our salaried and wage workforce by approximately 25%. As a result
of the restructuring, we incurred charges of $0.5 million. The charges incurred
were costs for salaried employee severance and are expected to be paid out
during 2002.

Outlook for 2002

The following section contains forward-looking statements about our plans,
strategies and prospects during 2002. 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 important factors that
could cause our actual results to differ materially from those contained in any
forward-looking statements set forth under Part I, "Cautionary Statement
Regarding Forward-Looking Statements."

Looking ahead to 2002:

     .    Sales trends during January and February 2002 increased slightly from
          the average monthly sales for the last quarter of 2001. These
          improvements over the fourth quarter of 2001 are expected to continue
          through 2002, contingent upon the recovery of the electronics market.
          As a result of this expected increase in customer demand, utilization
          of manufacturing facilities would increase resulting in improved gross
          margins relative to the fourth quarter of 2001. Our second largest
          market, fabrics used in composite materials, held up well prior to
          September 11, 2001. However, we now expect to confront a decline in
          orders from customers in the aerospace industry due to uncertainty
          over airline traffic recovery.

     .    We plan to continue to reduce inventory levels during 2002 as we did
          during the second half of 2001. This reduction would improve our cash
          flows from operations.

     .    As a result of headcount reductions and other cost saving initiatives
          implemented in the fourth quarter of 2001, we expect to reduce
          selling, general, and administrative costs.

     .    Raw material pricing in the first quarter of 2002 is expected to
          decline from the fourth quarter of 2001. The resulting benefit to cost
          of goods sold is expected to begin in the second quarter of 2002.

     .    Due to the recently signed Job Creation and Worker Assistance Act of
          2002, which allows us to carry back our 2001 consolidated tax loss for
          five years, we expect to receive approximately $6.0 million in federal
          tax refunds during 2002.

                                       20

<PAGE>

     .    We anticipate finalizing an asset based financing arrangement in the
          second quarter of 2002, which will increase the flexibility of our
          borrowing options.

Related Party Transactions

See Item 13, "Certain Relationships and Related Transactions" for a discussion
of related party transactions.

Impact of Inflation

We generally attempt to pass cost increases on to our customers. Costs are
affected by, among other things, inflation, and we may experience the effects of
inflation in future periods. We believe, however, that inflation has not had a
material impact on us during the past three years.

Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that all business
combinations be accounted for under the purchase method. The statement applies
to all business combinations initiated after June 30, 2001.

SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. Existing
goodwill will continue to be amortized through the remainder of 2001 at which
time amortization will cease and the Company will perform a transitional
goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning
after December 15, 2001. The Company is currently evaluating the impact of the
new accounting standards on existing goodwill and other intangible assets. While
the ultimate impact of the new accounting standards has yet to be determined,
goodwill amortization expense for the year ended December 31, 2001 was $181,000.
The amount of unamortized goodwill as of December 31, 2001 is approximately $4.7
million.

In order to conform with recent technical literature from the Emerging Issues
Task Force, shipping and handling costs are now included in cost of goods sold
and not presented as a reduction of net sales. The fiscal 1999 financial
information presented in this section has been reclassified to conform to the
current presentation. In addition, the fiscal 1999 financial statements as
presented in "Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K" have been reclassified to conform to the current presentation.

Prior to the reclassification, revenues and cost of goods sold for fiscal 1999
were $178.5 million and $148.3 million, respectively. As a result of the
reclassification, revenues and cost of goods sold for fiscal 1999 are (in
thousands) $181.7 million and $151.5 million, respectively. See footnote 1 of
the consolidated financial statements.

                                       21

<PAGE>

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Our senior credit facility is subject to market risks, including interest rate
risk. Our financial instruments are not currently subject to foreign currency
risk or commodity price risk. We have no financial instruments held for trading
or speculative purposes.

We are exposed to market risk related to changes in interest rates on borrowings
under our senior credit facility. The senior credit facility bears interest
based on LIBOR.

We entered into an interest rate swap agreement to manage our exposure to
interest rate changes under the senior credit facility. The swap involves the
exchange of fixed and variable interest rate payments based on a contractual
principal amount and time period. Payments or receipts on the agreement are
recorded as adjustments to interest expense. On September 28, 2001 we amended
our senior credit facility. Under the terms of the amendment, we paid off the
existing term loan of $15.6 million and reduced the availability under the
revolver from $60.0 million to $50.0 million. Simultaneously, we also amended
our interest rate swap term from March 31, 2004 to September 30, 2003 and
redesignated the swap to cover only the revolver portion of our senior credit
facility. At December 31, 2001, the notional amount of the interest rate swap
agreement was $19.2 million. Under this agreement, we have secured a fixed rate
of interest of 5.04% on the notional amount. This swap effectively changes our
payment of interest on $19.2 million of variable rate debt to a fixed rate for
the contract period.

The fair value of the interest rate swap agreement represents the estimated
receipts or payments that would be made to terminate the agreement. At December
31, 2001, we would have paid approximately $527,000 to terminate the agreement.
A 100 basis point decrease in LIBOR would increase the amount paid by
approximately $179,000. The fair value, as determined by the counterparty, is
based on dealer quotes, considering current interest rates. The unrealized loss
on this derivative instrument is a component of other comprehensive income
(loss).

The fair value of the senior subordinated notes as of March 27, 2002 and
December 31, 2001 was approximately $77.5 million and $64.0 million,
respectively.

Actual gains and losses in the future may differ materially from the above
analysis, however, based on changes in the timing and amount of interest rate
and foreign currency exchange rate movements and our actual exposures and
hedges.

Item 8. Financial Statements and Supplementary Data

See Page F-1 of the financial reports included herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

                                       22

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

The names, ages and positions of our directors and executive officers as of
March 26, 2002 are set forth below. Each of our directors is also a director of
Glass Holdings. All directors are elected annually and hold office until their
successors are elected and qualified or until their earlier removal or
resignation.

Name                  Age   Positions with BGF
----                  ---   ------------------
Robert Porcher        73    Chairman of the Board,  Chief  Executive  Officer
                            and Director
Philippe Porcher      48    Vice Chairman
Richard L. Cromer     58    President
Philippe R. Dorier    45    Senior Vice President,  Chief Financial  Officer,
                            Secretary and Treasurer
James R. Henderson    64    Executive Vice President Sales and Merchandising

Robert Porcher has been our Chairman of the Board and Chief Executive Officer
and one of our directors since 1988. Mr. Porcher has maintained various
positions with Porcher Industries, including Chairman of the Board of Directors
and Chief Executive Officer of Porcher Industries, since 1952. Since December 9,
1998, Mr. Porcher has served as Chairman of the Supervisory Board of Porcher
Industries. Mr. Porcher beneficially owns a controlling interest in Porcher
Industries, which owns 100% of the outstanding capital stock of our parent,
Glass Holdings. See "Item 12. Security Ownership of Certain Beneficial Owners
and Management."

Philippe Porcher has been our Vice Chairman since April 1998. He has also served
as Vice President of Porcher Industries since March 1993. Before becoming Vice
President of Porcher Industries, Mr. Philippe Porcher served as Director of
Porcher Industries' industrial division. Mr. Philippe Porcher is the son of
Robert Porcher, who is our Chairman of the Board and Chief Executive Officer and
one of our directors. Since December 9, 1998, Mr. Philippe Porcher has served as
President of the Executive Board of Porcher Industries.

Richard L. Cromer was named President of BGF in April 1998. Prior to joining
BGF, Mr. Cromer was employed by Owens Corning for 31 years in various
capacities, including as Director of Operations Strategy from 1997 to 1998,
General Manager-Textiles from 1994 to 1997 and Director of Operations Support
from 1989 to 1994. Since December 9, 1998, Mr. Cromer has served as a member of
the Executive Board of Porcher Industries.

Philippe R. Dorier has been our Senior Vice President, Chief Financial Officer,
Secretary and Treasurer since 1993. From 1988 to 1993, he served as our Vice
President International Audit. From 1984 until 1988, Mr. Dorier served as the
Vice President of Finance of Babolat VS, S.A., and from 1980 until 1983, as the
Administration and Finance Manager of Syva-Biomerieux S.A. Since December 9,
1998, Mr. Dorier has served as a member of the Executive Board of Porcher
Industries.

                                       23

<PAGE>

James R. Henderson has been Executive Vice President Sales and Merchandising
since joining BGF in 1989. Prior to joining BGF, Mr. Henderson was employed for
31 years with United Merchants and Manufacturers, Inc., a company engaged in the
textile business. Mr. Henderson served as the Senior Vice President of United
Merchants and Manufacturers, President of their Uniglass Division, and as
Chairman of the Board of United's Marglass subsidiary in England.

Item 11. Executive Compensation

The following table shows, for the fiscal years ended December 31, 2001, 2000,
and 1999, the compensation paid to or earned by our Chief Executive Officer and
our four other most highly compensated executive officers who were serving at
the end of 2001.

<TABLE>
<CAPTION>
                                                                            Other
Name and Principal Position               Salary (1)       Bonus         Compensation
---------------------------               ----------      --------       ------------
<S>                                        <C>            <C>            <C>
Robert Porcher
Chairman of the Board, Chief Executive
Officer and Director
         2001: .......................     $120,000/(2)/        --       $71,409/(4)/
         2000: .......................     $120,000/(2)/  $190,000/(3)/  $98,993/(4)/
         1999: .......................     $120,000/(2)/  $120,000/(3)/  $52,070/(4)/
Philippe Porcher
Vice Chairman
         2001: .......................     $120,000/(2)/                      --
         2000: .......................     $120,000/(2)/  $115,000(/3)/       --
         1999: .......................     $120,000/(2)/  $ 72,000/(3)/       --
Richard L. Cromer
President
         2001: .......................     $234,426             --       $17,678/(5)/
         2000: .......................     $221,268       $160,000       $29,423/(5)/
         1999: .......................     $209,697       $100,000       $ 8,622/(5)/
Philippe R. Dorier
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
         2001: .......................     $167,100             --       $13,475/(6)/
         2000: .......................     $160,680/(3)/  $116,400/(3)/  $ 9,100/(6)/
         1999: .......................     $156,000/(3)/  $72,750/(3)/   $13,216/(6)/
James R. Henderson
Executive Vice President Sales and
Merchandising
         2001: .......................     $166,324             --       $12,292/(7)/
         2000: .......................     $158,400       $116,400       $ 8,844/(7)/
         1999: .......................     $153,288       $ 72,756       $12,413/(7)/
</TABLE>

                                       24

<PAGE>

/(1)/ Includes the following amounts deferred at the election of the following
     executive officers pursuant to BGF's 401(k) plan in 2001, 2000 and 1999,
     respectively: Mr. Dorier--$10,500, $9,790, and $9,983; and Mr.
     Henderson--$10,481, $7,075, and $10,000; and Mr. Cromer--$6,800, $3,158,
     and $0.

/(2)/ Represents a management fee paid by BGF Services, Inc., an affiliate of
     BGF, to Messrs. Robert and Philippe Porcher and reimbursed by BGF to cover
     services provided by Messrs. Robert and Philippe Porcher to BGF. See "Item
     13. Certain Relationships and Related Party Transactions".

/(3)/ Paid for by BGF Services and reimbursed by BGF to BGF Services in the form
     of management fees to cover services rendered to BGF. See "Item 13.
     Relationships and Related Party Transactions."

/(4)/ In 2001, includes $6,483 for club membership fees; $1,382 for maintenance
     of automobiles; $25,841 depreciation associated with cost of residence; and
     $37,703 associated with maintenance of residence. In 2000, includes $5,596
     for club membership fees; $478 for maintenance of automobile; $25,841
     depreciation associated with cost of residence; and $67,078 associated with
     maintenance of residence in 2000. In 1999, includes $3,640 for club
     membership fees; $1,447 for maintenance of automobile; $25,840 depreciation
     associated with cost of residence; and $21,143 associated with maintenance
     of residence in 1999.

/(5)/ Represents $10,878, $9,484, and $8,622, in 2001, 2000, and 1999,
     respectively, of personal use of company car, gross annual profit sharing
     distributions of $6,800 and $3,158 in 2001 and 2000, respectively, and
     $16,781 in relocation fees in 2000.

/(6)/ Represents gross annual profit sharing distributions of $6,427, $3,120,
     and $6,382 in 2001, 2000, and 1999, respectively, and $7,048, $5,980, and
     $6,834 in 2001, 2000, and 1999, respectively, of personal use of a company
     car.

/(7)/ Represents gross annual profit sharing distributions of $6,336, $3,066,
     and $6,572 in 2001, 2000, and 1999, respectively, and $5,956, $5,778, and
     $5,841, in 2001, 2000, and 1999, respectively, for personal use of a
     company car.

Retirement Plans

Retirement System. The Retirement System of BGF Industries, Inc. covers
substantially all employees of BGF after they have completed one year of
service. Employees with five or more years of service are entitled to benefits
beginning at normal retirement age. This plan also provides reduced benefits to
participants electing to retire early, beginning at age 55. Participants are
required to contribute three percent of covered compensation per year and
interest is credited on employee contributions. In general, the normal
retirement benefit is payable as an annuity. Participants may also elect a
lump-sum distribution of their accrued benefit.

Normal retirement benefits are determined by reference to an employee's
"accumulated contributions." Accumulated contributions are the sum of all
required employee contributions

                                       25

<PAGE>

plus interest credited on the contributions, compounded annually at the rate of
120% of the federal mid-term rate in effect under section 1274 of the Internal
Revenue Code for the first month of the plan year. In general, the annual normal
retirement benefit is equal to 50% of the accumulated employee contributions,
plus 3/4% of employee plan compensation up to $6,600 for the plan year 1989.

The estimated annual benefits payable upon retirement at normal retirement age
for the executive officers listed in the "Executive Compensation" table above is
as follows: Mr. Cromer--$23,619; Mr. Dorier--$63,357; Mr. Henderson--$24,182.
These calculations are based on 2001 compensation, assume benefits are payable
as a straight-life annuity, and assume that each individual will work until age
65. Mr. Robert Porcher and Mr. Philippe Porcher do not participate in the
Retirement System.

401(k) Plan. The Employees' Profit Sharing and Tax Savings Plan of BGF
Industries, Inc. covers most employees of BGF. After completing one hour of
service, employees may defer up to 15% of their plan compensation each year,
subject to Internal Revenue Code limitations. We may, in our discretion, match
employees' elective deferrals up to a specified limitation each year and may
make a discretionary employer contribution for employees that have completed one
year of service. All contributions are 100% vested and nonforfeitable at all
times. Benefits are payable after separation from service in a lump sum in cash.

Compensation of Directors

Our directors did not receive separate compensation for their services as
directors in 2000.

Compensation Committee Interlocks and Insider Participation

Mr. Robert Porcher, who serves as both an executive officer and as a member of
the board of directors of BGF, serves as the Chairman of the Supervisory Board
of Porcher Industries, which is the equivalent of a board of directors. Mr.
Robert Porcher also serves as an executive officer of Glass Holdings, AGY
Holdings, BGF Services, Inc., BGF Overseas, Inc., Advanced Glassfiber Yarns, LLC
and AGY Capital Corp., all of which are affiliates of BGF. He is a member of the
board of directors for Glass Holdings, AGY Holdings, BGF Services, BGF Overseas,
Advanced Glassfiber Yarns and AGY Capital Corp. Messrs. Cromer and Dorier also
serve as members of the Executive Board of Porcher Industries, whose members are
equivalent to executive officers. Mr. Dorier also serves as an executive officer
of Glass Holdings, AGY Holdings, BGF Services, BGF Overseas and as a director of
Glass Holdings, AGY Holdings and BGF Services. Mr. Philippe Porcher serves as
Chairman of the Executive Board of Porcher Industries. He also serves as a
director of Advanced Glassfiber Yarns and AGY Capital Corp. These positions
effectively create interlocks between BGF and Glass Holdings, AGY Holdings, BGF
Services, BGF Overseas, Advanced Glassfiber Yarns and AGY Capital Corp. See also
"Item 13. Certain Relationships and Related Party Transactions."

                                       26

<PAGE>

Deferred Compensation Agreements

We have entered into Deferred Compensation Agreements with our executives and we
are the guarantor of Mr. Dorier's Deferred Compensation Agreement with BGF
Services. The agreements provide for both pre-retirement survivor benefits, as
well as post-retirement benefits to the executive. The agreements also contain a
non-competition provision. Generally, under each of the agreements, if the
executive dies before the age of 65, his beneficiary or, if none, his estate
will receive monthly payments for a 10-year period of an amount equal to 50% of
the greater of:

     (1)  the executive's monthly base salary in effect on the January 1 prior
          to his death; or

     (2)  the executive's average monthly base salary on January 1 of the five
          years prior to his death.

This amount is decreased progressively if the executive dies after the age of 60
but before 65. The agreements also provide for post-retirement benefits in the
form of:

     (1)  monthly payments over 10 years, the sum of which is equal to the
          "applicable percentage" multiplied by the greater of (a) the
          executive's annual base salary on January 1 immediately preceding or
          concurrent with his retirement or (b) the average of the executive's
          annual base salary on January 1 of the five years prior to his
          retirement. The "applicable percentage" is one and one-half. If the
          executive dies prior to receiving all of the monthly payments, the
          payments are made to his designated beneficiary or, if none, his
          estate. Reduced benefits are paid if the executive retires prior to
          age 65; and

     (2)  a payment on death equal to three-quarters of his annual base salary
          on the January 1 immediately preceding or concurrent with his
          retirement.

In 1998, we entered into an agreement with Mr. Pope with regard to his executive
life insurance policies. In accordance with this agreement, we transferred
ownership of the life insurance to Mr. Pope in March 2001. The cash surrender
value of these policies was $155,788 at that time.

                                       27

<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the beneficial ownership of BGF's outstanding
common stock as of December 31, 2001 for each person or group known to our
management to be holding more than 5% of the common stock and for each director
and executive officer named in the "Executive Compensation" table and all of our
directors and executive officers as a group.

An asterisk in the percent of class column indicates beneficial ownership of
less than 1% of the outstanding common stock.

As noted in the table, Porcher Industries indirectly owns 100% of the
outstanding common stock of BGF. The address of Porcher Industries is Porcher
Industries S.A., Badinieres, 38300 Bourgoin-Jallieu, France.

As reflected in the graphic below the table, Mr. Robert Porcher may be deemed to
beneficially own 56.05% of the outstanding capital stock of Porcher Industries,
and thus Glass Holdings and BGF, through (1) his 7.22% direct ownership interest
in Porcher Industries and (2) his ownership interest in Societe Civile des
Terres Froides. Mr. Robert Porcher's address is c/o Porcher Industries S.A.,
Badinieres, 38300 Bourgoin-Jallieu, France.

Mr. Robert Porcher's 56.05% interest includes a 0.7% interest of his son,
Philippe Porcher, an executive officer of BGF, in Societe Civile des Terres
Froides. Mr. Robert Porcher controls the voting and investment of these shares.
The asterisk aside the name of Philippe Porcher represents this interest.

Name of Beneficial Owner                          Percent of Class
------------------------                          ----------------
Porcher Industries                                    100.00%
Robert T. Porcher                                      56.05%
Philippe Porcher                                            *
Richard L. Cromer                                         --
Philippe R. Dorier                                        --
James R. Henderson                                        --
All directors and executive officers as a group        56.05%
(5 persons)

                                       28

<PAGE>

Item 13. Certain Relationships and Related Transactions

We are wholly owned by Porcher Industries through its U.S. holding company,
Glass Holdings. We have on going financial, managerial and commercial agreements
and arrangements with Porcher Industries, Glass Holdings and other wholly-owned
subsidiaries of Glass Holdings, as well as other affiliates of Porcher
Industries. Mr. Robert Porcher, our Chairman of the Board and Chief Executive
Officer, beneficially owns a controlling interest in Porcher Industries. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management."

We pay management fees to BGF Services, Inc., a wholly owned subsidiary of Glass
Holdings, that cover the periodic management services of Robert Porcher and his
son Philippe Porcher, the Vice President of Porcher Industries, and the full
time services of Philippe Dorier, our Chief Financial Officer. We also reimburse
BGF Services for the costs associated with automobiles provided to Messrs.
Robert Porcher and Dorier and maintenance and upkeep of Robert Porcher's
Greensboro, North Carolina residence, which is owned by BGF Services and has a
net book value of approximately $1.0 million. In connection with these
arrangements, we incurred expenses of $641,000 in 2001. BGF Services does not
derive a profit from this arrangement and therefore these terms cannot be
considered comparable to those that would be provided to third parties.

Porcher Industries and its French parent company provide general management and
strategic planning advice to us in exchange for management fees that reimburse
these companies for a portion of the compensation of Robert Porcher, Philippe
Porcher and other employees who allocate their time among us and other Porcher
Industries affiliates. In 2001, we were not billed by the parent company for
management expenses. We were billed $47,000 for reimbursement of travel and
administrative expenses. These terms cannot be considered comparable to those
that would be provided to a third party.

We purchase carbon fibers and finished products from Porcher Industries. We
purchased $4.7 million in 2001 for these products. We sell finished goods and
occasionally unfinished goods directly to Porcher and its affiliates. In 2001,
we billed Porcher Industries and its affiliates $240,000 for these goods.
Porcher Industries billed us for commissions for sales of its products in Asia,
Europe, and Australia of $204,000 in 2001. We believe that prices and
commissions paid or received by us for these transactions are comparable to
those paid to third parties.

We collect and deposit customer payments on behalf of two wholly owned
subsidiaries of Porcher Industries in exchange for fees equal to 2% of amounts
collected. We billed $33,000 in fees for these services incurred in 2001. We
believe that these fees are comparable to those that would be paid to third
parties.

Graham A. Pope, a former director of BGF, performed certain consulting services
for BGF regarding Shanghai Porcher. We paid Mr. Pope $10,000 in consulting fees
in 2001.

On September 30, 1998, AGY Holdings purchased its 51% ownership interest in
Advanced Glassfiber for aggregate consideration of approximately $338.9 million,
including post-closing adjustments. We loaned Glass Holdings approximately
$138.6 million to provide it with a

                                       29

<PAGE>

portion of the capital necessary to fund the acquisition. Additionally, BGF had
a non-interest bearing loan payable to Glass Holdings from prior years of $1.8
million resulting in a net loan amount to Glass Holdings of $136.8 million. Our
loan to Glass Holdings is evidenced in part by promissory notes. In 2001, Glass
Holdings paid down $9.9 million in principal and $1.1 million interest. We
believe that these transactions were on terms no more favorable than if Glass
Holdings had borrowed the funds directly from a third party.

Currently, Advanced Glassfiber leases approximately 27,200 square feet of
segregated space at our South Hill, Virginia lightweight fiber fabric facility
for the purpose of manufacturing glass yarns for exclusive supply to us under a
supply contract, extendible at the option of Advanced Glassfiber, that expires
on December 31, 2008. We also provide Advanced Glassfiber with leased employees
and administrative and technical support services. We billed Advanced Glassfiber
approximately $0.9 million pursuant to this agreement in 2001. We also purchased
approximately $25.9 million of raw materials from Advanced Glassfiber in the
twelve months ended December 31, 2001. We believe that each of these
arrangements are on terms no more favorable than those that would be provided to
third parties. While Advanced Glassfiber is currently experiencing financial
difficulties, we do not expect our operations to be significantly impacted.

     See also note 13 to the consolidated financial statements filed as part of
this Annual Report in Item 14.

                                       30

<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

1.   FINANCIAL STATEMENTS
     See Index on page F-1.

2.   FINANCIAL STATEMENT SCHEDULE
     See Index on page F-1.

(a)  Documents Incorporated by Reference or Filed with this Report:

EXHIBITS

        Exhibit No.              Description of Exhibit
        ----------              ----------------------

           3.1(1)   Certificate of Incorporation of BGF Industries, Inc., as
                    amended

           3.2(1)   Bylaws of BGF Industries, Inc., as amended

           4.1(1)   Indenture, dated as of January 21, 1999, among BGF
                    Industries, Inc. and The Bank of New York, as trustee,
                    relating to $100 million principal amount of 10 1/4% Senior
                    Subordinated Notes Due 2009

           4.2(1)   Form of 10 1/4% Series A and Series B Senior Subordinated
                    Notes due 2009 (included in Exhibit 4.1)

          10.1(1)   Deferred Compensation Agreement, dated November 13, 1995, by
                    and between BGF Industries, Inc. and Graham A. Pope /(2)/

          10.2(1)   Deferred Compensation Agreement, dated April 1, 1998, by and
                    between BGF Industries, Inc. and Richard L. Cromer /(2)/

          10.3(1)   Deferred Compensation Agreement, dated April 16, 1990, by
                    and between BGF, Industries, Inc. and James R. Henderson
                    /(2)/

          10.4(1)   Deferred Compensation Agreement, dated January 28, 1993, by
                    and between BGF Services, Inc. and Philippe Dorier /(2)/

                                       31

<PAGE>

          10.5(1)   Lease, dated March 20, 1996, between E.R. English, Sr., as
                    lessor, and BGF Industries, Inc., as lessee

          10.6(1)   Purchase Order (Lease), dated November 26, 1996, between K&C
                    Brokerage, as lessor, and BGF Industries, Inc., as lessee

          10.7(1)   Lease, dated November 1, 1991, by and between H.V. Johns,
                    Jr., as lessor, and BGF Industries, Inc. as lessee

          10.8(1)   Agreement between Contractor and Owner (Warehouse Lease),
                    dated February 1, 1998, between Boyd Warehouse/Emmett
                    Williams, as lessor, and BGF Industries, as lessee

          10.9(1)   Note Purchase Agreement dated January 15, 1999 between BFG
                    Industries, Inc., Inc. and the Initial Purchaser

          10.10(1)  Senior Credit Agreement dated September 30, 1999 among BGF
                    Industries, Inc., as Borrower, its Domestic Subsidiaries
                    from time to time party thereto, as Guarantors, the Lenders
                    Parties thereto and First Union National Bank, as Agent

          10.11(1)  Senior Subordinated Credit Agreement dated as of September
                    30, 1998 among BGF Industries, Inc., as Borrower, certain
                    subsidiaries from time to time party thereto, as Guarantors,
                    and First Union Investors, Inc., as Agent

          10.12(1)  Promissory Note, dated September 30, 1998, from Glass
                    Holdings Corp. to BGF Industries, Inc. for the original
                    principal amount of $135,043,844.62

          10.13(1)  Promissory Note, dated December 23, 1998, from Glass
                    Holdings Corp. to BGF Industries, Inc. for the original
                    principal amount of $2,681,000

                                       32

<PAGE>

          10.14(3)  Second Amendment to Credit Agreement, dated December 16,
                    1999, by and among BGF Industries, Inc. (the "Borrower"),
                    certain Domestic Subsidiaries of the Borrower party thereto
                    (collectively the "Guarantors"), several banks and other
                    financial institutions party thereto (the "Lenders") and
                    First Union National Bank (the "Agent").

          10.15(3)  Syndication Amendment and Assignment, dated November 30,
                    1998, by and among BGF Industries, Inc. (the "Borrower"),
                    certain Domestic Subsidiaries of the Borrower party thereto
                    (collectively the "Guarantors"), the Existing Lender (as
                    defined therein), the New Lenders (as defined therein), and
                    First Union National Bank (the "Agent").

          10.16(4)  Lease Agreement, dated December 1, 1999 by and between
                    Lawson Family LLC and BGF Industries, Inc.

          10.17(5)  Lease Agreement, dated October 1, 2000 by and between Edgar
                    J.T. Perrow and BGF Industries, Inc.

          10.18(6)  Third Amendment to Credit Agreement, dated September 28,
                    2001, by and among BGF Industries, Inc. (the "Borrower"),
                    certain Domestic Subsidiaries of the Borrower party thereto
                    (collectively the "Guarantors"), several banks and other
                    financial institutions party thereto (the "Lenders") and
                    First Union National Bank (the "Agent").

          12        Statement of Computation of Ratios

          21        Subsidiaries of BGF

          24        Powers of Attorney (included on signature page)

          99.1      Reconciliation of net income to EBITDA

----------

(1)  Filed as part of the Company's Registration Statement (333-72321) and
     incorporated herein by reference.
/(2)/Management contract or compensatory plan or arrangement.
(3)  Filed as part of the Company's Form 8-K, dated December 16, 1999 and
     incorporated herein by reference.

                                       33

<PAGE>

(4)  Filed as part of the Company's Form 10-K for the fiscal year ended December
     31, 1999 and incorporated herein by reference.
(5)  Filed as part of the Company's Form 10-K for the fiscal year ended December
     31, 2000 and incorporated herein by reference.
(6)  Filed as part of the Company's Form 10-Q for the fiscal quarter ended
     September 30, 2001 and incorporated herein by reference.

     (b) Reports on Form 8-K.

The Registrant did not file any reports on Form 8-K during the quarter ended
December 31, 2001.

                                       34

<PAGE>



                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                                  Page No.
                                                                                  --------
FINANCIAL STATEMENTS
--------------------
<S>                                                                                 <C>
Report of Independent Accountants                                                   F-2

Consolidated Balance Sheets as of December 31, 2001 and 2000                        F-3

Consolidated Statements of Operations and Comprehensive Income (Loss)
    for the years ended December 31, 2001, 2000 and 1999                            F-4

Consolidated Statements of Cash Flows for the years ended
    December 31, 2001, 2000 and 1999                                                F-5

Consolidated Statements of Stockholder's Equity (Deficit) for the years ended
    December 31, 2001, 2000 and 1999                                                F-6

Notes to Consolidated Financial Statements                                          F-7

FINANCIAL STATEMENT SCHEDULE
----------------------------

Valuation and Qualifying Accounts                                                   S-1
</TABLE>

                                       F-1

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of BGF Industries, Inc.:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a)(1) on page 33 present fairly, in all material
respects, the financial position of BGF Industries, Inc. and its subsidiaries at
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 33 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion expressed
above.

As discussed in Note 7 to the consolidated financial statements, the Company may
not be able to comply with its loan covenants under its existing credit
agreement in April 2003 as it relates to a cross-default provision of an
affiliate's indebtedness.

As discussed in Note 17, the Company's consolidated financial statements have
been restated to reflect deferred compensation liabilities.


/S/ PRICEWATERHOUSECOOPERS LLP
------------------------------
Greensboro, North Carolina
March 15, 2002

                                       F-2

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

                           CONSOLIDATED BALANCE SHEETS
                    (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                              December 31,   December 31,
                                                                                  2001           2000
                                                                              ------------   ------------
<S>                                                                             <C>            <C>
                                   ASSETS

Current assets:
     Cash and cash equivalents                                                  $      22      $       8
     Trade accounts receivable, less allowance for returns and doubtful
        accounts of $400 and $663 respectively                                     12,710         28,709
     Inventories  (Note 2)                                                         39,037         36,745
     Other current assets  (Note 3)                                                 4,693          3,070
                                                                                ---------      ---------
          Total current assets                                                     56,462         68,532
Net property, plant and equipment  (Note 4)                                        62,155         54,488
Other noncurrent assets, net  (Note 5)                                             16,982         13,786
                                                                                ---------      ---------
          Total assets                                                          $ 135,599      $ 136,806
                                                                                =========      =========

               LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities:
     Book overdraft                                                             $   2,528      $   5,652
     Accounts payable                                                               4,171         11,233
     Accrued liabilities  (Note 6)                                                  7,642         13,906
     Current portion of long-term debt  (Note 7)                                       --          3,106
                                                                                ---------      ---------
          Total current liabilities                                                14,341         33,897
Long-term debt, net of discount of $1,417 and $1,617 respectively  (Note 7)       125,583        114,477
Postretirement benefit and pension obligations  (Note 9)                            5,415          4,683
                                                                                ---------      ---------
          Total liabilities                                                       145,339        153,057
                                                                                ---------      ---------
Commitments and contingencies (Note 12)

Stockholder's equity (deficit):
     Common stock, $1.00 par value. Authorized 3,000 shares; issued
        and outstanding 1,000 shares                                                    1              1
     Capital in excess of par value                                                34,999         34,999
     Retained earnings                                                             71,981         75,059
     Accumulated other comprehensive loss                                            (342)            --
     Loan to parent  (Note 13)                                                   (116,379)      (126,310)
                                                                                ---------      ---------
          Total stockholder's equity (deficit)                                     (9,740)       (16,251)
                                                                                ---------      ---------
          Total liabilities and stockholder's equity (deficit)                  $ 135,599      $ 136,806
                                                                                =========      =========
</TABLE>

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

                                       F-3

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                             (dollars in thousands)

                                                 For the Year Ended December 31,
                                                 -------------------------------
                                                   2001       2000      1999
                                                 -------------------------------
Net sales                                        $146,842   $201,419   $181,681
Cost of goods sold                                131,639    165,830    151,491
                                                 --------   --------   --------
     Gross profit                                  15,203     35,589     30,190
Selling, general and administrative
   expenses                                         7,071      9,333      7,492
Restructuring charge  (Note 15)                       502         --        769
                                                 --------   --------   --------
     Operating income                               7,630     26,256     21,929
Interest expense                                   13,972     14,168     15,817
Other income, net                                  (1,396)    (1,844)    (1,485)
                                                 --------   --------   --------
     Income (loss) before income taxes and
        extraordinary loss                         (4,946)    13,932      7,597
Income tax expense (benefit)                       (1,868)     5,602      2,880
                                                 --------   --------   --------
     Income (loss) before extraordinary
        loss                                       (3,078)     8,330      4,717
Extraordinary loss on write-off of
   debt issuance costs, net of income
   taxes of $639                                       --         --      1,029
                                                 --------   --------   --------
Net income (loss)                                $ (3,078)  $  8,330   $  3,688
                                                 --------   --------   --------
Other comprehensive income (loss) net of tax:
 Cumulative  effect of  change  in  accounting
   principle                                          183         --         --
Change in fair value of cash flow hedge              (525)        --         --
                                                 --------   --------   --------
Total comprehensive income (loss)                $ (3,420)  $  8,330   $  3,688
                                                 ========   ========   ========

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

                                       F-4

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                For the Year Ended December 31,
                                                                 2001        2000        1999
                                                               --------------------------------
<S>                                                            <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss)                                            $ (3,078)   $  8,330    $  3,688
  Adjustment  to  reconcile  net income  (loss) to net cash
   provided by operating activities:
   Depreciation                                                   8,563       8,404       8,026
   Amortization                                                   1,529         969       1,241
   Amortization of discount on notes                                200         200         183
   Extraordinary loss                                                --          --       1,668
   Restructuring charge                                             467          --         217
   Loss on disposal of equipment                                    426          94          10
   Deferred income taxes                                         (5,767)     (5,076)     (6,507)
   Postretirement benefit and pension obligations                   732         528         537
  Change in assets and liabilities:
   Trade accounts receivable, net                                15,999      (8,343)        442
   Other current assets                                            (590)        851       1,118
   Inventories                                                   (2,292)     (1,148)      6,935
   Other assets                                                       9        (118)        (99)
   Accounts payable                                              (8,061)      4,871        (151)
   Accrued liabilities                                           (7,073)     (2,711)     10,958
                                                               --------    --------    --------
        Net cash provided by operating activities                 1,064       6,851      28,266
                                                               --------    --------    --------
Cash flows from investing activities:
   Purchases of property, plant and equipment                   (15,739)     (6,764)     (6,531)
   Proceeds from sale of equipment                                   82          36          59
                                                               --------    --------    --------
        Net cash used in investing activities                   (15,657)     (6,728)     (6,472)
                                                               --------    --------    --------
Cash flows from financing activities:
   Book overdraft                                                (3,124)      4,388         607
   Payments on term loan                                        (19,200)     (5,000)    (25,800)
   Proceeds from revolving credit facility                       74,000      24,000      27,000
   Payments on revolving credit facility                        (47,000)    (34,000)    (53,000)
   Payments on bridge facility                                       --          --     (65,000)
   Proceeds from senior subordinated notes                           --          --      98,000
   Debt issuance costs                                               --          --      (3,602)
   Payment received on loan to parent
                                                                  9,931      10,480          --
                                                               --------    --------    --------
        Net cash provided by (used in) financing activities      14,607        (132)    (21,795)
                                                               --------    --------    --------
   Net increase (decrease) in cash and cash equivalents              14          (9)         (1)
   Cash and cash equivalents at beginning of period                   8          17          18
                                                               --------    --------    --------
   Cash and cash equivalent at end of period                   $     22    $      8    $     17
                                                               ========    ========    ========
Supplemental disclosures of cash flow information:
   Cash paid during the year for interest                      $ 12,607    $ 13,263    $ 10,271
                                                               ========    ========    ========
   Cash paid (received) for income taxes                       $   (393)   $  1,884    $    895
                                                               ========    ========    ========
Supplemental  disclosure of non-cash investing and financing
 activities
   Property and equipment financed in accounts payable         $  1,417    $    418    $    725
                                                               ========    ========    ========
   Decrease in fair market value of interest rate swap         $    342    $     --    $     --
                                                               ========    ========    ========
</TABLE>

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

                                       F-5

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                                                -----------
                                                                                                  Other
                                                                                                  -----
                                                                                               Comprehensive        Total
                                                     Common   Paid-In   Retained    Loan to    -------------     Stockholder's
                                                     Stock    Capital   Earnings     Parent         Loss        Equity (Deficit)
                                                     ------   -------   --------   ---------   -------------   ----------------
<S>                                                   <C>     <C>       <C>        <C>             <C>             <C>
Balance, December 31, 1998, as previously reported    $ 1     $34,999   $63,614    $(136,790)      $  --           $(38,176)
Correction of an error (Note 17)                       --          --      (573)          --          --               (573)
                                                      ---     -------   -------    ---------       -----           --------

Balance, December 31, 1998, as restated                 1      34,999    63,041     (136,790)         --            (38,749)
    Net income                                         --          --     3,688           --          --              3,688
                                                      ---     -------   -------    ---------       -----           --------

Balance, December 31, 1999                              1      34,999    66,729     (136,790)         --            (35,061)
    Net income                                         --          --     8,330           --          --              8,330
    Payment received on loan to parent (Note 13)       --          --        --       10,480          --             10,480
                                                      ---     -------   -------    ---------       -----           --------

Balance, December 31, 2000                              1      34,999    75,059     (126,310)         --            (16,251)
    Net income (loss)                                  --          --    (3,078)          --          --             (3,078)
    Payment received on loan to parent (Note 13)       --          --        --        9,931          --              9,931
    Change in other comprehensive loss                 --          --        --           --        (342)              (342)
                                                      ---     -------   -------    ---------       -----           --------
Balance, December 31, 2001                            $ 1     $34,999   $71,981    $(116,379)      $(342)          $ (9,740)
                                                      ===     =======   =======    =========       =====           ========
</TABLE>

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

                                       F-6

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (dollars in thousands)

1.   Summary of Significant Accounting Policies

Principles of Consolidation. BGF Industries, Inc. is a wholly owned subsidiary
of Glass Holdings Corp. ("Glass Holdings"), which is a wholly owned subsidiary
of Porcher Industries, S.A. These consolidated financial statements include the
accounts of BGF Industries, Inc. and its wholly owned subsidiary, BGF Overseas,
Inc. (collectively "BGF "). All intercompany transactions and balances are
eliminated in consolidation. BGF manufactures high-quality glass, aramid and
carbon fiber fabrics for use in a variety of electronic, composite, insulation,
construction, filtration, and commercial applications. The principal market is
the United States.

Cash and Cash Equivalents. For purposes of the statements of cash flows, BGF
considers cash on hand, cash deposited in financial institutions and money
market accounts with maturities of less than ninety days at date of purchase to
be cash equivalents. These are stated at cost which approximates market value.
The book overdrafts in bank accounts consist of outstanding checks which have
not been presented to a bank for payment.

Inventories. Inventories are stated at the lower of cost or market value. Cost
is determined using the first-in, first-out (FIFO) method.

Property, Plant and Equipment. Property, plant and equipment are stated at cost,
less accumulated depreciation. Depreciation of property, plant and equipment is
calculated principally on the straight-line method over the estimated useful
lives of the assets. Repairs and maintenance costs are expensed as incurred;
major replacements and improvements are capitalized. When assets are retired or
sold, the cost and related accumulated depreciation are removed from the
accounts with any resulting gain or loss reflected in operations.

The estimated useful lives of the assets are as follows:

Buildings............................................   15-50 years
Machinery and equipment..............................   3-10 years

In the event that facts and circumstances indicate that the cost of long-lived
assets may not be recoverable, the estimated future undiscounted cash flows is
compared to the asset's carrying value and if less, an impairment loss is
recognized in an amount by which the carrying value exceeds its fair value.

Income Taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases based on enacted tax laws and statutory rates. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period in which the legislation is enacted. A valuation allowance
against deferred tax assets is required if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.

Intangible Assets. The excess of acquisition cost over assigned value of net
assets acquired is amortized over 40 years, using the straight-line method. Debt
issuance costs are amortized over the terms of the respective debt agreements
using the interest method. BGF assesses the recoverability of long-lived assets,
including goodwill, by determining whether the carrying value of the asset
balances over their remaining lives can be recovered through undiscounted future
operating cash flows.

                                       F-7

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

1.   Summary of Significant Accounting Policies -- (Continued)

Revenue Recognition. Revenue from product sales and the related cost of goods
sold are recognized at the time both risk of loss and legal title transfer to
the customer, which is typically at shipment.

Financial Instruments. BGF selectively enters into interest rate protection
agreements to mitigate changes in interest rates on its variable rate
borrowings. None of these agreements are used for speculative or trading
purposes. The fair value of BGF's interest rate swap agreement is the estimated
amount BGF would have to pay or receive to terminate the swap agreement as of
the reporting date, taking into account current interest rates, and is disclosed
in Note 7. The interest rate swaps are accounted for as hedges on the basis that
such derivatives reduce the risk of changes in interest rates on BGF's variable
rate debt. The interest differentials from these swaps are recorded in interest
expense.

BGF enters into foreign currency exchange contracts to manage exposures related
to specific foreign currency transactions or anticipated cash flows.

Rates currently available to BGF for debt with similar terms and remaining
maturities are used to estimate fair value of the revolver. The carrying amount
of BGF's revolver approximates fair value. Current bond prices used to estimate
the fair value of BGF's senior subordinated notes. The fair value of the senior
subordinated notes as of December 31, 2001 and 2000 was approximately $64,000
and $87,500, respectively.

Pension Plans and Other Postretirement Benefits. BGF has a contributory defined
benefit pension plan covering most employees. Pension expense for the plan is
determined using the projected unit credit method. BGF also provides certain
retirement health care benefits, the estimated cost for which is accrued within
the employees' active service lives. BGF's customary funding policy of these
plans is to contribute amounts permitted by the Internal Revenue Code and in
conformance with ERISA guidelines.

Research and Development. BGF expenses research and development costs as
incurred. These costs were approximately $854, $1,172, and $1,425 for the years
ended December 31, 2001, 2000, and 1999, respectively.

Advertising and Promotion. BGF expenses advertising and promotion costs as
incurred and these costs are included as selling, general and administrative
expenses. Such amounts were not material for 2001, 2000, and 1999.

Foreign Currency Transactions. Gains (losses) resulting from foreign currency
transactions are included in other income or other expenses, and amounted to
$65, $65, and $177, in 2001, 2000, and 1999, respectively.

Use of Estimates. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles in the United States
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.

At December 31, 2001, the Company has recorded provisions for slow-moving and
obsolete inventories and for lower of cost or market issues associated with its
inventories. The adequacy of this estimate is dependent on a number of future
factors, including but not limited to the state of the economy and the level of
customer demand. These factors could cause the inventory reserve to change by a
material amount in the near term.

                                       F-8

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

1.   Summary of Significant Accounting Policies -- (Continued)

Reclassifications. Certain amounts from the prior consolidated financial
statements have been reclassified to conform to the current presentation. In
order to conform with recent literature from the Emerging Issues Task Force, net
sales and cost of goods sold have been adjusted to reflect the inclusion of
shipping and handling costs as a component of cost of goods sold instead of a
reduction of net sales.

2.   Inventories

Inventories consist of the following:

                                                     December 31,   December 31,
                                                         2001           2000
                                                     ------------   ------------
Supplies                                                $ 2,001        $ 1,606
Raw materials                                             2,591          4,897
Stock-in-process                                          5,507          6,536
Finished goods                                           28,938         23,706
                                                        -------        -------
   Total inventories                                    $39,037        $36,745
                                                        =======        =======

3.   Other Current Assets

Other current assets consist of the following:

                                                     December 31,   December 31,
                                                         2001           2000
                                                     ------------   ------------
Deferred income taxes                                   $3,476         $2,443
Prepaid expenses and other                               1,217            627
                                                        ------         ------
   Total other current assets                           $4,693         $3,070
                                                        ======         ======

                                      F-9

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

4.   Net Property Plant and Equipment

Net property, plant and equipment consist of the following:

                                                     December 31,   December 31,
                                                         2001           2000
                                                     ------------   ------------
Land                                                   $  3,155       $  3,155
Buildings                                                42,195         36,322
Machinery and equipment                                 104,090         98,964
                                                       --------       --------
Gross property, plant and equipment                     149,440        138,441
Less: accumulated depreciation                          (87,285)       (83,953)
                                                       --------       --------
Net property, plant and equipment                      $ 62,155       $ 54,488
                                                       ========       ========

5.   Other Noncurrent Assets

Other noncurrent assets consist of the following:

<TABLE>
<CAPTION>
                                                                       December 31,   December 31,
                                                                          2001           2000
                                                                       ------------   ------------
<S>                                                                      <C>             <C>
Excess of acquisition cost over assigned value of net assets acquired    $ 5,809         $ 5,809
Debt issuance costs                                                        5,073           6,143
                                                                         -------         -------
                                                                          10,882          11,952
Accumulated amortization                                                  (2,915)         (2,515)
                                                                         -------         -------
                                                                           7,967           9,437
Deferred income taxes                                                      8,534           3,800
Other                                                                        481             549
                                                                         -------         -------
                                                                         $16,982         $13,786
                                                                         =======         =======
</TABLE>

Amortization of deferred financing charges of $1,348, $788, and $792 for the
years ended December 31, 2001, 2000, and 1999, respectively, has been included
in interest expense. During January 1999, the Company wrote off net debt
issuance costs of $1,668 related to the termination of the senior subordinated
credit facility. These costs have been classified as an extraordinary item in
the accompanying financial statements. In December 1999, BGF wrote off $268 of
net debt issuance costs related to the revolving credit facility due to an
amendment dated December 16, 1999. In 2001, BGF wrote off $573 of net debt
issuance costs related to the senior credit facility due to an amendment dated
September 28, 2001. These costs have been classified as interest expense in the
accompanying financial statements.

                                      F-10

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

6.   Accrued Liabilities

Accrued liabilities consist of the following:

                                                     December 31,   December 31,
                                                         2001           2000
                                                     ------------   ------------
Income taxes                                            $   --         $ 4,883
Payroll                                                    163             173
Profit sharing and other benefits                          154           2,664
Interest                                                 4,836           4,817
Restructuring                                              467              --
Medical benefits                                           921           1,084
Other                                                    1,101             285
                                                        ------         -------
   Total accrued liabilities                            $7,642         $13,906
                                                        ======         =======

7.   Long-term Debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                      December 31,   December 31,
                                                          2001           2000
                                                      ------------   ------------
<S>                                                     <C>           <C>
Senior Credit Facility:
   Amortizing Term Loan                                 $     --      $ 19,200
   Revolving Credit Facility                              27,000            --
Senior Subordinated Notes, net of unamortized
      discount of$1,417 and $1,617, respectively          98,583        98,383
                                                        --------      --------
                                                         125,583       117,583
Less current portion                                          --         3,106
                                                        --------      --------
   Total long-term debt                                 $125,583      $114,477
                                                        ========      ========
</TABLE>

Senior credit facility. BGF has a senior credit facility with a syndicate of
lenders and First Union National Bank, as agent. The senior credit facility, as
amended on September 28, 2001, provides BGF with a revolving credit facility
with total credit of up to $50.0 million, including amounts outstanding on two
subfacilities. These two subfacilities are represented by a $5.0 million
swingline facility, used for working capital requirements and typically repaid
within a short time frame, and a $20.0 million letter of credit facility. All
borrowing under the senior credit facility is limited to a calculated borrowing
base, such that the total of all amounts outstanding cannot exceed the borrowing
base, which is based on specified percentages of eligible accounts receivable
and inventories. Under the terms of the amendment entered into on September 28,
2001, BGF paid off the existing term loan of $15.6 million, reduced the
availability under the revolver from $60 million to $50 million, and locked in
the interest rate to 2.75 points over LIBOR (1.87% at December 31, 2001) through
2002 at which time the rate will revert back to the initial rate under the
senior credit facility. The senior credit facility matures in September 2003. As
part of the amendment to the senior credit facility on September 28, 2001, the
lenders waived BGF's requirement to maintain and meet its leverage and fixed
charge coverage ratios until the quarter ended March 31, 2003. In addition, the
consolidated net worth, interest coverage, and senior leverage ratios were
modified to be less restrictive. Also, the revised covenants placed a limitation
on maximum capital expenditure levels and limit BGF's use of proceeds upon the
occurrence of certain transactions.

                                      F-11

<PAGE>

7.   Long-term Debt -- (Continued)

The senior credit facility is collateralized by a first priority lien on
substantially all of BGF's real and personal property. The lien also covers (1)
100% of the capital stock of each direct or indirect domestic subsidiary of BGF,
(2) 65% of the capital stock of each first tier foreign subsidiary of BGF and
(3) certain promissory notes issued by affiliates of BGF. The senior credit
facility is also collateralized by a non-recourse pledge by Glass Holdings, the
parent of BGF, of capital stock of certain affiliates of BGF.

The senior credit facility provides for an annual administrative fee to be paid
to the agent, an unused commitment fee payable to the lenders and certain other
fees payable in connection with letters of credit issued under the revolver.

Liquidity. Management believes that BGF will be able to satisfy the amended
financial covenant levels under the senior credit facility through 2002,
although there can be no assurance that these covenants will be met. The
possibility exists that certain financial covenants will not be met if business
conditions render actual outcomes and results materially different from those
predicted. Failure to comply with such covenants would constitute a default
under the senior credit facility, and the lender would be entitled to accelerate
the maturity of the indebtedness outstanding thereunder.

BGF incurred a net loss of $3.0 million in 2001 and operating cash flows
declined from $6.8 million in 2000 to $1.1 million in 2001. These operating
results were driven by reduced customer demand, especially in the electronics
and filtration product industries, and unfavorable absorption resulting from
significantly reduced production schedules in the fourth quarter of 2001. BGF's
primary sources of liquidity are cash flows from operations and borrowings under
its credit facilities. BGF's future need for liquidity will arise primarily from
interest payments on its 10 1/4% Series B Senior Subordinated Notes due 2009,
principal and interest payments on the senior credit facility, and the funding
of capital expenditures and working capital requirements. There are no mandatory
payments of principal on the senior subordinated notes scheduled prior to their
maturity.

At December 31, 2001, BGF had outstanding debt of $27.0 million under the Senior
Credit Facility, with additional available borrowings of $6.0 million. BGF is
continuing its efforts to reduce inventory levels and improve working capital,
while implementing additional cost-saving initiatives. Based upon current and
anticipated levels of operations, BGF believes that its cash flows from
operations, combined with short-term availability under the senior credit
facility, will be adequate to meet liquidity needs with respect to existing
obligations and operations for fiscal 2002. However, BGF's future performance is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond its control.

The senior credit facility contains a cross-default provision related to the
indebtedness of an affiliate. In the event this affiliate does not remain in
compliance with its covenants throughout 2002, BGF has received an anticipatory
waiver through April 1, 2003 of any such cross-default from its lenders.

BGF is currently negotiating a new longer term financing arrangement with
another lender and expects it to be finalized in April 2002. However, there can
be no assurance that such a refinancing will be consummated.

Interest rate swap. During 1998, BGF entered into an interest rate swap
transaction which originally expired on September 30, 2004, on an initial
notional amount on $50,000 in order to limit its exposure to interest rate
fluctuations under the term loan portion of the senior credit facility. Under
the swap agreement, BGF had secured a fixed rate of interest of 5.04% on the
notional amount, which was correlated in a manner consistent with the
amortization of the term loan principal. During 1999 and 2000, BGF terminated
portions of the interest rate swap relating to early payments of $25,800 and
$5,000, respectively, on the term loan. BGF recognized gains of $890 and $94,
respectively, related to the terminations in 1999 and 2000, which have been
included as other income in the accompanying financial statements. The amount of
the term loan covered by this swap was $19,200 as of December 31, 2000.

In connection with BGF's amendment to the senior credit facility on September
28, 2001, BGF also amended its interest rate swap to change the maturity date
from March 31, 2004 to September 30, 2003 and redesignated the instrument to
cover only the revolver portion of its senior credit facility, which also
expires on September 30, 2003. At December 31, 2001, the notional amount of the
interest rate swap agreement was $19.2 million. This swap

                                      F-12

<PAGE>
7. Long-term Debt - (Continued)

effectively changes BGF's payment of interest on $19.2 million of variable rate
debt to a fixed rate of 5.04% for the contract period. The fair value of the
interest rate swap agreement, representing the estimated amount that BGF would
pay to terminate the swap agreement, was approximately $527 at December 31, 2001
and has been recorded as a liability; however, BGF has no intention of
terminating the swap agreement.

Senior subordinated notes. BGF also has outstanding $100,000 of 10 1/4% series B
senior subordinated notes due 2009. Interest on the 10 1/4% series B senior
subordinated notes is payable semi-annually in January and July. There is no
cross-default provision for this debt in conjunction with the covenants
discussed above for the senior credit facility.

The aggregate maturities of long-term debt at December 31, 2001 are as follows:

2002                                     --
2003                               $ 27,000
2004                                     --
2005                                     --
2006                                     --
Thereafter                         $100,000

8.   Income Taxes

     Income tax expense (benefit) consists of the following:

                                                            2001
                                                ----------------------------
                                                Current   Deferred    Total
                                                -------   --------   -------
Federal                                          $3,335   $(4,807)   $(1,472)
State                                               380      (776)      (396)
                                                 ------   -------    -------
                                                 $3,715   $(5,583)   $(1,868)
                                                 ======   =======    =======

                                                            2000
                                                ----------------------------
                                                Current   Deferred    Total
                                                -------   --------   -------
Federal                                         $ 9,265   $(4,370)    $4,895
State                                             1,413      (706)       707
                                                -------   -------     ------
                                                $10,678   $(5,076)    $5,602
                                                =======   =======     ======

                                                            1999
                                                ----------------------------
                                                Current   Deferred    Total
                                                -------   --------   -------
Federal                                          $8,333   $(5,601)    $2,732
State                                             1,054      (906)       148
                                                 ------   -------     ------
                                                 $9,387   $(6,507)    $2,880
                                                 ======   =======     ======

A reconciliation of the difference between the federal statutory rate and the
effective income tax rate as a percentage of income before taxes is as follows:

                                                     2001      2000    1999
                                                     ----      ----    ----
Federal statutory tax rate                           35.0%     35.0%   35.0%
State income taxes, net of federal benefit            5.1%      5.0%    1.7%
Other                                                (3.6)%     0.2%    1.2%
                                                     ----      ----    ----
                                                     36.5%     40.2%   37.9%
                                                     ====      ====    ====

                                      F-13

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

8.   Income Taxes -- (Continued)

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:

                                                    December 31,
                                                 -----------------
                                                  2001      2000
                                                 -----------------
Deferred tax assets:
     Loan to parent                              $14,635   $10,516
     Inventories                                   1,020       759
     Accrued liabilities                           1,643       900
     Accounts receivable                             154       126
     Tax credits                                     630       630
     Retirement                                    1,003     1,048
                                                 -------   -------
          Total gross deferred tax assets         19,085    13,979
                                                 -------   -------
Deferred tax liabilities:
     Depreciation                                 (5,925)   (6,586)
     Other                                        (1,150)   (1,150)
                                                 -------   -------
          Total gross deferred tax liabilities    (7,075)   (7,736)
                                                 -------   -------
          Net deferred tax asset                 $12,010   $ 6,243
                                                 =======   =======

BGF is included in the consolidated federal tax return of Glass Holdings.
Pursuant to a tax sharing agreement, BGF is required to make tax sharing
payments to Glass Holdings with respect to BGF's pro rata share of consolidated
federal income tax liabilities which does not differ significantly from that
which would be determined on a stand alone basis.

9.   Employee Benefits

Defined Contribution Plan. BGF has a 401(k) savings plan for all employees.
Company contributions, if any, are made at the discretion of BGF's Board of
Directors. BGF allows participants an election of receiving their profit
sharing, when applicable, in cash or as an employer contribution to the 401(k)
plan. Plan expense amounted to $0, $2,500 and $778 in 2001, 2000 and 1999,
respectively.

                                      F-14

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

9.   Employee Benefits -- (Continued)

Defined Benefit Pension Plan. BGF has a defined benefit pension plan covering
substantially all of its employees. Participating employees are required to
contribute to the pension plan. BGF made no contributions to the pension plan
for 2001, 2000, and 1999.

A summary of the components of the defined benefit pension plans' net periodic
pension cost is as follows:

                                                  2001       2000       1999
                                                 -------    -------    -------
Service cost-benefits earned during the period   $   841    $   677    $   996
Interest cost on projected benefit obligation      1,228      1,038      1,040
Expected return on plan assets                    (1,226)    (1,212)    (1,214)
Recognized net actuarial gain                         --       (135)        --
Net amortization and deferral                          7          7          7
                                                 -------    -------    -------
Net periodic pension expense                         850        375        829
Settlement gain                                       --         --       (539)
                                                 -------    -------    -------
Total pension expense                            $   850    $   375    $   290
                                                 =======    =======    =======

Assumptions used:
   Weighted-average discount rates                  7.25%      7.50%      8.00%
   Rate of increase in compensation levels          4.00%      4.00%      4.00%
   Expected long-term rate of return on assets      8.00%      8.00%      8.00%

                                      F-15

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

9.   Employee Benefits -- (Continued)

The change in projected benefit obligation, the change in fair value of plan
assets and the funded status of BGF's pension plan at December 31 is summarized
below:
                                                            2001        2000
                                                           -------    -------
Change in projected benefits obligations:
     Projected benefit obligation at beginning of year     $16,388    $13,977
     Service cost                                              841        677
     Interest cost                                           1,228      1,038
     Actuarial (gain)/loss                                   1,000        704
     Benefits paid                                          (1,555)      (848)
     Plan participants' contributions                          761        840
     Settlement                                                 --         --
                                                           -------    -------
     Projected benefit obligation at end of year           $18,663    $16,388
                                                           =======    =======

Change in fair value of plan assets:
     Fair value of plan assets at beginning of year        $15,377    $15,572
     Actual return on plan assets                           (1,068)      (187)
     Employee contributions                                    761        840
     Benefits paid                                          (1,555)      (848)
     Settlement                                                 --         --
                                                           -------    -------
     Fair value of plan assets at end of year              $13,515    $15,377
                                                           =======    =======

Funded status                                              $(5,148)   $(1,011)
Unrecognized prior service cost                                 41         48
Unrecognized gain                                            2,311     (1,001)
                                                           -------    -------
Net amount recognized in liabilities                       $(2,796)   $(1,964)
                                                           =======    =======

                                      F-16

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

9.   Employee Benefits -- (Continued)

Postretirement Benefits. In addition to providing pension benefits, BGF provides
certain retirement health care benefits to eligible employees. Employees become
eligible for these benefits by attaining specified age and service requirements.

A summary of the components of the other postretirement benefit plan's net
periodic cost is as follows:

<TABLE>
<CAPTION>
                                                          2001       2000       1999
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Other postretirement benefit plans:
     Service cost-benefits earned during the period     $    91    $    78    $    70
     Interest cost on projected benefit obligation          135        138         95
     Recognized net actuarial (gain) or loss                  4         11         --
                                                        -------    -------    -------
     Total postretirement benefit expense               $   230    $   227    $   165
                                                        =======    =======    =======

Assumptions used:
     Weighted-average discount rates                       7.25%      7.50%      8.00%
     Medical Trend Rate
        First year rate                                   10.00%      9.00%     10.00%
        Ultimate rate                                      5.25%      6.00%      6.00%
        Select period                                   5 years    3 years    4 years
</TABLE>

The change in projected benefit obligation, the change in fair value of plan
assets and the funded status of BGF's postretirement benefit plan at December 31
is summarized below:

                                                               2001        2000
                                                             -------    -------
Change in projected benefit obligations:
     Projected benefit obligation at beginning of year       $ 1,910    $ 1,612
     Service cost                                                 91         78
     Interest cost                                               135        138
     Plan participant contributions                              110         98
     Actuarial loss                                              167        157
     Benefits paid                                              (487)      (173)
                                                             -------    -------
        Projected benefit obligation at end of year          $ 1,926    $ 1,910
                                                             =======    =======

Change in fair value of plan assets:
     Fair value of plan assets at beginning of year          $    --    $    --
     Actual return on plan assets                                 --         --
     Employer contributions                                      377         75
     Employee contributions                                      110         98
     Benefits paid                                              (487)      (173)
                                                             -------    -------
     Fair value of plan assets at end of year                $     0    $     0
                                                             =======    =======

Funded status                                                $(1,926)   $(1,910)
Unrecognized loss                                                483        320
                                                             -------    -------
Net amount recognized in liabilities                         $(1,443)   $(1,590)
                                                             =======    =======

                                      F-17

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

9.   Employee Benefits -- (Continued)

Assumed health care trend rates have a significant effect on the amounts
reported for the postretirement benefit obligation. A one-percentage point
change in assumed health care cost trend rates would have the following effects:

                                                                 2001     2000
                                                                 -----    -----
1% increase:
     Effect on total of service and interest cost components     $  32    $  30
     Effect on postretirement benefit obligation                 $ 209    $ 199

1% decrease:
     Effect on total of service and interest cost components     $ (27)   $ (25)
     Effect on postretirement benefit obligation                 $(181)   $(172)

Deferred Compensation Benefits. BGF has deferred compensation arrangements for
certain key executives which generally provide for payments upon retirement or
death. The amounts accrued under this arrangement were $1,176 and $1,087 as of
December 31, 2001 and December 31, 2000, respectively, and are reflected in
postretirement benefit and pension obligations. The Company funds a portion of
these obligations through life insurance contracts on behalf of the executives
participating in these arrangements. Net cash surrender value included in other
noncurrent assets was $481 and $581 at December 31, 2001, and December 31, 2000,
respectively. Expenses related to these arrangements, including premiums and
changes in cash surrender value, were $174, $165, and $156 for fiscal 2001,
2000, and 1999, respectively, and are recorded in selling, general, and
administrative expenses.

10.  Concentrations

BGF's cash and cash equivalents are placed in major domestic and international
banks. Deposits in such banks may exceed federally insured limits.

Substantially all of BGF's raw materials are purchased from two suppliers. In
the event suppliers are unable or unwilling to deliver glass, aramid or carbon
yarns, the business, financial condition and results of operations could be
materially adversely affected.

Substantially all of BGF's trade accounts receivable are due from companies in
the electronics, composites, insulation, filtration, construction and commercial
industries. Management periodically performs credit evaluations of its customers
and generally does not require collateral. Credit losses have historically been
within management's expectations.

The following table presents a summary of sales of significant customers as a
percentage of BGF's net sales:

                             2001      2000      1999
                             ----      ----      ----
Customer A                   19.0%     12.3%     13.7%
                             ====      ====      ====
Customer B                    6.0%     10.8%     13.7%
                             ====      ====      ====

                                      F-18

<PAGE>

11.  Segment Information

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

                               2001        2000        1999
                             --------    --------    --------
United States                $140,866    $186,050    $170,831
Foreign                         5,976      15,369      10,850
                             --------    --------    --------
                             $146,842    $201,419    $181,681
                             ========    ========    ========

12.  Commitments and Contingencies

Leases. BGF leases facilities and equipment. Generally, these leases contain
renewal options under cancelable and noncancelable operating leases. Rent
expense amounted to $1,083, $711, and $662 for the years ended December 31,
2001, 2000, and 1999, respectively. Under the terms of noncancelable operating
leases, BGF is committed to the following future minimum lease payments at
December 31, 2001:

Fiscal Year
-----------
2002.............................................       $792
2003.............................................        671
2004.............................................        556
2005.............................................        452
2006.............................................        425

Legal and Environmental Matters. From time to time BGF is involved in various
legal proceedings arising in the ordinary course of business. Management
believes that the ultimate resolution of these legal matters will not have a
material adverse impact on BGF's financial position or results of operations.

In the course of a September 1998 environmental site assessment, BGF discovered
reportable quantities of polychlorinated biphenyls ("PCBs") in the soil at a
plant site in and around the former site of a heat transfer oil tank that the
previous owner of the facility had removed in 1986, before BGF's 1988
acquisition. BGF has reported the contamination to the United States
Environmental Protection Agency ("USEPA") Region 3 and the Virginia Department
of Environmental Quality ("VDEQ").

The USEPA and VDEQ have required additional sampling and site characterization,
which is ongoing. BGF is currently developing a cleanup plan in conjunction with
USEPA and VEDQ oversight. BGF will begin to implement this plan upon receiving
approval from USEPA. Accordingly, actual cleanup costs remain uncertain. BGF may
incur costs or liabilities relating to this and other environmental or safety
and health matters in the future, including those relating to compliance with
laws and requirements, remediation of contamination or claims by third parties.

                                      F-19

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

13.  Related Party Transactions

Related party balances at December 31, 2001, 2000, and 1999 and transactions for
the years ended December 31 were as follows:

<TABLE>
<CAPTION>
                                                                             2001       2000       1999
                                                                           --------   --------   --------
<S>                                                                        <C>        <C>        <C>
Trade accounts receivable from Porcher .................................   $     52   $     42   $     98
                                                                           ========   ========   ========
Trade accounts receivable from other affiliated companies ..............   $     57   $    822   $     94
                                                                           ========   ========   ========
Receivable for reimbursable expenses from Porcher ......................   $     32   $     13   $    183
                                                                           ========   ========   ========
Sales to Porcher and affiliates ........................................   $    240   $  1,946   $  1,001
                                                                           ========   ========   ========
Management fees to affiliate of Porcher ................................   $     --   $    478   $    350
                                                                           ========   ========   ========
Management fees included in accounts payable ...........................   $     --   $    124   $     78
                                                                           ========   ========   ========
Management fees to Porcher .............................................   $     --   $     12   $     43
                                                                           ========   ========   ========
Fees to a subsidiary of Glass Holdings .................................   $    641   $    949   $    585
                                                                           ========   ========   ========
Fees to an affiliate included in accounts payable ......................   $     --   $     22   $     21
                                                                           ========   ========   ========
Due from affiliate in other current assets .............................   $     74   $     80   $    537
                                                                           ========   ========   ========
Purchases from Porcher and affiliated  companies,  excluding Advanced
Glassfiber Yarns, LLC ..................................................   $  4,685   $  5,419   $  7,123
                                                                           ========   ========   ========
Affiliated purchases included in accounts payable ......................   $    224   $    775   $  2,073
                                                                           ========   ========   ========
Payable to Glass Holdings, for taxes included in accrued expenses ......   $     --   $  4,883   $  8,154
                                                                           ========   ========   ========
Non-interest bearing loan receivable from affiliate of Glass Holdings ..   $    150   $    150   $     --
                                                                           ========   ========   ========
Loan receivable from Glass Holdings ....................................   $116,379   $126,310   $136,790
                                                                           ========   ========   ========
Payable to Advanced Glassfiber Yarns LLC ...............................   $    171   $  3,158   $  2,211
                                                                           ========   ========   ========
Receivable from Advanced Glassfiber Yarns LLC ..........................   $  1,052   $    411   $    228
                                                                           ========   ========   ========
Reimbursable expenses and lease income from Advanced Glassfiber Yarns
   LLC .................................................................   $    885   $  1,282   $  1,465
                                                                           ========   ========   ========
Purchases from Advanced Glassfiber Yarns LLC ...........................   $ 25,902   $ 41,279   $ 34,727
                                                                           ========   ========   ========
Management accounting and administrative fee income from a subsidiary
   of Glass Holdings ...................................................   $     --   $     --   $    351
                                                                           ========   ========   ========
Management, technological support and administrative income from a joint
   venture of Glass Holdings ...........................................   $     --   $     --   $      2
                                                                           ========   ========   ========
Commissions to Porcher .................................................   $    204   $    389   $     98
                                                                           ========   ========   ========
Service fees from subsidiaries of Porcher ..............................   $     33   $     32   $     24
                                                                           ========   ========   ========
Purchase of assets from affiliate ......................................   $     --   $     --   $    465
                                                                           ========   ========   ========
Consulting fees to a former director of BGF ............................   $     10   $     11   $     15
                                                                           ========   ========   ========
Interest income from Glass Holdings ....................................   $  1,103   $  1,200   $     --
                                                                           ========   ========   ========
</TABLE>

In 1998, BGF loaned an officer $365. The loan was non-interest bearing and was
payable upon the sale of the officer's former residence. The loan was paid in
full in 2000.

                                      F-20

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

13.  Related Party Transactions -- (Continued)

On September 30, 1998, AGY Holdings, an affiliate of BGF, purchased a 51%
ownership interest in Advanced Glassfiber Yarns LLC for aggregate consideration
of $338,900, including post-closing adjustments. In connection with the
acquisition, BGF loaned Glass Holdings approximately $138,590 to provide Glass
Holdings a portion of the capital necessary to fund the acquisition. BGF raised
the proceeds for this loan by borrowing (1) $88,400 under the senior credit
facility, and (2) $65,000 under the senior subordinated credit facility which
was refinanced in 1999 with senior subordinated notes (Note 7). The loan from
BGF to Glass Holdings is evidenced by promissory notes that bear interest at the
Cost of Funds Rate for BGF for the calendar year immediately preceding the date
on which any interest is due. With respect to any period of determination, the
Cost of Funds Rate means a rate per annum equal to the blended interest rate, as
reasonably calculated by BGF, applicable to borrowings of BGF during such period
in respect of indebtedness incurred by BGF, to fund the loan to Glass Holdings.
Accrued interest is due and payable on the first business day of February of
each year commencing on February 1, 1999 and on any date on which any principal
is due. The promissory notes are payable on October 31, 2008 or such later date
as may be agreed to by BGF and Glass Holdings. BGF has not recorded interest
income earned under the terms of the loan agreement due to the fact that full
repayment of the loan and related interest by Glass Holdings is contingent on
Glass Holdings' receipt of dividends and other distributions from its two
subsidiaries, BGF and Advanced Glassfiber, which are currently restricted from
paying dividends and other distributions under their debt agreements. Interest
in arrears as of December 31, 2001 and 2000 totaled $38,098 and $27,400,
respectively. BGF received payments from Glass Holdings totaling $11,034 and
$11,680 in 2001 and 2000, respectively. While there are interest amounts in
arrears, BGF and Glass Holdings have agreed that any payments made on the loan
balance will be allocated approximately 90% to principal and 10% to interest.
Accordingly, BGF reflected $9,931 and $10,480 of the cash payment received as a
reduction of principal and $1,103 and $1,200 was recognized as interest income
(recorded in other income on the consolidated statement of operations in 2001
and 2000, respectively). At December 31, 2001 and 2000, the loan to Glass
Holdings has been included as a contra equity account in the financial
statements.

On October 5, 2000, Owens Corning, which owns a 49% economic interest in
Advanced Glassfiber Yarns LLC (a major supplier of glass yarns to BGF), and
certain of Owens Corning's United States subsidiaries (collectively, the
"Debtors") filed voluntary petitions with the United States Bankruptcy Court for
the District of Delaware seeking relief under Chapter 11 of the United States
Bankruptcy Code. According to filings made by Owens Corning with the SEC, the
Debtors will continue to manage their properties and operate their businesses as
"debtors-in-possession" in accordance with the applicable provisions of the
United States Bankruptcy Code. To date, Advanced Glassfiber, and consequently
BGF, has not experienced interruptions in operations or supply of material.
Although no assurances can be provided, the Company does not believe that Owens
Corning's bankruptcy will have a material adverse effect on BGF's business,
financial condition or results of operations.

                                      F-21

<PAGE>

                              BGF INDUSTRIES, INC.
               (a wholly owned subsidiary of Glass Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                             (dollars in thousands)

14.  Quarterly Financial Information (Unaudited)

The following table sets forth summary quarterly financial information for the
years ended December 31, 2001 and 2000:

     2001 By Quarter              First      Second       Third       Fourth
     ---------------             -------     -------     -------      -------
Net sales                        $46,558     $34,426     $35,178      $30,680
Gross profit                       8,257       4,020       2,522          404
Operating income                   5,557       2,153       1,626       (1,706)
Net income (loss)                  1,466          19      (1,275)      (3,288)

     2001 By Quarter              First      Second       Third       Fourth
     ---------------             -------     -------     -------      -------
Net sales                        $46,736     $48,280     $51,410      $54,993
Gross profit                       7,890       7,921       9,452       10,326
Operating income                   5,745       5,757       7,425        7,329
Net income                         1,362       1,551       2,401        3,016

15.  Restructuring Charge

In 2001, management approved a restructuring plan which resulted in the
reduction of BGF's salary and wage workforce by approximately 25%. As a result
of the restructuring, BGF incurred charges of $502, included as a component of
operating income in the accompanying 2001 financial statements. The charges
incurred were costs for salaried employee severance.

In 1999, management approved a restructuring plan which resulted in the
reduction of BGF's salary workforce. As a result of the restructuring, BGF
incurred charges of $769, included as a component of operating income.

16.  Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that all business
combinations be accounted for under the purchase method. The statement applies
to all business combinations initiated after June 30, 2001.

SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS No.
142 is effective for fiscal periods beginning after December 15, 2001. The
Company is currently evaluating the impact of the new accounting standards on
existing goodwill and other intangible assets. While the ultimate impact of the
new accounting standards has yet to be determined, goodwill amortization expense
for the year ended December 31, 2001 was $181, and net goodwill as of December
31, 2001 was $4,724.

                                      F-22

<PAGE>

17.  Restatement of Consolidated Financial Statements

In 2001, the Company determined that its prior years' consolidated financial
statements should be restated to properly reflect deferred compensation
liabilities. The effect of the restatement was to record deferred compensation
liabilities of $1,087 and $1,007 at December 31, 2000 and 1999, respectively and
additional deferred income tax assets of $413 and $383, respectively. Selling,
general and administrative expenses for 2000 and 1999 were increased by $80 and
$82, respectively, while net income was reduced by $50 and $51, respectively.
Retained earnings at December 31, 1998 were reduced by $573, which is net of
tax.

                                      F-23

<PAGE>


                 Schedule II - Valuation and Qualifying Accounts

                                 (In thousands)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                       Column C
---------------------------------------------------------------------------------------------------------------
Column A                                Column B       Additions                     Column D     Column E
---------------------------------------------------------------------------------------------------------------
                                        Balance at     Charged to   Charged          Deductions   Balance at
                                        Beginning of   Costs and    (Credited) to                 End of Period
                                        Period         Expenses     Other Accounts)
---------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>           <C>             <C>           <C>
Allowance for doubtful accounts,
returned goods and discounts deducted
from accounts receivable in the
balance sheets:
---------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001.........     $  663          $ 20          $  --           $283          $  400
---------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000.........     $  769          $ --          $ (54)          $ 52          $  663
---------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999.........     $  696          $ 83          $  --           $ 10          $  769
---------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------
Allowance for obsolete inventory:
---------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001.........     $1,691          $786          $(176)          $ --          $2,301
---------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000.........     $1,372          $401          $ (82)          $ --          $1,691
---------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999.........     $1,138          $696          $(462)          $ --          $1,372
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                      S-1

<PAGE>


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 27, 2002.

                                                  BGF INDUSTRIES, INC.


                                                  By: /s/ Richard L. Cromer
                                                   -----------------------------
                                                          Richard L. Cromer
                                                              President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant in the
capacities indicated on March 27, 2002.

Signature                                 Title
---------                                 -----


/s/ Robert Porcher                        Chairman  of the  Board of  Directors,
-----------------------------                Chief  Executive Officer and
Robert Porcher                               Director (Principal Executive
                                             Officer)


/s/ Richard L. Cromer
-----------------------------
Richard L. Cromer                         President


/s/ Philippe R. Dorier                    Chief Financial Officer (Principal
-----------------------------                Financial  and Accounting Officer)
Philippe R. Dorier