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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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

SECURITIES EXCHANGE ACT
OF 1934



For the fiscal year ended December 31, 2003



Commission File No. 333-72321



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BGF Industries, Inc.

(Exact name of registrant as specified in its charter)



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



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



(336) 545-0011

(Registrants telephone number, including area code)



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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 ̈



Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2).    Yes ̈No  x



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 26, 2004.



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 26, 2004.



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BGF INDUSTRIES, INC.

ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2003



TABLE OF CONTENTS



|                                                          |  |                                                                                                               |  |         
|--------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------
|                                                          |  |                                                                                                               |  | Page No.
|PART I.                                                   |  |                                                                                                               |  |         
|                                                          | 
|CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS |  | 1                                                                                                            
|                                                          |  |                                                                                                              
|Item 1.                                                   |  | Business                                                                                                      |  | 2       
|Item 2.                                                   |  | Properties                                                                                                    |  | 8       
|Item 3.                                                   |  | Legal Proceedings                                                                                             |  | 9       
|Item 4.                                                   |  | Submission of Matters to a Vote of Security Holders                                                           |  | 9       
|                                                          |  |                                                                                                              
|PART II.                                                  |  |                                                                                                               |  |         
|Item 5.                                                   |  | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 10      
|Item 6.                                                   |  | Selected Financial Data                                                                                       |  | 10      
|Item 7.                                                   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 11      
|Item 7A.                                                  |  | Quantitative and Qualitative Disclosure About Market Risk                                                     |  | 23      
|Item 8.                                                   |  | Financial Statements and Supplementary Data                                                                   |  | 23      
|Item 9.                                                   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 23      
|Item 9A.                                                  |  | Controls and Procedures                                                                                       |  | 23      
|                                                          |  |                                                                                                              
|PART III.                                                 |  |                                                                                                               |  |         
|Item 10.                                                  |  | Directors and Executive Officers of the Registrant                                                            |  | 25      
|Item 11.                                                  |  | Executive Compensation                                                                                        |  | 26      
|Item 12.                                                  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                |  | 29      
|Item 13.                                                  |  | Certain Relationships and Related Transactions                                                                |  | 30      
|Item 14.                                                  |  | Principal Accountant Fees and Services                                                                        |  | 32      
|                                                          |  |                                                                                                              
|PART IV.                                                  |  |                                                                                                               |  |         
|Item 15.                                                  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                               |  | 33      
|                                                          | 
|SIGNATURE                                                 |  |                                                                                                              



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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:



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



| |  | the impact of Advanced Glassfiber Yarns (AGY) unpredictable bankruptcy proceeding on our ongoing operations and the resultant risk that obtaining raw materials
from sources other than AGY would be more costly;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



| |  | an easing of 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.



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.



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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. Our website address is http://www.bgf.com. Our website also provides a link to reports and other documents that we file or furnish with the Securities and Exchange
Commission.



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, Nitto Boseki (Japan), Nan Ya Plastics (Taiwan) and Taiwan Glass (Taiwan). We and Hexcel 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 glass fiber fabrics used in 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:



| |  | Printed circuit boards
| | - | ----------------------



| |  | Helicopter blades
| | - | -----------------



| |  | Telecommunications equipment
| | - | ----------------------------



| |  | Filtration bags
| | - | ---------------



| |  | Roofing materials
| | - | -----------------



| |  | Heat shields
| | - | ------------



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| |  | Wall coverings
| | - | --------------



| |  | Welding curtains
| | - | ----------------



| |  | Filtration equipment
| | - | --------------------



| |  | Aircraft laminates
| | - | ------------------



| |  | Sporting goods
| | - | --------------



| |  | Automotive insulation
| | - | ---------------------



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 long-term growing demand for multi-layer printed circuit boards. Our continued investment in our South Hill, Virginia,
lightweight fabrics facility is an important part of this strategy. 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.



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.



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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.



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 2002 to 2003 primarily as a result of significant inventory adjustments in the electronics industry that began during the first
quarter of 2001 as well as reduced demand for electronic products by the end-users. 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
$31.0 million in 2003 and $40.1 million in 2002. These sales represented 24.8% and 30.6% of our net sales in 2003 and 2002, respectively. The decrease in sales of our electronics products reflects our current market strategy to move away from the
heavyweight electronics industry and focus on lightweight electronics products and specialty products.



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 $42.3 million in 2003 and $41.3 million in 2002. These sales represented 33.8% and 31.6% of our net sales in 2003 and 2002, respectively. This increase is the
result of an increase in the demand for products used to refurbish existing aircraft and an increase in purchases by the military.



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 $27.3 million in 2003 and $23.1 million in 2002. These sales represented 21.8% and 17.6% of our net sales in 2003 and 2002,
respectively. The increase in sales of filtration fabrics is due to an increase in demand for replacement filtration bags due to the improving state of the economy, as well as new products developed internally.



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 of our commercial fabrics were $9.4 million in 2003 and $10.7 million in
2002. These sales represented 7.5% and 8.2% of our net sales in 2003 and 2002, respectively. The decrease in sales of commercial products is due to a decrease in demand for decorative commercial fiberglass products.



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 of our insulation fabrics were $11.4 million in 2003 and $10.3 million in 2002. These



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sales represented 9.1% and 7.9% of our net sales in 2003 and 2002, respectively. The increase in sales of insulation
fabrics is due to an increase in demand for industrial insulation products as well as the introduction of new products for automotive insulation.



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 of our construction fabrics were $3.8 million in 2003 and $5.3 million in 2002. These
sales represented 3.0% and 4.0% of our net sales in 2003 and 2002, respectively. The decrease in sales of construction products is due to a decrease in the commercial construction industry.



Sales and Marketing



We sell our products through an experienced direct sales force of six field sales representatives, three market managers and two inside
sales 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, as well as a comprehensive B2B capability for our major customers.



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



One of our customers, Cytec Engineered Materials, accounted for 17.0% and 17.9% of our net
sales in 2003 and in 2002 respectively. Our top ten customers in 2003 and in 2002 accounted for 44.7% and 46.7% 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 Note 13 of the consolidated financial statements under Item 8 of this Report.



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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 yarns from AGY, PPG Industries, Dupont Company and Cytec Engineered Materials. Beginning in September 1998, AGY, a related party (See Item 13, Certain Relationships and Related Transactions)
began to supply us with glass yarns produced at the South Hill, Virginia lightweight fiber fabrics facility under a supply agreement which was to expire on December 31, 2008, unless extended by AGY. AGY filed for protection under Chapter 11 of the
US Bankruptcy Code, on December 10, 2002. It is currently operating with a Debtor In Possession (DIP) financing and is expected to emerge from bankruptcy in the second quarter of 2004. As part of AGYs restructuring, the glass yarn
operation at the South Hill facility will be closed effective August 2004 and the supply agreement with BGF will be terminated. As part of the ownership restructuring, our management believes that Porcher Industries (See Item 13, Certain
Relationships and Related Transactions) will enter into a supply agreement with AGY in which BGF would have an economic incentive, but not an obligation, to purchase yarn from AGY. However, there is no assurance that AGYs liquidity will
remain adequate, in the long run, which may negatively impact AGYs ability to operate and deliver products to us. This situation could potentially have a negative short-term effect on our raw material supply and require us to seek alternative
sources of our required raw materials, which could be more costly. There has been no impact on our business to date. Our main suppliers of carbon yarns are Toray, Toho and Cytec Carbon Fibers and our main supplier of aramid yarns is DuPont.



Employees



As of December 31, 2003, we employed approximately 828 full time and part time employees,
657 of which are hourly employees and 171 of which are paid on a salary basis. All of our employees are located in the United States. None of our employees are represented by a labor union. As part of our restructuring plan, we closed our South Hill
heavyweight fabrics facility, effective October 1, 2002, and consolidated operations



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into our newly constructed South Hill multilayer facility to reduce excess capacity. This resulted in a reduction of our
wage and salary workforce by approximately 10%. We incurred a pre-tax restructuring charge of $0.3 million in August 2002 related to severance payments to the employees at this facility.



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
$0.5 million in October 2001 as a result of the elimination of salaried positions.



Environmental and Health Matters



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



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



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



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



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



As of December 31, 2003, we have recorded a reserve of $2.7 million for environmental exposure, which reflects the estimated remediation costs for the Altavista facility,
as obtained from the environmental consulting firm that has conducted the site assessment and submitted the SCR to EPA. Remediation costs are estimates, subject to EPAs approval of the SCR and of a remediation plan. Estimated remediation costs
at the Cheraw facility are $0.4 million, which also is reflected in the reserve.



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



Item 2. Properties



We own and/or lease four
manufacturing facilities, a research and development facility, corporate offices, a distribution center and several warehouses. 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 as of December 31, 2003.



|                                                        |  |                                                 |  |                        |  |                               
|------------------------------------------------------- |  | ----------------------------------------------- |  | ---------------------- |  | ------------------------------
|Facility                                                |  | Use                                             |  | ApproximateSquare Feet |  | Leased or Owned               
|Greensboro, North Carolina                              |  | Headquarters; Research and Development
facility |  | 36,000                 |  | Leased                        
|Altavista, Virginia                                     |  | Weaving glass fiber and aramid fibers           |  | 399,000                |  | Owned                         
|South Hill, Virginia Heavyweight Fiber Fabrics Facility |  | Weaving heavyweight glass fibers                |  | 147,000                |  | Owned                         
|South Hill, Virginia Lightweight Fiber Fabrics Facility |  | Weaving lightweight glass fibers                |  | 128,000136,000         |  | Owned Owned/under construction
|Cheraw, South Carolina                                  |  | Weaving carbon fibers                           |  | 76,000                 |  | Owned                         
|Altavista, Virginia                                     |  | Warehouse                                       |  | 101,000                |  | Leased                        
|Altavista, Virginia                                     |  | Warehouse                                       |  | 9,000                  |  | Leased                        
|Altavista, Virginia                                     |  | Warehouse                                       |  | 50,000                 |  | Leased                        
|Altavista, Virginia                                     |  | Warehouse                                       |  | 6,000                  |  | Leased                        
|Altavista, Virginia                                     |  | Warehouse                                       |  | 251,000                |  | Leased                        
|Los Angeles, California                                 |  | Warehouse                                       |  | 20,000                 |  | Leased                        



In October 2003, we entered into a
lease in Altavista, Virginia for additional warehousing space. In 2004 we plan to convert part of this space into a new manufacturing facility in order to expand capacity for our non-woven fabric products. We also plan to consolidate several of our
other leased warehouses into this new warehouse.



In November 2002, we sold our
Greensboro, North Carolina facility in a sale-leaseback arrangement. The property is recorded as a capital lease.



In October 2002, we closed our South Hill, Virginia heavyweight fiber fabrics facility and consolidated operations with our South Hill, Virginia lightweight fiber fabrics
facility. The completion of additions to our lightweight fiber fabrics facility has been delayed until market conditions improve.



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Item 3. Legal Proceedings



We are a party to
various legal proceedings arising in the ordinary course of business. None of these proceedings are expected to 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.



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



None



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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, which is a
wholly owned subsidiary of Porcher Industries, S.A.



We did not declare any
dividends or make any distributions on our common stock in 2003. Further, we have no commitment or current plans to make dividends or other distributions in 2004 and our financing obligations restrict our ability to pay dividends or other
distributions.



We have no equity compensation plans.



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, 2003. 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.



|                                                                         |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ---------------- | - | -------- | ---------------- |  | - | ---------------- | - |  | ---------------- | ------- | - |  | - | ------- | -
|                                                                         |  | Year Ended             |        
|                                                                         |  | December 31,2003       |         |   | December 31,2002 |   |          | December 31,2001 |  |   | December 31,2000 |   |  | December 31,1999 |        
|                                                                         |  | (dollars in thousands) |        
|Statement of Operations Data:                                            |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Net sales                                                                |  | $                      | 125,097 |   |                  | $ | 130,862  |                  |  | $ | 146,842          |   |  | $                | 201,419 |   |  | $ | 181,681 |  
|Cost of goods sold                                                       |  |                        | 107,459 |   |                  |   | 128,418  |                  |  |   | 131,639          |   |  |                  | 165,830 |   |  |   | 151,491 |  
|                                                                         |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Gross profit                                                             |  |                        | 17,638  |   |                  |   | 2,444    |                  |  |   | 15,203           |   |  |                  | 35,589  |   |  |   | 30,190  |  
|Selling, general and administrative expenses                             |  |                        | 8,469   |   |                  |   | 13,765   |                  |  |   | 7,071            |   |  |                  | 9,333   |   |  |   | 7,492   |  
|Restructuring charges(1)                                                 |  |                        |         |   |                  |   | 250      |                  |  |   | 502              |   |  |                  |        |   |  |   | 769     |  
|Asset impairment charge                                                  |  |                        |        |   |                  |   | 5,816    |                  |  |   |                 |   |  |                  |        |   |  |   |        |  
|                                                                         |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Operating income (loss)                                                  |  |                        | 9,169   |   |                  |   | (17,387  | )                |  |   | 7,630            |   |  |                  | 26,256  |   |  |   | 21,929  |  
|Interest expense                                                         |  |                        | 13,412  |   |                  |   | 13,926   |                  |  |   | 13,972           |   |  |                  | 14,168  |   |  |   | 15,817  |  
|Other (income) loss, net(2)                                              |  |                        | (1,207  | ) |                  |   | 97,699   |                  |  |   | (1,396           | ) |  |                  | (1,844  | ) |  |   | (456    | )
|                                                                         |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Income (loss) before taxes and cumulative change in accounting principle |  |                        | (3,036  | ) |                  |   | (129,012 | )                |  |   | (4,946           | ) |  |                  | 13,932  |   |  |   | 6,568   |  
|Income tax expense (benefit)                                             |  |                        |        |   |                  |   | 6,835    |                  |  |   | (1,868           | ) |  |                  | 5,602   |   |  |   | 2,880   |  
|                                                                         |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Income (loss) before effect of cumulative change in accounting principle |  |                        | (3,036  | ) |                  |   | (135,847 | )                |  |   | (3,078           | ) |  |                  | 8,330   |   |  |   | 3,688   |  
|Cumulative effect of change in accounting principle                      |  |                        |        |   |                  |   | (4,726   | )                |  |   |                 |   |  |                  |        |   |  |   |        |  
|                                                                         |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Net income (loss)                                                        |  | $                      | (3,036  | ) |                  | $ | (140,573 | )                |  | $ | (3,078           | ) |  | $                | 8,330   |   |  | $ | 3,688   |  
|                                                                         |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Other Data:                                                              |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Depreciation and amortization(3)                                         |  | $                      | 6,039   |   |                  | $ | 8,240    |                  |  | $ | 8,744            |   |  | $                | 8,584   |   |  | $ | 8,206   |  
|Capital Expenditures                                                     |  |                        | 1,975   |   |                  |   | 1,681    |                  |  |   | 15,739           |   |  |                  | 6,764   |   |  |   | 6,531   |  
|Cash flows from operating activities                                     |  |                        | 8,671   |   |                  |   | 9,619    |                  |  |   | 1,064            |   |  |                  | 6,851   |   |  |   | 28,266  |  
|Cash flows from investing activities                                     |  |                        | (1,946  | ) |                  |   | (1,094   | )                |  |   | (15,657          | ) |  |                  | (6,728  | ) |  |   | (6,472  | )
|Cash flows from financing activities                                     |  |                        | (3,932  | ) |                  |   | (7,376   | )                |  |   | 14,607           |   |  |                  | (132    | ) |  |   | (21,795 | )
|Ratio of earnings to fixed charges(4)                                    |  |                        |        |   |                  |   |         |                  |  |   |                 |   |  |                  | 2.0x    |   |  |   | 1.5x    |  
|                                                                         |  |                        |         |   |                 
|Balance sheet data (at period end):                                      |  |                        |         |   |                  |   |          |                  |  |   |                  |   |  |                  |         |   |  |   |         |  
|Total assets                                                             |  | $                      | 89,328  |   |                  | $ | 95,511   |                  |  | $ | 135,599          |   |  | $                | 136,806 |   |  | $ | 127,567 |  
|Current debt (5)                                                         |  | $                      | 1,200   |   |                  | $ | 111,356  |                  |  | $ |                 |   |  | $                | 3,106   |   |  | $ |        |  
|Long-term debt (5)                                                       |  | $                      | 98,968  |   |                  | $ |         |                  |  | $ | 125,583          |   |  | $                | 114,477 |   |  | $ | 132,383 |  
|Total debt                                                               |  | $                      | 100,168 |   |                  | $ | 111,356  |                  |  | $ | 125,583          |   |  | $                | 117,583 |   |  | $ | 132,383 |  
|Stockholders deficit                                                    |  | $                      | (37,542 | ) |                  | $ | (46,115  | )                |  | $ | (9,740           | ) |  | $                | (16,251 | ) |  | $ | (35,061 | )

---

|(1) | Represents costs associated with terminated employees in connection with restructuring plans.
|--- | ---------------------------------------------------------------------------------------------



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|(2) | 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 were originally recorded as an extraordinary charge in the financial statements. This loss has been reclassified as a component of other income (loss), net in conjunction with issuance of Statement of Financial Accounting Standards No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Amounts do not include amortization of debt issuance costs and original issue discount, which is included in interest expense.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(4) | 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). For the year
ended December 31, 2003, 2002 and 2001, our earnings were insufficient to cover fixed charges by $16.7 million, $143.2 million and $19.4 million, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | As a result of the short term nature of the Senior Credit Facility in 2002 the debt was classified as a current liability. The Senior Subordinated Notes were classified as a current
liability due to the fact that payment of interest due in 2003 was contingent upon our ability to improve cash flows from operations and liquidity in 2003. The debt is classified as long-term for 2003 due to the long-term financing arrangement with
WFF.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 Part 1, Cautionary Statement Regarding Forward-Looking Statements.



Overview



Our business focuses on the production of value-added specialty woven and non-woven fabrics made from glass, carbon and aramid yarns. Our
fabrics are a critical component in the production of a variety of electronic, filtration, composite, insulation, construction and commercial products. Our glass fiber fabrics



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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.



We
experienced a rapid deterioration in liquidity and financial condition beginning in the second quarter of 2002 as a result of worsening industry and economic conditions that had a material adverse affect on our ability to generate revenue and
sufficient liquidity to fund our operations. During the second half of 2002, when management determined that the electronics industry was not likely to improve in the short term, we engaged in an aggressive inventory and cost reduction program in
order to restructure our business. Our performance during 2002 and 2003 has been consistent with our restructuring plan. In 2003, we saw a decrease in overall sales from 2002 of $5.8 million, or 4.4%. However, our profitability improved with gross
margins increasing from 1.9% to 14.1%. In addition, we reduced our long-term debt in 2003 by $11.2 million.



The decrease in our overall sales from 2002 to 2003 was mainly due to the decrease in sales of electronic fabrics. This decrease is a result of the continued downturn in the electronics industry. Sales of our
electronic fabrics decreased $9.1 million, or 22.7%, from 2002 to 2003.Sales of our composite fabrics, which are mainly to the aerospace industry, increased slightly by $1.0 million, or 2.2%, from 2002 to 2003 due to increased market share.
Sales of our filtration fabrics increased $4.2 million, or 18.0%, from 2002 to 2003. This increase is due to an increase in demand for replacement filtration bags.



On June 6, 2003, we obtained a five-year financing arrangement with Wells Fargo Foothill, Inc. (WFF), formerly Foothill Capital
Corporation. The loan with WFF (WFF Loan) is for a maximum revolver credit line of $40.0 million with a letter of credit (L/C) sub-line of $4.0 million, an inventory sub-line of $15.0 million and a term loan sub-line of $6.0
million, of which the principal is amortized over 60 months. WFF has a first priority, perfected security interest in our assets. The WFF Loan provides for the following: (1) a borrowing base with advance rates on eligible accounts receivable and
eligible finished goods and raw materials inventory of 85%, 45% and 35%, respectively, with inventory to be capped at the lesser of the eligible inventory calculation, $15.0 million or 80% of the net orderly liquidation value; (2) borrowing rates of
LIBOR + 3.25% or the Wells Fargo Prime Rate (RR) + 1.00% for the revolver with a 50 basis points increase if outstanding advances exceed $7.0 million and of LIBOR + 3.5% or RR + 1.00% for the term loan with, at all times, a minimum rate of 5% for
both facilities; (3) certain financial covenants including (i) a minimum excess availability at all times, (ii) a minimum EBITDA level in 2003 building to a trailing 12 month calculation in 2004 and (iii) a cap on yearly capital expenditures of $2.0
million; and (4) an early termination fee of 5% in year one decreasing by 1% each year thereafter. The WFF Loan proceeds are used to finance ongoing working capital, capital expenditures, and general corporate needs and to retire other outstanding
debt. The WFF Loan is guaranteed by our parent, Glass Holdings. As of December 31, 2003, amounts outstanding under the WFF Loan totaled $5.4 million, consisting only of the term loan. No advances were outstanding under the revolver. The interest
rate on the WFF Loan at December 31, 2003 was 5.0%.



In 2003, we have continued
to operate in our restructured environment. The South Hill heavyweight fabrics facility is still closed and we have continued our efforts to reduce inventory and maximize our asset utilization. Inventory decreased $0.5 million, or 2.2%, to $22.1
million as of December 31, 2003 as compared to December 31, 2002. As of December 31, 2003, we reduced our debt by $11.2 million, or 10.1%, to $100.2 million as compared to $111.4 million as of December 31, 2002. On June 20, 2003, we repurchased $1.3
million (face amount) of Senior Subordinated Notes for $0.8 million plus accrued interest



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of $0.1 million. This transaction resulted in a gain on extinguishment of $0.4 million. On August 25, 2003, we
repurchased an additional $3.0 million (face amount) of Senior Subordinated Notes for $2.2 million plus accrued interest. This transaction resulted in a gain on extinguishment of $0.8 million.



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



Critical Accounting
Policies



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:



| |  | 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 delivery.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Allowance for Doubtful Receivables  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. During 2002, as a result of a significant decline in the markets in which we operate, we recorded a $5.6 million charge to cost of goods sold to write-down excess and obsolete inventory to the lower of cost or market value. There was no
similar charge in 2003.



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| |  | Restructuring Charge - We have recorded restructuring charges in accordance with decisions to reduce our manufacturing and administrative cost structure. These charges relate
primarily to workforce reduction. Severance and related charges are accrued based on an estimate of amounts that will be paid to affected salaried and hourly employees. Restructuring reserve requirements are evaluated at the end of each reporting
period. Any necessary changes based on these evaluations are recorded in the period of change. Restructuring charges are summarized in Note 7 of the consolidated financial statements.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Employee Benefits- We sponsor a defined benefit pension plan as a retirement benefit for eligible employees. Because pension obligations will ultimately be settled in
future periods, the determination of annual pension expense and pension liabilities is subject to estimates and assumptions. The principal assumptions used in our estimations are summarized in Note 11 of the consolidated financial statements. We
review these assumptions annually and modify them based on current rates and trends.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



One of the critical assumptions used in the actuarial model that is used to calculate our annual pension expense is the discount rate. The rate we use is
based on market rates for highly rated corporate debt instruments at our annual valuation date. The discount rate is used to estimate the present value of our future benefit obligation as of the valuation date. A lower discount rate used in the
actuarial model has resulted in a higher present value of benefit obligations and in a higher pension expense and changes in other comprehensive income as of and for the year ended December 31, 2003. Differences between actual results and actuarial
assumptions are accumulated and amortized over future periods. In recent periods, actual results have varied significantly from actuarial assumptions, as our pension plan assets have declined due to the overall decline in the securities markets and
our pension plan liabilities have increased as a result of the decline in the discount rate.



We have a postretirement benefit plan that covers substantially all of our employees. Upon the completion of the attainment of age fifty-five and ten years of continuous service, an employee may elect to retire.
Employees eligible to retire receive postretirement health benefits, including medical and dental coverage. Critical assumptions used in the actuarial calculation of our postretirement benefit obligation include the discount rate and the assumed
health care cost trend rate, see Note 11 of the consolidated financial statements.



We have deferred compensation arrangements for certain key executives, which generally provide for payments upon retirement or death. A portion of these obligations are funded through life insurance contracts on
behalf of the executives participating in these arrangements. Critical assumptions used in the calculation of the ultimate liability under these deferred compensation arrangements include future increases in salary and discount rate.



| |  | Long-lived Assets  Our depreciation and amortization policies reflect judgments on the estimated useful lives of 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. We measure recoverability of the carrying value of these assets by comparison to the undiscounted cash
flows expected to be generated by these assets. As a result of these evaluations, we recorded an asset impairment charge of $5.8 million during 2002. There were no impairment charges in 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Deferred Tax Assets Valuation We record a deferred tax asset or liability when the tax effects of temporary differences result in such balances. A valuation allowance
is recorded if it is more likely than not that some or all of the deferred tax assets will not be realized. Prior to the second quarter 2002, we recorded interest income earned under the terms of the loan agreement with Glass Holdings, our parent
for tax purposes. We have not recorded this income for financial reporting purposes, which resulted in a tax deferred asset. 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, the Company and AGY Holdings, which are currently restricted from paying dividends and other distributions under their various debt instruments. During the second quarter 2002, due to our poor operating
performance and related liquidity constraints, as well as the liquidity constraints of AGY Holdings, we recorded a full valuation allowance against this and other deferred tax assets. During the remainder of 2002 and in 2003, we have continued to
fully reserve for deferred tax assets generated in those periods, primarily net operating loss carry-forwards, due to the uncertainty associated with the recognition of those deferred tax assets.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Results of Operations



The following table summarizes our historical results of operations as a percentage of net sales for the years ended December 31, 2003, 2002
and 2001:



|                                                                                 |  |                         |    |  |        |    |  |       |   
|-------------------------------------------------------------------------------- |  | ----------------------- | -- |  | ------ | -- |  | ----- | --
|                                                                                 |  | Year Ended December 31, |   
|                                                                                 |  | 2003                    |    |  | 2002   |    |  | 2001  |   
|Net sales                                                                        |  | 100.0                   | %  |  | 100.0  | %  |  | 100.0 | % 
|Cost of goods sold                                                               |  | 85.9                    |    |  | 98.1   |    |  | 89.6  |   
|                                                                                 |  |                         |    |  |        |    |  |       |   
|Gross profit                                                                     |  | 14.1                    |    |  | 1.9    |    |  | 10.4  |   
|Selling, general and administrative expenses                                     |  | 6.8                     |    |  | 10.5   |    |  | 4.8   |   
|Restructuring charge                                                             |  |                        |    |  | 4.4    |    |  | 0.3   |   
|Asset impairment charge                                                          |  |                        |    |  | 0.2    |    |  |      |   
|                                                                                 |  |                         |    |  |        |    |  |       |   
|Operating income (loss)                                                          |  | 7.3                     |    |  | (13.2  | )  |  | 5.3   |   
|Other (income) expenses:                                                         |  |                         |    |  |        |    |  |       |   
|Interest expense                                                                 |  | 10.7                    |    |  | 10.6   |    |  | 9.5   |   
|Other (income) loss, net                                                         |  | (1.0                    | )  |  | 74.7   |    |  | (1.0  | ) 
|                                                                                 |  |                         |    |  |        |    |  |       |   
|Loss before income taxes and cumulative effect of change in accounting principle |  | (2.4                    | )  |  | (98.5  | )  |  | (3.2  | ) 
|Income tax expense (benefit)                                                     |  |                        |    |  | 5.2    |    |  | (1.2  | ) 
|                                                                                 |  |                         |    |  |        |    |  |       |   
|Net loss before cumulative effect of change in accounting principle              |  | (2.4                    | )  |  | (103.7 | )  |  | (2.0  | ) 
|Cumulative effect of change in accounting principle                              |  |                        |    |  | (3.6   | )  |  |      |   
|                                                                                 |  |                         |    |  |        |    |  |       |   
|Net loss                                                                         |  | (2.4                    | )% |  | (107.3 | )% |  | (2.0  | )%
|                                                                                 |  |                         |    |  |        |    |  |       |   



Fiscal Year 2003 Compared to Fiscal
Year 2002



Net Sales. Net sales decreased $5.8
million, or 4.4%, to $125.1 million in 2003 from $130.9 million in 2002. Sales of glass, carbon and aramid fibers used in various composite materials increased $1.0 million during 2003 as compared to 2002, and sales of fabrics used in filtration
products increased $4.2 million, or 18.0%. However, for the same period, sales of electronics fabrics used in multi-layer and rigid printed circuit boards decreased $9.1 million, or 22.7%. The decrease in sales of electronics fabrics was primarily a
result of lower demand in the electronics industry that has continued throughout 2002 and 2003. In addition, the decrease in capital spending in the information technology and telecommunications industry has led



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fabricators of printed circuit boards to reduce production, thus negatively impacting our sales to these customers. The
increase in sales of filtration fabrics was due to an increase in demand for filtration bags. The increase in sales of composite fabrics is due to an increase in market share.



Gross Profit. Gross profit margins increased to 14.1% in 2003 from 1.9% in 2002. During 2003, we had successful cost reductions and
lower raw material prices. During 2002, we incurred charges to cost of goods sold of $5.6 million to increase inventory reserves and a settlement charge for the retirement plan of $1.4 million, of which $0.9 million was allocated to cost of goods
sold.



Selling, General and Administrative Expenses. Selling, general
and administrative expenses decreased $5.3 million to $8.5 million or 6.8% of net sales, in 2003 from $13.8 million, or 10.5% of net sales, in 2002. This was primarily due to a decrease from 2002 in legal, professional and consulting fees associated
with restructuring our operations of $3.4 million. In addition, in 2002, we incurred a settlement charge for the retirement plan of $1.4 million, of which $0.5 million was allocated to selling, general and administrative expenses. In 2002, we also
increased our environmental reserve by $2.0 million for estimated remediation costs at our Altavista, Virginia facility.



Restructuring Charge.In 2003, we had no restructuring charges. In 2002, we accrued a restructuring charge of $0.3 million related to the severance payments to the
employees of our South Hill heavyweight fabrics facility.



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



Operating Income. As a
result of the aforementioned factors, operating income increased $26.6 million to $9.2 million, or 7.3% of net sales, in 2003 from $(17.4) million, or (13.2)% of net sales, in 2002.



Interest Expense. Interest expense decreased $0.5 million to $13.4 million, or 10.7% of net sales, in 2003 from $13.9 million, or
10.6% of net sales, in 2002, due to lower interest rates on the senior debt combined with lower borrowings, partially offset by write-offs of debt issuance costs.



Other Income (Loss), Net. Other income (loss) increased $98.9 million to $1.2 million in 2003 from a loss of $97.7 million in 2002.
In 2003, we had a gain on extinguishment of debt of $1.2 million due to the purchase of $4.3 million of Senior Subordinated Notes. As a result of AGYs bankruptcy filing, and consequently the financial condition of AGY Holdings, evaluations of
the potential impairment of the loan from Glass Holdings to AGY Holdings and the similar loan from BGF to Glass Holdings were performed. During 2002, based on the then-current tax positions of the three companies and the insolvency of AGY Holdings,
it was determined that a reserve should be recorded against BGFs loan to Glass Holdings. Accordingly, BGF recorded a reserve of $97.7 million during 2002. This reserve remains in effect as of December 31, 2003.



Income Tax Expense (Benefit). The effective tax rate in 2003 and 2002 were 0.0% and
5.3%, respectively. These rates differ from federal statutory rates primarily due to valuation allowances on deferred tax assets. We expect our effective tax rate to remain at these levels in year 2004.



Cumulative Effect of Change in Accounting Principle. We adopted SFAS No. 142 effective
January 1, 2002 and recorded a non-cash charge of $4.7 million for impairment of goodwill in 2002.



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Net Loss. As a result of the aforementioned factors, net loss decreased $137.6 million to a loss of $3.0 million
in 2003 from $140.6 million loss in 2002.



Fiscal Year 2002 Compared to
Fiscal Year 2001



Net SalesNet sales decreased $15.9
million, or 10.8%, to $130.9 million in 2002 from $146.8 million in 2001. This decrease was due primarily to lower sales of electronics fabrics used in the multilayer and rigid printed circuit boards which decreased $12.7 million, or 24.1%, and
lower sales of glass, carbon and aramid fiber fabrics used in various composite materials which decreased $8.8 million, or 17.5%. These decreases were partially offset by an increase in sales of filtration fabrics of $3.5 million, or 18.5%, over the
comparable period in 2001. The decrease in sales of electronics fabrics was primarily a result of a continued downturn in the electronics industry that began in the first quarter of 2001. In addition, the decrease in capital spending in the
information technology and telecommunications industries had led fabricators of printed circuit boards to reduce production, thus negatively impacting our sales to these customers. The decrease in sales of glass, carbon and aramid fibers was
primarily the result of a decrease in the aerospace markets. The increase in sales of filtration fabrics was due to an increase in demand for replacement filtration bags.



Gross Profit Margins. Gross profit margins decreased to 1.9% in 2002, from 10.4% in 2001, due primarily to lower capacity utilization
and selling price reductions in 2002, charges to cost of goods sold for inventory reserves of $5.6 million, as well as a settlement charge for the retirement plan of $1.0 million, of which $0.8 million was allocated to cost of goods sold.



Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.7 million to $13.8 million in 2002, from $7.1 million in 2001. This was primarily due to an increase in legal and professional fees of $3.8 million associated with negotiating the forbearance agreement relating
to our Senior Credit Facility and restructuring operations, an increase of $2.0 million in the environmental reserve for estimated remediation costs at out Altavista, Virginia facility, a settlement charge for the retirement plan of $1.4 million, of
which $0.5 million was allocated to selling, general and administrative expenses, and a charge of $0.5 million related to severance costs.



Restructuring Charge. We incurred a restructuring charge of $0.3 million related to severance payments to the employees of our South Hill heavyweight fabrics
facility during 2002.



Asset Impairment Charge.During the second
quarter of 2002, we recorded a $1.0 million impairment charge on the sale of equipment to an affiliate and a $4.8 million impairment charge on machinery and equipment at our South Hill heavyweight fabric manufacturing plant.



Operating Income (Loss). As a result of the aforementioned factors, operating income
(loss) decreased $25.0 million to $(17.4) million, or (13.2)% of net sales, in 2002, from $7.6 million, or 5.3% of net sales, in 2001.



Interest Expense. Interest expense remained flat in 2002 as compared to 2001. This was due to a decrease in borrowings and interest on borrowings, offset by an
increase in amortization of debt issuance costs.



Other Income (Loss),
Net. Other income (loss) decreased $99.1 million in 2002 from income of $1.4 million in 2001, to a loss of $97.7 million. As a result of AGYs bankruptcy filing, and consequently the financial condition of AGY Holdings, evaluations of the
potential impairment of the loan from Glass Holdings to AGY Holdings and the similar loan from BGF to Glass Holdings were performed. Based on



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the then current tax positions of the three companies and the insolvency of AGY Holdings, it was determined that a
reserve should be recorded against BGFs loan to Glass Holdings. Accordingly, BGF recorded a reserve of $97.7 million during 2002.



Income Tax Expense (Benefit). The effective tax rates in 2002 and 2001 were 5.3% and (37.8)%, respectively. The rate increase is primarily the result of recording
a valuation allowance on certain deferred tax assets in 2002.



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



Net Loss. As a result of the aforementioned factors, our net loss increased $137.5 million to a net loss of $140.6 million in 2002,
from a net loss of $3.1 million in 2001.



Balance Sheets



Accounts Receivable. Accounts receivable increased $3.2 million, or 31.4%, from
December 31, 2002 to December 31, 2003. This increase was a result of increased sales in the later part of 2003, compared to the later part of 2002.



Inventory. Inventory decreased $0.5 million, or 2.2%, from December 31, 2002 to December 31, 2003. This was mainly due to the implementation of a plan aimed at
maximizing our asset utilization.



Other Current Assets.Other current
assets decreased $9.3 million, or 86.2%, from December 31, 2002 to December 31, 2003. This decrease was primarily the result of a decrease in deferred income taxes of $3.2 million and income tax refundable of $6.0 million. The tax refunds due were
received during 2003.



Net Property, Plant and Equipment.Net
property, plant and equipment decreased $4.0 million, or 8.3%, from December 31, 2002 to December 31, 2003. The net decrease is primarily the result of depreciation expense of $6.0 million, partially offset by capital expenditures of $2.0 million in
2003.



There were no significant individual capital expenditures during 2003
nor do we currently expect any significant capital expenditures during 2004.



Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities increased $2.5 million, or 15.2%, from December 31, 2002 to December 31, 2003. This increase was primarily the result of an increase in the required
minimum contribution to the retirement plan of $2.5 million from 2002 to 2003.



Long Term Debt.Long-term debt decreased $11.2 million from December 31, 2002 to December 31, 2003. In 2003, we paid $7.6 million on the Senior Credit Facility, received interim financing of $10.0 million, which we subsequently paid
down, and paid $5.0 million on a loan from our parent. We received a $6.0 million term loan under the WFF Facility and made term loan payments of $0.6 million. In addition, we purchased $4.3 million principal amount of our Senior Subordinated Notes.



Due to the fact that we were in default under the terms of the Senior Credit
Facility, as of December 31, 2002, amounts outstanding under the Senior Credit Facility as of December 31, 2002 were classified as a current liability. The Senior Subordinated Notes were also classified as a current liability at that time because
payment of interest due on the Senior Subordinated Notes in 2003 was contingent upon our ability



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to improve cash flows from operations and liquidity in 2003. On June 6, 2003, we obtained a five-year financing
arrangement with WFF. This financing arrangement, combined with improvements in our cash flows from operations and liquidity, allowed us to reclassify our debt as long term as of December 31, 2003.



Capital Lease Obligations.During 2002, we sold our Greensboro office facility to a
third party for net proceeds of $2.5 million and are leasing it back under a capital lease agreement. The capital lease obligation balance at December 31, 2003 and 2002 was $2.1 million and $2.5 million, respectively.



Post Retirement and Pension Obligations.Post retirement and pension obligations
decreased $2.6 million, or 32.8 %, from 2002 to 2003. This decrease was due to a decrease in the long-term pension liability of $2.9 million, an increase in post retirement liability of $0.2 million, and an increase in deferred compensation
liability of $0.1 million.



Off-balance Sheet Arrangements. We currently
have no off-balance sheet arrangements.



Liquidity and Capital Resources



Our primary sources of liquidity are cash flows from operations and
borrowings under our financing arrangements. Our future need for liquidity will arise primarily from interest payments on our $95.8 million Senior Subordinated Notes ($94.8 million net of unamortized discount of $1.0 million), principal and interest
payments on the WFF Loan, 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 in January 2009. Based upon our
current and anticipated levels of operations, we believe, but cannot guarantee, that our cash flows from operations, continued with availability under the WFF financing arrangement, will be adequate to meet our liquidity needs for 2004. However,
this forward-looking statement is subject to risks and uncertainties. See Part 1, Cautionary Statements Regarding Forward-Looking Statements.



As previously discussed, we experienced a rapid deterioration in liquidity and financial condition beginning in the second quarter of 2002 as a result of worsening
industry and economic conditions that had a material adverse affect on our ability to generate revenue and sufficient liquidity to fund our operations. During the second half of 2002, when management determined that the electronics industry was not
likely to improve in the short term, we engaged in an aggressive inventory and cost reduction program in order to restructure our business. Our performance during 2002 and 2003 has been consistent with our restructuring plan. In 2003 we saw a
decrease in overall sales from 2002 of $5.8 million, or 4.4%, however our profitability improved with gross margins increasing from 1.9% to 14.1%. In addition, we reduced our long-term debt in 2003, by $11.2 million. We incurred a net loss of
approximately $3.0 million for the year ended December 31, 2003, and have a $37.5 million stockholders deficit as of December 31, 2003.



On June 6, 2003, we entered into the five-year WFF financing agreement (see Overview for details of the agreement) that is for a maximum revolver credit line
of $40.0 million with a letter of credit (L/C) sub-line of $4.0 million, an inventory sub-line of $15.0 million and a term loan sub-line of $6.0 million of which the principal is amortized over 60 months. The WFF Loan proceeds are used
to finance ongoing working capital, capital expenditures, and general corporate needs and to retire other outstanding debt. The WFF Loan is guaranteed by our parent, Glass Holdings. As of December 31, 2003, amounts outstanding under the WFF Loan
totaled $5.4 million consisting only of the term loan. No advances were outstanding under the revolver. The interest rate on the WFF Loan at December 31, 2003 was 5.0%.



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Availability under the revolver as of December 31, 2003 and March 19, 2004 was $9.8 million and $16.3 million,
respectively. This availability has been reduced by a reserve to allow for the annual interest payments on the Senior Subordinated Notes as well as a reserve of $0.6 million for potential environmental liabilities. The reserve for interest payments
is increased by $0.2 million per week and is reset to $0 when such payment is made. As of December 31, 2003 and March 19, 2004, the outstanding reserves totaled $5.4 million and $2.4 million, respectively.



The Senior Subordinated Notes were classified as a current liability as of December 31, 2002
due to the fact that payment of interest due in 2003 was contingent upon our ability to improve our liquidity in 2003. The WFF five-year financing arrangement has allowed us to reclassify our debt as long term as of December 31, 2003. The fair value
of the Senior Subordinated Notes as of March 19, 2004 and December 31, 2003 was approximately $74.7 million and $71.8 million, respectively.



We are aware that our Senior Subordinated Notes are currently trading at substantial discounts to their face amount. In order to reduce future cash interest payments, as
well as future amounts due at maturity or upon redemption, we or our affiliates may, from time to time, purchase such securities for cash in open market purchases, privately negotiated transactions or otherwise. On June 20, 2003, we repurchased $1.3
million (face amount) of Senior Subordinated Notes for $0.8 million plus accrued interest of $0.1 million. This transaction resulted in a gain of $0.4 million, which is included in other income. On August 25, 2003, we repurchased $3.0 million (face
amount) of Senior Subordinated Notes for $2.2 million plus accrued interest. This transaction resulted in a gain of $0.8 million, which is included in other income.



One of our affiliates, AGY, is also a major supplier. AGY filed for protection under Chapter 11 of the US Bankruptcy Code on December 10,
2002. It is currently operating with a Debtor In Possession (DIP) financing and is expected to emerge from bankruptcy in the second quarter of 2004. However, there can be no assurance that AGYs liquidity will remain adequate in the
long run, which may negatively impact AGYs ability to operate and to deliver products to us.



During the second quarter of 2002, our parent, Glass Holdings, received a $6.9 million income tax refund related to the filing of the 2001 consolidated return. On August 13, 2002, this amount was remitted to us, which
reduced our loan receivable from Glass Holdings. The entire amount of the refund was applied to principal amount of the loan, due to the financial condition of Glass Holdings. During the first quarter of 2003, the Companys parent, Glass
Holdings, received a tax refund related to the filing of the 2002 consolidated tax return. In March 2003, $15.6 million of this tax refund was remitted to BGF, of which $9.6 million was applied to the loan receivable from Glass Holdings. The
remaining balance of $6.0 million reduced the Companys income tax receivable. An additional $0.5 million from Glass Holdings was received during the first quarter of 2003 and was also applied against the loan receivable and during the second
quarter of 2003 an additional $0.5 million was received from Glass Holdings and applied against the loan receivable.



On August 13, 2002, we borrowed $5.0 million from Glass Holdings under a loan agreement whereby the loan matured on June 30, 2003. Interest on the loan was 3.25% and was
payable quarterly in arrears beginning December 2002. We repaid the loan in full upon maturity in June 2003.



Net Cash Provided by Operating Activities.Net cash provided by operating activities was $8.7 million for 2003, compared with $9.6 million in 2002 and was
primarily the result of an improvement of our overall profitability offset by significantly less working capital reductions than in 2002.



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Net Cash Used in Investing Activities. Net cash used in investing activities was $1.9 million and $1.1 million in
2003 and 2002, respectively, and in 2003 was the result primarily of purchases of property, plant and equipment of $1.9 million.



Net Cash Used In Financing Activities.Net cash used in financing activities was $3.9 million for 2003, compared with net cash used in financing activities of $7.4
million for 2002 and was primarily the result of a reduction of the overall indebtedness of the company.



On September 30, 1998, AGY Holdings, an affiliate of BGF, purchased a 51% ownership interest in AGY. 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 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. During the term of the loan, we have 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 AGY, which are currently restricted from paying dividends and other
distributions under their debt agreements. Interest in arrears as of December 31, 2003 and 2002 totaled $59.6 million and $49.7 million, respectively. We received payments from Glass Holdings totaling $10.6 million, $7.7 million and $11.0 million in
2003, 2002 and 2001, respectively. BGF and Glass Holdings agreed that while there are interest amounts in arrears, any payments made on the loan balance will be allocated approximately 90% to principal and 10% to interest. However, due to the
uncertainty of the ultimate collectibility of the loan which arose during 2002, all payments from Glass Holdings are now recorded as principal payments. Accordingly, we reflected $10.6 million, $7.7 million and $9.9 million of the cash payments
received in 2003, 2002 and 2001, respectively, as a reduction of principal and $1.1 million was recognized as interest income in 2001 (recorded in other income on the consolidated statement of operations).



Following is a summary of our contractual obligations at the end of 2003:



|                         |  |                                  |     |      |   |      |  |      |     |            |   |     |  |   |     
|------------------------ |  | -------------------------------- | --- | ---- | - | ---- |  | ---- | --- | ---------- | - | --- |  | - | ----
|                         |  | Payments due by year In millions
|                         |  | 2004                             |     | 2005 |   | 2006 |  | 2007 |     | Thereafter
|Debt(1)                  |  | $                                | 1.2 |      | $ | 1.2  |  | $    | 1.2 |            | $ | 1.2 |  | $ | 96.4
|Interest on debt(2)      |  |                                  | 9.8 |      |   | 9.8  |  |      | 9.8 |            |   | 9.8 |  |   | 14.5
|Capital lease obligation |  |                                  | 0.4 |      |   | 0.4  |  |      | 0.4 |            |   | 0.4 |  |   | 0.8 
|Operating leases         |  |                                  | 1.4 |      |   | 1.2  |  |      | 1.1 |            |   | 0.8 |  |   | 0.8 

---

|(1) | The $95.8 million Senior Subordinated Notes are scheduled to mature in 2009. Amounts due in 2004 through 2007, consist of principle payments on the term loan with WFF.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The interest relates to the Senior Subordinated Notes.
|--- | ------------------------------------------------------



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Outlook for 2004



The following section contains forward-looking statements about our plans, strategies and prospects during 2004. 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 2004:



| |  | Sales trends during January and February 2004 increased from the average monthly sales for the last quarter of 2003. Although no assurances can be given, we believe this trend could
be maintained contingent upon the recovery of the electronics markets and our continued efforts to develop and sell products in new markets.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We plan to continue our efforts to maintain a low level of inventory in 2004. This could result in increased capacity utilization resulting in improved gross margins compared to
2003, contingent upon the continued improvement of the electronics market.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 December 2003, the
FASB issued FAS 132 (Revised), Employers Disclosure about Pensions and Other Postretirement Benefits. A revision of the pronouncement originally issued in 1998, FAS 132R expands employers disclosure requirements for pension
and postretirement benefits to enhance information about plan assets, obligations, benefit payments, contributions, and net benefit cost. FAS 132R does not change the accounting requirements for pensions and other postretirement benefits. This
statement is effective for fiscal years ending after December 15, 2003, with interim-period disclosure requirements effective for interim periods beginning after December 15, 2003. Accordingly, we have implemented FAS 132R as of December 31, 2003.



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In December 2003, the FASB issued Interpretation No. (FIN) 46R, Consolidation of Variable Interest
Entities an Interpretation of ARB No. 51. The primary objective of the Interpretation is to provide guidance on the identification of entities for which control is achieved through means other than voting rights and how to determine when and
which business enterprise should consolidate the variable interest entity. Application of the Interpretation is required in financial statements for periods ending after March 15, 2004. We have performed our assessment of FIN 46R and determined that
this interpretation will not have an impact on the consolidated financial statement.



In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others - an interpretation of
FASB Statements No. 5, 57, and 107 and a rescision of FASB Interpretation No. 34. FIN 45 elaborates on the disclosures to be made regarding obligations under certain issued guarantees by a guarantor in interim and annual financial statements.
It also clarifies the requirement of a guarantor to recognize a liability at the inception of the guarantee at the fair value of the obligation. We adopted the provisions of this statement during 2003 and it did not have a significant impact on the
consolidated financial statements.



Item 7a. Quantitative and Qualitative Disclosures About Market Risk



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



Our credit facilities are subject to market risks, including interest rate risk. Our
financial instruments are not currently subject to commodity price risk. We are exposed to market risk related to changes in interest rates on borrowings under our credit facilities. The credit facilities bear interest based on LIBOR or prime. When
deemed appropriate, our risk management strategy is to use derivative financial instruments, such as swaps, to hedge interest rate exposures. We do not enter into derivatives for trading or speculative purposes.



The fair value of the Senior Subordinated Notes as of March 19, 2004 and December 31, 2003
was approximately $74.7 million and $71.8 million, respectively.



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



Item 9A. Controls and Procedures



We maintain
disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed, summarized and



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reported within the time periods specified in the SECs rules and forms. These disclosure controls and procedures
are further designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.



Based on the most recent evaluation, our president and chief financial officer believe that
our disclosure controls are effective as of the end of the period covered by this report. There have been no significant changes in our internal controls or in any other factors that could significantly affect the internal controls subsequent to the
date we completed our evaluation.



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PART 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, 2004 are set forth below. Our director is also a director of Glass Holdings. The director is elected annually by our sole
stockholder and holds office until his successor is elected and qualified or until his earlier removal or resignation



|                   |  |     |  |                                                                        
|------------------ |  | --- |  | -----------------------------------------------------------------------
|Name               |  | Age |  | Positions with BGF                                                     
|Philippe Porcher   |  | 50  |  | Chairman of the Board, Sole Director                                   
|James R. Henderson |  | 66  |  | President                                                              
|Philippe R. Dorier |  | 47  |  | Senior Vice President, Chief Financial Officer, Secretary and Treasurer



Philippe Porcher was named our
Chairman of the Board and Chief Executive Officer in July 2002. Previous to that, he served as 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. Porcher served as Director of Porcher Industries industrial division. Since 1998, Mr. Porcher has served as President of the Executive Board of Porcher Industries.



James R. Henderson was named President of BGF in May 2002. Prior to that he was Executive Vice President Sales and Merchandising
since 1989. Before 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. Mr. Henderson was appointed to the Executive Board of Porcher Industries in May 2002.



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 1998, Mr. Dorier has served as a member of the Executive Board of Porcher Industries.



Disclosure and Corporate Governance. We are an indirect, wholly owned subsidiary of Porcher Industries, S.A. As a result, we have no publicly-traded equity.
However, even though we are no longer required by the Securities Exchange Act to file annual, quarterly and current reports with the SEC, the indenture governing our Senior Subordinated Notes requires us to nonetheless file such reports. According
to the SEC, this means that we are a voluntary filer. As a result, because we are not an issuer for purposes of the Sarbanes-Oxley Act, many of its substantive governance reforms do not apply to us. Furthermore, since none of
our securities, including our Senior Subordinated Notes, are listed for trading on any national securities exchange, we are not required to comply with any listing standards or corporate governance reforms of the New York Stock Exchange or Nasdaq.



However, because we continue to file or furnish reports with the SEC, most of
the enhanced disclosure rules enacted under the Sarbanes-Oxley Act and related SEC rulemaking do apply to this annual report. Accordingly, we disclose below certain additional information regarding our corporate governance.



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As permitted by Delaware law with respect to single shareholder corporations, our board consists of only one director,
Philippe Porcher. Accordingly, our board has not established any board committees and does not intend to do so. Because Mr. Porcher is also our Chief Executive Officer, he would not be deemed to be an independent director. Mr. Porcher is not a
financial expert under the SEC rules. We have not established a formal procedure whereby interested persons can communicate with our board regarding auditing matters or other issues. However, we nonetheless encourage investors and other
interested parties to contact us at (336) 545-0011 with questions, comments, or requests for additional information.



We have not yet adopted a code of ethics that applies to our chief executive officer, chief financial officer and controller. However, we are currently in the process of
preparing a code of ethics and plan to have it adopted before the close of 2004. After it becomes available, we expect to either post the code of ethics on our website or attach it to a future report that we file or furnish with the SEC.



Item 11. Executive Compensation



The following
table shows, for the fiscal years ended December 31, 2003, 2002, and 2001, the compensation paid to or earned by our chief executive officer and our two other most highly compensated executive officers, as of December 31, 2003.



|                                                                                                                        |  |            |                       |           |       |    |                 |                    |  |     |                   |          
|----------------------------------------------------------------------------------------------------------------------- |  | ---------- | --------------------- | --------- | ----- | -- | --------------- | ------------------ |  | --- | ----------------- | ---------
|Name and Principal Position                                                                                             |  | Salary (1) |                       |           | Bonus |    |                 | Other Compensation | 
|Philippe Porcher Chairman of the Board, Chief Executive Officer and Director and Former Vice Chairman 2003: 2002: 2001: |  | $$$        | 120,000120,000120,000 | (2)(2)(2) |       |    |              |                    |  |     |                |          
|                                                                                                                        |  |            |                      
|James R. Henderson President and Former Executive Vice President Sales and Merchandising 2003: 2002: 2001:              |  | $$$        | 238,027200,931166,324 |           |       | $$ | 119,600114,000 | (6)(5)             |  | $$$ | 15,2845,22112,292 | (4)(4)(4)
|                                                                                                                        |  |            |                      
|Philippe R. Dorier Senior Vice President, Chief Financial Officer, Secretary and Treasurer 2003: 2002: 2001:            |  | $$$        | 179,004172,116167,100 |           |       | $$ | 96,600110,000  | (6)(5)             |  | $$$ | 9,3446,67413,475  | (3)(3)(3)

---

|(1) | Includes the following amounts deferred at the election of the following executive officers pursuant to BGFs 401(k) plan in 2003, 2002 and 2001, respectively: Mr. Dorier
$9,148, $11,000, and $10,500; Mr. Henderson $11,144, $9,096 and $10,481.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

|(3) | Represents gross annual profit sharing distributions of $0, $0 and $6,427 in 2003, 2002 and 2001, respectively, and $9,344, $6,674 and $7,048 in 2003, 2002 and 2001, respectively,
of personal use of a company car.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Represents gross annual profit sharing distributions of $0, $0 and $6,336 in 2003, 2002 and 2001, respectively, and $15,284, $5,221 and $5,956 in 2003, 2002 and 2001, respectively,
for personal use of a company car.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Represents a bonus for 2002 paid in 2003, 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Represents a bonus for 2003 paid in 2004, 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



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Normal retirement benefits are determined by reference to an employees accumulated contributions.
Accumulated contributions are the sum of all required employee contributions 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 1.5% 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. Henderson-$66,800 and Mr. Dorier $29,600. These calculations are based on 2003 compensation, assume benefits are payable as a straight-life
annuity, and assume that each individual will work until age 65. Mr. Philippe Porcher does 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 50% of their compensation as defined by the plan 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 director did not receive separate compensation for his services as a director in 2003.



Compensation Committee Interlocks and Insider Participation



Mr. Philippe Porcher, who serves as both an executive officer and as the sole member of
the board of directors of BGF, serves as the President of the Executive Board of Porcher Industries. Mr. Philippe Porcher also serves as an executive officer of Glass Holdings, AGY Holdings and BGF Services, Inc., all of which are affiliates of BGF.
He is the Chairman of the Board of Directors for Glass Holdings, AGY Holdings, BGF Services, and AGY.



Mr. Dorier serves as a member 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 and as a director of Glass Holdings, AGY Holdings, BGF Services and AGY.



These positions effectively create interlocks between BGF and Glass Holdings, AGY Holdings, BGF Services, and AGY. See also Item 13. Certain Relationships and Related Party Transactions.



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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 15%. 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



The following table sets forth the beneficial ownership of BGFs outstanding common stock as of December 31, 2003 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., Badinières, 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 Société Civile des Terres Froides. Mr. Robert Porchers address is c/o
Porcher Industries S.A., Badinières, 38300 Bourgoin-Jallieu, France.



29



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##### Table of Contents

Mr. Robert Porchers 56.05% interest includes a 0.7% interest of his son, Philippe Porcher, an executive officer of
BGF, in Société 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                                            |  | *                |  
|Philippe R. Dorier                                          |  |                 |  
|James R. Henderson                                          |  |                 |  
|All directors and executive officers as a group (5 persons) |  | 56.05            | %



BGF does not have any equity
compensation plans.



Item 13. Certain Relationships and Related Transactions



We are wholly owned by Porcher Industries through Glass Holdings, a U.S. holding company. Effective in 2004, our direct ownership will transfer to a new U.S. holding company, which is also owned 100% by Porcher Industries. We have ongoing
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 former
Chairman of the Board and Chief Executive Officer, beneficially owns a controlling interest in Porcher Industries and Mr. Philippe Porcher, our current Chairman of the Board and Chief Executive Officer also owns an 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, Philippe Porcher, one other Porcher Industries employee 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. Philippe Porcher and Dorier. In connection with these arrangements with BGF Services, we
incurred expenses of $0.6 million in 2003. 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 2003, we were not billed by the parent company for management expenses. These terms cannot be considered comparable to those that would be provided to a third party.



We purchase semi-finished and finished products from Porcher Industries. We purchased $1.8 million of these products in 2003. We sell
finished goods and occasionally unfinished goods directly to Porcher and its affiliates. In 2003, we billed Porcher Industries and its affiliates $0.5 million for these goods. Porcher Industries billed us for commissions for sales of its products in
Asia, Europe, and Australia of $0.1 million in 2003. We believe that prices and commissions paid or received by us for these transactions are comparable to those paid to third parties.



30



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##### Table of Contents

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 $0.01 million in fees for these services incurred in 2003. We believe that these fees are comparable to those that would be paid to third parties.



We have a loan due from Glass Holdings, which was entered into in 1998 in the amount of
$138.6 million. Additionally, we have a non-interest bearing loan payable to Glass Holdings from 1998 of $1.8 million, resulting in an original net loan balance of $136.8 million. Our loan to Glass Holdings is evidenced in part by promissory notes.
Cumulative principal repayments from Glass Holdings have totaled $38.8 million, of which 2003 payments of $10.6 million in principal are included. As a result of AGYs bankruptcy filing, and consequently the financial condition of AGY Holdings,
evaluations of the potential impairment of the loan from Glass Holdings to AGY Holdings and the similar loan from BGF to Glass Holdings were performed. Based on the then current tax positions of the three companies, the insolvency of AGY Holdings,
and our liquidity situation, it was determined that a reserve should be established against our loan to Glass Holdings in 2002. Accordingly, BGF recorded a reserve of $97.7 million during 2002 to properly reflect the estimated realizability of our
loan to Glass Holdings.



During the first quarter of 2003, the Companys
parent, Glass Holdings, received a tax refund related to the filing of the 2002 consolidated tax return. In March 2003, $15.6 million of this tax refund was remitted to BGF, of which $9.6 million was applied to the loan receivable from Glass
Holdings. The remaining balance of $6.0 million reduced the Companys income tax receivable. An additional $0.5 million from Glass Holdings was received during the first quarter of 2003 and was also applied against the loan receivable and
during the second quarter of 2003 an additional $0.5 million was received from Glass Holdings and applied against the loan receivable. The loan balance as of December 31, 2003 was $0.3 million.



In 2002, we borrowed $5.0 million from Glass Holdings under a loan agreement whereby the loan
matured in June, 2003. The principle amount was paid in full in June, 2003. The interest rate on the loan was 3.25%. We recorded interest expense of $0.1 million during 2003 related to this note. 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, AGY 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, that was to expire on December 31, 2008. As part of AGYs restructuring, the glass yarn operation at the South Hill facility will be closed effective August 2004 and the supply agreement with BGF will be terminated. As part of
the ownership restructuring, Porcher Industries (See Item 13, Certain Relationships and Related Transactions) will enter into a supply agreement with AGY in which BGF has an incentive but is under no obligation to purchase yarn from AGY.
We provide AGY with leased employees at this facility and administrative and technical support services. We billed AGY approximately $1.4 million pursuant to this agreement in 2003. We also purchased approximately $15.0 million of raw materials from
AGY in the twelve months ended December 31, 2003. We believe that each of these arrangements are on terms no more favorable than those that would be provided to third parties. While AGY is currently in Chapter 11 under the Bankruptcy Code, we do not
expect our operations to be significantly impacted.



See also Note 15 to the
consolidated financial statements filed as part of this Annual Report in Item 15.



31



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##### Table of Contents

Item 14. Principal Accountant Fees and Services



PricewaterhouseCoopers LLP has served as independent auditors of BGF since 1994 and is considered by our management to be well qualified. We have been advised by that firm that neither it nor any member thereof has any financial interest,
direct or indirect, in us or any of our subsidiaries in any capacity. The fees shown below are in thousands of dollars.



Audit Fees. We paid PricewaterhouseCoopers LLP $145 in audit fees for services rendered in the fiscal year ended December 31, 2003 as compared to $178 in audit
fees during the fiscal year ended December 31, 2002.



Audit-Related
Fees. We paid PricewaterhouseCoopers LLP $0 for audit-related services rendered in 2003 as compared to $15 in audit-related fees rendered in 2002. These audit-related services were for employee benefit plan audits.



Tax Fees. We paid PricewaterhouseCoopers LLP $124 for tax services rendered in 2003 as
compared to $148 in tax fees rendered in 2002. These tax services generally included tax return preparation, tax compliance, tax planning and tax advice.



32



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##### Table of Contents

PART IV



Item 15. 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 101⁄4% Senior Subordinated Notes Due
2009
|            | 
|4.2(1)      |  | Form of 101⁄4% Series A and Series B Senior Subordinated Notes due 2009 (included in Exhibit 4.1)                                                                                               
|            | 
|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)                                                                             
|            | 
|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                                                                                  
|            | 
|10.9(1)     |  | Note Purchase Agreement dated January 15, 1999 between BFG Industries, Inc., Inc. and the Initial Purchaser                                                                                   





33



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##### Table of Contents

|      |     |  |                                                                                                                                                                                                                                                                                                                                             
|----- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |    
|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                                                                                                                                                                                                 
|      |    
|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).
|      |    
|10.17 | (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).   
|      |    
|10.19 | (7) |  | $5 million intercompany note between Glass Holdings Corp. and BGF dated August 14, 2002.                                                                                                                                                                                                                                                    
|      |    
|10.20 | (7) |  | The CIT Group/Business Credit, Inc. Financing Agreement with BGF, dated February 14, 2003.                                                                                                                                                                                                                                                  
|      |    
|10.21 | (7) |  | Lease Agreement, dated November 26, 2002 by and between Davidson Industrial Properties, LLC and BGF Industries, Inc.                                                                                                                                                                                                                        
|      |    
|10.22 | (8) |  | Fourth Amendment and Forbearance Agreement, dated August 13, 2002 by and between BGF Industries, Inc. and Wachovia Bank                                                                                                                                                                                                                     
|      |    
|10.23 | (9) |  | Loan and Security Agreement by and among BGF Industries, Inc. as Borrower, The Lenders that are Signatories Hereto as the Lenders, and Wells Fargo Foothill, Inc. as the Arranger and
Administrative Agent Dated as of June 6, 2003                                                                                                         





34



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##### Table of Contents

|      |  |                                                                                                          
|----- |  | ---------------------------------------------------------------------------------------------------------
|      | 
|10.24 |  | Lease Agreement, dated October 27, 2003 by and between Schwarz and Schwarz, Inc. and BGF Industries, Inc.
|      | 
|12    |  | Statement of Computation of Ratios                                                                       
|      | 
|31.1  |  | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act                   
|      | 
|31.2  |  | Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act                   
|      | 
|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.
|--- | ------------------------------------------------------------------------------------------------------

|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(7) | Filed as part of the Companys Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(8) | Filed as part of the Companys Form 10Q for the fiscal quarter ended June 30, 2002 and incorporated herein by reference
|--- | -----------------------------------------------------------------------------------------------------------------------

|(9) | Filed as part of the Companys Form 10Q for the fiscal quarter ended June 30, 2003 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K - None



35



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE



|                                                                                                                           |  |         
|-------------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                                           | 
|                                                                                                                           |  | Page No.
|                                                                                                                           | 
|FINANCIAL STATEMENTS                                                                                                       |  |         
|                                                                                                                           | 
|Report of Independent Auditors                                                                                             |  | F-2     
|                                                                                                                           | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                               |  | F-3     
|                                                                                                                           | 
|Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2003, 2002 and 2001 |  | F-4     
|                                                                                                                           | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001                                 |  | F-5     
|                                                                                                                           | 
|Consolidated Statements of Stockholders Equity (Deficit) for the years ended December 31, 2003, 2002 and 2001             |  | F-6     
|                                                                                                                           | 
|Notes to Consolidated Financial Statements                                                                                 |  | F-7     
|                                                                                                                           | 
|FINANCIAL STATEMENT SCHEDULE                                                                                               |  |         
|                                                                                                                           | 
|Valuation and Qualifying Accounts                                                                                          |  | S-1     



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



To the Board of
Directors

of BGF Industries, Inc.:



In our opinion, the consolidated financial statements listed in the index appearing under Item 15(1) on page 33 present fairly, in all material respects, the financial
position of BGF Industries, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, 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 15(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 6 to the consolidated financial statements, the Company adopted the
provisions of the Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets on January 1, 2002.



/S/ PRICEWATERHOUSECOOPERS LLP

Greensboro, North Carolina

March 5, 2004



F-2



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)



|                                                                                                           |  |                   |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                           |  | December 31, 2003 |         |   | December 31, 2002 |  
|ASSETS                                                                                                     |  |                   |         |   |                   |   |         |  
|                                                                                                           |  |                  
|Current assets:                                                                                            |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                  |  | $                 | 3,964   |   |                   | $ | 1,171   |  
|Trade accounts receivable, less allowance for returns and doubtful accounts of $344 and $316, respectively |  |                   | 13,415  |   |                   |   | 10,197  |  
|Inventories                                                                                                |  |                   | 22,139  |   |                   |   | 22,635  |  
|Other current assets                                                                                       |  |                   | 4,671   |   |                   |   | 10,824  |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total current assets                                                                                       |  |                   | 44,189  |   |                   |   | 44,827  |  
|Net property, plant and equipment                                                                          |  |                   | 43,863  |   |                   |   | 47,943  |  
|Other noncurrent assets, net                                                                               |  |                   | 4,453   |   |                   |   | 2,741   |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total assets                                                                                               |  | $                 | 92,505  |   |                   | $ | 95,511  |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                             |  |                   |         |   |                   |   |         |  
|                                                                                                           |  |                  
|Current liabilities:                                                                                       |  |                   |         |   |                   |   |         |  
|Accounts payable                                                                                           |  | $                 | 5,244   |   |                   | $ | 4,389   |  
|Accrued liabilities                                                                                        |  |                   | 14,004  |   |                   |   | 12,318  |  
|Current portion of capital lease obligation                                                                |  |                   | 330     |   |                   |   | 329     |  
|Current portion of long-term debt, net of discount of $1,217 in 2002                                       |  |                   | 1,200   |   |                   |   | 111,356 |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total current liabilities                                                                                  |  |                   | 20,778  |   |                   |   | 128,392 |  
|Long-term debt, net of discount of $973                                                                    |  |                   | 98,968  |   |                   |   |        |  
|Capital lease obligation                                                                                   |  |                   | 1,837   |   |                   |   | 2,163   |  
|Deferred income taxes                                                                                      |  |                   | 3,177   |   |                   |   | 3,206   |  
|Postretirement benefit and pension obligations                                                             |  |                   | 5,287   |   |                   |   | 7,865   |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total liabilities                                                                                          |  |                   | 130,047 |   |                   |   | 141,626 |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Commitments and contingencies (Note 14)                                                                    |  |                   |         |   |                   |   |         |  
|                                                                                                           |  |                  
|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  |  
|Accumulated deficit                                                                                        |  |                   | (71,628 | ) |                   |   | (68,592 | )
|Accumulated other comprehensive loss                                                                       |  |                   | (570    | ) |                   |   | (1,555  | )
|Loan to parent                                                                                             |  |                   | (344    | ) |                   |   | (10,968 | )
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total stockholders deficit                                                                                |  |                   | (37,542 | ) |                   |   | (46,115 | )
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total liabilities and stockholders equity (deficit)                                                       |  | $                 | 92,505  |   |                   | $ | 95,511  |  
|                                                                                                           |  |                   |         |   |                   |   |         |  



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



F-3



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)



|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                 |  | For the Year Ended December 31, |        
|                                                                                 |  | 2003                            |         |   | 2002 |   |          | 2001 | 
|Net sales                                                                        |  | $                               | 125,097 |   |      | $ | 130,862  |      |  | $ | 146,842 |  
|Cost of goods sold                                                               |  |                                 | 107,459 |   |      |   | 128,418  |      |  |   | 131,639 |  
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|Gross profit                                                                     |  |                                 | 17,638  |   |      |   | 2,444    |      |  |   | 15,203  |  
|Selling, general and administrative expenses                                     |  |                                 | 8,469   |   |      |   | 13,765   |      |  |   | 7,071   |  
|Restructuring charge                                                             |  |                                 |        |   |      |   | 250      |      |  |   | 502     |  
|Asset impairment charge                                                          |  |                                 |        |   |      |   | 5,816    |      |  |   |        |  
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|Operating income (loss)                                                          |  |                                 | 9,169   |   |      |   | (17,387  | )    |  |   | 7,630   |  
|Interest expense                                                                 |  |                                 | 13,412  |   |      |   | 13,926   |      |  |   | 13,972  |  
|Other (income) loss, net                                                         |  |                                 | (1,207  | ) |      |   | 97,699   |      |  |   | (1,396  | )
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|Loss before income taxes and cumulative effect of change in accounting principle |  |                                 | (3,036  | ) |      |   | (129,012 | )    |  |   | (4,946  | )
|                                                                                 |  |                                 |        
|Income tax expense (benefit)                                                     |  |                                 |        |   |      |   | 6,835    |      |  |   | (1,868  | )
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|Loss before cumulative effect of change in accounting principle                  |  |                                 | (3,036  | ) |      |   | (135,847 | )    |  |   | (3,078  | )
|Cumulative effect of change in accounting principle                              |  |                                 |        |   |      |   | (4,726   | )    |  |   |        |  
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|Net loss                                                                         |  | $                               | (3,036  | ) |      | $ | (140,573 | )    |  | $ | (3,078  | )
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|Other comprehensive loss net of tax:                                             |  |                                 |         |   |      |   |          |      |  |   |         |  
|Minimum pension liability adjustment                                             |  |                                 | 907     |   |      |   | (1,476   | )    |  |   |        |  
|Cumulative effect of change in accounting principle                              |  |                                 |         |   |      |   |         |      |  |   | 183     |  
|Change in fair value of cash flow hedge                                          |  |                                 |         |   |      |   | 106      |      |  |   | (525    | )
|Reclassification to earnings                                                     |  |                                 | 78      |   |      |   | 157      |      |  |   |        |  
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  
|Total comprehensive loss                                                         |  | $                               | (2,051  | ) |      | $ | (141,786 | )    |  | $ | (3,420  | )
|                                                                                 |  |                                 |         |   |      |   |          |      |  |   |         |  



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



F-4



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)



|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                        |  | For the Year Ended December 31, |        
|                                                                                        |  | 2003                            |         |   | 2002 |   |          | 2001 | 
|Cash flows from operating activities:                                                   |  |                                 |         |   |      |   |          |      |  |   |         |  
|Net income (loss)                                                                       |  | $                               | (3,036  | ) |      | $ | (140,573 | )    |  | $ | (3,078  | )
|Adjustment to reconcile net income (loss) to net cash provided by operating activities: |  |                                 |         |   |      |   |          |      |  |   |         |  
|Depreciation                                                                            |  |                                 | 6,039   |   |      |   | 8,240    |      |  |   | 8,563   |  
|Amortization of noncurrent assets                                                       |  |                                 | 1,204   |   |      |   | 1,458    |      |  |   | 1,529   |  
|Amortization of discount on notes                                                       |  |                                 | 197     |   |      |   | 200      |      |  |   | 200     |  
|Write-off of debt issuance costs                                                        |  |                                 | 1,152   |   |      |   |         |      |  |   |        |  
|Goodwill impairment                                                                     |  |                                 |        |   |      |   | 4,726    |      |  |   |        |  
|Restructuring charge                                                                    |  |                                 |        |   |      |   | 368      |      |  |   | 467     |  
|Asset impairment charge                                                                 |  |                                 |        |   |      |   | 5,816    |      |  |   |        |  
|Reserve on loan to parent                                                               |  |                                 |        |   |      |   | 97,711   |      |  |   |        |  
|(Gain) Loss on disposal of equipment                                                    |  |                                 | (19     | ) |      |   | 49       |      |  |   | 426     |  
|Gain on debt cancellation                                                               |  |                                 | (1,178  | ) |      |   |         |      |  |   |        |  
|Deferred income taxes                                                                   |  |                                 |        |   |      |   | 12,010   |      |  |   | (5,767  | )
|Postretirement benefit and pension obligations                                          |  |                                 | 1,640   |   |      |   | 973      |      |  |   | 732     |  
|Change in current assets and liabilities:                                               |  |                                 |         |   |      |   |          |      |  |   |         |  
|Trade accounts receivable, net                                                          |  |                                 | (3,218  | ) |      |   | 2,130    |      |  |   | 15,999  |  
|Other current assets                                                                    |  |                                 | 133     |   |      |   | (823     | )    |  |   | (590    | )
|Inventories                                                                             |  |                                 | 496     |   |      |   | 16,402   |      |  |   | (2,292  | )
|Current income tax refundable                                                           |  |                                 | 5,991   |   |      |   | (5,578   | )    |  |   |        |  
|Other assets                                                                            |  |                                 | (46     | ) |      |   | (226     | )    |  |   | 9       |  
|Accounts payable                                                                        |  |                                 | 872     |   |      |   | 1,802    |      |  |   | (8,061  | )
|Accrued liabilities                                                                     |  |                                 | (1,546  | ) |      |   | 4,934    |      |  |   | (7,073  | )
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Net cash provided by operating activities                                               |  |                                 | 8,681   |   |      |   | 9,619    |      |  |   | 1,064   |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Cash flows from investing activities:                                                   |  |                                 |         |   |      |   |          |      |  |   |         |  
|Purchases of property, plant and equipment                                              |  |                                 | (1,985  | ) |      |   | (1,681   | )    |  |   | (15,739 | )
|Proceeds from sale of equipment                                                         |  |                                 | 29      |   |      |   | 587      |      |  |   | 82      |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Net cash used in investing activities                                                   |  |                                 | (1,956  | ) |      |   | (1,094   | )    |  |   | (15,657 | )
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Cash flows from financing activities:                                                   |  |                                 |         |   |      |   |          |      |  |   |         |  
|Book overdraft                                                                          |  |                                 |        |   |      |   | (2,528   | )    |  |   | (3,124  | )
|Payments on term loan                                                                   |  |                                 | (609    | ) |      |   |         |      |  |   | (19,200 | )
|Proceeds from revolving credit facility                                                 |  |                                 | 10,000  |   |      |   | 38,700   |      |  |   | 74,000  |  
|Payments on revolving credit facility                                                   |  |                                 | (17,573 | ) |      |   | (58,127  | )    |  |   | (47,000 | )
|Proceeds from term loan                                                                 |  |                                 | 6,000   |   |      |   |         |      |  |   |        |  
|Payment received on loan to parent                                                      |  |                                 | 10,624  |   |      |   | 7,700    |      |  |   | 9,931   |  
|Proceeds from capital lease obligation                                                  |  |                                 |        |   |      |   | 2,550    |      |  |   |        |  
|Purchases of Senior Subordinated Notes                                                  |  |                                 | (3,025  | ) |      |   |         |      |  |   |        |  
|Payment of forbearance exit fee                                                         |  |                                 |        |   |      |   | (250     | )    |  |   |        |  
|Proceeds from loan from parent                                                          |  |                                 |        |   |      |   | 5,000    |      |  |   |        |  
|Payments on loan to parent                                                              |  |                                 | (5,000  | ) |      |   |         |      |  |   |        |  
|Payments on capital lease obligation                                                    |  |                                 | (325    | ) |      |   | (58      | )    |  |   |        |  
|Payment to terminate interest rate swap                                                 |  |                                 |        |   |      |   | (363     | )    |  |   |        |  
|Debt issuance costs                                                                     |  |                                 | (4,024  | ) |      |   |         |      |  |   |        |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Net cash provided by (used in) financing activities                                     |  |                                 | (3,932  | ) |      |   | (7,376   | )    |  |   | 14,607  |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Net increase in cash and cash equivalents                                               |  |                                 | 2,793   |   |      |   | 1,149    |      |  |   | 14      |  
|Cash and cash equivalents at beginning of period                                        |  |                                 | 1,171   |   |      |   | 22       |      |  |   | 8       |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Cash and cash equivalent at end of period                                               |  | $                               | 3,964   |   |      | $ | 1,171    |      |  | $ | 22      |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Supplemental disclosures of cash flow information:                                      |  |                                 |         |   |      |   |          |      |  |   |         |  
|Cash paid during the year for interest                                                  |  | $                               | 11,321  |   |      | $ | 12,297   |      |  | $ | 12,607  |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Cash received for income taxes                                                          |  | $                               | 5,990   |   |      | $ | 691      |      |  | $ | 393     |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Supplemental disclosure of non-cash investing and financing activities                  |  |                                 |         |   |      |   |          |      |  |   |         |  
|Property and equipment financed in accounts payable                                     |  | $                               | 199     |   |      | $ | 216      |      |  | $ | 1,417   |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  
|Decrease in fair market value of interest rate swap                                     |  | $                               |        |   |      | $ | 106      |      |  | $ | 342     |  
|                                                                                        |  |                                 |         |   |      |   |          |      |  |   |         |  



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



F-5



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(dollars in thousands)



|                                   |  |              |   |                 |   |                     |  |   |                |   |  |                                   |          |   |                                     |   |        |   |  |   |          |  
|---------------------------------- |  | ------------ | - | --------------- | - | ------------------- |  | - | -------------- | - |  | --------------------------------- | -------- | - | ----------------------------------- | - | ------ | - |  | - | -------- | -
|                                   |  | Common Stock |   | Paid-In Capital |   | Accumulated Deficit |  |   | Loan to Parent |   |  | AccumulatedOtherComprehensiveLoss |          |   | Total Stockholders Equity(Deficit) |  
|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 |  |              |  |                 |   |                    |  |   |               |   |  |                                   | 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   | )
|Net income (loss)                  |  |              |  |                 |   |                    |  |   | (140,573       | ) |  |                                   |         |   |                                     |   |       |   |  |   | (140,573 | )
|Payment received on loan to parent |  |              |  |                 |   |                    |  |   |               |   |  |                                   | 7,700    |   |                                     |   |       |   |  |   | 7,700    |  
|Reserve on loan to parent          |  |              |  |                 |   |                    |  |   |               |   |  |                                   | 97,711   |   |                                     |   |       |   |  |   | 97,711   |  
|Change in other comprehensive loss |  |              |  |                 |   |                    |  |   |               |   |  |                                   |         |   |                                     |   | (1,213 | ) |  |   | (1,213   | )
|                                   |  |              |   |                 |   |                     |  |   |                |   |  |                                   |          |   |                                     |   |        |   |  |   |          |  
|Balance, December 31, 2002         |  | $            | 1 |                 | $ | 34,999              |  | $ | (68,592        | ) |  | $                                 | (10,968  | ) |                                     | $ | (1,555 | ) |  | $ | (46,115  | )
|Net income (loss)                  |  |              |  |                 |   |                    |  |   | (3,036         | ) |  |                                   |         |   |                                     |   |       |   |  |   | (3,036   | )
|Payment received on loan to parent |  |              |  |                 |   |                    |  |   |               |   |  |                                   | 10,624   |   |                                     |   |       |   |  |   | 10,624   |  
|Change in other comprehensive loss |  |              |  |                 |   |                    |  |   |               |   |  |                                   |         |   |                                     |   | 985    |   |  |   | 985      |  
|                                   |  |              |   |                 |   |                     |  |   |                |   |  |                                   |          |   |                                     |   |        |   |  |   |          |  
|Balance December 31, 2003          |  | $            | 1 |                 | $ | 34,999              |  | $ | (71,628        | ) |  | $                                 | (344     | ) |                                     | $ | (570   | ) |  | $ | (37,542  | )
|                                   |  |              |   |                 |   |                     |  |   |                |   |  |                                   |          |   |                                     |   |        |   |  |   |          |  



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



F-6



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)



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 or the Company). 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. Leased property meeting certain criteria is
capitalized and the present value of the related lease payments is recorded as a liability. Amortization of capitalized leased assets is computed on the straight-line method. 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 and improvements |  | 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.In accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), BGF ceased
amortizing goodwill on January 1, 2002. Prior to this date, BGF amortized goodwill over 40 years, using the straight-line method.



Other Noncurrent Assets. Debt issuance costs are amortized over the terms of the respective debt agreements using the interest method. BGF evaluates intangible
assets for impairment annually (and in interim periods if certain events occur indicating that the carrying value is impaired) through a comparison of fair value to carrying value.



F-7



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##### Table of Contents

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 delivery.



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. 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. There are no interest rate swaps as of December 31, 2003.



BGF enters into foreign currency exchange contracts to manage exposures related to specific foreign currency transactions or anticipated cash flows. There are no foreign currency exchange contracts as of December 31,
2003.



Rates currently available to BGF for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. The fair value of BGFs long-term debt is further discussed in Note 8.



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 $627, $673 and $854 for the years ended December 31, 2003, 2002 and 2001, 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 2003, 2002, and 2001.



Foreign Currency Transactions. Gains (losses) resulting from foreign currency transactions are included in other income or other expenses, and amounted to $6, $3
and $65 in 2003, 2002, and 2001, 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, 2003, 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



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##### Table of Contents

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.



2. Liquidity
and Financial Condition



During the year ended December 31, 2003, the
Company continued to operate under its restructured business plan, which was implemented during 2002. The Companys South Hill heavyweight fabrics facility has remained closed to reduce excess capacity and the Company has maintained its cost
cutting initiatives. Industry and economic conditions have had an adverse effect on the Companys operations beginning in 2001. The Company incurred net losses of approximately $3,036 for the year ended December 31, 2003 and had a $37,542
stockholders deficit as of December 31, 2003.



On June 6, 2003, the
Company entered into a five year financing arrangement with Wells Fargo Foothill, Inc. (WFF). This arrangement (the WFF Loan) provides for a maximum revolver credit line of $40,000 with a letter of credit (L/C)
sub-line of $4,000, an inventory sub-line of $15,000 and a term loan sub-line of $6,000 of which the principal is amortized over 60 months. (See Note 8).



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



As discussed further in Note 15, an affiliate and major supplier of the Company, Advanced
Glassfiber Yarns LLC (AGY) filed for bankruptcy under Chapter 11 of the US Bankruptcy Code in December 2002. This could result in the risk that obtaining raw materials from sources other than AGY would be more costly and could be
disruptive to the Companys business. There has been no impact on the Companys operations during 2003 and the Company currently believes a contingency plan to secure alternative supplies of raw materials is not necessary.



3. Inventories



Inventories consist of the following:



|                  |  |                   |        |                   |   |       
|----------------- |  | ----------------- | ------ | ----------------- | - | ------
|                  |  | December 31, 2003 |        | December 31, 2002
|Supplies          |  | $                 | 1,502  |                   | $ | 1,460 
|Raw materials     |  |                   | 1,546  |                   |   | 1,285 
|Stock-in-process  |  |                   | 3,561  |                   |   | 3,729 
|Finished goods    |  |                   | 15,530 |                   |   | 16,161
|                  |  |                   |        |                   |   |       
|Total inventories |  | $                 | 22,139 |                   | $ | 22,635
|                  |  |                   |        |                   |   |       



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



4. Other Current Assets



Other current assets consist of the following:



|                           |  |                   |       |                   |   |       
|-------------------------- |  | ----------------- | ----- | ----------------- | - | ------
|                           |  | December 31, 2003 |       | December 31, 2002
|Deferred income taxes      |  | $                 | 3,177 |                   | $ | 3,206 
|Income tax refundable      |  |                   | 428   |                   |   | 6,419 
|Security deposits          |  |                   | 764   |                   |   | 880   
|Other                      |  |                   | 302   |                   |   | 319   
|                           |  |                   |       |                   |   |       
|Total other current assets |  | $                 | 4,671 |                   | $ | 10,824
|                           |  |                   |       |                   |   |       



5. Net Property Plant and Equipment



Net property, plant and equipment consist of the following:



|                                    |  |                   |         |   |                   |   |         |  
|----------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                    |  | December 31, 2003 |         |   | December 31, 2002 |  
|Land                                |  | $                 | 3,155   |   |                   | $ | 3,155   |  
|Buildings                           |  |                   | 42,239  |   |                   |   | 42,214  |  
|Machinery and equipment             |  |                   | 82,314  |   |                   |   | 80,803  |  
|                                    |  |                   |         |   |                   |   |         |  
|Gross property, plant and equipment |  |                   | 127,708 |   |                   |   | 126,172 |  
|Less: accumulated depreciation      |  |                   | (83,845 | ) |                   |   | (78,229 | )
|                                    |  |                   |         |   |                   |   |         |  
|Net property, plant and equipment   |  | $                 | 43,863  |   |                   | $ | 47,943  |  
|                                    |  |                   |         |   |                   |   |         |  



In December 2002, the Company entered
into a sale and leaseback agreement for its corporate headquarters facility. Capitalized leased assets under the terms of this agreement as of December 31, 2003 consist of land of $850, buildings of $2,405 and accumulated amortization of $791.
Capitalized leased assets under the terms of this agreement as of December 31, 2002 consist of land of $850, buildings of $2,405 and accumulated amortization of $692.



The Companys loss condition in the second quarter of 2002 required it to perform an analysis of long-lived assets to determine whether
or not an impairment had occurred, which would require accounting recognition in accordance with generally accepted accounting principles. Accordingly, the Company undertook an analysis of its long-lived assets that it uses in its manufacturing
operations at each of its plants and compared the net book value of those assets to the estimated undiscounted future cash flows associated with each of the applicable asset groups. As a result, the Company determined that an impairment of machinery
and equipment used in its South Hill heavyweight fabrics manufacturing facility had occurred and recorded a $4,802 write-down to reduce the carrying value of machinery and equipment to its estimated fair value based on prices for similar assets.
This charge is recorded as an asset impairment charge on the accompanying consolidated statement of operations. In 2002, the Company closed its South Hill heavyweight fabrics facility as part of its restructuring plan. The net book value of the
assets at this facility was $2,459 and $3,266 as of December 31, 2003 and December 31, 2002, respectively. At this time, there are no plans to reopen the facility and no decision has been made to sell the facility.



During the second quarter of 2002, the Company committed to sell certain manufacturing
equipment to an affiliate. The Company recorded a $1,014 write-down in the second quarter of 2002 to reduce the carrying value of these assets to their fair value of $551 as determined by a third party appraisal. The sale was finalized in August
2002. The charge of $1,014 associated with this write-down is included in asset impairment charges in the accompanying consolidated statement of operations. The $1,014 charge associated with the sale of this equipment is based upon the difference
between the net book value of the equipment of $1,565 and the selling price of $551.



F-10



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



6. Other Noncurrent Assets, net



Other noncurrent assets consist of the following:



|                                        |  |                   |        |   |                   |   |        |  
|--------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ------ | -
|                                        |  | December 31, 2003 |        |   | December 31, 2002 |  
|Debt issuance costs                     |  | $                 | 6,014  |   |                   | $ | 4,102  |  
|Prepaid lease costs                     |  |                   | 82     |   |                   |   | 82     |  
|Accumulated amortization                |  |                   | (1,999 | ) |                   |   | (1,756 | )
|                                        |  |                   |        |   |                   |   |        |  
|                                        |  |                   | 4,097  |   |                   |   | 2,428  |  
|                                        |  |                  
|Unrecognized pension prior service cost |  |                   | 19     |   |                   |   | 25     |  
|Other noncurrent assets                 |  |                   | 337    |   |                   |   | 288    |  
|                                        |  |                   |        |   |                   |   |        |  
|Total other noncurrent assets, net      |  | $                 | 4,453  |   |                   | $ | 2,741  |  
|                                        |  |                   |        |   |                   |   |        |  



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



Amortization of deferred financing charges of $1,204, $1,458 and $1,348 for the years ended December 31, 2003, 2002, and 2001, respectively, has been included in interest expense.



In 2002, BGF wrote off $314 of net debt issuance costs related to the senior credit facility
due to the Companys reduction in borrowing base under the forbearance agreement, dated August 13, 2002. 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.



In connection with the forbearance agreement entered into in 2002, the Company incurred $313 of deferred financing fees. These fees were written off to interest expense in 2003 after the forbearance agreement was
terminated.



In connection with obtaining new financing in 2003, the Company
incurred $1,215 of debt issuance costs related to a short term financing arrangement with CIT Business Credit (CIT). These costs were written off to interest expense in the second quarter 2003 due to the termination of the CIT Facility,
as discussed in Note 8. In connection with efforts to pursue long-term financing, the Company incurred $2,809 of debt issuance costs during 2003. $2,565 of these costs relate to the long-term financing obtained from WFF and are amortized over the
life of the five year WFF Loan. $244 of these costs related to long term financing that was not obtained and were written off to interest expense in the nine months ended September 30, 2003.



The Company adopted the provisions of Statement of Financial Accounting Standard
(SFAS) No. 142 effective January 1, 2002. In accordance with SFAS No. 142, the Company completed its transitional goodwill impairment test in the second quarter of 2002. In performing this test, the Company estimated the fair value of
its business on a discounted cash flow basis. Based on this analysis, the Company determined that recorded goodwill exceeded its implied fair value and an impairment charge was recorded. Accordingly, the Company recorded a noncash charge of $4,726,
which is recognized as the cumulative effect of a change in accounting principle in the Consolidated Statement of Operations in 2002. There was no income tax benefit recognized for this charge. Net income for the twelve months ended December 31,
2001 and 2000, exclusive of amortization of goodwill, was $(2,897) and $8,511, respectively.



F-11



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



7. Accrued Liabilities



|                                              |  |                   |        |                   |   |       
|--------------------------------------------- |  | ----------------- | ------ | ----------------- | - | ------
|                                              |  | December 31, 2003 |        | December 31, 2002
|Accrued liabilities consist of the following: |  |                   |        |                   |   |       
|Interest                                      |  | $                 | 4,497  |                   | $ | 4,764 
|Current contribution to retirement plan       |  |                   | 3,304  |                   |   | 846   
|Environmental                                 |  |                   | 2,736  |                   |   | 2,772 
|Payroll                                       |  |                   | 275    |                   |   | 146   
|Other employee benefits                       |  |                   | 971    |                   |   | 1,137 
|Restructuring                                 |  |                   | 16     |                   |   | 99    
|Medical benefits                              |  |                   | 667    |                   |   | 650   
|Other                                         |  |                   | 1,538  |                   |   | 1,904 
|                                              |  |                   |        |                   |   |       
|Total accrued liabilities                     |  | $                 | 14,004 |                   | $ | 12,318
|                                              |  |                   |        |                   |   |       



Current contribution to retirement
plan. Employer contributions to the retirement plan are $3,304 for 2003 to be paid in 2004 and $846 for 2002 was paid in 2003.



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



Other employee benefits.In 2003, the Company approved a management bonus of $920 to be paid in 2004. This bonus was paid in the
first quarter of 2004. In 2002, the Company approved a management bonus of $1,050 to be paid in 2003 when liquidity permitted. This bonus was paid in the second quarter of 2003.



Restructuring. In August 2002, the Company announced the closure of its South Hill heavyweight fabrics facility, which became
effective on October 1, 2002. This resulted in a reduction of the Companys salary and wage workforce by approximately 10%. Charges of $327 related to severance payments to these employees were accrued during the third quarter of 2002. Cash
payments applied against the restructuring reserve in 2003, 2002 and 2001 were approximately $83, $228 and $35, respectively.



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



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



As of December 31, 2003 and 2002, the Company had a reserve of $2.7 million for environmental
exposure, which reflects the estimated remediation costs for the Altavista facility, as obtained from the environmental consulting firm that has conducted the site assessment and submitted the SCR to EPA. Remediation costs are estimates, subject to
EPAs approval of the SCR and of a remediation plan. Estimated remediation costs at the Cheraw facility are $0.4 million, which also is reflected in the reserve.



F-12



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



7. Accrued Liabilities  (Continued)



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



8. Debt



Debt consists of the following:



|                                                                                        |  |                  |         |                  |   |        
|--------------------------------------------------------------------------------------- |  | ---------------- | ------- | ---------------- | - | -------
|                                                                                        |  | December 31,2003 |         | December 31,2002
|Term loan                                                                               |  | $                | 5,391   |                  | $ |       
|Senior Credit Facility:                                                                 |  |                  |         |                  |   |        
|Revolving Credit Facility                                                               |  |                  |        |                  |   | 7,573  
|Senior Subordinated Notes, net of unamortized discount of $973 and $1,217, respectively |  |                  | 94,777  |                  |   | 98,783 
|                                                                                        |  |                 
|Note payable to parent                                                                  |  |                  |        |                  |   | 5,000  
|                                                                                        |  |                  |         |                  |   |        
|Total debt                                                                              |  | $                | 100,168 |                  | $ | 111,356
|Current Maturities                                                                      |  |                  | 1,200   |                  |   | 111,356
|                                                                                        |  |                  |         |                  |   |        
|Long-term debt                                                                          |  | $                | 98,968  |                  | $ |       
|                                                                                        |  |                  |         |                  |   |        



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



On June 6, 2003, the Company obtained a
five-year financing arrangement with Wells Fargo Foothill, Inc. (WFF), formerly Foothill Capital Corporation. The loan with WFF (WFF Loan) is for a maximum revolver credit line of $40,000 with a letter of credit
(L/C) sub-line of $4,000, an inventory sub-line of $15,000 and a term loan sub-line of $6,000 of which the principal is amortized over 60 months. WFF has a first priority, perfected security interest in the Companys assets. The WFF
Loan provides for the following: (1) a borrowing base with advance rates on eligible accounts receivable and eligible finished goods and raw materials inventory of 85%, 45% and 35%, respectively, with inventory to be capped at the lesser of the
eligible inventory calculation, $15,000 or 80% of the net orderly liquidation value; (2) borrowing rates of LIBOR + 3.25% or the Wells Fargo Prime Rate (RR) + 1.00% for the revolver with a 50 basis points increase if outstanding advances exceed
$7,000 and of LIBOR + 3.5% or RR + 1.00% for the term loan with, at all times, a minimum rate of 5% for both facilities; (3) certain financial covenants including (i) a minimum excess availability at all times, (ii) a minimum EBITDA level in 2003
building to a trailing



F-13



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



8. Debt  (Continued)



12 month calculation in 2004 and (iii) a cap on yearly capital expenditures of $2,000 and;
(4) an early termination fee of 5% in year one decreasing by 1% each year thereafter. The WFF Loan proceeds are used to finance ongoing working capital, capital expenditures, and general corporate needs of the Company and retire other outstanding
debt. The WFF Loan is guaranteed by the Companys parent, Glass Holdings. As of December 31, 2003, amounts outstanding under the WFF Loan totaled $5,391 consisting only of the term loan, as no advances were outstanding under the revolver. The
interest rate on the WFF Loan at December 31, 2003 was 5.0%.



Availability
under the revolver at December 31, 2003 was $9,837. This availability has been reduced by a reserve to allow for the annual interest payments on the Senior Subordinated Notes as well as a reserve of $550 for potential environmental liabilities. The
reserve for interest payments is increased by $200 a week and is reset to $0 when such payment is made. As of December 31, 2003, the total outstanding reserves amounted to $5,350.



The Senior Subordinated Notes were classified as a current liability as of December 31, 2002 because payment of interest due in 2003 was
contingent upon the Companys ability to improve its liquidity in 2003. Due to the long term financing arrangement obtained in June 2003, the Senior Subordinated Notes are classified as a long term liability as of December 31, 2003. The Senior
Subordinated Notes bear interest at a rate of 10.25% which is payable semi-annually in January and July through the maturity date of January 15, 2009. The original amount of the Senior Subordinated Notes issued was $100,000.



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



The fair value of the Senior Subordinated Notes as of December 31, 2003 was approximately
$71,812.



On August 13, 2002, the Company received $5,000 from Glass Holdings
under a loan agreement whereby the loan was payable on demand at anytime after June 30, 2003. Interest on the loan was 3.25%. The Company repaid the loan in 2003. Interest expense on the loan during 2003 and 2002 was $73 and $64,
respectively.



F-14



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



9. Capital lease obligation



In December 2002, the Company entered into a sale and leaseback agreement for its corporate
headquarters facility located in Greensboro, North Carolina. The transaction was accounted for as a financing. The term of the lease is seven years and the interest rate implicit in the lease is 3.0%. The net cash proceeds from this transaction were
$2,466. No gain or loss was recorded as a result of this transaction. Under the terms of the sale-leaseback agreement, BGF is committed to the following future minimum lease payments at December 31, 2003:



|                                        |  |   |      
|--------------------------------------- |  | - | -----
|2004                                    |  | $ | 412  
|2005                                    |  |   | 412  
|2006                                    |  |   | 412  
|2007                                    |  |   | 412  
|2008 and thereafter                     |  |   | 798  
|                                        |  |   |      
|Total minimum lease payments            |  |   | 2,446
|Less amount representing interest       |  |   | 279  
|                                        |  |   |      
|Total present value of minimum payments |  |   | 2,167
|Less current portion                    |  |   | 330  
|                                        |  |   |      
|Long-term capital lease obligation      |  | $ | 1,837
|                                        |  |   |      



10. Income Taxes



Income tax expense (benefit) consists of the following:



|        |  |         |        |   |          |   |        |       |  |   |        |  
|------- |  | ------- | ------ | - | -------- | - | ------ | ----- |  | - | ------ | -
|        |  | 2003    |       
|        |  | Current |        |   | Deferred |   |        | Total | 
|Federal |  | $       | 0      |   |          | $ | 0      |       |  | $ | 0      |  
|State   |  |         | 0      |   |          |   | 0      |       |  |   | 0      |  
|        |  |         |        |   |          |   |        |       |  |   |        |  
|        |  | $       | 0      |   |          | $ | 0      |       |  | $ | 0      |  
|        |  |         |        |   |          |   |        |       |  |   |        |  
|        | 
|        |  | 2002    |       
|        |  | Current |        |   | Deferred |   |        | Total | 
|Federal |  | $       | (4,566 | ) |          | $ | 10,725 |       |  | $ | 6,159  |  
|State   |  |         | (397   | ) |          |   | 1,073  |       |  |   | 676    |  
|        |  |         |        |   |          |   |        |       |  |   |        |  
|        |  | $       | (4,963 | ) |          | $ | 11,798 |       |  | $ | 6,835  |  
|        |  |         |        |   |          |   |        |       |  |   |        |  
|        | 
|        |  | 2001    |       
|        |  | Current |        |   | Deferred |   |        | Total | 
|Federal |  | $       | 3,335  |   |          | $ | (4,807 | )     |  | $ | (1,472 | )
|State   |  |         | 380    |   |          |   | (776   | )     |  |   | (396   | )
|        |  |         |        |   |          |   |        |       |  |   |        |  
|        |  | $       | 3,715  |   |          | $ | (5,583 | )     |  | $ | (1,868 | )
|        |  |         |        |   |          |   |        |       |  |   |        |  



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:



|                                           |  |       |    |  |       |    |  |      |   
|------------------------------------------ |  | ----- | -- |  | ----- | -- |  | ---- | --
|                                           |  | 2003  |    |  | 2002  |    |  | 2001 |   
|Federal statutory tax rate                 |  | 35.0  | %  |  | 35.0  | %  |  | 35.0 | % 
|State income taxes, net of federal benefit |  | 5.9   | %  |  | 3.4   | %  |  | 5.1  | % 
|Net operating loss carry forward           |  | 45.9  | %  |  |      |    |  |     |   
|Valuation allowance                        |  | (85.6 | )% |  | (42.2 | )% |  |     |   
|Goodwill impairment charge                 |  |      |    |  | (1.2  | )% |  |     |   
|Other                                      |  | (1.3  | )% |  | (0.3  | )% |  | (3.6 | )%
|                                           |  |       |    |  |       |    |  |      |   
|                                           |  | 0.0   | %  |  | (5.3  | )% |  | 36.5 | % 
|                                           |  |       |    |  |       |    |  |      |   



F-15



---

##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



10. 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, |        
|                                     |  | 2003         |         |   | 2002 |  
|Deferred tax assets:                 |  |              |         |   |      |   |         |  
|Loan to parent                       |  | $            | 53,377  |   |      | $ | 53,377  |  
|Inventories                          |  |              | 1,020   |   |      |   | 1,828   |  
|Accrued liabilities                  |  |              | 1,177   |   |      |   | 1,209   |  
|Accounts receivable                  |  |              | 253     |   |      |   | 306     |  
|Tax credits                          |  |              | 1,263   |   |      |   | 1,017   |  
|Retirement                           |  |              | 3,461   |   |      |   | 3,146   |  
|Net operating loss carry forward     |  |              | 3,118   |   |      |   |        |  
|                                     |  |              |         |   |      |   |         |  
|                                     |  |              | 63,669  |   |      |   | 60,883  |  
|Valuation allowance                  |  |              | (59,163 | ) |      |   | (56,477 | )
|                                     |  |              |         |   |      |   |         |  
|                                     |  |              | 4,506   |   |      |   | 4,406   |  
|                                     |  |              |         |   |      |   |         |  
|Deferred tax liabilities:            |  |              |         |   |      |   |         |  
|Depreciation                         |  |              | (4,506  | ) |      |   | (4,406  | )
|Other                                |  |              |        |   |      |   |        |  
|                                     |  |              |         |   |      |   |         |  
|Total gross deferred tax liabilities |  |              | (4,506  | ) |      |   | (4,406  | )
|                                     |  |              |         |   |      |   |         |  
|Net deferred tax asset               |  | $            |        |   |      | $ |        |  
|                                     |  |              |         |   |      |   |         |  



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.



Prior to the second quarter 2002, BGF recorded interest income earned under the terms of the loan agreement with Glass Holdings for tax purposes. BGF did not record this income for financial reporting purposes, which results in a deferred
tax asset. 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 AGY Holdings, which are currently restricted from
paying dividends and other distributions under their various debt instruments. During 2002, due to the poor operating performance and related liquidity constraints of BGF and AGY Holdings, BGF recorded a full valuation allowance against this and
other deferred tax assets of approximately $56,477 as it is more likely than not that their benefits will not be realized in the future. Additionally, no deferred tax assets were recognized in 2003.



11. 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. There were no Company contributions for 2003, 2002 and 2001.



F-16



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



11. Employee Benefits  (Continued)



Defined Benefit Pension Plan and Postretirement Benefits.BGF has a defined benefit
pension plan covering substantially all of its employees. Participating employees are required to contribute to the pension plan. Contributions to the pension plan in 2003 and 2002 amounted to $846 and $1,167, respectively. BGF made no contributions
to the pension plan for 2001.



The Company also has a postretirement benefit
plan that covers substantially all of its employees. Upon the completion of the attainment of age fifty-five and ten years of continuous service, an employee may elect to retire. Employees eligible to retire receive postretirement health benefits,
including medical and dental coverage.



The Company uses a December 31
measurement date for its plans.



Obligations and funded status:



|                                                                      |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|--------------------------------------------------------------------- |  | ---------------- | ------ | - | ----------------------- | - | ------ | -------- |  | - | -------- | - |  | - | ------ | -
|                                                                      |  | Pension Benefits |        |   | Post-RetirementBenefits |  
|                                                                      |  | 12/31/03         |        |   | 12/31/02                |   |        | 12/31/03 |  |   | 12/31/02 |  
|Change in projected benefit obligation                                |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Projected benefit obligation at beginning of year                     |  | $                | 16,030 |   |                         | $ | 18,663 |          |  | $ | 2,269    |   |  | $ | 1,927  |  
|Service cost                                                          |  |                  | 811    |   |                         |   | 846    |          |  |   | 72       |   |  |   | 78     |  
|Interest cost                                                         |  |                  | 1,060  |   |                         |   | 1,161  |          |  |   | 121      |   |  |   | 132    |  
|Actuarial (gain) loss                                                 |  |                  | 1,064  |   |                         |   | 58     |          |  |   | (200     | ) |  |   | 188    |  
|(Benefits paid)                                                       |  |                  | (757   | ) |                         |   | (8     | )        |  |   | (171     | ) |  |   | (169   | )
|Plan Participant Contributions                                        |  |                  | 714    |   |                         |   | 696    |          |  |   | 164      |   |  |   | 114    |  
|Settlement                                                            |  |                  | 0      |   |                         |   | (5,387 | )        |  |   | N/A      |   |  |   | N/A    |  
|Projected benefit obligation at end of year                           |  | $                | 18,922 |   |                         | $ | 16,029 |          |  |   | 2,255    |   |  |   | 2,270  |  
|Accrued benefit obligation at end of year                             |  | $                | 16,012 |   |                         | $ | 13,829 |          |  |   |          |   |  |   |        |  
|                                                                      |  |                  |        |  
|Change in plan assets                                                 |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Fair value of plan assets at beginning of year                        |  | $                | 8,308  |   |                         | $ | 13,514 |          |  | $ | 0        |   |  | $ | 0      |  
|Actual return on plan assets                                          |  |                  | 1,771  |   |                         |   | (1,057 | )        |  |   | 0        |   |  |   | 0      |  
|(Benefits paid)                                                       |  |                  | (757   | ) |                         |   | (8     | )        |  |   | (171     | ) |  |   | (169   | )
|Employer contributions                                                |  |                  | 846    |   |                         |   | 1,167  |          |  |   | 7        |   |  |   | 55     |  
|Plan participant contributions                                        |  |                  | 714    |   |                         |   | 696    |          |  |   | 164      |   |  |   | 114    |  
|Settlement                                                            |  |                  | 0      |   |                         |   | (6,004 | )        |  |   |         |   |  |   |       |  
|                                                                      |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Fair value of plan assets at end of year                              |  | $                | 10,882 |   |                         | $ | 8,308  |          |  | $ | 0        |   |  | $ | 0      |  
|                                                                      |  |                  |        |  
|Net amount recognized                                                 |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Funded status                                                         |  | $                | (8,039 | ) |                         | $ | (7,721 | )        |  | $ | (2,255   | ) |  | $ | (2,269 | )
|Unrecognized prior service cost                                       |  |                  | 19     |   |                         |   | 25     |          |  |   | 0        |   |  |   | 0      |  
|Unrecognized net (gain) or loss                                       |  |                  | 3,479  |   |                         |   | 3,677  |          |  |   | 453      |   |  |   | 656    |  
|                                                                      |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Net amount recognized                                                 |  | $                | (4,541 | ) |                         | $ | (4,019 | )        |  | $ | (1,802   | ) |  | $ | (1,613 | )
|                                                                      |  |                  |        |  
|Amount recognized in the statement of financial position consists of: |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Accrued benefit cost                                                  |  | $                | (5,129 | ) |                         | $ | (5,520 | )        |  | $ | (1,802   | ) |  |   | (1,613 | )
|Intangible asset                                                      |  |                  | 19     |   |                         |   | 25     |          |  |   | N/A      |   |  |   | N/A    |  
|Accumulated other comprehensive income                                |  |                  | 569    |   |                         |   | 1,476  |          |  |   | N/A      |   |  |   | N/A    |  
|                                                                      |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Net amount recognized                                                 |  | $                | (4,541 | ) |                         | $ | (4,019 | )        |  | $ | (1,802   | ) |  | $ | (1,613 | )



F-17



---

##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



11. Employee Benefits  (Continued)



|                                                                                      |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|------------------------------------------------------------------------------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------------------- | - |  | - | -------------------- | -
|Additional liability and accumulated other comprehensive income for pension benefits: |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Minimum liability                                                                     |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Fair value of assets at measurement date                                              |  | $ | 10,882 |   |  | $ | 8,308  |   |  |   |                     |   |  |   |                      |  
|Accumulated benefit obligation at measurement date                                    |  |   | 16,012 |   |  |   | 13,828 |   |  |   |                     |   |  |   |                      |  
|Required minimum liability                                                            |  |   | 5,129  |   |  |   | 5,520  |   |  |   |                     |   |  |   |                      |  
|Prepaid (accrued) at fiscal year end                                                  |  |   | (4,541 | ) |  |   | (4,019 | ) |  |   |                     |   |  |   |                      |  
|Additional liability at fiscal year end                                               |  |   | 588    |   |  |   | 1,501  |   |  |   |                     |   |  |   |                      |  
|                                                                                      |  |   |        |  
|Intangible asset                                                                      |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Unrecognized prior service cost                                                       |  | $ | 19     |   |  | $ | 25     |   |  |   |                     |   |  |   |                      |  
|Maximum intangible asset, but not less than 0                                         |  |   | 19     |   |  |   | 25     |   |  |   |                     |   |  |   |                      |  
|Actual intangible asset                                                               |  |   | 19     |   |  |   | 25     |   |  |   |                     |   |  |   |                      |  
|                                                                                      |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Accumulated other comprehensive income                                                |  | $ | 569    |   |  | $ | 1,476  |   |  |   |                     |   |  |   |                      |  
|                                                                                      |  |   |        |  
|Weighted average assumptions:                                                         |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Assumptions used to determine benefit obligations at end of fiscal year               |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Discount rate                                                                         |  |   | 6.25   | % |  |   | 6.75   | % |  |   | 6.25                | % |  |   | 6.75                 | %
|Expected long-term rate of return on plan assets                                      |  |   | 7.50   | % |  |   | 7.50   | % |  |   | N/A                 |   |  |   | N/A                  |  
|Rate of annual compensation increases                                                 |  |   | 4.00   | % |  |   | 4.00   | % |  |   | N/A                 |   |  |   | N/A                  |  
|Health care cost trend on covered charges                                             |  |   | N/A    |   |  |   | N/A    |   |  |   | 11.0%grading to5.0% |   |  |   | 9.0%grading to5.25%  |  
|                                                                                      |  |   |        |  
|Assumptions used to determine net periodic pension cost for fiscal year               |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Discount rate                                                                         |  |   | 6.75   | % |  |   | 7.25   | % |  |   | 6.75                | % |  |   | 7.25                 | %
|Expected long-term rate of return on plan assets                                      |  |   | 7.50   | % |  |   | 8.00   | % |  |   | N/A                 |   |  |   | N/A                  |  
|Rate of annual compensation increases                                                 |  |   | 4.00   | % |  |   | 4.00   | % |  |   | N/A                 |   |  |   | N/A                  |  
|Health care cost trend on covered charges                                             |  |   | N/A    |   |  |   | N/A    |   |  |   | 9.0%grading to5.25% |   |  |   | 10.0%grading to5.25% |  
|Net periodic pension cost                                                             |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Service cost                                                                          |  | $ | 811    |   |  | $ | 846    |   |  | $ | 72                  |   |  | $ | 78                   |  
|Interest cost                                                                         |  |   | 1,060  |   |  |   | 1,160  |   |  |   | 120                 |   |  |   | 131                  |  
|(Expected return on plan assets)                                                      |  |   | (645   | ) |  |   | (1,027 | ) |  |   | 0                   |   |  |   | 0                    |  
|Amortization of prior service cost                                                    |  |   | 7      |   |  |   | 7      |   |  |   | 0                   |   |  |   | 0                    |  
|Recognized net actuarial (gain) or loss                                               |  |   | 136    |   |  |   | 0      |   |  |   | 3                   |   |  |   | (15                  | )
|FAS 88 Charges / (Credits)                                                            |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Settlement                                                                            |  |   | 0      |   |  |   | 1,377  |   |  |   | N/A                 |   |  |   | N/A                  |  
|Curtailment                                                                           |  |   | 0      |   |  |   | 8      |   |  |   | N/A                 |   |  |   | N/A                  |  
|Total                                                                                 |  |   | 0      |   |  |   | 1,385  |   |  |   | N/A                 |   |  |   | N/A                  |  
|                                                                                      |  |   |        |   |  |   |        |   |  |   |                     |   |  |   |                      |  
|Total net periodic pension cost                                                       |  | $ | 1,369  |   |  | $ | 2,371  |   |  | $ | 195                 |   |  | $ | 225                  |  
|                                                                                      |  |   |        |  
|Increase (decrease) in minimum liability included in other comprehensive income       |  | $ | (907   | ) |  | $ | 1,476  |   |  |   | N/A                 |   |  |   | N/A                  |  



F-18



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



11. Employee Benefits  (Continued)

|                                                                      |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|--------------------------------------------------------------------- |  | ---------------- | ------ | - | ----------------------- | - | ------ | -------- |  | - | -------- | - |  | - | ------ | -
|                                                                      |  | Pension Benefits |        |   | Post-RetirementBenefits |  
|                                                                      |  | 12/31/03         |        |   | 12/31/02                |   |        | 12/31/03 |  |   | 12/31/02 |  
|Accrued pension cost as of end of prior year                          |  | $                | (4,019 | ) |                         | $ | (2,814 | )        |  | $ | (1,613   | ) |  | $ | (1,443 | )
|Contributions during the fiscal year                                  |  |                  | 846    |   |                         |   | 1,166  |          |  |   | 7        |   |  |   | 55     |  
|(Net periodic pension cost for the fiscal year)                       |  |                  | (1,368 | ) |                         |   | (985   | )        |  |   | (195     | ) |  |   | (225   | )
|Curtailment and settlement                                            |  |                  | N/A    |   |                         |   | (1,386 | )        |  |   | 0        |   |  |   | 0      |  
|                                                                      |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Accrued pension cost as of fiscal year end                            |  | $                | (4,541 | ) |                         | $ | (4,019 | )        |  | $ | (1,802   | ) |  | $ | (1,613 | )
|                                                                      |  |                  |        |  
|Effect of one-percentage point increase in health care cost trend on: |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Service and interest cost components of FAS 106 cost                  |  |                  | N/A    |   |                         |   | N/A    |          |  |   | 25       |   |  |   | 28     |  
|Accumulated post-retirement benefit obligation                        |  |                  | N/A    |   |                         |   | N/A    |          |  |   | 186      |   |  |   | 201    |  
|                                                                      |  |                  |        |  
|Effect of one-percentage point decrease in health care cost trend on: |  |                  |        |   |                         |   |        |          |  |   |          |   |  |   |        |  
|Service and interest cost components of FAS 106 cost                  |  |                  | N/A    |   |                         |   | N/A    |          |  |   | (21      | ) |  |   | (24    | )
|Accumulated post-retirement benefit obligation                        |  |                  | N/A    |   |                         |   | N/A    |          |  |   | (163     | ) |  |   | (175   | )



Plan assets for the defined benefit
plan are as follows:



Asset allocation



|                  |  |                  |   |  |                                 |   |  |          |  
|----------------- |  | ---------------- | - |  | ------------------------------- | - |  | -------- | -
|                  |  |                  |   |  | Percentage of Plan Assets as of |  
|Asset Category    |  | TargetAllocation |   |  | 12/31/03                        |   |  | 12/31/02 |  
|Equity securities |  | 65               | % |  | 66                              | % |  | 64       | %
|Debt securities   |  | 35               | % |  | 34                              | % |  | 36       | %
|Other             |  |                  | % |  | 0                               | % |  | 0        | %
|                  |  |                  |   |  |                                 |   |  |          |  
|Total             |  | 100              | % |  | 100                             | % |  | 100      | %



Investment policy and strategy:



The policy is to place equal
emphasis on the balance of current income needs and the long term growth of principal. A Balanced Growth investment approach will be used. The Fund may invest in a combination of stocks, bonds, and cash equivalent securities.



The Fund should achieve a balance between the dual objectives of preservation of current
income and capital appreciation. The fund manager will actively manage the portfolio and may adjust the asset allocation between different asset classes in an effort to add value.



Determination of expected long-term rate of return:



The expected long-term rate of return for the plans total assets is based on the expected return of each of the above categories,
weighted based on the median of the target allocation for each class.



There are no plan assets for the post-retirement benefit plan.



F-19



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



11. Employee Benefits  (continued)



Cash Flows



Contributions:



Expected net employer contributions for the post-retirement benefit plan for the 2004 fiscal year is $98. Expected contributions for the defined benefit plan for the
fiscal year ending 12/31/04, attributable to the 2003 plan year, are as follows:



|         |  |       
|-------- |  | ------
|09/15/04 |  | $1,594



Expected contributions for the defined
benefit plan based on current pension funding requirements, for the fiscal year ending 12/31/04, attributable to the 2004 plan year, are as follows:



|         |  |   |      
|-------- |  | - | -----
|04/15/04 |  | $ | 570  
|07/15/04 |  |   | 570  
|10/15/04 |  |   | 570  
|         |  |   |      
|Total    |  | $ | 3,304



Estimated future benefit payments:



The following benefit payments reflecting expected future service are to be
paid as follows:



|                      |  |                 |        |                         |   |    
|--------------------- |  | --------------- | ------ | ----------------------- | - | ---
|Fiscal Year(s) Ending |  | PensionBenefits |        | Post-retirementBenefits
|12/31/04              |  | $               | 644    |                         | $ | 98 
|12/31/05              |  |                 | 722    |                         |   | 103
|12/31/06              |  |                 | 903    |                         |   | 125
|12/31/07              |  |                 | 947    |                         |   | 148
|12/31/08              |  |                 | 1,392  |                         |   | 163
|12/31/09 to 12/31/13  |  |                 | 7,178  |                         |   | 182
|                      |  |                 |        |                         |   |    
|Total                 |  | $               | 11,786 |                         | $ | 819



|                                                                                                                        |  |                  |               |                         |   |               |  |          |      |  |   |     
|----------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------------- | ----------------------- | - | ------------- |  | -------- | ---- |  | - | ----
|                                                                                                                        |  | Pension Benefits |               | Post-RetirementBenefits
|                                                                                                                        |  | 12/31/03         |               | 12/31/02                |   | 12/31/03      |  | 12/31/02
|Other accounting items:                                                                                                 |  |                  |               |                         |   |               |  |          |      |  |   |     
|                                                                                                                        |  |                  |               |                        
|Market-related value of assets                                                                                          |  | $                | 10,882        |                         | $ | 8,308         |  | $        | 0    |  | $ | 0   
|(i) Prior service cost                                                                                                  |  |                  | Straight Line |                         |   | Straight Line |  |          | N/A  |  |   | N/A 
|Employer commitments to make future plan amendments (that serve as the basis of the employers accounting for the plan) |  |                  | None          |                         |   | None          |  |          | None |  |   | None



F-20



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



11. Employee Benefits  (Continued)



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 $1,659 and $1,521 as of December 31, 2003 and 2002, 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 $338 and $287 at
December 31, 2003 and 2002, respectively. Expenses related to these arrangements, including premiums and changes in cash surrender value, were $264, $617 and $110 for the years ended December 31, 2003, 2002 and 2001, respectively.



12. 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:



|           |  |      |   |  |      |   |  |      |  
|---------- |  | ---- | - |  | ---- | - |  | ---- | -
|           |  | 2003 |   |  | 2002 |   |  | 2001 |  
|Customer A |  | 17.2 | % |  | 18.6 | % |  | 19.0 | %
|           |  |      |   |  |      |   |  |      |  
|Customer B |  | 6.3  | % |  | 4.8  | % |  | 6.0  | %
|           |  |      |   |  |      |   |  |      |  



13. 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.



|              |  |      |         |      |   |         |  |   |        
|------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|              |  | 2003 |         | 2002 |   | 2001   
|United States |  | $    | 117,914 |      | $ | 124,708 |  | $ | 140,866
|Foreign       |  |      | 7,183   |      |   | 6,154   |  |   | 5,976  
|              |  |      |         |      |   |         |  |   |        
|              |  | $    | 125,097 |      | $ | 130,862 |  | $ | 146,842
|              |  |      |         |      |   |         |  |   |        



14. Commitments and Contingencies



As discussed in Note 7, the Company has environmental exposures
associated with two of its manufacturing facilities.



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



F-21



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



14. Commitments and Contingencies  (Continued)



As permitted by Delaware law, the Company has entered into indemnification agreements
pursuant to which the Company indemnifies its directors and officers for certain events or occurrences while the director or officer is, or was, serving at the Companys request, in such capacity. The maximum potential amount of future payments
that the Company could be required to make under these agreements is limited. As a result of its insurance coverage, the Company believes that the estimated fair value of the Companys indemnification agreements with directors and officers is
minimal. No liabilities have been recorded for these agreements as of December 31, 2003.



Operating Leases.BGF leases facilities and equipment under operating lease agreements. Generally, these leases contain renewal options under cancelable and noncancelable operating leases. Rent expense amounted
to $857, $941 and $1,083 for the years ended December 31, 2003, 2002 an 2001, respectively. Under the terms of noncancelable operating leases, BGF is committed to the following future minimum lease payments at December 31, 2003:



|            |  |   |      
|----------- |  | - | -----
|Fiscal Year |  |  
|2004        |  | $ | 1,364
|2005        |  |   | 1,224
|2006        |  |   | 1,094
|2007        |  |   | 834  
|Thereafter  |  |   | 834  



15. Related Party Transactions



Related party balances at December 31, 2003, 2002, and 2001 and
transactions for the years ended December 31 were as follows:



|                                                                                          |  |      |        |      |   |        |  |   |        
|----------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | -------
|                                                                                          |  | 2003 |        | 2002 |   | 2001  
|Trade accounts receivable from Porcher                                                    |  | $    | 46     |      | $ | 10     |  | $ | 52     
|                                                                                          |  |      |        |      |   |        |  |   |        
|Trade accounts receivable from other affiliated companies                                 |  | $    | 6      |      | $ | 4      |  | $ | 57     
|                                                                                          |  |      |        |      |   |        |  |   |        
|Receivable for reimbursable expenses from Porcher                                         |  | $    |       |      | $ | 12     |  | $ | 32     
|                                                                                          |  |      |        |      |   |        |  |   |        
|Sales to Porcher and affiliates                                                           |  | $    | 514    |      | $ | 484    |  | $ | 240    
|                                                                                          |  |      |        |      |   |        |  |   |        
|Fees to a subsidiary of Glass Holdings                                                    |  | $    | 580    |      | $ | 964    |  | $ | 641    
|                                                                                          |  |      |        |      |   |        |  |   |        
|Fees to an affiliate included in accounts payable                                         |  | $    |       |      | $ | 110    |  | $ |       
|                                                                                          |  |      |        |      |   |        |  |   |        
|Due from affiliate in other current assets                                                |  | $    | 3      |      | $ | 34     |  | $ | 74     
|                                                                                          |  |      |        |      |   |        |  |   |        
|Purchases from Porcher and affiliated companies, excluding Advanced Glassfiber Yarns, LLC |  | $    | 1,841  |      | $ | 889    |  | $ | 4,685  
|                                                                                          |  |      |        |      |   |        |  |   |        
|Affiliated purchases included in accounts payable                                         |  | $    | 418    |      | $ | 118    |  | $ | 224    
|                                                                                          |  |      |        |      |   |        |  |   |        
|Receivable from Glass Holdings, for taxes included in Other current assets                |  | $    |       |      | $ | 4,845  |  | $ | 823    
|                                                                                          |  |      |        |      |   |        |  |   |        
|Non-interest bearing loan receivable from affiliate of Glass Holdings                     |  | $    |       |      | $ |       |  | $ | 150    
|                                                                                          |  |      |        |      |   |        |  |   |        
|Loan receivable from Glass Holdings                                                       |  | $    | 344    |      | $ | 10,968 |  | $ | 116,379
|                                                                                          |  |      |        |      |   |        |  |   |        
|Payable to Advanced Glassfiber Yarns LLC                                                  |  | $    | 1,015  |      | $ | 757    |  | $ | 171    
|                                                                                          |  |      |        |      |   |        |  |   |        
|Receivable from Advanced Glassfiber Yarns LLC                                             |  | $    | 323    |      | $ | 147    |  | $ | 1,052  
|                                                                                          |  |      |        |      |   |        |  |   |        
|Reimbursable expenses and lease income from Advanced Glassfiber Yarns LLC                 |  | $    | 1,356  |      | $ | 1,126  |  | $ | 885    
|                                                                                          |  |      |        |      |   |        |  |   |        
|Purchases from Advanced Glassfiber Yarns LLC                                              |  | $    | 15,024 |      | $ | 19,119 |  | $ | 25,902 
|                                                                                          |  |      |        |      |   |        |  |   |        



F-22



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



15. Related Party Transactions  (Continued)



|                                                                              |  |      |    |      |   |       |  |   |      
|----------------------------------------------------------------------------- |  | ---- | -- | ---- | - | ----- |  | - | -----
|                                                                              |  | 2003 |    | 2002 |   | 2001 
|Commissions to Porcher                                                        |  | $    | 61 |      | $ | 59    |  | $ | 204  
|                                                                              |  |      |    |      |   |       |  |   |      
|Service fees from subsidiaries of Porcher                                     |  | $    | 3  |      | $ | 3     |  | $ | 33   
|                                                                              |  |      |    |      |   |       |  |   |      
|Consulting fees to a former director of BGF                                   |  | $    |   |      | $ | 5     |  | $ | 10   
|                                                                              |  |      |    |      |   |       |  |   |      
|Interest income from Glass Holdings                                           |  | $    |   |      | $ |      |  | $ | 1,103
|                                                                              |  |      |    |      |   |       |  |   |      
|Note payable to Glass Holdings                                                |  | $    |   |      | $ | 5,000 |  | $ |     
|                                                                              |  |      |    |      |   |       |  |   |      
|Interest payable on note to Glass Holdings                                    |  | $    |   |      | $ | 40    |  | $ |     
|                                                                              |  |      |    |      |   |       |  |   |      
|Interest expense on note to Glass Holdings                                    |  | $    | 73 |      | $ | 64    |  | $ |     
|                                                                              |  |      |    |      |   |       |  |   |      
|Proceeds from sale of manufacturing equipment to subsidiary of Glass Holdings |  | $    |   |      | $ | 551   |  | $ |     
|                                                                              |  |      |    |      |   |       |  |   |      



The Company is wholly owned by Porcher
Industries through a U.S. holding company. As of December 31, 2003, the Company was owned 100% by the U.S. Holding company Glass Holdings, Inc. Effective in 2004, the Companys direct ownership will transfer to a new U.S. holding company which
is owned 100% by Porcher Industries.



On December 10, 2002, AGY, a major
supplier of BGF, filed for protection under Chapter 11 of the U. S. bankruptcy code. AGY is currently operating with a Debtor In Possession financing arrangement. However, there is no assurance that long-term liquidity will remain adequate, which
may negatively impact AGYs ability to operate and deliver raw materials to BGF. To date, AGY, and consequently BGF, have not experienced interruptions in operations or supply of material. Although no assurances can be provided, the Company
does not believe that AGYs bankruptcy will have a material adverse effect on BGFs operations.



On September 30, 1998, AGY Holdings, an affiliate of BGF, purchased a 51% ownership interest in AGY. 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. 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. During the term of the loan, 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 AGY which are currently restricted from paying dividends and other
distributions under their debt agreements. Interest in arrears as of December 31, 2003 and 2002 totaled $59,582 and $49,762, respectively. BGF received payments from Glass Holdings totaling $10,624, and $7,700 in 2003 and 2002, respectively. BGF and
Glass Holdings agreed that while there are interest amounts in arrears, any payments made on the loan balance would be allocated approximately 90% to principal and 10% to interest. However, due to the uncertainty of the ultimate collectibility of
the loan which arose during 2002, all payments are now recorded as principal payments. Accordingly, BGF reflected $10,624 and $7,700 of the cash payments received in 2003 and 2002, respectively as a reduction of principal and $1,103 was recognized
as interest income in 2001 (recorded in other income on the consolidated statement of operations).



As a result of AGYs bankruptcy filing, and consequently the financial condition of AGY Holdings, evaluations of the potential impairment of the loan from Glass Holdings to AGY Holdings and the similar loan from
BGF to Glass Holdings were performed in 2002. Based on the tax positions of the three companies and the insolvency of AGY



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



15. Related Party Transactions  (Continued)



Holdings and BGFs liquidity situation, it was determined that a reserve should be
recorded against BGFs loan to Glass Holdings for amounts not deemed collectible. Accordingly, BGF recorded a reserve of $97,711 during 2002 to properly reflect the estimated realizability of BGFs loan to Glass Holdings. At December 31,
2003 and 2002, the net loan balance to Glass Holdings totaling $344 and $10,968, respectively, is included as a contra equity account in the consolidated financial statements. During the first quarter of 2003, the Companys parent, Glass
Holdings, received a tax refund related to the filing of the 2002 consolidated tax return. In March 2003, $15,619 of this tax refund was remitted to BGF, of which $9,624 was applied to the loan receivable from Glass Holdings. The remaining balance
of $5,995 reduced the Companys income tax receivable. An additional $500 from Glass Holdings was received in January 2003 and another $500 in June 2003. These amounts were also applied against the loan receivable.



The Company is the guarantor of an executives deferred compensation agreement with a
subsidiary of Glass Holdings.



16. Quarterly Financial Information
(Unaudited)



The following table sets forth summary quarterly financial
information for the years ended December 31, 2003 and 2002:



|                    |  |       |        |   |        |   |         |       |  |   |        |   |  |   |          |  
|------------------- |  | ----- | ------ | - | ------ | - | ------- | ----- |  | - | ------ | - |  | - | -------- | -
|2003 By Quarter     |  | First |        |   | Second |   |         | Third |  |   | Fourth |  
|Net sales           |  | $     | 33,636 |   |        | $ | 31,415  |       |  | $ | 28,145 |   |  | $ | 31,901   |  
|Gross profit        |  |       | 4,576  |   |        |   | 4,541   |       |  |   | 3,984  |   |  |   | 4,537    |  
|Operating income    |  |       | 2,474  |   |        |   | 2,378   |       |  |   | 1,913  |   |  |   | 2,404    |  
|Net loss            |  |       | (1,178 | ) |        |   | (1,124  | )     |  |   | (300   | ) |  |   | (434     | )
|                    |  |       |        |  
|2002 By Quarter     |  | First |        |   | Second |   |         | Third |  |   | Fourth |  
|Net sales           |  | $     | 36,343 |   |        | $ | 34,519  |       |  | $ | 31,093 |   |  | $ | 28,907   |  
|Gross profit (loss) |  |       | 521    |   |        |   | (2,163  | )     |  |   | 2,124  |   |  |   | 1,962    |  
|Operating loss      |  |       | (822   | ) |        |   | (13,115 | )     |  |   | (2,279 | ) |  |   | (1,171   | )
|Net loss (1)        |  |       | (7,265 | ) |        |   | (27,318 | )     |  |   | (3,860 | ) |  |   | (102,130 | )

---

|(1) | During the fourth quarter of 2002, a reserve of $97,711 was established against the companys loan to parent. See Note 15.
|--- | --------------------------------------------------------------------------------------------------------------------------



17. Recent Accounting Pronouncements



In December 2003, The FASB issued FAS 132 (Revised), Employers Disclosure about
Pensions and Other Postretirement Benefits. A revision of the pronouncement originally issued in 1998, FAS 132R expands employers disclosure requirements for pension and postretirement benefits to enhance information about plan assets,
obligations, benefit payments, contributions, and net benefit cost. FAS 132R does not change the accounting requirements for pensions and other postretirement benefits. This statement is effective for fiscal years ending after December 15, 2003,
with interim-period disclosure requirements effective for interim periods beginning after December 15, 2003. Accordingly, the Company has implemented FAS 132R beginning with its year ending December 31, 2003.



In December 2003, the FASB issued the Interpretation No. (FIN) 46R,
Consolidation of Variable Interest Entities an Interpretation of ARB No. 51. The primary objective of the Interpretation is to provide guidance on the identification of entities for which control is achieved through means other than
voting rights and how to determine when and which business enterprise should consolidate the variable interest entity. Application of the Interpretation is required in financial statements for periods ending after March 15, 2004. Management
performed an assessment of FIN 46R and determined that this interpretation will not have an impact on its consolidated financial statements.



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands)



17. Recent Accounting Pronouncements  (Continued)



In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others - an interpretation of FASB Statements No. 5, 57, and 107 and a rescision of FASB Interpretation No. 34. FIN
45 elaborates on the disclosures to be made regarding obligations under certain issued guarantees by a guarantor in interim and annual financial statements. It also clarifies the requirement of a guarantor to recognize a liability at the inception
of the guarantee at the fair value of the obligation. The Company adopted the provisions of this statement during 2003 and it did not have a significant impact on the consolidated financial statements.



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on March 26, 2004.



BGF INDUSTRIES, INC.By:

/s/ James R. HendersonJames R. HendersonPresident




Pursuant to the requirements of
the Securities Exchange Act of 1934, this report had been signed by the following persons on behalf of the Registrant in the capacities indicated on March 26, 2004.



|                                         |  |                                                                     
|---------------------------------------- |  | --------------------------------------------------------------------
|Signature                                |  | Title                                                               
|/s/ Philippe Porcher                     |  | Chairman of the Board of Directors                                  
|Philippe Porcher                         |  |                                                                     
|                                         | 
|/s/ James R. Henderson                   |  | President (Principal Executive Officer)                             
|James R. Henderson                       |  |                                                                     
|                                         | 
|/s/ Philippe R. DorierPhilippe R. Dorier |  | Chief Financial Officer (Principal Financial and Accounting Officer)



SUPPLENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT



No annual report or proxy statement has been sent to security holders of the Registrant.



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##### Table of Contents

Schedule II - Valuation and Qualifying Accounts



(In thousands)



|                                                                                                                       |  |                              |       |                             |   |                                     |  |            |   |                         |   |       |  |   |      
|---------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | --------------------------- | - | ----------------------------------- |  | ---------- | - | ----------------------- | - | ----- |  | - | -----
|                                                                                                                       |  |                              |       | Column C                    |   |                                     |  |           
|Column A                                                                                                               |  | Column B                     |       | Additions                   |   | Column D                            |  | Column E  
|                                                                                                                       |  | Balance atBeginning ofPeriod |       | Charged toCosts andExpenses |   | Charged(Credited) toOther Accounts) |  | Deductions |   | Balance atEnd of Period
|Allowance for doubtful accounts, returned goods and discounts deducted from accounts receivable in the balance sheets: |  |                              |       |                             |   |                                     |  |            |   |                         |   |       |  |   |      
|Year ended December 31, 2003                                                                                           |  | $                            | 316   |                             | $ | 5                                   |  | $          |  |                         | $ | 23    |  | $ | 344  
|Year ended December 31, 2002                                                                                           |  | $                            | 400   |                             | $ | 26                                  |  | $          |  |                         | $ | 110   |  | $ | 316  
|Year ended December 31, 2001                                                                                           |  | $                            | 663   |                             | $ | 20                                  |  | $          |  |                         | $ | 283   |  | $ | 400  
|                                                                                                                       |  |                              |       |                             |  
|Allowance for obsolete inventory:                                                                                      |  |                              |       |                             |   |                                     |  |            |   |                         |   |       |  |   |      
|Year ended December 31, 2003                                                                                           |  | $                            | 4,148 |                             | $ | 2,936                               |  | $          |  |                         | $ | 4,721 |  | $ | 2,363
|Year ended December 31, 2002                                                                                           |  | $                            | 2,634 |                             | $ | 5,624                               |  | $          |  |                         | $ | 4,110 |  | $ | 4,148
|Year ended December 31, 2001                                                                                           |  | $                            | 1,691 |                             | $ | 1,119                               |  | $          |  |                         | $ | 176   |  | $ | 2,634
|                                                                                                                       |  |                              |       |                             |  
|Restructuring Reserve:                                                                                                 |  |                              |       |                             |   |                                     |  |            |   |                         |   |       |  |   |      
|Year ended December31, 2003                                                                                            |  | $                            | 99    |                             | $ |                                    |  | $          |  |                         | $ | 83    |  | $ | 16   
|Year ended December31, 2002                                                                                            |  | $                            | 467   |                             | $ | 250                                 |  | $          |  |                         | $ | 618   |  | $ | 99   
|Year ended December 31, 2001                                                                                           |  | $                            |      |                             | $ | 502                                 |  | $          |  |                         | $ | 35    |  | $ | 467  
|                                                                                                                       |  |                              |       |                             |  
|Environmental Reserve:                                                                                                 |  |                              |       |                             |   |                                     |  |            |   |                         |   |       |  |   |      
|Year ended December31, 2003                                                                                            |  | $                            | 2,772 |                             | $ |                                    |  | $          |  |                         | $ | 36    |  | $ | 2,736
|Year ended December31, 2002                                                                                            |  | $                            | 434   |                             | $ | 2,527                               |  | $          |  |                         | $ | 189   |  | $ | 2,772
|Year ended December 31, 2001                                                                                           |  | $                            | 135   |                             | $ | 600                                 |  | $          |  |                         | $ | 301   |  | $ | 434  



S-1