##### Table of Contents





SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarter Ended September 30, 2008



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission file number 333-150749





AGY HOLDING CORP.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-420637                           
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

2556 Wagener Road

Aiken, South Carolina 29801

(Address of principal executive offices) (Zip
Code)

(888) 434-0945

(Registrants telephone number, including area code)





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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Accelerated Filer         |  |  ̈
|                        |  |   | 
|Non-Accelerated Filer   |  | x |  | Smaller Reporting Company |  |  ̈

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities
Exchange Act).    Yes   ̈    No  x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by
a court.    Yes  x    No   ̈

There is no established trading market for the Common Stock of the registrant. As of November 12, 2008, there were 1,291,667 shares of common stock outstanding.









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TABLE OF CONTENTS



|               |  |                                                                                                                       |  |     
|-------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                                                       |  | Page
|Part I.        |  | FINANCIAL INFORMATION                                                                                                 |  |     
|               |  |                                                                                                                      
|ITEM 1.        |  | Consolidated Financial Statements (Unaudited)                                                                         |  |     
|               |  |                                                                                                                      
|               |  |    Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007                                        |  | 3   
|               |  |                                                                                                                      
|               |  |    
Consolidated Statements of Operations for the three months and the nine months ended September 30, 2008 and 2007 |  | 4   
|               |  |                                                                                                                      
|               |  |    Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and
2007                       |  | 5   
|               |  |                                                                                                                      
|               |  |    Notes to the Consolidated Financial Statements                                                                    |  | 6   
|               |  |                                                                                                                      
|ITEM 2.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 16  
|               |  |                                                                                                                      
|ITEM 3.        |  | Quantitative and Qualitative Disclosure about Market Risk                                                             |  | 26  
|               |  |                                                                                                                      
|ITEM 4T.       |  | Controls and Procedures                                                                                               |  | 26  
|               |  |                                                                                                                      
|Part II.       |  | OTHER INFORMATION                                                                                                     |  |     
|               |  |                                                                                                                      
|ITEM 1A.       |  | Risk Factors                                                                                                          |  | 27  
|               |  |                                                                                                                      
|ITEM 6.        |  | Other Information                                                                                                     |  | 27  
|               |  |                                                                                                                      
|ITEM 7.        |  | Exhibits                                                                                                              |  | 27  
|               | 
|SIGNATURES     |  | 28                                                                                                                   
|               | 
|EXHIBITS INDEX |  | 29                                                                                                                   



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PART I  FINANCIAL INFORMATION

ITEM 1.  Consolidated Financial Statements

AGY Holding Corp. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands except share and per share data)



|                                                                                                                           |  |                              |         |   |                     |   |         |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ------------------- | - | ------- | -
|                                                                                                                           |  | September 30,2008(Unaudited) |         |   | December 31,2007(1) |  
|Assets                                                                                                                     |  |                              |         |   |                     |   |         |  
|Current assets:                                                                                                            |  |                              |         |   |                     |   |         |  
|Cash                                                                                                                       |  | $                            | 1,113   |   |                     | $ | 5,204   |  
|Restricted cash                                                                                                            |  |                              | 1,237   |   |                     |   | 1,217   |  
|Trade accounts receivables, less allowances of $4,131 and $3,842 at September 30, 2008 and December 31, 2007,
respectively |  |                              | 18,874  |   |                     |   | 16,717  |  
|Inventories, net                                                                                                           |  |                              | 32,460  |   |                     |   | 32,427  |  
|Deferred tax assets                                                                                                        |  |                              | 10,691  |   |                     |   | 11,392  |  
|Other current assets                                                                                                       |  |                              | 2,181   |   |                     |   | 2,435   |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|Total current assets                                                                                                       |  |                              | 66,556  |   |                     |   | 69,392  |  
|Property, plant and equipment, and alloy metals, net                                                                       |  |                              | 180,250 |   |                     |   | 163,054 |  
|Intangible assets, net                                                                                                     |  |                              | 22,098  |   |                     |   | 24,034  |  
|Goodwill                                                                                                                   |  |                              | 84,803  |   |                     |   | 85,457  |  
|Other assets                                                                                                               |  |                              | 1,072   |   |                     |   | 213     |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|TOTAL                                                                                                                      |  | $                            | 354,779 |   |                     | $ | 342,150 |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|Liabilities and Shareholders Equity                                                                                       |  |                              |         |   |                     |   |         |  
|Current liabilities:                                                                                                       |  |                              |         |   |                     |   |         |  
|Accounts payable                                                                                                           |  | $                            | 10,469  |   |                     | $ | 10,939  |  
|Accrued liabilities                                                                                                        |  |                              | 21,519  |   |                     |   | 17,468  |  
|Current portion of long-term debt and capital lease obligations                                                            |  |                              | 1,025   |   |                     |   | 1,246   |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|Total current liabilities                                                                                                  |  |                              | 33,013  |   |                     |   | 29,653  |  
|Long-term debt                                                                                                             |  |                              | 182,100 |   |                     |   | 175,000 |  
|Pension and other employee benefit plans                                                                                   |  |                              | 12,162  |   |                     |   | 11,250  |  
|Deferred tax liabilities                                                                                                   |  |                              | 30,207  |   |                     |   | 30,207  |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|Total liabilities                                                                                                          |  |                              | 257,482 |   |                     |   | 246,110 |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|Commitments and contingencies                                                                                              |  |                              |         |   |                     |   |         |  
|Shareholders equity:                                                                                                      |  |                              |         |   |                     |   |         |  
|Common stock, $.0001 par value per share; 5,000,000 shares authorized; 1,291,667 shares issued and outstanding             |  |                              |        |   |                     |   |        |  
|Additional paid-in capital                                                                                                 |  |                              | 100,907 |   |                     |   | 100,102 |  
|Accumulated deficit                                                                                                        |  |                              | (3,780  | ) |                     |   | (4,217  | )
|Accumulated other comprehensive income                                                                                     |  |                              | 170     |   |                     |   | 155     |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|Total shareholders equity                                                                                                 |  |                              | 97,297  |   |                     |   | 96,040  |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  
|TOTAL                                                                                                                      |  | $                            | 354,779 |   |                     | $ | 342,150 |  
|                                                                                                                           |  |                              |         |   |                     |   |         |  



|(1) | Derived from audited financial statements
|--- | -----------------------------------------

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



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AGY Holding Corp. and Subsidiaries

Consolidated Statements of Operations

(Dollars in thousands,
unless otherwise noted)



|                                             |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |  | (Unaudited)                     |       
|                                             |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                             |  | 2008                            |        |   | 2007                           |   |        | 2008 |  |   | 2007    |  
|Net sales                                    |  | $                               | 61,143 |   |                                | $ | 48,349 |      |  | $ | 183,177 |   |  | $ | 134,746 |  
|Cost of goods sold                           |  |                                 | 48,532 |   |                                |   | 35,790 |      |  |   | 148,985 |   |  |   | 106,539 |  
|                                             |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Gross profit                                 |  |                                 | 12,611 |   |                                |   | 12,559 |      |  |   | 34,192  |   |  |   | 28,207  |  
|Selling, general and administrative expenses |  |                                 | 5,006  |   |                                |   | 4,391  |      |  |   | 14,358  |   |  |   | 12,625  |  
|Amortization of intangible assets            |  |                                 | 465    |   |                                |   | 419    |      |  |   | 1,394   |   |  |   | 1,257   |  
|Other operating income                       |  |                                 |       |   |                                |   |       |      |  |   | 319     |   |  |   | 195     |  
|                                             |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Income from operations                       |  |                                 | 7,140  |   |                                |   | 7,749  |      |  |   | 18,759  |   |  |   | 14,520  |  
|Other (expense) income:                      |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Interest expense                             |  |                                 | (5,222 | ) |                                |   | (5,011 | )    |  |   | (17,858 | ) |  |   | (15,157 | )
|Other (expense) income, net                  |  |                                 | (127   | ) |                                |   | 168    |      |  |   | (18     | ) |  |   | 92      |  
|                                             |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Income (loss) before income tax benefit      |  |                                 | 1,791  |   |                                |   | 2,906  |      |  |   | 883     |   |  |   | (545    | )
|Income tax (expense) benefit                 |  |                                 | (792   | ) |                                |   | (1,101 | )    |  |   | (446    | ) |  |   | 195     |  
|                                             |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss)                            |  | $                               | 999    |   |                                | $ | 1,805  |      |  | $ | 437     |   |  | $ | (350    | )
|                                             |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  

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



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AGY Holding Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands,
unless otherwise noted)



|                                                                                         |  |                                |         |   |      |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                         |  | (Unaudited)                    |        
|                                                                                         |  | Nine Months EndedSeptember 30, |        
|                                                                                         |  | 2008                           |         |   | 2007 |  
|Cash flow from operating activities:                                                     |  |                                |         |   |      |   |         |  
|Net income (loss)                                                                        |  | $                              | 437     |   |      | $ | (350    | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Depreciation                                                                             |  |                                | 8,343   |   |      |   | 8,292   |  
|Alloy metals depletion, net                                                              |  |                                | 8,964   |   |      |   | 5,619   |  
|Amortization of debt issuance costs                                                      |  |                                | 543     |   |      |   | 484     |  
|Amortization of intangibles with definite lives                                          |  |                                | 1,394   |   |      |   | 1,257   |  
|Gain on sale or disposal of assets                                                       |  |                                | (750    | ) |      |   | (261    | )
|Stock compensation                                                                       |  |                                | 805     |   |      |   | 951     |  
|Deferred income tax expense (benefit)                                                    |  |                                | 700     |   |      |   | (85     | )
|Changes in assets and liabilities:                                                       |  |                                |         |   |      |   |         |  
|Trade accounts receivable                                                                |  |                                | (2,157  | ) |      |   | (3,867  | )
|Inventories                                                                              |  |                                | (33     | ) |      |   | 2,885   |  
|Other assets                                                                             |  |                                | 244     |   |      |   | 564     |  
|Accounts payable                                                                         |  |                                | (470    | ) |      |   | 1,950   |  
|Accrued liabilities                                                                      |  |                                | 4,051   |   |      |   | 3,978   |  
|Pension and other employee benefit plans                                                 |  |                                | 912     |   |      |   | 246     |  
|                                                                                         |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                                |  |                                | 22,983  |   |      |   | 21,663  |  
|                                                                                         |  |                                |         |   |      |   |         |  
|Cash flows from investing activities:                                                    |  |                                |         |   |      |   |         |  
|Purchases of property and equipment and alloy metals                                     |  |                                | (36,726 | ) |      |   | (8,803  | )
|Adjustment of Continuous Filament Mat business purchase price                            |  |                                | 2,300   |   |      |   |        |  
|Proceeds from the sale of assets                                                         |  |                                | 1,326   |   |      |   | 264     |  
|Increase in restricted cash                                                              |  |                                | (20     | ) |      |   | (47     | )
|Other investing activities                                                               |  |                                | (848    | ) |      |   | 85      |  
|                                                                                         |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                                    |  |                                | (33,968 | ) |      |   | (8,501  | )
|                                                                                         |  |                                |         |   |      |   |         |  
|Cash flows from financing activities:                                                    |  |                                |         |   |      |   |         |  
|Payments on capital leases                                                               |  |                                | (221    | ) |      |   | (873    | )
|Proceeds from Revolving Credit Facility                                                  |  |                                | 60,500  |   |      |   | 11,000  |  
|Payments on Revolving Credit Facility                                                    |  |                                | (53,400 | ) |      |   | (11,000 | )
|Debt issuance costs and other                                                            |  |                                |        |   |      |   | (44     | )
|                                                                                         |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                                      |  |                                | 6,879   |   |      |   | (917    | )
|                                                                                         |  |                                |         |   |      |   |         |  
|Effect of exchange rate changes on cash                                                  |  |                                | 15      |   |      |   | (5      | )
|Net (decrease) increase in cash                                                          |  |                                | (4,091  | ) |      |   | 12,240  |  
|Cash, beginning of period                                                                |  |                                | 5,204   |   |      |   | 1,580   |  
|                                                                                         |  |                                |         |   |      |   |         |  
|Cash, end of period                                                                      |  | $                              | 1,113   |   |      | $ | 13,820  |  
|                                                                                         |  |                                |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                       |  |                                |         |   |      |   |         |  
|Cash paid for interest                                                                   |  | $                              | 12,538  |   |      | $ | 10,956  |  
|                                                                                         |  |                                |         |   |      |   |         |  
|Cash paid for income taxes                                                               |  | $                              | 415     |   |      | $ | 69      |  
|                                                                                         |  |                                |         |   |      |   |         |  

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



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AGY HOLDING CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise noted)

1. DESCRIPTION OF BUSINESS AND OVERVIEW

AGY Holding Corp. is a Delaware corporation with its headquarters in South Carolina. AGY Holding
Corp. and its subsidiaries (AGY or the Company) is a leading manufacturer of advanced glass fibers that are used as reinforcing materials in numerous diverse high-value applications, including aircraft laminates, ballistic
armor, pressure vessels, roofing membranes, insect screening, architectural fabrics, and specialty electronics. AGY is focused on serving end-markets that require glass fibers for applications with demanding performance criteria, such as the
aerospace, defense, construction, electronics, automotive, and industrial end-markets.

The business is conducted through AGY Holding Corp.s two
wholly owned domestic operating subsidiaries, AGY Aiken LLC and AGY Huntingdon LLC, and its wholly owned foreign subsidiary, AGY Europe SARL, located in Lyon, France. AGY Holding Corp. has no operations or assets other than its investment in its
wholly owned subsidiaries.

On April 7, 2006, all of the outstanding stock of AGY was acquired by KAGY Holding Company, Inc. (Holdings) in
exchange for approximately $271,000 consideration (approximately $275,500, including acquisition-related costs and adjustments). This transaction (the Acquisition) and the related expenses and fees, including approximately $5,300 in
deferred financing fees, were financed by a combination of approximately $98,000 in equity contribution and $185,000 in debt financing. As a result of the Acquisition, Holdings was required to apply purchase accounting to its financial statements in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. Under SFAS No. 141, Holdings allocated the purchase price to the assets acquired and liabilities assumed based on their
estimated fair values at the date of the Acquisition. Accordingly, all assets and liabilities have been recorded at their fair value as of April 7, 2006. All of the purchase accounting adjustments at Holdings have been pushed down to the
consolidated financial statements of the Company. The consolidated balance sheet and related information at December 31, 2007, reflect final purchase accounting estimates, including a $2,602 reduction in goodwill in 2007 resulting from
finalization of the valuation.

We operate and manage our operations as one business segment that manufactures glass fiber yarns and specialty materials
that are used in a variety of industrial and commercial end-markets and applications. Of our total assets, approximately 99% are located in the United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In these notes, the terms AGY, we,
us or our mean AGY Holding Corp. and subsidiary companies.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair statement of results of operations have been included. Interim operating results are not necessarily indicative of the
results to be expected for any other interim period or for the full year.

These financial statements should be read in conjunction with the audited
financial statements of AGY Holding Corp. and Subsidiaries as of and for the year ended December 31, 2007 (the 2007 Consolidated Financial Statements) that were included in Amendment No. 1 to the Companys Registration
Statement on Form S-4 (Registration No. 333-150749) filed with the Securities and Exchange Commission on May 30, 2008, which we refer to in this quarterly report as the S-4 Registration Statement.



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The preparation of the financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from those estimates and are subject to risks and uncertainties, including those identified in the Cautionary Note Regarding Forward-Looking Statements and Risk
Factors sections of the S-4 Registration Statement. Changes in the facts and circumstances may have a significant impact on the resulting financial statements. The critical accounting policies that affect the Companys more complex
judgments and estimates are described in the Companys 2007 Consolidated Financial Statements and in this Quarterly Report under Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical
Accounting Policies.

Adoption of new accounting standards

Effective January 1, 2008, we adopted the Financial Accounting Standards Board (FASB) Statement No. 157, Fair Value Measurements (SFAS 157), for financial assets and
liabilities. As permitted by FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No 157, we elected to defer the adoption of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis. We are currently assessing the impact of SFAS 157 for such nonfinancial assets and liabilities on our consolidated financial position and results of
operations. In order to increase consistency and comparability in fair value measurements, SFAS 157 establishes a hierarchy for observable and unobservable inputs used to measure fair value into three broad levels, which are described below:



| |  | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair
value hierarchy gives the highest priority to Level 1 inputs.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly based on inputs not quoted on active markets,
but corroborated by market data.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Our foreign exchange derivative assets and liabilities are valued using quoted forward foreign exchange prices at the reporting
date. At September 30, 2008, we had no financial assets and liabilities outstanding requiring fair value measurements.

In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115(SFAS 159), which is effective for fiscal years beginning
after November 15, 2007. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We did not elect to
measure eligible financial assets and liabilities using the fair value option as of January 1, 2008; therefore, there was no impact to our consolidated financial statements from the adoption of SFAS 159.

Recently issued accounting standards

In December 2007,
the FASB issued SFAS No. 141 (revised 2007), Business Combinations(SFAS 141(R)), which replaces SFAS No. 141. SFAS 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are
still required to be accounted for at fair value under the purchase method of accounting, but SFAS 141(R) changed the application of the purchase method in a number of significant aspects. Acquisition costs will generally be expensed as
incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs
associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax
expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends FASB Statement No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies



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associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R) subsequent to
December 15, 2008. Early adoption is not permitted. We have not determined what impact, if any, that adoption of this standard will have on our financial statements. Management has entered into a nonbinding letter of intent to acquire an Asian
yarn manufacturer. This acquisition, if completed, will provide AGY with additional capabilities to further penetrate the growing Asian markets and establish a low cost manufacturing operation. The transactional costs of $848, incurred in 2008 and
classified as other long-term assets at September 30, 2008, would be expensed in 2009 under the guidance of SFAS 141(R) if the acquisition contemplated by management was not consummated in 2008.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160). SFAS 160
requires entities to report noncontrolling (minority) interests in subsidiaries as equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We have not determined what impact, if any, that adoption of this standard will
have on our results of operations, cash flows, or financial position.

In March 2008, the FASB issued Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and
strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of
derivatives located within the financial statements, how the provisions of FASB Statement No. 133 have been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. SFAS 161 is
effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We have not yet determined what impact, if any, the adoption of SFAS 161 will have on our financial statements.

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS
162). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for non-governmental entities. SFAS 162 directs
the GAAP hierarchy to the entity, not the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented inconformity with GAAP. SFAS 162 is effective 60 days following the
Securities and Exchange Commissions approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Presenting Fairly in Conformity with Generally Accepted Accounting Principles. We are
currently evaluating the new statement and believe that, if it is approved in its current form, it will not have a significant impact on the determination or reporting of our financial results.

3. Inventories, net

Inventories, net of reserves for
excess, obsolete, and lower of cost or market adjustments of $1,018 and $1,238 as of September 30, 2008 and December 31, 2007, respectively, consist of the following:



|                                   |  |                   |        |                  |   |       
|---------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                   |  | September 30,2008 |        | December 31,2007
|Finished goods and work in process |  | $                 | 23,025 |                  | $ | 22,764
|Materials and supplies             |  |                   | 9,435  |                  |   | 9,663 
|                                   |  |                   |        |                  |   |       
|                                   |  | $                 | 32,460 |                  | $ | 32,427
|                                   |  |                   |        |                  |   |       



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##### Table of Contents

4. Property, Plant and Equipment and Alloy Metals

Property, plant and equipment and alloy metals consist of the following:



|                                     |  |                   |         |   |                  |   |         |  
|------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                     |  | September 30,2008 |         |   | December 31,2007 |  
|Land                                 |  | $                 | 861     |   |                  | $ | 928     |  
|Buildings and leasehold improvements |  |                   | 14,958  |   |                  |   | 15,065  |  
|Machinery and equipment              |  |                   | 67,372  |   |                  |   | 64,014  |  
|Alloy metals                         |  |                   | 120,997 |   |                  |   | 101,722 |  
|                                     |  |                   |         |   |                  |   |         |  
|                                     |  |                   | 204,188 |   |                  |   | 181,729 |  
|Less  Accumulated depreciation      |  |                   | (30,653 | ) |                  |   | (22,466 | )
|                                     |  |                   |         |   |                  |   |         |  
|                                     |  |                   | 173,535 |   |                  |   | 159,263 |  
|Construction-in-progress             |  |                   | 6,715   |   |                  |   | 3,791   |  
|                                     |  |                   |         |   |                  |   |         |  
|                                     |  | $                 | 180,250 |   |                  | $ | 163,054 |  
|                                     |  |                   |         |   |                  |   |         |  

In October 2007, we acquired the North American Continuous Filament Mat (CFM) business of Owens
Corning (OC). Under the terms of the CFM acquisition agreement OC paid us $2.3 million in early July 2008 as a result of our termination of the Anderson, SC land and building lease and of our vacating of the premises in late June 2008.
As discussed in Note 3 of our 2007 Consolidated Financial Statements, the amount paid to us by OC has the effect of reducing the CFM acquisition cost, first reducing the goodwill and then reducing the value of the acquired property, plant and
equipment by approximately $650 and $1,650, respectively.

5. Intangible Assets

Intangible assets subject to amortization and trademarks, which are not amortized, consist of the following:



|                                           |  |                       |        |                   |        |   |                  |   |        |                       |  | 
|------------------------------------------ |  | --------------------- | ------ | ----------------- | ------ | - | ---------------- | - | ------ | --------------------- |  | 
|                                           |  |                       |        | September 30,2008 |        |   | December 31,2007 |   |        | EstimatedUseful Lives
|Intangible assets subject to amortization: |  |                       |        |                   |        |   |                  |   |        |                      
|Customer relationships                     |  | $                     | 4,800  |                   |        | $ | 4,800            |   |        | 11 years             
|Process technology                         |  |                       | 10,200 |                   |        |   | 10,200           |   |        | 18 years             
|Deferred financing fees                    |  |                       | 5,145  |                   |        |   | 5,145            |   |        | 5 to 8 years         
|Covenant not to compete                    |  |                       | 2,018  |                   |        |   | 2,018            |   |        | 3 years              
|                                           |  |                       |        |                   |        |   |                  |   |        |                       |  | 
|Sub-Total                                  |  |                       | 22,163 |                   |        |   | 22,163           |   |        |                      
|Less  Accumulated amortization            |  |                       | (5,678 | )                 |        |   | (3,742           | ) |        |                      
|                                           |  |                       |        |                   |        |   |                  |   |        |                       |  | 
|                                           |  |                       | 16,485 |                   |        |   | 18,421           |   |        |                      
|Trademarks                                |  | not amortized         |        |                   | 5,613  |   |                  |   | 5,613  |                       |  | 
|                                           |  |                       |        |                   |        |   |                  |   |        |                       |  | 
|                                           |  | Net intangible assets |        | $                 | 22,098 |   |                  | $ | 24,034 |                       |  | 
|                                           |  |                       |        |                   |        |   |                  |   |        |                       |  | 

Deferred financing fees are amortized by the straight-line method, which approximates the effective interest
method.



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##### Table of Contents

6. Accrued Liabilities

Accrued liabilities consist of the following:



|                                                                                     |  |                   |        |                  |   |       
|------------------------------------------------------------------------------------ |  | ----------------- | ------ | ---------------- | - | ------
|                                                                                     |  | September 30,2008 |        | December 31,2007
|Vacation                                                                             |  | $                 | 2,540  |                  | $ | 2,302 
|Real and personal property taxes, excluding prepetition amounts still in negotiation |  |                   | 3,979  |                  |   | 3,870 
|Pre-petition real and personal property taxes                                        |  |                   | 999    |                  |   | 999   
|Payroll and benefits                                                                 |  |                   | 2,319  |                  |   | 2,898 
|Variable compensation accrual                                                        |  |                   | 1,914  |                  |   | 1,508 
|Amount due for pension reimbursement                                                 |  |                   | 810    |                  |   | 1,947 
|Accrued interest                                                                     |  |                   | 7,249  |                  |   | 2,427 
|Current portion of pension and other employee benefits                               |  |                   | 1,133  |                  |   | 1,133 
|Other                                                                                |  |                   | 576    |                  |   | 384   
|                                                                                     |  |                   |        |                  |   |       
|Total accrued liabilities                                                            |  | $                 | 21,519 |                  | $ | 17,468
|                                                                                     |  |                   |        |                  |   |       

7. Debt

Principal amounts of indebtedness outstanding under the Companys financing arrangements consist of the following:



|                                         |  |                   |         |   |                  |   |         |  
|---------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                         |  | September 30,2008 |         |   | December 31,2007 |  
|Senior secured notes                     |  | $                 | 175,000 |   |                  | $ | 175,000 |  
|Senior secured revolving credit facility |  |                   | 7,100   |   |                  |   |        |  
|Capital lease obligations                |  |                   | 1,025   |   |                  |   | 1,246   |  
|                                         |  |                   |         |   |                  |   |         |  
|Total debt                               |  |                   | 183,125 |   |                  |   | 176,246 |  
|Less  Current portion                   |  |                   | (1,025  | ) |                  |   | (1,246  | )
|                                         |  |                   |         |   |                  |   |         |  
|Total long-term debt                     |  | $                 | 182,100 |   |                  | $ | 175,000 |  
|                                         |  |                   |         |   |                  |   |         |  

Senior Secured Revolving Credit Facility

The Companys $40,000 Senior Secured Revolving Credit Facility (Credit Facility) matures in October 2011 and includes a $20,000 sublimit for the issuance
of letters of credit and a $5,000 sublimit for swing line loans. The borrowing base for the Credit Facility is equal to the sum of: (i) an advance rate against eligible accounts receivable of up to 90%, plus (ii) the lesser of (A) 65%
of the book value of eligible inventory (valued at the lower of cost or market) and (B) 85% of the net orderly liquidation value for eligible inventory, plus (iii) up to $32,500 of eligible alloy inventory, minus (iv) 100% of
mark-to-market risk on certain interest hedging arrangements, minus (v) a reserve of $7,500.

At our option, loans under the Credit Facility bear
interest based on either the eurodollar rate or base rate (a rate equal to the greater of the corporate base rate of interest established by the administrative agent under the Credit Facility from time to time, and the federal funds effective rate
plus 0.50%) plus, in each case, an applicable margin of 1.75% in the case of eurodollar rate loans and 0.75% in the case of base rate loans.

In addition,
there are customary commitment and letter of credit fees under the Credit Facility. All obligations under the Credit Facility are guaranteed by the Company and all of its existing and future direct and indirect domestic subsidiaries. Our obligations
under the Credit Facility are secured, subject to permitted liens and other agreed upon exceptions, by a first-priority security interest in substantially all of the Companys assets.



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At September 30, 2008 and December 31, 2007, we had $7,100 and no cash borrowings, respectively, outstanding
under the Credit Facility. The weighted average interest rate for cash borrowings outstanding as of September 30, 2008 was 5.03%. At September 30, 2008 and December 31, 2007, we had also utilized approximately $600 and $450,
respectively, of the Credit Facility for issued and outstanding standby letters of credit, primarily for collateral required for workers compensation obligations. Borrowing availability at September 30, 2008 and December 31, 2007,
was approximately $32,300 and $39,550, respectively.

The Credit Facility contains customary representations and warranties and customary affirmative and
negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers and consolidations, dividends and other payments in respect to capital stock, transactions with affiliates, and optional payments and
modifications of subordinated and other debt instruments. The Credit Facility also includes customary events of default, including a default upon a change of control. We were in compliance with all such covenants at September 30, 2008 and
December 31, 2007.

Senior Secured Notes

On October 25, 2007, we issued $175,000 aggregate principal amount of 11% senior second lien notes (Old Notes) due in 2014 to an initial purchaser, which were subsequently resold to qualified institutional buyers and
non-U.S. persons in reliance upon Rule 144A and Regulation S under the Securities Act of 1933, as amended (the Securities Act). On May 8, 2008, we filed with the United States Securities and Exchange Commission (SEC) a
registration statement on Form S-4 under the Securities Act related to the exchange offer of all the Old Notes, which was declared effective by the SEC on June 3, 2008. Per the exchange offer that was fully consummated and closed on
July 11, 2008, holders of notes were entitled to exchange their outstanding Old Notes for exchange notes (Notes), which are identical in all respects to the Old Notes except:



| |  |  | the exchange notes are registered under the Securities Act;
| | - |  | -----------------------------------------------------------



| |  |  | the exchange notes are not entitled to any registration rights which were applicable to the outstanding Old Notes under the registration rights agreement; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the liquidated damages provisions of the registration rights agreement are no longer applicable.
| | - |  | ------------------------------------------------------------------------------------------------

Interest on the Notes is payable semi-annually on May 15 and November 15 of each year beginning May 15, 2007. Our obligations under the Notes are fully
and unconditionally guaranteed, jointly and severally, on a second-priority basis, by each of our existing and future domestic subsidiaries, other than immaterial subsidiaries, that guarantee the indebtedness of the Company, including the Credit
Facility, or the indebtedness of any restricted subsidiaries.

At any time prior to November 15, 2009, we may, at our discretion, redeem up to 35% of
the aggregate principal amount of Notes issued under the indenture at a redemption price of 111% of the principal amount, plus accrued and unpaid interest and additional interest, if any, to the redemption date, with the net cash proceeds of one or
more equity offerings, provided that: (1) at least 65% of the aggregate principal amount of Notes originally issued under the indenture (excluding notes held by the Company) remains outstanding immediately after the occurrence of such
redemption and (2) the redemption occurs within 90 days of the date of the closing of such equity offering. At any time prior to November 15, 2010, we may also redeem all or a part of the Notes at a redemption price equal to 100% of the
principal amount of Notes redeemed plus an applicable make-whole payment. Currently, we do not expect to utilize any optional redemption provision.

As of
September 30, 2008 and December 31, 2007, the estimated fair value of the Notes was $155,750 and $169,750, respectively, compared to a recorded book value of $175,000. The fair value of the Notes is estimated on the basis of quoted market
prices; however, trading in these securities is limited and may not reflect fair value. The fair value is subject to fluctuations based on the Companys performance, its credit rating and changes in interest rates for debt securities with
similar terms.



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##### Table of Contents

Capital Leases

At September 30, 2008 and December 31, 2007, the Aiken, SC facility had a capital lease for manufacturing equipment. The lease is secured by a first priority lien on the leased assets, which had a net book value of $1,820 and
$2,068 as of September 30, 2008 and December 31, 2007, respectively. As of September 30, 2008, aggregate future minimum payments under the lease totaled $1,031, with $6 representing interest thereon. The balance of the obligation,
$1,025 at September 30, 2008, is recognized as a current obligation in the accompanying consolidated balance sheet.

Maturities of Long-Term
Debt

Maturities of long-term debt at September 30, 2008 consist of the following:



|     |  |   |        
|---- |  | - | -------
|2008 |  | $ | 1,025  
|2011 |  |   | 7,100  
|2014 |  |   | 175,000
|     |  |   |        
|     |  | $ | 183,125
|     |  |   |        

8. Capital Stock and Equity

The authorized capital consists of a total of 5,000,000 shares of common stock with a par value of $0.0001 per share. All 1,291,667 outstanding shares of the Company have been owned by Holdings since the Acquisition
on April 7, 2006. The holder of each share has the right to one vote for each share of common stock held and no shareholder has special voting rights other than those afforded all shareholders generally under Delaware law. Shareholders will
share ratably, based on the number of shares held, in any and all dividends the Company may declare. As indicated in Note 7, the payment of dividends is restricted by the Credit Facility and no dividends were paid in 2008 and in 2007.

9. Employee Benefits

Pension
and other Postretirement Benefits

Pension Benefits  As described more fully in our 2007 Consolidated Financial Statements, we have a
reimbursement obligation to Owens Corning under Owens Cornings defined benefit pension plan covering certain of our employees. Our obligation to Owens Corning is unfunded. We do not have a defined benefit pension plan.

Other Postretirement Benefits  We have a postretirement benefit plan that covers substantially all of our domestic employees. Upon the completion of the
attainment of age sixty-two and ten years of continuous service, an employee may elect to retire. Employees eligible to retire may receive limited postretirement health and life insurance benefits. We also have an unfunded reimbursement obligation
to Owens Corning for certain of our retirees who retired under Owens Cornings retiree medical plan.

Net periodic benefit costs for the three and
nine months ended September 30, 2008 and September 30, 2007, are as follows:



|                                |  |                                         |    |                                        |   |                 |  |                         |     |      |   |      |  |      |     |      |   |     |  |   |     |  |   |    
|------------------------------- |  | --------------------------------------- | -- | -------------------------------------- | - | --------------- |  | ----------------------- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | --- |  | - | --- |  | - | ---
|                                |  | For the Three Months EndedSeptember 30, |    | For the Nine Months EndedSeptember 30,
|                                |  | PensionBenefits                         |    | Post-RetirementBenefits                |   | PensionBenefits |  | Post-RetirementBenefits
|                                |  | 2008                                    |    | 2007                                   |   | 2008            |  | 2007                    |     | 2008 |   | 2007 |  | 2008 |     | 2007
|Service cost                    |  | $                                       |   |                                        | $ |                |  | $                       | 105 |      | $ | 86   |  | $    |    |      | $ |    |  | $ | 314 |  | $ | 258
|Interest cost                   |  |                                         | 73 |                                        |   | 75              |  |                         | 105 |      |   | 98   |  |      | 220 |      |   | 225 |  |   | 315 |  |   | 295
|                                |  |                                         |    |                                        |   |                 |  |                         |     |      |   |      |  |      |     |      |   |     |  |   |     |  |   |    
|Total net periodic benefit cost |  | $                                       | 73 |                                        | $ | 75              |  | $                       | 210 |      | $ | 184  |  | $    | 220 |      | $ | 225 |  | $ | 629 |  | $ | 553
|                                |  |                                         |    |                                        |   |                 |  |                         |     |      |   |      |  |      |     |      |   |     |  |   |     |  |   |    



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Expected net employer contributions for the defined benefit plan for the year ending December 31, 2008 are $603.
Expected net employer contributions for the postretirement benefit plan for the year ending December 31, 2008 are $530.

Defined Contribution
Plan

We have a defined contribution 401(k) plan that allows qualifying employees to contribute up to 30% of their annual pretax or after-tax
compensation subject to Internal Revenue Service (IRS) limitations. Effective January 1, 2007, AGY provides a matching employer contribution of 50% up to 6% of each participants before-tax salary deferral. In addition, AGY may make an
employer contribution to the plan based on the Companys annual financial performance. For the nine months ended September 30, 2008 and 2007, we contributed $608 and $462, respectively.

10. Stock-based Compensation

Our stock-based
compensation includes stock options and restricted stock as described in our 2007 Consolidated Financial Statements. Total stock-based compensation was $805 and $951 at September 30, 2008 and 2007, respectively. No additional stock options or
restricted stock was granted, exercised, forfeited or expired during the nine months ended September 30, 2008.

11. Comprehensive
Income (Loss)

Comprehensive income (loss) represents net income (loss) and other gains and losses affecting shareholders equity that are not
reflected in our consolidated statements of operations. The components of comprehensive income (loss) for the three and nine months ended September 30, 2008 and 2007 were as follows:



|                                 |  |                                 |       |      |                                |       |      |  |      |     |  |   |      |  
|-------------------------------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | ---- | --- |  | - | ---- | -
|                                 |  | Three Months EndedSeptember 30, |       |      | Nine Months EndedSeptember 30, |      
|                                 |  | 2008                            |       | 2007 |                                |       | 2008 |  | 2007 |    
|Net income (loss)                |  | $                               | 999   |      | $                              | 1,805 |      |  | $    | 437 |  | $ | (350 | )
|Currency translation adjustments |  |                                 | 23    |      |                                | (18   | )    |  |      | 15  |  |   | (4   | )
|                                 |  |                                 |       |      |                                |       |      |  |      |     |  |   |      |  
|Comprehensive income (loss)      |  | $                               | 1,022 |      | $                              | 1,787 |      |  | $    | 452 |  | $ | (354 | )
|                                 |  |                                 |       |      |                                |       |      |  |      |     |  |   |      |  

12. Anderson Contract Termination Costs

On March 31, 2008, AGY notified OC of its intent to terminate the Anderson, SC land and building lease agreement, which also triggered the early termination of the
Anderson manufacturing services agreement with an effective date of June 30, 2008.

During April 2008, the Anderson furnace had a premature failure
that resulted in a permanent shutdown of the furnace. As a consequence, AGY was obligated to pay $639 for the facility lease expenses and the manufacturing service costs related to labor and other fixed expenses incurred by OC from the date of the
furnace shutdown to June 30, 2008, the effective date of the termination of all the Anderson related agreements, without economic benefit to the Company.

We recorded these costs as contract termination costs included in Other operating income, under the guidance of SFAS 146, Accounting for Costs Associated with Exit or Disposal of Activities. We paid in full
the balance due for such contract termination costs to OC during the third quarter of 2008 and there is no residual liability to settle as of September 30, 2008.



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13. Derivative Instruments and Hedging Activities

We sometimes use interest rate swap and cap agreements to manage the risk associated with fluctuations in interest rates and the subsequent impact on future interest
payments. The differential paid or received under these agreements is recognized at fair value in the accompanying consolidated balance sheet. At September 30, 2008 and December 31, 2007, the Company had no interest rate hedging agreements
in effect.

We also, from time to time, enter into fixed-price agreements for our natural gas commodity requirements to reduce the variability of the cash
flows associated with forecasted purchases of natural gas. At September 30, 2008 and December 31, 2007, the Company had existing contracts for physical delivery of natural gas at its Aiken, SC facility that fix the commodity cost of
natural gas for approximately 70% and 88% of its estimated natural gas purchase requirements in the next fifteen and six months, respectively. Although these contracts are considered derivative instruments, they meet the normal purchases exclusion
contained in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities  an amendment of FASB
Statement No. 133, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, and are therefore exempted from the related accounting requirements.

14. Alloy Metals Leases

We lease under short-term
operating leases (generally with lease terms from one to twelve months) a portion of the alloy metals needed to support our manufacturing operations. During the nine months ended September 30, 2008 and 2007, total lease costs of alloy metals
were $6,273 and $1,004, respectively, and were classified as a component of cost of goods sold. This increase in alloy metal lease costs was driven by additional requirements related to both the CFM acquisition, higher production of advanced
material products and higher market prices for platinum and rhodium.

We are leasing alloy metals under the following two agreements:

Metal Consignment Facility

The Company has had a consignment
agreement in place with Bank of Nova Scotia, as assignee of Bank of America, N.A., which was assignee of Fleet Precious Metals Inc., to lease platinum, one of the alloy metals used in our manufacturing operations, since August 2005. In March 2008,
as a result of the increase in platinum market prices, the prior consignment limit was amended to provide up to the lesser of: a) $69,600; b) the value of 32,000 ounces of platinum; or c) $42,000 plus two times the then-available undrawn face amount
of letters of credit securing the agreement. The platinum facility is payable upon the earlier of the occurrence of an event of default under the agreement or the termination of the agreement, and is collateralized by (i) the leased platinum
and (ii) all of our owned platinum, including, without limitation, platinum incorporated into equipment. Lease payments are payable monthly and, at our election, based on either (i) a floating fee calculated and specified by Bank of Nova
Scotia from time to time and initially set at 7.5% per annum or (ii) a fixed fee equal to the precious metals rate, which is the fixed market-based lease rate for the applicable lease period, plus a 2.0% margin. The consignment agreement
contains customary events of default, including, without limitation, nonpayment of lease payments, inaccuracy of representations and warranties in any material respect and a cross-default provision with the Credit Facility and the Senior Second Lien
Notes. The consignment agreement does not contain any financial covenants. We or Bank of Nova Scotia may terminate the consignment agreement at any time upon 30 days prior written notice.

At September 30, 2008 and December 31, 2007, we leased 28,400 and 24,500 ounces, respectively, of platinum under the facility, with a notional value of
approximately $28,500 and $37,400, respectively, as calculated under the facility. Unused availability at September 30, 2008 and December 31, 2007, was approximately 3,600 and 1,700 ounces of platinum and $41,000 and $2,600, respectively.
If the market value of the leased platinum exceeds $69,600 or 32,000 ounces, we are required to purchase or otherwise provide sufficient platinum to reduce the lease balance. As at September 30, 2008, there were no outstanding letters of credit
securing the agreement. All of the leases outstanding at September 30, 2008 had terms of three to twelve months, maturing no later than September 25, 2009 (with future minimum rentals of approximately $1,700 until maturity in 2009).



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Owens Corning Master Lease Agreement

In October 2007, as part of the CFM acquisition, we entered into a master lease agreement with OC to lease platinum and rhodium, exclusively for use in the Huntingdon, PA CFM and Anderson, SC manufacturing operations.
This master lease agreement is in effect until April 2009 and allows us to enter into leases of alloy metal with terms of one to six months for up to approximately 19,800 ounces of platinum and 3,400 ounces of Rhodium (the Maximum Lease
Commitment). The lease rate is a fixed annual 9% rate and the notional lease value is based on the market price in effect at the inception of the lease. Until the maturity date of the master lease agreement, we may automatically renew the
metals leases for one or more successive lease terms or may decide during the term of each lease to return the quantity of metals originally leased, or to decrease the quantity of metals to be leased for the next lease term, which would then
decrease the Maximum Lease Commitment for future leases. The master lease agreement contains customary events of default, including, without limitation, nonpayment of lease payments, inaccuracy of representations and warranties in any material
respect and a cross-default provision with the Credit Facility and the Metal Consignment Facility.

At September 30, 2008 and December 31, 2007,
we leased approximately 19,100 and 19,800 ounces of platinum, respectively, and 3,300 and 3,400 ounces of rhodium, respectively, with a notional lease value of approximately $61,300 and $50,800, respectively. All of the leases outstanding at
September 30, 2008 had terms of three months, maturing no later than November 26, 2008 (with future minimum rentals of approximately $400 until maturity in 2008), prior to renewals as discussed above.

Effective October 24, 2008, we terminated the OC master lease agreement and entered into a new master lease agreement (the Master Lease Agreement) with
DB Energy Trading LLC (DB) for the purpose of leasing precious metals necessary for the operations of the CFM business. The purpose of the Master Lease Agreement is to provide the terms and conditions under which AGY and DB may enter
into leases from time to time whereby DB shall make available to the AGY up to 19,057 ounces of platinum and 3,308 ounces of rhodium necessary for the CFM operations. The Master Lease Agreement allows AGY to enter into leases of alloy metals with
terms of one to twelve months and has an overall thirty-six month lease commitment period. Lease fees depend on the quantity of metal leases required by AGY multiplied by a benchmark value of the applicable precious metal and a margin above the
lease rate index as published on DBs daily precious metal rates sheet. The Master Lease Agreement contains customary events of default, including, without limitation, nonpayment of lease payments, inaccuracy of representations and warranties
in any material respect and certain cross-default provisions.

15. Commitments and Contingencies

We are not a party to any significant litigation or claims, other than routine matters incidental to the operation of the Company. We do not expect that the outcome of
any pending claims will have a material adverse effect on the Companys consolidated financial position, results of operations, or cash flows.

In
addition to the alloy metal leases discussed in Note 14, we also lease other equipment and property under operating leases. Total rent expense for the nine months ended September 30, 2008 and 2007, was $831 and $315, respectively. The
increase in 2008 is primarily due to a seven-year operating lease agreement for manufacturing equipment. The following is a schedule by year of minimum future rentals associated with the manufacturing equipment leased primarily in the third quarter
of 2008:



|                     |  |   |      
|-------------------- |  | - | -----
|10/01/08 to 12/31/08 |  | $ | 260  
|2009                 |  |   | 1,038
|2010                 |  |   | 1,038
|2011                 |  |   | 1,038
|2012                 |  |   | 1,038
|Thereafter           |  |   | 2,749
|                     |  |   |      
|                     |  | $ | 7,161
|                     |  |   |      



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We have agreements to purchase marbles from OC pursuant to which the Company is obligated to make the following minimum
purchases:



|                     |  |   |      
|-------------------- |  | - | -----
|10/01/08 to 12/31/08 |  | $ | 1,594
|2009                 |  |   | 2,782
|                     |  |   |      
|                     |  | $ | 4,376
|                     |  |   |      

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

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

You should read the following
discussion and analysis in conjunction with the accompanying financial statements and related notes, and with our audited financial statements and related notes as of and for the year ended December 31, 2007 (the 2007 Consolidated
Financial Statements) that were included in Amendment No. 1 to the Companys Registration Statement on Form S-4 (Registration No. 333-150749) filed with the Securities and Exchange Commission on May 30, 2008, which we refer
to in this Quarterly Report as the S-4 Registration Statement.

OVERVIEW

We are a leading manufacturer of advanced glass fibers that are used as reinforcing materials in numerous diverse high-value applications, including aircraft laminates,
ballistic armor, pressure vessels, roofing membranes, insect screening, architectural fabrics and specialty electronics. We are focused on serving end-markets that require glass fibers for applications with demanding performance criteria, such as
the aerospace, defense, construction, electronics, automotive and industrial end-markets.

AGY is a Delaware corporation and is a wholly owned subsidiary
of KAGY Holding Company, Inc. (Holdings). Holdings acquired all of our outstanding stock in April 2006 (the Acquisition). Our principal executive office is located at 2556 Wagener Road, Aiken, South Carolina 29801 and our
telephone number is (888) 434-0945. Our website address is http://www.agy.com.

CRITICAL ACCOUNTING
POLICIES

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses included in the financial
statements. Estimates are based on historical experience and other information then currently available, the results of which form the basis of such estimates. While we believe our estimation processes are reasonable, actual results could differ
from our estimates. The critical accounting policies that affect the Companys more complex judgments and estimates are described in the Companys 2007 Consolidated Financial Statements.



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Adoption of new accounting standards

Effective January 1, 2008, we adopted the Financial Accounting Standards Board (FASB) Statement No. 157, Fair Value Measurements (SFAS 157), for financial assets and
liabilities. As permitted by FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No 157, we elected to defer the adoption of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis. In order to increase consistency and comparability in fair value measurements, SFAS 157 establishes a hierarchy for observable and unobservable inputs used
to measure fair value into three broad levels, which are described below:



| |  | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair
value hierarchy gives the highest priority to Level 1 inputs.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly based on inputs not quoted on active markets,
but corroborated by market data.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Our foreign exchange derivative assets and liabilities are valued using quoted forward foreign exchange prices at the reporting
date. At September 30, 2008, we had no financial assets and liabilities outstanding requiring fair value measurements.

In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115(SFAS 159), which is effective for fiscal years beginning
after November 15, 2007. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We did not elect to
measure eligible financial assets and liabilities using the fair value option as of January 1, 2008; therefore, there was no impact to our consolidated financial statements from the adoption of SFAS 159.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(SFAS 141(R)), which replaces SFAS No. 141. SFAS 141(R) retains the underlying concepts of
SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the purchase method of accounting, but SFAS 141(R) changed the application of the purchase method in a number of significant aspects.
Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at
the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition
date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15,
2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends FASB Statement No. 109 such that adjustments made to valuation allowances on deferred taxes and
acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R) subsequent to December 15, 2008. Early adoption is not permitted. We have not
determined what impact, if any, that adoption of this standard will have on our financial statements. Management has entered into a nonbinding letter of intent to acquire an Asian yarn manufacturer. This acquisition, if completed, will provide AGY
with additional capabilities to further penetrate the growing Asian markets and establish a low cost manufacturing operation. The transactional costs of $848, incurred in 2008 and classified as other long-term assets at September 30, 2008,
would be expensed in 2009 under the guidance of SFAS 141(R) if the acquisition contemplated by management was not consummated in 2008.



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In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements(SFAS 160). SFAS 160 requires entities to report noncontrolling (minority) interests in subsidiaries as equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We have not determined
what impact, if any, that adoption of this standard will have on our results of operations, cash flows, or financial position.

In March 2008, the
FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires entities that utilize derivative instruments to
provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose
additional information about the amounts and location of derivatives located within the financial statements, how the provisions of FASB Statement No. 133 have been applied, and the impact that hedges have on an entitys financial
position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We have not yet determined what impact, if any, the
adoption of SFAS 161 will have on our financial statements.

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for
non-governmental entities. SFAS 162 directs the GAAP hierarchy to the entity, not the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented inconformity with GAAP. SFAS 162
is effective 60 days following the Securities and Exchange Commissions approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Presenting Fairly in Conformity with Generally Accepted
Accounting Principles. We are currently evaluating the new statement and anticipate that, if it is approved in its current form, it will not have a significant impact on the determination or reporting of our financial results.



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Results of operations

The following tables summarize our results of operations in dollars and as a percentage of net sales for the three and nine months ended September 30, 2008 and 2007 (dollars in thousands, except for percentages):



|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|-------------------------------------------- |  | ------------------------------- | ------ | -- | ------------------------------ | - | ------ | ---- |  | - | ------- | -- |  | - | ------- | --
|                                             |  | Three Months EndedSeptember 30, |        |    | Nine Months EndedSeptember 30, |  
|                                             |  | 2008                            |        |    | 2007                           |   |        | 2008 |  |   | 2007    |   
|Net sales                                    |  | $                               | 61,143 |    |                                | $ | 48,349 |      |  | $ | 183,177 |    |  | $ | 134,746 |   
|Cost of goods sold                           |  |                                 | 48,532 |    |                                |   | 35,790 |      |  |   | 148,985 |    |  |   | 106,539 |   
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Gross profit                                 |  |                                 | 12,611 |    |                                |   | 12,559 |      |  |   | 34,192  |    |  |   | 28,207  |   
|Selling, general and administrative expenses |  |                                 | 5,006  |    |                                |   | 4,391  |      |  |   | 14,358  |    |  |   | 12,625  |   
|Amortization of intangible assets            |  |                                 | 465    |    |                                |   | 419    |      |  |   | 1,394   |    |  |   | 1,257   |   
|Other operating income, net                  |  |                                 |       |    |                                |   |       |      |  |   | 319     |    |  |   | 195     |   
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Operating income                             |  |                                 | 7,140  |    |                                |   | 7,749  |      |  |   | 18,759  |    |  |   | 14,520  |   
|Other non-operating (expense) income, net    |  |                                 | (127   | )  |                                |   | 168    |      |  |   | (18     | )  |  |   | 92      |   
|Interest expense                             |  |                                 | (5,222 | )  |                                |   | (5,011 | )    |  |   | (17,858 | )  |  |   | (15,157 | ) 
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Income (loss) before income taxes            |  |                                 | 1,791  |    |                                |   | 2,906  |      |  |   | 883     |    |  |   | (545    | ) 
|Income tax benefit (expense)                 |  |                                 | (792   | )  |                                |   | (1,101 | )    |  |   | (446    | )  |  |   | 195     |   
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Net income (loss)                            |  | $                               | 999    |    |                                | $ | 1,805  |      |  | $ | 437     |    |  | $ | (350    | ) 
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|                                             |  |                                
|                                             |  | Three Months EndedSeptember 30, |        |    | Nine Months EndedSeptember 30, |  
|                                             |  | 2008                            |        |    | 2007                           |   |        | 2008 |  |   | 2007    |   
|Net sales                                    |  |                                 | 100.0  | %  |                                |   | 100.0  | %    |  |   | 100.0   | %  |  |   | 100.0   | % 
|Cost of goods sold                           |  |                                 | 79.4   | %  |                                |   | 74.0   | %    |  |   | 81.3    | %  |  |   | 79.1    | % 
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Gross profit                                 |  |                                 | 20.6   | %  |                                |   | 26.0   | %    |  |   | 18.7    | %  |  |   | 20.9    | % 
|Selling, general and administrative expenses |  |                                 | 8.2    | %  |                                |   | 9.1    | %    |  |   | 7.8     | %  |  |   | 9.3     | % 
|Amortization of intangible assets            |  |                                 | 0.8    | %  |                                |   | 0.9    | %    |  |   | 0.8     | %  |  |   | 0.9     | % 
|Other operating income, net                  |  |                                 |       | %  |                                |   |       | %    |  |   | 0.1     | %  |  |   | 0.1     | % 
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Operating income                             |  |                                 | 11.6   | %  |                                |   | 16.0   | %    |  |   | 10.2    | %  |  |   | 10.8    | % 
|Other non-operating (expense) income, net    |  |                                 | (0.2   | )% |                                |   | 0.3    | %    |  |   | 0.0     | %  |  |   | 0.0     | % 
|Interest expense                             |  |                                 | (8.5   | )% |                                |   | (10.4  | )%   |  |   | (9.7    | )% |  |   | (11.2   | )%
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Income (loss) before income taxes            |  |                                 | 2.9    | %  |                                |   | 5.9    | %    |  |   | 0.5     | %  |  |   | (0.4    | )%
|Income tax benefit (expense)                 |  |                                 | (1.3   | )% |                                |   | (2.2   | )%   |  |   | (0.3    | )% |  |   | 0.1     | % 
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   
|Net income (loss)                            |  |                                 | 1.6    | %  |                                |   | 3.7    | %    |  |   | 0.2     | %  |  |   | (0.3    | )%
|                                             |  |                                 |        |    |                                |   |        |      |  |   |         |    |  |   |         |   

As further discussed below, our management uses EBITDA and Adjusted EBITDA, which are non-GAAP financial measures,
to measure our operating performance.

EBITDA and Adjusted EBITDA (which are defined below) are reconciled from net loss determined under GAAP as follows
(dollars in thousands):



|                              |  |                                 |        |                                |   |        |  |      |        |  |   |        |  
|----------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------ | -
|                              |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30, |  
|                              |  | 2008                            |        | 2007                           |   | 2008   |  | 2007 |       
|Statement of operations data: |  |                                 |        |                                |   |        |  |      |        |  |   |        |  
|Net income (loss)             |  | $                               | 999    |                                | $ | 1,805  |  | $    | 437    |  | $ | (350   | )
|Interest expense              |  |                                 | 5,222  |                                |   | 5,011  |  |      | 17,858 |  |   | 15,157 |  
|Income tax (benefit) expense  |  |                                 | 792    |                                |   | 1,101  |  |      | 446    |  |   | (195   | )
|Depreciation and amortization |  |                                 | 3,106  |                                |   | 2,561  |  |      | 9,737  |  |   | 9,549  |  
|                              |  |                                 |        |                                |   |        |  |      |        |  |   |        |  
|EBITDA                        |  | $                               | 10,119 |                                | $ | 10,478 |  | $    | 28,478 |  | $ | 24,161 |  
|                              |  |                                 |        |                                |   |        |  |      |        |  |   |        |  



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|                                                       |  |                                 |        |                                |   |        |  |   |        |   |  |   |        |  
|------------------------------------------------------ |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | - | ------ | - |  | - | ------ | -
|                                                       |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30, |  
|                                                       |  | 2008                            |        | 2007                           |   | 2008   |  |   | 2007   |  
|EBITDA                                                 |  | $                               | 10,119 |                                | $ | 10,478 |  | $ | 28,478 |   |  | $ | 24,161 |  
|Adjustments to EBITDA:                                 |  |                                 |        |                                |   |        |  |   |        |   |  |   |        |  
|Alloy depletion charge, net (a)                        |  |                                 | 3,093  |                                |   | 2,111  |  |   | 8,964  |   |  |   | 5,619  |  
|Non-cash compensation charges (b)                      |  |                                 | 223    |                                |   | 327    |  |   | 805    |   |  |   | 951    |  
|Management fees (c)                                    |  |                                 | 188    |                                |   | 188    |  |   | 563    |   |  |   | 563    |  
|Disposition of assets (gain) (d)                       |  |                                 |       |                                |   |       |  |   | (930   | ) |  |   | (195   | )
|Cost associated with the exit of Anderson facility (e) |  |                                 | 16     |                                |   |       |  |   | 639    |   |  |   |       |  
|Union signing bonus (f)                                |  |                                 |       |                                |   |       |  |   |       |   |  |   | 324    |  
|                                                       |  |                                 |        |                                |   |        |  |   |        |   |  |   |        |  
|Adjusted EBITDA                                        |  | $                               | 13,639 |                                | $ | 13,104 |  | $ | 38,519 |   |  | $ | 31,423 |  
|                                                       |  |                                 |        |                                |   |        |  |   |        |   |  |   |        |  



|(a) | As part of capital expenditures, we purchase alloy metals. During the manufacturing process a small portion of the alloy metal is physically consumed. GAAP requires that when the
metal is actually consumed a non-cash charge be recorded. This expense is recorded net of the amount of metal that can be recovered after some specific treatment and net of the charges associated with such recovery treatment.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reflects non-cash compensation expenses related to awards under Holdings 2006 Stock Option Plan and Holdings restricted stock granted to certain members of management.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Reflects the elimination of the annual management fee payable to our sponsor, Kohlberg & Company, LLC, pursuant to the management agreement entered into in connection
with the Acquisition.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Reflects the elimination of the gain recorded versus historical book value on the sale of some non-operating assets.
|--- | --------------------------------------------------------------------------------------------------------------------

|(e) | Reflects the elimination of the costs associated with the termination of the Anderson land and building lease and manufacturing services agreements that continued to be incurred
from the date of the premature failure of the Anderson furnace to June 30, 2008, without economic benefit to the Company.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Reflects the signing bonuses payable to members of the Teamsters union in connection with ratification of the collective bargaining agreement.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure used by management to measure operating
performance. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not
intended to be a measure of free cash flow available for managements discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Management believes EBITDA is
helpful in highlighting trends because EBITDA excludes the result of decisions that are outside the control of operating management and can differ significantly from company to company depending on long-term strategic decisions regarding capital
structure, the tax jurisdictions in which companies operate and capital investments. In addition, management believes EBITDA provides more comparability between our historical results and results that reflect purchase accounting and changes in our
capital structure. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results
alone. Because not all companies use identical calculations, these presentations of EBITDA may not be comparable to other similarly titled measures of other companies.

Adjusted EBITDA is a non-GAAP financial measure which is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance and calculated in the same manner
as Consolidated Cash Flow under the indenture governing our senior second lien notes (the Notes), which is used by management in calculating our fixed charge coverage ratio under the indenture governing our Notes. We believe
that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors.



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THREE MONTHS ENDED SEPTEMBER 30, 2008
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007

Net sales. Net sales increased $12.8 million, or 26.5%, to $61.1 million for the three months ended September 30, 2008, compared to $48.3 million during the comparable quarter of 2007. This increase is primarily a result
of (i) our acquisition of the North American Continuous Filament Mat (CFM) business of Owens Corning (OC) in October 2007, which contributed $8.4 million of incremental revenue, (ii) selected price increases, and
(iii) a favorable product mix associated with higher sales of advanced material and technical yarn products. Defense revenues increased by 57% as the result of our continued success in the Mine Resistant Ambush Protected (MRAP)
program and the associated Explosively-Formed Penetrator (EFP) protection kits program initiated in the second half of 2007. Aerospace revenues increased by 10%, reflecting higher demand in the aircraft original equipment manufacturer
(OEM) and retrofit markets. Without taking account of the CFM acquisition, electronic and industrial revenue decreased by 3% and 12%, respectively. Demand for architectural roofing structure continued to increase during the third quarter
of 2008 when compared to the same period in 2007, leading to a 10% increase for non-CFM construction revenue for the three months ended September 30, 2008 compared to the same period in 2007.

Gross profit. Gross profit remained flat at approximately $12.6 million for the three months ended September 30, 2008 and the three months ended
September 30, 2007. Gross profit margin decreased to 20.6% of net sales, in the three months ended September 30, 2008 from 26.0% of net sales, for the three months ended September 30, 2007. A favorable product mix, selected price
increases, and increased levels of production that resulted in over-absorption of manufacturing overhead costs, favorably impacted gross profit margin. However, these improvements were offset by several factors, including: (i) short-term
inefficiencies due to production ramp-up activities necessary to support market demand, (ii) an increase in alloy metal lease costs driven by additional alloy metal requirements associated with the CFM acquisition, higher production of advanced
material products, and increased market prices for platinum and rhodium, (iii) inflationary pressure in energy, raw materials, freight costs and higher labor expenses, and (iv) higher alloy metal net depletion losses caused by the
increased levels of production and the timing of alloy metal recoveries.

Selling, general and administrative expenses. Selling, general
and administrative costs increased $0.6 million to $5.0 million during the quarter ended September 30, 2008 from $4.4 million in the comparable quarter of 2007. This increase reflects higher personnel and business development expenses necessary
to support our strategic growth initiatives and new product development activities. Selling, general and administrative costs decreased from 9.1% of net sales in the third quarter of 2007 to 8.2% of net sales in the third quarter of 2008.

Interest expense. Interest expense increased $0.2 million from $5.0 million in the third quarter of 2007 to $5.2 million for the three
months ended September 30, 2008. The increase was primarily due to the increase in borrowings outstanding under our revolving credit facility during the third quarter of 2008 when compared to the third quarter of 2007.

Income tax expense. Income tax expense decreased $0.3 million from $1.1 million in the third quarter of 2007 to $0.8 million for the three months
ended September 30, 2008 due to the lower pre-tax income recognized in the third quarter of 2008.

Net income.As a result of the
aforementioned factors, we reported a net income of $1.0 million for the three months ended September 30, 2008, compared to a net income of $1.8 million for the three months ended September 30, 2007.



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NINE MONTHS ENDED SEPTEMBER 30, 2008
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007

Net sales. Net sales increased $48.5 million, or 35.9%, to $183.2 million for the nine months ended September 30, 2008, compared to $134.7 million during the comparable period of 2007. This increase is the result of
(i) our acquisition of the North American CFM business in October 2007, which contributed $25.0 million of incremental revenue, (ii) selected price increases and (iii) an improvement in product mix associated with higher sales of
advanced material and technical yarn products. Defense revenues increased by 101% as a result of our continued success in the MRAP program and the EFP protection kits. Aerospace revenues increased by 16% reflecting higher OEM and retrofit activity.
Without taking account of the CFM acquisition, shipments to the electronics industry and industrial market increased by 2%. The construction market continues to experience softness in the North American housing segment, however, demand for
architectural roofing structure improved. Consequently, non-CFM construction revenue increased by 4% for the nine months ended September 30, 2008 compared to the same period in 2007.

Gross profit. Gross profit increased approximately $6.0 million from $28.2 million, or 20.9% of net sales, in the nine months ended September 30,
2007 to $34.2 million, or 18.7% of net sales, for the nine months ended September 30, 2008. The gain in profitability was associated with a more favorable product mix, selected price increases, the incremental margin associated with the CFM
acquisition, lower depreciation expense and a reduction in consulting costs when compared to the same period last year. These improvements were partially offset by several factors, including primarily: (i) short-term inefficiencies associated
with capacity increases necessary to meet market demand and establish in-house marble production in our Aiken, SC facility, (ii) an increase in alloy metal lease costs driven by additional alloy metal requirements associated with the CFM
acquisition, higher production levels of advanced material products and higher market prices for platinum and rhodium, (iii) a furnace disruption experienced at our Aiken, SC facility in early 2008, (iv) inflationary pressure in energy,
raw materials, freight costs and higher labor expenses and (v) higher alloy metal net depletion losses caused by the increased levels of production and the timing of alloy metal recoveries.

Selling, general and administrative expenses. Selling, general and administrative costs increased $1.8 million to $14.4 million during the nine months
ended September 30, 2008 from $12.6 million in the comparable period of 2007. This increase reflects higher personnel and business development expenses necessary to support our strategic growth initiatives and new product development
activities. Selling, general and administrative costs as a percent of sales decreased from 9.3% in the first nine months of 2007 to 7.8% in the first nine months of 2008.

Interest expense. Interest expense increased $2.7 million from $15.2 million in the first nine months of 2007 to $17.9 million for the nine months ended September 30, 2008. The increase was
primarily due to $2.2 million of fees and expenses incurred during the first nine months of 2008 in connection with the bondholders consent solicitation for our Metal Consignment Facility amendment and the S-4 Registration Statement and an
increase in borrowings under the revolving credit facility for the first nine months of 2008.

Income tax expense. Income tax expense
increased $0.6 million for the nine months ended September 30, 2008, when compared to the first nine months of 2007 due primarily to a pre-tax income and a pre-tax loss recognized in the first nine months of 2008 and 2007, respectively. In
addition, the effective tax rate increased from 35.8% for the first nine months of 2007 to 50.5% for the nine months ended September 30, 2008. The increase in the effective tax rate is a result of an adjustment to prior year state tax accruals
based on new information that became available during the third quarter of 2008.

Net Income.As a result of the aforementioned factors,
we reported a net income of $0.4 million for the nine months ended September 30, 2008, compared to a net loss of $0.4 million for the nine months ended September 30, 2007.



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LIQUIDITY AND CAPITAL RESOURCES

Working capital. Working capital is defined as total current assets, excluding unrestricted cash, less total current liabilities, including the
current portion of long-term debt. We had working capital of $32.4 million and $34.5 million on September 30, 2008 and December 31, 2007, respectively. The $2.1 million decrease is primarily the result of: (i) a $2.2 million increase
in accounts receivable attributable to the higher sales in the third quarter of 2008 compared to the fourth quarter of 2007, partially offset by an improvement in days sales outstanding, (ii) a $4.1 million increase in accrued liabilities,
primarily attributable to higher accrued interest based on the semi-annual schedule of interest payments on our Notes and lower amounts due for pension reimbursement obligations, in part offset by (iii) a $0.5 million decrease in trade accounts
payable, and a (iv) a $0.7 million decrease in deferred income taxes current assets.

Other balance-sheet items.

Net Property, Plant and Equipment and Alloy Metals. Net property, plant and equipment increased $17.2 million, or 10.5%, from December 31, 2007 to
September 30, 2008. The net increase is the result of $36.7 million of capital expenditures and alloy metals purchases, partially offset by $17.3 million of depreciation and alloy metals depletion expenses, the $1.7 million reduction of the
value of the CFM acquired property, plant and equipment due to the resolution of the CFM acquisition contingency and finalization of the CFM purchase accounting discussed in Note 4 to these interim consolidated financial statements and $0.5 million
of net book value for retired assets.

Long Term Debt.Long-term debt increased $7.1 million from December 31, 2007 to September 30, 2008
as a result of borrowings under our Credit Facility necessary to fund the alloy metals and other capital expenditures made during the first nine months of 2008 in order to support customer demand.

Nine months ended September 30, 2008 compared to Nine months ended September 30, 2007.

Cash provided by operating activities was $23.0 million for the nine months ended September 30, 2008, compared to $21.7 million for the nine months ended
September 30, 2007. The $1.3 million increase during 2008 was primarily attributable to a higher net income adjusted for non-cash items, partially offset by an increase in working capital requirements.

Cash used in investing activities was $34.0 million for the nine months ended September 30, 2008, compared to $8.5 million for the nine months ended
September 30, 2007. The increase was due primarily to higher purchases of alloy metals, which totaled $28.2 million for the nine months ended September 30, 2008 to support our manufacturing capacity expansion.

Cash provided by financing activities was $6.9 million for the nine months ended September 30, 2008, compared to cash used in financing activities of $0.9 million
for the nine months ended September 30, 2007. The increase was due primarily to $7.1 million of borrowings outstanding under our Credit Facility at September 30, 2008.

Historical indebtedness

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 the $175.0 million aggregate principal amount of Notes, interest payments on the Credit Facility, and the funding of capital expenditures and
working capital requirements. There are no mandatory payments of principal on the Notes scheduled prior to their maturity in November 2014.

At
September 30, 2008, we had total liquidity of $33.4 million, consisting of $1.1 million in unrestricted cash and approximately $32.3 million available under the Credit Facility.

Our principal sources of liquidity have been cash flow generated from operations, borrowings under our $40 million Credit Facility, the issuance of $175 million in aggregate principal amount of 11% Senior Second Lien
Notes due 2014 and our cash on hand.

Our Credit Facility has a term of 60 months and includes sub-limits for the issuance of letters of credit and swing
line loans. The borrowing base for our Credit Facility is equal to the sum of: (i) an advance rate against eligible accounts receivable of up to 90%, plus (ii) the lesser of (A) 65% of the book value of our eligible inventory (valued
at the lower of cost or market) and (B) 85% of the net orderly liquidation value for our eligible inventory, plus (iii) up to $32.5 million of our eligible alloy inventory, minus (iv) 100% of mark-to-market risk on certain interest
hedging arrangements, minus (v) a reserve of $7.5 million.



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At our option, loans under our Credit Facility bear interest based on either the eurodollar rate or base rate (a rate
equal to the greater of the corporate base rate of interest established by the administrative agent from time to time, and the federal funds effective rate plus 0.50%) plus, in each case, an applicable margin. Generally, the applicable margin is
expected to be 1.75% in the case of eurodollar rate loans and 0.75% in the case of base rate loans.

In addition, we pay customary commitment fees and
letter of credit fees under the Credit Facility. All obligations under the Credit Facility are guaranteed by Holdings and all of our existing and future direct and indirect domestic subsidiaries. We may enter into swap agreements from time to time
to reduce the risk of greater interest expense because of interest-rate fluctuations. Our and the guarantors obligations under the Credit Facility are secured, subject to permitted liens and other agreed upon exceptions, by a first-priority
perfected (subject to customary exceptions) security interest in substantially all of our and the guarantors assets. The Credit Facility contains customary representations and warranties and customary affirmative and negative covenants,
including, among other things, restrictions on indebtedness, liens, investments, mergers and consolidations, dividends and other payments in respect to capital stock, transactions with affiliates, and optional payments and modifications of
subordinated and other debt instruments. The Credit Facility also includes customary events of default, including a default upon a change of control.

As
of September 30, 2008, we had utilized approximately $0.6 million of the Credit Facility for the issuance of standby letters of credit and had $7.1 million cash borrowings outstanding, leaving $32.3 million available for additional borrowings.

In connection with our refinancing on October 25, 2006, we issued $175.0 million aggregate principal amount of Notes to an initial purchaser, which
were subsequently resold to qualified institutional buyers and non-U.S. persons in reliance upon Rule 144A and Regulation S under the Securities Act of 1933, as amended. As discussed in Note 7, we consummated an exchange offer of the Notes in
September 2008. Interest on the Notes is payable semi-annually on May 15 and November 15 of each year. Our obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on a second-priority basis, by each of
our existing and future domestic subsidiaries, other than immaterial subsidiaries, that guarantee our indebtedness, including our new Credit Facility, or the indebtedness of any our restricted subsidiaries. The indenture does not allow us to pay
dividends or distributions on our outstanding capital stock (including to our parent) and limits or restricts our ability to incur additional debt, repurchase securities, make certain prohibited investments, create liens, transfer or sell assets,
enter into transactions with affiliates, issue or sell stock of a subsidiary or merge or consolidate. The indenture permits the trustee or the holders of 25% or more of the notes to accelerate payment of the outstanding principal and accrued and
unpaid interest upon certain events of default, including failure to make required payments of principal and interest when due, uncured violations of the material covenants under the indenture or if lenders accelerate payment of the outstanding
principal and accrued unpaid interest due to an event of default with respect to at least $15.0 million of our other debt, such as our Credit Facility.

As
of September 30, 2008, the estimated fair value of the Notes was $155,750 compared to a recorded book value of $175,000.

Based upon our current and
anticipated levels of operations, we believe that our cash flows from operations, together with availability under the Credit Facility, will be adequate to meet our anticipated debt service requirements, capital expenditures and working capital
needs for at least the next twelve months. Our ability to continue to fund these items could be adversely affected by the occurrence of any of the events described under Risk Factors in our filings with the Securities and Exchange
Commission. There can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to enable us to service our indebtedness. Our future operating performance and ability to service
indebtedness will be subject to future economic conditions and to financial, business and other factors, certain of which are beyond our control.



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FINANCIAL OBLIGATIONS AND COMMITMENTS

As of September 30, 2008, current maturities of accounts payable and capital lease obligations totaled $11.5 million. The capital lease obligations of $1.0 million
mature by the end of 2008.

We have committed to purchase marbles from OC. At September 30, 2008, the minimum purchases were $1.6 million and $2.8
million for the remainder of 2008 and 2009, respectively.

As discussed in more detail in our 2007 Consolidated Financial Statements and in our notes to
these interim consolidated financial statements, we also entered into several short-term operating leases for alloy metals and into various operating leases for certain manufacturing equipment, personal and real property.

Our Credit Facility is scheduled to mature in October 2011 and our $175 million Notes mature in October 2014.

IMPACT OF INFLATION AND ECONOMIC TRENDS

Historically, inflation has not had a material effect on our results of operations, as we have been able to offset most of the impact of inflation through price increases
for our products. However, we cannot guarantee that we will continue to be able to offset these costs through price increases to our customers in the future.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This
managements discussion and analysis of financial condition and results of operations includes or may include forward-looking statements. All statements included herein, other than statements of historical fact, may constitute
forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual
results to differ materially from those expressed or implied by such forward-looking statements include, among others, the following factors: competition from other suppliers of glass fibers, as well as suppliers of competing products; the cyclical
nature of certain of the end-markets for our products; change in economic conditions generally leading to global market downturn; an inability to develop product innovations and improve our production technology and expertise; the loss of a large
customer or end-user application; a decision by an end-user to modify or discontinue production of an end-product that has specified the use of our product; an inability to protect our intellectual property rights; liability for damages based on
product liability claims; increases in energy costs and other raw materials or in the cost of acquiring or leasing alloy metals required for the production of glass fibers; labor disputes or increases in labor costs; difficulties and delays in
manufacturing; a reliance on Owens Corning for our bushing fabrication and technical support for our operations; an inability to successfully implement our cost reduction initiatives relating to efficiency, throughput and process technology
developments; an inability to successfully integrate future acquisitions; interest rate and foreign exchange rate fluctuations; the loss of key members of our management; an inability to comply with environmental, health or safety laws; our limited
history of profitable operations since our emergence from Chapter 11 protection on April 2, 2004; our substantial indebtedness; and certain covenants in our debt documents.

We do not have any intention or obligation to update forward-looking statements included in this managements discussion and analysis of financial condition and results of operations.



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ITEM 3.  Quantitative and Qualitative Disclosure About Market Risk

INTEREST RATE RISK

We
are subject to interest rate risk in connection with our long-term debt. Our principal interest rate exposure relates to the $40 million Credit Facility. Assuming the revolver is fully drawn, each quarter point change in interest rates would result
in approximately a $0.1 million change in interest expense associated with the Credit Facility.

NATURAL GAS
COMMODITY RISK AND PLATINUM/RHODIUM RISK

Due to the nature of
our manufacturing operations, we are exposed to risks due to changes in natural gas commodity prices. We utilize derivative financial instruments in order to reduce some of the variability of the cash flows associated with our forecasted purchases
of natural gas. In addition, because we use bushings made with a platinum-rhodium alloy as part of our manufacturing process, we are exposed to risks due to changes in the prices of these metals.

FOREIGN EXCHANGE RISK

We are subject to inherent risks attributed to operating in a global economy. All of our debt and most of our costs are denominated in U.S. dollars. Approximately 2% of our sales are denominated in currencies other than the U.S. dollar.
Although our level of foreign currency exposure is limited, we may utilize derivative financial instruments to manage foreign currency exchange rate risks.

We are exposed to credit loss in the event of non-performance by the other parties to the derivative financial instruments. We mitigate this risk by entering into agreements directly with counterparties that meet our credit standards and
that we expect to fully satisfy their contractual obligations. We view derivative financial instruments purely as a risk management tool and, therefore, do not use them for speculative trading purposes.

ITEM 4T.  Controls and Procedures

As of the end of the period covered by this Quarterly Report, the Companys Principal Executive Officer and Principal Financial Officer have conducted an evaluation of the Companys disclosure controls and procedures. Based on
their evaluation, the Companys Principal Executive Officer and Principal Financial Officer have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the applicable Securities and Exchange Commission rules and forms and
(ii) accumulated and communicated to the Companys management, including the Companys Principal Executive Officer and the Companys Principal Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.



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PART II  OTHER INFORMATION

ITEM 1A. Risk Factors

As of
November 12, 2008, there have been no material changes to the risk factors disclosed under the heading Risk Factors in Amendment No. 1 to the Companys Registration Statement on Form S-4 (Registration No. 333-150749),
which are incorporated herein by reference. These factors could materially affect our business, financial condition or future results. In addition, future uncertainties may increase the magnitude of these adverse affects or give rise to additional
material risks not now contemplated.

ITEM 6  Other Information

None to report.

ITEM 7  Exhibits



|              |  |                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                       
|31.1          |  | Certification by Douglas J. Mattscheck pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                            
|              | 
|31.2          |  | Certification by Wayne T. Byrne pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                   
|              | 
|32.1          |  | Certification by Douglas J. Mattscheck pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|              | 
|32.2          |  | Certification by Wayne T. Byrne pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       



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SIGNATURES

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



|                        |  |                   |  |                                                
|----------------------- |  | ----------------- |  | -----------------------------------------------
|                        |  | AGY Holding Corp.
|                        |  |                  
|Date: November 12, 2008 |  | By:               |  | /s/ Douglas J. Mattscheck                      
|                        |  |                   |  | Douglas J. Mattscheck                          
|                        |  |                   |  | Chief Executive Officer, President and Director
|                        |  |                  
|Date: November 12, 2008 |  | By:               |  | /s/ Wayne T. Byrne                             
|                        |  |                   |  | Wayne T. Byrne                                 
|                        |  |                   |  | Chief Financial Officer                        



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                       
|31.1          |  | Certification by Douglas J. Mattscheck pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                            
|              | 
|31.2          |  | Certification by Wayne T. Byrne pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                   
|              | 
|32.1          |  | Certification by Douglas J. Mattscheck pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|              | 
|32.2          |  | Certification by Wayne T. Byrne pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       



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