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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission File No. 333-72321

BGF Industries, Inc.

(Exact name of registrant as specified in its charter)

(336) 545-0011

(Registrants’ telephone number, including area code)

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

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

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

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

There is no established trading market for the Common Stock of the registrant. All shares of Common Stock are held by an affiliate of the registrant at March 26, 2004.

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,000 shares of common stock, $1.00 par value, as of March 26, 2004.

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BGF INDUSTRIES, INC.

ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2003

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PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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Item 1. Business

General

Our business focuses on the production of value-added specialty woven and non-woven fabrics made from glass, carbon and aramid yarns. In both revenue and market share, we believe we are the second largest manufacturer of glass fiber fabrics and a leading producer of other high performance fabrics in North America. Our fabrics are a critical component in the production of a variety of electronic, filtration, composite, insulation, construction and commercial products. Our glass fiber fabrics are used by our customers in printed circuit boards, which are integral to virtually all advanced electronic products, including computers and cellular telephones. Our fabrics are also used by our customers to strengthen, insulate and enhance the dimensional stability of hundreds of products that they make for their own customers in various markets, including aerospace, transportation, construction, power generation and oil refining. In the course of our normal operations, we are engaged in various related party transactions. See Item 13 for further discussion.

BGF is a Delaware corporation. Our headquarters are located at 3802 Robert Porcher Way, Greensboro, North Carolina, 27410, and our telephone number is (336) 545-0011. Our website address is http://www.bgf.com. Our website also provides a link to reports and other documents that we file or furnish with the Securities and Exchange Commission.

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

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

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

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

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

Business Strategy

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

Continue to Focus on Lightweight Fabrics for the Multi-Layer Printed Circuit Board Market. We seek to continue to expand our sales of lightweight glass fiber fabrics to meet the long-term growing demand for multi-layer printed circuit boards. Our continued investment in our South Hill, Virginia, lightweight fabrics facility is an important part of this strategy. We also believe that the quality of the products we manufacture at the South Hill facility will enable us to enhance and expand our relationships with customers in the multi-layer printed circuit board market.

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

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

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

Products and Markets

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

Electronics. We produce glass fiber fabrics for multi-layer and rigid printed circuit boards for use in the electronics industry. The demand for multi-layer printed circuit boards, which primarily use lightweight glass fiber fabrics, decreased from 2002 to 2003 primarily as a result of significant inventory adjustments in the electronics industry that began during the first quarter of 2001 as well as reduced demand for electronic products by the end-users. In addition, the decrease in capital spending in the information technology and telecommunications industry led fabricators of printed circuit boards to reduce production which negatively impacted our sales to these customers. Furthermore, the demand for our heavyweight fabrics has decreased due to competitive pressures from Asian laminate producers. Sales of glass fabrics to the electronics industry were $31.0 million in 2003 and $40.1 million in 2002. These sales represented 24.8% and 30.6% of our net sales in 2003 and 2002, respectively. The decrease in sales of our electronics products reflects our current market strategy to move away from the heavyweight electronics industry and focus on lightweight electronics products and specialty products.

Composites. Our glass, carbon and aramid fiber fabrics are used in various composite materials, which are used in various applications, including structural aircraft parts and interiors, helicopter rotor blades, tooling, brake linings and ducting. Net sales of fabrics for composites were $42.3 million in 2003 and $41.3 million in 2002. These sales represented 33.8% and 31.6% of our net sales in 2003 and 2002, respectively. This increase is the result of an increase in the demand for products used to refurbish existing aircraft and an increase in purchases by the military.

Filtration. We produce fabrics for high temperature dust filtration used by industrial customers to control emissions into the environment. Our filtration bags are sold to utilities, producers of asphalt and carbon black, cement plants and steel mills. Sales of our filtration fabrics were $27.3 million in 2003 and $23.1 million in 2002. These sales represented 21.8% and 17.6% of our net sales in 2003 and 2002, respectively. The increase in sales of filtration fabrics is due to an increase in demand for replacement filtration bags due to the improving state of the economy, as well as new products developed internally.

Commercial. Our glass fiber fabrics are used in commercial applications where fire resistance and dimensional stability are critical. Applications for these products include ceiling tile and acoustical facing fabrics, window coverings and movie screens. Sales of our commercial fabrics were $9.4 million in 2003 and $10.7 million in 2002. These sales represented 7.5% and 8.2% of our net sales in 2003 and 2002, respectively. The decrease in sales of commercial products is due to a decrease in demand for decorative commercial fiberglass products.

Insulation. We produce materials for high-temperature, fire-resistant insulation. Applications for these products include insulation for joints, pipes, valves, transportation exhaust systems, heat shields and home appliances. Sales of our insulation fabrics were $11.4 million in 2003 and $10.3 million in 2002. These

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

Construction. The fire resistant qualities of glass fiber fabrics make them a critical component of products used in the construction industry. Applications for these products include smoke and fire barrier curtains, drywall bonding tape, rubber mat backing and fabric structures, such as commercial tents and roofs. Sales of our construction fabrics were $3.8 million in 2003 and $5.3 million in 2002. These sales represented 3.0% and 4.0% of our net sales in 2003 and 2002, respectively. The decrease in sales of construction products is due to a decrease in the commercial construction industry.

Sales and Marketing

We sell our products through an experienced direct sales force of six field sales representatives, three market managers and two inside sales representatives. Our sales representatives have specific customer groups, while the market managers are responsible for specific product lines. The sales representatives are compensated on a salary and commission basis and the market managers are compensated on a salary and bonus basis. Each sales representative has a technical orientation and the necessary expertise to sell our full line of products. We maintain an internet web site, located at www.bgf.com, which contains extensive product information, as well as a comprehensive B2B capability for our major customers.

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

One of our customers, Cytec Engineered Materials, accounted for 17.0% and 17.9% of our net sales in 2003 and in 2002 respectively. Our top ten customers in 2003 and in 2002 accounted for 44.7% and 46.7% of our net sales, respectively. Our customers are not contractually required to purchase any of our products and may terminate their relationship with us at any time.

Industry Segments

We operate in one business segment that manufactures specialty woven and nonwoven fabrics for use in a variety of industrial and commercial applications. Information related thereto can be found in Note 13 of the consolidated financial statements under Item 8 of this Report.

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Research and Development

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

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

Raw Materials

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

Employees

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

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

In response to the downturn in market conditions experienced beginning the second quarter of 2001, we furloughed production employees as well as eliminated several salaried positions thereby reducing our equivalent number of employees by approximately 25%. This workforce reduction occurred during the third and fourth quarters of 2001. We incurred a pre-tax restructuring charge of $0.5 million in October 2001 as a result of the elimination of salaried positions.

Environmental and Health Matters

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

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

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

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

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

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

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

Item 2. Properties

We own and/or lease four manufacturing facilities, a research and development facility, corporate offices, a distribution center and several warehouses. We believe that these facilities are suitable for manufacturing the products we offer and have capacities appropriate to meet existing production requirements. The following table sets forth a description of our facilities as of December 31, 2003.

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

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

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

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Item 3. Legal Proceedings

We are a party to various legal proceedings arising in the ordinary course of business. None of these proceedings are expected to have a material adverse effect on our business, financial condition, liquidity or results of operations. See also “Item 1. Business—Environmental and Safety and Health Matters.”

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

None

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PART II

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

There is no established trading market for BGF’s common stock. All shares of BGF’s issued and outstanding common stock are held by Glass Holdings, which is a wholly owned subsidiary of Porcher Industries, S.A.

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

We have no equity compensation plans.

Item 6. Selected Financial Data

The following table sets forth certain selected financial information derived from our audited consolidated financial statements for the five-year period ended December 31, 2003. The table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes and other financial information included elsewhere in this Report.

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

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

Overview

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

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are used by our customers in printed circuit boards, which are integral to virtually all advanced electronic products, including computers and cellular telephones. Our fabrics are also used by our customers to strengthen, insulate and enhance the dimensional stability of hundreds of products that they make for their own customers in various markets, including aerospace, transportation, construction, power generation and oil refining.

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

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

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

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

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

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

Critical Accounting Policies

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

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

Our methodology recognizes projected inventory losses at the time such losses are anticipated rather than at the time goods are actually sold. The adequacy of this estimate is dependent on a number of future factors, including, but not limited to, the state of the economy and the level of customer demand. These factors could cause our inventory reserve to change by a material amount in the near term. During 2002, as a result of a significant decline in the markets in which we operate, we recorded a $5.6 million charge to cost of goods sold to write-down excess and obsolete inventory to the lower of cost or market value. There was no similar charge in 2003.

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

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

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

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Results of Operations

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

Fiscal Year 2003 Compared to Fiscal Year 2002

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

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

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

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

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

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

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

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

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

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

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

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

Fiscal Year 2002 Compared to Fiscal Year 2001

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

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

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

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

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

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

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

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

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

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

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

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

Balance Sheets

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and borrowings under our financing arrangements. Our future need for liquidity will arise primarily from interest payments on our $95.8 million Senior Subordinated Notes ($94.8 million net of unamortized discount of $1.0 million), principal and interest payments on the WFF Loan, and the funding of capital expenditures and working capital requirements. There are no mandatory payments of principal on the Senior Subordinated Notes scheduled prior to their maturity in January 2009. Based upon our current and anticipated levels of operations, we believe, but cannot guarantee, that our cash flows from operations, continued with availability under the WFF financing arrangement, will be adequate to meet our liquidity needs for 2004. However, this forward-looking statement is subject to risks and uncertainties. See Part 1, “Cautionary Statements Regarding Forward-Looking Statements”.

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

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

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

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

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

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

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

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

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

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

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

On September 30, 1998, AGY Holdings, an affiliate of BGF, purchased a 51% ownership interest in AGY. In connection with the acquisition, BGF loaned Glass Holdings approximately $138.6 million to provide Glass Holdings a portion of the capital necessary to fund the acquisition. The loan from BGF to Glass Holdings is evidenced by promissory notes that bear interest at the Cost of Funds Rate for BGF for the calendar year immediately preceding the date on which any interest is due. With respect to any period of determination, the Cost of Funds Rate means a rate per annum equal to the blended interest rate, as reasonably calculated by BGF, applicable to borrowings of BGF during such period in respect of indebtedness incurred by BGF, to fund the loan to Glass Holdings. Accrued interest is due and payable on the first business day of February of each year commencing on February 1, 1999 and on any date on which any principal is due. The promissory notes are payable on October 31, 2008 or such later date as may be agreed to by BGF and Glass Holdings. During the term of the loan, we have not recorded interest income earned under the terms of the loan agreement due to the fact that full repayment of the loan and related interest by Glass Holdings is contingent on Glass Holdings’ receipt of dividends and other distributions from its two subsidiaries, BGF and AGY, which are currently restricted from paying dividends and other distributions under their debt agreements. Interest in arrears as of December 31, 2003 and 2002 totaled $59.6 million and $49.7 million, respectively. We received payments from Glass Holdings totaling $10.6 million, $7.7 million and $11.0 million in 2003, 2002 and 2001, respectively. BGF and Glass Holdings agreed that while there are interest amounts in arrears, any payments made on the loan balance will be allocated approximately 90% to principal and 10% to interest. However, due to the uncertainty of the ultimate collectibility of the loan which arose during 2002, all payments from Glass Holdings are now recorded as principal payments. Accordingly, we reflected $10.6 million, $7.7 million and $9.9 million of the cash payments received in 2003, 2002 and 2001, respectively, as a reduction of principal and $1.1 million was recognized as interest income in 2001 (recorded in other income on the consolidated statement of operations).

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

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Outlook for 2004

The following section contains forward-looking statements about our plans, strategies and prospects during 2004. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. Such statements are based on our current plans and expectations and are subject to risks and uncertainties that exist in our operations and our business environment that could render actual outcomes and results materially different from those predicted. When considering such forward-looking statements, you should keep in mind the important factors that could cause our actual results to differ materially from those contained in any forward-looking statements set forth under Part I, “Cautionary Statement Regarding Forward-Looking Statements.”

Looking ahead to 2004:

Related Party Transactions

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

Impact of Inflation

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

Recently Issued Accounting Standards

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

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

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

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

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

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

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

Item 8. Financial Statements and Supplementary Data

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

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

None

Item 9A. Controls and Procedures

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

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

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

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PART III

Item 10. Directors and Executive Officers of the Registrant

The names, ages and positions of our directors and executive officers as of March 26, 2004 are set forth below. Our director is also a director of Glass Holdings. The director is elected annually by our sole stockholder and holds office until his successor is elected and qualified or until his earlier removal or resignation

Philippe Porcher was named our Chairman of the Board and Chief Executive Officer in July 2002. Previous to that, he served as Vice Chairman since April 1998. He has also served as Vice President of Porcher Industries since March 1993. Before becoming Vice President of Porcher Industries, Mr. Porcher served as Director of Porcher Industries’ industrial division. Since 1998, Mr. Porcher has served as President of the Executive Board of Porcher Industries.

James R. Henderson was named President of BGF in May 2002. Prior to that he was Executive Vice President Sales and Merchandising since 1989. Before joining BGF, Mr. Henderson was employed for 31 years with United Merchants and Manufacturers, Inc., a company engaged in the textile business. Mr. Henderson served as the Senior Vice President of United Merchants and Manufacturers, President of their Uniglass Division, and as Chairman of the Board of United’s Marglass subsidiary in England. Mr. Henderson was appointed to the Executive Board of Porcher Industries in May 2002.

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

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

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

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

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

Item 11. Executive Compensation

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

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Retirement Plans

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

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Normal retirement benefits are determined by reference to an employee’s “accumulated contributions.” Accumulated contributions are the sum of all required employee contributions plus interest credited on the contributions, compounded annually at the rate of 120% of the federal mid-term rate in effect under section 1274 of the Internal Revenue Code for the first month of the plan year. In general, the annual normal retirement benefit is equal to 50% of the accumulated employee contributions, plus 1.5% of employee plan compensation up to $6,600 for the plan year 1989.

The estimated annual benefits payable upon retirement at normal retirement age for the executive officers listed in the “Executive Compensation” table above is as follows: Mr. Henderson-$66,800 and Mr. Dorier— $29,600. These calculations are based on 2003 compensation, assume benefits are payable as a straight-life annuity, and assume that each individual will work until age 65. Mr. Philippe Porcher does not participate in the Retirement System.

401(k) Plan. The Employees’ Profit Sharing and Tax Savings Plan of BGF Industries, Inc. covers most employees of BGF. After completing one hour of service, employees may defer up to 50% of their compensation as defined by the plan each year, subject to Internal Revenue Code limitations. We may, in our discretion, match employees’ elective deferrals up to a specified limitation each year and may make a discretionary employer contribution for employees that have completed one year of service. All contributions are 100% vested and nonforfeitable at all times. Benefits are payable after separation from service in a lump sum in cash.

Compensation of Directors

Our director did not receive separate compensation for his services as a director in 2003.

Compensation Committee Interlocks and Insider Participation

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

Mr. Dorier serves as a member of the Executive Board of Porcher Industries, whose members are equivalent to executive officers. Mr. Dorier also serves as an executive officer of Glass Holdings, AGY Holdings, BGF Services and as a director of Glass Holdings, AGY Holdings, BGF Services and AGY.

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

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Deferred Compensation Agreements

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

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

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

The following table sets forth the beneficial ownership of BGF’s outstanding common stock as of December 31, 2003 for each person or group known to our management to be holding more than 5% of the common stock and for each director and executive officer named in the “Executive Compensation” table and all of our directors and executive officers as a group.

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

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

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

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

BGF does not have any equity compensation plans.

Item 13. Certain Relationships and Related Transactions

We are wholly owned by Porcher Industries through Glass Holdings, a U.S. holding company. Effective in 2004, our direct ownership will transfer to a new U.S. holding company, which is also owned 100% by Porcher Industries. We have ongoing financial, managerial and commercial agreements and arrangements with Porcher Industries, Glass Holdings and other wholly-owned subsidiaries of Glass Holdings, as well as other affiliates of Porcher Industries. Mr. Robert Porcher, our former Chairman of the Board and Chief Executive Officer, beneficially owns a controlling interest in Porcher Industries and Mr. Philippe Porcher, our current Chairman of the Board and Chief Executive Officer also owns an interest in Porcher Industries. See “Item 12. Security Ownership of Certain Beneficial Owners and Management.”

We pay management fees to BGF Services, Inc., a wholly owned subsidiary of Glass Holdings, that cover the periodic management services of Robert Porcher, Philippe Porcher, one other Porcher Industries employee and the full time services of Philippe Dorier, our Chief Financial Officer. We also reimburse BGF Services for the costs associated with automobiles provided to Messrs. Philippe Porcher and Dorier. In connection with these arrangements with BGF Services, we incurred expenses of $0.6 million in 2003. BGF Services does not derive a profit from this arrangement and therefore these terms cannot be considered comparable to those that would be provided to third parties.

Porcher Industries and its French parent company provide general management and strategic planning advice to us in exchange for management fees that reimburse these companies for a portion of the compensation of Robert Porcher, Philippe Porcher and other employees who allocate their time among us and other Porcher Industries affiliates. In 2003, we were not billed by the parent company for management expenses. These terms cannot be considered comparable to those that would be provided to a third party.

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

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We collect and deposit customer payments on behalf of two wholly owned subsidiaries of Porcher Industries in exchange for fees equal to 2% of amounts collected. We billed $0.01 million in fees for these services incurred in 2003. We believe that these fees are comparable to those that would be paid to third parties.

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

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

In 2002, we borrowed $5.0 million from Glass Holdings under a loan agreement whereby the loan matured in June, 2003. The principle amount was paid in full in June, 2003. The interest rate on the loan was 3.25%. We recorded interest expense of $0.1 million during 2003 related to this note. We believe that these transactions were on terms no more favorable than if Glass Holdings had borrowed the funds directly from a third party.

Currently, AGY leases approximately 27,200 square feet of segregated space at our South Hill, Virginia lightweight fiber fabric facility for the purpose of manufacturing glass yarns for exclusive supply to us under a supply contract, that was to expire on December 31, 2008. As part of AGY’s restructuring, the glass yarn operation at the South Hill facility will be closed effective August 2004 and the supply agreement with BGF will be terminated. As part of the ownership restructuring, Porcher Industries (See Item 13, “Certain Relationships and Related Transactions”) will enter into a supply agreement with AGY in which BGF has an incentive but is under no obligation to purchase yarn from AGY. We provide AGY with leased employees at this facility and administrative and technical support services. We billed AGY approximately $1.4 million pursuant to this agreement in 2003. We also purchased approximately $15.0 million of raw materials from AGY in the twelve months ended December 31, 2003. We believe that each of these arrangements are on terms no more favorable than those that would be provided to third parties. While AGY is currently in Chapter 11 under the Bankruptcy Code, we do not expect our operations to be significantly impacted.

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

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Item 14. Principal Accountant Fees and Services

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

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

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

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

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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

See Index on page F-1.

See Index on page F-1.

EXHIBITS

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(b) Reports on Form 8-K - None

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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors

of BGF Industries, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(1) on page 33 present fairly, in all material respects, the financial position of BGF Industries, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(2) on page 33 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion expressed above.

As discussed in Note 6 to the consolidated financial statements, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” on January 1, 2002.

/S/ PRICEWATERHOUSECOOPERS LLP

Greensboro, North Carolina

March 5, 2004

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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

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

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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

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

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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of Glass Holdings Corp.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)