##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

SECURITIES EXCHANGE
ACT OF 1934



For the quarterly period ended March 31,
2005



Commission File No. 333-72321



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BGF Industries, Inc.

(Exact name of registrant as specified in its charter)



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



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



(336) 545-0011

(Registrants telephone number, including area code)



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



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



APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 1,000 shares of common stock, $1.00 par value, as of May 11,
2005.



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##### Table of Contents

BGF INDUSTRIES, INC.

QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2005



TABLE OF CONTENTS



|         |  |                                                                                                                                       |  |         
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                                                       |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                 |  |         
|         |  |                                                                                                                                      
|Item 1.  |  | Financial Statements                                                                                                                  |  |         
|         |  |                                                                                                                                      
|         |  | Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004                                                                 |  | 3       
|         |  |                                                                                                                                      
|         |  | Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2005 and 2004 (as restated) (unaudited) |  | 4       
|         |  |                                                                                                                                      
|         |  | Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (as restated) (unaudited)                                 |  | 5       
|         |  |                                                                                                                                      
|         |  | Notes to the Financial Statements                                                                                                     |  | 6       
|         |  |                                                                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                 |  |         
|         |  | Overview                                                                                                                              |  | 13      
|         |  | Critical Accounting Policies                                                                                                          |  | 14      
|         |  | Environmental Issues                                                                                                                  |  | 14      
|         |  | Results of Operations                                                                                                                 |  | 14      
|         |  | Liquidity and Capital Resources                                                                                                       |  | 16      
|         |  | Recent Accounting Pronouncements                                                                                                      |  | 17      
|         |  | Disclosure Regarding Forward-Looking Statements                                                                                       |  | 17      
|         |  |                                                                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                            |  | 18      
|         |  |                                                                                                                                      
|Item 4.  |  | Controls and Procedures                                                                                                               |  | 18      
|         |  |                                                                                                                                      
|PART II. |  | OTHER INFORMATION                                                                                                                     |  |         
|         |  |                                                                                                                                      
|Item 6.  |  | Exhibits                                                                                                                              |  | 19      



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION



Item 1. Financial Statements



BGF
INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

BALANCE SHEETS

(dollars in thousands)



|                                                                                                           |  |               |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                           |  | March 31,2005 |         |   | December 31,2004 |  
|                                                                                                           |  | (unaudited)   |         |   |                  |  
|ASSETS                                                                                                     |  |               |         |   |                  |   |         |  
|                                                                                                           |  |              
|Current assets:                                                                                            |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                  |  | $             |        |   |                  | $ |        |  
|Trade accounts receivable, less allowance for returns and doubtful accounts of $282 and $366, respectively |  |               | 17,782  |   |                  |   | 16,833  |  
|Inventories                                                                                                |  |               | 29,410  |   |                  |   | 27,095  |  
|Other current assets                                                                                       |  |               | 3,178   |   |                  |   | 3,165   |  
|Assets held for sale                                                                                       |  |               | 245     |   |                  |   | 245     |  
|                                                                                                           |  |               |         |   |                  |   |         |  
|Total current assets                                                                                       |  |               | 50,615  |   |                  |   | 47,338  |  
|Net property, plant and equipment                                                                          |  |               | 38,610  |   |                  |   | 39,081  |  
|Other noncurrent assets, net                                                                               |  |               | 3,332   |   |                  |   | 3,525   |  
|                                                                                                           |  |               |         |   |                  |   |         |  
|Total assets                                                                                               |  | $             | 92,557  |   |                  | $ | 89,944  |  
|                                                                                                           |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                      |  |               |         |   |                  |   |         |  
|                                                                                                           |  |              
|Current liabilities:                                                                                       |  |               |         |   |                  |   |         |  
|Cash overdraft                                                                                             |  | $             | 654     |   |                  | $ | 512     |  
|Accounts payable                                                                                           |  |               | 6,886   |   |                  |   | 5,813   |  
|Accrued liabilities                                                                                        |  |               | 8,313   |   |                  |   | 11,469  |  
|Short-term borrowings                                                                                      |  |               | 9,340   |   |                  |   | 6,500   |  
|Current portion of long-term debt                                                                          |  |               | 1,200   |   |                  |   | 1,200   |  
|                                                                                                           |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                  |  |               | 26,393  |   |                  |   | 25,494  |  
|Long-term debt, net of discount of $664 and $708, respectively                                             |  |               | 90,886  |   |                  |   | 88,982  |  
|Finance obligation                                                                                         |  |               | 2,705   |   |                  |   | 2,634   |  
|Deferred income taxes                                                                                      |  |               | 2,359   |   |                  |   | 2,359   |  
|Postretirement benefit and pension obligations                                                             |  |               | 6,130   |   |                  |   | 5,674   |  
|                                                                                                           |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                          |  |               | 128,473 |   |                  |   | 125,143 |  
|                                                                                                           |  |               |         |   |                  |   |         |  
|Commitments and contingencies                                                                              |  |               |         |   |                  |   |         |  
|                                                                                                           |  |              
|Stockholders deficit:                                                                                     |  |               |         |   |                  |   |         |  
|Common stock, $1.00 par value. Authorized 3,000 shares; issued and outstanding 1,000 shares                |  |               | 1       |   |                  |   | 1       |  
|Capital in excess of par value                                                                             |  |               | 34,999  |   |                  |   | 34,999  |  
|Accumulated deficit                                                                                        |  |               | (70,864 | ) |                  |   | (70,147 | )
|Accumulated other comprehensive loss                                                                       |  |               | (52     | ) |                  |   | (52     | )
|                                                                                                           |  |               |         |   |                  |   |         |  
|Total stockholders deficit                                                                                |  |               | (35,916 | ) |                  |   | (35,199 | )
|                                                                                                           |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders deficit                                                                |  | $             | 92,557  |   |                  | $ | 89,944  |  
|                                                                                                           |  |               |         |   |                  |   |         |  



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



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

STATEMENTS OF OPERATIONS

AND
COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)



|                                                        |  |                                     |        |   |                    |   |       
|------------------------------------------------------- |  | ----------------------------------- | ------ | - | ------------------ | - | ------
|                                                        |  | For the Three MonthsEnded March 31,
|                                                        |  | 2005                                |        |   | 2004 (as restated)
|                                                        |  | (unaudited)                        
|Net sales                                               |  | $                                   | 37,045 |   |                    | $ | 38,844
|Cost of goods sold                                      |  |                                     | 32,206 |   |                    |   | 32,219
|                                                        |  |                                     |        |   |                    |   |       
|Gross profit                                            |  |                                     | 4,839  |   |                    |   | 6,625 
|Selling, general and administrative expenses            |  |                                     | 2,535  |   |                    |   | 2,530 
|                                                        |  |                                     |        |   |                    |   |       
|Operating income                                        |  |                                     | 2,304  |   |                    |   | 4,095 
|Interest expense                                        |  |                                     | 2,944  |   |                    |   | 2,980 
|Other (income) expense, net                             |  |                                     | 77     |   |                    |   | 13    
|                                                        |  |                                     |        |   |                    |   |       
|Income (loss) before income taxes                       |  |                                     | (717   | ) |                    |   | 1,102 
|Income tax expense (benefit)                            |  |                                     |       |   |                    |   |      
|                                                        |  |                                     |        |   |                    |   |       
|Net income (loss) and total comprehensive income (loss) |  | $                                   | (717   | ) |                    | $ | 1,102 
|                                                        |  |                                     |        |   |                    |   |       



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



4



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

STATEMENTS OF CASH FLOWS

(dollars in
thousands)



|                                                                                    |  |                                     |         |   |                    |   |        |  
|----------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ------------------ | - | ------ | -
|                                                                                    |  | For the Three MonthsEnded March 31, |        
|                                                                                    |  | 2005                                |         |   | 2004 (as restated) |  
|                                                                                    |  | (unaudited)                         |        
|Cash flows from operating activities:                                               |  |                                     |         |   |                    |   |        |  
|Net income (loss)                                                                   |  | $                                   | (717    | ) |                    | $ | 1,102  |  
|Adjustment to reconcile net income (loss) to net cash used in operating activities: |  |                                     |         |   |                    |   |        |  
|Depreciation                                                                        |  |                                     | 1,274   |   |                    |   | 1,365  |  
|Amortization                                                                        |  |                                     | 210     |   |                    |   | 215    |  
|Amortization of discount on notes                                                   |  |                                     | 45      |   |                    |   | 48     |  
|Gain on disposal of equipment                                                       |  |                                     |        |   |                    |   | (2     | )
|Noncash interest on finance obligation                                              |  |                                     | 70      |   |                    |   | 18     |  
|Postretirement benefit and pension obligations                                      |  |                                     | 456     |   |                    |   | 937    |  
|Change in assets and liabilities:                                                   |  |                                     |         |   |                    |   |        |  
|Trade accounts receivable, net                                                      |  |                                     | (1,285  | ) |                    |   | (3,647 | )
|Inventories                                                                         |  |                                     | (2,315  | ) |                    |   | (1,829 | )
|Other current assets                                                                |  |                                     | (13     | ) |                    |   | (7     | )
|Current income tax refundable                                                       |  |                                     |        |   |                    |   | 401    |  
|Other assets                                                                        |  |                                     | (17     | ) |                    |   | (16    | )
|Accounts payable                                                                    |  |                                     | 886     |   |                    |   | 1,084  |  
|Accrued liabilities                                                                 |  |                                     | (3,156  | ) |                    |   | (2,908 | )
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Net cash used in operating activities                                               |  |                                     | (4,562  | ) |                    |   | (3,239 | )
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Cash flows from investing activities:                                               |  |                                     |         |   |                    |   |        |  
|Purchases of property, plant and equipment                                          |  |                                     | (616    | ) |                    |   | (576   | )
|Proceeds from sale of equipment                                                     |  |                                     | 336     |   |                    |   | 2      |  
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Net cash used in investing activities                                               |  |                                     | (280    | ) |                    |   | (574   | )
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Cash flows from financing activities:                                               |  |                                     |         |   |                    |   |        |  
|Book overdraft                                                                      |  |                                     | 142     |   |                    |   | 151    |  
|Proceeds from revolving credit facility                                             |  |                                     | 17,800  |   |                    |   | 1,500  |  
|Payments on revolving credit facility                                               |  |                                     | (14,960 | ) |                    |   | (1,500 | )
|Proceeds from term loan                                                             |  |                                     | 2,760   |   |                    |   |       |  
|Payments on term loan                                                               |  |                                     | (900    | ) |                    |   | (302   | )
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Net cash (used in) provided by financing activities                                 |  |                                     | 4,842   |   |                    |   | (151   | )
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Net increase (decrease) in cash and cash equivalents                                |  |                                     |        |   |                    |   | (3,964 | )
|Cash and cash equivalents at beginning of period                                    |  |                                     |        |   |                    |   | 3,964  |  
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Cash and cash equivalent at end of period                                           |  | $                                   |        |   |                    | $ |       |  
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Supplemental disclosures of cash flow information:                                  |  |                                     |         |   |                    |   |        |  
|Cash paid during the period for interest                                            |  | $                                   | 4,937   |   |                    | $ | 5,120  |  
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Cash paid (received) during the period for income taxes                             |  | $                                   | 16      |   |                    | $ | (401   | )
|                                                                                    |  |                                     |         |   |                    |   |        |  
|Supplemental disclosure of non-cash investing activities:                           |  |                                     |         |   |                    |   |        |  
|Property and equipment financed in accounts payable                                 |  | $                                   | 187     |   |                    | $ | 39     |  
|                                                                                    |  |                                     |         |   |                    |   |        |  



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



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



1. Basis of Presentation



The accompanying unaudited interim financial statements of BGF
Industries, Inc. (the Company) have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly, they do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2005 are not necessarily indicative of the results to be expected for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.



These financial statements should be read in conjunction with the audited financial
statements of BGF Industries, Inc. as of and for the year ended December 31, 2004 on file with the Securities and Exchange Commission in the Companys 2004 Annual Report on Form 10-K.



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 consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes in the facts and circumstances could have a significant impact on the resulting financial statements.
The critical accounting policies that affect the Companys more complex judgments and estimates are described in the Companys Annual Report on Form 10-K for the year ended December 31, 2004 and in this Report under Managements
Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting Policies.



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



2. Liquidity and Financial Condition



The Company incurred a net loss of $717 for the three months ended March 31, 2005 and had a
$35,916 stockholders deficit as of March 31, 2005. In the year ended December 31, 2004, the Company had net income of approximately $1,881 and had a $35,199 stockholders deficit as of December 31, 2004.



On April 4, 2005, the Company executed an amendment to its five-year financing arrangement
with Wells Fargo Foothill, Inc. (the WFF Loan) to increase its total borrowing availability by approximately $5,000. The amendment was deemed to be effective as of March 31, 2005. The amendment provided for the following: (1) reduced the
maximum facility size to $25,000; (2) reloaded the term loan back to the lesser of $6,000 or 70% of the orderly liquidation value of eligible equipment; (3) increased the advance rate on finished goods inventory from 45% to 55%; (4) reduced the
Excess Availability to $1,000 at all times; and (5) released the $550 environmental reserve previously in place. (See Note 8). Availability under the revolver credit line totaled $8,565 as of March 31, 2005.



The Companys continued existence is dependent upon several factors including its
ability to continue to generate sufficient operating cash flow to fund its operations and interest payments on its Senior Subordinated Notes and its ability to continue to meet its financial covenants and make required payments under the WFF loan.
(See Note 8). While the Companys performance to date in 2005 and for the 2004 year has enabled it to meet its financial obligations, there can be no assurance that the Company will be able to sustain its current level of operations. The
Company continues to evaluate its current business plan in light of the current market conditions.



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



3. Inventories



Inventories consist of the following:



|                 |  |                |        |                   |   |       
|---------------- |  | -------------- | ------ | ----------------- | - | ------
|                 |  | March 31, 2005 |        | December 31, 2004
|                 |  | (unaudited)    |        |                  
|Supplies         |  | $              | 1,519  |                   | $ | 1,532 
|Raw materials    |  |                | 2,753  |                   |   | 2,657 
|Stock-in-process |  |                | 4,086  |                   |   | 4,233 
|Finished goods   |  |                | 21,052 |                   |   | 18,673
|                 |  |                |        |                   |   |       
|                 |  | $              | 29,410 |                   | $ | 27,095
|                 |  |                |        |                   |   |       



4. Assets Held for Sale



In September 2004, the Companys board made the decision to hold the
land and building of the South Hill heavyweight fabrics facility for sale. These assets have a net book value as of March 31, 2005 and December 31, 2004 of $245 and have been classified as a current asset on the balance sheets.



5. Property, Plant and Equipment, Net



Net property, plant and equipment consists of the following:



|                                    |  |                |         |   |                   |   |         |  
|----------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                    |  | March 31, 2005 |         |   | December 31, 2004 |  
|                                    |  | (unaudited)    |         |   |                   |  
|Land                                |  | $              | 2,873   |   |                   | $ | 2,873   |  
|Buildings                           |  |                | 38,000  |   |                   |   | 37,576  |  
|Machinery and equipment             |  |                | 81,335  |   |                   |   | 80,830  |  
|                                    |  |                |         |   |                   |   |         |  
|Gross property, plant and equipment |  |                | 122,208 |   |                   |   | 121,279 |  
|Less: accumulated depreciation      |  |                | (83,598 | ) |                   |   | (82,198 | )
|                                    |  |                |         |   |                   |   |         |  
|Net property, plant and equipment   |  | $              | 38,610  |   |                   | $ | 39,081  |  
|                                    |  |                |         |   |                   |   |         |  



6. Other Noncurrent Assets, net



Other noncurrent assets, net consist of the following:



|                                        |  |                |        |   |                   |   |        |  
|--------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                        |  | March 31, 2005 |        |   | December 31, 2004 |  
|                                        |  | (unaudited)    |        |   |                   |  
|Debt issuance costs                     |  | $              | 5,689  |   |                   | $ | 5,689  |  
|Accumulated amortization                |  |                | (2,856 | ) |                   |   | (2,646 | )
|                                        |  |                |        |   |                   |   |        |  
|                                        |  |                | 2,833  |   |                   |   | 3,043  |  
|Unrecognized pension prior service cost |  |                | 12     |   |                   |   | 12     |  
|Other noncurrent assets                 |  |                | 487    |   |                   |   | 470    |  
|                                        |  |                |        |   |                   |   |        |  
|Total other noncurrent assets, net      |  | $              | 3,332  |   |                   | $ | 3,525  |  
|                                        |  |                |        |   |                   |   |        |  



Debt issuance costs are being
amortized over the lives of the respective debt instruments.



Amortization of
deferred financing charges of $210 and $215 for the three months ended March 31, 2005 and 2004, respectively, has been included in interest expense.



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



7. Accrued Liabilities



Accrued liabilities consist of the following:



|                          |  |               |       |                   |   |       
|------------------------- |  | ------------- | ----- | ----------------- | - | ------
|                          |  | March 31,2005 |       | December 31, 2004
|                          |  | (unaudited)   |       |                  
|Interest                  |  | $             | 1,950 |                   | $ | 4,153 
|Environmental             |  |               | 2,679 |                   |   | 2,696 
|Payroll                   |  |               | 577   |                   |   | 239   
|Profit sharing            |  |               |      |                   |   | 876   
|Other employee benefits   |  |               | 168   |                   |   | 1,237 
|Employee severance        |  |               | 383   |                   |   |      
|Medical benefits          |  |               | 737   |                   |   | 727   
|Other                     |  |               | 1,819 |                   |   | 1,541 
|                          |  |               |       |                   |   |       
|Total accrued liabilities |  | $             | 8,313 |                   | $ | 11,469
|                          |  |               |       |                   |   |       



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



In 2003, the Company
submitted to the EPA a final Site Characterization Report (SCR) documenting the assessment of the BGF property and the creek that drains from the property. In May 2004, the EPA approved the SCR and described acceptable steps for a
multi-phased clean-up of the site. The Company is in the process of drafting a two-phase clean-up plan, consistent with the EPAs directions. In 2004, the Company submitted to the EPA a draft plan for Phase I, addressing cleanup around the
site. The Company currently is developing revisions to the Phase I plan and expects to submit an updated plan to the EPA in mid-2005. The Company will submit a plan for Phase II, addressing the creek areas, after receiving EPA approval for the Phase
I cleanup plan. At this time, the Company is unable to determine if there will be a financial effect different from the already established reserves.



A 1998 Phase Two Environmental Site Assessment at the Companys Cheraw, South Carolina facility revealed reportable levels of 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 Department of Health and Environmental Control (DHEC), which notified
the Company that the chlorinated solvent residuals constitute the sole remediation concern. With DHEC oversight and approval, the Company is pursuing a Monitored Natural Attenuation strategy, which includes periodic groundwater monitoring. Recent
tests show reduced levels of solvent concentrations.



As of March 31, 2005 and
December 31, 2004, the Company had reserves of $2,679 and $2,696, respectively, for environmental exposure. The reserves reflect the estimated remediation costs for the Altavista facility, as obtained from the environmental consulting firm that
conducted the site assessment and submitted the SCR to the EPA. Remediation costs are estimates, subject to the EPAs approval of a remediation plan and to other factors that may arise in the remediation process. Estimated remediation costs at
the Cheraw facility are $400, which also is reflected in the reserve.



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



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



7. Accrued Liabilities  (Continued)



Other employee benefits.In 2004, the Company approved a management bonus of $1,215 which was paid in the first quarter of 2005.



Employee severance. During the first quarter of 2005, the Company eliminated nine
salary positions at its South Hill lightweight fabrics facility, which will result in the payment of approximately $383 of non-recurring severance costs. These costs will be paid in the second quarter of 2005.



8. Debt



Debt consists of the following:



|                                                                                      |  |               |         |                   |   |       
|------------------------------------------------------------------------------------- |  | ------------- | ------- | ----------------- | - | ------
|                                                                                      |  | March 31,2005 |         | December 31, 2004
|                                                                                      |  | (unaudited)   |         |                  
|Senior Credit Facility:                                                               |  |               |         |                   |   |       
|Term loan                                                                             |  | $             | 6,000   |                   | $ | 4,140 
|Revolver                                                                              |  |               | 9,340   |                   |   | 6,500 
|Senior Subordinated Notes, net of unamortized discount of $664 and $708, respectively |  |               | 86,086  |                   |   | 86,042
|                                                                                      |  |               |         |                   |   |       
|Total debt                                                                            |  |               | 101,426 |                   |   | 96,682
|Current Maturities                                                                    |  |               | 10,540  |                   |   | 7,700 
|                                                                                      |  |               |         |                   |   |       
|Long-term debt                                                                        |  | $             | 90,886  |                   | $ | 88,982
|                                                                                      |  |               |         |                   |   |       



On June 6, 2003, the Company obtained
a five-year financing arrangement with Wells Fargo Foothill, Inc. (WFF). On April 4, 2005, the Company executed an amendment to its five-year financing arrangement with WFF (the WFF Loan) to increase its total borrowing
availability by approximately $5,000. The amendment was deemed to be effective as of March 31, 2005. The amendment provided for the following: (1) reduced the maximum facility size to $25,000; (2) reloaded the term loan back to the lesser of $6,000
or 70% of the orderly liquidation value of eligible equipment; (3) increased the advance rate on finished goods inventory from 45% to 55%; (4) reduced the Excess Availability to $1,000 at all times; and (5) released the $550 environmental reserve
previously in place.



As a result of the amendment, the WFF Loan now has a
maximum revolver credit line of $19,000 with a letter of credit sub-line of $4,000, an inventory sub-line of $10,000 and a term loan of $6,000, of which the principal is fully funded and is being 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%, 55% and 35%, respectively,
with inventory to be capped at the lesser of the eligible inventory calculation, $10.0 million or 80% times the percentage of the book value of our inventory that is estimated to be recoverable upon liquidation; (2) borrowing rates of LIBOR + 3.25%
or the Wells Fargo Prime Rate + 1.00% for the revolver with a 50 basis points increase if outstanding advances exceed $7,000 and of LIBOR + 3.5% or the Wells Fargo Prime Rate + 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 trailing twelve month EBITDA level and (iii) a cap on yearly capital expenditures; and (iv) an early termination fee. Under the
WFF Loan, the yearly capital expenditures is set at the lesser of (a) $5,000 or (b) the last twelve months cumulative EBITDA less $16,000 times 50% plus $2,000.



The WFF Loan proceeds are used to finance ongoing working capital, capital expenditures, and general corporate needs of the Company and retire other outstanding debt.
The WFF Loan is guaranteed by the Companys parent, NVH, Inc. and two of NVH, Inc.s subsidiaries, Glass Holdings LLC and BGF Services, Inc. As of March 31, 2005, amounts outstanding under the WFF Loan totaled $15,340 and consisted of
$6,000 under the term loan and $9,340 under the revolver. As of December 31, 2004, amounts outstanding under the WFF Loan totaled $10,640 and consisted of $4,140 under the term loan and $6,500 under the revolver. As of March 31, 2005, the Company
had exercised its LIBOR Rate option on $2,000 of the term loan and $7,000 of the revolver. Interest rates as of March 31, 2005 on the outstanding amounts under the LIBOR options were 6.26% and 6.51% on the term loan and revolver, respectively.
Interest rates as of March 31, 2005 on the amounts outstanding under the Wells Fargo Prime Rate portion of the term loan and revolver were 6.75% and 7.25%, respectively. Interest rates on the amounts outstanding under the term loan and revolver as
of December 31, 2004 were 6.25%.



9



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



8. Debt  (Continued)



Availability under the revolver at March 31, 2005 and December 31, 2004 was $8,565 and $6,907, 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 and $550 for March 31, 2005 and December 31, 2004, respectively for potential environmental liabilities. The reserve for interest payments is increased by $189
a week in 2004 and $171 a week in 2005, and is reset to $0 when such payment is made. As of March 31, 2005 and December 31, 2004, the total outstanding reserves amounted to $1,710 and $5,270, respectively.



The Senior Subordinated Notes bear interest at a rate of 10.25%, which is payable
semi-annually in January and July through the maturity date of January 15, 2009. The original amount of the Senior Subordinated Notes issued was $100,000, of which $86,750 in face amount remains outstanding, as a result of repurchases made by the
Company in 2003 and 2004.



The fair value of the Senior Subordinated
Notes as of March 31, 2005 and December 31, 2004 was $86,750.



9. Income
Taxes



The effective tax rate for the three months ended March 31, 2005
and March 31, 2004 was 0.0%. The Company incurred no tax provision in these periods due to the fact that the Company has a full valuation allowance recorded against its net deferred tax assets that include net operating loss carry-forwards.



10. Employee Benefits



The Company has a defined benefit pension plan covering substantially all of its employees.
Participating employees are required to contribute to the pension plan.



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



Net periodic pension costs for the three months ended March 31, 2005 and March 31, 2004 are as follows:



|                                        |  |                                      |      |   |                                       |   |      |      |  |      |    |  |   |   
|--------------------------------------- |  | ------------------------------------ | ---- | - | ------------------------------------- | - | ---- | ---- |  | ---- | -- |  | - | --
|                                        |  | Pension Benefits                     |      |   | Post-RetirementBenefits              
|                                        |  | For the Three MonthsEnded(unaudited) |      |   | For the Three MonthsEnded (unaudited)
|                                        |  | 2005                                 |      |   | 2004                                  |   |      | 2005 |  | 2004
|Net periodic pension cost:              |  |                                      |      |   |                                       |   |      |      |  |      |    |  |   |   
|Service cost                            |  | $                                    | 267  |   |                                       | $ | 243  |      |  | $    | 22 |  | $ | 24
|Interest cost                           |  |                                      | 322  |   |                                       |   | 295  |      |  |      | 26 |  |   | 37
|(Expected return on plan assets)        |  |                                      | (303 | ) |                                       |   | (214 | )    |  |      |   |  |   |  
|Amortization of prior service cost      |  |                                      | 2    |   |                                       |   | 2    |      |  |      |   |  |   |  
|Recognized net actuarial (gain) or loss |  |                                      | 21   |   |                                       |   | 25   |      |  |      |   |  |   | 4 
|                                        |  |                                      |      |   |                                       |   |      |      |  |      |    |  |   |   
|Total net periodic pension cost         |  | $                                    | 309  |   |                                       | $ | 351  |      |  | $    | 48 |  | $ | 65
|                                        |  |                                      |      |   |                                       |   |      |      |  |      |    |  |   |   



There are no expected employer
contributions for the defined benefit plan for the year ended December 31, 2005.



Expected net employee contributions for the postretirement benefit plan for the year ended December 31, 2005 are $145.



11. Segment Information



The Company operates in one business segment that manufactures specialty woven and non-woven fabrics for use in a variety of industrial and commercial applications. The Companys principal market is the United
States. The nature of the markets, products, production processes and distribution methods are similar for substantially all of the Companys products.



10



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



11. Segment Information  (Continued)



Net sales by geographic area are presented below, with sales based on the location of the customer. The Company does not have any long-lived assets outside the United
States.



|              |  |                                     |        |      |   |       
|------------- |  | ----------------------------------- | ------ | ---- | - | ------
|              |  | For the Three MonthsEnded March 31,
|              |  | 2005                                |        | 2004
|              |  | (unaudited)                        
|United States |  | $                                   | 34,672 |      | $ | 36,653
|Foreign       |  |                                     | 2,313  |      |   | 2,191 
|              |  |                                     |        |      |   |       
|              |  | $                                   | 37,045 |      | $ | 38,844
|              |  |                                     |        |      |   |       



12. Commitments and Contingencies



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



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



As permitted by Delaware law, the Company
may indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve, at the corporations request in such capacities with another enterprise, against expenses (including
attorneys fees), as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or
are threatened to be made parties by reason of their serving or having served in such capacity. Article V of the Companys bylaws provide, under certain circumstances, for the indemnification of the Companys present or former directors or
officers or persons who, at the request of the Company, are or were serving in a similar capacity for another corporation or entity. These provisions also allow the Board of Directors to purchase and maintain insurance on behalf of BGF Industries,
Inc.s present or former directors, officers or persons who are or were serving at the request of BGF Industries, Inc. as a director or officer of another corporation or entity. No liabilities have been recorded for such purposes as of March
31, 2005.



13. Recent Accounting Pronouncements



There are no new accounting pronouncements that could have an impact on the Companys
financial statements.



14. Related Party Transactions



The Company is a wholly owned subsidiary of Porcher Industries through NVH, Inc., a U.S.
holding company. The Company has ongoing financial, managerial and commercial agreements and arrangements with Porcher Industries, NVH, Inc. and wholly-owned subsidiaries of NVH, Inc., as well as other affiliates of Porcher Industries.



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



15. Restatement of Financial Statements



The Company has restated its unaudited interim financial statements for
the three months ended March 31, 2004. The restatement corrects the accounting in 2003 for a sale and leaseback of the Companys corporate headquarters facility that was accounted for as a financing under the provisions of FAS 98
Accounting for Leases. The Company previously amortized the financing obligation over the initial 7 year term of the agreement resulting in an effective interest rate of approximately 4%. The Company has now determined that the
amortization of the financing obligation should be over the entire 22-year term of the agreement, which includes the renewal option periods, resulting in an effective interest rate of 18%. The effect of the restatement was to record additional
interest expense of approximately $100 for the three months ended March 31, 2004. The following table reconciles previously reported and restated financial information:



11



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



15. Restatement of Financial Statements  (Continued)



|                                       |  |                                                                    |         |   |                                                          |   |         |  
|-------------------------------------- |  | ------------------------------------------------------------------ | ------- | - | -------------------------------------------------------- | - | ------- | -
|                                       |  | Three Months EndedMarch 31, 2004 As Previously Reported(unaudited) |         |   | Three Months EndedMarch 31, 2004 As Restated (unaudited) |  
|Interest expense on finance obligation |  | $                                                                  | 21      |   |                                                          | $ | 121     |  
|Net income                             |  |                                                                    | 1,202   |   |                                                          |   | 1,102   |  
|Finance obligation                     |  |                                                                    | 2,085   |   |                                                          |   | 2,585   |  
|Total liabilities                      |  |                                                                    | 128,815 |   |                                                          |   | 129,315 |  
|Stockholders deficit                  |  |                                                                    | (36,340 | ) |                                                          |   | (36,840 | )



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##### Table of Contents

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



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



You
should read the following discussion and analysis in conjunction with the accompanying financial statements and related notes, and with our audited financial statements and related notes as of and for the year ended December 31, 2004 set forth in
our 2004 Annual Report on Form 10-K.



We have restated our results for the
three months ended March 31, 2004. This restatement is due to an adjustment relating to the accounting in 2003 for a sale and leaseback of our corporate headquarters facility located in Greensboro, North Carolina. The transaction was accounted for
as a financing under the provisions of FAS 98 Accounting for Leases. In our previously reported financial statements, the amortization of the financing obligation utilized the initial 7 year term of the agreement and an effective
interest rate of approximately 4% which was causing the obligation to be amortized faster than the related assets were being depreciated, resulting in a built in loss on the property. We discussed our accounting for the transaction with our
independent registered public accounting firm at the time of the transaction. We subsequently determined that the amortization of the financing obligation should be over the entire 22-year term of the agreement, which includes the renewal option
periods, at an effective interest rate of 18%. This adjustment resulted in an increase of $0.1 million in interest expense for the three months ended March 31, 2004. We have discussed our revised accounting and the related adjustments with our
independent registered public accounting firm. See Note 15 to our financial statements for further discussion of this adjustment.



Overview



Our business focuses on the production
of value-added specialty woven fabrics, non-woven fabrics and parts made from glass, carbon, aramid and silica fibers. Our products are a critical component in the production of a variety of electronic, filtration, composite, insulation, protective,
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 products 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 line with our strategy of continued new product development, we realized 21% of our sales in the first quarter 2005 from products that are new within the last three years.



Overall sales decreased $1.8 million to $37.0 million in the three months ended March 31, 2005 compared to the three months ended March 31,
2004. This decrease in sales is mainly the result of a softening in the electronics market and insourcing by a major composites customer. In addition, our profitability has declined with gross margins decreasing from 17.1% in the three months ended
March 31, 2004 to 13.1% in the three months ended March 31, 2005. These factors directly impacted our net income, resulting in a net loss of $0.7 million in the three months ended March 31, 2005 compared to a net profit of $1.1 million in the three
months ended March 31, 2004, (as restated).



During the first quarter of 2005,
we eliminated nine salary positions at our South Hill multi-layer fabrics facility. This action was taken as a result of the unanticipated and continuing decline in the domestic electronics market, which has delayed the expansion of the multi-layer
facility for the foreseeable future. This will result in the payment of approximately $0.4 million of non-recurring severance costs. These costs will be paid in the second quarter of 2005. We anticipate future savings of approximately $0.6 million
per year as a result of the elimination of these salary positions.



On April 4,
2005, we executed an amendment to our five-year financing arrangement with Wells Fargo Foothill, Inc. (the WFF Loan) to increase our total borrowing availability by approximately $5.0 million. The amendment was deemed to be effective as
of March 31, 2005. The amendment provided for the following: (1) reduced the maximum facility size to $25.0 million; (2) reloaded the term loan back to the lesser of $6.0 million or 70% of the orderly liquidation value of eligible equipment; (3)
increased the advance rate on finished goods inventory from 45% to 55%; (4) reduced the Excess Availability to $1.0 million at all times; and (5) released the $0.6 million environmental reserve previously in place.



While our performance to date in 2005 and for the year 2004 has enabled us to meet our
financial obligations, there can be no assurance that we will be able to continue to generate sufficient operating cash flow to fund our operations and interest payments on our Senior Subordinated Notes or that we will be able to continue to meet
the financial covenants and make required loan payments under the WFF loan.



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##### Table of Contents

Critical Accounting Policies



The preparation of
financial statements and accompanying notes in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported. Changes in the facts and circumstances could have a significant
impact on the resulting financial statements. The critical accounting policies that affect our more complex judgments and estimates are described in the Annual Report on Form 10-K for the year ended December 31, 2004.



Environmental Issues



We are engaged in an
Environmental Protection Agency (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 of
Altavista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 that drains from the property. In May 2004, the EPA approved the SCR and described acceptable steps for a multi-phased clean-up of the
site. We are in the process of drafting a two-phase clean-up plan, consistent with the EPAs directions. In 2004, we submitted to the EPA a draft plan for Phase I, addressing cleanup around the site. We are currently developing revisions to the
Phase I plan and expect to submit an updated plan to the EPA in mid-2005. We will submit a plan for Phase II, addressing the creek areas, after receiving EPA approval for the Phase I cleanup plan. At this time, we are unable to determine if there
will be a financial effect on us that is different from our current established reserves.



A 1998 Phase Two Environmental Site Assessment at our Cheraw, South Carolina facility revealed reportable levels of 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 notified us that the chlorinated solvent residuals constitute the sole remediation concern. With DHEC oversight and approval, we are
pursuing a Monitored Natural Attenuation strategy, which includes periodic groundwater monitoring. Recent tests show reduced levels of solvent concentrations.



As of March 31, 2005 and December 31, 2004, we had reserves of $2.7 million for environmental exposure. The reserves reflect the estimated remediation costs for the
Altavista facility, as obtained from the environmental consulting firm that conducted the site assessment and submitted the SCR to the EPA. Estimated remediation costs at the Cheraw facility are $0.4 million, which also is reflected in the reserve.
Remediation costs are estimates, subject to the EPAs approval of a remediation plan and to other factors that may arise in the remediation process.



As the cleanup progresses, we may need to revise these reserves but we are unable to derive a more precise estimate at this time, as actual costs remain uncertain. We
must await the EPAs approval of the final remediation plan before we can revise these estimates. 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.



Results of Operations



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



|                                             |  |                                     |    |  |                    |  
|-------------------------------------------- |  | ----------------------------------- | -- |  | ------------------ | -
|                                             |  | For the Three MonthsEnded March 31, |   
|                                             |  | 2005                                |    |  | 2004 (as restated) |  
|                                             |  | (unaudited)                         |   
|Net sales                                    |  | 100.0                               | %  |  | 100.0              | %
|Cost of goods sold                           |  | 86.9                                |    |  | 82.9               |  
|                                             |  |                                     |    |  |                    |  
|Gross profit                                 |  | 13.1                                |    |  | 17.1               |  
|Selling, general and administrative expenses |  | 6.9                                 |    |  | 6.6                |  
|                                             |  |                                     |    |  |                    |  
|Operating income                             |  | 6.2                                 |    |  | 10.5               |  
|Interest expense                             |  | 7.9                                 |    |  | 7.7                |  
|Other (income), net                          |  | 0.2                                 |    |  |                   |  
|                                             |  |                                     |    |  |                    |  
|Income before income taxes                   |  | (1.9                                | )  |  | 2.8                |  
|Income tax benefit                           |  |                                    |    |  |                   |  
|                                             |  |                                     |    |  |                    |  
|Net income (loss)                            |  | (1.9                                | )% |  | 2.8                | %
|                                             |  |                                     |    |  |                    |  



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##### Table of Contents

Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 (as restated)



Net Sales. Net sales decreased $1.8 million, or 4.6%, to $37.0 million in the
three months ended March 31, 2005 from $38.8 million in the three months ended March 31, 2004.



Sales of protective fabrics, which are used in various ballistics applications, increased $0.9 million, or 57.6%, for the three months ended March 31, 2005 as compared to March 31, 2004, due to the development and
sale of new products.



Sales of our filtration fabrics used by industrial
customers to control emissions into the environment increased $1.4 million, or 21.5%, for the three months ended March 31, 2005 as compared to March 31, 2004. This increase is due to an overall increase in market demand and the innovation of a new
product.



Sales of our insulation fabrics, used for high temperature products,
decreased $0.3 million, or 7.8%, for the three months ended March 31, 2005 as compared to March 31, 2004, due to our withdrawal from an unprofitable market sector.



Sales of our electronics fabrics used in multi-layer and rigid printed circuit boards, coated fabrics and specialty electronic tapes
decreased $2.1 million, or 22.2%, for the three months ended March 31, 2005 as compared to March 31, 2004, due to an overall decrease in market demand.



Sales of composite fabrics, which are used in various applications including structural aircraft parts and interiors, decreased $1.5 million or 11.6%, for the three
months ended March 31, 2005 as compared to the three months ended March 31, 2004, due to insourcing by a major composites customer.



Gross Profit Margins. Gross profit margins decreased to 13.1% in the three months ended March 31, 2005 from 17.1% in the three months ended March 31, 2004, due
primarily to a decrease in rental income associated with the co-location facility at the lightweight fabrics facility, lower absorption of fixed costs as a result of less capacity utilization as well as non-recurring severance costs of $0.4 million.



Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained consistent at $2.5 million in the three months ended March 31, 2005 and in the three months ended March 31, 2004.



Operating Income. As a result of the aforementioned factors, operating income decreased $1.8 million to $2.3 million, or 6.2% of net sales, in the three months
ended March 31, 2005, from $4.1 million, or 10.5% of net sales, in the three months ended March 31, 2004.



Interest Expense. Interest expense decreased $0.1 million to $2.9 million, or 7.9% of net sales, in the three months ended March 31, 2005 from $3.0 million, or 7.7% of net sales, in the three months ended March
31, 2004.



Income Tax Benefit. The effective tax rates in the three
months ended March 31, 2005 and 2004 were 0.0%. Due to the fact that we have a full valuation allowance against our deferred tax assets, we did not incur a tax provision for the three months ended March 31, 2005.



Net Income (Loss). As a result of the aforementioned factors, our net income (loss)
decreased $1.8 million to a net loss of $0.7 million in the three months ended March 31, 2005, from a net income of $1.1 million in the three months ended March 31, 2004.



Balance Sheets  March 31, 2005 Compared to December 31, 2004



Accounts Receivable. Accounts receivable increased $0.9 million, or 5.6%, from
December 31, 2004 to March 31, 2005. This increase was a result of low sales during the month of December, resulting in abnormally low accounts receivable at the end of December.



Inventory. Inventory increased $2.3 million, or 8.5%, from December 31, 2004 to March 31, 2005. This was mainly due to an
unanticipated decrease in sales volume as well as a shift in product mix.



Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities decreased $2.1 million, or 12.1%, from December 31, 2004 to March 31, 2005. This decrease was primarily the result of a decrease in accrued interest
payable and employee benefits partially offset by an increase in trade accounts payable.



15



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##### Table of Contents

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 $86.1 million Senior Subordinated Notes ($86.8 million net of
unamortized discount of $0.7 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, combined with availability under the WFF financing arrangement, will be
adequate to meet our liquidity needs for the next twelve months. However, this forward-looking statement is subject to risks and uncertainties. See Disclosure Regarding Forward-Looking Statements included below.



On June 6, 2003, we entered into the five-year financing agreement with WFF. The WFF Loan is
guaranteed by our parent, NVH, Inc. On April 4, 2005, we executed an amendment to the WFF Loan to increase our total borrowing availability by approximately $5.0 million. The amendment was deemed to be effective as of March 31, 2005. The amendment
provided for the following: (1) reduced the maximum facility size to $25.0 million; (2) reloaded the term loan back to the lesser of $6.0 million or 70% of the orderly liquidation value of eligible equipment; (3) increased the advance rate on
finished goods inventory from 45% to 55%; (4) reduced the Excess Availability to $1.0 million at all times; and (5) released the $0.6 million environmental reserve previously in place.



As a result of the amendment, the WFF Loan now has a maximum revolver credit line of $19.0 million with a letter of credit sub-line of $4.0
million, an inventory sub-line of $10.0 million and a term loan of $6.0 million, of which the principal is fully funded and is being 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%, 55% and 35%, respectively, with inventory to be capped at the lesser of the eligible inventory
calculation, $10.0 million or 80% times the percentage of the book value of our inventory that is estimated to be recoverable upon liquidation; (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 trailing twelve month EBITDA level and (iii) a cap on yearly capital expenditures; and (iv) an early termination fee. Under the WFF Loan, the yearly capital expenditures is set at the lesser of (a) $5.0
million or (b) the last twelve months cumulative EBITDA less $16.0 million times 50% plus $2.0 million.



As of March 31, 2005, amounts outstanding under the WFF Loan totaled $15.0 million, which consisted of $6.0 million under the term loan and $9.3 million under the revolver. As of December 31, 2004, amounts outstanding
under the WFF Loan totaled $10.6 million and consisted of $4.1 million under the term loan and $6.5 million under the revolver. As of March 31, 2005, we had exercised the LIBOR Rate option on $2.0 million of the term loan and $7.0 million of the
revolver. Interest rates as of March 31, 2005 on the outstanding amounts under the LIBOR options were 6.26% and 6.51% on the term loan and revolver, respectively. Interest rates as of March 31, 2005 on the amounts outstanding under the Wells Fargo
Prime Rate portion of the term loan and revolver were 6.75% and 7.25%, respectively. Interest rates on the amounts outstanding under the term loan and revolver as of December 31, 2004 were 6.25%.



Availability under the revolver as of March 31, 2005 and May 2, 2005 was $8.6 million and
$10.9 million, respectively. This availability has been reduced by a reserve to allow for the annual interest payments on the Senior Subordinated Notes. 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 March 31, 2005 and May 2, 2005, the outstanding reserves totaled $1.7 million and $2.6 million, respectively.



The fair value of the Senior Subordinated Notes as of March 31, 2005 and December 31, 2004 was approximately $86.8 million.



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. Although our financing agreement with WFF limits our ability to purchase
such securities if the securities are trading at greater than 80% of their face value, we believe that WFF would likely consent to spot purchases at a higher price, although no assurances can be made.



Net Cash Used In Operating Activities.Net cash used in operating activities was $4.6
million for the three months ended March 31, 2005 compared with net cash used in operating activities of $3.2 million for the three months ended March 31, 2004 and was primarily the result of net losses incurred.



Net Cash Used in Investing Activities. Net cash used in investing activities was $0.3
million and $0.6 million for the three months ended March 31, 2005 and 2004, respectively, and was primarily the result of purchases of property, plant and equipment.



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Net Cash (Used In) Provided By Financing Activities.Net cash provided by financing activities was $4.8 million
for the three months ended March 31, 2005, compared with net cash used in financing activities of $0.2 million for the three months ended March 31, 2004 and was primarily the result of an increase of the overall indebtedness of the company.



Outlook for the Remainder of 2005



The following section contains forward-looking statements about our plans, strategies and
prospects during the remainder of 2005. 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,
Disclosure Regarding Forward-Looking Statements.



Looking ahead for
the remainder of 2005:



| |  |  | Sales trends during April 2005 were consistent with the average monthly sales for the same period of 2004. Although no assurances can be given, we believe this level of sales is
sustainable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We plan to continue our efforts to reduce our inventory during 2005.
| | - |  | --------------------------------------------------------------------



Recent Accounting Pronouncements



There are no
new recent accounting pronouncements that could have an impact on our financial statements.



Disclosure Regarding Forward-Looking Statements



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



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



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



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



| |  |  | continued movement of electronics industry production outside of North America;
| | - |  | -------------------------------------------------------------------------------



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



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



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



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



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



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



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



This list of risks and uncertainties, however, is not intended to be exhaustive. You should
also review the other cautionary statements we make in this Quarterly 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 3. Quantitative and Qualitative Disclosures About Market Risk



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



Our financing arrangements are subject to market risks, including interest rate risk. 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 31, 2005 and May 2, 2005 was approximately $86.8 million and $85.0 million, respectively.



Item 4. Controls and Procedures



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



Based on the most recent
evaluation, which was completed as of the end of the period covered by this report, our president and chief financial officer believe that our disclosure controls are effective. There have been no significant changes in our internal controls or in
any other factors that could significantly affect the internal controls during the first quarter of 2005 subsequent to the date we completed our evaluation.



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PART II - OTHER INFORMATION



Item 6. Exhibits



|    |  |          |  |                                                                                       
|--- |  | -------- |  | --------------------------------------------------------------------------------------
|(a) |  | Exhibits
|    |  |         
|    |  | 31.1     |  | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act
|    |  |         
|    |  | 31.2     |  | Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act



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SIGNATURES



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



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




Date: May 11, 2005



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