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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
September 30, 2006

Commission file number 333-72321



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BGF INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 56-1600845                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3802 Robert Porcher Way

Greensboro, N.C. 27410

(Address of principal executive offices) (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 check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated
Filer  x

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

There is no established trading market for the Common Stock of the registrant. All shares of Common Stock are held by an affiliate of the registrant. As
of November 14, 2006, there were 1,000 shares of common stock outstanding.



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##### Table of Contents

BGF INDUSTRIES, INC.

QUARTERLY REPORT FOR THE THREE MONTHS AND NINE MONTHS

ENDED SEPTEMBER 30, 2006

TABLE OF
CONTENTS



|         |  |                                                                                                                                                   |  |         
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                                                                   |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                             |  |         
|         |  |                                                                                                                                                  
|Item 1.  |  | Consolidated Financial Statements                                                                                                                 |  |         
|         |  |                                                                                                                                                  
|         |  | Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005                                                            |  | 3       
|         |  |                                                                                                                                                  
|         |  | Consolidated Statements of Operations and Comprehensive Income for the three months and nine months ended September 30, 2006 and 2005 (unaudited) |  | 4       
|         |  |                                                                                                                                                  
|         |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (unaudited)                                           |  | 5       
|         |  |                                                                                                                                                  
|         |  | Notes to the Consolidated Financial Statements                                                                                                    |  | 6       
|         |  |                                                                                                                                                  
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                             |  |         
|         |  | Overview and Trends Affecting Our Business                                                                                                        |  | 16      
|         |  | Critical Accounting Policies                                                                                                                      |  | 17      
|         |  | Results of Operations                                                                                                                             |  | 17      
|         |  | Balance Sheets                                                                                                                                    |  | 19      
|         |  | Liquidity and Capital Resources                                                                                                                   |  | 19      
|         |  | Commitments and Contingencies                                                                                                                     |  | 21      
|         |  | Contractual Obligations and Off-Balance Sheet Arrangements                                                                                        |  | 23      
|         |  | Outlook for the Remainder of 2006                                                                                                                 |  | 23      
|         |  | Related Party Transactions                                                                                                                        |  | 24      
|         |  | Recent Accounting Pronouncements                                                                                                                  |  | 24      
|         |  | Disclosure Regarding Forward-Looking Statements                                                                                                   |  | 25      
|         |  |                                                                                                                                                  
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                        |  | 26      
|         |  |                                                                                                                                                  
|Item 4.  |  | Controls and Procedures                                                                                                                           |  | 26      
|         |  |                                                                                                                                                  
|PART II. |  | OTHER INFORMATION                                                                                                                                 |  |         
|         |  |                                                                                                                                                  
|Item 5.  |  | Other Information                                                                                                                                 |  | 27      
|         |  |                                                                                                                                                  
|Item 6.  |  | Exhibits                                                                                                                                          |  | 27      

EXPLANATORY NOTE

BGF Industries, Inc. voluntarily files periodic reports with the SEC solely for the purpose of complying with Section 3.20 of the indenture governing its Senior Subordinated Notes. Because there are fewer than
300 holders of the Senior Subordinated Notes, the Company is no longer required by the federal securities laws to file such reports. Additionally, because it is not required to file such reports, the Company is not an issuer for purposes
of the Sarbanes-Oxley Act of 2002.



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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.)

CONSOLIDATED BALANCE SHEETS

(dollars
in thousands)



|                                                                                                           |  |                    |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                           |  | September 30, 2006 |         |   | December 31,2005 |  
|                                                                                                           |  | (unaudited)        |         |   |                  |  
|ASSETS                                                                                                     |  |                    |         |   |                  |   |         |  
|Current assets:                                                                                            |  |                    |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                  |  | $                  |        |   |                  | $ |        |  
|Trade accounts receivable, less allowance for returns and doubtful accounts of $453 and $396, respectively |  |                    | 19,495  |   |                  |   | 16,034  |  
|Inventories                                                                                                |  |                    | 27,175  |   |                  |   | 24,913  |  
|Other current assets                                                                                       |  |                    | 842     |   |                  |   | 702     |  
|Assets held for sale                                                                                       |  |                    | 832     |   |                  |   | 245     |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total current assets                                                                                       |  |                    | 48,344  |   |                  |   | 41,894  |  
|Net property, plant and equipment                                                                          |  |                    | 29,322  |   |                  |   | 31,667  |  
|Deferred income taxes                                                                                      |  |                    | 1,587   |   |                  |   | 1,218   |  
|Other noncurrent assets, net                                                                               |  |                    | 2,175   |   |                  |   | 2,731   |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total assets                                                                                               |  | $                  | 81,428  |   |                  | $ | 77,510  |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                      |  |                    |         |   |                  |   |         |  
|                                                                                                           |  |                   
|Current liabilities:                                                                                       |  |                    |         |   |                  |   |         |  
|Cash overdraft                                                                                             |  | $                  | 1,489   |   |                  | $ | 886     |  
|Accounts payable                                                                                           |  |                    | 8,069   |   |                  |   | 5,625   |  
|Accrued liabilities                                                                                        |  |                    | 9,108   |   |                  |   | 10,504  |  
|Deferred tax liability                                                                                     |  |                    | 1,587   |   |                  |   | 1,218   |  
|Short-term borrowings                                                                                      |  |                    | 500     |   |                  |   | 3,000   |  
|Current portion of long-term debt                                                                          |  |                    | 1,200   |   |                  |   | 1,200   |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total current liabilities                                                                                  |  |                    | 21,953  |   |                  |   | 22,433  |  
|Long-term debt, net of discount of $398 and $524, respectively                                             |  |                    | 86,437  |   |                  |   | 87,255  |  
|Finance obligation                                                                                         |  |                    | 2,802   |   |                  |   | 2,758   |  
|Postretirement benefit and pension obligations                                                             |  |                    | 5,398   |   |                  |   | 6,526   |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total liabilities                                                                                          |  |                    | 116,590 |   |                  |   | 118,972 |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|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                                                                                        |  |                    | (68,782 | ) |                  |   | (75,082 | )
|Accumulated other comprehensive loss                                                                       |  |                    | (1,380  | ) |                  |   | (1,380  | )
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total stockholders deficit                                                                                |  |                    | (35,162 | ) |                  |   | (41,462 | )
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total liabilities and stockholders deficit                                                                |  | $                  | 81,428  |   |                  | $ | 77,510  |  
|                                                                                                           |  |                    |         |   |                  |   |         |  

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



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(dollars in thousands)



|                                             |  |                                         |        |                                        |      |   |        |  |   |         |   |  |   |        
|-------------------------------------------- |  | --------------------------------------- | ------ | -------------------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | -------
|                                             |  | For the Three Months EndedSeptember 30, |        | For the Nine Months EndedSeptember 30,
|                                             |  | 2006                                    |        |                                        | 2005 |   | 2006   |  |   | 2005   
|                                             |  | (unaudited)                             |        | (unaudited)                           
|Net Sales                                    |  | $                                       | 43,672 |                                        |      | $ | 36,664 |  | $ | 135,894 |   |  | $ | 115,437
|Cost of goods sold                           |  |                                         | 36,985 |                                        |      |   | 31,262 |  |   | 113,260 |   |  |   | 98,583 
|                                             |  |                                         |        |                                        |      |   |        |  |   |         |   |  |   |        
|Gross profit                                 |  |                                         | 6,687  |                                        |      |   | 5,402  |  |   | 22,634  |   |  |   | 16,854 
|Selling, general and administrative expenses |  |                                         | 3,033  |                                        |      |   | 2,204  |  |   | 9,398   |   |  |   | 7,508  
|Asset write off                              |  |                                         | 92     |                                        |      |   |       |  |   | 92      |   |  |   |       
|                                             |  |                                         |        |                                        |      |   |        |  |   |         |   |  |   |        
|Operating income                             |  |                                         | 3,562  |                                        |      |   | 3,198  |  |   | 13,144  |   |  |   | 9,346  
|Interest expense                             |  |                                         | 2,819  |                                        |      |   | 2,817  |  |   | 8,404   |   |  |   | 8,682  
|Other (income) expense, net                  |  |                                         | (1,797 | )                                      |      |   | 3      |  |   | (1,811  | ) |  |   | 55     
|                                             |  |                                         |        |                                        |      |   |        |  |   |         |   |  |   |        
|Income before income taxes                   |  |                                         | 2,540  |                                        |      |   | 378    |  |   | 6,551   |   |  |   | 609    
|Income tax expense                           |  |                                         | 89     |                                        |      |   |       |  |   | 251     |   |  |   |       
|                                             |  |                                         |        |                                        |      |   |        |  |   |         |   |  |   |        
|Net income and total comprehensive income    |  | $                                       | 2,451  |                                        |      | $ | 378    |  | $ | 6,300   |   |  | $ | 609    
|                                             |  |                                         |        |                                        |      |   |        |  |   |         |   |  |   |        

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



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)



|                                                                                 |  |                                         |         |   |      |   |         |  
|-------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                 |  | For the Nine Months Ended September 30, |        
|                                                                                 |  | 2006                                    |         |   | 2005 |  
|                                                                                 |  | (unaudited)                             |        
|Cash flows from operating activities:                                            |  |                                         |         |   |      |   |         |  
|Net income                                                                       |  | $                                       | 6,300   |   |      | $ | 609     |  
|Adjustment to reconcile net income to net cash provided by operating activities: |  |                                         |         |   |      |   |         |  
|Depreciation                                                                     |  |                                         | 3,572   |   |      |   | 3,821   |  
|Amortization of noncurrent assets                                                |  |                                         | 629     |   |      |   | 631     |  
|Amortization of discount on notes                                                |  |                                         | 126     |   |      |   | 127     |  
|Write off of debt issuance costs                                                 |  |                                         |        |   |      |   | 38      |  
|Asset write off                                                                  |  |                                         | 92      |   |      |   |        |  
|(Gain) loss on disposal of equipment                                             |  |                                         | (112    | ) |      |   | 69      |  
|Noncash interest on finance obligation                                           |  |                                         | 44      |   |      |   | 106     |  
|Gain on extinguishment of Senior Subordinated Notes                              |  |                                         |        |   |      |   | (50     | )
|Postretirement benefit and pension obligations                                   |  |                                         | (1,128  | ) |      |   | (894    | )
|Change in assets and liabilities:                                                |  |                                         |         |   |      |   |         |  
|Trade accounts receivable, net                                                   |  |                                         | (3,461  | ) |      |   | (1,131  | )
|Other current assets                                                             |  |                                         | (140    | ) |      |   | 94      |  
|Inventories                                                                      |  |                                         | (2,262  | ) |      |   | 1,218   |  
|Other assets                                                                     |  |                                         | (73     | ) |      |   | (65     | )
|Accounts payable                                                                 |  |                                         | 2,444   |   |      |   | 1,002   |  
|Accrued liabilities                                                              |  |                                         | (1,396  | ) |      |   | (2,858  | )
|                                                                                 |  |                                         |         |   |      |   |         |  
|Net cash provided by operating activities                                        |  |                                         | 4,635   |   |      |   | 2,717   |  
|                                                                                 |  |                                         |         |   |      |   |         |  
|Cash flows from investing activities:                                            |  |                                         |         |   |      |   |         |  
|Purchases of property, plant and equipment                                       |  |                                         | (1,918  | ) |      |   | (1,908  | )
|Proceeds from sale of equipment                                                  |  |                                         | 124     |   |      |   | 353     |  
|                                                                                 |  |                                         |         |   |      |   |         |  
|Net cash used in investing activities                                            |  |                                         | (1,794  | ) |      |   | (1,555  | )
|                                                                                 |  |                                         |         |   |      |   |         |  
|Cash flows from financing activities:                                            |  |                                         |         |   |      |   |         |  
|Book overdraft                                                                   |  |                                         | 603     |   |      |   | 264     |  
|Proceeds from revolving credit facility                                          |  |                                         | 12,400  |   |      |   | 37,800  |  
|Payments on revolving credit facility                                            |  |                                         | (14,900 | ) |      |   | (37,700 | )
|Proceeds received from term loan                                                 |  |                                         |        |   |      |   | 2,760   |  
|Payments on term loan                                                            |  |                                         | (944    | ) |      |   | (1,522  | )
|Purchases of Senior Subordinated Notes                                           |  |                                         |        |   |      |   | (2,764  | )
|                                                                                 |  |                                         |         |   |      |   |         |  
|Net cash used in financing activities                                            |  |                                         | (2,841  | ) |      |   | (1,162  | )
|                                                                                 |  |                                         |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                        |  |                                         |        |   |      |   |        |  
|Cash and cash equivalents at beginning of period                                 |  |                                         |        |   |      |   |        |  
|                                                                                 |  |                                         |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                       |  | $                                       |        |   |      | $ |        |  
|                                                                                 |  |                                         |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                               |  |                                         |         |   |      |   |         |  
|Cash paid during the period for interest                                         |  | $                                       | 9,388   |   |      | $ | 10,241  |  
|                                                                                 |  |                                         |         |   |      |   |         |  
|Cash paid during the period for income taxes                                     |  | $                                       | 649     |   |      | $ | 25      |  
|                                                                                 |  |                                         |         |   |      |   |         |  
|Supplemental disclosure of non-cash investing and financing activities:          |  |                                         |         |   |      |   |         |  
|Property and equipment financed in accounts payable                              |  | $                                       | 109     |   |      | $ | 1       |  
|                                                                                 |  |                                         |         |   |      |   |         |  

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



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED 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 statement of results of operations have been included. Operating results for the three months and nine months ended September 30, 2006 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, 2005 on file with the Securities and Exchange Commission in the Companys 2005 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 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, 2005 and in this Report under Managements Discussion and Analysis of Financial Condition and Results of
Operations  Critical Accounting Policies.

2. Liquidity and Financial Condition

The Company had net income of $6,300 for the nine months ended September 30, 2006 and a $35,162 stockholders deficit as of September 30, 2006. In the year
ended December 31, 2005, the Company had a net loss of $4,935 and had a $41,462 stockholders deficit as of December 31, 2005.

On
June 6, 2003, the Company entered into a five year financing arrangement with Wells Fargo Foothill, Inc. (WFF). This arrangement (the WFF Loan) provides for a maximum revolver credit line of $40,000 with a letter of
credit (L/C) sub-line of $4,000, an inventory sub-line of $15,000 and a term loan sub-line of $6,000 of which the principal is amortized over 60 months (see Note 8). On April 4, 2005, the Company executed an amendment to 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). On October 31, 2005, the Company executed an amendment to the WFF Loan to increase its cap on capital expenditures to $3,500 annually.
The amendment was deemed effective as of June 30, 2005. Availability under the revolver credit line totaled $16,743 as of September 30, 2006.

The Companys continued existence is dependent upon several factors including its ability to continue generating sufficient operating cash flow to fund its operations and interest payments on its Senior Subordinated Notes and its
ability to continue meeting its financial covenants and make required payments under the WFF Loan (see Note 8). While the Companys performance to date in 2006 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 CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)

3. Inventories

Inventories consist of the following:



|                 |  |                    |        |                   |   |       
|---------------- |  | ------------------ | ------ | ----------------- | - | ------
|                 |  | September 30, 2006 |        | December 31, 2005
|                 |  | (unaudited)        |        |                  
|Supplies         |  | $                  | 1,353  |                   | $ | 1,492 
|Raw materials    |  |                    | 3,024  |                   |   | 2,232 
|Stock-in-process |  |                    | 3,739  |                   |   | 3,661 
|Finished goods   |  |                    | 19,059 |                   |   | 17,528
|                 |  |                    |        |                   |   |       
|                 |  | $                  | 27,175 |                   | $ | 24,913
|                 |  |                    |        |                   |   |       

4. Assets Held for Sale

In September 2004, the Companys board made the decision to hold for sale the land and building of the South Hill heavyweight fabrics facility. In June 2006, the Company made the decision to hold for sale
equipment at the same facility. These assets have a net book value as of September 30, 2006 and December 31, 2005 of $832 and $245, respectively, and have been classified as a current asset on the balance sheets.

5. Net Property, Plant and Equipment

Net property, plant and equipment consist of the following:



|                                    |  |                    |         |   |                   |   |         |  
|----------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                    |  | September 30, 2006 |         |   | December 31, 2005 |  
|                                    |  | (unaudited)        |         |   |                   |  
|Land                                |  | $                  | 2,879   |   |                   | $ | 2,873   |  
|Buildings                           |  |                    | 37,809  |   |                   |   | 38,113  |  
|Machinery and equipment             |  |                    | 81,789  |   |                   |   | 82,771  |  
|                                    |  |                    |         |   |                   |   |         |  
|Gross property, plant and equipment |  |                    | 122,477 |   |                   |   | 123,757 |  
|Less: accumulated depreciation      |  |                    | (93,155 | ) |                   |   | (92,090 | )
|                                    |  |                    |         |   |                   |   |         |  
|Net property, plant and equipment   |  | $                  | 29,322  |   |                   | $ | 31,667  |  
|                                    |  |                    |         |   |                   |   |         |  

It is the Companys policy to periodically review the estimated useful lives of its fixed assets. This review
during the fourth quarter of 2005 indicated that the actual useful life of an unfinished manufacturing building located in South Hill, Virginia is zero because it is very unlikely to be finished and used by the Company. Further, the Company does not
believe that potential buyers could be found as a result of the location of the building and the fact that it is unfinished. As a result, the Company has depreciated the asset to its estimated residual value of $388. The Company has determined the
residual value based on an appraisal from a third party. The effect of this change in estimate, based on a net book value of $5,332 prior to the adjustment, was to increase depreciation expense in the fourth quarter of 2005 by $4,944 and decrease
gross profit and operating income in the fourth quarter of 2005 by $4,944.



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)

6. Other Noncurrent Assets, net

Other noncurrent assets, net consist of the
following:



|                                        |  |                    |        |   |                   |   |        |  
|--------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                                        |  | September 30, 2006 |        |   | December 31, 2005 |  
|                                        |  | (unaudited)        |        |   |                   |  
|Debt issuance costs                     |  | $                  | 5,619  |   |                   | $ | 5,619  |  
|Accumulated amortization                |  |                    | (4,029 | ) |                   |   | (3,408 | )
|                                        |  |                    |        |   |                   |   |        |  
|Net debt issuance costs                 |  |                    | 1,590  |   |                   |   | 2,211  |  
|Unrecognized pension prior service cost |  |                    | 5      |   |                   |   | 5      |  
|Other noncurrent assets                 |  |                    | 580    |   |                   |   | 515    |  
|                                        |  |                    |        |   |                   |   |        |  
|Total other noncurrent assets, net      |  | $                  | 2,175  |   |                   | $ | 2,731  |  
|                                        |  |                    |        |   |                   |   |        |  

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

Amortization of deferred financing charges of $210 and $629 for the three and nine months ended September 30, 2006 and $210 and $631 for the three and nine months
ended September 30, 2005, respectively, has been included in interest expense.

In June 2005, the Company repurchased $2,850 (face amount) of Senior
Subordinated Notes (see Note 8). As a result of this transaction, debt issuance costs related to the original issuance of these notes of $37 were written off to interest expense.

7. Accrued Liabilities

Accrued liabilities consist of the following:



|                                                                            |  |                    |       |                   |   |       
|--------------------------------------------------------------------------- |  | ------------------ | ----- | ----------------- | - | ------
|                                                                            |  | September 30, 2006 |       | December 31, 2005
|                                                                            |  | (unaudited)        |       |                  
|Interest                                                                    |  | $                  | 1,892 |                   | $ | 4,010 
|Environmental                                                               |  |                    | 2,311 |                   |   | 2,880 
|Payroll                                                                     |  |                    | 574   |                   |   | 610   
|Other employee benefits, including current portion of deferred compensation |  |                    | 2,163 |                   |   | 1,186 
|Medical benefits                                                            |  |                    | 713   |                   |   | 691   
|Other                                                                       |  |                    | 1,455 |                   |   | 1,127 
|                                                                            |  |                    |       |                   |   |       
|Total accrued liabilities                                                   |  | $                  | 9,108 |                   | $ | 10,504
|                                                                            |  |                    |       |                   |   |       

Environmental. The Company is engaged in an Environmental Protection Agency (EPA)-supervised
self-implementing remediation program at its Altavista facility. The remediation program is being conducted under EPA rules at 40 C.F.R. §761.61, promulgated under the Toxic Substances Control Act, that set forth self-implementing cleanup
standards for certain contamination by polychlorinated biphenyls, or PCBs. PCBs were discovered at the Altavista facility during a 1998 environmental site assessment, and the EPA was notified. These PCBs were initially identified in the
area of the former location of a heat transfer oil tank that the previous owner of the facility had removed before Porcher Industries acquired the Company in 1988. 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, in groundwater, 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 Town of Altavistas water treatment plant. Interim measures were taken in 1999 and 2000, and have been taken periodically since then, to control PCB migration and minimize exposure.

In 2003, the Company submitted to the EPA a final Site Characterization Report, or SCR, documenting the assessment of the property and the sites
drainage ditch. In May 2004, the EPA approved the SCR. A draft cleanup plan was submitted to the EPA in September 2004 and a final proposed remediation plan was provided to the EPA for its review in December 2005. The EPA approved the plan in May
2006.



8



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(dollars in thousands)

7. Accrued Liabilities  (Continued)

The remediation plan is generally designed to achieve PCB levels in remaining soils within the
area covered by the plan at or below 25 parts per million (ppm), which is consistent with standards set forth in the EPA rules for low occupancy sites. The remediation plan covers property owned by the Company and off-site areas owned by
third parties, including the portion of the drainage ditch running from the property off-site to the western edge of adjacent railroad tracks. The portion of the drainage ditch east of the railroad tracks is not included within the scope of the
voluntary cleanup. Although this eastern portion of the drainage ditch generally exhibits significantly lower PCB levels than are present in the western portion of the drainage ditch, the exclusion of this area means that soils and/or sediments with
PCBs above 25 ppm will remain in this area after the implementation of the plan.

The cleanup work has been divided into a storm water management phase, a
soil remediation phase, and a post-cleanup reconstruction phase. The storm water management phase was completed during the second quarter of 2006. The Company has requested reimbursement, in the form of tax reductions, from the Town of Altavista for
80% of the costs borne in this project as the scope of work centers primarily on site utilities. After implementation of the remediation plan, the Company will re-establish various structures and paved areas so the site can resume work with an
enhanced storm water system. A contractor has been selected and brought under agreement to complete the soil remediation phase. Work is anticipated to commence in the fourth quarter of 2006.

The implementation of the remediation plan will not completely eliminate PCBs from the area subject to the plan; as noted above, the plan is designed to achieve PCB
levels in remaining soils at or below 25 ppm. Further, the remediation plan itself provides for contingencies under which PCBs would remain in place above 25 ppm. While future EPA and/or DEQ enforcement actions could potentially require further
cleanup of the site, the Companys voluntary remediation program lessens the likelihood of such enforcement actions.

After implementation of the
remediation plan, the Company will place deed restrictions on the Altavista property, including restrictions limiting the propertys use consistent with a low occupancy area within the meaning of the EPA rules and other such
limitations as may be appropriate depending on contingencies that may arise (e.g., deed restrictions relating to areas where PCBs may be left in place under a specified cover).

A reserve of $2,191 for the environmental issues at the Altavista facility has been recorded at September 30, 2006 which reflects the accepted bid from the contractor for the soil remediation work of $1,949 plus
estimated additional expenses to be incurred for testing and post-cleanup reconstruction. Remediation costs are estimates, subject to the EPAs comments on the remediation plan and to other factors that may arise in the remediation process.
Contingencies that may affect the accuracy of these estimates include:



| |  |  | The portion of the drainage ditch east of the railroad tracks is outside the scope of the self-implemented cleanup. There has been no indication whether the State or EPA will seek
to require the Company to undertake work in this drainage ditch. No cleanup plan or estimate for this work has been developed.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The construction estimates are inherently based on assumptions about the total quantity of soil to be removed and disposed, as bids are based on unit costs for removal,
transportation, and disposal. The extensive SCR was used as a basis for estimating quantities of soil to be excavated, transported, and deposited in proper landfills, but verification sampling upon excavation will be necessary and it is possible
that greater quantities of impacted soil than are currently estimated will require removal. Transportation and disposal costs are approximately two-thirds of the estimated cost of the project. Accordingly, a material increase in the quantity of soil
removed in excess of the currently-estimated amounts would correspondingly materially increase the cleanup cost.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Utilities may exist in and around the dig site that could be damaged. While all efforts will be made to avoid damaging utilities, any such damage may cause part or all work at the
plant to be suspended until such utilities can be restored. While not adding greatly to the project cost, the indirect cost of such an interruption through lost revenue could be material.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(dollars in thousands)

7. Accrued Liabilities  (Continued)

Completion of the remediation plan will address impacted soils at the site but will not preclude
possible further action by the EPA under other environmental statutes and rules or by Virginia. The Company is aware that the DEQ is calculating Total Maximum Daily Loads (TMDLs) for pollutants in water bodies. Samples have been taken for PCBs over
large expanses of the Staunton River into which the storm water discharges. It is not certain whether DEQs sampling may result in additional claims regarding areas downstream of the Companys property including in the portion of the
drainage ditch east of the railroad track or in the Staunton River.

In addition, a 1998 Phase Two Environmental Site Assessment at the 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). Upon review of the data with DHEC, it was determined that 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. Work includes semi-annual monitoring and reporting. Recent tests show reduced levels of solvent concentrations. The Company may review the
data again with DHEC and recommend reducing the frequency of testing to annually to reduce costs. No action other than continued monitoring for this facility is anticipated at this time. As of September 30, 2006 and December 31, 2005, the
Company had a reserve of $120 for the above-described environmental issues at the Cheraw facility.

As these environmental cleanups progress, the Company
may need to revise the reserves for Altavista and Cheraw but it is unable to derive a more precise estimate at this time, as actual costs remain uncertain. 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.

Other employee benefits. In 2005, the Company approved a management bonus of $904, which was paid in the first quarter of 2006.

Current contribution to retirement plan. In order to continue to provide all distribution options allowed by the defined benefit pension plan, the Company
accelerated its 2005 contributions and paid $2,400 into the defined benefit plan on July 17, 2006 (see Note 10).

8. Debt

Debt consists of the following:



|                                                                                      |  |                    |        |                   |   |       
|------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                                                                      |  | September 30, 2006 |        | December 31, 2005
|                                                                                      |  | (unaudited)        |        |                  
|WFF Loan:                                                                             |  |                    |        |                   |   |       
|Term loan                                                                             |  | $                  | 4,135  |                   | $ | 5,079 
|Revolver                                                                              |  |                    | 500    |                   |   | 3,000 
|Senior Subordinated Notes, net of unamortized discount of $398 and $524, respectively |  |                    | 83,502 |                   |   | 83,376
|                                                                                      |  |                    |        |                   |   |       
|Total debt                                                                            |  |                    | 88,137 |                   |   | 91,455
|Current Maturities                                                                    |  |                    | 1,700  |                   |   | 4,200 
|                                                                                      |  |                    |        |                   |   |       
|Long-term debt                                                                        |  | $                  | 86,437 |                   | $ | 87,255
|                                                                                      |  |                    |        |                   |   |       

On June 6, 2003, the Company obtained the WFF Loan with Wells Fargo
Foothill, Inc.



10



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)

8. Debt  (Continued)

On April 4, 2005, the Company executed an amendment to 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. On October 31, 2005, the Company executed an amendment to the WFF Loan to increase its cap on capital expenditures to $3,500 annually. The amendment was deemed effective as
of June 30, 2005.

As a result of these amendments, 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 was fully funded at the amendment date and is being amortized over 60 months.

WFF has a first priority, perfected security interest in the Companys assets. The WFF Loan, as amended, 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, $10,000 or 80% times the percentage of the book value of 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; and (3) certain financial covenants including (i) a minimum excess availability at all times; (ii) a minimum
trailing twelve month EBITDA level; (iii) a $3,500 cap on annual capital expenditures; and (iv) an early termination fee.

In addition to the
covenant requirements set forth above, the WFF Loan does not allow the Company to pay dividends or distributions on its outstanding capital stock (including to its parent) and limits or restricts the Companys ability to incur additional debt,
repurchase securities, make certain prohibited investments, create liens, transfer or sell assets or merge or consolidate without the consent of the lender. The WFF Loan permits the lenders to accelerate payment of the outstanding principal and
accrued and unpaid interest upon certain events of default, including failure to make required payments of principal and interest when due, uncured violations of the material covenants under the WFF Loan or if an event of default exists under the
indenture governing the Senior Subordinated Notes that would permit the trustee or holders to accelerate payment of the outstanding principal and accrued unpaid interest with respect to the Senior Subordinated Notes.

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 other subsidiaries, Glass Holdings LLC and BGF Services, Inc. As of September 30, 2006, amounts outstanding under the WFF Loan totaled $4,635 and
consisted of $4,135 under the term loan and $500 under the revolver. As of September 30, 2006, the Company had not exercised its LIBOR Rate option on any of the outstanding borrowings on the term loan or the revolver. Interest rates as of
September 30, 2006 under the LIBOR options were 8.82% and 8.57% on the term loan and revolver, respectively. Interest rates as of September 30, 2006 on the amounts outstanding under the Wells Fargo Prime Rate portion of the term loan and
revolver were 9.25%.

As of December 31, 2005, amounts outstanding under the WFF Loan totaled $8,079 and consisted of $5,079 under the term loan and
$3,000 under the revolver. As of December 31, 2005, the Company had exercised its LIBOR Rate option on $4,500 of the term loan and $3,000 of the revolver. Interest rates as of December 31, 2005 on the outstanding amounts under the LIBOR
options were 7.87% and 7.62% on the term loan and revolver, respectively. Interest rates as of December 31, 2005 on the amounts outstanding under the Wells Fargo Prime Rate portion of the term loan and revolver were 8.0%.

Availability under the revolver at September 30, 2006 and December 31, 2005 was $16,743 and $11,677, 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 $165 a week in 2006 and 2005, and is reset to $0 when such payment is made. As of September 30, 2006 and
December 31, 2005, the total outstanding reserves amounted to $1,819 and $3,804, respectively.



11



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)

8. Debt  (Continued)

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 $83,900 in face amount remains outstanding, as a result of repurchases made by
the Company in 2003, 2004 and 2005.

On June 23, 2005, the Company repurchased $2,850 (face value) of Senior Subordinated Notes for $2,765 plus
accrued interest of $128. This transaction resulted in a net gain on extinguishment of debt of $50.

The indenture governing the Senior Subordinated Notes
does not allow the Company to pay dividends or distributions on its outstanding capital stock (including to its parent) and limits or restricts the Companys ability to incur additional debt, repurchase securities, make certain prohibited
investments, create liens, transfer or sell assets, enter into new transactions with affiliates, issue or sell stock of a subsidiary or merge or consolidate without the consent of the trustee or a certain percentage of the holders. In particular,
the Company is prohibited from incurring additional debt or making certain additional investments unless it maintains a consolidated fixed charge coverage ratio of greater than 2.0 to 1.0. The indenture permits the trustee or the holders of 25% or
more of the Senior Subordinated Notes to accelerate payment of the outstanding principal and accrued and unpaid interest upon certain events of default, including failure to make required payments of principal and interest when due, uncured
violations of the material covenants under the indenture or if lenders accelerate payment of the outstanding principal and accrued unpaid interest due to an event of default with respect to at least $5,000 of other debt of the Company, such as the
WFF Loan.

The fair value of the Senior Subordinated Notes as of September 30, 2006 and December 31, 2005 was $79,285 and $84,530, respectively.

The Company has been in compliance with all of the covenants and ratios under the WFF Loan and the indenture governing its Senior Subordinated Notes for
all periods presented.

9. Income Taxes

The
effective tax rate for the nine months ended September 30, 2006 and September 30, 2005 was 3.9% and 0.0%, respectively. The difference between the effective tax rate and the statutory tax rate is due to the utilization of tax attributes
previously subject to a full valuation allowance along with state taxes.

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 and nine months ended September 30, 2006 and September 30, 2005 are as follows:



|                                        |  |                                        |      |                                       |                         |   |                  |      |  |                         |      |   |      |   |    |      |   |        |      |  |      |       |   |  |   |     |  |   |    
|--------------------------------------- |  | -------------------------------------- | ---- | ------------------------------------- | ----------------------- | - | ---------------- | ---- |  | ----------------------- | ---- | - | ---- | - | -- | ---- | - | ------ | ---- |  | ---- | ----- | - |  | - | --- |  | - | ---
|                                        |  | For the Three Months EndedSeptember 30 |      | For the Nine Months EndedSeptember 30
|                                        |  | Pension Benefits                       |      |                                       | Post-retirementBenefits |   | Pension Benefits |      |  | Post-retirementBenefits
|                                        |  | 2006                                   |      |                                       | 2005                    |   |                  | 2006 |  |                         | 2005 |   | 2006 |   |    | 2005 |   |        | 2006 |  | 2005
|Net periodic pension cost:              |  |                                        |      |                                       |                         |   |                  |      |  |                         |      |   |      |   |    |      |   |        |      |  |      |       |   |  |   |     |  |   |    
|Service cost                            |  | $                                      | 329  |                                       |                         | $ | 305              |      |  | $                       | 5    |   |      | $ | 22 |      | $ | 1,014  |      |  | $    | 877   |   |  | $ | 70  |  | $ | 67 
|Interest cost                           |  |                                        | 343  |                                       |                         |   | 341              |      |  |                         | 3    |   |      |   | 26 |      |   | 1,050  |      |  |      | 1,007 |   |  |   | 72  |  |   | 79 
|(Expected return on plan assets)        |  |                                        | (365 | )                                     |                         |   | (339             | )    |  |                         |     |   |      |   |   |      |   | (1,105 | )    |  |      | (935  | ) |  |   |    |  |   |   
|Amortization of prior service cost      |  |                                        | 1    |                                       |                         |   | 2                |      |  |                         |     |   |      |   |   |      |   | 4      |      |  |      | 5     |   |  |   |    |  |   |   
|Recognized net actuarial (gain) or loss |  |                                        | 55   |                                       |                         |   | 49               |      |  |                         | (8   | ) |      |   |   |      |   | 175    |      |  |      | 118   |   |  |   | 3   |  |   |   
|                                        |  |                                        |      |                                       |                         |   |                  |      |  |                         |      |   |      |   |    |      |   |        |      |  |      |       |   |  |   |     |  |   |    
|Total net periodic pension cost         |  | $                                      | 363  |                                       |                         | $ | 358              |      |  | $                       |     |   |      | $ | 48 |      | $ | 1,138  |      |  | $    | 1,072 |   |  | $ | 145 |  | $ | 146
|                                        |  |                                        |      |                                       |                         |   |                  |      |  |                         |      |   |      |   |    |      |   |        |      |  |      |       |   |  |   |     |  |   |    



12



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)

10. Employee Benefits  (Continued)

There are no expected required employer contributions for the defined
benefit plan for the year ended December 31, 2006.

Expected net employee contributions for the postretirement benefit plan for the year ended
December 31, 2006 are $121.

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 many of the Companys products.

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 Months Ended September 30, |        | For the Nine Months Ended September 30,
|              |  | 2006                                     |        | 2005                                    |   | 2006   |  | 2005
|              |  | (unaudited)                              |        | (unaudited)                            
|United States |  | $                                        | 40,502 |                                         | $ | 34,513 |  | $    | 127,338 |  | $ | 107,121
|Foreign       |  |                                          | 3,170  |                                         |   | 2,151  |  |      | 8,556   |  |   | 8,316  
|              |  |                                          |        |                                         |   |        |  |      |         |  |   |        
|              |  | $                                        | 43,672 |                                         | $ | 36,664 |  | $    | 135,894 |  | $ | 115,437
|              |  |                                          |        |                                         |   |        |  |      |         |  |   |        

12. Commitments and Contingencies

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

Health Care Costs. Based on publicly available data, the Company currently expects health care costs to increase significantly for the foreseeable future, which will further increase its general and administrative costs and reduce
its net income. Furthermore, because the average age of the Companys employees and other covered persons is generally higher than other companies, the Company believes that it may be potentially exposed to relatively higher health care costs
each year, particularly to the extent that it is responsible for covering catastrophic health care costs up to the maximum annual coverage of $125 per covered person. In addition, because the Company has a relatively small number of employees and a
limited amount of annual net income, the occurrence of even a small amount of such catastrophic costs during any period would have a magnifying adverse impact on its net income during such period. As a result of the foregoing, even though the
Company has undertaken and will continue to undertake a variety of measures to control increased health care costs, it is likely that its net income will decline in the future due to such expected increased costs unless otherwise offset by increased
revenues or lower costs in other areas.

Pension Plan Costs. Substantially all of the Companys eligible employees have elected to participate
in its defined benefit pension plan. Because pension obligations are ultimately settled in future periods, the determination of the annual pension expense and pension liabilities is subject to estimates and assumptions, such as the discount rate,
age and tenure, which are reviewed annually and are based on current rates and trends. Due to a decline in the long-term interest rates at the valuation date of December 31, 2005, the Company used a lower discount rate to calculate the present
value of benefit obligations, which resulted in higher cash contributions needed to maintain the funded status of this plan. The Company cannot predict whether investment returns will be sufficient to fund all of its future retirement benefits. To
the extent the pension plan assets are not sufficient to fund future retirement benefits for the employees, the average age of which is relatively higher than other companies, the Company would be required to fund any shortfall using cash generated
by its operations. Furthermore, at any time, the federal laws governing pension plans or the administrative interpretations of those laws may be amended in a manner that could increase our pension plan costs and liabilities.

Legal Matters. From time to time, the Company is involved in various 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.



13



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(dollars in thousands)

12. Commitments and Contingencies  (Continued)

Operating Leases.The Company leases facilities and equipment under operating
lease agreements. Generally, these leases contain renewal options under cancelable and non-cancelable operating leases. Rent expense amounted to $832 and $282 for the nine and three months ended September 30, 2006, respectively, and $894 and
$286 for the nine and three months ended September 30, 2005. Under the terms of non-cancelable operating leases, the Company is committed to the following future minimum lease payments at September 30, 2006:



|            |  |    
|----------- |  | ---
|Fiscal Year |  |    
|2006        |  | 224
|2007        |  | 419
|2008        |  | 284
|2009        |  |   
|Thereafter  |  |   

Supply Agreement. We and certain of our affiliates (collectively referred to as the Porcher
Group) have agreed to amend and restate the terms of the supply agreement originally dated April 2, 2004 between the Porcher Group and AGY Holding Corp (AGY). Under the terms of this new agreement that becomes effective
January 1, 2007, we have an economic incentive, but not an obligation, to purchase yarn from AGY. However, if the Porcher Group collectively does not purchase certain minimum quantities of yarn in the aggregate from AGY, we and each of our
other affiliates that constitute the Porcher Group will have a joint and several obligation to pay liquidated damages to AGY. While we believe that it is very unlikely that the Porcher Group would collectively purchase less than the minimum
quantities of yarn from AGY as set forth in the contract, we cannot provide any assurances that BGF will not be required to pay AGY liquidated damages pursuant to the contract.

13. Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires these costs be treated as current period charges. In addition, SFAS No. 151 requires
that fixed production overhead cost be allocated to units of production based on the normal capacity of each production facility. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company does not believe SFAS No. 151 has had a material impact on its financial statements.

In December 2004, the FASB
issued SFAS No. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, which is based on
the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged, with certain exceptions. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not believe SFAS No.153 has had a
material impact on its financial statements.

FIN 48, Accounting for Uncertainty in Income Taxes, was issued in June 2006. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. The Company will adopt FIN 48 in the first quarter of 2007. The Company is continuing to evaluate the impact that adoption of FIN 48 may have on the Companys results of operations, cash flows and financial position.



14



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(dollars in thousands)

13. Recent Accounting Pronouncements  (Continued)

In September 2006, the FASB issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158). SFAS No. 158 requires that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement
plans on their consolidated balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net
periodic benefit cost. SFAS No. 158 also requires additional disclosures in the notes to financial statements. SFAS No. 158 is effective as of the end of fiscal years ending after December 15, 2006. The Company is currently assessing
the impact of SFAS No. 158 on its consolidated financial statements. However, based on the current funded status of our defined benefit pension and postretirement medical plans, the Company would be required to increase its total liability by
$4,395 for pension and postretirement medical benefits, which would result in an estimated decrease to stockholders equity of approximately $4,226, net of taxes, in the Companys consolidated balance sheet. This estimate may vary from the
actual impact of implementing SFAS No. 158. The ultimate amounts recorded are highly dependent on a number of assumptions, including the discount rates in effect at December 31, 2006, the actual rate of return on our pension assets for
2006 and the tax effects of the adjustment. Changes in these assumptions since the Companys last measurement date could increase or decrease the expected impact of implementing SFAS No. 158 in the consolidated financial statements at
December 31, 2006.

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. For more information regarding these relationships, see Managements Discussion and Analysis of Financial Condition and Results of Operations
 Related Party Transactions.

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



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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, 2005 set forth in our 2005 Annual Report on Form 10-K.

Overview and Trends Affecting Our Business

Our business focuses on the production of value-added specialty woven fabrics,
non-woven fabrics and parts made from glass, carbon, and aramid yarns. Our products are a critical component in the production of a variety of electronic, filtration, composite, insulation, protective, construction, and commercial products. Our
products are 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 electronics, aerospace, transportation, construction, power
generation and oil refining. In line with our strategy of continued new product development, 26.1% of our sales in the third quarter 2006 were attributable to sales of products that were introduced within the last three years.

Results of Operations. Management believes that some of our products, particularly electronic fabrics, are viewed as commodities by our customers. These
products face increased competition from foreign manufacturers, particularly in Asia, that can manufacture similar products that are competitive with ours at significantly lower costs. Furthermore, it is becoming increasingly difficult to push
prices higher with respect to these products, which reduces our overall revenues and results in lower profitability, particularly as our operating costs continue to rise. While this commoditization trend is generally limited to our electronic
fabrics currently, we expect that some of our other products will be viewed in the future as commodities as Asian manufacturers ramp up production of these other goods, which will also put further pricing pressure on our overall sales.

Since we sell our products primarily in the United States, economic conditions in the U.S., particularly in sectors such as the automotive, electronics, construction
and aviation industries, will significantly affect our revenues for the foreseeable future. Direct imports of glass fiber fabrics into the U.S. have been increasing and the relocation of a large segment of the electronics industry to Asia has
impacted demand for domestically produced glass fiber fabrics used in printed circuit boards. This movement of production outside of North America has significantly reduced demand for certain types of our products, particularly electronic fabrics,
by our U.S. manufacturing customers.

From time to time, our industry also experiences excess manufacturing capacity, which results in excessive supply of
our products. During these periods when supply exceeds demand, pricing for our products tends to fall and results in lower revenues and lower profitability.

Based on publicly available data, we currently expect health care costs to increase significantly for the foreseeable future, which will further increase our general and administrative costs and reduce our net income. Furthermore, because
the average age of our employees and other covered persons is generally higher than other companies, we believe that the Company may be potentially exposed to relatively higher health care costs each year, particularly to the extent we are
responsible for covering catastrophic health care costs up to the maximum annual coverage of $0.1 million per covered person. In addition, because we have a relatively small number of employees and a limited amount of annual net income, the
occurrence of even a small amount of such catastrophic costs during any period would have a magnifying adverse impact on our net income during such period. As a result of the foregoing, even though we have undertaken and will continue to undertake a
variety of measures to control increased health care costs, it is likely that our net income will decline in the future due to such expected increased costs unless otherwise offset by increased revenues or lower costs in other areas.

Substantially all of our eligible employees have also elected to participate in our defined benefit pension plan. Because pension obligations are ultimately settled in
future periods, the determination of our annual pension expense and pension liabilities is subject to estimates and assumptions, such as the discount rate, age and tenure, which are reviewed annually and are based on current rates and trends. Due to
a decline in the long-term interest rates at the valuation date of December 31, 2005, we have used a lower discount rate to calculate the present value of benefit obligations, which has recently resulted in a decline in the funded status of our
plan and in higher pension expense. We cannot predict whether investment returns will be sufficient to fund all of our future retirement benefits. To the extent our pension plan assets are not sufficient to fund future retirement benefits for our
employees, the average age of which is relatively higher than other companies, we would be required to fund any shortfall using cash generated by our operations.



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Liquidity and Financial Condition. 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 required payments on our outstanding Senior Subordinated Notes and the WFF Loan and the funding of capital expenditures and working capital
requirements. If we experience lower net income in the future, we will generate correspondingly lower cash flows from operations and therefore be required to fund more of our short-term liquidity obligations using additional borrowings under the WFF
Loan. If our operating cash flow is not sufficient to meet required payment obligations under our Senior Subordinated Notes and the WFF Loan or we are unable to comply with financial ratios and other covenants under those debt instruments, we would
likely not be able to borrow any further amounts under the WFF Loan, which could adversely affect our ability to fund our operations and capital expenditures, and our lenders, including the holders of our Senior Subordinated Notes, could accelerate
our outstanding debt. Further, we do not intend to reserve funds to retire the Senior Subordinated Notes, which are scheduled to mature on January 15, 2009.

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, 2005.

Results of Operations

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



|                                             |  |                                          |    |  |                                         |   |  |       |    |  |       |  
|-------------------------------------------- |  | ---------------------------------------- | -- |  | --------------------------------------- | - |  | ----- | -- |  | ----- | -
|                                             |  | For the Three Months Ended September 30, |    |  | For the Nine Months Ended September 30, |  
|                                             |  | 2006                                     |    |  | 2005                                    |   |  | 2006  |    |  | 2005  |  
|Net sales                                    |  | 100.0                                    | %  |  | 100.0                                   | % |  | 100.0 | %  |  | 100.0 | %
|Cost of goods sold                           |  | 84.7                                     | %  |  | 85.3                                    | % |  | 83.3  | %  |  | 85.4  | %
|                                             |  |                                          |    |  |                                         |   |  |       |    |  |       |  
|Gross profit                                 |  | 15.3                                     | %  |  | 14.7                                    | % |  | 16.7  | %  |  | 14.6  | %
|Selling, general and administrative expenses |  | 6.9                                      | %  |  | 6.0                                     | % |  | 6.9   | %  |  | 6.5   | %
|Asset write off                              |  | .2                                       | %  |  |                                        |   |  | .1    | %  |  |      |  
|                                             |  |                                          |    |  |                                         |   |  |       |    |  |       |  
|Operating income                             |  | 8.2                                      | %  |  | 8.7                                     | % |  | 9.7   | %  |  | 8.1   | %
|Interest expense                             |  | 6.5                                      | %  |  | 7.7                                     | % |  | 6.2   | %  |  | 7.5   | %
|Other (income) expense, net                  |  | (4.1                                     | )% |  |                                        |   |  | (1.3  | )% |  |      |  
|                                             |  |                                          |    |  |                                         |   |  |       |    |  |       |  
|Income before income taxes                   |  | 5.8                                      | %  |  | 1.0                                     | % |  | 4.8   | %  |  | 0.6   | %
|Income tax expense                           |  | .2                                       | %  |  |                                        |   |  | .2    | %  |  |      |  
|                                             |  |                                          |    |  |                                         |   |  |       |    |  |       |  
|Net income                                   |  | 5.6                                      | %  |  | 1.0                                     | % |  | 4.6   | %  |  | 0.6   | %
|                                             |  |                                          |    |  |                                         |   |  |       |    |  |       |  

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Net Sales. Net sales increased $7.0 million, or 19.1%, to $43.7 million in the three months ended September 30, 2006 from $36.7
million in the three months ended September 30, 2005.

Sales of our composite fabrics, which are used in various applications including structural
aircraft parts and interiors, represented approximately 32.5% and 36.3% of our total net sales for the three months ended September 30, 2006 and 2005, respectively. Sales of these fabrics increased $0.9 million, or 6.7%, for the three months
ended September 30, 2006 as compared to the three months ended September 30, 2005 as a result of increased purchases of composite fabrics across the board by North American customers who produce goods for U.S.-based aircraft manufacturers.

Sales of our filtration fabrics, which are used by industrial customers to control emissions into the environment, represented approximately 19.0% and
18.8% of our total net sales for the three months ended September 30, 2006 and 2005, respectively. Sales of these fabrics increased $1.4 million, or 20.1%, for the three months ended September 30, 2006 as compared to the three months ended
September 30, 2005. This increase is due primarily to a higher value product mix and a price increase.

Sales of protective fabrics, which are used in
various ballistics applications including personal and vehicle armor, represented approximately 16.6% and 7.8% of our total net sales for the three months ended September 30, 2006 and 2005, respectively. Sales of these products increased $4.4
million, or 153.6%, for the three months ended September 30, 2006 as compared to the three months ended September 30, 2005 due to a price increase and continued increased purchases by customers who supply the U.S. military.



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Sales of our insulation products, which are used for high temperature applications, represented approximately 6.0% of our
net sales for the three months ended September 30, 2006 as compared to 6.5% for the three months ended September 30, 2005. Sales of insulation fabrics increased $0.2 million, or 9.5%, for the three months ended September 30, 2006 as
compared to the three months ended September 30, 2005 due primarily to the resumption of a major appliance program.

Sales of our electronics fabrics,
which are used in multi-layer and rigid printed circuit boards, coated fabrics and specialty electronic tapes represented approximately 16.0% of our total net sales over the three months ended September 30, 2006 as compared to 19.7% for the
same time period in the prior year. Sales of electronic fabrics decreased $0.3 million, or 3.5%, for the three months ended September 30, 2006 as compared to the three months ended September 30, 2005 due to lower average selling prices
during the third quarter of 2006. Long-term sales of these fabrics will continue to be adversely affected by the movement of electronic industry production outside of North America, such as to lower cost manufacturers in Asia who generally purchase
fabrics from Asian suppliers.

Gross Profit Margins. Gross profit margins increased to 15.3% in the three months ended September 30, 2006
from 14.7% in the three months ended September 30, 2005, due primarily to higher capacity utilization combined with price increases in several product lines, partially offset by an accrual for a quality claim from one of our largest customers.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.8 million to $3.0 million, or 6.9% of
net sales, in the three months ended September 30, 2006 from $2.2 million, or 6.0% of net sales, in the three months ended September 30, 2005, due primarily to increased management fees and employee benefits.

Operating Income. As a result of the aforementioned factors, operating income increased $0.4 million to $3.6 million, or 8.2% of net sales, in the three
months ended September 30, 2006, from $3.2 million, or 8.7% of net sales, in the three months ended September 30, 2005.

Interest
Expense. Interest expense remained at $2.8 million, or 6.5% of net sales, in the three months ended September 30, 2006 from $2.8 million, or 7.7% of net sales, in the three months ended September 30, 2005.

Other Income.Other income consisted of $1.8 million, or 4.1% of net sales, in the three months ended September 30, 2006 due to the settlement of a class
action lawsuit.

Income Taxes. The effective tax rate for the three months ended September 30, 2006 and September 30, 2005 was 3.9%
and 0.0%, respectively. The difference between the effective tax rate and the statutory tax rate is due to the utilization of tax attributes previously subject to a full valuation allowance along with state taxes. As a result, income tax expense
increased $0.1 million in the three months ended September 30, 2006 over the three months ended September 30, 3005.

Net Income. As a
result of the aforementioned factors, our net income increased $2.1 million to $2.5 million in the three months ended September 30, 2006 from $0.4 million in the three months ended September 30, 2005.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Net Sales. Net sales increased $20.5 million, or 17.7%, to $135.9 million in the nine months ended September 30, 2006 from $115.4 million in the nine
months ended September 30, 2005.

Sales of our composite fabrics, which are used in various applications including structural aircraft parts and
interiors, represented approximately 32.4% and 33.5% of our total net sales for the nine months ended September 30, 2006 and 2005, respectively. Sales of these fabrics increased $5.4 million, or 13.9%, for the nine months ended
September 30, 2006 as compared to the nine months ended September 30, 2005 as a result of increased purchases of composite fabrics across the board by North American customers who produce goods for U.S.-based aircraft manufacturers.

Sales of our filtration fabrics, which are used by industrial customers to control emissions into the environment, represented approximately 19.3% of our
total net sales for the nine months ended September 30, 2006 and 2005. Sales of these fabrics increased $3.9 million, or 17.6%, for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005. This
increase is due primarily to a higher value product mix and a price increase.

Sales of protective fabrics, which are used in various ballistics
applications including personal and vehicle armor, represented approximately 15.1% and 8.3% of our total net sales for the nine months ended September 30, 2006 and 2005, respectively. Sales of these products increased $11.0 million, or 114.1%,
for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005 due to a price increase and continued increased purchases by customers who supply the U.S. military.



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Sales of our insulation products, which are used for high temperature applications, represented approximately 5.9% of our
net sales for the nine months ended September 30, 2006 as compared to 8.1% for the nine months ended September 30, 2005. Sales of insulation fabrics decreased $1.2 million, or 13.0%, for the nine months ended September 30, 2006 as
compared to the nine months ended September 30, 2005 due primarily to the end of a major automotive program.

Sales of our electronics fabrics, which
are used in multi-layer and rigid printed circuit boards, coated fabrics and specialty electronic tapes represented approximately 17.2% and 19.4% of our total net sales over the nine months ended September 30, 2006 and 2005, respectively. Sales
of electronic fabrics increased $1.0 million, or 4.4%, for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005 due to increased demand in the U.S. market in the first three quarters of 2006.
However, long-term sales of these fabrics will continue to be adversely affected by the movement of electronic industry production outside of North America, such as to lower cost manufacturers in Asia who generally purchase fabrics from Asian
suppliers.

Gross Profit Margins. Gross profit margins increased to 16.7% in the nine months ended September 30, 2006 from 14.6% in the
nine months ended September 30, 2005, due primarily to higher capacity utilization combined with price increases in several product lines, partially offset by an accrual for a quality claim from one of our largest customers during the third
quarter of 2006.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $1.9 million to $9.4
million, or 6.9% of net sales, in the nine months ended September 30, 2006 from $7.5 million, or 6.5% of net sales, in the nine months ended September 30, 2005, due primarily to increased management fees, employee benefits and consulting
fees paid to a financial advisor upon termination of its consulting agreement during the first nine months of 2006.

Operating Income. As a
result of the aforementioned factors, operating income increased $3.8 million to $13.1 million, or 9.7% of net sales, in the nine months ended September 30, 2006, from $9.3 million, or 8.1% of net sales, in the nine months ended
September 30, 2005.

Interest Expense. Interest expense decreased $0.3 million to $8.4 million, or 6.2% of net sales, in the nine months
ended September 30, 2006 from $8.7 million, or 7.5% of net sales, in the nine months ended September 30, 2005.

Other (Income) Expense.Other income increased $1.9 million, or 1.3% of net sales, in the nine months ended September 30, 2006 from $0.1 million in other expense, or 0.0% of net sales, in the nine months ended September 30, 2005 due to the settlement of a
class action lawsuit.

Income Taxes. The effective tax rate for the nine months ended September 30, 2006 and September 30, 2005 was
3.9% and 0.0%, respectively. The difference between the effective tax rate and the statutory tax rate is due to the utilization of tax attributes previously subject to a full valuation allowance along with state taxes. As a result, income tax
expense increased $0.3 million during the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005.

Net
Income. As a result of the aforementioned factors, our net income increased $5.7 million to $6.3 million in the nine months ended September 30, 2006 from $0.6 million in the nine months ended September 30, 2005.

Balance Sheets

Accounts Receivable. Accounts receivable increased $3.5 million, or 21.6%, from December 31, 2005
to September 30, 2006. This increase was a result of the increased sales in the first nine months of 2006.

Inventory. Inventory increased $2.3
million, or 9.1%, from December 31, 2005 to September 30, 2006. This was mainly due to an increase in sales and manufacturing volumes in the first nine months of 2006.

Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities increased $1.0 million, or 6.5%, from December 31, 2005 to September 30, 2006. This increase was primarily the result
of an increase in trade payables due to an increase in manufacturing volume, accrued payroll and employee benefits offset by a decrease in accrued interest and the environmental reserve in the first nine months of 2006.

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 $83.5 million Senior Subordinated Notes ($83.9 million net of unamortized discount of $0.4 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



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cannot guarantee, that our cash flows from operations, combined with availability under the WFF Loan, 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 WFF Loan with WFF. The WFF Loan is guaranteed by our parent, NVH, Inc., BGF Services, Inc. and Glass Holdings LLC. The WFF Loan
proceeds are used to finance ongoing working capital, capital expenditures, and general corporate needs as well as retire other outstanding debt. The WFF Loan matures on the earlier of February 28, 2010 or the date that is 180 days prior to the
maturity date of the Senior Subordinated Notes. Because the Senior Subordinated Notes are scheduled to mature on January 15, 2009, we expect to be required to refinance the WFF Loan no later than July 18, 2008; however, there can be no
assurances that we would be able to refinance the WFF Loan on or before that date on favorable terms, if at all.

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. On October 31, 2005, we executed an amendment to our five-year financing arrangement with
WFF to increase our cap on capital expenditure to $3.5 million annually. The amendment was deemed effective as of June 30, 2005.

The WFF Loan, as
amended, 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 was fully funded at the amendment date 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; and (3) certain financial covenants including
(i) a minimum excess availability at all times; (ii) a minimum trailing twelve month EBITDA level; (iii) a $3.5 million cap on annual capital expenditures; and (iv) an early termination fee.

In addition to the covenant requirements set forth above, the WFF Loan does not allow us to pay dividends or distributions on our outstanding capital stock (including to
our parent) and limits or restricts our ability to incur additional debt, repurchase securities, make certain prohibited investments, create liens, transfer or sell assets or merge or consolidate. The WFF Loan permits the lenders to accelerate
payment of the outstanding principal and accrued and unpaid interest upon certain events of default, including failure to make required payments of principal and interest when due, uncured violations of the material covenants under the WFF Loan or
if an event of default exists under the indenture governing the Senior Subordinated Notes that would permit the trustee or holders to accelerate payment of the outstanding principal and accrued unpaid interest with respect to the Senior Subordinated
Notes.

As of September 30, 2006, amounts outstanding under the WFF Loan totaled $4.6 million, which consisted of $4.1 million under the term loan and
$0.5 million under the revolver. As of September 30, 2006, we had not exercised the LIBOR Rate option on any of the outstanding borrowings on the term loan or the revolver. Interest rates as of September 30, 2006 under the LIBOR options
were 8.82% and 8.57% on the term loan and revolver, respectively. Interest rates as of September 30, 2006 on the amounts outstanding under the Wells Fargo Prime Rate portion of the term loan and revolver were 9.25%.

As of December 31, 2005, amounts outstanding under the WFF Loan totaled $8.1 million, which consisted of $5.1 million under the term loan and $3.0 million under the
revolver. As of December 31, 2005, we had exercised the LIBOR Rate option on $4.5 million of the term loan and $3.0 million of the revolver. Interest rates as of December 31, 2005 on the outstanding amounts under the LIBOR options were
7.87% and 7.62% on the term loan and revolver, respectively. Interest rates as of December 31, 2005 on the amounts outstanding under the Wells Fargo Prime Rate portion of the term loan and revolver were 8.0%.

Availability under the revolver as of September 30, 2006 and November 5, 2006 was $16.7 million and $17.0 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 September 30, 2006 and
November 5, 2006, the outstanding reserves totaled $1.8 million and $2.6 million, respectively.



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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 indenture governing the Senior Subordinated Notes does not allow us to pay dividends or distributions on our outstanding capital stock (including to our parent) and limits or restricts our
ability to incur additional debt, repurchase securities, make certain prohibited investments, create liens, transfer or sell assets, enter into new transactions with affiliates, issue or sell stock of a subsidiary or merge or consolidate. In
particular, we are prohibited from incurring additional debt or making certain additional investments unless it maintains a consolidated fixed charge coverage ratio of greater than 2.0 to 1.0. The indenture permits the trustee or the holders of 25%
or more of the Senior Subordinated Notes to accelerate payment of the outstanding principal and accrued and unpaid interest upon certain events of default, including failure to make required payments of principal and interest when due, uncured
violations of the material covenants under the indenture or if lenders accelerate payment of the outstanding principal and accrued unpaid interest due to an event of default with respect to at least $5.0 million of our other debt, such as the WFF
Loan.

The fair value of the Senior Subordinated Notes as of September 30, 2006 and December 31, 2005 was approximately $79.3 million and $84.5
million, respectively.

We are in compliance with all of the covenants and ratios under the WFF Loan and the indenture governing our Senior Subordinated
Notes for all periods presented and expect to remain in compliance for the foreseeable future. However, this forward-looking statement is subject to risks and uncertainties. See Disclosure Regarding Forward-Looking Statements.

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 our Senior Subordinated Notes 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 Provided By Operating Activities.Net cash provided by operating activities was $4.6 million for the nine months ended September 30, 2006 compared with net cash provided by operating activities of $2.7 million for the
nine months ended September 30, 2005 and was primarily the result of an increase in net income, offset by an increase in working capital.

Net Cash
Used In Investing Activities. Net cash used in investing activities was $1.8 million for the nine months ended September 30, 2006 compared with $1.6 million for the nine months ended September 30, 2005. Purchases of property,
plant and equipment were $1.9 million for the nine months ended September 30, 2006 and September 30, 2005, respectively.

Net Cash Used In
Financing Activities.Net cash used in financing activities was $2.8 million for the nine months ended September 30, 2006, compared with net cash used in financing activities of $1.2 million for the nine months ended September 30, 2005
and was primarily the result of an increase in payments on the revolver credit facility, a decrease in term loan payments and a decrease in the book overdraft.

Commitments and Contingencies

Environmental Matters. We are engaged in an EPA-supervised
self-implementing remediation program at our Altavista facility. The remediation program is being conducted under EPA rules at 40 C.F.R. §761.61, promulgated under the Toxic Substances Control Act, that set forth self-implementing cleanup
standards for certain contamination by PCBs. PCBs were discovered at the Altavista facility during a 1998 environmental site assessment, and the EPA was notified. These PCBs were initially identified in the area of the former location of a heat
transfer oil tank that the previous owner of the facility had removed before Porcher Industries acquired us in 1988. 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, in groundwater, 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 Town of Altavistas
water treatment plant. Interim measures were taken in 1999 and 2000, and have been taken periodically since then, to control PCB migration and minimize exposure.

In 2003, we submitted to the EPA a final SCR documenting the assessment of the property and the sites drainage ditch. In May 2004, the EPA approved the SCR. A draft cleanup plan was submitted to the EPA in September 2004 and a final
proposed remediation plan was provided to the EPA for its review in December 2005. The EPA approved the plan in May 2006.

The remediation plan is
generally designed to achieve PCB levels in remaining soils within the area covered by the plan at or below 25 parts per million (ppm), which is consistent with standards set forth in the EPA rules for low occupancy sites. The
remediation plan covers property owned by us and off-site areas owned by third parties, including the portion of the drainage ditch running from the property off-site to the western edge of adjacent railroad tracks. The portion of the drainage ditch
east of the railroad tracks is not included within the scope of the voluntary cleanup. Although this eastern portion of the drainage ditch generally exhibits significantly lower PCB levels than are present in the western portion of the drainage
ditch, the exclusion of this area means that soils and/or sediments with PCBs above 25 ppm will remain in this area after the implementation of the plan.



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The cleanup work has been divided into a storm water management phase, a soil remediation phase, and a post-cleanup
reconstruction phase. The storm water management phase was completed during the second quarter of 2006. The Company has requested reimbursement, in the form of tax reductions, from the Town of Altavista for 80% of the costs borne in this project as
the scope of work centers primarily on site utilities. After implementation of the remediation plan, the Company will re-establish various structures and paved areas so the site can resume work with an enhanced storm water system. A contractor has
been selected and brought under agreement to complete the soil remediation phase. Work is anticipated to commence in the fourth quarter of 2006.

The
implementation of the remediation plan will not completely eliminate PCBs from the area subject to the plan; as noted above, the plan is designed to achieve PCB levels in remaining soils at or below 25 ppm. Further, the remediation plan itself
provides for contingencies under which PCBs would remain in place above 25 ppm. While future EPA and/or DEQ enforcement actions could potentially require further cleanup of the site, our voluntary remediation program lessens the likelihood of such
enforcement actions.

After implementation of the remediation plan, we will place deed restrictions on the Altavista property, including restrictions
limiting the propertys use consistent with a low occupancy area within the meaning of the EPA rules and other such limitations as may be appropriate depending on contingencies that may arise (e.g., deed restrictions relating to
areas where PCBs may be left in place under a specified cover).

A reserve of $2.2 million for the environmental issues at the Altavista facility has been
recorded at September 30, 2006 which reflects the accepted bid from the contractor for the soil remediation work of $1.9 million plus estimated additional expenses to be incurred for testing and post-cleanup reconstruction. Remediation costs
are estimates, subject to the EPAs comments on the remediation plan and to other factors that may arise in the remediation process. Contingencies that may affect the accuracy of these estimates include:



| |  |  | The portion of the drainage ditch east of the railroad tracks is outside the scope of the self-implemented cleanup. We have no indication whether the State or EPA will seek to
require us to undertake work in this drainage ditch. No cleanup plan or estimate for this work has been developed.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our construction estimates are inherently based on assumptions about the total quantity of soil to be removed and disposed, as bids are based on unit costs for removal,
transportation, and disposal. The extensive SCR was used as a basis for estimating quantities of soil to be excavated, transported, and deposited in proper landfills, but verification sampling upon excavation will be necessary and it is possible
that greater quantities of impacted soil than are currently estimated will require removal. Transportation and disposal costs are approximately two-thirds of the estimated cost of the project. Accordingly, a material increase in the quantity of soil
removed in excess of the currently-estimated amounts would correspondingly materially increase the cleanup cost.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Utilities may exist in and around the dig site that could be damaged. While all efforts will be made to avoid damaging utilities, any such damage may cause part or all work at the
plant to be suspended until such utilities can be restored. While not adding greatly to the project cost, the indirect cost of such an interruption through lost revenue could be material.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Completion of the remediation plan will address impacted soils at the site but will not preclude possible further action by the EPA under other environmental statutes
and rules or by Virginia. We are aware that the DEQ is calculating Total Maximum Daily Loads (TMDLs) for pollutants in water bodies. Samples have been taken for PCBs over large expanses of the Staunton River into which our storm water discharges. We
are not certain whether DEQs sampling may result in additional claims regarding areas downstream of our property including in the portion of the drainage ditch east of the railroad track or in the Staunton River.

In addition, 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 Department of Health and Environmental Control (DHEC). Upon review of the
data with DHEC, it was determined that 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.
Work includes semi-annual monitoring and reporting. Recent tests show reduced levels of solvent concentrations. We may review the data again with DHEC and recommend reducing the frequency of testing to annually to reduce costs. No action other than
continued monitoring for this facility is anticipated at this time. As of September 30, 2006, we had a reserve of $0.1 million for the above-described environmental issues at the Cheraw facility.



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As these environmental cleanups progress, in the future we may need to revise the reserves for Altavista and Cheraw but
we are unable to derive a more precise estimate at this time, as actual costs remain uncertain. 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.

Health Care
Costs. Based on publicly available data, we currently expect health care costs to increase significantly for the foreseeable future, which will further increase our general and administrative costs and reduce our net income. Furthermore,
because the average age of our employees and other covered persons is generally higher than other companies, we believe that the Company may be potentially exposed to relatively higher health care costs each year, particularly to the extent we are
responsible for covering catastrophic health care costs up to the maximum annual coverage of $0.1 million per covered person. In addition, because we have a relatively small number of employees and a limited amount of annual net income, the
occurrence of even a small amount of such catastrophic costs during any period would have a magnifying adverse impact on our net income during such period. As a result of the foregoing, even though we have undertaken and will continue to undertake a
variety of measures to control increased health care costs, it is likely that our net income will decline in the future due to such expected increased costs unless otherwise offset by increased revenues or lower costs in other areas.

Pension Plan Costs. Substantially all of our eligible employees have also elected to participate in our defined benefit pension plan. Because pension
obligations are ultimately settled in future periods, the determination of our annual pension expense and pension liabilities is subject to estimates and assumptions, such as the discount rate, age and tenure, which are reviewed annually and are
based on current rates and trends. Due to a decline in the long-term interest rates at the valuation date of December 31, 2005, we have used a lower discount rate to calculate the present value of benefit obligations, which has resulted in
higher cash contributions by us to maintain the funded status of this plan. We cannot predict whether investment returns will be sufficient to fund all of our future retirement benefits. To the extent our pension plan assets are not sufficient to
fund future retirement benefits for our employees, the average age of which is relatively higher than other companies, we would be required to fund any shortfall using cash generated by our operations. Furthermore, at any time, the federal laws
governing pension plans or the administrative interpretations of those laws may be amended in a manner that could increase our pension plan costs and liabilities.

Contractual Obligations and Off-Balance Sheet Arrangements

For information regarding our contractual obligations as of
December 31, 2005, see our 2005 Annual Report on Form 10-K. We currently have no off-balance sheet arrangements.

We and certain of our affiliates
(collectively referred to as the Porcher Group) have agreed to amend and restate the terms of the supply agreement originally dated April 2, 2004 between the Porcher Group and AGY Holding Corp (AGY). Under the terms of
this new agreement that becomes effective January 1, 2007, we have an economic incentive, but not an obligation, to purchase yarn from AGY. However, if the Porcher Group collectively does not purchase certain minimum quantities of yarn in the
aggregate from AGY, we and each of our other affiliates that constitute the Porcher Group will have a joint and several obligation to pay liquidated damages to AGY. While we believe that it is very unlikely that the Porcher Group would collectively
purchase less than the minimum quantities of yarn from AGY as set forth in the contract, we cannot provide any assurances that we will not be required to pay AGY liquidated damages pursuant to the contract.

Outlook for the Remainder of 2006

The following section contains forward-looking statements about our plans, strategies and
prospects during the remainder of 2006. 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 2006:



| |  |  | Sales trends during October 2006 were comparable to the first nine months of 2006; however, sales are expected to decrease during the last quarter of the year, which is consistent
with historical trends.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We plan to continue our efforts to maintain an inventory level consistent with sales.
| | - |  | -------------------------------------------------------------------------------------



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Related Party Transactions

We are wholly owned by Porcher Industries through NVH, Inc., a U.S. holding company. In July 2004,
our previous parent, Glass Holdings Corp., converted to a limited liability company and subsequently distributed its stock in BGF to NVH, Inc., a 100% owned subsidiary of Nouveau Verre Holdings, Inc., which is a 100% owned subsidiary of Porcher
Industries, Inc. Glass Holdings LLC owns 100% of BGF Services, Inc. We have ongoing financial, managerial and commercial agreements and arrangements with Porcher Industries, Glass Holdings and other wholly-owned subsidiaries of Glass Holdings, as
well as other affiliates of Porcher Industries. Mr. Robert Porcher, our former Chairman of the Board and Chief Executive Officer, beneficially owns a controlling interest in Porcher Industries and Mr. Philippe Porcher, our current Chairman
of the Board and Chief Executive Officer also owns an interest in Porcher Industries.

We pay management fees to BGF Services, Inc., a wholly owned
subsidiary of Glass Holdings, to cover the periodic management services of certain Porcher Industries employees and the full time services of Philippe Dorier, our Chief Financial Officer. We also reimburse BGF Services for the costs associated with
automobiles provided to Messrs. Philippe Porcher and Dorier. In connection with these arrangements with BGF Services, we incurred expenses of $0.5 million during the first nine months of 2006. BGF Services does not derive a profit from this
arrangement and therefore these terms cannot be considered comparable to those that would be provided to third parties.

Porcher Industries and its French
parent company provide general management and strategic planning advice to us in exchange for management fees that reimburse these companies for a portion of the compensation of Robert Porcher, Philippe Porcher and other employees who allocate their
time among us and other Porcher Industries affiliates. We incurred $0.6 million in management fees for such services during the first nine months of 2006.

We purchase semi-finished and finished products from Porcher Industries and its affiliates. We purchased $2.0 million of these products in the first nine months of 2006. We sell finished goods and occasionally unfinished goods directly to
Porcher and its affiliates. In the first nine months of 2006, we billed Porcher Industries and its affiliates $1.5 million for these goods. Porcher Industries billed us for commissions for sales of BGFs products in Asia, Europe, and Australia
of $0.1 million in the first nine months of 2006. We believe that prices and commissions paid or received by us for these transactions are comparable to those paid to third parties.

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires these costs be treated as current period charges. In addition, SFAS No. 151 requires
that fixed production overhead cost be allocated to units of production based on the normal capacity of each production facility. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. We do not believe SFAS No. 151 has had a material impact on our financial statements.

In December 2004, the FASB issued SFAS
No. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, which is based on the principle
that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged, with certain exceptions. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not believe SFAS No.153 has had a material impact on
our financial statements.

FIN 48, Accounting for Uncertainty in Income Taxes, was issued in June 2006. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We will
adopt FIN 48 in the first quarter of 2007. We are continuing to evaluate the impact that adoption of FIN 48 may have on our results of operations, cash flows and financial position.



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In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans (SFAS No. 158). SFAS No. 158 requires that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement plans on their consolidated balance sheet
and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost. SFAS No. 158 also
requires additional disclosures in the notes to financial statements. SFAS No. 158 is effective as of the end of fiscal years ending after December 15, 2006. The Company is currently assessing the impact of SFAS No. 158 on its
consolidated financial statements. However, based on the current funded status of our defined benefit pension and postretirement medical plans, the Company would be required to increase its total liability by $4.4 million for pension and
postretirement medical benefits, which would result in an estimated decrease to stockholders equity of approximately $4.2 million, net of taxes, in the Companys consolidated balance sheet. This estimate may vary from the actual impact of
implementing SFAS No. 158. The ultimate amounts recorded are highly dependent on a number of assumptions, including the discount rates in effect at December 31, 2006, the actual rate of return on our pension assets for 2006 and the tax
effects of the adjustment. Changes in these assumptions since the Companys last measurement date could increase or decrease the expected impact of implementing SFAS No. 158 in the consolidated financial statements at December 31,
2006.

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:



| |  |  | As a result of our significant debt, we may not be able to meet our obligations or obtain additional financing for capital expenditures or other beneficial activities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We may not be able to generate sufficient cash flow to meet our debt obligations, including making required payments on the Senior Subordinated Notes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Because the WFF Loan is senior to and will mature prior to the Senior Subordinated Notes, we may not have enough assets left to pay the holders of our Senior Subordinated Notes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The indenture governing the Senior Subordinated Notes limits our ability to incur additional debt, transfer or sell assets, and merge or consolidate.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Market downturns could reduce the demand for our products.
| | - |  | ----------------------------------------------------------



| |  |  | We compete in highly competitive markets and recent competition from Asia has reduced demand for our electronic heavyweight glass fiber fabrics and increased supply, which could
result in lower sales.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our operating performance is dependent upon a limited number of customers. A decrease in business from major customers could reduce cash available to make required payments under
the Senior Subordinated Notes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we are not able to keep up with technological advances in the markets we serve or if our competitors introduce cost-effective alternatives to our products, we could experience
declining sales or a loss of customers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our products may be viewed as commodities by our customers, which could lead to increased competition from foreign manufacturers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | In-sourcing of fabric manufacturing by our customers would reduce the demand for our products.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | We may experience a decline in the supply of raw materials, which means we could have to pay higher prices for raw materials or we could be delayed in making our products.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Costs with respect to our ongoing environmental cleanup projects and monitoring projects at our Altavista and Cheraw facilities could be higher than anticipated, which would reduce
our cash available to make required payments under our Senior Subordinated Notes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We may be responsible for safety and health costs that could adversely affect our business, financial condition and results of operations and result in less cash available to make
required payments under the Senior Subordinated Notes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our operations are subject to various hazards that may cause personal injury or property damage and increase our operating costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Health care expenses could be higher than anticipated, which would reduce our future net income.
| | - |  | ------------------------------------------------------------------------------------------------



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| |  |  | Funding requirements of our pension plan could be higher than anticipated, which would reduce our future net income and liquidity.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ongoing compliance with increasingly complex regulations governing companies that make voluntary filings with the SEC could increase our future selling, general and administrative
expenses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Conflicts of interest with our controlling equity holder could result in changes in our business that adversely affects our financial condition and results of operations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 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.

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.
Our Senior Subordinated Notes bear a 10.25% fixed interest rate and our WFF Loan is subject to 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 WFF Loan. The WFF Loan bears 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 September 30, 2006 and
November 1, 2006 was approximately $79.3 million and $80.1 million, respectively. If the interest rate on borrowings under our WFF Loan as of September 30, 2006 is 100 basis points higher or lower during the next 12 months, our annual
interest rate expense would be increased or decreased $0.1 million. As of September 30, 2006, we were not party to any derivative financial instruments.

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 and that such information is accumulated
and communicated to our management, including our President and CFO, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our President
and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our President and CFO have concluded that our disclosure controls and procedures were effective as of September 30,
2006.



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PART II - OTHER INFORMATION

Item 5. Other Information

As reported in our 2005 Annual Report on Form 10-K, all shares of our issued and outstanding
common stock are held by NVH, Inc., which is a wholly owned subsidiary of Nouveau Verre Holdings, Inc., which is a wholly owned subsidiary of Porcher Industries S.A. The purpose of the information set forth in this section is to describe a
transaction involving Nouveau Verre Holdings LLC (NVH LLC), which is a distinct and separate subsidiary of Nouveau Verre Holdings, Inc. The information contained herein has been provided to us by NVH LLC and we assume no responsibility
for its accuracy or any duty to update or correct such information after the date hereof.

NVH LLC was previously the owner of 150,000 shares of common
stock of AGY Holding Corp. Pursuant to the terms of a recent merger between AGY Holding Corp. and KAGY Holding Company Inc., all shares of AGY Holding Corp. owned by NVH LLC were converted into the right to receive cash in three installments. The
first installment was paid to NVH LLC upon consummation of the merger in an amount of $21.8 million. The second installment of $0.5 million was paid during the third quarter of 2006. The third installment is expected to be paid promptly following
May 31, 2007 upon the release of an indemnification escrow established pursuant to the terms of the merger agreement. Due to contingencies affecting the amount of the third installment, we are not able to predict the amount thereof.

We are not directly or indirectly a party to this transaction. As a result, this transaction has not had, nor will it have, any impact on our liquidity, financial
condition or results of operations.

Item 6. 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: November 14, 2006



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