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UNITED STATES

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, 2007

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)

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 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, 2007, 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, 2007

TABLE OF CONTENTS



|         |  |                                                                                                                                      |  |         
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | --------
|         |  |                                                                                                                                      |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                |  |         
|         |  |                                                                                                                                     
|Item 1.  |  | Financial Statements                                                                                                                 |  |         
|         |  |                                                                                                                                     
|         |  | Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006                                                            |  | 3       
|         |  |                                                                                                                                     
|         |  | Statements of Operations and Comprehensive Income for the three months and nine months ended September 30, 2007 and 2006 (unaudited) |  | 4       
|         |  |                                                                                                                                     
|         |  | Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (unaudited)                                           |  | 5       
|         |  |                                                                                                                                     
|         |  | Notes to Financial Statements                                                                                                        |  | 6       
|         |  |                                                                                                                                     
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                |  |         
|         |  | Overview and Trends Affecting Our Business                                                                                           |  | 17      
|         |  | Critical Accounting Policies                                                                                                         |  | 18      
|         |  | Results of Operations                                                                                                                |  | 18      
|         |  | Balance Sheets                                                                                                                       |  | 20      
|         |  | Liquidity and Capital Resources                                                                                                      |  | 20      
|         |  | Commitments and Contingencies                                                                                                        |  | 22      
|         |  | Contractual Obligations and Off-Balance Sheet Arrangements                                                                           |  | 24      
|         |  | Outlook for the Remainder of 2007                                                                                                    |  | 24      
|         |  | Related Party Transactions                                                                                                           |  | 25      
|         |  | Recent Accounting Pronouncements                                                                                                     |  | 25      
|         |  | Disclosure Regarding Forward-Looking Statements                                                                                      |  | 26      
|         |  |                                                                                                                                     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                           |  | 27      
|         |  |                                                                                                                                     
|Item 4.  |  | Controls and Procedures                                                                                                              |  | 27      
|         |  |                                                                                                                                     
|PART II. |  | OTHER INFORMATION                                                                                                                    |  |         
|         |  |                                                                                                                                     
|Item 5.  |  | Other Information                                                                                                                    |  | 28      
|         |  |                                                                                                                                     
|Item 6.  |  | Exhibits                                                                                                                             |  | 28      

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.)

BALANCE SHEETS

(dollars in
thousands)



|                                                                                                           |  |                    |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                           |  | September 30, 2007 |         |   | December 31,2006 |  
|                                                                                                           |  | (unaudited)        |         |   |                  |  
|ASSETS                                                                                                     |  |                    |         |   |                  |   |         |  
|Current assets:                                                                                            |  |                    |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                  |  | $                  |        |   |                  | $ | 3,644   |  
|Trade accounts receivable, less allowance for returns and doubtful accounts of $714 and $575, respectively |  |                    | 20,978  |   |                  |   | 15,552  |  
|Inventories                                                                                                |  |                    | 30,906  |   |                  |   | 30,328  |  
|Other current assets                                                                                       |  |                    | 673     |   |                  |   | 787     |  
|Assets held for sale                                                                                       |  |                    | 245     |   |                  |   | 245     |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total current assets                                                                                       |  |                    | 52,802  |   |                  |   | 50,556  |  
|Net property, plant and equipment                                                                          |  |                    | 28,659  |   |                  |   | 29,338  |  
|Deferred income taxes                                                                                      |  |                    | 1,718   |   |                  |   | 1,230   |  
|Other noncurrent assets, net                                                                               |  |                    | 2,183   |   |                  |   | 2,530   |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total assets                                                                                               |  | $                  | 85,362  |   |                  | $ | 83,654  |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|                                                                                                           |  |                   
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                      |  |                    |         |   |                  |   |         |  
|Current liabilities:                                                                                       |  |                    |         |   |                  |   |         |  
|Cash overdraft                                                                                             |  | $                  | 1,498   |   |                  | $ |        |  
|Accounts payable                                                                                           |  |                    | 10,219  |   |                  |   | 7,993   |  
|Accrued liabilities                                                                                        |  |                    | 7,077   |   |                  |   | 11,194  |  
|Deferred tax liability                                                                                     |  |                    | 1,718   |   |                  |   | 1,230   |  
|Current portion of long-term debt                                                                          |  |                    | 4,830   |   |                  |   | 1,200   |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total current liabilities                                                                                  |  |                    | 25,342  |   |                  |   | 21,617  |  
|Long-term debt, net of discount of $218 and $356, respectively                                             |  |                    | 81,714  |   |                  |   | 88,100  |  
|Finance obligation                                                                                         |  |                    | 2,864   |   |                  |   | 2,818   |  
|Postretirement benefit and pension obligations                                                             |  |                    | 3,046   |   |                  |   | 4,240   |  
|Other long-term liabilities                                                                                |  |                    | 913     |   |                  |   |        |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total liabilities                                                                                          |  |                    | 113,879 |   |                  |   | 116,775 |  
|                                                                                                           |  |                    |         |   |                  |   |         |  
|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                                                                                        |  |                    | (63,517 | ) |                  |   | (68,121 | )
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total stockholders deficit                                                                                |  |                    | (28,517 | ) |                  |   | (33,121 | )
|                                                                                                           |  |                    |         |   |                  |   |         |  
|Total liabilities and stockholders deficit                                                                |  | $                  | 85,362  |   |                  | $ | 83,654  |  
|                                                                                                           |  |                    |         |   |                  |   |         |  

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



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

STATEMENTS OF OPERATIONS

AND
COMPREHENSIVE INCOME

(dollars in thousands)



|                                             |  |                                         |        |   |                                        |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | --------------------------------------- | ------ | - | -------------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |  | For the Three MonthsEnded September 30, |        |   | For the Nine MonthsEnded September 30, |  
|                                             |  | 2007                                    |        |   | 2006                                   |   |        | 2007 |  |   | 2006    |  
|                                             |  | (unaudited)                             |        |   | (unaudited)                            |  
|Net sales                                    |  | $                                       | 47,801 |   |                                        | $ | 43,672 |      |  | $ | 146,417 |   |  | $ | 135,894 |  
|Cost of goods sold                           |  |                                         | 40,020 |   |                                        |   | 36,985 |      |  |   | 124,191 |   |  |   | 113,260 |  
|                                             |  |                                         |        |   |                                        |   |        |      |  |   |         |   |  |   |         |  
|Gross profit                                 |  |                                         | 7,781  |   |                                        |   | 6,687  |      |  |   | 22,226  |   |  |   | 22,634  |  
|Selling, general and administrative expenses |  |                                         | 2,835  |   |                                        |   | 3,033  |      |  |   | 8,422   |   |  |   | 9,398   |  
|Asset write off                              |  |                                         |       |   |                                        |   | 92     |      |  |   | (16     | ) |  |   | 92      |  
|                                             |  |                                         |        |   |                                        |   |        |      |  |   |         |   |  |   |         |  
|Operating income                             |  |                                         | 4,946  |   |                                        |   | 3,562  |      |  |   | 13,820  |   |  |   | 13,144  |  
|Interest expense                             |  |                                         | 2,694  |   |                                        |   | 2,819  |      |  |   | 8,089   |   |  |   | 8,404   |  
|Other (income), net                          |  |                                         | (75    | ) |                                        |   | (1,797 | )    |  |   | (186    | ) |  |   | (1,811  | )
|                                             |  |                                         |        |   |                                        |   |        |      |  |   |         |   |  |   |         |  
|Income before income taxes                   |  |                                         | 2,327  |   |                                        |   | 2,540  |      |  |   | 5,917   |   |  |   | 6,551   |  
|Income tax expense                           |  |                                         | 321    |   |                                        |   | 89     |      |  |   | 1,506   |   |  |   | 251     |  
|                                             |  |                                         |        |   |                                        |   |        |      |  |   |         |   |  |   |         |  
|Net income and total comprehensive income    |  | $                                       | 2,006  |   |                                        | $ | 2,451  |      |  | $ | 4,411   |   |  | $ | 6,300   |  
|                                             |  |                                         |        |   |                                        |   |        |      |  |   |         |   |  |   |         |  

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



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

STATEMENTS OF CASH FLOWS

(dollars in
thousands)



|                                                                             |  |                                        |        |   |      |   |         |  
|---------------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | ---- | - | ------- | -
|                                                                             |  | For the Nine MonthsEnded September 30, |       
|                                                                             |  | 2007                                   |        |   | 2006 |  
|                                                                             |  | (unaudited)                            |       
|Cash flows from operating activities:                                        |  |                                        |        |   |      |   |         |  
|Net income                                                                   |  | $                                      | 4,411  |   |      | $ | 6,300   |  
|Adjustment to reconcile net income to net cash used in operating activities: |  |                                        |        |   |      |   |         |  
|Depreciation                                                                 |  |                                        | 3,291  |   |      |   | 3,572   |  
|Amortization                                                                 |  |                                        | 653    |   |      |   | 629     |  
|Amortization of discount on notes                                            |  |                                        | 132    |   |      |   | 126     |  
|(Gain) on disposal of equipment                                              |  |                                        | (52    | ) |      |   | (112    | )
|(Gain) on debt cancellation                                                  |  |                                        | (69    | ) |      |   |        |  
|Noncash interest on finance obligation                                       |  |                                        | 46     |   |      |   | 44      |  
|Change in assets and liabilities:                                            |  |                                        |        |   |      |   |         |  
|Trade accounts receivable, net                                               |  |                                        | (5,426 | ) |      |   | (3,461  | )
|Inventories                                                                  |  |                                        | (578   | ) |      |   | (2,262  | )
|Current income tax refundable                                                |  |                                        | (1,336 | ) |      |   |        |  
|Other current assets                                                         |  |                                        | 114    |   |      |   | (140    | )
|Other assets                                                                 |  |                                        | (306   | ) |      |   | (73     | )
|Accounts payable                                                             |  |                                        | 2,226  |   |      |   | 2,444   |  
|Accrued liabilities                                                          |  |                                        | (2,780 | ) |      |   | (1,396  | )
|Postretirement benefit and pension obligations                               |  |                                        | (1,194 | ) |      |   | (1,128  | )
|Other liabilities                                                            |  |                                        | 1,105  |   |      |   |        |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Net cash provided by operating activities                                    |  |                                        | 237    |   |      |   | 4,635   |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Cash flows from investing activities:                                        |  |                                        |        |   |      |   |         |  
|Purchases of property, plant and equipment                                   |  |                                        | (2,647 | ) |      |   | (1,918  | )
|Proceeds from sale of equipment                                              |  |                                        | 87     |   |      |   | 124     |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Net cash used in investing activities                                        |  |                                        | (2,560 | ) |      |   | (1,794  | )
|                                                                             |  |                                        |        |   |      |   |         |  
|Cash flows from financing activities:                                        |  |                                        |        |   |      |   |         |  
|Book overdraft                                                               |  |                                        | 1,498  |   |      |   | 603     |  
|Proceeds from revolving credit facility                                      |  |                                        | 5,700  |   |      |   | 12,400  |  
|Proceeds from term loan                                                      |  |                                        | 50     |   |      |   |        |  
|Payments on revolving credit facility                                        |  |                                        | (5,700 | ) |      |   | (14,900 | )
|Payments on term loan                                                        |  |                                        | (944   | ) |      |   | (944    | )
|Purchases of Senior Subordinated Notes                                       |  |                                        | (1,925 | ) |      |   |        |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Net cash used in financing activities                                        |  |                                        | (1,321 | ) |      |   | (2,841  | )
|                                                                             |  |                                        |        |   |      |   |         |  
|Net decrease in cash and cash equivalents                                    |  |                                        | (3,644 | ) |      |   |        |  
|Cash and cash equivalents at beginning of period                             |  |                                        | 3,644  |   |      |   |        |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Cash and cash equivalent at end of period                                    |  | $                                      |       |   |      | $ |        |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Supplemental disclosures of cash flow information:                           |  |                                        |        |   |      |   |         |  
|Cash paid during the period for interest                                     |  | $                                      | 9,122  |   |      | $ | 9,388   |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Cash paid during the period for income taxes                                 |  | $                                      | 222    |   |      | $ | 649     |  
|                                                                             |  |                                        |        |   |      |   |         |  
|Supplemental disclosure of non-cash investing activities:                    |  |                                        |        |   |      |   |         |  
|Property and equipment financed in accounts payable                          |  | $                                      | 44     |   |      | $ | 109     |  
|                                                                             |  |                                        |        |   |      |   |         |  

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



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



|1. | Basis of Presentation
|-- | ---------------------

The accompanying unaudited interim financial
statements of BGF Industries, Inc. (the Company) have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair statement of results of operations have been
included. Operating results for the three months and nine months ended September 30, 2007 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, 2006 on file with the Securities and Exchange Commission in the Companys 2006 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, 2006 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
$4,411 for the nine months ended September 30, 2007 and a $28,517 stockholders deficit as of September 30, 2007. In the year ended December 31, 2006, the Company had net income of $6,961 and had a $33,121 stockholders
deficit as of December 31, 2006.

On June 6, 2003, the Company entered into a five year financing arrangement (the WFF Loan) with
Wells Fargo Foothill, Inc. (WFF). See Note 9 for details regarding this arrangement.

The Companys continued existence is dependent upon
several factors including its ability to continue to generate sufficient operating cash flow to fund its operations and interest payments on its Senior Subordinated Notes and its ability to continue to meet its financial covenants and make required
payments under the WFF Loan. (See Note 9.) While the Companys performance to date in 2007 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.



|3. | Inventories
|-- | -----------

Inventories consist of the following:



|                          |  |                    |        |   |                   |   |        |  
|------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                          |  | September 30, 2007 |        |   | December 31, 2006 |  
|                          |  | (unaudited)        |        |   |                   |  
|Supplies                  |  | $                  | 1,611  |   |                   | $ | 1,702  |  
|Raw materials             |  |                    | 4,863  |   |                   |   | 4,599  |  
|Stock-in-process          |  |                    | 4,250  |   |                   |   | 3,617  |  
|Finished goods            |  |                    | 22,544 |   |                   |   | 22,602 |  
|                          |  |                    |        |   |                   |   |        |  
|Total inventories  gross |  |                    | 33,268 |   |                   |   | 32,520 |  
|Less: writedowns          |  |                    | (2,362 | ) |                   |   | (2,192 | )
|                          |  |                    |        |   |                   |   |        |  
|Total inventories - net   |  | $                  | 30,906 |   |                   | $ | 30,328 |  
|                          |  |                    |        |   |                   |   |        |  



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|4. | Other Current Assets
|-- | --------------------

Other current assets consist of the
following:



|                                    |  |                    |     |                   |   |    
|----------------------------------- |  | ------------------ | --- | ----------------- | - | ---
|                                    |  | September 30, 2007 |     | December 31, 2006
|                                    |  | (unaudited)        |     |                  
|Prepaid Insurance                   |  | $                  | 432 |                   | $ | 267
|Miscellaneous non-trade receivables |  |                    | 223 |                   |   | 502
|Other                               |  |                    | 18  |                   |   | 18 
|                                    |  |                    |     |                   |   |    
|Total other current assets          |  | $                  | 673 |                   | $ | 787
|                                    |  |                    |     |                   |   |    

Miscellaneous non-trade receivables includes $53 and $337 at September 30, 2007 and December 31, 2006,
respectively, due from the Town of Altavista as reimbursement in the storm water phase of the Companys environmental remediation and $139 and $72 at September 30, 2007 and December 31, 2006, respectively, due from insurance claims.
The remaining balances of $31 and $93 at September 30, 2007 and December 31, 2006, respectively, are made up of affiliated and miscellaneous employee advances.



|5. | 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. As of December 31, 2006, the equipment that
was held for sale was either sold or written down as an asset impairment. The remaining assets have a net book value of $245 as of September 30, 2007 and December 31, 2006 and have been classified as a current asset on the balance sheets.

On February 26, 2007, the Company entered into a real estate contract to sell its South Hill, VA heavyweight fabrics facility. The contract provides
for (i) a selling price of $340, (ii) a renewal term of December 31, 2013 for the lease of its warehousing and non-woven manufacturing facility in Altavista, VA and (iii) a sixty-day due diligence period for the buyer prior to
closing. In April 2007, July 2007, September 2007, and October 2007 the contract was amended to extend the due diligence period by thirty, sixty, thirty, and forty-five days, respectively, and will now end on December 10, 2007. During
this due diligence period, the buyer discovered contamination associated with a used oil tank and the Company has established a reserve of $55 for clean up costs. See Note 8 for further details. No assurance can be given at this point that the
proposed transaction will close under the above disclosed terms or at all.



|6. | Net Property, Plant and Equipment
|-- | ---------------------------------

Net property, plant and
equipment consist of the following:



|                                    |  |                    |         |   |                   |   |         |  
|----------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                    |  | September 30, 2007 |         |   | December 31, 2006 |  
|                                    |  | (unaudited)        |         |   |                   |  
|Land                                |  | $                  | 2,879   |   |                   | $ | 2,879   |  
|Buildings                           |  |                    | 38,137  |   |                   |   | 37,981  |  
|Machinery and equipment             |  |                    | 84,512  |   |                   |   | 82,851  |  
|                                    |  |                    |         |   |                   |   |         |  
|Gross property, plant and equipment |  |                    | 125,528 |   |                   |   | 123,711 |  
|Less: accumulated depreciation      |  |                    | (96,869 | ) |                   |   | (94,373 | )
|                                    |  |                    |         |   |                   |   |         |  
|Net property, plant and equipment   |  | $                  | 28,659  |   |                   | $ | 29,338  |  
|                                    |  |                    |         |   |                   |   |         |  



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|7. | Other Noncurrent Assets, Net
|-- | ----------------------------

Other noncurrent assets, net consist
of the following:



|                                   |  |                    |        |   |                   |   |        |  
|---------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                                   |  | September 30, 2007 |        |   | December 31, 2006 |  
|                                   |  | (unaudited)        |        |   |                   |  
|Debt issuance costs                |  | $                  | 5,583  |   |                   | $ | 5,645  |  
|Accumulated amortization           |  |                    | (4,812 | ) |                   |   | (4,240 | )
|                                   |  |                    |        |   |                   |   |        |  
|                                   |  |                    | 771    |   |                   |   | 1,405  |  
|Security deposits                  |  |                    | 515    |   |                   |   | 525    |  
|Other noncurrent assets            |  |                    | 897    |   |                   |   | 600    |  
|                                   |  |                    |        |   |                   |   |        |  
|Total other noncurrent assets, net |  | $                  | 2,183  |   |                   | $ | 2,530  |  
|                                   |  |                    |        |   |                   |   |        |  

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

Amortization of deferred financing charges of $224 and $653 for the three and nine months ended September 30, 2007, respectively, and $210 and $629 for the three
and nine months ended September 30, 2006, respectively, has been included in interest expense.



|8. | Accrued Liabilities
|-- | -------------------

Accrued liabilities consist of the following:



|                                                                            |  |                    |       |                  |   |       
|--------------------------------------------------------------------------- |  | ------------------ | ----- | ---------------- | - | ------
|                                                                            |  | September 30, 2007 |       | December 31,2006
|                                                                            |  | (unaudited)        |       |                 
|Interest                                                                    |  | $                  | 1,787 |                  | $ | 3,996 
|Environmental                                                               |  |                    | 159   |                  |   | 2,218 
|Profit Sharing                                                              |  |                    | 1,055 |                  |   | 1,288 
|Payroll                                                                     |  |                    | 533   |                  |   | 547   
|Other employee benefits, including current portion of deferred compensation |  |                    | 1,112 |                  |   | 1,603 
|Medical benefits                                                            |  |                    | 736   |                  |   | 622   
|Due to affiliated companies                                                 |  |                    | 825   |                  |   |      
|Other                                                                       |  |                    | 870   |                  |   | 920   
|                                                                            |  |                    |       |                  |   |       
|Total accrued liabilities                                                   |  | $                  | 7,077 |                  | $ | 11,194
|                                                                            |  |                    |       |                  |   |       

Environmental Matters. The Company has completed the final phases of an Environmental Protection Agency
(EPA)-supervised self-implementing remediation program at its Altavista facility. The remediation program was 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 (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. The Company submitted a final Site
Characterization Report (SCR) to the EPA in 2003, which the EPA approved in 2004. 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 was 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 cleanup was 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 requested reimbursement



8



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|8. | Accrued Liabilities  (Continued)
|-- | ---------------------------------



from the Town of Altavista for 80% of the costs borne in this project as the scope of work centers primarily on site utilities. The Town of Altavista agreed
to a total reimbursement of $396, which is to be paid in equal installments over the next seven years. Payments began in January 2007. A discounted receivable of $280 has been recorded at September 30, 2007. The soil remediation phase of the
cleanup started in November 2006 and was completed in March 2007. The reconstruction phase which began following completion of the soil remediation was completed in accordance with the EPA approved plan in June 2007.

During the cleanup and site reconstruction, the Company provided the EPA with a weekly log of cleanup activities. Upon completion of all of the work in the remediation
plan in July 2007, the Company submitted a final report to the EPA detailing and summarizing all of the cleanup and site reconstruction work done at the site, along with a request for a closure letter, stating that no further action is required by
the Company. The Company is currently awaiting receipt of that letter from the EPA.

The implementation of the remediation plan did not completely
eliminate PCBs from the area subject to the plan; as noted above, soils were left in place if the PCB levels were below 25 ppm. As a result, future EPA and/or the Virginia Department of Environmental Quality (DEQ) enforcement actions
could potentially require further cleanup of the site. The Companys voluntary remediation program has, however, lessened the likelihood of such enforcement actions, and the Company has had no indication of any enforcement intent by either the
EPA or the DEQ.

A reserve of $2,098 for the environmental issues at the Altavista facility was recorded at December 31, 2006, which reflected the
accepted bid from the contractor for the soil remediation work of $2,321 plus $150 estimated additional expenses to be incurred for testing and post-cleanup reconstruction. The reserve was reduced by expenses incurred through December 2006 of $373.
During the first nine months of 2007, the reserve was increased by $510 to reflect changes in estimated costs due to the quantity of soil being removed. Expenses incurred during the nine months ending September 30, 2007 were $2,608, which
reduced the reserve balance at September 30, 2007 to $0.

Completion of the remediation plan has addressed impacted soils at the site but will not
preclude possible further action by the EPA or Virginia under other environmental statutes and rules. 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 the 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 originally included semi-annual monitoring and reporting. Recent tests, however, have shown reduced levels of solvent concentrations.
The DHEC has therefore agreed to require testing annually instead of semi-annually. No action other than continued monitoring for this facility is anticipated at this time. As of September 30, 2007 and December 31, 2006, the Company had a
reserve of $120 for the above-described environmental issues at the Cheraw facility.

The Company has entered into a contract to sell property located at
South Hill, Mecklenburg County, Virginia. In the course of the buyers environmental diligence prior to purchase, the buyer discovered contamination associated with a used oil tank located at the property. The Company removed the used oil
tank, which appeared to be fully intact. We believe that the contamination was residual from a prior tank that had been located on the property.

The
Company is currently preparing a Voluntary Cleanup Program (VCP) application to be submitted to the State of Virginia. Proposed remediation involves limited soil removal and monitoring of the groundwater over the period of several
years. The buyer has agreed to close the purchase of the property while these remediation activities are underway, provided that the Company retains liability for the contamination associated with the tank. Provided that the site is
accepted into the Virginia VCP, and the Company anticipates that it will be, remediation and monitoring activities should cost less than $55. A reserve of $39 has been recorded at September 30, 2007 representing $55 in total expected clean up
costs less expenses incurred to date of $16.



9



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|8. | Accrued Liabilities  (Continued)
|-- | ---------------------------------



If further environmental issues develop, the Company may need to revise the reserves for Altavista, South Hill and
Cheraw but it is unable to derive more precise estimates 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.

Current contribution to retirement plan. In order to continue to provide all distribution options allowed by the defined benefit plan, the Company accelerated its 2006 contributions and paid $2,200 into the plan on July 16,
2007. (See Note 11.)

Due to affiliated companies.The amount due affiliated companies of $825 consists primarily of income taxes payable under a
tax sharing arrangement.



|9. | Debt
|-- | ----

Debt consists of the following:



|                                                                                      |  |                    |        |                   |   |       
|------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                                                                      |  | September 30, 2007 |        | December 31, 2006
|                                                                                      |  | (unaudited)        |        |                  
|WFF Loan:                                                                             |  |                    |        |                   |   |       
|Term loan                                                                             |  | $                  | 4,814  |                   | $ | 5,756 
|Revolver                                                                              |  |                    |       |                   |   |      
|Senior Subordinated Notes, net of unamortized discount of $218 and $356, respectively |  |                    | 81,682 |                   |   | 83,544
|IBM Loan                                                                              |  |                    | 48     |                   |   |      
|                                                                                      |  |                    |        |                   |   |       
|Total debt                                                                            |  |                    | 86,544 |                   |   | 89,300
|Current Maturities                                                                    |  |                    | 4,830  |                   |   | 1,200 
|                                                                                      |  |                    |        |                   |   |       
|Long-term debt                                                                        |  | $                  | 81,714 |                   | $ | 88,100
|                                                                                      |  |                    |        |                   |   |       

On June 6, 2003, the Company obtained the WFF Loan. This arrangement provided for a maximum revolver credit
line of $40,000 with a letter of credit 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 was amortized over sixty months.

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.

On December 1, 2006, the Company executed an amendment to the WFF Loan. The amendment provided for the following:
(1) increased the maximum facility size to $27,000; (2) reloaded the term loan back to $6,000; (3) increased the maximum revolver credit line to $21,000; (4) increased the minimum EBITDA requirements for financial covenants to
not less than $15,000 calculated on a trailing 12 month basis; (5) reduced the spread on interest rates by approximately 100 basis points; and (6) increased the annual cap on capital expenditures to $4,500.

The WFF Loan, as amended, has a maximum revolver credit line of $21,000 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 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%,



10



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|9. | Debt  (Continued)
|-- | ------------------



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 our
inventory that is estimated to be recoverable upon liquidation; (2) borrowing rates of LIBOR + 2.25% or the Wells Fargo Prime Rate (RR) + 0.00% for the revolver if the trailing twelve months EBITDA exceeds $20,000 with a 25 basis points
increase if the trailing twelve months EBITDA exceeds $17,000 but is less than or equal to $20,000 and a further 25 basis points increase if the trailing twelve months EBITDA is less than or equal to $17,000; (3) borrowing rates of LIBOR + 2.5%
or RR + .25% for the term loan with, at all times, a minimum rate of 5% for both facilities; (4) certain financial covenants including (i) a minimum excess availability at all times, (ii) a minimum trailing twelve month EBITDA level
and (iii) a $4,500 cap on annual capital expenditures; and (5) 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 subsidiaries, Glass Holdings LLC and BGF Services, Inc. As of September 30, 2007, amounts outstanding under the WFF Loan totaled $4,814, which consisted solely of $4,814 under the term loan. As of
December 31, 2006, amounts outstanding under the WFF Loan totaled $5,756, which consisted solely of $5,756 under the term loan. The term loan is payable in full in July 2008. As of September 30, 2007, the Company had exercised its LIBOR
Rate option on $4,500 of its borrowings on the term loan. As of December 31, 2006, the Company had not exercised its LIBOR Rate option on any of its borrowings on the term loan or the revolver. The interest rate as of September 30, 2007 on
the outstanding amounts under the LIBOR options on the term loan was 8.3%. The interest rate as of September 30, 2007 and December 31, 2006 on the amounts outstanding under the Wells Fargo Prime Rate portion of the term loan was 8.5%.

Availability under the revolver at September 30, 2007 and December 31, 2006 was $19,626 and $14,651, 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 increased by $165 a week in 2006 and in 2007 the reserve was $165 a week through August 24, 2007, the date of the
bond purchases. Subsequent to the purchase of the bonds, the reserve was decreased to $161 each week. The reserve is reset to $0 when such payment is made. As of September 30, 2007 and December 31, 2006, the total outstanding reserves
amounted to $1,759 and $3,969, respectively.

The Senior Subordinated Notes bear interest at a rate of 10.25%, which is payable semi-annually in January
and July through the maturity date of January 15, 2009. The original amount of the Senior Subordinated Notes issued was $100,000, of which $81,900 in face amount remains outstanding, as a result of repurchases made by the Company in 2003, 2004,
2005, and 2007.

On August 24, 2007, the Company purchased $2,000 (face value) of Senior Subordinated Notes for $1,925 plus accrued interest of $22.
This transaction resulted in a net gain on extinguishment of debt of $69.

On June 23, 2005, the Company purchased $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.

In 2004, the
Company purchased $9,000 (face value) of Senior Subordinated Notes for $8,740 plus accrued interest of $264. This transaction resulted in a loss on extinguishment of debt of $224. The Senior Subordinated Notes purchase was funded by a combination of
cash provided by operations and borrowings under the WFF Loan.

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



11



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|9. | Debt  (Continued)
|-- | ------------------



securities, make certain prohibited investments, create liens, transfer or sell assets, enter into transactions with affiliates, issue or sell stock of a
subsidiary or merge or consolidate 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.

In August 2007, the
Company entered into a financing arrangement with IBM Credit LLC for the purchase of software. This loan has a term of 36 months with the first payment beginning September 1, 2007 and an interest rate of 7.7%. The balance of the loan as of
September 30, 2007 was $48.

The fair value of the Senior Subordinated Notes as of September 30, 2007 and December 31, 2006 was $81,081 and
$81,383, 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.



|10. | Income Taxes
|--- | ------------

The effective tax rate for the nine months ended
September 30, 2007 and September 30, 2006 was 25.5% and 3.9%, 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. On January 1, 2007, the Company adopted the provisions of FIN 48. As a result the Company has recognized an adjustment of $193 in retained earnings for unrecognized tax benefits and recorded a long-term tax
liability of $873 representing unrecognized tax benefits, penalties and interest as of January 1, 2007. As of September 30, 2007, the similar total long-term tax liability under FIN 48 is $913. (See note 14 - Recent Accounting
Pronouncements.) All of the unrecognized tax benefit would affect our effective tax rate if recognized.



|11. | 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,
2007 are as follows:



|                                        |  |                                        |      |   |                                       |   |      |                  |  |   |                         |   |  |      |    |   |      |   |        |      |  |   |        |   |  |   |     |   |  |   |    
|--------------------------------------- |  | -------------------------------------- | ---- | - | ------------------------------------- | - | ---- | ---------------- |  | - | ----------------------- | - |  | ---- | -- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | - | --- | - |  | - | ---
|                                        |  | For the Three Months EndedSeptember 30 |      |   | For the Nine Months EndedSeptember 30
|                                        |  | Pension Benefits                       |      |   | Post-retirementBenefits               |   |      | Pension Benefits |  |   | Post-retirementBenefits
|                                        |  | 2007                                   |      |   | 2006                                  |   |      | 2007             |  |   | 2006                    |   |  | 2007 |    |   | 2006 |   |        | 2007 |  |   | 2006  
|Net periodic pension cost:              |  |                                        |      |   |                                       |   |      |                  |  |   |                         |   |  |      |    |   |      |   |        |      |  |   |        |   |  |   |     |   |  |   |    
|Service cost                            |  | $                                      | 320  |   |                                       | $ | 329  |                  |  | $ | 19                      |   |  | $    | 5  |   |      | $ | 979    |      |  | $ | 1,014  |   |  | $ | 57  |   |  | $ | 70 
|Interest cost                           |  |                                        | 395  |   |                                       |   | 343  |                  |  |   | 21                      |   |  |      | 3  |   |      |   | 1,180  |      |  |   | 1,050  |   |  |   | 62  |   |  |   | 72 
|(Expected return on plan assets)        |  |                                        | (435 | ) |                                       |   | (365 | )                |  |   |                        |   |  |      |   |   |      |   | (1,324 | )    |  |   | (1,105 | ) |  |   |    |   |  |   |   
|Amortization of prior service cost      |  |                                        |     |   |                                       |   | 1    |                  |  |   | (10                     | ) |  |      |   |   |      |   |       |      |  |   | 4      |   |  |   | (30 | ) |  |   |   
|Recognized net actuarial (gain) or loss |  |                                        | 45   |   |                                       |   | 55   |                  |  |   | (1                      | ) |  |      | (8 | ) |      |   | 110    |      |  |   | 175    |   |  |   | (2  | ) |  |   | 3  
|                                        |  |                                        |      |   |                                       |   |      |                  |  |   |                         |   |  |      |    |   |      |   |        |      |  |   |        |   |  |   |     |   |  |   |    
|Total net periodic pension cost         |  | $                                      | 325  |   |                                       | $ | 363  |                  |  | $ | 29                      |   |  | $    |   |   |      | $ | 945    |      |  | $ | 1,138  |   |  | $ | 87  |   |  | $ | 145
|                                        |  |                                        |      |   |                                       |   |      |                  |  |   |                         |   |  |      |    |   |      |   |        |      |  |   |        |   |  |   |     |   |  |   |    



12



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|11. | Employee Benefits  (Continued)
|--- | -------------------------------



There are no expected required employer contributions for the defined benefit plan for the year ended
December 31, 2007.

Expected net employee contributions for the postretirement benefit plan for the year ended December 31, 2007 are $129.

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.



|12. | Segment Information
|--- | -------------------

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 EndedSeptember 30, |        | For the Nine Months EndedSeptember 30,
|              |  | 2007                                    |        | 2006                                   |   | 2007   |  | 2006
|              |  | (unaudited)                             |        | (unaudited)                           
|United States |  | $                                       | 44,201 |                                        | $ | 40,502 |  | $    | 133,467 |  | $ | 127,338
|Foreign       |  |                                         | 3,600  |                                        |   | 3,170  |  |      | 12,950  |  |   | 8,556  
|              |  |                                         |        |                                        |   |        |  |      |         |  |   |        
|              |  | $                                       | 47,801 |                                        | $ | 43,672 |  | $    | 146,417 |  | $ | 135,894
|              |  |                                         |        |                                        |   |        |  |      |         |  |   |        



|13. | Commitments and Contingencies
|--- | -----------------------------

As discussed in Note 8, 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 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, which are reviewed annually and are based on current rates and
trends. Due to historically low interest rates, we have had to make higher cash contributions to maintain the funded status of this plan. We expect this trend may continue in the future, which we would fund using cash flows from operations or
borrowings under the WFF Loan. 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.

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



13



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##### Table of Contents

BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|13. | 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 $270 and $823 for the three and nine months ended September 30, 2007, respectively, and $282 and $832 for the three
and nine months ended September 30, 2006, respectively. Under the terms of non-cancelable operating leases, the Company is committed to the following future minimum lease payments at September 30, 2007:



|            |  |      
|----------- |  | -----
|Fiscal Year |  |      
|2007        |  | 837  
|2008        |  | 743  
|2009        |  | 406  
|2010        |  | 388  
|Thereafter  |  | 1,234

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. Under the terms of this new agreement that became effective January 1, 2007, we have an economic incentive, but
not an obligation, to purchase yarn from AGY Corp.



|14. | Recent Accounting Pronouncements
|--- | --------------------------------

We adopted the provisions of
Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109 (SFAS 109), on January 1, 2007. FIN 48
provides guidance relative to the recognition, derecognition and measurement of tax position for financial statement purposes. Historically, we accounted for uncertainty in income taxes in accordance with SFAS 5, Accounting for
Contingencies, based on whether we determined that our tax position is probable of being sustained under current tax law, as well as an analysis of potential outcomes under a given set of facts and circumstances. FIN 48 requires
that tax positions be sustainable based on a more likely than not standard under current tax law benefit recognition, and adjusted to reflect the largest amount of benefit that is greater than 50% likely of being realized upon ultimate
settlement.

As a result of the implementation of FIN 48, we recognized an adjustment of $193 in retained earnings for unrecognized income tax benefits.
The recognition of this benefit resulted in an increase to the opening balance of retained earnings. The total unrecognized tax benefits, penalties, and interest as of January 1, 2007 are as follows:



|                                   |  |   |    
|---------------------------------- |  | - | ---
|Unrecognized tax benefits          |  | $ | 589
|Penalties                          |  |   | 228
|Interest                           |  |   | 56 
|                                   |  |   |    
|Total FIN 48 liability at adoption |  | $ | 873
|                                   |  |   |    

As of September 30, 2007, the total liability recorded under FIN 48 was $913. The total unrecognized tax
benefits, penalties, and interest as of September 30, 2007 are as follows:



|                                             |  |   |    
|-------------------------------------------- |  | - | ---
|Unrecognized tax benefits                    |  | $ | 619
|Penalties                                    |  |   | 238
|Interest                                     |  |   | 56 
|                                             |  |   |    
|Total FIN 48 liability at September 30, 2007 |  | $ | 913
|                                             |  |   |    

This amount has been classified as Other Long-Term Liabilities on the Balance Sheet. All of the unrecognized tax
benefit above would affect our effective tax rate if recognized.

FIN 48 requires that penalties and interest be accrued as appropriate for uncertain tax
positions. It is our policy to classify penalties and interest as part of Income Tax Expense on the Statements of Operations and Comprehensive Income (Loss).



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|14. | Recent Accounting Pronouncements  (Continued)
|--- | ----------------------------------------------



The tax years 2003-2006 remain open to examination by the major taxing jurisdictions to which we are subject.

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 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. For the Company, SFAS No. 158 is effective as of the end of fiscal 2007. The Company is currently assessing the impact of SFAS No. 158 on its 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 $4,389 for pension and postretirement medical benefits, which would result in an estimated decrease to
stockholders equity of approximately $3,270, net of taxes, in the Companys 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, 2007, the actual rate of return on our pension assets for 2007 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 financial statements at December 31, 2007.

In September
2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 does not require assets or liabilities to be measured at fair value, but will apply to other accounting pronouncements that require or permit the use of fair value for recognition or disclosure. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. The Company is currently evaluating the effect that SFAS No. 157 may have on its financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits all entities to choose to measure eligible items at fair value at
specified election dates. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company is currently assessing the impact, if any, of SFAS 159 on its financial statements.



|15. | Related Party Transactions
|--- | --------------------------

The Company is a wholly owned
subsidiary of Porcher Industries, S.A. 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 the Company to NVH, Inc.,
a 100% owned subsidiary of Nouveau Verre Holdings, Inc., which is a 100% owned subsidiary of Porcher Industries, S.A. Porcher Industries owned a 15% interest in AGY Holding Corp., a major supplier of the Company, through Nouveau Verre Holdings, LLC,
a 100% subsidiary of Nouveau Verre Holdings, Inc. In April 2006, AGY Holding Corp. was sold to a private equity investment firm. As a result, Porcher Industries no longer retains an interest in AGY Holding Corp. Glass Holdings LLC owns 100% of BGF
Services, Inc. The Company has ongoing financial, managerial and commercial agreements with Porcher Industries, S.A., NVH, Inc. and other wholly-owned subsidiaries of NVH, Inc., as well as other affiliates of Porcher Industries, S.A. 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. For more information as of December 31, 2006, see Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of our Annual Report on Form 10-K.

We pay management fees to BGF Services, Inc., a wholly owned subsidiary of Glass Holdings LLC, that 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 $630 during the nine months ended September 30, 2007. 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.



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BGF INDUSTRIES, INC.

(a wholly owned subsidiary of NVH, Inc.)

NOTES TO FINANCIAL
STATEMENTS(Continued)

(dollars in thousands)



|15. | Related Party Transactions  (Continued)
|--- | ----------------------------------------



Porcher Industries and its French parent company provide general management and strategic planning advice to us in
exchange for management fees that reimburse these companies for a portion of the compensation of Robert Porcher, Philippe Porcher and other employees who allocate their time among us and other Porcher Industries affiliates. In 2006, we incurred $600
in management fees for such services; however, we have not and do not expect to pay these management fees in 2007.

We purchase semi-finished and finished
products from Porcher Industries and its affiliates. We purchased $937 of these products in the first nine months of 2007. We sell finished goods and occasionally unfinished goods directly to Porcher Industries and its affiliates. In the first nine
months of 2007, we billed Porcher Industries and its affiliates $249 for these goods.

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



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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, 2006 set forth in our 2006 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 glass
fiber fabrics are used by our customers in printed circuit boards, which are integral to virtually all advanced electronic products, including computers and cellular telephones. Our products are also used by our customers to strengthen, insulate and
enhance the dimensional stability of hundreds of products that they make for their own customers in various markets, including aerospace, transportation, construction, power generation and oil refining. In line with our strategy of continued new
product development, we realized 12% of our sales in the first nine months of 2007 from products that are new 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 than we can. 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, which are reviewed annually and are based on current rates and trends. Due to historically low interest rates, we have had to make higher cash contributions to maintain the funded status of
this plan. We expect this trend may continue in the future, which we would fund using cash flows from operations or borrowings under the WFF Loan. We cannot predict whether investment returns will be sufficient to fund all of our future retirement



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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.

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.

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, 2006.

Results of Operations

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



|                                             |  |                                         |    |  |                                        |    |  |       |    |  |       |   
|-------------------------------------------- |  | --------------------------------------- | -- |  | -------------------------------------- | -- |  | ----- | -- |  | ----- | --
|                                             |  | For the Three MonthsEnded September 30, |    |  | For the Nine MonthsEnded September 30, |   
|                                             |  | 2007                                    |    |  | 2006                                   |    |  | 2007  |    |  | 2006  |   
|Net sales                                    |  | 100.0                                   | %  |  | 100.0                                  | %  |  | 100.0 | %  |  | 100.0 | % 
|Cost of goods sold                           |  | 83.7                                    | %  |  | 84.7                                   | %  |  | 84.8  | %  |  | 83.3  | % 
|                                             |  |                                         |    |  |                                        |    |  |       |    |  |       |   
|Gross profit                                 |  | 16.3                                    | %  |  | 15.3                                   | %  |  | 15.2  | %  |  | 16.7  | % 
|Selling, general and administrative expenses |  | 6.0                                     | %  |  | 6.9                                    | %  |  | 5.8   | %  |  | 6.9   | % 
|Asset write off                              |  |                                        |    |  | .2                                     | %  |  |      |    |  | .1    | % 
|                                             |  |                                         |    |  |                                        |    |  |       |    |  |       |   
|Operating income                             |  | 10.3                                    | %  |  | 8.2                                    | %  |  | 9.4   | %  |  | 9.7   | % 
|Interest expense                             |  | 5.6                                     | %  |  | 6.5                                    | %  |  | 5.5   | %  |  | 6.2   | % 
|Other (income), net                          |  | (.1                                     | )% |  | (4.1                                   | )% |  | (.1   | )% |  | (1.3  | )%
|                                             |  |                                         |    |  |                                        |    |  |       |    |  |       |   
|Income before income taxes                   |  | 4.8                                     | %  |  | 5.8                                    | %  |  | 4.0   | %  |  | 4.8   | % 
|Income tax expense                           |  | .7                                      | %  |  | .2                                     | %  |  | 1.0   | %  |  | .2    | % 
|                                             |  |                                         |    |  |                                        |    |  |       |    |  |       |   
|Net income                                   |  | 4.1                                     | %  |  | 5.6                                    | %  |  | 3.0   | %  |  | 4.6   | % 
|                                             |  |                                         |    |  |                                        |    |  |       |    |  |       |   

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

Net Sales. Net sales increased $4.1 million, or 9.5%, to $47.8 million in the three months ended September 30, 2007 from $43.7 million in
the three months ended September 30, 2006.

Sales of our composite fabrics, which are used in various applications including structural aircraft parts
and interiors, have represented approximately 30.7% and 32.9% of our total net sales for the three months ended September 30, 2007 and September 30, 2006, respectively. Sales of these fabrics increased $0.2 million, or 1.1%, for the three
months ended September 30, 2007 as compared to the three months ended September 30, 2006 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, have represented
approximately 21.1% and 18.7% of our total net sales for the three months ended September 30, 2007 and September 30, 2006, respectively. Sales of these fabrics increased $1.9 million, or 22.9%, for the three months ended September 30,
2007 as compared to the three months ended September 30, 2006. This increase is due primarily to a higher value product mix.

Sales of protective
fabrics, which are used in various ballistics applications including personal and vehicle armor, represented 19.6% and 16.9% of our total net sales for the three months ended September 30, 2007 and September 30, 2006, respectively. Sales
of these products increased $1.9 million, or 26.5%, for the three months ended September 30, 2007 as compared to the three



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months ended September 30, 2006 due to a price increase and continued increased purchases by customers who supply the U.S. military.

Sales of our insulation products, which are used for high temperature products, represented approximately 7.1% of our net sales for the three months ended
September 30, 2007 as compared to 5.9% for the three months ended September 30, 2006. Sales of insulation products increased $0.8 million, or 30.3%, for the three months ended September 30, 2007 as compared to the three months ended
September 30, 2006 due primarily to increased sales to automotive customers.

Sales of our electronics fabrics, which are used in multi-layer and
rigid printed circuit boards, coated fabrics and specialty electronic tapes represented approximately 13.0% of our total net sales for the three months ended September 30, 2007 as compared to 15.5% for the same time period in the prior year.
Buyers of our electronic fabrics are primarily based in North America. Sales of electronic fabrics decreased $0.5 million, or 7.4%, for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006 due
to lower market demand. Long-term sales of these fabrics will continue to be adversely affected by the movement of electronic industry production outside of North America to lower cost manufacturers in Asia who generally purchase fabrics from Asian
suppliers.

Gross Profit Margins. Gross profit margins increased to 16.3% in the three months ended September 30, 2007 from 15.3% in the
three months ended September 30, 2006, due primarily to a more favorable product mix combined with some price increases and a higher capacity utilization.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.2 million to $2.8 million in the three months ended September 30, 2007 from the three months ended September 30,
2006, due primarily to decreased management fees.

Operating Income. As a result of the aforementioned factors, operating income increased $1.3
million to $4.9 million, or 10.3% of net sales, in the three months ended September 30, 2007, from $3.6 million, or 8.2% of net sales, in the three months ended September 30, 2006.

Interest Expense. Interest expense decreased $0.1 million to $2.7 million, or 5.6% of net sales, in the three months ended September 30, 2007 from $2.8
million, or 6.5% of net sales, in the three months ended September 30, 2006.

Income Tax Expense. The effective tax rates in the three
months ended September 30, 2007 and 2006 were 13.8% and 3.9%, 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 to $0.3 million during the three months ended September 30, 2007 from $0.1 million for the three months ended September 30, 2006.

Net Income. As a result of the aforementioned factors, our net income decreased $0.5 million to $2.0 million in the three months ended September 30,
2007 from a net income of $2.5 million in the three months ended September 30, 2006.

Nine Months Ended September 30, 2007 Compared to Nine
Months Ended September 30, 2006

Net Sales. Net sales increased $10.5 million, or 7.7%, to $146.4 million in the nine months ended
September 30, 2007 from $135.9 million in the nine months ended September 30, 2006.

Sales of our composite fabrics, which are used in various
applications including structural aircraft parts and interiors, have represented approximately 31.5% and 32.6% of our total net sales for the nine months ended September 30, 2007 and September 30, 2006, respectively. Sales of these fabrics
increased $1.7 million, or 3.8%, for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 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, have represented approximately 21.4% and 19.4% of our total net sales for the nine months ended September 30, 2007 and September 30, 2006, respectively. Sales of these fabrics increased $4.9 million, or 18.6%, for the nine
months ended September 30, 2007 as compared to the nine months ended September 30, 2006. 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 17.8% of our total net sales for the nine months ended September 30, 2007, an
increase over the prior years 15.2% of total net sales. Sales of these products increased $5.2 million, or 25.3%, for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 due to a price
increase and continued increased purchases by customers who supply the U.S. military to support activities in the Middle East.



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Sales of our insulation products, which are used for high temperature applications, represented approximately 6.7% of our
net sales for the nine months ended September 30, 2007 as compared to 6.0% for the nine months ended September 30, 2006. Sales of insulation products increased $1.7 million, or 20.5%, for the nine months ended September 30, 2007 as
compared to the nine months ended September 30, 2006 due primarily to increased sales to automotive customers.

Sales of our electronics fabrics,
which are used in multi-layer and rigid printed circuit boards, coated fabrics and specialty electronic tapes represented approximately 14.3% of our total net sales over the nine months ended September 30, 2007 as compared to 16.7% for the same
time period in the prior year. Sales of electronic fabrics decreased $2.0 million, or 8.7%, for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006, due to decreased demand in the U.S. market in
the first nine months of 2007. Long-term sales of these fabrics will continue to be adversely affected by the movement of electronic industry production outside of North America to lower cost manufacturers in Asia who generally purchase fabrics from
Asian suppliers.

Gross Profit Margins. Gross profit margins decreased to 15.2% in the nine months ended September 30, 2007 from 16.7% in
the nine months ended September 30, 2006, due primarily to increased sales of products with higher selling prices but with lower gross margin percentages as well as non-recurring items and a lower capacity utilization during the first quarter.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $1.0 million to $8.4 million in the nine
months ended September 30, 2007 from the nine months ended September 30, 2006, due primarily to decreased management fees and consulting fees paid to a financial advisor upon termination of its consulting agreement during the first six
months of 2006.

Operating Income. As a result of the aforementioned factors, operating income increased $0.7 million to $13.8 million, or 9.4%
of net sales, in the nine months ended September 30, 2007, from $13.1 million, or 9.7% of net sales, in the nine months ended September 30, 2006.

Interest Expense. Interest expense decreased $0.3 million to $8.1 million, or 5.5% of net sales, in the nine months ended September 30, 2007 from $8.4 million, or 6.2% of net sales, in the nine months ended
September 30, 2006.

Income Taxes. The effective tax rate for the nine months ended September 30, 2007 and September 30, 2006
was 25.5% and 3.9%, 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 $1.3 million during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006.

Net
Income. As a result of the aforementioned factors, our net income decreased $1.9 million to $4.4 million in the nine months ended September 30, 2007 from a net income of $6.3 million in the nine months ended September 30, 2006.

Balance Sheets

Accounts Receivable. Accounts receivable increased $5.4 million, or 34.9%, from December 31, 2006
to September 30, 2007. This increase was a result of the increased sales in the first nine months of 2007.

Inventory. Inventory increased $0.6
million, or 1.9%, from December 31, 2006 to September 30, 2007. This was due mainly to sales and manufacturing volumes increasing in the first nine months of 2007.

Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities decreased $1.9 million, or 9.8%, from December 31, 2006 to September 30, 2007. This decrease was primarily the result
of a decrease in property tax and interest accruals, employee benefits and the environmental reserve offset by an increase in trade payables and amounts due an affiliated company for income taxes.

Other Long-term Liabilities. Other long-term liabilities were $0.9 million and $0 million at September 30, 2007 and December 31, 2006, respectively. The
liability is a result of adopting the provisions of FIN 48 as of January 1, 2007 and represents unrecognized tax benefits, penalties, and interest as of September 30, 2007. See Note 10.

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 $81.7 million Senior Subordinated Notes ($81.9 million net of unamortized discount of $0.2 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. We have not reserved funds to repay amounts outstanding under the WFF
Loan by July 18, 2008.

On April 4, 2005, the Company executed an amendment to the WFF Loan to increase its 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, the Company executed an amendment to the WFF Loan
to increase its cap on capital expenditures to $3.5 million annually. The amendment was deemed effective as of June 30, 2005.

On December 1,
2006, the Company executed an amendment to the WFF Loan. The amendment provided for the following: (1) increased the maximum facility size to $27.0 million; (2) reloaded the term loan back to $6.0 million; (3) increased the maximum
revolver credit line to $21.0 million; (4) increased the minimum EBITDA requirements for financial covenants to not less than $15.0 million calculated on a trailing 12 month basis; (5) reduced the spread on interest rates by approximately
100 basis points; and (6) increased the annual cap on capital expenditures to $4.5 million.

The WFF Loan, as amended, has a maximum revolver credit
line of $21.0 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 + 2.25% or the Wells Fargo Prime Rate (RR) + 0.00% for the revolver if the trailing twelve months EBITDA exceeds $20.0 million
with a 25 basis points increase if the trailing twelve months EBITDA exceeds $17.0 million but is less than or equal to $20.0 million and a further 25 basis points increase if the trailing twelve months EBITDA is less than or equal to $17.0 million;
(3) borrowing rates of LIBOR + 2.5% or RR + .25% for the term loan with, at all times, a minimum rate of 5% for both facilities; (4) certain financial covenants including (i) a minimum excess availability at all times, (ii) a
minimum trailing twelve month EBITDA level and (iii) a $4.5 million cap on annual capital expenditures; and (5) 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. As
of September 30, 2007, amounts outstanding under the WFF Loan totaled $4.8 million which consisted solely of $4.8 under the term loan. As of December 31, 2006, amounts outstanding under the WFF Loan totaled $5.8 million which consisted
solely of $5.8 million under the term loan. The term loan is payable in full in July 2008. As of September 30, 2007, the Company had exercised its LIBOR Rate option on $4.5 million of its borrowings on the term loan. As of December 31,
2006, the Company had not exercised its LIBOR Rate option on any of its borrowings on the term loan or the revolver. The interest rate as of September 30, 2007 on the outstanding amounts under the LIBOR options on the term loan was 8.3%. The
interest rate as of September 30, 2007 and December 31, 2006 on the amounts outstanding under the Wells Fargo Prime Rate portion of the term loan was 8.5%.



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Availability under the revolver at September 30, 2007 and October 29, 2007 was $19.6 million. 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 a week in 2007 and 2006, and is reset to $0 when such payment is made. As of
September 30, 2007 and October 29, 2007, the total outstanding reserves amounted to $1.8 million and $2.4 million, respectively.

The Senior
Subordinated Notes bear interest at a rate of 10.25%, which is payable semi-annually in January and July through the maturity date of January 15, 2009. The 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 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 $5.0 million of other debt of the Company, such as the WFF Loan.

The fair value of the Senior Subordinated Notes as of September 30, 2007 and October 31, 2007 was $81.1 million and $81.9 million, respectively.

In August 2007, the Company entered into a financing arrangement with IBM Credit LLC for the purchase of software. This loan has a term of 36 months with the first
payment beginning September 1, 2007 and an interest rate of 7.7%. The balance of the loan as of September 30, 2007 was $0.05 million.

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. However, this forward-looking statement is subject to risks and
uncertainties. See Disclosure Regarding Forward-Looking Statements included below.

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 $0.2 million for the nine months ended
September 30, 2007 compared with net cash provided by operating activities of $4.6 million for the nine months ended September 30, 2006, and was primarily the result of a decrease in net income and an increase in working capital.

Net Cash Used In Investing Activities. Net cash used in investing activities was $2.6 million and $1.8 million for the nine months ended
September 30, 2007 and September 30, 2006, respectively, due primarily to the purchases of property, plant and equipment.

Net Cash Used In
Financing Activities.Net cash used in financing activities was $1.3 million for the nine months ended September 30, 2007, compared with net cash used in financing activities of $2.8 million for the nine months ended September 30,
2006, and was primarily the result of a decrease in the borrowings on the revolving credit facility.

Commitments and Contingencies

Environmental Matters. The Company has completed the final phases of an
Environmental Protection Agency (EPA)-supervised self-implementing remediation program at its Altavista facility. The remediation program has been 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 (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.



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The Company submitted a final Site Characterization Report (SCR) to the EPA in 2003, which the EPA approved
in 2004. 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 was 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
cleanup was 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 requested reimbursement from
the Town of Altavista for 80% of the costs borne in this project as the scope of work centers primarily on site utilities. The Town of Altavista agreed to a total reimbursement of $0.4 million, which is to be paid in equal installments over the next
seven years. Payments began in January 2007. A discounted receivable of $0.3 million has been recorded at September 30, 2007. The soil remediation phase of the cleanup started in November 2006 and was completed in March 2007. The reconstruction
phase was completed in accordance with the EPA approved plan in June 2007.

During the cleanup and site reconstruction, the Company provided the EPA with a
weekly log of cleanup activities. Upon completion of all of the work in the remediation plan in July 2007, the Company submitted a final report to the EPA detailing and summarizing all of the cleanup and site reconstruction work done at the site,
along with a request for a closure letter, stating that no further action is required by the Company. The Company is currently awaiting receipt of that letter from the EPA.

The implementation of the remediation plan did not completely eliminate PCBs from the area subject to the plan; as noted above, soils were left in place if the PCB levels were below 25 ppm. As a result, future EPA
and/or the Virginia Department of Environmental Quality (DEQ) enforcement actions could potentially require further cleanup of the site. The Companys voluntary remediation program has, however, lessened the likelihood of such
enforcement actions, and the Company has had no indication of any enforcement intent by either the EPA or the DEQ.

A reserve of $2.1 million for the
environmental issues at the Altavista facility was recorded at December 31, 2006, which reflected the accepted bid from the contractor for the soil remediation work of $2.3 million plus $0.2 million estimated additional expenses to be incurred
for testing and post-cleanup reconstruction. The reserve was reduced by expenses incurred through December of $0.4 million. During the first quarter of 2007, the reserve was increased by $0.5 million to reflect changes in estimated costs due to the
quantity of soil being removed. Expenses incurred during the nine months ended September 30, 2007 were $2.6 million, which reduced the reserve balance at September 30, 2007 to $0.0 million.

Completion of the remediation plan has addressed impacted soils at the site but will not preclude possible further action by the EPA or Virginia under other
environmental statutes and rules. 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 the 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 pursued a Monitored Natural Attenuation
strategy, which includes periodic groundwater monitoring. Work originally included semi-annual monitoring and reporting. Recent tests have shown, however, reduced levels of solvent concentrations. The DHEC has therefore agreed to require testing
annually instead of semi-annually. No action other than continued monitoring for this facility is anticipated at this time. As of September 30, 2007 and December 31, 2006, the Company had a reserve of $0.1 million for the above-described
environmental issues at the Cheraw facility.

The Company has entered into a contract to sell property located at South Hill, Mecklenburg County,
Virginia. In the course of the buyers environmental diligence prior to purchase, the buyer discovered contamination associated with a used oil tank located at the property. The Company removed the used oil tank, which appeared to be fully
intact. It is thought that the contamination was residual from a prior tank that had been located on the property.

The Company is currently preparing
a Voluntary Cleanup Program (VCP) application to be submitted to the State of Virginia. Proposed remediation involves limited soil removal and monitoring of the groundwater over the period of several years. The buyer has agreed
to close the purchase of the property while these remediation activities are underway, provided that the Company retains liability for the contamination associated with the tank. Provided that the site is accepted into the Virginia VCP, and the
Company anticipates that it will be, remediation and monitoring activities should cost less than $0.06 million. A reserve of $0.04 million has been recorded at September 30, 2007 representing $0.06 million in total expected clean up costs less
expenses incurred to date of $0.02 million.



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If further environmental issues develop, the Company may need to revise the reserves for Altavista, South Hill and Cheraw
but it is unable to derive more precise estimates 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.

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, which are reviewed annually and
are based on current rates and trends. Due to historically low interest rates, we have had to make higher cash contributions to maintain the funded status of this plan. We expect this trend may continue in the future, which we would fund using cash
flows from operations or borrowings under the WFF Loan. 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.

Allowance
for Doubtful Accounts. On February 13, 2007, a significant customer of the Company filed for protection under Chapter 7 of the US Bankruptcy Code. As a result, the Company as of September 30, 2007 has fully reserved the accounts
receivable balance of $0.3 million for this customer which is included in its allowance for doubtful accounts.

Contractual Obligations and Off-Balance Sheet Arrangements

For information regarding our contractual obligations as of
December 31, 2006, see our 2006 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. Under the terms of this new agreement
that became effective January 1, 2007, we have an economic incentive, but not an obligation, to purchase yarn from AGY Holding Corp.

On
January 1, 2007, the Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which provides guidance relative to the
recognition, derecognition and measurement of tax position for financial statement purposes. As a result of the implementation of FIN 48, we have recognized a long-term liability of $0.9 million as of September 30, 2007, representing
unrecognized tax benefits, penalties and interest.

Outlook for the Remainder of 2007

The following section contains forward-looking statements about our plans, strategies and
prospects during the remainder of 2007. 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.



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Looking ahead for the remainder of 2007:



| |  |  | Sales trends during October 2007 were comparable to the first nine months of 2007. Although no assurances can be given, we expect sales to be slightly higher for
the full year in 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We plan to continue our efforts to maintain an inventory level consistent with sales. However, there can be no assurance that sales will continue at this same level
during the remainder of 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Related Party Transactions

The Company is a wholly owned subsidiary of Porcher Industries, S.A. through NVH, Inc., a U.S.
holding company. The Company has ongoing financial, managerial and commercial agreements and arrangements with Porcher Industries, S.A., NVH, Inc. and wholly-owned subsidiaries of NVH, Inc., as well as other affiliates of Porcher Industries, S.A.
For more information regarding these relationships, see Note 15 - Related Party Transactions.

Recent Accounting Pronouncements

We adopted the provisions of Financial Standards Accounting Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109 (SFAS 109), on January 1, 2007. FIN 48 provides guidance relative to the recognition, derecognition and
measurement of tax position for financial statement purposes. Historically, we accounted for uncertainty in income taxes in accordance with SFAS 5, Accounting for Contingencies, based on whether we determined that our tax position is
probable of being sustained under current tax law, as well as an analysis of potential outcomes under a given set of facts and circumstances. FIN 48 requires that tax positions be sustainable based on a more likely than not
standard under current tax law benefit recognition, and adjusted to reflect the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

As a result of the implementation of FIN 48, we recognized an adjustment of $0.2 million in retained earnings for unrecognized income tax benefits. The recognition of this benefit resulted in an increase to the
opening balance of retained earnings. The total unrecognized tax benefits, penalties, and interest as of January 1, 2007 are as follows:



|                                   |  |   |            
|---------------------------------- |  | - | -----------
|Unrecognized tax benefits          |  | $ | 0.6 million
|Penalties                          |  |   | 0.2 million
|Interest                           |  |   | 0.1 million
|                                   |  |   |            
|Total FIN 48 liability at adoption |  | $ | 0.9 million
|                                   |  |   |            

As of September 30, 2007, the total liability recorded under FIN 48 was $0.9 million. The total unrecognized
tax benefits, penalties, and interest as of September 30, 2007 are as follows:



|                                             |  |   |            
|-------------------------------------------- |  | - | -----------
|Unrecognized tax benefits                    |  | $ | 0.6 million
|Penalties                                    |  |   | 0.2 million
|Interest                                     |  |   | 0.1 million
|                                             |  |   |            
|Total FIN 48 liability at September 30, 2007 |  | $ | 0.9 million
|                                             |  |   |            

This amount has been classified as Other Long-Term Liabilities on the Balance Sheet. All of the unrecognized tax
benefit above would affect our effective tax rate if recognized.

FIN 48 requires that penalties and interest be accrued as appropriate for uncertain tax
positions. It is our policy to classify penalties and interest as part of Income Tax Expense on the Statements of Operations and Comprehensive Income (Loss).

The tax years 2003-2006 remain open to examination by the major taxing jurisdictions to which we are subject.

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 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. For the Company, SFAS No. 158 is effective as of the end of fiscal years ending after
June 15, 2007. The Company is currently assessing the impact of SFAS No. 158 on its 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, which would result in an estimated decrease to stockholders equity of approximately $3.3 million, net of



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taxes, in the Companys 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, 2007, the actual rate of return on our pension assets for 2007 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 financial statements at December 31, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not require assets or liabilities to be measured at fair value, but will apply to other accounting pronouncements that require or permit the use of fair value for recognition or
disclosure. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect that SFAS No. 157 may have on its financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159
permits all entities to choose to measure eligible items at fair value at specified election dates. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company is currently
assessing the impact, if any, of SFAS 159 on its financial statements.

Disclosure Regarding Forward-Looking Statements

Some of the information in this Quarterly Report may contain forward-looking
statements. These statements include, in particular, statements about our plans, strategies and prospects within the meaning of Section 27A of the Securities 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 glass fiber fabrics and increased supply, which
could result in lower sales.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in military funding could adversely affect sales of protective fabrics.
| | - |  | -------------------------------------------------------------------------------



| |  |  | 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 and monitoring projects at our Altavista, South Hill 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, 2007 and October 31, 2007 was approximately $81.1 million and $81.9 million, respectively. If the interest rate on borrowings under our WFF Loan as of September 30, 2007 is
100 basis points higher or lower during the next 12 months, our interest rate expense would be increased or decreased $0.01 million. As of September 30, 2007, 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 Security and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in
the Security and Exchange Commissions rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, 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 Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based
upon this evaluation, our President and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2007.



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PART II - OTHER INFORMATION



|Item 5. | Other Information
|------- | -----------------

As reported in our 2006 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 nor 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 of
$1.4 million was paid during the second quarter of 2007 upon the release of an indemnification escrow established pursuant to the terms of the merger agreement.

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, 2007



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