Edgar Filing: BEL FUSE INC /NJ

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2007

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

For the transition period from __________ to __________

Commission File Number: 0-11676

BEL FUSE INC.

(Exact name of registrant as specified in its charter)

NEW JERSEY		22-1463699
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

206 Van Vorst Street Jersey City, New Jersey		07302
(Address of principal executive offices)		(Zip Code)

(201) 432-0463

(Registrant's telephone number, including area code)

_____________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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 and 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.

x Yes o 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-12 of the Exchange Act.

o Large accelerated filer

x Accelerated filer

o Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

At August 1, 2007, there were 2,626,949 shares of Class A Common Stock, $0.10 par value, outstanding and 9,273,827 shares of Class B Common Stock, $0.10 par value, outstanding.

BEL FUSE INC.

INDEX

			Page
Part I		Financial Information

	Item 1.	Financial Statements	1

		Condensed Consolidated Balance Sheets as of June 30, 2007
		(unaudited) and December 31, 2006	2-3

		Condensed Consolidated Statements of Operations for the Three and
		Six Months Ended June 30, 2007 and 2006 (unaudited)	4

		Condensed Consolidated Statements of Stockholders' Equity for
		the Year Ended December 31, 2006 and
		the Six Months Ended June 30, 2007 (unaudited)	5-6

		Condensed Consolidated Statements of Cash Flows for the Six
		Months Ended June 30, 2007 and 2006 (unaudited)	7-9

		Notes to Condensed Consolidated Financial Statements (unaudited)	10-29

	Item 2.	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	30-49

	Item 3.	Quantitative and Qualitative Disclosures About
		Market Risk	50

	Item 4.	Controls and Procedures	51

Part II		Other Information

	Item 1.	Legal Proceedings	52-53

	Item 4.	Submission of Matters to a Vote of Security Holders	53

	Item 6.	Exhibits	54

	Signatures		55

PART I. Financial Information

Item 1. Financial Statements (Unaudited)

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following condensed consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

The results of operations for the six and three months ended June 30, 2007 and 2006 are not necessarily indicative of the results for the entire fiscal year or for any other period.

-1-

BEL FUSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,
	2007		2006
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	99,604,067	$	76,760,543
Marketable securities		4,592,921		15,576,212
Accounts receivable - less allowance for doubtful
accounts of $912,000 and $1,087,006 at
June 30, 2007 and December 31, 2006, respectively		42,724,499		43,765,750
Inventories		43,995,494		46,297,208
Prepaid expenses and other current
assets		1,509,979		1,382,807
Deferred income taxes		1,463,429		1,665,857
Assets held for sale		4,193,720		848,049

Total Current Assets		198,084,109		186,296,426

Property, plant and equipment - net		40,523,316		44,289,159

Restricted cash		4,500,000		-
Deferred income taxes		5,380,280		3,425,375
Intangible assets - net		1,474,684		1,892,417
Goodwill		28,117,143		28,117,143
Other assets		4,346,216		4,476,990

TOTAL ASSETS	$	282,425,748	$	268,497,510

See notes to condensed consolidated financial statements.

-2-

BEL FUSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2007			2006
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	15,490,801		$	17,244,937
Accrued expenses		12,892,813			12,713,417
Income taxes payable		6,352,909			11,094,107
Dividends payable		559,800			566,583
Total Current Liabilities		35,296,323			41,619,044

Long-term Liabilities:
Deferred gain on sale of property		4,665,015
Liability for uncertain tax positions		5,420,000			-
Minimum pension obligation and
unfunded pension liability		5,206,639			4,728,286
Total Long-term Liabilities		15,291,654			4,728,286

Total Liabilities		50,587,977			46,347,330

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, no par value,
authorized 1,000,000 shares;
none issued		-			-
Class A common stock, par value
$.10 per share - authorized
10,000,000 shares; outstanding
2,635,651 and 2,702,677 shares, respectively
(net of 1,072,770 treasury shares)		263,565			270,268
Class B common stock, par value
$.10 per share - authorized
30,000,000 shares; outstanding 9,271,827
and 9,167,665 shares, respectively
(net of 3,218,310 treasury shares)		927,183			916,767
Additional paid-in capital		31,174,153			31,826,046
Retained earnings		200,001,875			190,952,754
Accumulated other comprehensive
(loss)		(529,005	)		(1,815,655	)
Total Stockholders' Equity		231,837,771			222,150,180

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	282,425,748		$	268,497,510

See notes to condensed consolidated financial statements.

-3-

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Net Sales	$	123,418,921		$	121,100,346		$	61,612,245		$	66,474,098

Costs and expenses:
Cost of sales		96,489,901			90,248,564			48,598,575			50,261,675
Selling, general and administrative		18,661,047			19,610,167			9,178,527			10,232,982
Gain on sale of property, plant and equipment		(879,804	)		-			(879,804	)		-
Casualty loss		-			1,097,271			-			133,480
		114,271,144			110,956,002			56,897,298			60,628,137

Income from operations		9,147,777			10,144,344			4,714,947			5,845,961
Interest expense and other costs		(123,463	)		(44,386	)		(1,526	)		(17,186	)
Gain on sale of marketable securities - net		2,507,868			5,151,039			2,507,868			5,239,519
Interest income		1,835,939			1,173,758			1,002,696			661,162

Earnings before provision for income taxes		13,368,121			16,424,755			8,223,985			11,729,456
Income tax provision		3,201,000			3,664,000			2,066,000			2,966,000

Net earnings	$	10,167,121		$	12,760,755		$	6,157,985		$	8,763,456

Earnings per share (2006, as restated, see Note 1)
Earnings per Class A common share
Basic	$	0.81		$	1.03		$	0.49		$	0.71
Diluted	$	0.81		$	1.03		$	0.49		$	0.71

Weighted average Class A common shares
outstanding - basic		2,682,400			2,702,677			2,661,589			2,702,677
Weighted average Class A common shares
outstanding - diluted		2,682,400			2,702,677			2,661,589			2,702,677

Earnings per Class B common share
Basic	$	0.87		$	1.10		$	0.52		$	0.75
Diluted	$	0.86		$	1.09		$	0.52		$	0.75

Weighted average Class B common shares
outstanding - basic		9,203,547			9,065,990			9,233,397			9,093,807
Weighted average Class B common shares
outstanding - diluted		9,234,319			9,127,208			9,261,587			9,142,582

See notes to condensed consolidated financial statements.

-4-

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

	Total			Compre- hensive Income			Retained Earnings			Accumulated Other Compre- hensive Income (loss)			Class A Common Stock		Class B Common Stock		Additional Paid-In Capital			Deferred Stock- Based Compensation
Balance, January 1, 2006	$	201,576,549					$	167,991,188		$	4,262,867		$	270,268	$	901,327	$	31,713,608		$	(3,562,709	)

Exercise of stock options		3,186,587														13,280		3,173,307
Tax benefits arising from the disposition of non-qualified incentive stock options		336,456																336,456			-
Cash dividends declared on Class A common stock		(430,940	)					(430,940	)
Cash dividends declared on Class B common stock		(1,810,847	)					(1,810,847	)
Issuance of restricted common stock		-														2,160		(2,160	)
Deferred stock-based compensation		(1,403,157	)															(1,403,157	)		-
Currency translation adjustment		387,822		$	387,822						387,822
Change in unrealized gain or loss on marketable securities -net of taxes		(4,819,632	)		(4,819,632	)					(4,819,632	)
Stock-based compensation expense		1,570,701																1,570,701			-
Adoption of SFAS No. 123 (R)		-																(3,562,709	)		3,562,709
Unfunded SERP liability-net of taxes upon adoption of SFAS No. 158		(1,646,712	)								(1,646,712	)
Net earnings		25,203,353			25,203,353			25,203,353
Comprehensive income				$	20,771,543

Balance, December 31, 2006		222,150,180						190,952,754			(1,815,655	)		270,268		916,767		31,826,046			-

See notes to condensed consolidated financial statements.

-5-

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

(Unaudited)

	Total			Compre- hensive Income		Retained Earnings			Accumulated Other Compre- hensive Income (loss)			Class A Common Stock			Class B Common Stock			Additional Paid-In Capital
Exercise of stock options		1,034,251														4,456			1,029,795
Tax benefits arising from the disposition of non-qualified incentive stock options		124,039																	124,039
Cash dividends declared on Class A common stock		(215,470	)				(215,470	)
Cash dividends declared on Class B common stock		(902,530	)				(902,530	)
Currency translation adjustment		333,820		$	333,820					333,820
Change in unrealized gain or loss on marketable securities -net of taxes		952,830			952,830					952,830
Issuance of restricted common stock		-														7,420			(7,420	)
Termination of restricted common stock		-														(1,460	)		1,460
Repurchase/retirement of Class A common stock		(2,477,454	)										(6,703	)					(2,470,751	)
Stock-based compensation expense		670,984																	670,984
Net earnings		10,167,121			10,167,121		10,167,121
Comprehensive income				$	11,453,771

Balance, June 30, 2007	$	231,837,771				$	200,001,875		$	(529,005	)	$	263,565		$	927,183		$	31,174,153

See notes to condensed consolidated financial statements.

-6-

BEL FUSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended
	June 30,
	2007			2006
Cash flows from operating
activities:
Net earnings	$	10,167,121		$	12,760,755
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization		3,850,398			4,775,968
Casualty loss		-			1,097,271
Stock-based compensation		682,710			790,960
Excess tax benefits from share-based
payment arrangements		(124,039	)		(112,345	)
Gain on sale of marketable securities		(2,507,868	)		(5,151,039	)
Gain on sale of property, plant
and equipment		(879,804	)		-
Other		478,353			441,869
Deferred income taxes		(2,426,000	)		(548,000	)
Changes in operating assets
and liabilities		2,557,408			(5,367,143	)
Net Cash Provided by
Operating Activities		11,798,279			8,688,296

Cash flows from investing activities:
Purchase of property, plant
and equipment		(4,483,357	)		(4,333,017	)
Purchase of marketable
securities		(11,801,386	)		(729,088	)
Payment for acquisitions - net of
cash acquired		-			(2,692,974	)
Proceeds from sale of
marketable securities		27,498,919			24,489,966
Proceeds from sale of property, plant
and equipment		2,192,103			-
Net Cash Provided by
Investing Activities		13,406,279			16,734,887

See notes to condensed consolidated consolidated financial statements.

-7-

BEL FUSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

	Six Months Ended
	June 30,
	2007			2006
Cash flows from financing
activities:
Proceeds from exercise of
stock options		1,034,251			1,887,037
Dividends paid to common
shareholders		(1,124,789	)		(1,104,078	)
Purchase and retire of Class A common stock		(2,477,454	)		-
Excess tax benefits from share-based
payment arrangements		124,039			112,345
Net Cash (Used In) Provided By
Financing Activities		(2,443,953	)		895,304

Effect of exchange rate changes on cash		82,919			130,150

Net Increase in
Cash and Cash Equivalents		22,843,524			26,448,637
Cash and Cash Equivalents
- beginning of period		76,760,543			51,997,634
Cash and Cash Equivalents
- end of period	$	99,604,067		$	78,446,271

Changes in operating assets
and liabilities consist of:
Decrease (increase) in accounts
receivable	$	1,157,723		$	(7,931,062	)
Decrease (increase) in inventories		2,336,755			(5,853,897	)
Increase in prepaid expenses and other
current assets		(127,172	)		(1,213,199	)
(Increase) decrease in other assets		(680,743	)		(359,959	)
(Decrease) increase in accounts payable		(1,759,018	)		5,193,397
Increase in income taxes payable		802,841			2,573,495
Increase in accrued expenses		827,022			2,224,082
	$	2,557,408		$	(5,367,143	)

See notes to condensed consolidated financial statements.

-8-

BEL FUSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Unaudited)

	Six Months Ended
	June 30,
	2007		2006
Supplementary information:
Cash paid during the quarter for:
Income taxes	$	4,757,000	$	1,240,000
Interest	$	-	$	44,000

Details of acquisitions:
Intangibles	$	-	$	446,571
Goodwill		-		2,000,000
Acquisition costs		-		2,446,571

Less: Amounts paid on acquisition payment		-		514,403
Amounts accrued		-		(268,000	)
Cash paid for acquisitions	$	-	$	2,692,974

See notes to condensed consolidated financial statements.

-9-

BEL FUSE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The condensed consolidated balance sheet as of June 30, 2007, and the condensed consolidated statements of operations, stockholders' equity and cash flows for the periods presented herein have been prepared by Bel Fuse Inc. (the "Company" or "Bel") and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders' equity and cash flows for all periods presented have been made. The results for the three and six months ended June 30, 2007 should not be viewed as indicative of the Company’s annual results or the Company’s results for any other period. The information for the condensed consolidated balance sheet as of December 31, 2006 was derived from audited financial statements.

Accounting Policies

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Bel Fuse Inc. and subsidiaries operate in one industry with three geographic reporting segments and are engaged in the design, manufacture and sale of products used in local area networking, telecommunication, business equipment and consumer electronic applications. The Company manages its operations geographically through its three reporting units: North America, Asia and Europe. Sales are predominantly in North America, Europe and Asia.

PRINCIPLES OF CONSOLIDATION - The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including businesses acquired since their respective dates of acquisition. All intercompany transactions and balances have been eliminated.

USE OF ESTIMATES - The preparation of the condensed consolidated 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 assets and 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.

CASH EQUIVALENTS - Cash equivalents include short-term investments in U.S. treasury bills and commercial paper with an original maturity of three months or less when purchased. At June 30, 2007 and December 31, 2006, cash equivalents approximated $50,055,000 and $35,843,000, respectively.

MARKETABLE SECURITIES - The Company classifies its equity securities as "available for sale", and accordingly, reflects unrealized gains and losses, net of deferred income taxes, as a component of accumulated other comprehensive income.

The fair values of marketable securities are based on quoted market prices. Realized gains or losses from the sale of marketable securities are based on the specific identification method.

-10-

ACQUISITION EXPENSES - The Company capitalizes all direct costs associated with proposed acquisitions. If the proposed acquisition is consummated, such costs will be included as a component of the overall cost of the acquisition. Such costs are expensed at such time as the Company deems the consummation of a proposed acquisition to be unsuccessful.

FOREIGN CURRENCY TRANSLATION - The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at exchange rates as of the balance sheet date, and income, expense and cash flow items are translated at the average exchange rate for the applicable period. Translation adjustments are recorded in Other Comprehensive Income. The U.S. Dollar is used as the functional currency for certain foreign operations that conduct their business in U.S. Dollars. Realized foreign currency losses were $28,000 and $203,000 for the six months ended June 30, 2007 and 2006, and $7,000 and $245,000 for the three months ended June 30, 2007 and 2006, respectively, and have been included in the condensed consolidated statements of operations.

CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and temporary cash investments. The Company grants credit to customers that are primarily original equipment manufacturers and to subcontractors of original equipment manufacturers based on an evaluation of the customer's financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company controls its exposure to credit risk through credit approvals, credit limits and monitoring procedures and establishes allowances for anticipated losses.

The Company places its temporary cash investments with quality financial institutions and commercial issuers of short-term paper and, by policy, limits the amount of credit exposure in any one financial instrument.

INVENTORIES - Inventories are stated at the lower of weighted average cost or market.

REVENUE RECOGNITION - The Company recognizes revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements". Revenue is recognized when the product has been delivered and title and risk of loss has passed to the customer, collection of the resulting receivable is deemed reasonably assured by management, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. Substantially all of the Company's shipments are FCA (free carrier) which provides for title to pass upon delivery to the customer's freight carrier. Some product is shipped DDP/DDU with title passing when the product arrives at the customer's dock.

-11-

For certain customers, the Company provides consigned inventory, either at the customer’s facility or at a third party warehouse. Sales of consigned inventory are recorded when the customer withdraws inventory from consignment. During all periods in 2007 and 2006, inventory on consignment was immaterial.

The Company typically has a twelve-month warranty policy for workmanship defects. During the three months ended June 30, 2007, the Company established a warranty accrual related to certain defective parts sold to a customer primarily within the same quarter, which the Company is replacing, in the amount of approximately $1.2 million, which includes a $.4 million inventory write off of inventory on hand. Such accrual has been classified within cost of sales. As the Company has not historically had significant warranty claims, no general reserves for warranties have been established.

The Company is not contractually obligated to accept returns except for defective product or in instances where the product does not meet the customer's quality specifications. However, the Company may permit its customers to return product for other reasons. In these instances, the Company would generally require a significant cancellation penalty payment by the customer. The Company estimates such returns, where applicable, based upon management's evaluation of historical experience, market acceptance of products produced and known negotiations with customers. Such estimates are deducted from gross sales and provided for at the time revenue is recognized.

GOODWILL - The Company tests goodwill for impairment annually (in the fourth quarter), using a fair value approach at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment for which discrete financial information is available and reviewed regularly by management. Assets and liabilities of the Company have been assigned to the reporting units to the extent that they are employed in or are considered a liability related to the operations of the reporting unit and were considered in determining the fair value of the reporting unit.

DEPRECIATION - Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated primarily using the declining-balance method for machinery and equipment and the straight-line method for buildings and improvements over their estimated useful lives.

INCOME TAXES - The Company accounts for income taxes using an asset and liability approach under which deferred income taxes are recognized by applying enacted tax rates applicable to future years to the differences between the financial statement carrying amounts and the tax bases of reported assets and liabilities.

For that portion of foreign earnings that have not been repatriated, an income tax provision has not been recorded for U.S. federal income taxes on the undistributed earnings of foreign subsidiaries as such earnings are intended to be permanently reinvested in those operations. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon the repatriation of earnings.

-12-

The principal items giving rise to deferred taxes are unrealized gains/losses on unrealized property sales and marketable securities available for sale, foreign tax credits, the use of accelerated depreciation methods for machinery and equipment, timing differences between book and tax amortization of intangible assets and goodwill and certain expenses including the SERP which have been deducted for financial reporting purposes which are not currently deductible for income tax purposes.

Effective January 1, 2007, uncertain tax positions are accounted for in accordance with FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes.” See Note 7 for further discussion.

STOCK-BASED COMPENSATION - The Company has one stock-based compensation plan under which both incentive stock-options and restricted stock awards are granted to employees and directors. Effective January 1, 2006, the Company accounts for stock-based compensation under Statement of Financial Accounting Standards ("SFAS") No. 123 (R), "Share-Based Payment". The Company adopted SFAS 123(R) using the modified prospective method. Under modified prospective application, this SFAS applies to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation costs for the portion of the awards for which the requisite service has not been rendered that are outstanding as of the required effective date are being recognized as the requisite service is rendered after the required effective date. The compensation cost for the portion of awards is based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosures under SFAS 123. Changes to the grant-date fair value of equity awards granted before the required effective date of this Statement are precluded. The compensation cost for those earlier awards is attributed to periods beginning on or after the required effective date of this SFAS using the attribution method that was used under SFAS 123, except that the method of recognizing forfeitures only as they occur was not continued.

During the six months ended June 30, 2007 and 2006, the Company issued 74,200 and 152,400 class B common shares, respectively, under a restricted stock plan to various employees and directors. For additional information regarding the accounting treatment and effect on the Condensed Consolidated Financial Statements see Note 10 of Notes to the Condensed Consolidated Financial Statements.

RESEARCH AND DEVELOPMENT - Research and development costs are expensed as incurred, and are included in cost of sales. Generally all research and development is performed internally for the benefit of the Company. The Company does not perform such activities for others. Research and development costs include salaries, building maintenance and utilities, rents, materials, administration costs and miscellaneous other items. Research and development expenses for the six months ended June 30, 2007 and 2006 amounted to $3.1 million and $3.5 million, respectively, and for the three months ended June 30, 2007 and 2006 amounted to $1.6 million and $1.6 million, respectively.

-13-

EVALUATION OF LONG-LIVED ASSETS - The Company reviews property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.

CASUALTY LOSS - During February 2006, the Company incurred a $1.1 million pre-tax casualty loss primarily for raw materials destroyed by a fire at the Company's leased manufacturing facility in the Dominican Republic.

EARNINGS PER SHARE (RESTATED) - Subsequent to the issuance of its Condensed Consolidated Financial Statements for the quarter ended September 30, 2006, the Company determined that the method it uses to report earnings per share should utilize the two-class method, displaying earnings per share separately for both Class A and Class B common stock, rather than only one class as previously reported. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings. The Company’s Certificate of Incorporation, as amended, states that Class B common shares are entitled to dividends at least 5% greater than dividends paid to Class A common shares, resulting in the two-class method of computing earnings per share. In computing earnings per share, the Company has allocated actual dividends declared to Class A and Class B based on amounts actually declared. In computing earnings per share, 5% more of the undistributed earnings have been allocated to Class B shares than to the Class A shares on a per share basis. Previously, all shareholders were assumed to share in the earnings equally. As a result, the earnings per share disclosures in the accompanying Condensed Consolidated Financial Statements for the three months and six months ended June 30, 2006, have been restated to reflect the two-class method of computing earnings per share. Basic earnings per common share are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per common share, for each class of common stock, are computed by dividing net earnings by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares used in computing diluted earnings per share relate to stock options for Class A and B common shares which, if exercised, would have a dilutive effect on earnings per share.

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Restatement of Earnings Per Share

	As Previously
Six Months Ended June 30, 2006	Reported		As Restated
Basic	$	1.08
Diluted	$	1.08
Class A - Basic			$	1.03
Class B- Basic			$	1.10
Class A- Diluted			$	1.03
Class B - Diluted			$	1.09

Three Months Ended June 30, 2006	Reported		As Restated
Basic	$	0.74
Diluted	$	0.74
Class A - Basic			$	0.71
Class B- Basic			$	0.75
Class A- Diluted			$	0.71
Class B - Diluted			$	0.75

The previously reported weighted average shares outstanding for the six and three months ended June 30, 2006 were as follows:

	Six Months Ended		Three Months Ended
	June 30,		June 30,
	2006		2006
Basic		11,768,667		11,796,484
Diluted		11,829,885		11,845,259

The following table includes a reconciliation of shares used in the calculation of basic and diluted earnings per share for Class A and Class B common shares for the six and three months ended June 30, 2007 and 2006.

	Six Months Ended				Three Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
			(As restated)				(As restated)
Class A Common Shares
Weighted average shares outstanding - basic		2,682,400		2,702,677		2,661,589		2,702,677

Dilutive impact of stock options and
unvested restricted stock awards		-		-		-		-

Weighted average shares oustanding - diluted		2,682,400		2,702,677		2,661,589		2,702,677

Class B Common Shares
Weighted average shares outstanding - basic		9,203,547		9,065,990		9,233,397		9,093,807

Dilutive impact of stock options and
unvested restricted stock awards		30,772		61,218		28,190		48,775

Weighted average shares oustanding - diluted		9,234,319		9,127,208		9,261,587		9,142,582

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During the quarter ended June 30, 2007 and 2006, 14,000 outstanding options were not included in the foregoing computations for Class B common shares because they were antidilutive.

FAIR VALUE OF FINANCIAL INSTRUMENTS - For financial instruments, including cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses, the carrying amount approximates fair value because of the short maturities of such instruments.

2.	GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of the purchase price and related acquisition costs over the value assigned to the net tangible and other intangible assets with finite lives acquired in a business acquisition.

Other intangibles include patents, product information, covenants not-to-compete and supply agreements. Amounts assigned to these intangibles have been determined by management. Management considered a number of factors in determining the allocations, including valuations and independent appraisals. Other intangibles are being amortized over 1 to 10 years. Amortization expense was $418,000 and $1,299,000 for the six months ended June 30, 2007 and 2006, respectively, and $194,000 and $504,000 for the three months ended June 30, 2007 and 2006, respectively.

Under the terms of the E-Power LTD (“E-Power”) and Current Concepts, Inc. (“Current Concepts”) acquisition agreements of May 11, 2001, the Company was required to make contingent purchase price payments up to an aggregate of $7.6 million should the acquired companies attain specified related sales levels. E-Power was to be paid $2.0 million in contingent purchase price payments if sales reached $15.0 million and an additional $4.0 million if sales reached $25.0 million on a cumulative basis through May 2007. During January 2006, the $2.0 million of contingent purchase price consideration was earned by E-Power and during February 2006, E-Power was paid $2.0 million in contingent purchase price payments. During September 2006, an additional $4.0 million was earned when sales reached $25.0 million on a cumulative basis and, as a result, $4.0 million was paid in November 2006, and accounted for as additional purchase price and as an increase to goodwill. No additional payments will be made under the E-Power agreement. Current Concepts was to be paid 16% of the first $10.0 million in sales through May 2007. This $10.0 million benchmark was reached during the second quarter of 2006 and therefore, no additional payments will be made. During the six and three months ended June 30, 2006, the Company paid or accrued approximately $447,000 and $268,000, respectively, in contingent purchase price payments to Current Concepts. The contingent purchase price payments for Current Concepts are accounted for as additional purchase price and as an increase to covenants not to compete within intangible assets when such payment obligations are incurred.

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3. MARKETABLE SECURITIES

The Company currently owns a total of 1,840,919 shares, or approximately 1.9% of the outstanding shares, of the common stock of Toko, Inc. (“Toko”) at a total cost of $5.6 million. Toko had a market capitalization of approximately $240 million as of June 30, 2007. These shares are reflected on the Company’s condensed consolidated balance sheets as marketable securities. These marketable securities are considered to be available for sale under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. Thus, as of June 30, 2007, the Company has recorded an unrealized loss, net of income tax benefit, of approximately $.7 million which is included in accumulated other comprehensive income (loss) in stockholders’ equity. During April 2007, the Company sold 4,034,000 shares of common stock of Toko on the open market which resulted in a gain of approximately $2.5 million, net of investment banker fees and other expenses in the amount of $.8 million. The Company accrued bonuses of $500,000 in connection with this gain which will be paid by December 31, 2007. For financial statement purposes approximately $360,000 and $140,000 has been classified within cost of sales and selling, general and administrative expenses, respectively.

The Company acquired a total of 2,037,500 shares of the common stock of Artesyn Technologies, Inc. (“Artesyn”) at a total purchase price of $16,331,469. On April 28, 2006, Artesyn was acquired by Emerson Network Power for $11.00 per share in cash. During the second quarter of 2006, in connection with the Company's sale of its Artesyn common stock, the Company recognized a gain of approximately $5.2 million, net of investment banker advisory fees of $850,000. The Company accrued bonuses of $1.0 million in connection with the gain. For financial statement purposes approximately $300,000 and $700,000 has been classified within cost of sales and selling, general and administrative expenses, respectively, and was paid to key employees by December 31, 2006.

At June 30, 2007 and December 31, 2006, respectively, marketable securities have a cost of approximately $5,658,000 and $18,031,000, an estimated fair value of approximately $4,593,000 and $15,576,000 and gross unrealized losses of approximately $(1,065,000) and $(2,455,000). Such unrealized losses are included, net of tax, in accumulated other comprehensive income. The Company had no realized losses for the six months ended June 30, 2007 and $88,000 of realized losses for the six months ended June 30, 2006. Included in other assets at June 30, 2007 and December 31, 2006 are marketable securities designated for utilization in accordance with the Company’s SERP plan with a cost of approximately $3,420,000 and an estimated fair value of approximately $3,907,000 at June 30, 2007 and $3,766,000 at December 31, 2006. Such unrealized net gains are included, net of tax, in other comprehensive income (loss).

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4. INVENTORIES

The components of inventories are as follows:

	June 30,		December 31,
	2007		2006
Raw materials	$	23,195,804	$	24,374,438
Work in progress		3,586,486		3,531,148
Finished goods		17,213,204		18,391,622
	$	43,995,494	$	46,297,208

5. BUSINESS SEGMENT INFORMATION

The Company operates in one industry with three reportable segments. The segments are geographic and include North America, Asia and Europe. The primary criteria by which financial performance is evaluated and resources are allocated are revenues and operating income. The following is a summary of key financial data:

	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Total segment revenues
North America	$	39,167,795		$	39,531,004		$	20,737,267		$	21,036,118
Asia		88,264,093			88,243,885			42,227,628			49,338,286
Europe		17,901,465			13,355,532			8,767,312			7,670,699
Total segment revenues		145,333,353			141,130,421			71,732,207			78,045,103
Reconciling items:
Intersegment revenues		(21,914,432	)		(20,030,075	)		(10,119,962	)		(11,571,005	)
Net sales	$	123,418,921		$	121,100,346		$	61,612,245		$	66,474,098

Income (loss) from Operations:
North America	$	2,110,649		$	(19,078	)	$	1,008,638		$	874,823
Asia		6,387,378			9,705,590			3,230,627			4,865,271
Europe		649,750			457,832			475,682			105,867
	$	9,147,777		$	10,144,344		$	4,714,947		$	5,845,961

DEBT

Short-term debt

During the first quarter of 2007, the Company entered into a new unsecured credit agreement in the amount of $20 million, which expires on July 21, 2008. There was no balance outstanding as of June 30, 2007. At that date, the entire $20 million line of credit was available to the Company to borrow. The credit agreement bears interest at LIBOR plus 0.75% to 1.25% based on certain financial statement ratios maintained by the Company.

The Company’s Hong Kong subsidiary had an unsecured line of credit of approximately $2 million which was unused as of June 30, 2007. The line of credit expired July 31, 2007. Borrowing on the line of credit was guaranteed by the U.S. parent. The line of credit bears interest at a rate determined by the bank as the financing is extended. The Company is currently negotiating an extension to this line of credit.

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Included in interest expense for the six months ended June 30, 2007 is the write-off of approximately $122,000 of previously unamortized deferred financing charges in connection with a credit facility that has been superseded.

7.	INCOME TAXES

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (“FIN 48”), on January 1, 2007. Although the implementation of FIN 48 did not impact the amount of the Company’s liabilities for uncertain tax positions, approximately $5.4 million of the Company’s liability for uncertain tax positions was reclassified to non-current liabilities.

The Company has approximately $11.6 million of liabilities for uncertain tax positions all of which, if recognized, would reduce the Company’s effective tax rate.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2003 and for state examinations before 2003. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2000. The Internal Revenue Service (“IRS”) commenced an examination of the Company’s U.S. income tax returns for 2004 and reviewed 2003 and 2005 during the fourth quarter of 2006. During April 2007, the IRS wrote a preliminary letter to the Company accepting the tax return as originally filed for 2004.

The Inland Revenue Department (“IRD”) of Hong Kong commenced an examination of one of the Company’s Hong Kong subsidiaries’ income tax returns for the year 2000 and issued a notice of additional assessment during the first quarter of 2007 and demand for tax in the amount of $1.4 million. This was paid during May 2007. There is no interest or penalties in connection with this assessment. The IRD has proposed certain adjustments to the Company’s offshore income tax claim position and is proposing tax adjustments for the years 2001 through 2005 in the net amount of $2.8 million. Management has evaluated these adjustments and agrees with the IRD. The Company’s estimate of the tax has been accrued as a component of the Company’s liability for uncertain tax positions.

Based on possible outcomes of the examinations mentioned above, or as a result of the expiration of the statue of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized benefits for tax positions taken regarding previously filed tax returns may change materially from those recorded as liabilities for uncertain tax positions in the Company’s condensed consolidated financial statements at June 30, 2007. Based on the number of tax years currently under audit by the relevant tax authorities, the Company anticipates that several of these audits may be finalized in the next twelve months. It is not possible to estimate the effect of changes, if any, that will occur to previously recorded uncertain tax positions over the next year.

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The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes. During the six and three months ended June 30, 2007, the Company recognized approximately $237,000 and $145,000 in interest and penalties in the Condensed Consolidated Statement of Operations. The Company has approximately $1.7 million accrued for the payment of interest and penalties at June 30, 2007, which is included in both income taxes payable and liability for uncertain tax positions in the condensed consolidated balance sheet.

8. ACCRUED EXPENSES

Accrued expenses consist of the following:

	June 30,		December 31,
	2007		2006
Sales commissions	$	1,556,896	$	1,715,816
Subcontracting labor		1,797,414		2,032,763
Deposits on future sale of properties		1,751,113
Salaries, bonuses and
related benefits		3,168,000		4,147,135
Other		4,619,390		4,817,703
	$	12,892,813	$	12,713,417

9. RETIREMENT FUND AND PROFIT SHARING PLAN

The Company maintains a domestic profit sharing plan and a contributory stock ownership and savings 401(K) plan, which combines stock ownership and individual voluntary savings provisions to provide retirement benefits for plan participants. The plan provides for participants to voluntarily contribute a portion of their compensation, subject to certain legal maximums. The Company will match, based on a sliding scale, up to $350 for the first $600 contributed by each participant. Matching contributions plus additional discretionary contributions are made with Company stock purchased in the open market. The expense for the six months ended June 30, 2007 and 2006 amounted to approximately, $289,000 and $280,000, respectively. The expense for the three months ended June 30, 2007 and 2006 amounted to approximately $119,000 and $144,000, respectively. As of June 30, 2007, the plans owned 17,200 and 143,695 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Company's Far East subsidiaries have a retirement fund covering substantially all of their Hong Kong based full-time employees. Eligible employees contribute up to 5% of salary to the fund. In addition, the Company may contribute an amount up to 7% of eligible salary, as determined by Hong Kong government regulations, in cash or Company stock. The expense for the six months ended June 30, 2007 and 2006 amounted to approximately $202,000 and $351,000, respectively. The expense for the three months ended June 30, 2007 and 2006 amounted to approximately $95,000 and $169,000, respectively. As of June 30, 2007, the plan owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Supplemental Executive Retirement Plan (“SERP”) is designed to provide a limited group of key management and highly compensated employees of the Company with supplemental retirement and death benefits. Participants in the SERP are selected by the Compensation Committee of the Board of Directors. The SERP initially became effective in 2002 and was amended and restated in April 2007 to conform with applicable requirements of Section 409A of the Internal Revenue Code and to modify the provisions regarding benefits payable in connection with a change in control of the Company. Benefits under the SERP are payable from the general assets of the Company, but the Company has certain life insurance policies in effect on participants to partially cover the Company’s obligations under the Plan. The Plan also allows the Company to establish a grantor trust to provide for the payment of Plan benefits.

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The components of SERP expense are as follows:

	Six Months Ended				Three Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Service cost	$	287,000	$	486,000	$	147,000	$	173,000
Interest cost		54,000		96,000		27,000		35,000
Amortization of adjustments		42,000		58,000		24,000		18,000
Total SERP expense	$	383,000	$	640,000	$	198,000	$	226,000

	June 30,		December 31,
	2007		2006
Balance sheet amounts:
Minimum pension obligation
and unfunded liability	$	5,206,639	$	4,728,286
Accumulated other comprehensive
income (loss)		1,646,712		1,646,712

10. SHARE-BASED COMPENSATION

On January 1, 2006, the Company adopted SFAS No. 123 (R) "Share-Based Payment" requiring the recognition of compensation expense in the Condensed Consolidated Statements of Operations related to the fair value of its employee share-based options and awards. SFAS No. 123 (R) revises SFAS No. 123 "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25 "Accounting for Stock Issued to Employees." SFAS No. 123(R) is supplemented by SEC Staff Accounting Bulletin ("SAB") No. 107 "Share-Based Payment." SAB No. 107 expresses the SEC staff's views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations including the valuation of share-based payment arrangements.

The aggregate pretax compensation cost recognized in net earnings for stock based compensation (including incentive stock options, restricted stock and dividends on restricted stock, as further discussed below) amounted to approximately $683,000 and $790,000 for the six months ended June 30, 2007 and 2006, respectively. For the three months ended June 30, 2007 and 2006 the aggregate compensation cost recognized in net earnings amounted to $279,000 and $409,000. The Company did not use any cash to settle any equity instruments granted under share based arrangements during the six months ended June 30, 2007 and 2006.

Under the provisions of SFAS 123 (R), the recognition of deferred compensation, representing the amount of unrecognized restricted stock expense that is reduced as expense is recognized, at the date restricted stock is granted, is no longer required. Therefore, in the first quarter of 2006, the amount that had been in "Deferred compensation" in the Condensed Consolidated Balance Sheet was reversed to zero.

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Stock Options

The Company has an equity compensation program (the "Program") which provides for the granting of "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options and restricted stock awards. The Company believes that such awards better align the interest of its employees with those of its shareholders. The Plan provides for the issuance of 2,400,000 common shares. Unless otherwise provided at the date of grant or unless subsequently accelerated, options granted under the Program become exercisable twenty-five percent (25%) one year from the date of

grant and twenty-five percent (25%) for each year of the three years thereafter. Upon exercise the Company will issue new shares. The exercise price of incentive stock options granted pursuant to the Plan is not to be less than 100 percent of the fair market value of the shares on the date of grant. In general, no option will be exercisable after ten years from the date granted.

A summary of option activity under the plan as of June 30, 2007 and January 1, 2007 and changes during the six months ended June 30, 2007 is presented below:

						Weighted
						Average
				Weighted		Remaining		Aggregate
				Average		Contractual		Intrinsic
Options	Shares			Exercise Price		Term		Value
Outstanding at January 1, 2007		137,813		$	25.59
Granted		-
Exercised		(44,563	)		23.21			$	665,826
Forfeited or expired		(1,500	)		18.89
Outstanding at June 30, 2007		91,750		$	26.86		2.0	$	699,685
Exercisable at June 30, 2007		54,750		$	24.11		1.6	$	563,785

During the six months ended June 30, 2007 and 2006, the Company received $1,034,251 and $1,887,037 from the exercise of stock options and realized tax benefits of approximately $124,000 and $112,000, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2007 and 2006 was $665,826 and $696,879, respectively. Stock compensation expense applicable to stock options for the six months and three months ended June 30, 2007 and 2006 was approximately $123,000 and $226,000 for the three months and six months ended June 30, 2007 and $33,000 and $113,000 for the three months and six months ended June 30, 2006, respectively.

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A summary of the status of the Company's nonvested shares as of December 31, 2006 and changes during the six months ended June 30, 2007 is presented below:

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at December 31, 2006		91,000		$	25.53
Granted		-			-
Vested		(52,500	)		21.92
Forfeited		(1,500	)		18.89
Nonvested at June 30, 2007		37,000		$	30.92

At June 30, 2007, there was $32,000 of total unrecognized cost related to nonvested stock-based compensation arrangements under the Program. The cost is expected to be recognized over a weighted average period of 1 year. Currently, the Company believes that substantially all options will vest.

Restricted Stock Awards

The Company provides common stock awards to certain officers and key employees. The Company grants these awards, at its discretion, from the shares available under the Program. Unless otherwise provided at the date of grant or unless subsequently accelerated, the shares awarded are earned in 25% increments on the second, third, fourth and fifth anniversaries of the award, respectively, and are distributed provided the employee has remained employed by the Company through such anniversary dates; otherwise the unearned shares are forfeited. The market value of these shares at the date of award is recorded as compensation expense on the straight-line method over the five year periods from the respective award dates, as adjusted for forfeitures of unvested awards. During 2007 and 2006, the Company issued 74,200 and 152,400 class B common shares, respectively, under a restricted stock plan to various employees and directors. The shares vest 25% after two years of employment with an additional 25% vesting in each of years three through five. Deferred stock-based compensation expense of $6.4 million associated with unearned shares under this plan as of June 30, 2007, is reported within Stockholders' equity on the Company's condensed consolidated balance sheet. Pretax compensation expense was $560,000 and $564,000 for the six months ended June 30, 2007 and 2006, respectively and $270,000 and $303,000 for the three months ended June 30, 2007 and 2006, respectively.

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A summary of the activity regarding restricted stock awards under the Program as of January 1, 2007 and for the six months ended June 30, 2007 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining
Restricted Stock				Award		Contractual
Awards	Shares			Price		Term
Outstanding at January 1, 2007		167,000		$	34.93		3.85 years
Granted		74,200			36.40
Awarded		-			-
Forfeited		(8,800	)		36.97
Outstanding at June 30, 2007		232,400			35.35		3.81 years
Exercisable at June 30, 2007		-					-

The Company's policy is to issue new shares to satisfy Restricted Stock Awards and incentive stock option exercises.

Currently the Company believes that substantially all Restricted Stock Awards will vest.

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11. COMMON STOCK

During 2000, the Board of Directors of the Company authorized the purchase of up to ten percent (10%) of the Company’s outstanding common shares. As of June 30, 2007, the Company had purchased and retired 23,600 Class B common shares at a cost of approximately $808,000 which reduced the number of Class B common shares outstanding. No shares of Class B common stock were repurchased during the six and three months ended June 30, 2007.

As of June 30, 2007, the Company had purchased and retired 67,026 Class A common shares at a cost of approximately $2.5 million, which reduced the number of Class A common shares outstanding. All such shares were purchased during the quarter ended June 30, 2007. During July and August 2007, the Company purchased 8,702 additional Class A common shares at a cost of $290,659 which will reduce the number of Class A common shares outstanding.

During July 2007, the Board of Directors of the Company authorized to increase the dividends $.02 per share per quarter for both Class A and B common shares effective with the November 2007 dividend payment.

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12. COMPREHENSIVE INCOME

Comprehensive income for the six and three months ended June 30, 2007 and 2006 consists of:

	Six Months Ended					Three Months Ended
	June 30,					June 30,
	2007		2006			2007			2006
Net earnings	$	10,167,121	$	12,760,755		$	6,157,985		$	8,763,456
Currency translation adjustment		333,820		204,968			(24,204	)		113,089
Increase (decrease) in unrealized
gain on marketable securities
- net of taxes		952,830		(3,024,527	)		(3,343,361	)		(5,532,198	)

Comprehensive income	$	11,453,771	$	9,941,196		$	2,790,420		$	3,344,347

13. ASSETS SOLD AND HELD FOR SALE

During May 2007, the Company sold a parcel of land located in Jersey City, New Jersey for $6,000,000. The Company estimates that approximately $760,000 of the proceeds will be payable to the State of New Jersey as a portion of the property is subject to tideland claims. Of the $6.0 million sales price, the Company received cash of $1.5 million before closing costs, and $4.5 million is being held in escrow pending final resolution of the State of New Jersey tideland claim and certain environmental costs the Company is liable for in the maximum amount of $390,000. The Company has agreed to indemnify the title insurance company for the entire $6.0 million selling price of the property for any possible title claim by the State of New Jersey. The Company has deferred the estimated gain on the sale of the land before deduction of the estimated tideland claim payment of $760,000, in the amount of $4.7 million, due to the uncertainty of the final resolution of the State of New Jersey tideland Claim. The escrow of $4.5 million has been classified in restricted cash and the deferred gain of $4.7 million has been classified in deferred gain on the sale of property in the Condensed Consolidated Balance Sheet as of June 30, 2007. Addtionally, the Company realized a $.9 million gain from the sale of property in Hong Kong during the six months ended June 30, 2007.

During the quarter ended June 30, 2007, two of the Company’s Far East subsidiaries entered into contracts to sell four real estate properties, one in Hong Kong and three in Macau with a gross selling price of $9.2 million. The Company has classified these assets as held for sale with a net book value of approximately $4.2 million on the Company’s condensed consolidated balance sheet at June 30, 2007 and expects to sell the properties by the fourth quarter of 2007.

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14. NEW FINANCIAL ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which enhances existing guidance for measuring assets and liabilities using fair value. This Standard provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not believe that SFAS No. 157 will have a material impact on its financial statements.

In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”) “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. The Standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this Statement on its financial statements.

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15. LEGAL PROCEEDINGS

The Company is a defendant in a lawsuit captioned Halo Electronics, Inc. (“Halo”) v. Bel Fuse Inc., Pulse Engineering, Inc. and Technitrol, Inc. brought in Nevada Federal District Court. Plaintiff claims that the Company has infringed its patents covering certain surface mount discrete magnetic products made by the Company. Halo is seeking unspecified damages, which it claims should be trebled.

The Company is a plaintiff in a lawsuit captioned Bel Fuse Inc., a New Jersey Corporation v. Halo Electronics, Inc. brought in the United States District Court of New Jersey during May 2007. The Company claims that Halo has infringed a patent covering certain surface mount discrete magnetic products made by Halo. The Company is seeking unspecified damages plus interest, costs and attorney fees.

The Company and two of its officers are defendants in a wrongful termination lawsuit brought in the District Court of Frankfurt am Main, Germany by a former employee at a foreign subsidiary of the Company. During July 2007, this lawsuit was settled for approximately $466,000. The Company had provided for this liability in its financial statements prior to the settlement.

The Company is a plaintiff in a lawsuit captioned Bel Fuse Inc., a New Jersey corporation, and Bel Power, Inc., a Massachusetts corporation, v. Andrew Ferencz, Gregory Zovonar, Bernhard Schroter, EE2GO, Inc., a Massachusetts corporation, Howard E. Kaepplein and William Ng, brought in the Superior Court of the Commonwealth of Massachusetts. The Company was granted injunctive relief and is seeking damages against the former stockholders of Galaxy Power, Inc., key employees of Galaxy and a corporation formed by some or all of the individual defendants. The Company has alleged that the defendants violated their written non-competition, non-disclosure and non-solicitation agreements, diverted business and usurped substantial business opportunities with key customers, misappropriated confidential information and trade secrets, and harmed the Company’s business.

In a related matter, the Company is a defendant in a lawsuit captioned Robert Chimielnski, P.C. on behalf of the stockholder representatives and the former stockholders of Galaxy Power, Inc. v. Bel Fuse Inc. et al. brought in the Superior Court of the Commonwealth of Massachusetts. This complaint for damages and injunctive relief is based on an alleged breach of contract and other allegedly illegal acts in a corporate context arising out of the Company’s objection to the release of nearly $2.0 million held in escrow under the terms of the stock purchase agreement between Galaxy and the Company. The Company believes it has adequate defenses regarding this lawsuit and accordingly has not accrued any liability in connection with such lawsuit.

The Company is a defendant in a lawsuit captioned Murata Manufacturing Company, Ltd. v. Bel Fuse Inc. et al, brought in Illinois Federal District Court. Plaintiff claims that its patent covers all of the Company's modular jack products. That party had previously advised the Company that it was willing to grant a non-exclusive license to the Company under the patent for a 3% royalty on all future gross sales of ICM products; payment of a lump sum of 3% of past sales including sales of applicable Insilco products; an annual minimum royalty of $500,000; payment of all attorney fees; and marking of all licensed ICM's with the third party's patent number. The Company was also a defendant in a lawsuit, captioned Regal Electronics, Inc. v. Bel Fuse Inc., brought in California Federal District Court. Plaintiff claims that its patent covers certain of the Company's modular jack products. That party had previously advised the Company that it was willing to grant a non-transferable license to the Company for an up front fee of $500,000 plus a 6% royalty on future sales. The District Court has granted summary judgment in the Company's favor dismissing Regal Electronics' infringement claims, while at the same time the Court dismissed the Company's invalidity counterclaim against Regal Electronics. Regal has appealed the Court's rejection of its infringement claims to the U.S. Court of Appeals. The case was heard on February 6, 2007 and the U.S. Court of Appeals upheld the District Court’s ruling in favor of the Company.

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The Company cannot predict the outcome of the unresolved matters; however, management believes that the ultimate resolution of these matters will not have a material impact on the Company's condensed consolidated financial condition or results of operations. As of June 30, 2007, no amounts have been accrued in connection with these lawsuits, except for the Germany lawsuit, as described above, as the amounts are not determinable.

The Company is not a party to any other legal proceeding, the adverse outcome of which is likely to have a material adverse effect on the Company's condensed consolidated financial condition or results of operations.

16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (loss) as of June 30, 2007 and December 31, 2006 are summarized below:

	June 30,			December 31,
	2007			2006
Foreign currency translation
adjustment	$	1,474,704		$	1,140,884
Unrealized holding (loss)
on available-for-sale securities
under SFAS No. 115, net of
taxes of $(219,657) and $(802,797)
as of June 30, 2007 and December 31, 2006		(356,997	)		(1,309,827	)
Unfunded SERP liability net of taxes
of $(686,000) as of June 30, 2007
and December 31, 2006		(1,646,712	)		(1,646,712	)

Accumulated other comprehensive loss	$	(529,005	)	$	(1,815,655	)

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

The Company’s quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results, and stock prices. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (the “SEC”) contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 (“Forward-Looking Statements”) with respect to the business of the Company. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, which could cause actual results to differ materially from these Forward-Looking Statements. The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date such statements are made or to reflect the occurrence of unanticipated events. An investment in the Company involves various risks, including those which are detailed from time to time in the Company’s SEC filings.

Overview

Bel is a leading producer of electronic products that help make global connectivity a reality. The Company designs, manufactures and markets a broad array of magnetics, modules, circuit protection devices and interconnect products. While these products are deployed primarily in the computer, networking and telecommunication industries, Bel’s expanding portfolio of products also finds application in the automotive, medical and consumer electronics markets. Bel's products are designed to protect, regulate, connect, isolate or manage a variety of electronic circuits.

We design our products to enhance the systems in which they operate. As our products typically become components in other third-party’s systems, our revenues are largely driven by the extent to which our customers can design and develop new applications and the extent to which those customers have needs for the types of components that we can provide. We are problem-solvers; we design most of our products to combine various discrete components in a manner that will allow the systems designer to save space and to offer a more efficient product.

Our expenses are driven principally by the cost of the materials that we use and the cost of labor where our factories are located. In recent years, the increasing cost of copper, steel and petroleum-based products and an increased wage structure in the Far East have contributed to increases in manufacturing costs. Effective September 1, 2006, local People's Republic of China ("PRC") authorities implemented a new revised standard work week, and new minimum wages and overtime rates, for areas where our factories are located.

The Company’s sales increased by $2.3 million or 1.9% for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006. The Company’s sales decreased by $4.9 million or 7.3% for the three months ended June 30, 2007 as compared to the three months ended June 30, 2006. The decline reflected revenue decreases in sales of magnetics and interconnect products, as the Company exited from certain low margin business.

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Gross profit margins were lower during the six months ended June 30, 2007 compared to the six months ended June 30, 2006, principally due to increased costs for raw material such as mosfets, steel, integrated circuits, PBC and petroleum-based products, increased transportation costs and a warranty reserve and related inventory write-off in the amount of $1.2 million during the quarter ended June 30, 2007. Sales of the Company’s DC-DC power products have increased. While these products are strategic to Bel’s growth and important to total earnings, they return lower gross profit percentage margins as a larger percentage of their bills of material are purchased components. As these sales continue to increase, the Company’s average gross profit percentage will likely decrease unless offset by increased sales of higher margin products. Gross profit margins are also adversely affected to the extent that the Company manufactures lead-free products, as the Company has additional labor and manufacturing costs associated with operating duplicate production lines but cannot attain premium pricing for such products.

On January 1, 2007, the Company implemented FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”, (“FIN 48”) which resulted in no adjustment in the liability for uncertain tax positions.

During the six months ended June 30, 2007, the Company incurred severance and related expenses of approximately $269,000; wrote off approximately $122,000 in deferred financing fees related to a credit facility no longer available because of a change in the Company’s banking relationship; incurred stock based compensation expense of $683,000, accrued $237,000 of interest and penalties in connection with uncertain tax positions; and incurred $881,000 less amortization of intangibles compared to the six months ended June 30, 2006 due to certain intangibles becoming fully amortized. Additionally, the Company realized a pretax gain from the sale of real estate in the amount of $.9 million and a pretax gain from the sale of Toko common shares in the amount of $2.5 million.

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Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, investments, SERP expense, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its condensed consolidated financial statements.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses from the inability of its customers to make required payments. The Company determines its reserves by both specific identification of customer accounts where appropriate and the application of historical loss experience to non-specific accounts. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory

The Company makes purchasing decisions principally based upon firm sales orders from customers, the availability and pricing of raw materials and projected customer requirements. Future events that could adversely affect these decisions and result in significant charges to the Company’s operations include miscalculating customer requirements, technology changes which render certain raw materials and finished goods obsolete, loss of customers and/or cancellation of sales orders, stock rotation with distributors and termination of distribution agreements. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon the aforementioned assumptions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

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When inventory is written-off, it is never written back up; the cost remains at zero or the level to which it has been written-down. When inventory that has been written-off is subsequently used in the manufacturing process, the lower adjusted cost of the material is charged to cost of sales. Should any of this inventory be used in the manufacturing process for customer orders, the improved gross profit will be recognized at the time the completed product is shipped and the sale is recorded.

Goodwill and Intangible Assets

The assets and liabilities of acquired businesses are recorded under the purchase method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses.

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. The identification and measurement of goodwill impairment involves the estimation of the fair value of geographic reporting units. The estimates of fair value of geographic reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows and contemplate other valuation techniques. Future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities. There can be no assurances that goodwill impairments will not occur in the future. See Note 2 to the Condensed Consolidated Financial Statements for further discussion.

Income Taxes

Income taxes are accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” In accordance with SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of a global business, the ultimate tax outcome is uncertain for many transactions. It is the Company’s policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions.

Our accounting policy for income taxes was recently modified due to the adoption of FIN 48. FIN 48 requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect our operating results.

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Revenue Recognition

The Company recognizes revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”. Revenue is recognized when the product has been delivered and title and risk of loss have passed to the customer, collection of the resulting receivable is deemed reasonably assured by management, persuasive evidence of an arrangement exists and the sale price is fixed and determinable.

Historically the Company has been successful in mitigating the risks associated with its revenue. Some issues relate to product warranty, credit worthiness of its customers and concentration of sales among a few major customers.

The Company is not contractually obligated to accept returns from non-distributor customers except for defective product or in instances where the product does not meet the Company’s quality specifications. If these conditions existed, the Company would be obligated to repair or replace the defective product or make a cash settlement with the customer. Distributors generally have the right to return up to 5% of their purchases over the previous three to six months and are obligated to purchase an amount at least equal to the return. If the Company terminates a distributor, the Company is obligated to accept as a return all of the distributor’s inventory from the Company. The Company accrues an estimate for anticipated returns based on historical experience at the time revenue is recognized and adjusts such estimate as specific anticipated returns are identified. If a distributor terminates its relationship with the Company, the Company is not obligated to accept any inventory returns. The Company has a significant amount of sales with several customers. However, no one customer represented 10% or more of sales during the six months ended June 30, 2007. The loss of any substantial customer could have a material adverse effect on the Company’s consolidated results of operations, financial position and cash flows.

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Results of Operations

The following table sets forth, for the periods presented, the percentage relationship to net sales of certain items included in the Company’s condensed consolidated statements of operations.

	Percentage of Net Sales				Percentage of Net Sales
	Six Months Ended				Three Months Ended
	June 30,				June 30,
	2007		2006		2007		2006

Net sales		100.0%		100.0%		100.0%		100.0%
Cost of sales		78.2		74.5		78.9		75.6
Selling, general and
administrative expenses		15.1		16.2		14.9		15.4
Gain on sale of property, plant and
equipment		0.7		-		1.4		-
Casualty loss		-		0.9		-		0.2
Interest income and interest
and financing expense		1.4		0.9		1.6		1.0
Gain on sale of property and
marketable securities		2.0		4.3		4.1		7.9
Earnings before provision
for income taxes		10.8		13.6		13.3		17.6
Income tax provision		2.6		3.0		3.4		4.5
Net earnings		8.2		10.5		10.0		13.2

The following table sets forth the year over year percentage increase or decrease of certain items included in the Company's condensed consolidated statements of operations.

	Increase (decrease) from Prior Period		(Decrease) from Prior Period
	Six Months Ended June 30, 2007 compared with Six Months Ended June 30, 2006		Three Months Ended June 30, 2007 compared with Three Months Ended June 30, 2006
Net sales		1.9%		(7.3)%

Cost of sales		6.9		(3.3)