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     September 30, 2007
or
 
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 November 1, 2007, there were 2,565,190 shares of Class A Common Stock, $0.10 par value, outstanding and 9,296,177 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 September 30, 2007
(unaudited) and December 31, 2006
2-3
       
   
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2007 and 2006 (unaudited)
4
       
   
Condensed Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 2006 and
the Nine Months Ended September 30, 2007 (unaudited)
5-6
       
   
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 2.
Unregistered Sales of Equity Securities and Use of Proceeds
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 nine and three months ended September 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
 
   
September 30,
  
December 31,
  
   
2007
  
2006
  
   
(Unaudited)
      
ASSETS
              
Current Assets:
              
Cash and cash equivalents
  
$
102,051,013
  
$
76,760,543
  
Marketable securities
    
4,169,127
   
15,576,212
 
Accounts receivable - less allowance for doubtful accounts of $1,031,720 and $1,087,006 at September 30, 2007 and December 31, 2006, respectively
    
47,793,960
   
43,765,750
 
Inventories
    
42,543,340
   
46,297,208
 
Prepaid expenses and other current assets
    
1,467,430
   
1,382,807
 
Deferred income taxes
    
1,572,623
   
1,665,857
 
Assets held for sale
    
3,717,488
   
848,049
 
               
Total Current Assets
    
203,314,981
   
186,296,426
 
               
Property, plant and equipment - net
    
40,224,949
   
44,289,159
 
               
Restricted cash
    
4,500,000
   
-
 
Deferred income taxes
    
5,218,763
   
3,425,375
 
Intangible assets - net
    
1,278,913
   
1,892,417
 
Goodwill
    
28,117,143
   
28,117,143
 
Other assets
    
5,669,113
   
4,476,990
 
               
TOTAL ASSETS
  
$
288,323,862
  
$
268,497,510
  
 

See notes to condensed consolidated financial statements.
 
-2-

BEL FUSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
September 30,
  
December 31,
  
   
2007
  
2006
  
   
(Unaudited)
      
LIABILITIES AND STOCKHOLDERS' EQUITY
  
Current Liabilities:
              
Accounts payable
  
$
18,836,366
  
$
17,244,937
  
Accrued expenses
    
14,107,839
   
12,713,417
 
Income taxes payable
    
1,812,702
   
11,094,107
 
Dividends payable
    
795,133
   
566,583
 
Total Current Liabilities
    
35,552,040
   
41,619,044
 
               
Long-term Liabilities:
            
Deferred gain on sale of property
    
4,653,229
   
-
 
Liability for uncertain tax positions
    
6,783,000
   
-
 
Minimum pension obligation and unfunded pension liability
    
5,442,246
   
4,728,286
 
Total Long-term Liabilities
    
16,878,475
   
4,728,286
 
               
Total Liabilities
    
52,430,515
   
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 2,588,577 and 2,702,677 shares, respectively (net of 1,072,770 treasury shares)
    
258,858
   
270,268
 
Class B common stock, par value $.10 per share - authorized 30,000,000 shares; outstanding 9,291,977 and 9,167,665 shares, respectively (net of 3,218,310 treasury shares)
    
929,198
   
916,767
 
Additional paid-in capital
    
30,229,301
   
31,826,046
 
Retained earnings
    
205,120,117
   
190,952,754
 
Accumulated other comprehensive (loss)
    
(644,127
)
  
(1,815,655
)
Total Stockholders' Equity
    
235,893,347
   
222,150,180
 
               
TOTAL LIABILITIES AND
             
STOCKHOLDERS' EQUITY
  
$
288,323,862
  
$
268,497,510
  
 

See notes to condensed consolidated financial statements.
 
-3-

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
  
                   
   
Nine Months Ended
  
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
 
                  
Net Sales
  
$
189,797,803
  
$
194,360,103
  
$
66,378,882
  
$
73,259,757
  
                           
Costs and expenses:
                          
Cost of sales
    
148,777,682
   
146,058,522
   
52,287,781
   
55,809,958
 
Selling, general and administrative
    
27,333,450
   
28,706,846
   
8,672,403
   
9,096,679
 
Gain on sale of property, plant and equipment
    
(1,186,793
)
  
-
   
(306,989
)
  
-
 
Casualty loss
    
-
   
1,029,853
   
-
   
(67,418
)
     
174,924,339
   
175,795,221
   
60,653,195
   
64,839,219
 
                           
Income from operations
    
14,873,464
   
18,564,882
   
5,725,687
   
8,420,538
 
Interest expense and other costs
    
(124,656
)
  
(52,787
)
  
(1,193
)
  
(8,401
)
Gain on sale of marketable securities - net
    
2,507,868
   
5,151,039
   
-
   
-
 
Interest income
    
2,979,687
   
2,015,106
   
1,143,748
   
841,348
 
                           
Earnings before provision for income taxes
    
20,236,363
   
25,678,240
   
6,868,242
   
9,253,485
 
Income tax provision
    
4,155,000
   
5,172,000
   
954,000
   
1,508,000
 
                           
Net earnings
  
$
16,081,363
  
$
20,506,240
  
$
5,914,242
  
$
7,745,485
  
                           
Earnings per share (2006, as restated, see Note 1)
                          
Earnings per Class A common share
                          
Basic
  
$
1.29
  
$
1.66
  
$
0.47
  
$
0.62
  
Diluted
  
$
1.29
  
$
1.66
  
$
0.47
  
$
0.62
  
                           
Weighted average Class A common shares
                          
outstanding - basic
    
2,661,750
   
2,702,677
   
2,621,623
   
2,702,677
 
Weighted average Class A common shares
                          
outstanding - diluted
    
2,661,750
   
2,702,677
   
2,621,623
   
2,702,677
 
                           
Earnings per Class B common share
                         
Basic
  
$
1.37
  
$
1.76
  
$
0.50
  
$
0.66
  
Diluted
  
$
1.37
  
$
1.75
  
$
0.50
  
$
0.66
  
                           
Weighted average Class B common shares
                          
outstanding - basic
    
9,228,038
   
9,086,371
   
9,275,962
   
9,126,469
 
Weighted average Class B common shares
                          
outstanding - diluted
    
9,253,930
   
9,141,595
   
9,292,095
   
9,169,704
 
 
 
See notes to condensed consolidated financial statements.
 
-4-

BEL FUSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
 
 
  
 
  
 
  
 
  
Accumulated
  
 
  
 
  
 
  
Deferred
  
 
  
 
  
Compre-
  
 
  
Other
  
Class A
  
Class B
  
Additional
  
Stock-
  
 
  
 
  
hensive
  
Retained
 
Comprehensive
  
Common
  
Common
  
Paid-In
  
Based
  
 
  
Total
  
Income
  
Earnings
  
Income (loss)
  
Stock
  
Stock
  
Capital
  
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)
  
 
 
  
 
  
 
  
 
  
Accumulated
  
 
  
 
  
 
  
Deferred
  
 
  
 
  
Compre-
  
 
  
Other
  
Class A
  
Class B
  
Additional
  
Stock-
  
 
  
 
  
hensive
  
Retained
 
Comprehensive
  
Common
  
Common
  
Paid-In
  
Based
  
 
  
Total
  
Income
  
Earnings
  
Income
  
Stock
  
Stock
  
Capital
  
Compensation
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
Exercise of stock options
    
1,336,428
                   
5,831
   
1,330,597
     
Tax benefits arising from the disposition of non-qualified incentive stock options
    
138,214
                       
138,214
       
Cash dividends declared on Class A common stock
    
(383,000
)
      
(383,000
)
                    
Cash dividends declared on Class B common stock
    
(1,531,000
)
      
(1,531,000
)
                    
Currency translation adjustment
    
485,602
 
$
485,602
        
485,602
                 
Change in unrealized gain or loss on marketable securities -net of taxes
    
685,926
   
685,926
       
685,926
                 
Issuance of restricted common stock
    
-
                   
7,420
   
(7,420
)
    
Termination of restricted common stock
    
-
                   
(820
)
  
820
     
Repurchase/retirement of Class A common stock
    
(4,124,931
)
              
(11,410
)
      
(4,113,521
)
    
Stock-based compensation expense
   
1,054,565
                       
1,054,565
     
Net earnings
    
16,081,363
   
16,081,363
   
16,081,363
                     
Comprehensive income
      
$
17,252,891
                          
 
                                                        
Balance, September 30, 2007
  
$
235,893,347
      
$
205,120,117
  
$
(644,127
)
$
258,858
  
$
929,198
  
$
30,229,301
  
$
-
  
 
 
See notes to condensed consolidated financial statements.
 
-6-
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Nine Months Ended
 
   
September 30,
 
   
2007
  
2006
  
Cash flows from operating
              
activities:
              
Net earnings
  
$
16,081,363
  
$
20,506,240
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
Depreciation and amortization
    
5,812,718
   
6,983,518
 
Casualty loss
    
-
   
1,029,853
 
Stock-based compensation
    
1,054,565
   
1,189,599
 
Excess tax benefits from share-based payment arrangements
    
(138,214
)
  
(250,699
)
Gain on sale of marketable securities
    
(2,507,868
)
  
(5,151,039
)
Gain on sale of property, plant and equipment
    
(1,186,793
)
  
-
 
Other
    
387,247
   
643,905
 
Deferred income taxes
    
(2,018,000
)
  
(778,000
)
Changes in operating assets and liabilities
    
(1,341,502
)
  
(8,421,059
)
Net Cash Provided by Operating Activities
    
16,143,516
   
15,752,318
 
               
Cash flows from investing activities:
              
Purchase of property, plant and equipment
    
(6,159,523
)
  
(7,633,002
)
Purchase of marketable securities
    
(11,801,386
)
  
(2,236,972
)
Payment for acquisitions - net of cash acquired
    
-
   
(2,960,974
)
Proceeds from sale of marketable securities
    
27,498,919
   
24,489,966
 
Proceeds from sale of property, plant and equipment
    
3,628,206
   
-
 
 
              
Net Cash Provided by Investing Activities
    
13,166,216
   
11,659,018
 
 
 
See notes to condensed consolidated financial statements.
 
-7-

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

   
Nine Months Ended
 
   
September 30,
 
   
2007
  
2006
  
Cash flows from financing activities:
              
Proceeds from exercise of stock options
    
1,336,428
   
2,764,143
 
Dividends paid to common shareholders
    
(1,685,450
)
  
(1,660,523
)
Purchase and retirement of Class A common stock
    
(4,124,931
)
  
-
 
Excess tax benefits from share-based payment arrangements
    
138,214
   
250,699
 
Net Cash (Used In) Provided By Financing Activities
    
(4,335,739
)
  
1,354,319
 
               
Effect of exchange rate changes on cash
    
316,477
   
124,897
 
               
Net Increase in Cash and Cash Equivalents
    
25,290,470
   
28,890,552
 
Cash and Cash Equivalents
         
- beginning of period
    
76,760,543
   
51,997,634
 
Cash and Cash Equivalents
             
- end of period
  
$
102,051,013
  
$
80,888,186
  
               
Changes in operating assets and liabilities consist of:
              
Increase in accounts receivable
  
$
(3,583,668
)
$
(13,114,129
)
Decrease (increase) in inventories
    
3,887,608
   
(7,289,696
)
Increase in prepaid expenses and other current assets
    
(84,623
)
  
(443,578
)
Increase in other assets
    
(2,003,640
)
  
(372,254
)
Increase in accounts payable
    
1,572,794
   
7,428,294
 
Increase (decrease) in income taxes payable
    
(2,360,191
)
  
3,069,675
 
Increase in accrued expenses
   
1,230,218
   
2,300,629
 
   
$
(1,341,502
)
$
(8,421,059
)
 
 
See notes to condensed consolidated financial statements.
 
-8-

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

   
Nine Months Ended
 
   
September 30,
 
   
2007
  
2006
  
           
Supplementary information:
              
Cash paid during the period for:
              
Income taxes
  
$
8,763,000
  
$
2,441,000
  
Interest
  
$
-
  
$
52,787
  
               
Details of acquisitions:
              
Intangibles
  
$
-
  
$
446,571
  
Goodwill
    
-
   
6,000,000
 
Acquisition costs
    
-
   
6,446,571
 
               
Less: Amounts paid on acquisition payment
    
-
   
514,403
 
Amounts accrued
    
-
   
(4,000,000
)
Cash paid for acquisitions
  
$
-
  
$
2,960,974
  
 
 
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 September 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 nine months ended September 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 September 30, 2007 and December 31, 2006, cash equivalents approximated $58,422,000 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 gains (losses) were $(59,000) and $(170,000) for the nine months ended September 30, 2007 and 2006, and $(31,000) and $75,000 for the three months ended September 30, 2007 and 2006, respectively, and have been included in selling, general and administrative expense 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. DDP is defined as Delivered Duty Paid by the Company and DDU is Delivered Duty Unpaid by the Company.

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.
 
-11-

The Company typically has a twelve-month warranty policy for workmanship defects. During June 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 included a $0.4 million inventory write off of inventory on hand. Such accrual has been classified within cost of sales. As of September 30, 2007, the Company has a warranty accrual related to these defective parts in the amount of $0.7 million remaining. The Company believes that this liability will be paid by December 31, 2007. 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, SFAS 123(R) 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 SFAS 123(R) 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 nine months ended September 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 nine months ended September 30, 2007 and 2006 amounted to $4.9 million, and for the three months ended September 30, 2007 and 2006 amounted to $1.8 million and $1.7 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 $1.0 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 nine months ended September 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.

-14-

Restatement of Earnings Per Share
  
   
As Previously
     
Nine Months Ended
  
Reported
  
As Restated
  
September 30, 2006
          
Basic
  
$
1.74
        
Diluted
  
$
1.73
        
Class A - Basic
        
$
1.66
  
Class B- Basic
        
$
1.76
  
Class A- Diluted
        
$
1.66
  
Class B - Diluted
        
$
1.75
  
               
Three Months Ended
              
September 30, 2006
              
Basic
  
$
0.65
        
Diluted
  
$
0.65
        
Class A - Basic
 
      
$
0.62
  
Class B- Basic
        
$
0.66
  
Class A- Diluted
        
$
0.62
  
Class B - Diluted
        
$
0.66
  
 
The previously reported weighted average shares outstanding for the nine and three months ended September 30, 2006 were as follows:

   
Nine Months Ended
  
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2006
  
2006
  
Basic
    
11,789,048
   
11,829,146
 
Diluted
    
11,844,272
   
11,872,381
 
 
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 nine and three months ended September 30, 2007 and 2006.
   
Nine Months Ended
  
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
       
(As restated)
      
(As restated)
  
Class A Common Shares
                          
Weighted average shares outstanding - basic
   
2,661,750
   
2,702,677
   
2,621,623
   
2,702,677
 
                           
Dilutive impact of stock options and
unvested restricted stock awards
    
-
   
-
   
-
   
-
 
                           
Weighted average shares oustanding - diluted
    
2,661,750
   
2,702,677
   
2,621,623
   
2,702,677
 
                           
Class B Common Shares
                          
Weighted average shares outstanding - basic
   
9,228,038
   
9,086,371
   
9,275,962
   
9,126,469
 
                           
Dilutive impact of stock options and
unvested restricted stock awards
    
25,892
   
55,224
   
16,133
   
43,235
 
                           
Weighted average shares oustanding - diluted
   
9,253,930
   
9,141,595
   
9,292,095
   
9,169,704
 
 
-15-
 
During the quarter and nine months ended September 30, 2007 and 2006, 14,000 outstanding options were not included in the foregoing computations for Class B common shares because their effect would be 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 $614,000 and $1,730,000 for the nine months ended September 30, 2007 and 2006, respectively, and $196,000 and $430,000 for the three months ended September 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 nine and three months ended September 30, 2006, the Company paid or accrued approximately $447,000 and no payments were made in the quarter ended September 30, 2006 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.

-16-
 
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 $218 million as of September 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 September 30, 2007, the Company has recorded an unrealized loss, net of income tax benefit, of approximately $0.9 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 $0.8 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 September 30, 2007 and December 31, 2006, respectively, marketable securities have a cost of approximately $5,648,000 and $18,031,000, an estimated fair value of approximately $4,169,000 and $15,576,000 and gross unrealized losses of approximately $(1,488,000) 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 nine months ended September 30, 2007 and $88,000 of realized losses for the nine months ended September 30, 2006. Included in other assets at September 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 $4,579,000 and an estimated fair value of approximately $5,063,000 at September 30, 2007 and a cost of $3,420,000 and an estimated fair value of $3,766,000 at December 31, 2006. Such unrealized net gains are included, net of tax, in other comprehensive income (loss).

-17-

4.
INVENTORIES

The components of inventories are as follows:

   
September 30,
  
December 31,
  
   
2007
  
2006
  
Raw materials
  
$
25,461,325
  
$
24,374,438
  
Work in progress
    
2,672,424
   
3,531,148
 
Finished goods
    
14,409,591
   
18,391,622
 
   
$
42,543,340
  
$
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:
 
   
Nine Months Ended
  
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
Total segment revenues
                          
North America
  
$
65,058,170
  
$
61,973,366
  
$
25,890,375
  
$
22,442,362
  
Asia
   
133,937,916
   
140,544,037
   
45,673,823
   
52,300,151
 
Europe
    
24,748,147
   
21,025,711
   
6,846,682
   
7,670,179
 
Total segment revenues
    
223,744,233
   
223,543,114
   
78,410,880
   
82,412,692
 
Reconciling items:
                          
Intersegment revenues
    
(33,946,430
)
  
(29,183,011
)
  
(12,031,998
)
  
(9,152,935
)
Net sales
  
$
189,797,803
  
$
194,360,103
  
$
66,378,882
  
$
73,259,757
  
                           
Income from Operations:
                          
North America
  
$
2,903,689
  
$
2,225,522
  
$
793,042
  
$
2,246,177
  
Asia
    
10,933,129
   
15,351,855
   
4,545,749
   
5,644,688
 
Europe
    
1,036,646
   
987,505
   
386,896
   
529,673
 
   
$
14,873,464
  
$
18,564,882
  
$
5,725,687
  
$
8,420,538
  
 
6.
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 September 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 September 30, 2007. The line of credit expires July 31, 2008. 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.

-18-

Included in interest expense for the nine months ended September 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 $6.8 million of the Company’s liability for uncertain tax positions was reclassified to non-current liabilities.

At September 30, 2007, Company has approximately $9.2 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 2004 and for state examinations before 2004. 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 through 2005 and issued a notice of additional assessment during 2007 and demand for tax in the amount of $3.7 million. This was paid during May 2007 and August 2007. There is no interest or penalties in connection with this assessment. The IRD proposed certain adjustments to the Company’s offshore income tax claim position which Company management agrees with.

During the quarter ended September 30, 2007 certain statute of limitations expired which resulted in a reversal of a previously recognized liability for uncertain tax positions in the amount of $1.4 million. This was offset by an increase in the liability for uncertain tax positions of $1.0 million and certain changes in estimates for prior year taxes which reduced the income tax provision by approximately $.4 million.

Based on possible outcomes of the examinations mentioned above, or as a result of the expiration of the statute 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 September 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.

-19-

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 nine and three months ended September 30, 2007, the Company recognized approximately $368,000 and $131,000 in interest and penalties in the Condensed Consolidated Statement of Operations. The Company has approximately $1.6 million accrued for the payment of interest and penalties at September 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:
 
   
September 30,
 
December 31,
 
   
2007
  
2006
 
Sales commissions
  
$
1,650,596
  
$
1,715,816
  
Subcontracting labor
    
1,434,593
   
2,032,763
 
Deposits on future sale of properties
    
2,278,270
   
-
 
Salaries, bonuses and
              
related benefits
    
3,783,615
   
4,147,135
 
Other
    
4,960,765
   
4,817,703
 
   
$
14,107,839
  
$
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 nine months ended September 30, 2007 and 2006 amounted to approximately $405,000 and $383,000, respectively. The expense for the three months ended September 30, 2007 and 2006 amounted to approximately $116,000 and $103,000, respectively. As of September 30, 2007, the plans owned 17,140 and 146,174 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 nine months ended September 30, 2007 and 2006 amounted to approximately $295,000 and $309,000, respectively. The expense for the three months ended September 30, 2007 and 2006 amounted to approximately $93,000 and $188,000, respectively. As of September 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.
 
-20-
 
The components of SERP expense are as follows:
 
   
Nine Months Ended
  
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
Service cost
  
$
437,000
  
$
582,000
  
$
146,000
  
$
96,000
  
Interest cost
    
86,000
   
115,000
   
29,000
   
19,000
 
Amortization of adjustments
    
52,000
   
70,000
   
17,000
   
12,000
 
Total SERP expense
  
$
575,000
  
$
767,000
  
$
192,000
  
$
127,000
  


   
September 30,
  
December 31,
  
   
2007
  
2006
  
Balance sheet amounts:
              
Minimum pension obligation
and unfunded liability
  
$
5,442,246
  
$
4,728,286
  
Accumulated other comprehensive
income (loss)
    
(1,646,712
)
  
(1,646,712
)
 
During July 2007 the Company made a contribution to the SERP in the amount of $1.2 million.  The Company does not anticipate making any additional contributions to the SERP during the remainder of 2007.
 
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 $1,092,000 and $1,189,000 for the nine months ended September 30, 2007 and 2006, respectively. For the three months ended September 30, 2007 and 2006, the aggregate compensation cost recognized in net earnings amounted to $409,000 and $399,000, respectively. The Company did not use any cash to settle any equity instruments granted under share based arrangements during the nine months ended September 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.
 
-21-
 
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 September 30, 2007 and January 1, 2007 and changes during the nine months ended September 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
    
(58,313
)
  
22.92
       
$
853,479
  
Forfeited or expired
    
(1,500
)
  
18.89
             
Outstanding at September 30, 2007
    
78,000
 
$
27.72
    
1.9
  
$
574,200
  
Exercisable at September 30, 2007
    
44,500
 
$
25.79
    
1.4
  
$
419,410
  
 
During the nine months ended September 30, 2007 and 2006, the Company received $1,336,428 and $2,764,143 from the exercise of stock options and realized tax benefits of approximately $138,000 and $251,000, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $853,479 and $1,235,225, respectively. Stock compensation expense applicable to stock options for the nine months ended September 30, 2007 and 2006 was approximately $131,000 and $335,000 and for the three months ended September 30, 2007 and 2006 was $8,000 and $109,000, respectively.

-22-

A summary of the status of the Company's nonvested shares as of December 31, 2006 and changes during the nine months ended September 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
    
(56,000
)
  
22.86
 
Forfeited
    
(1,500
)
  
18.89
 
Nonvested at September 30, 2007
    
33,500
 
$
30.28
  

At September 30, 2007, there was $25,000 of total unrecognized cost related to nonvested incentive stock options 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 $6.0 million associated with unearned shares under this plan as of September 30, 2007, is reported within Stockholders' equity on the Company's condensed consolidated balance sheet. Pretax compensation expense was $961,000 and $855,000 for the nine months ended September 30, 2007 and 2006, respectively and $401,000 and $291,000 for the three months ended September 30, 2007 and 2006, respectively.

-23-

A summary of the activity regarding restricted stock awards under the Program as of January 1, 2007 and for the nine months ended September 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
       
Vested
    
-
                   
Forfeited
    
(10,200
)
  
36.97
       
Outstanding at September 30, 2007
    
231,000
   
35.35
   
3.55 years
 
Exercisable at September 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.

-24-

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 September 30, 2007, the Company had cumulatively 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 nine and three months ended September 30, 2007.

As of September 30, 2007, the Company had purchased and retired 114,100 Class A common shares at a cost of approximately $4.1 million, which reduced the number of Class A common shares outstanding. All such shares were purchased during the nine months ended September 30, 2007. During October and November 2007, the Company purchased 23,387 additional Class A common shares at a cost of approximately $842,000.

During July 2007 the Board of Directors of the Company authorized an increase in the dividends by $.02 per share per quarter for both Class A and B common shares effective with the November 2007 dividend payment. On the same date, they declared a dividend of $.06 per share on the Class A common shares and $.07 per share on the Class B common shares payable on November 1, 2007 to shareholders of record on October 15, 2007.

-25-

12.
COMPREHENSIVE INCOME
 
Comprehensive income for the nine and three months ended September 30, 2007 and 2006 consists of:
 
   
Nine Months Ended
  
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
Net earnings
  
$
16,081,363
  
$
20,506,240
  
$
5,914,242
  
$
7,745,485
  
Currency translation adjustment
    
485,602
   
216,394
   
151,782
   
11,426
 
Increase (decrease) in unrealized
                          
gain on marketable securities
                          
- net of taxes
    
685,926
   
(3,881,863
)
  
(266,904
)
  
(857,336
)
                           
Comprehensive income
  
$
17,252,891
  
$
16,840,771
  
$
5,799,120
  
$
6,899,575
  
 
 
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 September 30, 2007. Additionally, the Company realized gains of $1.2 million and $0.3 million from the sale of property, plant and equipment in Hong Kong and Macao during the nine months and three months ended September 30, 2007, respectively.

During the second quarter of 2007, two of the Company’s Far East subsidiaries entered into contracts to sell two real estate properties, one in Hong Kong and one in Macau with a gross selling price of $8.1 million. The Company has classified these assets as held for sale with a net book value of approximately $3.7 million on the Company’s condensed consolidated balance sheet at September 30, 2007 and expects to sell the properties by the fourth quarter of 2007.

-26-
 
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.

In June 2007, the FASB issued EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," which is effective for calendar year companies on January 1, 2008. The Task Force concluded that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided. The Company is currently assessing the potential impacts of implementing this standard.

-27-
 
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.
 
-28-
 
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 September 30, 2007, no amounts have been accrued in connection with these lawsuits, 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 September 30, 2007 and December 31, 2006 are summarized below:
 

   
September 30,
  
December 31,
  
   
2007
  
2006
  
Foreign currency translation adjustment
  
$
1,626,486
  
$
1,140,884
  
Unrealized holding (loss)
on available-for-sale securities
under SFAS No. 115, net of
taxes of $(380,554) and $(802,797)
as of September 30, 2007 and December 31, 2006
   
(623,901
)
  
(1,309,827
)
Unfunded SERP liability net of taxes
of $(686,000) as of September 30, 2007
and December 31, 2006
    
(1,646,712
)
  
(1,646,712
)
               
Accumulated other comprehensive loss
  
$
(644,127
)
$
(1,815,655
)
 
-29-

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 decreased by $4.6 million or 2.3% for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006. The Company’s sales decreased by $6.9 million or 9.4% for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006. The decline principally reflected revenue decreases in sales of magnetics and interconnect products, as the Company exited from certain low margin business.
 
-30-
 
Gross profit margins were lower during the nine months and three months ended September 30, 2007 compared to the nine months and three months ended September 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 June 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 nine months ended September 30, 2007, the Company incurred severance and related expenses of approximately $417,000; 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 $1,092,000, accrued $368,000 of interest and penalties in connection with uncertain tax positions; and incurred $1.1 million less amortization of intangibles compared to the nine months ended September 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 $1.2 million and a pretax gain from the sale of Toko common shares in the amount of $2.5 million.

-31-
 
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.

-32-

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.

-33-

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. One customer represented 16.3% of sales during the nine months ended September 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.

-34-

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
  
   
Nine Months Ended
  
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
                   
Net sales
    
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
Cost of sales
    
78.4
   
75.1
   
78.8
   
76.2
 
Selling, general and administrative expenses
    
14.4
   
14.8
   
13.1
   
12.4
 
Gain on sale of property, plant and equipment
    
0.6
   
-
   
0.5
   
-
 
Casualty loss
    
-
   
0.5
   
-
   
(0.1
)
Interest income and interest and financing expense
    
1.5
   
1.0
   
1.7
   
1.1
 
Gain on sale of property and marketable securities
   
1.3
   
2.7
   
-
   
-
 
Earnings before provision for income taxes
    
10.7
   
13.2
   
10.3
   
12.6
 
Income tax provision
    
2.2
   
2.7
   
1.4
   
2.1
 
Net earnings
    
8.5
   
10.6
   
8.9
   
10.6
 
 
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
  
   
Nine Months Ended
September 30, 2007
compared with Nine
Months Ended September
30, 2006
  
Three Months Ended
September 30, 2007
compared with Three
Months Ended September
30, 2006
  
Net sales
    
(2.3
)%
  
(9.4
)%
               
Cost of sales
    
1.9
   
(6.3
)
             
Selling, general and administrative expenses
    
(4.8
)
  
(4.7
)
             
Net earnings
    
(21.6
)
  
(23.6
)
 
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NINE MONTHS ENDED SEPTEMBER 30, 2007 VERSUS
NINE MONTHS ENDED SEPTEMBER 30, 2006

Sales
 
Net sales decreased 2.3% from $194.4 million during the nine months ended September 30, 2006 to $189.8 million during the nine months ended September 30, 2007. The Company attributes the decrease to a decrease in magnetic sales of $15.5 million, a decrease in interconnect sales of $1.2 million, and a decrease in circuit protection sales of $0.6 million, partially offset by an increase in module sales of $12.7 million. The decreases reflect determinations by the Company to exit lower margin businesses.

The significant components of the Company's revenues for the nine months ended September 30, 2007 were magnetic products of $94.7 million (as compared with $110.2 million during the nine months ended September 30, 2006), interconnect products of $33.4 million (as compared with $34.6 million during the nine months ended September 30, 2006), module products of $47.2 million (as compared with $34.5 million during the nine months ended September 30, 2006), and circuit protection products of $14.5 million (as compared with $15.1 million during the nine months ended September 30, 2006.)

Based in part on conflicting opinions the Company received from customers and competitors in the electronics industry pertaining to revenue growth during 2006, the Company cannot predict with any degree of certainty sales revenue for the remainder of 2007 or for 2008. Although the Company's backlog has been stable, the Company feels that such backlog is not a good indicator of revenues. The Company continues to have limited visibility as to future customer requirements.

The Company cannot quantify the extent of sales growth arising from unit sales mix and/or price changes. Given the change in the nature of the products purchased by customers from period to period, the Company believes that neither unit changes nor price changes are meaningful. Over the past year, newer and more sophisticated products with higher unit selling prices have been introduced. Through the Company's engineering and research effort, the Company has been successful in adding additional value to existing product lines, which tends to increase sales prices initially until that generation of products becomes mature and sales prices experience price degradation. In general, as products become mature, average selling prices decrease.

-36-