UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q


(Mark
      One)





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





For
      the
      quarterly period ended  September
      30, 2006


or




**oTRANSITION
      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.


oLarge
      accelerated
      filer         xAccelerated
      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).


oYes       xNo





At
      November 1, 2006, there were 2,702,677 shares of Class A Common Stock, $0.10
      par
      value, outstanding and 9,149,165 shares of Class B Common Stock, $0.10 par
      value, outstanding.












BEL
                  FUSE INC.INDEXPagePart
                  I
              
              Financial
                  InformationItem
                  1.
              Financial
                  Statements
              1Consolidated
                  Balance Sheets as of September 30, 2006(unaudited)
                  and December 31, 2005
              2
                  -
                  3Consolidated
                  Statements of Operations for theThree
                  and Nine Months Ended September 30,2006
                  and 2005 (unaudited)
              4Consolidated
                  Statements of Stockholders' Equity forthe
                  Year Ended December 31, 2005 and theNine
                  Months Ended September 30, 2006 (unaudited)
              5
                  -
                  6Consolidated
                  Statements of Cash Flows for the NineMonths
                  Ended September 30, 2006 and 2005 (unaudited)
              7
                  -
                  9Notes
                  to Consolidated Financial Statements (unaudited)
              10
                  - 33Item
                  2.
              Management's
                  Discussion and Analysis ofFinancial
                  Condition and Results of Operations
              34-53Item
                  3.
              Quantitative
                  and Qualitative Disclosures AboutMarket
                  Risk
              54Item
                  4.
              Controls
                  and Procedures
              55Part
                  II
              Other
                InformationItem
                  1.
              Legal
                  Proceedings
              56-57Item
                  6.
              Exhibits
              58Signatures
              
              59









PART
      I.  Financial
      Information





Item
      1.  Financial
      Statements





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 consolidated financial statements pursuant to the
      rules and regulations of the Securities and Exchange Commission. It is suggested
      that the following 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,
      2005.





The
      results of operations for the nine and three months ended September 30, 2006
      and
      2005 are not necessarily indicative of the results for the entire fiscal year
      or
      for any other period.






-1-


**BEL
      FUSE INC. AND SUBSIDIARIES**


**CONSOLIDATED
          BALANCE SHEETS**
 (Unaudited)
 September
                        30,
                    
                    December
                        31,2006
                    
                    2005**ASSETS**Current
                        Assets:Cash
                        and cash equivalents
                    
                    $
                    80,888,186
                    
                    $
                    51,997,634Marketable
                        securities
                    
                    
                    15,927,300
                    
                    
                    38,463,108Accounts
                        receivable - less allowance for doubtfulaccounts
                        of $753,000 and $1,107,000 atSeptember
                        30, 2006 and December 31, 2005, respectively
                    
                    
                    52,519,059
                    
                    
                    39,304,984Inventories
                    
                    
                    40,305,863
                    
                    
                    32,947,103Prepaid
                        expenses and other currentassets
                    
                    
                    2,134,595
                    
                    
                    1,691,017Deferred
                        income taxes
                    
                    
                    1,062,827
                    
                    
                    -Assets
                        held for sale
                    
                    
                    848,049
                    
                    
                    828,131Total
                        Current Assets
                    
                    
                    193,685,879
                    
                    
                    165,231,977Property,
                        plant and equipment - net
                    
                    
                    43,640,849
                    
                    
                    42,379,356Deferred
                        income taxes
                    
                    
                    4,046,000
                    
                    
                    3,901,000Intangible
                        assets - net
                    
                    
                    2,169,351
                    
                    
                    2,782,188Goodwill
                    
                    
                    28,117,022
                    
                    
                    22,427,934Prepaid
                        pension costs
                    
                    
                    1,655,362
                    
                    
                    1,655,362Other
                        assets
                    
                    
                    4,050,354
                    
                    
                    3,678,100TOTAL
                        ASSETS
                    
                    $
                    277,364,817
                    
                    $
                    242,055,917






See
      notes to consolidated financial
      statements.




-2-


**BEL
      FUSE INC. AND SUBSIDIARIES**


**CONSOLIDATED
            BALANCE SHEETS**
 (Unaudited)
  September
                        30,
                    
                    December
                        31,2006
                    
                    2005**LIABILITIES
                        AND STOCKHOLDERS' EQUITY**Current
                        Liabilities:Accounts
                        payable
                    
                    $
                    22,005,743
                    
                    $
                    14,560,827Accrued
                        expenses
                    
                    
                    17,263,385
                    
                    
                    10,667,558Deferred
                        income taxes
                    
                    
                    -
                    
                    
                    1,412,000Income
                        taxes payable
                    
                    
                    12,802,990
                    
                    
                    9,840,295Dividends
                        payable
                    
                    
                    589,000
                    
                    
                    548,000Total
                        Current Liabilities
                    
                    
                    52,661,118
                    
                    
                    37,028,680Long-term
                        Liabilities:Minimum
                        pension obligation
                    
                    
                    4,012,573
                    
                    
                    3,450,688Total
                        Liabilities
                    
                    
                    56,673,691
                    
                    
                    40,479,368Commitments
                        and ContingenciesStockholders'
                        Equity:Preferred
                        stock, no par value,authorized
                        1,000,000 shares;none
                        issued
                    
                    
                    -
                    
                    
                    -Class
                        A common stock, par value$.10
                        per share - authorized10,000,000
                        shares; outstanding2,702,677
                        and 2,702,677 shares, respectively(net
                        of 1,072,769 treasury shares)
                    
                    
                    270,268
                    
                    
                    270,268Class
                        B common stock, par value$.10
                        per share - authorized30,000,000
                        shares; outstanding 9,147,665and
                        9,013,264 shares, respectively(net
                        of 3,218,307 treasury shares)
                    
                    
                    914,767
                    
                    
                    901,327Additional
                        paid-in capital
                    
                    
                    32,086,551
                    
                    
                    31,713,608Retained
                        earnings
                    
                    
                    186,822,142
                    
                    
                    167,991,188Deferred
                        stock-based compensation
                    
                    
                    -
                    
                    
                    (3,562,709
                    )Accumulated
                        other comprehensiveincome
                    
                    
                    597,398
                    
                    
                    4,262,867Total
                        Stockholders' Equity
                    
                    
                    220,691,126
                    
                    
                    201,576,549TOTAL
                        LIABILITIES ANDSTOCKHOLDERS'
                        EQUITY
                    
                    $
                    277,364,817
                    
                    $
                    242,055,917




See
      notes to consolidated financial
      statements.




-3-


**BEL
      FUSE INC. AND SUBSIDIARIES**


**CONSOLIDATED STATEMENTS
            OF OPERATIONS**
 (Unaudited)
 Nine
                        Months Ended
                    
                    Three
                        Months EndedSeptember
                        30,
                    
                    September
                        30,2006
                    
                    2005
                    
                    2006
                    
                    2005Net
                        Sales
                    
                    $
                    194,360,103
                    
                    $
                    159,231,451
                    
                    $
                    73,259,757
                    
                    $
                    56,247,745Costs
                        and expenses:Cost
                        of sales
                    
                    
                    146,058,522
                    
                    
                    113,800,708
                    
                    
                    55,809,958
                    
                    
                    40,419,800Selling,
                        general and administrative
                    
                    
                    28,706,846
                    
                    
                    24,650,866
                    
                    
                    9,096,679
                    
                    
                    8,810,927Casualty
                        loss
                    
                    
                    1,029,853
                    
                    
                    -
                    
                    
                    (67,418
                    )
                    
                    -175,795,221
                    
                    
                    138,451,574
                    
                    
                    64,839,219
                    
                    
                    49,230,727Income
                        from operations
                    
                    
                    18,564,882
                    
                    
                    20,779,877
                    
                    
                    8,420,538
                    
                    
                    7,017,018Interest
                        and financing expense
                    
                    
                    (52,787
                    )
                    
                    (207,469
                    )
                    
                    (8,401
                    )
                    
                    -Gain
                        on sale of marketable securities, net
                    
                    
                    5,151,039
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Interest
                        income
                    
                    
                    2,015,106
                    
                    
                    980,029
                    
                    
                    841,348
                    
                    
                    347,379Earnings
                        before provision for income taxes
                    
                    
                    25,678,240
                    
                    
                    21,552,437
                    
                    
                    9,253,485
                    
                    
                    7,364,397Income
                        tax provision
                    
                    
                    5,172,000
                    
                    
                    4,584,000
                    
                    
                    1,508,000
                    
                    
                    1,378,000Net
                        earnings
                    
                    $
                    20,506,240
                    
                    $
                    16,968,437
                    
                    $
                    7,745,485
                    
                    $
                    5,986,397Earnings
                        per common share - basic
                    
                    $
                    1.74
                    
                    $
                    1.48
                    
                    $
                    0.65
                    
                    $
                    0.52Earnings
                        per common share - diluted
                    
                    $
                    1.73
                    
                    $
                    1.47
                    
                    $
                    0.65
                    
                    $
                    0.52Weighted
                        average common sharesoutstanding
                        - basic
                    
                    
                    11,789,048
                    
                    
                    11,447,675
                    
                    
                    11,829,146
                    
                    
                    11,500,704Weighted
                        average common sharesoutstanding
                        - diluted
                    
                    
                    11,844,272
                    
                    
                    11,542,205
                    
                    
                    11,872,381
                    
                    
                    11,575,205






See
      notes to consolidated financial
      statements.


-4-


**BEL
        FUSE INC. AND SUBSIDIARIES**
 **CONSOLIDATED STATEMENTS
              OF STOCKHOLDERS' EQUITY**
 (Unaudited)


Total
              
              ComprehensiveIncome
              
              RetainedEarnings
              
              AccumulatedOtherComprehensiveIncome
              
              Class
                      ACommonStock
              
              Class
                      BCommonStock
              
              AdditionalPaid-InCapital
              
              DeferredStock-BasedCompensationBalance,
                  January 1, 2005
              
              $
              178,461,296
              
              
              
              
              $
              149,949,283
              
              $
              5,386,512
              
              $
              270,268
              
              $
              866,059
              
              $
              21,989,174
              
              $
              -Exercise
                  of stockoptions
              
              
              4,115,508
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              20,028
              
              
              4,095,480Tax
                  benefits arisingfrom
                  the non-qualified dispositionof
                  incentive stock options
              
              
              429,802
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              429,802
              
              
              -Cash
                  dividends on Class Acommon
                  stock
              
              
              (430,940
              )
              
              
              
              
              (430,940
              )Cash
                  dividends on Class Bcommon
                  stock
              
              
              (1,760,432
              )
              
              
              
              
              (1,760,432
              )Issuance
                  of restrictedcommon
                  stock
              
              
              5,214,392
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15,240
              
              
              5,199,152Deferred
                  stock-basedcompensation
                  - net of taxes
              
              
              (3,810,840
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,810,840
              )Currency
                  translationadjustment
              
              
              (669,153
              )
              $
              (669,153
              )
              
              
              
              
              (669,153
              )Decrease
                  in unrealized gain orloss
                  on marketable securities-net
                  of taxes
              
              
              (454,492
              )
              
              (454,492
              )
              
              
              
              
              (454,492
              )Stock-based
                  compensationexpense
                  - net of taxes
              
              
              248,131
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              248,131Net
                  earnings
              
              
              20,233,277
              
              
              20,233,277
              
              
              20,233,277Comprehensive
                  income
              
              
              
              
              $
              19,109,632Balance,
                  December 31, 2005
              
              
              201,576,549
              
              
              
              
              
              167,991,188
              
              
              4,262,867
              
              
              270,268
              
              
              901,327
              
              
              31,713,608
              
              
              (3,562,709
              )




See
      notes to consolidated financial
      statements.






-5-


**BEL
        FUSE INC. AND SUBSIDIARIES**
 **CONSOLIDATED STATEMENTS
              OF STOCKHOLDERS' EQUITY (Continued)**
 (Unaudited)


Total
              
              ComprehensiveIncome
              
              RetainedEarnings
              
              AccumulatedOtherComprehensiveIncome
              
              Class
                      ACommonStock
              
              Class
                      BCommonStock
              
              AdditionalPaid-InCapital
              
              DeferredStock-BasedCompensationExercise
                  of stockoptions
              
              
              2,764,143
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,280
              
              
              2,752,863Tax
                  benefits arisingfrom
                  the non-qualified dispositionof
                  incentive stock options
              
              
              250,699
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              250,699Cash
                  dividends on Class Acommon
                  stock
              
              
              (323,200
              )
              
              
              
              
              (323,200
              )Cash
                  dividends on Class Bcommon
                  stock
              
              
              (1,352,086
              )
              
              
              
              
              (1,352,086
              )Currency
                  translationadjustment
              
              
              216,394
              
              $
              216,394
              
              
              
              
              
              216,394Decrease
                  in unrealized gain orloss
                  on marketable securities-net
                  of taxes
              
              
              (3,881,863
              )
              
              (3,881,863
              )
              
              
              
              
              (3,881,863
              )Issuance
                  of restrictedcommon
                  stock
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,160
              
              
              (2,160
              )Stock-based
                  compensationexpense
                  - net of tax
              
              
              934,250
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              934,250Adoption
                  of SFAS 123 (R)
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,562,709
              )
              
              3,562,709Net
                  earnings
              
              
              20,506,240
              
              
              20,506,240
              
              
              20,506,240Comprehensive
                  income
              
              
              
              
              $
              16,840,771Balance,
                  September 30, 2006
              
              $
              220,691,126
              
              
              
              
              $
              186,822,142
              
              $
              597,398
              
              $
              270,268
              
              $
              914,767
              
              $
              32,086,551
              
              $
              -




See
      notes to consolidated financial
      statements.




-6-


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


Nine
                  Months EndedSeptember
                  30,2006
              
              2005Cash
                  flows from operatingactivities:Net
                  income
              
              $
              20,506,240
              
              $
              16,968,437Adjustments
                  to reconcile netincome
                  to net cash providedby
                  operating activities:Depreciation
                  and amortization
              
              
              6,983,518
              
              
              7,197,253Casualty
                  loss
              
              
              1,029,853
              
              
              -Stock-based
                  compensation
              
              
              1,189,599
              
              
              -Excess
                  tax benefits from share-basedpayment
                  arrangements
              
              
              (250,699
              )
              
              -Gain
                  on sale of marketable securities
              
              
              (5,151,039
              )
              
              -Other
              
              
              643,905
              
              
              864,192Deferred
                  income taxes
              
              
              (778,000
              )
              
              (2,908,000
              )Changes
                  in operating assetsand
                  liabilities (net of acquisitions)
              
              
              (8,421,059
              )
              
              2,477,012Net
                  Cash Provided byOperating
                  Activities
              
              
              15,752,318
              
              
              24,598,894Cash
                  flows from investing activities:Purchase
                  of property, plantand
                  equipment
              
              
              (7,633,002
              )
              
              (4,551,341
              )Purchase
                  of marketablesecurities
              
              
              (2,236,972
              )
              
              (3,355,913
              )Payment
                  for acquisitions - net ofcash
                  acquired
              
              
              (2,960,974
              )
              
              (20,589,139
              )Proceeds
                  from sale ofmarketable
                  securities
              
              
              24,489,966
              
              
              643,424Net
                  Cash Provided by (Used in)Investing
                  Activities
              
              
              11,659,018
              
              
              (27,852,969
              )




See
      notes to consolidated financial
      statements.




-7-


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


Nine
                  Months EndedSeptember
                  30,2006
              
              2005Cash
                  flows from financingactivities:Proceeds
                  from borrowings
              
              
              -
              
              
              8,000,000Loan
                  repayments
              
              
              -
              
              
              (15,360,694
              )Proceeds
                  from exercise ofstock
                  options
              
              
              2,764,143
              
              
              3,351,046Dividends
                  paid to commonshareholders
              
              
              (1,660,523
              )
              
              (1,638,909
              )Excess
                  tax benefits from share-basedpayment
                  arrangements
              
              
              250,699
              
              
              -Net
                  Cash Provided By (Used In)Financing
                  Activities
              
              
              1,354,319
              
              
              (5,648,557
              )Effect
                  of exchange rate changes on cash
              
              
              124,897
              
              
              (328,976
              )Net
                  Increase (decrease) inCash
                  and Cash Equivalents
              
              
              28,890,552
              
              
              (9,231,608
              )Cash
                  and Cash Equivalents-
                  beginning of year
              
              
              51,997,634
              
              
              71,197,891Cash
                  and Cash Equivalents-
                  end of year
              
              $
              80,888,186
              
              $
              61,966,283Changes
                  in operating assetsand
                  liabilities (net of acquisitions) consist of:Increase
                  in accounts receivable
              
              $
              (13,114,129
              )
              $
              (3,043,507
              )Increase
                  in inventories
              
              
              (7,289,696
              )
              
              (2,966,895
              )(Increase)
                  decrease in prepaidexpenses
                  and othercurrent
                  assets
              
              
              (443,578
              )
              
              495,361(Increase)
                  decrease in other assets
              
              
              (372,254
              )
              
              644,347Increase
                  inaccounts
                  payable
              
              
              7,428,294
              
              
              3,604,016Increase
                  in income taxes payable
              
              
              3,069,675
              
              
              3,335,425Increase
                  in accrued expenses
              
              
              2,300,629
              
              
              408,265$
              (8,421,059
              )
              $
              2,477,012






See
      notes to consolidated financial
      statements.




-8-


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






Nine
                  Months EndedSeptember
                  30,2006
              
              2005Supplementary
                  information:Cash
                  paid during the year for:Income
                  taxes
              
              $
              2,441,000
              
              $
              3,733,000Interest
              
              $
              52,787
              
              $
              207,469Details
                  of acquisitions:Fair
                  value of assets acquired (excludingcash
                  acquired of $311,856 in 2005)
              
              $
              -
              
              $
              6,167,138Intangibles
              
              
              446,571
              
              
              2,445,235Goodwill
              
              
              6,000,000
              
              
              12,457,651Acquisition
                  costs
              
              
              6,446,571
              
              
              21,070,024Amounts
                  paid (held back) onacquisition
                  payment
              
              
              514,403
              
              
              (480,885
              )Amounts
                  accrued
              
              
              (4,000,000
              )
              
              -Cash
                  paid for acquisitions
              
              $
              2,960,974
              
              $
              20,589,139







See
      notes to consolidated financial
      statements.




-9-


BEL
      FUSE
      INC. AND SUBSIDIARIES


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS







1. BASIS
      OF
      PRESENTATION AND ACCOUNTING POLICIES





The
      consolidated balance sheet as of September 30, 2006, and the 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 nine
      months ended September 30, 2006 should not be viewed as indicative of the
      Company’s annual results. The information for the consolidated balance sheet as
      of December 31, 2005 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
      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 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, 2006 and December 31, 2005, cash equivalents approximated
      $35,437,000 and $13,444,000, respectively.





MARKETABLE
      SECURITIES - The
      Company classifies its marketable 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 acquisitions are 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 balance sheet date
      rates
      of exchange and income, expense and cash flow items are translated at the
      average exchange rate for the period. Translation adjustments are recorded
      in
      Accumulated 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. A combination of current and historical exchange rates is
      used
      in measuring the local currency transactions of these subsidiaries and the
      resulting exchange adjustments are included in the statement of operations.
      Current exchange rates are used for all foreign subsidiaries except for two
      subsidiaries in the Far East which use both current and historical exchange
      rates. Realized foreign currency gains (losses) were $(170,000) and $(78,000)
      for the nine months ended September 30, 2006 and 2005, and $75,000 and $27,000
      for the three months ended September 30, 2006 and 2005, respectively, and have
      been expensed in the consolidated statements of operations as a component of
      selling, general and administration expense.





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 probable 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 2006 and 2005, inventory on consignment was
      immaterial.





The
      Company typically has a twelve-month warranty policy for workmanship defects.
      Warranty returns have historically averaged at or below 1% of annual net sales.
      The Company establishes warranty reserves when a warranty issue becomes known
      as
      warranty claims have historically been immaterial. 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 (during 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 in the United States 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 on marketable
      securities available for sale, 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.





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. Prior to January 1, 2006, the Company accounted for
      stock option grants issued to employees in accordance with Accounting Principles
      Board Opinion No. 25 "Accounting for Stock Issued to Employees", and had adopted
      the disclosure only requirements of SFAS No. 123, "Accounting for Stock-Based
      Compensation", as amended by SFAS No. 148, “Accounting for Stock-Based
      Compensation-Transition and Disclosure, an amendment of FASB Statement No.
      123”.
      As such, for periods prior to January 1, 2006, the Company presents pro forma
      net earnings and earnings per share as if the fair-value-based method of
      accounting had been applied under SFAS No. 123.





During
      2005 and 2006, the Company issued 152,400 and 21,600 class B common shares,
      respectively, under a restricted stock plan to various officers and employees.
      The shares vest 25% after two years of employment with an additional 25% vesting
      in each of years three through five. This resulted in pre-tax compensation
      expense of $831,000 and $267,000 ($599,000 and $186,000, net of tax benefit)
      for
      the nine and three months ended September 30, 2006, respectively. The balance
      of
      $3,600,000 of deferred stock-based compensation, net of taxes, is included
      within paid-in-capital on the Company’s consolidated balance sheet.
      Additionally, stock-based compensation expense related to incentive stock
      options amounted to $335,000 and $109,000 (pre-tax) for the nine and three
      months ended September 30, 2006, respectively.




-13-


Prior
      to
      January 1, 2006, the Company adopted the disclosure-only provisions of SFAS
      No.
      123. Had compensation cost for the Company's stock option plan been determined
      based on the fair value at the grant date for awards for the three and nine
      months ended September 30, 2005 consistent with the provisions of SFAS No.
      123,
      the Company's net earnings and earnings per share would have been reduced to
      the
      pro forma amounts indicated below:





Three
                  Months
              
              Nine
                  MonthsEnded
              
              EndedSeptember
                  30,
              
              September
                  30,2005
              
              2005Net
                  earnings - as reported
              
              $
              5,986,397
              
              $
              16,968,437Deduct:
                  Total stock-basedemployee
                  compensation expensedetermined
                  under fair value basedmethod
                  for all awards,net
                  of taxes
              
              
              (160,868
              )
              
              (482,604
              )Net
                  earnings- pro forma
              
              $
              5,825,529
              
              $
              16,485,833Earnings
                  per common share -basic-as
                  reported
              
              $
              0.52
              
              $
              1.48Earnings
                  per common share -basic-pro
                  forma
              
              $
              0.51
              
              $
              1.44Earnings
                  per common share -diluted-as
                  reported
              
              $
              0.52
              
              $
              1.47Earnings
                  per common share -diluted-pro
                  forma
              
              $
              0.50
              
              $
              1.43






-14-


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, 2006
      and 2005 amounted to $4.9 million and $5.5 million, respectively, and for the
      three months ended September 30, 2006 and 2005 amounted to $1.7 million and
      $1.8
      million, respectively.





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
      the nine months ended September 30, 2006, the Company incurred a $1.0 million
      pre-tax casualty loss primarily for uninsured raw materials destroyed by a
      fire
      at a leased manufacturing facility in the Dominican Republic.





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 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 and warrants which, if exercised, would have a dilutive
      effect on earnings per share.





The
      following table includes a reconciliation of shares used in the calculation
      of
      basic and diluted earnings per share:





Nine
                  Months Ended
              
              Three
                  Months EndedSeptember
                  30,
              
              September
                  30,2006
              
              2005
              
              2006
              
              2005Weighted
                  average shares outstanding - basic
              
              
              11,789,048
              
              
              11,447,675
              
              
              11,829,146
              
              
              11,500,704Dilutive
                  impact of stock options
              
              
              55,224
              
              
              94,530
              
              
              43,235
              
              
              74,501Weighted
                  average shares oustanding - diluted
              
              
              11,844,272
              
              
              11,542,205
              
              
              11,872,381
              
              
              11,575,205






During
      the nine and three months ended September 30, 2006, 14,000 outstanding options
      were not included in the foregoing computations because they were
      antidilutive.




-15-


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





2. ACQUISITIONS





On
      June
      30, 2005, the Company acquired the common stock of Netwatch s.r.o., located
      in
      Prague, the Czech Republic, for approximately $1.9 million in cash of which
      $0.5
      million was due to the sellers and was paid by the Company during June 2006.
      Netwatch s.r.o. is a designer and manufacturer of high-performance fiber optic
      and copper cable assemblies for data and telecommunication applications.
      Approximately $1.0 million of goodwill arose from the transaction which is
      included in the Company’s European reporting unit.





The
      acquisition has been accounted for using the purchase method of accounting
      and,
      accordingly, the results of operation of Netwatch s.r.o. have been included
      in
      the Company’s consolidated financial statements from June 30, 2005.





There
      was
      no in process research and development acquired as part of this
      acquisition.





On
      March
      22, 2005, the Company acquired the common stock of Galaxy Power Inc. ("Galaxy"),
      located in Westborough, Massachusetts, for approximately $19.0 million in cash
      including transaction costs of approximately $0.4 million. Galaxy is a designer
      and manufacturer of high-density DC-DC converters for distributed power and
      telecommunication applications. The purchase price has been allocated to both
      tangible and intangible assets and liabilities based on estimated fair values
      after considering an independent formal appraisal. Approximately $11.2 million
      of goodwill and $2.0 million of identifiable intangible assets arose from the
      transaction and are included in the Company’s North American reporting unit. The
      identifiable intangible assets and related deferred tax liabilities are being
      amortized on a straight-line basis over their estimated useful lives.





The
      acquisition has been accounted for using the purchase method of accounting
      and,
      accordingly, the results of operations of Galaxy have been included in the
      Company's consolidated financial statements from March 22, 2005.





There
      was
      no in process research and development acquired as part of this
      acquisition.




-16-


The
      following unaudited pro forma summary results of operations assume that Galaxy
      and Netwatch s.r.o. had been acquired as of January 1, 2005 (in thousands,
      except per share data):


Nine
                  Months EndedSeptember
                  30,2005Net
                  sales
              
              $
              164,543Net
                  earnings
              
              
              16,692Earnings
                  per share - diluted
              
              
              1.45





The
      information above is not necessarily indicative of the results of operations
      that would have occurred if the acquisitions had been consummated as of January
      1, 2005. Such information should not be construed as a representation of the
      future results of operations of the Company.





A
      condensed combined balance sheet of the major assets and liabilities of Galaxy
      and Netwatch s.r.o., as of their acquisition dates is as
      follows:


Cash
              
              $
              311,856Accounts
                  receivable
              
              
              3,687,331Inventories
              
              
              2,862,571Prepaid
                  expenses
              
              
              96,120Income
                  taxes receivable
              
              
              5,488Property,
                  plant andequipment
              
              
              1,545,526Other
                  assets
              
              
              32,083Deferred
                  tax asset
              
              
              1,392,850Goodwill
              
              
              12,546,080Intangible
                  assets
              
              
              1,960,000Notes
                  payable
              
              
              (860,694
              )Accounts
                  payable
              
              
              (2,129,165
              )Accrued
                  expenses
              
              
              (465,002
              )Net
                  assets acquired
              
              $
              20,985,044




-17-


3. 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.





Effective
      January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
      Intangible Assets". Under SFAS No. 142, goodwill and intangible assets deemed
      to
      have indefinite lives are no longer amortized, but are subject to, at a minimum,
      an annual impairment test. If the carrying value of goodwill or intangible
      assets exceeds its fair market value, an impairment loss would be recorded.





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 $1,730,000
      and
      $1,610,000 for the nine months ended September 30, 2006 and 2005, respectively,
      and $430,000 and $629,000 for the three months ended September 30, 2006 and
      2005.





Under
      the
      terms of the E-Power Ltd (“E-Power”) and Current Concepts, Inc. (“Current
      Concepts”) acquisition agreements of May 11, 2001, the Company is required to
      make contingent purchase price payments up to an aggregate of $7.6 million
      should the acquired companies attain specified sales levels. During February
      2006, E-Power was paid $2.0 million in contingent purchase price payments as
      E-Power's sales, as defined, reached $15.0 million. An additional $4.0 million
      was required to be paid if such sales reached $25.0 million on a cumulative
      basis through May 2007. The $25.0 million benchmark was reached during September
      2006. As a result, $4.0 million will be paid during 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. Amounts due to E-Power are
      included within accrued expenses as of September 30, 2006. Current Concepts
      is
      required to be paid 16% of sales, as defined, on the first $10.0 million of
      sales through May 2007. This $10 million benchmark was reached during the second
      quarter of 2006 and therefore no additional payments will be made. During the
      nine months ended September 30, 2006 and 2005, the Company recognized
      approximately $447,000 and $485,000, respectively, in contingent purchase price
      payments to Current Concepts. The contingent purchase price payments to Current
      Concepts have been accounted for as additional purchase price and as an increase
      to covenants not to compete within intangible assets.





-18-


The
      changes in the carrying value of goodwill classified by geographic reporting
      units, net of accumulated depreciation, for the nine months ended September
      30,
      2006 and the year ended December 31, 2005 are as follows:


Total
              
              Asia
              
              North
                  America
              
              EuropeBalance,
                  January 1, 2005
              
              $
              9,881,854
              
              $
              6,407,435
              
              $
              2,869,092
              
              $
              605,327Goodwill
                  allocationrelated
                  to acquisitions
              
              
              12,546,080
              
              
              -
              
              
              11,543,846
              
              
              1,002,234Balance,
                  December 31, 2005
              
              
              22,427,934
              
              
              6,407,435
              
              
              14,412,938
              
              
              1,607,561Goodwill
                  allocationrelated
                  to acquisitions
              
              
              6,000,000
              
              
              6,000,000
              
              
              -
              
              
              -Reclassification
                  to intangible assets
              
              
              (670,000
              )
              
              -
              
              
              (670,000
              )
              
              -Other
                  purchase price and foreignexchange
                  adjustments
              
              
              359,088
              
              
              -
              
              
              323,464
              
              
              35,624Balance,
                  September 30, 2006
              
              $
              28,117,022
              
              $
              12,407,435
              
              $
              14,066,402
              
              $
              1,643,185





The
      components of intangible assets other than goodwill by geographic reporting
      unit
      are as follows:


December
                  31, 2005Total
              
              Asia
              
              North
                  AmericaGross
                  Carrying
              
              Accumulated
              
              Gross
                  Carrying
              
              Accumulated
              
              Gross
                  Carrying
              
              AccumulatedAmount
              
              Amortization
              
              Amount
              
              Amortization
              
              Amount
              
              AmortizationPatents
                  and ProductInformation
              
              $
              2,935,000
              
              $
              1,812,853
              
              $
              2,653,000
              
              $
              1,634,566
              
              $
              282,000
              
              $
              178,287Customer
                  relationships
              
              
              1,160,000
              
              
              178,833
              
              
              -
              
              
              -
              
              
              1,160,000
              
              
              178,833Covenants
                  not-to-compete
              
              
              5,021,034
              
              
              4,342,160
              
              
              4,221,034
              
              
              3,813,589
              
              
              800,000
              
              
              528,571$
              9,116,034
              
              $
              6,333,846
              
              $
              6,874,034
              
              $
              5,448,155
              
              $
              2,242,000
              
              $
              885,691September
                  30, 2006Total
              
              
              Asia
              
              
              North
                  AmericaGross
                  Carrying
              
              
              Accumulated
              
              
              Gross
                  Carrying
              
              
              Accumulated
              
              
              Gross
                  Carrying
              
              
              AccumulatedAmount
              
              
              Amortization
              
              
              Amount
              
              
              Amortization
              
              
              Amount
              
              
              AmortizationPatents
                  and ProductInformation
              
              $
              2,935,000
              
              $
              2,147,086
              
              $
              2,653,000
              
              $
              1,947,625
              
              $
              282,000
              
              $
              199,461Customer
                  relationships
              
              
              1,830,000
              
              
              556,625
              
              
              -
              
              
              -
              
              
              1,830,000
              
              
              556,625Covenants
                  not-to-compete
              
              
              5,467,605
              
              
              5,359,543
              
              
              4,667,605
              
              
              4,614,304
              
              
              800,000
              
              
              745,239$
              10,232,605
              
              $
              8,063,254
              
              $
              7,320,605
              
              $
              6,561,929
              
              $
              2,912,000
              
              $
              1,501,325






-19-


Estimated
      amortization expense for intangible assets for the next five years is as
      follows:





EstimatedYear
                  Ending
              
              AmortizationDecember
                  31,
              
              Expense2006
              
              $
              263,2872007
              
              
              809,2772008
              
              
              534,2872009
              
              
              427,5962010
              
              
              134,904




2006
      represents estimated amortization from October 1, 2006 through December 31,
      2006.





4.  MARKETABLE
      SECURITIES





The
      Company has cumulatively acquired a total of 5,290,000 shares, or 5%, of the
      common stock of Toko, Inc. (“Toko”) at a total purchase price of $16.6 million.
      Toko had a market capitalization of approximately $257 million as of October
      31,
      2006. These shares are reflected on the Company’s consolidated balance sheet 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, 2006, the Company has
      recorded an unrealized loss, net of income tax benefit, of approximately $0.4
      million which is included in accumulated other comprehensive income as stated
      in
      the consolidated statement of stockholders’ equity. In connection with this
      transaction, the Company is obligated to pay an investment banker’s advisory fee
      to a third party of 20% of the appreciation in the stock of Toko, or $1 million,
      whichever is lower. As of September 30, 2006, the Company has not accrued a
      fee
      to the investment banker as the Toko stock is at an unrealized loss position.





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’s advisory fees of
      $850,000. The Company accrued bonuses of $1.0 million in connection with the
      gain. For financial statement presentation purposes, the $1.0 million bonus
      was
      classified within selling, general and administrative expenses and will be
      paid
      to key employees by December 31, 2006.




-20-


At
      September 30, 2006 and December 31, 2005, respectively, marketable securities
      have a cost of approximately $16,630,000 and $32,893,000, an estimated fair
      value of approximately $15,927,000 and $38,463,000 and gross unrealized gains
      (losses) of approximately $(703,000) and $5,570,000. Such unrealized gains
      (losses) are included, net of tax, in accumulated other comprehensive income.
      The Company had realized gains of $5.2 million and realized losses of $88,000
      for the nine months ended September 30, 2006 and no realized gains or losses
      for
      the nine months ended September 30, 2005.





5. INVENTORIES


The
      components of inventories are as follows:


September
                  30,
              
              December
                  31,2006
              
              2005Raw
                  materials
              
              $
              17,858,744
              
              $
              19,342,703Work
                  in progress
              
              
              10,375,762
              
              
              2,515,174Finished
                  goods
              
              
              12,071,357
              
              
              11,089,226$
              40,305,863
              
              $
              32,947,103




6. 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 EndedSeptember
                  30,
              
              September
                  30,2006
              
              2005
              
              2006
              
              2005Total
                  segment revenuesNorth
                  America
              
              $
              61,973,366
              
              $
              62,002,064
              
              $
              22,442,362
              
              $
              24,882,906Asia
              
              
              140,544,037
              
              
              106,420,536
              
              
              52,300,151
              
              
              34,910,620Europe
              
              
              21,025,711
              
              
              11,633,694
              
              
              7,670,179
              
              
              4,219,386Total
                  segment revenues
              
              
              223,543,114
              
              
              180,056,294
              
              
              82,412,692
              
              
              64,012,912Reconciling
                  items:Intersegment
                  revenues
              
              
              (29,183,011
              )
              
              (20,824,843
              )
              
              (9,152,935
              )
              
              (7,765,167
              )Net
                  sales
              
              $
              194,360,103
              
              $
              159,231,451
              
              $
              73,259,757
              
              $
              56,247,745Income
                  (loss) from Operations:North
                  America
              
              $
              2,225,522
              
              $
              5,481,830
              
              $
              2,246,177
              
              $
              1,640,800Asia
              
              
              15,351,855
              
              
              15,329,791
              
              
              5,644,688
              
              
              5,530,004Europe
              
              
              987,505
              
              
              (31,744
              )
              
              529,673
              
              
              (153,786
              )$
              18,564,882
              
              $
              20,779,877
              
              $
              8,420,538
              
              $
              7,017,018




The
      Company had one customer with sales in excess of 10%
      (17.3%) of net sales during the nine months ended September 30, 2006. The loss
      of this customer could have a material adverse effect on the Company’s results
      of operations, financial position and cash flows.


-21-


7. DEBT





a.  Short-term
      debt





Previously
      the Company had available one domestic line of credit of $10 million. During
      March 2005, the Company borrowed $8 million against the line of credit to
      partially finance the acquisition of Galaxy. The outstanding balance was paid
      off in its entirety on June 20, 2005. During July 2005, the Company amended
      its
      credit agreement to increase the line of credit to $20 million, which expires
      on
      July 21, 2008. During October 2005, the Company borrowed $4 million against
      the
      line of credit. The outstanding balance was paid off in its entirety during
      December 2005. There was no balance outstanding as of September 30, 2006. At
      that date, the entire $20 million line of credit was available to the Company
      to
      borrow. The line is collateralized with a first priority security interest
      in
      and lien on 65% of all the issued and outstanding shares of the capital stock
      of
      certain of the foreign subsidiaries of the Company and all other personal
      property and certain real property of the Company. The line bears interest
      at
      LIBOR plus 0.75% to 1.25% based on certain financial statement ratios maintained
      by the Company. As of September 30, 2006, the Company is in compliance with
      its
      debt covenants.





The
      Company’s Hong Kong subsidiary has an unsecured line of credit of approximately
      $2 million which was unused as of September 30, 2006. The line of credit expires
      during July 2007. Borrowing on the line of credit is guaranteed by the U.S.
      parent. The line of credit bears interest at a rate determined by the bank
      as
      the financing is extended.





b.  Long-term
      debt





On
      March
      21, 2003, the Company entered into a $10 million secured term loan, which was
      paid off in June 2005. The loan was used to partially finance the Company's
      acquisition of Insilco's Passive Components Group. This term loan facility
      is no
      longer available to the Company.





For
      the
      nine months ended September 30, 2006 and 2005, the Company recorded interest
      expense of $53,000 and $207,000, respectively. For the three months ended
      September 30, 2006 and 2005, the Company recorded interest expense of $8,000
      and
      $-0-, respectively.





8.  ACCRUED
      EXPENSES





Accrued
      expenses consist of the following:


September
                  30,
              
              December
                  31,2006
              
              2005Sales
                  commissions
              
              $
              2,152,672
              
              $
              1,812,135Investment
                  banking commissions
              
              
              -
              
              
              1,105,510Subcontracting
                  labor
              
              
              2,115,795
              
              
              1,597,279Contingent
                  purchase price
              
              
              4,000,000
              
              
              -Salaries,
                  bonuses andrelated
                  benefits
              
              
              4,923,242
              
              
              2,642,729Other
              
              
              4,071,676
              
              
              3,509,905$
              17,263,385
              
              $
              10,667,558


-22-


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 is made with Company stock purchased in the open market. The
      expense for the nine months ended September 30, 2006 and 2005 amounted to
      approximately $383,000 and $400,000, respectively. The expense for the three
      months ended September 30, 2006 and 2005 amounted to approximately $103,000
      and
      $152,000, respectively. As of September 30, 2006, the plans owned 18,374 and
      138,083 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 their 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, 2006 and 2005 amounted to approximately $309,000 and $298,000,
      respectively. The expense for the three months ended September 30, 2006 and
      2005
      amounted to approximately $188,000 and $89,000, respectively. As of September
      30, 2006, the fund owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and
      Class B common stock, respectively.





The
      Supplemental Executive Retirement Plan (the "SERP" or the “Plan”) is designed to
      provide a limited group of key management and highly compensated employees
      of
      the Company supplemental retirement and death benefits. The Plan was established
      by the Company in 2002. Employees are selected at the sole discretion of the
      Board of Directors of the Company to participate in the Plan. The Plan is
      unfunded. The Company utilizes life insurance to partially cover its obligations
      under the Plan. The benefits available under the Plan vary according to when
      and
      how the participant terminates employment with the Company. If a participant
      retires (with the prior written consent of the Company) on his normal retirement
      date (65 years old, 20 years of service, and 5 years of Plan participation),
      his
      normal retirement benefit under the Plan would be annual payments equal to
      40%
      of his average base compensation (calculated using compensation from the highest
      5 consecutive calendar years of Plan participation), payable in monthly
      installments for the remainder of his life. If a participant retires early
      from
      the Company (55 years old, 20 years of service, and 5 years of Plan
      participation), his early retirement benefit under the Plan would be an amount
      (i) calculated as if his early retirement date were in fact his normal
      retirement date, (ii) multiplied by a fraction, with the numerator being the
      actual years of service the participant has with the Company and the denominator
      being the years of service the participant would have had if he had retired
      at
      age 65, and (iii) actuarially reduced to reflect the early retirement date.
      If a
      participant dies prior to receiving 120 monthly payments under the Plan, his
      beneficiary would be entitled to continue receiving benefits for the shorter
      of
      (i) the time necessary to complete 120 monthly payments or (ii) 60 months.
      If a
      participant dies while employed by the Company, his beneficiary would receive,
      as a survivor benefit, an annual amount equal to (i) 100% of the participant’s
      annual base salary at date of death for one year, and (ii) 50% of the
      participant’s annual base salary at date of death for each of the following 4
      years, each payable in monthly installments. The Plan also provides for
      disability benefits, and a forfeiture of benefits if a participant terminates
      employment for reasons other than those contemplated under the Plan. The expense
      for the nine months ended September 30, 2006 and 2005 amounted to approximately
      $767,000 and $461,000, respectively. The expense for the three months ended
      September 30, 2006 and 2005 amounted to approximately $127,000 and $120,000,
      respectively.




-23-




The
      components of SERP expense are as follows:




Nine
                  Months Ended
              
              Three
                  Months EndedSeptember
                  30,
              
              September
                  30,2006
              
              2005
              
              2006
              
              2005Service
                  cost
              
              $
              582,000
              
              $
              208,000
              
              $
              96,000
              
              $
              54,000Interest
                  cost
              
              
              115,000
              
              
              153,000
              
              
              19,000
              
              
              40,000Amortization
                  of adjustments
              
              
              70,000
              
              
              100,000
              
              
              12,000
              
              
              26,000Total
                  SERP expense
              
              $
              767,000
              
              $
              461,000
              
              $
              127,000
              
              $
              120,000




September
                  30,
              
              December
                  31,2006
              
              2005Balance
                  sheet amounts:Accrued
                  pension liability
              
              $
              4,012,573
              
              $
              3,450,688Intangible
                  asset
              
              
              1,655,362
              
              
              1,655,362


10.
      STOCK-BASED COMPENSATION





On
      January 1, 2006, the Company adopted SFAS No. 123 (R) "Share-Based Payment"
      requiring the recognition of compensation expense in the Consolidated Statements
      of Operations related to the fair value of its employee stock-based options
      and
      awards. SFAS No. 123 (R) revises SFAS No. 123 "Accounting for Stock-Based
      Compensation" and supercedes 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 stock-based payment
      arrangements.





The
      Company recognizes the cost of all employee stock options on a straight-line
      attribution basis over their respective vesting periods, net of estimated
      forfeitures. The Company has selected the modified prospective method of
      transition; accordingly, prior periods have not been restated. Prior to adopting
      SFAS No. 123(R), the Company applied APB Opinion No. 25, and related
      interpretations in accounting for its stock-based compensation plans. All
      employee stock options were granted at or above the grant date market price.
      Accordingly, no compensation cost was recognized for fixed stock option
      grants.




-24-


On
      September 30, 2006, the Company has one stock-based compensation plan, which
      is
      described below. During the nine months and three months ended September 30,
      2006, the adoption of SFAS No. 123(R) resulted in incremental stock-based
      compensation expense of $335,000 and $109,000, respectively. The incremental
      stock-based compensation expense caused the basic and diluted earnings per
      common share to decrease by $.03 per share and $.01 per share for the nine
      months and three months ended September 30, 2006, respectively. In addition,
      in
      connection with the adoption of SFAS No. 123 (R), net cash provided by operating
      activities decreased and net cash provided by financing activities increased
      during the nine months ended September 30, 2006 by $250,699 related to excess
      tax benefits from stock-based payment arrangements.





The
      aggregate 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 $1,189,000 and
      $-0-
      for the nine months ended September 30, 2006 and 2005, respectively. For the
      three months ended September 30, 2006 and 2005, the aggregate compensation
      cost
      recognized in net earnings amounted to $399,000 and $-0-. The Company did not
      use any cash to settle any equity instruments granted under share based
      arrangements during the nine months ended September 30, 2006 and 2005.





Under
      the
      provisions of SFAS 123(R), the recognition of deferred compensation as a
      separate component of equity 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 Consolidated
      Balance Sheet was reversed to zero and is currently included in additional
      paid-in capital.





Incentive
      Stock Options


The
      Company has a Qualified Stock Option Plan (the "Plan") which provides for the
      granting of "Incentive Stock Options" to key employees within the meaning of
      Section 422 of the Internal Revenue Code of 1986, as amended. 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. All options outstanding 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 the 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. An option
      may not be exercised within one year from the date of grant, and in general,
      no
      option will be exercisable after five years from the date granted.





The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option-pricing model with the following weighted-average
      assumptions used for grants in 2004, which was the last year options were
      granted; dividends yield of 0.9%, expected volatility of 35% for Class B;
      risk-free interest rate of 5% and expected lives of 5 years. No options were
      granted during the year ended December 31, 2005 or during the nine and three
      months ended September 30, 2006. Expected lives of options previously granted
      were estimated using the historical exercise behavior of employees. Expected
      volatilities are based on implied volatilities from historical volatility of
      the
      Company's stock. The Company uses historical data to estimate employee
      forfeitures. The risk free rate is based on the U.S. Treasury yield curve in
      effect at the time of the grant.


-25-


A
      summary
      of option activity under the plan as of January 1, 2006 and changes during
      the
      nine months ended September 30, 2006 is presented below:


WeightedAverageWeighted
              
              Remaining
              
              AggregateAverage
              
              Contractual
              
              IntrinsicOptions
              
              Shares
              
              Exercise
                  Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2006
              
              
              286,013
              
              $
              24.96Granted
              
              
              -
              
              
              -Exercised
              
              
              (112,800
              )
              
              24.50
              
              
              
              
              $
              1,235,225Forfeited
                  or expired
              
              
              (12,400
              )
              
              29.71Outstanding
                  at September 30, 2006
              
              
              160,813
              
              
              24.91
              
              
              1.5
              
              $
              1,154,640Exercisable
                  at September 30, 2006
              
              
              68,813
              
              $
              24.18
              
              
              1.5
              
              $
              544,460




During
      the nine months ended September 30, 2006 and 2005 the Company received
      $2,764,143 and $3,351,046 from the exercise of stock options and realized tax
      benefits of $251,000 and $403,000, respectively. The total intrinsic value
      of
      options exercised during the nine months ended September 30, 2006 and 2005
      was
      $1,235,225 and $1,978,912, respectively. Stock compensation expense applicable
      to stock options for the nine months ended September 30, 2006 and 2005 was
      $335,000 and $-0-, respectively.





A
      summary
      of the status of the Company's nonvested options as of December 31, 2005 and
      changes during the nine months ended September 30, 2006 is presented
      below:


Weighted-AverageGrant-DateNonvested
                  Options
              
              Options
              
              Fair
                  ValueNonvested
                  at December 31, 2005
              
              
              177,500
              
              $
              24.28Granted
              
              
              -Vested
              
              
              (73,100
              )
              
              19.84Forfeited
              
              
              (12,400
              )
              
              29.71Nonvested
                  at September 30, 2006
              
              
              92,000
              
              $
              25.45





At
      September 30, 2006 there was $169,883 of total unrecognized compensation cost
      related to non vested stock-based compensation arrangements granted under the
      Plan. The cost is expected to be recognized over a weighted average period
      of 2
      years. The fair value of the 73,100 vested shares is $1,450,000 for the nine
      months ended September 30, 2006.





-26-


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 Stock Option plan. 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. Deferred
      stock-based compensation expense of $3.6 million associated with unearned shares
      under this plan as of September 30, 2006, is reported within additional paid-in
      capital on the Company's consolidated balance sheet, net of deferred tax
      benefit. Pretax compensation expense was $855,000 for the nine months ended
      September 30, 2006 and $-0- for the nine months ended September 30,
      2005.





A
      summary
      of the activity under the Restricted Stock Awards Plan as of December 31, 2005
      and for the nine months ended September 30, 2006 is presented
      below:




WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateRestricted
                  Stock
              
              
              
              Award
              
              Contractual
              
              IntrinsicAwards
              
              Shares
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2006
              
              
              152,400
              
              $
              35.64Granted
              
              
              -
              
              
              -Awarded
              
              
              21,600
              
              
              30.00Forfeited
              
              
              (6,000
              )
              
              37.00Outstanding
                  at September 30, 2006
              
              
              168,000
              
              
              -
              
              
              4.5
              
              $
              -Vestedat
                  September 30, 2006
              
              
              -
              
              
              
              
              
              -
              
              $
              -


As
      of
      September 30, 2006, there was $4.7 million of total pre-tax unrecognized
      compensation cost related to non-vested stock based compensation arrangements
      granted under the restricted stock award plan; that cost is expected to be
      recognized over a period of 4.5 years.





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







-27-


11.
      COMMON STOCK





On
      May
      9, 2000, the Board of Directors authorized the repurchase of up to ten
      percent (10%) of the Company’s outstanding common shares from
      time
      to time in market or privately negotiated transactions. As of December
      31, 2005, 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 stock was repurchased during the nine and three months
      ended September 30, 2006.





The
      Company maintains two classes of outstanding common stock, Class A Common Stock
      (“Class A”) and Class B Common Stock (“Class B”). The following is a summary of
      the pertinent rights and privileges of each class outstanding:





·
            Voting
                - Class A receives one vote per share; Class B is
                non-voting;





·
            Dividends
                (cash) - Cash dividends are payable at the discretion of the Board
                of
                Directors and is subject to a 5% provision whereby cash dividends
                paid out
                to Class B must be at least 5% higher per share annually than Class
                A. At
                the discretion of the Board of Directors, Class B may receive a cash
                dividend without Class A receiving a cash
                dividend.





·
            Dividends
                (other than cash) and distributions in connection with any
                recapitalization and upon liquidation, dissolution or winding up
                of the
                Company - Shared equally among Class A and Class B;





·
            Mergers
                and consolidations - Equal amount and form of consideration per share
                among Class A and Class B;





·
            Class
                B Protection - Any person or group that purchases 10% or more of
                the
                outstanding Class A (excluding certain shares, as defined) must make
                a
                public cash tender offer (within 90 days) to acquire additional shares
                of
                Class B to avoid disproportionate voting rights. Failure to do so
                will
                result in forfeiture of voting rights for those shares acquired after
                the
                recapitalization. Alternatively, the purchaser can sell Class A shares
                to
                reduce the purchaser's holdings below 10% (excluding shares owned
                prior to
                recapitalization). Above 10%, this protection transaction is triggered
                every 5% (i.e., 15%, 20%, 25%,
                etc.);





·
            Convertibility
                - Not convertible into another class of Common Stock or any other
                security
                by the Company, unless by resolution of the Board of Directors to
                convert
                such shares as a result of either class becoming excluded from quotation
                on NASDAQ, or if total outstanding shares of Class A falls below
                10% of
                the aggregate number of outstanding shares of both classes (in which
                case,
                all Class B shares will be automatically converted in Class A
                shares).







-28-




·
            Transferability
                and trading - Both Class A and Class B are freely transferable and
                publicly traded on the NASDAQ National
                Market;





·
            Subdivision
                of shares - Any split, subdivision or combination of the outstanding
                shares of Class A or Class B must be proportionately split with the
                other
                class in the same manner and on the same
                basis.





12.
      COMPREHENSIVE INCOME




Comprehensive
      income for the nine and three months ended September 30, 2006 and 2005 consists
      of:


Nine
                  Months Ended
              
              Three
                  Months EndedSeptember
                  30,
              
              September
                  30,2006
              
              2005
              
              2006
              
              2005Net
                  earnings
              
              $
              20,506,240
              
              $
              16,968,437
              
              $
              7,745,485
              
              $
              5,986,397Currency
                  translation adjustment
              
              
              216,394
              
              
              (639,538
              )
              
              11,426
              
              
              (24,873
              )Increase
                  (decrease) in unrealizedgain
                  (loss) on marketable securities-
                  net of taxes
              
              
              (3,881,863
              )
              
              (2,466,116
              )
              
              (857,336
              )
              
              677,180Comprehensive
                  income
              
              $
              16,840,771
              
              $
              13,862,783
              
              $
              6,899,575
              
              $
              6,638,704




13. ASSETS
        HELD FOR SALE





On
      July
      15, 2004, the Company entered into an agreement for the sale of a certain parcel
      of land located in Jersey City, New Jersey. The sales agreement is subject
      to a
      due diligence period by the buyer. The sales agreement expired during January
      2006. The buyer and seller are continuing to negotiate about certain
      environmental matters among themselves and with the State of New Jersey. The
      seller and buyer are aware that a portion of the property may be subject to
      tidelands claims by the State of New Jersey. Additionally, the Company is
      obligated for environmental remediation costs of up to $350,000. As of September
      30, 2006, the Company had also paid $209,000 of legal, site testing and State
      of
      New Jersey Environmental Protection Agency fees. As these costs are incurred,
      the Company capitalizes them on the Company's consolidated balance sheet as
      assets held for sale. The Company has classified the asset as held for sale
      with
      a net book value of approximately $848,000 on the Company's consolidated balance
      sheet at September 30, 2006. Management anticipates the property will be sold
      by
      December 31, 2006.







-29-


14.
      NEW
      FINANCIAL ACCOUNTING STANDARDS


In
        September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements,” which provides interpretive
        guidance on the consideration of the effects of prior year misstatements
        in
        quantifying current year misstatements for the purpose of a materiality
        assessment. The SEC staff believes that registrants must quantify errors
        using
        both a balance sheet and income statement approach and evaluate whether either
        approach results in quantifying a misstatement that, when all relevant
        quantitative and qualitative factors are considered, is material. SAB No.
        108 is
        effective for annual financial statements covering the first fiscal year
        ending
        after November 15, 2006, with earlier application encouraged for any interim
        period of the first fiscal year ending after November 15, 2006, filed after
        the
        publication of SAB No. 108 (September 13, 2006). The Company is currently
        evaluating the impact that SAB No. 108 could have on its results of operations
        or financial condition.


In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post
      Retirement Plans”, an amendment of FASB Statements No. 87, 88, 106 and 132(R).
      FASB 158 will require employers to recognize their defined benefit plans’
overfunded or underfunded status in their balance sheets, require employers
      to
      measure plan assets and plan obligations as of the balance sheet date,
      immediately recognize any remaining transition obligation currently being
      deferred, and recognize actuarial gains and losses through other comprehensive
      income. The statement is effective for fiscal years ending after December 15,
      2006. The Company is evaluating SFAS No. 158 and has not determined the impact
      it will have on its consolidated financial statements as of and for the year
      ended December 31, 2006.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
      enhances existing guidance for measuring assets and liabilities using fair
      value. The new Statement 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 also
      emphasizes that fair value is a market-based measurement, not an entity-specific
      measurement, and sets out a fair value hierarchy with the highest priority
      being
      quoted prices in active markets. Under SFAS No. 157, fair value measurements
      are
      disclosed by level within that hierarchy. While SFAS No. 157 does not add any
      new fair value measurements, it does change current practice. 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
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48 “Accounting for Uncertainty in Income Taxes" ("FIN 48"). The
      interpretation requires a two step approach for recognizing and measuring tax
      benefits based on a recognition threshold of “more likely than not”. The FASB
      also requires explicit disclosures about uncertainties in tax positions
      including a detailed rollforward of tax benefits that do not qualify for
      financial statement recognition. The adoption of FIN 48 is effective for fiscal
      years beginning after December 15, 2006.  The
      implementation of FIN 48 could have a material effect on the Company’s
      consolidated balance sheet and statement of operations but the effect of such
      implementation is not determinable at this time.




-30-
 
  In
          December 2004, FASB issued SFAS No. 123(R), "Share-Based Payment", that
          requires
          compensation costs related to stock-based payment transactions to be recognized
          in the financial statements. With limited exceptions, the amount of compensation
          cost is measured based on the grant-date fair value of the equity or liability
          instruments issued. In addition, liability awards are to be remeasured
          each
          reporting period. Compensation cost will be recognized over the period
          that an
          employee provides service in exchange for the reward. SFAS No. 123(R) is
          effective as to the Company as of the beginning of the Company's 2006 fiscal
          year. The Company accounted for the stock-based compensation costs using
          the
          modified prospective method at the time of adoption. The adoption of SFAS
          123(R)
          resulted in incremental stock-based compensation expense of $335,000 (pre-tax)
          during the nine months ended September 30, 2006. The adoption of SFAS 123(R)
          did
          not have a material effect on the consolidated balance sheet as of September
          30,
          2006 or the consolidated statement of cash flows for the nine months ended
          September 30, 2006.


In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets",
      an amendment of APB Opinion No. 29. SFAS No. 153 amends APB Opinion No. 29
      by
      eliminating the exception under APB No. 29 for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. A nonmonetary exchange
      has commercial substance if the future cash flows of the entity are expected
      to
      change significantly as a result of the exchange. SFAS No. 153 is effective
      for
      periods beginning after June 15, 2005. The adoption of SFAS No. 153 did not
      have
      a material effect on the Company's consolidated financial position or results
      of
      operations.




In
      November 2004 the FASB issued SFAS No. 151, “Inventory Costs”, an amendment to
      Accounting Research Bulletin No. 43 chapter 4. SFAS No. 151 requires that
      abnormal costs of idle facility expenses, freight, handling costs and wasted
      material (spoilage) be recognized as current-period charges. SFAS No. 151 is
      effective for fiscal years beginning after June 15, 2005. Adoption of SFAS
      No.
      151 did not have a material impact on the Company's consolidated financial
      position or results of operations.













-31-


15.  Legal
      Proceedings





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. The Company believes it has adequately
      accrued sufficient amounts for this liability in accordance with the terms
      of
      the ex-employee's employment agreement.





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 defendants'
      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 is 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. The Company has been advised
      that Regal will appeal the Court's rejection of its infringement claims. The
      Company believes that none of its products are covered by these patents and
      intends to vigorously defend its position and no accrual has been provided
      in
      the accompanying consolidated financial statements.




-32-





The
      Company cannot predict the outcome of these matters or the impact on the
      Company's consolidated financial condition or results of
      operations.





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






















-33-




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, 2005. 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, 2005, 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, increased transportation
      costs and the increased wage structure in the Far East have contributed to
      increases in manufacturing costs.





-34-


During
      the nine months ended September 30, 2006, approximately $4.6 million of the
      Company’s $35.2 million sales increase was attributable to the acquisition by
      the Company of Galaxy Power, Inc. (“Galaxy”), which occurred on March 22, 2005,
      and Netwatch s.r.o. (now named Bel Stewart Net s.r.o.), which occurred on June
      30, 2005. Galaxy was renamed Bel Power Inc. (“Power”). Excluding the 2005
      acquisitions, the Company had an organic sales increase of 19.2% for the nine
      months ended September 30, 2006. With these acquisitions, the Company's sales
      increased by 22.1%. The disclosure of the Company's revenues excluding the
      2005
      acquisitions may constitute a "Non-GAAP Financial Measure". The Company has
      provided a reconciliation by also including a reference to total revenues.
      The
      Company believes that the reference to revenues excluding the 2005 acquisitions
      improves the comparability of its disclosures. The 2005 acquisitions resulted
      in
      additional Cost of Sales and Selling, General and Administrative expenses in
      the
      nine months ended September 30, 2006 and 2005 of $12.0 million and $9.0 million,
      respectively.





Gross
      profit margins were lower during the nine months ended September 30, 2006
      compared to September 30, 2005, principally due to increased raw material costs
      resulting from higher commodity prices for copper, steel, and petroleum-based
      products and changes in the Company’s product mix. 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. The increasing sales of the Company's DC-DC power
      products also have an impact on the accelerated write off of intangible assets
      related to the acquisition of Current Concepts. The contingent purchase price
      payments 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. Due to the shorter remaining lives of the covenants not to
      compete, any additional contingent purchase price payments that are allocated
      to
      covenants not to compete are amortized over a shorter remaining life. During
      the
      quarter ended September 30, 2006, Current Concepts reached its benchmark sales
      target and no additional contingent purchase price payments will be made. 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 but cannot attain premium pricing for such products.





The
      Company also incurred $1.2 million in pre-tax stock-based compensation expense
      during the nine months ended September 30, 2006 in connection with its
      Restricted Stock Award and Incentive Stock Option Plan. This expense is
      reflected both in the Company’s cost of sales and selling, general and
      administrative expenses which is consistent with the classification of employee
      compensation expense. During the nine months ended September 30, 2005, the
      Company did not incur an expense for stock-based compensation.





During
      the nine months ended September 30, 2006, the Company incurred a $1.0 million
      pre-tax casualty loss primarily for uninsured raw materials destroyed by a
      fire
      at a Company leased manufacturing facility in the Dominican
      Republic.




-35-


During
      the nine months ended September 30, 2006, the Company realized a gain on
      marketable securities of $5.2 million, net of investment banking fees, offset
      by
      a $1.0 million accrual (classified within selling, general and administrative
      expense for accounting purposes) for performance bonuses awarded by the Board
      of
      Directors in connection with the gain.





Critical
      Accounting Policies





The
      Company’s discussion and analysis of its financial condition and results of
      operations are based upon the Company’s 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 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.




-36-





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 unanticipated 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.





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.





Acquisitions





Acquisitions
      continue to be a key element in the Company's growth strategy. If the Company's
      evaluation of an acquisition candidate misjudges its technology, estimated
      future sales and profitability levels, ability to keep pace with the latest
      technology, or working capital needs, these factors could impair the value
      of
      the investment, which could materially adversely affect the Company's
      profitability.





Income
      Taxes





The
      Company files income tax returns in every jurisdiction in which it has reason
      to
      believe it is subject to tax. Historically, the Company has been subject to
      examination by various taxing jurisdictions. To date, none of these examinations
      has resulted in any material additional tax. Nonetheless, any tax jurisdiction
      may contend that a filing position claimed by the Company regarding one or
      more
      of its transactions is contrary to that jurisdiction's laws or
      regulations.





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 probable 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 recognition. Some issues relate to product warranty, credit worthiness
      of its customers and concentration of sales among a few major
      customers.




-37-





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 financial
      conditions of the Company’s customers were to deteriorate, resulting in an
      impairment of their ability to make payments, additional allowances for bad
      debt
      may be required which could have a material adverse effect on the Company’s
      consolidated results of operations and financial condition. The Company has
      a
      significant amount of sales with several customers including one major customer
      with sales over 10%. The loss of any one of these customers could have a
      material adverse effect on the Company’s consolidated results of operations and
      financial position.





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
      consolidated statements of operations.




Percentage
                  of Net Sales
              
              Percentage
                  of Net SalesNine
                  Months Ended
              
              Three
                  Months EndedSeptember
                  30,
              
              September
                  30,2006
              
              2005
              
              2006
              
              2005Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of sales
              
              
              75.1
              
              
              71.5
              
              
              76.2
              
              
              71.9Selling,
                  general andadministrative
                  expenses
              
              
              14.8
              
              
              15.5
              
              
              12.4
              
              
              15.7Casualty
                  loss
              
              
              0.5
              
              
              -
              
              
              (0.1
              )
              
              -Interest
                  income and interestand
                    financing expense
              
              
              1.0
              
              
              0.5
              
              
              1.1
              
              
              0.6Gain
                  on sale of marketablesecurities
                  - net
              
              
              2.7
              
              
              -
              
              
              -
              
              
              -Earnings
                  before provisionfor
                  income taxes
              
              
              13.2
              
              
              13.5
              
              
              12.6
              
              
              13.1Income
                  tax provision
              
              
              2.7
              
              
              2.9
              
              
              2.1
              
              
              2.4Net
                  earnings
              
              
              10.6
              
              
              10.7
              
              
              10.7
              
              
              10.7




-38-





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


Increase
                  from
              
              Increase
                  fromPrior
                  Period
              
              Prior
                  PeriodNine
                  Months Ended
              
              Three
                  Months EndedSeptember
                  30, 2006
              
              September
                  30, 2006compared
                  with Nine
              
              compared
                  with ThreeMonths
                  Ended
              
              Months
                  EndedSeptember
                  30, 2005
              
              September30,
                  2005Net
                  sales
              
              
              22.1
              %
              
              30.2
              %Cost
                  of sales
              
              
              28.3
              
              
              38.1Selling,
                  general andadministrative
                  expenses
              
              
              16.5
              
              
              3.2Net
                  earnings
              
              
              20.8
              
              
              29.4





**NINE
      MONTHS ENDED SEPTEMBER 30, 2006 VERSUS**


**NINE
      MONTHS ENDED SEPTEMBER 30, 2005**





Sales





Net
      sales
      increased 22.1% from $159.2 million during the nine months ended September
      30,
      2005 to $194.4 million during the nine months ended September 30, 2006. The
      Company attributes the increase to increased module sales of $13.6 million,
      of
      which $3.4 million is attributable to the acquisition of Galaxy, strong demand
      for interconnect products resulting in an increase of $5.8 million in such
      sales, of which $1.2 million is attributable to the acquisition of Netwatch,
      and
      strong demand for magnetic sales resulting in an increase of $15.4 million
      in
      such sales, as well as an increase in circuit protection sales of $0.4 million.
      Bel had an organic sales increase of 19.2% for the nine months ended September
      30, 2006.





The
      significant components of the Company's revenues for the nine months ended
      September 30, 2006 were magnetic products of $110.2 million (as compared with
      $94.8 million during the nine months ended September 30, 2005), interconnect
      products of $34.6 million (as compared with $28.8 million during the nine months
      ended September 30, 2005), module products of $34.5 million (as compared with
      $20.9 million during the nine months ended September 30, 2005), and circuit
      protection products of $15.1 million (as compared with $14.7 million during
      the
      nine months ended September 30, 2005).







-39-


Based
      in
      part on conflicting opinions the Company received from customers and competitors
      in the electronics industry pertaining to revenue growth during 2005, the
      Company cannot predict with any degree of certainty sales revenue for the
      remainder of 2006 or for 2007. During the third quarter of 2006, several
      customers have requested deliveries in excess of their forecasts. The Company
      has also received several last minute order changes. Although the Company's
      backlog has been stable, the Company believes that backlog is not a good
      indicator of future revenues. The Company continues to have limited visibility
      as to future customer requirements. The Company had one customer with sales
      in
      excess of 10% (17.3%) of net sales during the nine months ended September 30,
      2006. The loss of this customer could have a material adverse effect on the
      Company’s consolidated results of operations, financial position and cash flows.





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.





Cost
      of Sales





Bel
      generally enters into processing arrangements with three independent third
      party
      contractors in the Far East. The Company uses the services of three additional
      sub-contractors without formal agreements. Costs are recorded as incurred for
      all products manufactured either at third party facilities or at the Company's
      own manufacturing facilities. Such amounts are determined based upon the
      estimated stage of production and include labor cost and fringes and related
      allocations of factory overhead. The Company manufactures finished goods at
      its
      own manufacturing facilities in Glen Rock, Pennsylvania, Inwood, New York,
      the
      Dominican Republic, Mexico, the Czech Republic and Macao.





Cost
      of
      sales as a percentage of net sales increased from 71.5% during the nine months
      ended September 30, 2005 to 75.1% during the nine months ended September 30,
      2006. The increase in the cost of sales percentage is primarily attributable
      to
      the following:





 ̈
            The
                Company incurred a 5.6% increase in material costs as a percentage
                of net
                sales. The increase in raw material costs is principally related
                to
                increased manufacturing of value-added products (including new Power
                products in the second half of 2005), which have a higher raw material
                content than the Company’s other products, and increased costs for raw
                materials such as copper, steel and petroleum-based products and
                increased
                transportation costs.





 ̈
            The
                Company has also started to pay higher wage rates and benefits to
                its
                production workers in China. These higher rates and benefits are
                reflected
                in the Company’s cost of sales.






-40-




 ̈
            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 materials are purchased components. As these sales continue
                to
                increase, the Company’s average gross profit percentage will likely
                decrease. The increasing sales also have an impact on the accelerated
                write-off of intangibles related to contingent purchase price payments
                arising from the acquisition of Current Concepts as the amortization
                life
                of the identifiable intangibles have expired and all payments are
                expensed
                in the period they were paid.





Included
      in cost of sales are research and development expenses of $4.9 million and
      $5.5
      million for the nine months ended September 30, 2006 and 2005, respectively.
      The
      principal reason for the decrease is less research and development in the United
      States due to the consolidation of the Bel Power and the Galaxy facilities
      in
      Massachusetts.




Selling,
      General and Administrative Expenses





Selling,
      general and administrative expenses increased by $4.1 million, or 16.5% from
      the
      nine months ended September 30, 2005 to the nine months ended September 30,
      2006. The percentage relationship of selling, general and administrative
      expenses to net sales decreased from 15.5 % during the nine months ended
      September 30, 2005 to 14.8% during the nine months ended September 30, 2006.
      The
      Company attributes $1.8 million of the $4.1 million increase in the dollar
      amount of such expenses to increased selling expenses, including $.2 million
      in
      Power related expenses. The $2.3 million increase in general and administrative
      expenses includes $1.0 million related to Power and Bel Net, additional
      salaries, wages and bonuses of $1.8 million, principally attributable to a
      $1.0
      million bonus approved by the Board of Directors in connection with the gain
      from the sale of Artesyn stock, additional stock compensation expense of $.8
      million, partially arising from the Company’s implementation of Statement of
      Financial Accounting Standards ("SFAS") 123 (R) during 2006 (see below and
      Notes
      1 and 10 of the Notes to the Company's Consolidated Financial Statements),
      and
      additional professional fees of $.5 million principally related to
      Sarbanes-Oxley compliance and legal expenses in connection with various lawsuits
      the Company is a party to. These increases were offset in part by lower bad
      debt
      expense of $.3 million and other net decreases in several expense categories
      totaling $1.5 million





During
      the nine months ended September 30, 2006, the Company expensed stock-based
      compensation costs in accordance with SFAS No. 123(R), “Share-based Payment".
      This expense is included in both cost of sales and selling, general and
      administrative expenses in the amount of approximately $391,000 and $798,000,
      respectively, for the nine months ended September 30, 2006.







-41-





Casualty
      Loss





The
      Company incurred a loss of $1.0 million as a result of a fire at its leased
      manufacturing facility in the Dominican Republic for raw materials and equipment
      in excess of estimated insurance proceeds. The production at this facility
      was
      substantially restored during July 2006.





Interest
      Income





Interest
      income represents interest earned on cash and cash equivalents which increased
      by approximately $1,035,000 during the nine months ended September 30, 2006,
      as
      compared to the comparable period in 2005. The increase is due primarily to
      increased balances of cash and cash equivalent balances and higher yields on
      such balances.





Interest
      Expense





A
      $10
      million term loan was entered into on March 21, 2003, reflecting borrowings
      for
      the acquisition of Insilco's Passive Components Group. The loan bore interest
      at
      LIBOR plus 1.50% payable quarterly and was completely paid off by June 30,
      2005.
      Interest expense related to these borrowings amounted to $207,000 during the
      nine months ended September 30, 2005. During the nine months ended September
      30,
      2006, interest expense amounted to $53,000, representing financing expenses
      related to the Company's credit facility in the United States.





Provision
      for Income Taxes





The
      provision for income taxes for the nine months ended September 30, 2006 was
      $5.2
      million compared to $4.6 million during the nine months ended September 30,
      2005. The Company's earnings before income taxes for the nine months ended
      September 30, 2006 are approximately $4.1 million higher than in 2005. During
      the nine months ended September 30, 2006, the Company incurred higher taxes
      of
      approximately $1.7 million principally as a result of higher United States
      taxes
      resulting from the gain from the sale of marketable securities (Artesyn). The
      higher taxable income from the Company’s United States operations was offset in
      part by lower foreign taxes in the Far East due to the implementation by the
      Company of its Macao Commercial Offshore Company ("MCO"), which is not subject
      to Macao corporation income taxes. This had an impact of reducing the effective
      tax rate from 21.3% for the nine months ended September 30, 2005 to 20.1% for
      the nine months ended September 30, 2006 (measured by reflecting the tax
      provision as a percentage of earnings before provision for income
      taxes).




-42-





The
      Company conducts manufacturing activities in the Far East. More specifically,
      the Company has the majority of its products manufactured in the People’s
      Republic of China (“PRC”), Hong Kong and Macao and has not been subject to
      corporate income tax in the PRC. The Company's activities in Hong Kong have
      generally consisted of administration, quality control and accounting, as well
      as some limited manufacturing activities. Hong Kong imposes corporate income
      tax
      at a rate of 17.5 percent solely on income sourced to Hong Kong. That is, its
      tax system is a territorial one which only seeks to tax activities conducted
      in
      Hong Kong. Since the Bel entity in Hong Kong conducts most of its manufacturing
      and quality control activities in the PRC, a portion of this entity’s income was
      deemed “offshore” and thus not fully taxable in Hong Kong.





The
      Company also conducts manufacturing operations in Macao. Macao has a statutory
      corporate income tax rate of 12 percent.




Since
      most of the Company's operations are conducted in the Far East, the majority
      of
      its profits are sourced in these three Far East jurisdictions (i.e. PRC, Hong
      Kong and Macao). Accordingly, the profits earned in the U.S. are comparatively
      small in relation to its profits earned in the Far East. Therefore, there is
      generally a significant difference between the statutory U.S. tax rate and
      the
      Company's effective tax rate.




During
      2005, the Company was granted an offshore operating license from the government
      of Macao to set up an MCO named Bel Fuse (Macao Commercial Offshore) Limited
      with the intent to handle all of the Company’s sales to third party customers in
      Asia. Sales to third party customers commenced during the first quarter of
      2006.
      Sales consist of products manufactured in the PRC. The MCO is not subject to
      Macao corporation income taxes. It is not possible at this time to determine
      the
      tax impact on the Company of the establishment of this new entity.





The
      Company has historically followed a practice of reinvesting a portion of the
      earnings of foreign subsidiaries in the expansion of its foreign operations.
      If
      the unrepatriated earnings were distributed to the parent corporation rather
      than reinvested in the Far East, such funds would be subject to United States
      Federal income taxes. During the year ended December 31, 2005, $70.6 million
      of
      earnings were repatriated by the Company.




-43-


Inflation
      and Foreign Currency Exchange





During
      the past two years, the effect of inflation on the Company's profitability
      was
      not material. Historically, fluctuations of the U.S. Dollar against other major
      currencies have not significantly affected the Company's foreign operations
      as
      most sales have been denominated in U.S. Dollars or currencies directly or
      indirectly linked to the U.S. Dollar. Most significant expenses, including
      raw
      materials, labor and manufacturing expenses, are either incurred in U.S. Dollars
      or the currencies of the Hong Kong Dollar, the Macao Pataca or the Chinese
      Renminbi. Commencing with the acquisition of the Passive Components Group,
      the
      Company's European entity has sales transactions which are denominated
      principally in Euros and British Pounds. Conversion of these transactions into
      U.S. dollars has resulted in currency exchange (losses) gains of $(170,000)
      and
      $(78,000) for the nine months ended September 30, 2006 and 2005, respectively,
      which were charged to expense, and approximately $216,000 and $(640,000) as
      of
      September 30, 2006 and 2005, respectively, in unrealized exchange gains relating
      to the translation of foreign subsidiary financial statements which are included
      in accumulated other comprehensive income. Any change in linkage of the U.S.
      Dollar and the Hong Kong Dollar, the Chinese Renminbi or the Macao Pataca could
      have a material effect on the Company's consolidated financial position or
      results of operations. The Company’s investment in Toko is denominated in
      Japanese yen. A significant change in the value of the yen versus the U.S.
      dollar could have a material effect on the investment value of Toko.





**THREE
      MONTHS ENDED SEPTEMBER 30, 2006 VERSUS**


**THREE
      MONTHS ENDED SEPTEMBER 30, 2005**





Sales





Net
      sales
      increased 30.2% from $56.2 million during the three months ended September
      30,
      2005 to $73.3 million during the three months ended September 30, 2006
      principally attributed to stronger customer demand. The Company had increased
      module sales of $7.0 million, increased magnetic sales of $8.8 million,
      increased interconnect products sales of $.8 million, and an increase in circuit
      protection sales of $.5 million. Bel had an organic sales increase of 30.2%
      for
      the three months ended September 30, 2006.





The
      significant components of the Company's revenues for the three months ended
      September 30, 2006 were magnetic products of $41.4 million (as compared with
      $32.6 million during the three months ended September 30, 2005), interconnect
      products of $11.3 million (as compared with $10.5 million during the three
      months ended September 30, 2005), module products of $15.0 million (as compared
      with $8.0 million during the three months ended September 30, 2005), and circuit
      protection products of $5.6 million (as compared with $5.1 million during the
      three months ended September 30, 2005).







-44-


Cost
      of Sales





Bel
      generally enters into processing arrangements with three independent third
      party
      contractors in the Far East. The Company uses the services of three additional
      subcontractors without formal agreements. Costs are recorded as incurred for
      all
      products manufactured either at third party facilities or at the Company's
      own
      manufacturing facilities. Such amounts are determined based upon the estimated
      stage of production and include labor cost and fringes and related allocations
      of factory overhead. The Company manufactures finished goods at its own
      manufacturing facilities in Glen Rock, Pennsylvania, Inwood, New York, the
      Dominican Republic and Mexico, the Czech Republic and Macao.





Cost
      of
      sales as a percentage of net sales increased from 71.9% during the three months
      ended September 30, 2005 to 76.2% during the three months ended September 30,
      2006. The increase in the cost of sales percentage is primarily attributable
      to
      the following:





 ̈
            The
                Company incurred a 7.9% increase in material costs as a percentage
                of net
                sales. The increase in raw material costs is principally related
                to
                increased manufacturing of value-added products (including new Power
                products in the second half of 2005), which have a higher raw material
                content than the Company’s other products, and increased costs for raw
                materials such as copper, steel and petroleum-based products and
                increased
                transportation costs.





 ̈
            The
                Company has also started to pay higher wage rates and benefits to
                its
                production workers in China following new statutory wage guidelines
                effective September 2006. These higher rates and benefits are reflected
                in
                the Company’s cost of sales.








-45-





 ̈
            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 materials are purchased components. As these sales continue
                to
                increase, the Company’s average gross profit percentage will likely
                decrease. The increasing sales also have an impact on the accelerated
                write off of intangibles related to contingent purchase price payments
                arising from the acquisition of Current
                Concepts.





Included
      in cost of sales are research and development expenses of $1.7 million and
      $1.8
      million for the three months ended September 30, 2006 and 2005, respectively.




Selling,
      General and Administrative Expenses





Selling,
      general and administrative expenses increased by only $.3 million from the
      three
      months ended September 30, 2005 to the three months ended September 30, 2006.
      The percentage relationship of selling, general and administrative expenses
      to
      net sales decreased from 15.7% during the three months ended September 30,
      2005
      to 12.4% during the three months ended September 30, 2006. Selling expenses
      increased by $.3 million and were offset by a $.4 million net decrease in
      several general and administrative expenses.





During
      the three months ended September 30, 2006, the Company expensed stock-based
      compensation costs in accordance with SFAS No. 123(R), “Share-based Payment".
      This expense is included in both cost of sales and selling, general and
      administrative expenses in the amount of approximately $121,000 and $278,000,
      respectively, for the three months ended September 30, 2006.




-46-





Interest
      Income





Interest
      income represents interest earned on cash and cash equivalents which increased
      by approximately $494,000 during the three months ended September 30, 2006,
      as
      compared to the comparable period in 2005. The increase is due primarily to
      increased balances of cash and cash equivalent balances and marketable
      securities and increased yields on such balances.





Interest
      Expense





During
      the three months ended September 30, 2006, interest and other expenses included
      $8,000 of financing expenses related to the Company's credit facility in the
      United States.





Provision
      for Income Taxes





The
      provision for income taxes for the three months ended September 30, 2006 was
      $1.5 million compared to $1.4 million during the three months ended September
      30, 2005. The Company's earnings before income taxes for the three months ended
      September 30, 2006 were approximately $1.9 million higher than in 2005. The
      reasons for the moderate tax increase despite higher pre-tax income is
      principally attributable to the establishment of the MCO as more fully described
      in the nine month analysis.




-47-




Liquidity
      and Capital Resources





Historically,
      the Company has financed its capital expenditures primarily through cash flows
      from operating activities, as supplemented by bank borrowings. Management
      believes that the cash flow from operations after payments of dividends combined
      with its existing capital base and the Company's available lines of credit,
      will
      be sufficient to fund its operations for at least the next 12 months. Such
      statement constitutes a Forward Looking Statement. Factors which could cause
      the
      Company to require additional capital include, among other things, a softening
      in the demand for the Company’s existing products, an inability to respond to
      customer demand for new products, potential acquisitions requiring substantial
      capital, future expansion of the Company's operations and net losses that would
      result in net cash being used in operating, investing and/or financing
      activities which result in net decreases in cash and cash equivalents. Net
      losses may result in the loss of domestic and foreign credit facilities and
      preclude the Company from raising debt or equity financing in the capital
      markets.





Previously,
      the Company had one domestic line of credit of $10 million. During March 2005,
      the Company borrowed $8 million against this line of credit to partially finance
      the acquisition of Galaxy. The outstanding balance was paid off in its entirety
      on June 20, 2005. During July 2005, the Company amended its credit agreement
      to
      increase the line of credit to $20 million, which expires on July 31, 2008.
      During October 2005, the Company borrowed $4.0 million against the line of
      credit which was paid off during December 2005. As of September 30, 2006 there
      was no loan balance on the line of credit. The loan bears interest at LIBOR
      plus
      0.75% to 1.25% based on certain financial statement ratios maintained by the
      Company. As of December 31, 2005 and September 30, 2006, the entire $20 million
      line of credit was available to the Company to borrow. The loan is
      collateralized with a first priority security interest in and lien on 65% of
      all
      the issued and outstanding shares of the capital stock of certain of the foreign
      subsidiaries of the Company and all other personal property and certain real
      property of the Company.





The
      Company's Hong Kong subsidiary has an unsecured line of credit of approximately
      $2 million, which was unused at September 30, 2006. This line of credit expires
      during July 2007. Borrowing on this line of credit is guaranteed by the Company.





For
      information regarding further commitments under the Company's operating leases,
      see Note 15 of Notes to Company's Consolidated Financial Statements in the
      Company's 2005 Annual Report on Form 10-K.







-48-





The
      Company has cumulatively acquired a total of 5,290,000 shares, or 5%, of the
      outstanding common stock of Toko, Inc. (“Toko”) at a total purchase price of
      $16.6 million. Toko had a market capitalization of approximately $257 million
      as
      of October 31, 2006. These purchases are reflected on the Company’s consolidated
      balance sheet 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, 2006, the
      Company has recorded an unrealized loss, net of income tax benefit, of
      approximately $0.4 million which is included in accumulated other comprehensive
      income as stated in the consolidated statement of stockholders’ equity. In
      connection with this transaction, the Company is obligated to pay an investment
      banker’s advisory fee to a third party of 20% of the appreciation in the stock
      of Toko, or $1 million, whichever is lower. As of September 30, 2006, the
      Company has not accrued a fee to the investment banker as the Toko stock is
      at
      an unrealized loss position.





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 Artesyn stock, the Company recognized a gain of approximately
      $5.2 million, net of investment banker’s advisory fees of $850,000. The Company
      accrued bonuses of $1.0 million in connection with the gain. For financial
      statement presentation purposes, the $1.0 million bonus was classified as a
      selling, general and administrative expense which will be paid to key employees
      by December 31, 2006.





The
      Company is constructing a 117,000 square foot manufacturing facility in
      Zhongshan City, PRC for approximately $2.3 million. As of September 30 2006,
      the
      Company has paid approximately $1.9 million toward the construction. The Company
      expects to complete the construction during 2006.





On
      July
      15, 2004, the Company entered into an agreement for the sale of a certain parcel
      of land located in Jersey City, New Jersey. The sales agreement expired during
      January 2006. The buyer and seller are continuing to negotiate about certain
      environmental matters among themselves and with the State of New Jersey. The
      seller and buyer are aware that a portion of the property may be subject to
      tidelands claims by the State of New Jersey. The Company believes that the
      property will be sold during 2006. Additionally, the Company is obligated for
      environmental remediation costs of up to $350,000. As of September 30, 2006,
      the
      Company had also paid $209,000 of legal, site testing and State of New Jersey
      Environmental Protection Agency fees. As these costs are incurred, the Company
      capitalizes them on the Company's consolidated balance sheet as assets held
      for
      sale. The Company has classified the asset as held for sale with a net book
      value of approximately $848,000 on the Company's consolidated balance sheet
      at
      September 30, 2006.




-49-




Under
      the
      terms of the E-Power Ltd (“E-Power”) and Current Concepts, Inc. (“Current
      Concepts”) acquisition agreements of May 11, 2001, the Company is required to
      make contingent purchase price payments up to an aggregate of $7.6 million
      should the acquired companies attain specified sales levels. During February
      2006, E-Power was paid $2.0 million in contingent purchase price payments as
      E-Power's sales, as defined, reached $15.0 million. An additional $4.0 million
      was required to be paid if such sales reached $25.0 million on a cumulative
      basis through May 2007. The $25.0 million benchmark was reached during September
      2006. As a result ,$4.0 million will be paid during 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. Amounts due to E-Power are
      included within accrued expenses as of September 30, 2006. Current Concepts
      is
      required to be paid 16% of sales, as defined, on the first $10.0 million of
      sales through May 2007. This $10 million benchmark was reached during the second
      quarter of 2006 and therefore no additional payments will be made. During the
      nine months ended September 30, 2006 and 2005, the Company recognized
      approximately $447,000 and $485,000, respectively, in contingent purchase price
      payments to Current Concepts. The contingent purchase price payments to Current
      Concepts have been accounted for as additional purchase price and as an increase
      to covenants not to compete within intangible assets.




On
      May 9,
      2000, the Board of Directors authorized the repurchase of up to 10% of the
      Company’s outstanding common shares from time to time in market or privately
      negotiated transactions. As of September 30, 2006, the Company had cumulatively
      purchased and retired 23,600 Class B shares at a cost of approximately $808,000,
      which reduced the number of Class B common shares outstanding. No shares were
      repurchased during the nine months ended September 30, 2006.




During
      the nine months ended September 30, 2006, the Company's cash and cash
      equivalents increased by $28.9 million reflecting $15.8 million provided by
      operating activities (principally as a result of the Company's net income of
      $20.5 million), $11.7 million provided by investing activities, ($24.5 million
      from the sale of marketable securities, offset in part by $3.0 million used
      principally for acquisitions, $7.6 million for the purchase of property, plant
      and equipment, and $2.2 million for the purchase of marketable securities)
      and
      $1.3 million provided by financing activities (proceeds of $2.8 million from
      the
      exercise of stock options, offset in part by $1.7 million in dividend
      payments).




C ash,
      marketable securities and cash equivalents and accounts receivable comprised
      approximately 53.8% and 52.2% of the Company's total assets at September 30,
      2006 and December 31, 2005, respectively. The Company's current ratio (i.e.,
      the
      ratio of current assets to current liabilities) was 3.7 to 1 and 4.5 to 1 at
      September 30, 2006 and December 31, 2005, respectively.




-50-





The
      following table sets forth at September 30, 2006 the amounts of payments due
      under specific types of contractual obligations, aggregated by category of
      contractual obligation, for the time periods described below.




Payments
                  due by periodContractual
                  Obligations
              
              Total
              
              One
                  Year Ended September 30, 2007
              
              1-3
                years
              
              3-5
                years
              
              More
                  than
                5
                  yearsCapital
                  expenditure obligations
              
              $
              2,628,770
              
              $
              2,628,770
              
              $
              -
              
              $
              -
              
              $
              -Operating
                  leases
              
              
              3,953,953
              
              
              1,488,511
              
              
              1,687,226
              
              
              778,216
              
              
              -Raw
                  material purchase obligations
              
              
              20,571,793
              
              
              20,571,793
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              27,154,516
              
              $
              24,689,074
              
              $
              1,687,226
              
              $
              778,216
              
              $
              -


The
      Company is required to pay its SERP obligations at the occurrence of certain
      events. As of September 30, 2006 the SERP had an estimated unfunded benefit
      obligation of approximately $4.0 million.





Other
      Matters





The
      Company believes that it has sufficient cash reserves to fund its foreseeable
      working capital needs. It may, however, seek to expand such resources through
      bank borrowings, at favorable lending rates, from time to time. Should the
      Company pursue additional acquisitions during 2006, or thereafter, the Company
      may also be required to pursue public or private equity or debt transactions
      to
      finance the acquisitions and to provide working capital to the acquired
      companies.






-51-


New
      Financial Accounting Standards


In
        September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements,” which provides interpretive
        guidance on the consideration of the effects of prior year misstatements
        in
        quantifying current year misstatements for the purpose of a materiality
        assessment. The SEC staff believes that registrants must quantify errors
        using
        both a balance sheet and income statement approach and evaluate whether either
        approach results in quantifying a misstatement that, when all relevant
        quantitative and qualitative factors are considered, is material. SAB No.
        108 is
        effective for annual financial statements covering the first fiscal year
        ending
        after November 15, 2006, with earlier application encouraged for any interim
        period of the first fiscal year ending after November 15, 2006, filed after
        the
        publication of SAB No. 108 (September 13, 2006). The Company is currently
        evaluating the impact that SAB No. 108 could have on its results of operations
        or financial condition.





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post
      Retirement Plans”, an amendment of FASB Statements No. 87, 88, 106 and 132(R).
      FASB 158 will require employers to recognize their defined benefit plans’
overfunded or underfunded status in their balance sheets, require employers
      to
      measure plan assets and plan obligations as of the balance sheet date,
      immediately recognize any remaining transition obligation currently being
      deferred, and recognize actuarial gains and losses through other comprehensive
      income. The statement is effective for fiscal years ending after December 15,
      2006. The Company is evaluating SFAS No. 158 and has not determined the impact
      it will have on its consolidated financial statements as of and for the year
      ended December 31, 2006.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
      enhances existing guidance for measuring assets and liabilities using fair
      value. The new Statement 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 also
      emphasizes that fair value is a market-based measurement, not an entity-specific
      measurement, and sets out a fair value hierarchy with the highest priority
      being
      quoted prices in active markets. Under SFAS No. 157, fair value measurements
      are
      disclosed by level within that hierarchy. While SFAS No. 157 does not add any
      new fair value measurements, it does change current practice. 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
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48 “Accounting for Uncertainty in Income Taxes" ("FIN 48"). The
      interpretation requires a two step approach for recognizing and measuring tax
      benefits based on a recognition threshold of “more likely than not”. The FASB
      also requires explicit disclosures about uncertainties in tax positions
      including a detailed rollforward of tax benefits that do not qualify for
      financial statement recognition. The adoption of FIN 48 is effective for fiscal
      years beginning after December 15, 2006.  The
      implementation of FIN 48 could have a material effect on the Company’s
      consolidated balance sheet and statement of operations but the effect of such
      implementation is not determinable at this time.




-52-
 
 In
          December 2004, FASB issued SFAS No. 123(R), "Share-Based Payment" , that
          requires compensation costs related to stock-based payment transactions
          to be
          recognized in the financial statements. With limited exceptions, the amount
          of
          compensation cost is measured based on the grant-date fair value of the
          equity
          or liability instruments issued. In addition, liability awards are to be
          remeasured each reporting period. Compensation cost will be recognized
          over the
          period that an employee provides service in exchange for the reward. SFAS
          No.
          123(R) is effective as to the Company as of the beginning of the Company's
          2006
          fiscal year. The Company accounted for the stock-based compensation costs
          using
          the modified prospective method at the time of adoption. The adoption of
          SFAS
          123(R) resulted in incremental stock-based compensation expense of $335,000
          (pre-tax) during the nine months ended September 30, 2006. The adoption
          of SFAS
          123(R) did not have a material effect on the consolidated balance sheet
          as of
          September 30, 2006 or the consolidated statement of cash flows for the
          nine
          months ended September 30, 2006.


In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets",
      an amendment of APB Opinion No. 29. SFAS No. 153 amends APB Opinion No. 29
      by
      eliminating the exception under APB No. 29 for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. A nonmonetary exchange
      has commercial substance if the future cash flows of the entity are expected
      to
      change significantly as a result of the exchange. SFAS No. 153 is effective
      for
      periods beginning after June 15, 2005. The adoption of SFAS No. 153 did not
      have
      a material effect on the Company's consolidated financial position or results
      of
      operations.





In
      November 2004 the FASB issued SFAS No. 151, “Inventory Costs”, an amendment to
      Accounting Research Bulletin No. 43 chapter 4. SFAS No. 151 requires that
      abnormal costs of idle facility expenses, freight, handling costs and wasted
      material (spoilage) be recognized as current-period charges. SFAS No. 151 is
      effective for fiscal years beginning after June 15, 2005. Adoption of SFAS
      No.
      151 did not have a material impact on the Company's consolidated financial
      position or results of operations.




-53-


Item
      3. Quantitative
      and Qualitative Disclosures About Market Risk





Fair
      Value of Financial Instruments — The following disclosure of the estimated fair
      value of financial instruments is made in accordance with the requirements
      SFAS
      No. 107. The estimated fair values of financial instruments have been determined
      by the Company using available market information and appropriate valuation
      methodologies.




However,
      considerable judgment is required in interpreting market data to develop the
      estimates of fair value. Accordingly, the estimates presented herein are not
      necessarily indicative of the amounts that the Company could realize in a
      current market exchange.




The
      Company has not entered into, and does not expect to enter into, financial
      instruments for trading or hedging purposes. The Company does not currently
      anticipate entering into interest rate swaps and/or similar
      instruments.




The
      Company's carrying values of cash, marketable securities, accounts receivable,
      accounts payable and accrued expenses are a reasonable approximation of their
      fair value.





The
      Company enters into transactions denominated in U.S. Dollars, Hong Kong Dollars,
      the Macao Pataca, the Chinese Renminbi, Euros and British Pounds. Fluctuations
      in the U.S. dollar exchange rate against these currencies could significantly
      impact the Company's consolidated results of operations.





The
      Company believes that a change in interest rates of 1% or 2% would not have
      a
      material effect on the Company's consolidated statement of operations or balance
      sheet.







-54-


Item
      4. Controls
      and Procedures





a.
            Disclosure
                controls and procedures.
                As of the end of the Company’s most recently completed fiscal quarter
                covered by this report, the Company carried out an evaluation, with
                the
                participation of the Company’s management, including the Company’s chief
                executive officer and vice president of finance, of the effectiveness
                of
                the Company’s disclosure controls and procedures pursuant to Securities
                Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s chief
                executive officer and vice president of finance concluded that the
                Company’s disclosure controls and procedures are effective in ensuring
                that information required to be disclosed by the Company in the reports
                that it files or submits under the Securities Exchange Act is recorded,
                processed, summarized and reported, within the time periods specified
                in
                the SEC’s rules and forms, and is accumulated and communicated to our
                management, including our chief executive officer and our vice president
                of finance, as appropriate to allow timely decisions regarding required
                disclosure.





b.
            Changes
                in internal controls over financial reporting:
                There have been no changes in the Company's internal controls over
                financial reporting that occurred during the Company's last fiscal
                quarter
                to which this report relates that have materially affected, or are
                reasonable likely to materially affect, the Company’s internal control
                over financial reporting.




-55-





PART
      II.
      Other Information





Item
      1.  Legal
      Proceedings





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. The Company believes it has adequately
      accrued sufficient amounts for this liability in accordance with the terms
      of
      the ex-employee's employment agreement.





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 defendants'
      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 is 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. The Company has been advised
      that Regal will appeal the Court's rejection of its infringement claims. The
      Company believes that none of its products are covered by these patents and
      intends to vigorously defend its position and no accrual has been provided
      in
      the accompanying consolidated financial statements.




-56-


The
      Company cannot predict the outcome of these matters or the impact on the
      Company's consolidated financial condition or results of
      operations.





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





-57-




Item
      6. Exhibits




(a)
      Exhibits:





31.1
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002





31.2
              Certification
                  of the Vice President of Finance pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.





32.1
              Certification
                  of the Chief Executive Officer pursuant to Section 906 of the Sarbanes
                  -
                  Oxley Act of 2002.




32.2
                Certification
                    of the Vice-President of Finance pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.






-58-





SIGNATURES








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





BEL
                FUSE INC.By:
            /s/ Daniel
              BernsteinDaniel
              Bernstein, President and Chief Executive
              OfficerBy:
            Colin DunnColin Dunn, Vice President of Finance




Dated:
      ________________________, 2006










-59-


EXHIBIT
        INDEX


Exhibit
                31.1
              Certification
                  of the Chief Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002
 
 Exhibit
                  31.2
                Certification
                    of the Vice President of Finance pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 2002.
 
 Exhibit
                  32.1
                Certification
                    of the Chief Executive Officer pursuant to Section 906 of the
                    Sarbanes -
                    Oxley Act of 2002.
  Exhibit
                    32.2
                  Certification
                      of the Vice-President of Finance pursuant to Section 906 of
                      the
                      Sarbanes-Oxley Act of 2002.