UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q


                        (X) QUARTERLY REPORT PURSUANT TO
                           SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2006

                                       OR

              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from _____ to _____

                         Commission file number 0-24712

                          Metrologic Instruments, Inc.
             (Exact name of registrant as specified in its charter)


                              New Jersey 22-1866172
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)


                    90 Coles Road, Blackwood, New Jersey 08012
               (Address of principal executive offices) (Zip Code)

                                 (856) 228-8100
                         (Registrant's telephone number,
                              including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [  ]  Accelerated filer [X]  Non-accelerated filer [  ]

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

         Yes [ ]   No [X]


As of October 31, 2006, there were 22,858,443 shares of Common Stock, $.01 par
value per share, outstanding.


<PAGE>


                          METROLOGIC INSTRUMENTS, INC.


                                      INDEX


                                                                         Page
                                                                          No.
Part I - Financial Information

Item 1.  Financial Statements

         Consolidated Balance Sheets -
         September 30, 2006 (unaudited) and December 31, 2005               3

         Consolidated Statements of Operations (unaudited)
         -Three and Nine Months Ended September 30, 2006 and 2005           4

         Consolidated Statement of Shareholders' Equity (unaudited)
         - Nine Months Ended September 30, 2006                             5

         Consolidated Statements of Cash Flows (unaudited)
         -  Nine Months Ended September 30, 2006 and 2005                   6

         Notes to Consolidated Financial Statements (unaudited)             7

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                     19

Item 3.  Quantitative and Qualitative Disclosures about Market Risk        29

Item 4.  Controls and Procedures                                           29

Part II - Other Information

Item 1.  Legal Proceedings                                                 30

Item 1A. Risk Factors                                                      32

Item 6.  Exhibits                                                          33

Signatures                                                                 34
<page>
                          PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements


                          Metrologic Instruments, Inc.
                           Consolidated Balance Sheets
             (amounts in thousands except share and per share data)

                                                  September 30, December 31,
                                                      2006          2005
                                                      ----          ----
                                                   (Unaudited)
Assets
   Current assets:
       Cash and cash equivalents                   $  44,809     $  49,463
       Marketable securities                          27,732        24,475
       Accounts receivable, net of allowance
         of $718 and $627, respectively               46,093        48,462
       Inventory                                      36,188        29,364
       Deferred income taxes                             687           801
       Other current assets                            3,540         5,599
       Assests of discontinued operation              24,398             -
                                                   ---------     ---------

   Total current assets                              183,447       158,164

   Property, plant and equipment, net                 18,325        20,402
   Goodwill                                           15,754        25,745
   Computer software, net                              7,159         8,949
   Other intangibles, net                              9,190         8,409
   Deferred income taxes                               1,354         4,262
   Other assets                                          288           251
                                                   ---------     ---------
   Total assets                                    $ 235,517     $ 226,182
                                                   =========     =========

Liabilities and shareholders' equity
   Current liabilities:
       Lines of credit                             $  15,966     $  15,989
       Current portion of notes payable                    8         2,444
       Accounts payable                               13,873        14,200
       Accrued expenses                               17,636        32,509
       Deferred contract revenue                         211           739
       Liabilities of discontinued operation           4,250             -
                                                   ---------     ---------

   Total current liabilities                          51,944        65,881

   Notes payable, net of current portion                   3             3
   Deferred income taxes                               2,049             8

   Shareholders' equity:
       Preferred stock, $0.01 par value: 500,000
           shares authorized; none issued                   -            -
       Common stock, $0.01 par value: 30,000,000
           shares authorized; 22,770,094 and
           22,320,014 shares issued and outstanding
           on September 30, 2006 and December 31, 2005,
           respectively                                   228          223
       Additional paid-in capital                     100,648       92,828
       Retained earnings                               81,328       68,975
       Accumulated other comprehensive loss              (683)      (1,736)
                                                   ----------    ---------
       Total shareholders' equity                     181,521      160,290
                                                   ----------    ---------
   Total liabilities and shareholders' equity      $  235,517    $ 226,182
                                                   ==========    =========


                             See accompanying notes.
<page>
                          Metrologic Instruments, Inc.
                      Consolidated Statements of Operations
                                   (Unaudited)
                    (amounts in thousands except share data)


                                           Three Months Ended Nine Months Ended
                                              September 30,     September 30,
                                              2006     2005    2006     2005
                                              ----     ----    ----     ----

Sales                                      $ 53,195 $ 45,907 $158,083 $126,350
Cost of sales                                29,106   24,079   89,763   66,033
                                           -------- -------- -------- --------

Gross profit                                 24,089   21,828   68,320   60,317

Selling, general and administrative
   expenses                                  17,533   10,563   46,147   32,402
Research and development expenses             2,902    2,003    7,563    5,750
                                           -------- -------- -------- --------


Operating income                              3,654    9,262   14,610   22,165

Other income (expenses)
   Interest income                              703      410    1,963    1,111
   Interest expense                            (260)    (287)  (1,274)    (854)
   Other income (expense), net                  (62)   2,019      423    1,271)
                                           -------- -------- -------- --------


   Total other income (expense)                 381    2,142    1,112    1,528
                                           -------- -------- -------- --------


Income from continuing operations before
   provision for income taxes                 4,035   11,404   15,722   23,693

Provision for income taxes on
   continuing operations                      1,272    4,087    5,382    8,532
                                            -------- -------- -------- --------

Income from continuing operations             2,763    7,317   10,340   15,161

Income from discontinued operation,
   net of income taxes                          820      383    2,013    1,093
                                            -------  -------  -------  --------


Net income                                 $  3,583 $  7,700 $ 12,353 $ 16,254
                                           ======== ======== ======== ========

Basic earnings per share:
  Earnings from continuing operations     $    0.12 $   0.33 $   0.46 $   0.69

  Earnings from discontinued operation         0.04     0.02     0.09     0.05
                                           -------- -------- -------- ---------
                                          $    0.16 $   0.35 $   0.55 $   0.74
                                           ======== ======== ======== ========

Diluted earnings per share:
  Earnings from continuing operations     $    0.12 $   0.31 $   0.44 $   0.65

  Earnings from discontinued operation         0.04     0.02     0.09     0.05
                                           -------- -------- -------- ---------
                                          $    0.16 $   0.33 $   0.53 $   0.70
                                           ======== ======== ======== ========

                             See accompanying notes.
<page>


                          Metrologic Instruments, Inc.
                 Consolidated Statement of Shareholders' Equity
                                  (Unaudited)
                             (amounts in thousands)


                                                           Accumulated
                                       Additional             Other
                                  Common Paid-in  Retained Comprehensive
                                   Stock Capital  Earnings Income/(Loss) Total
                                   ----  -------  -------- ----------  -------

Balances, January 1, 2006          $223 $ 92,828 $ 68,975   $ (1,736)  $160,290

  Comprehensive income:
     Net income                       -        -   12,353          -     12,353
     Other comprehensive income-
       foreign currency
       translation adjustment         -        -        -      1,053      1,053
                                                                       --------
  Total comprehensive income          -        -        -          -     13,406

Stock-based compensation              -    3,663        -          -      3,663
Exercise of stock options             5    1,930        -          -      1,935
Tax benefit from exercise of stock
  options                             -    2,063        -          -      2,063
Stock issued through employee stock
    purchase plan                     -      164        -          -        164
                                   --------------------------------------------
Balances, September 30, 2006       $228 $100,648 $ 81,328   $   (683)  $181,521
                                   ============================================


                             See accompanying notes.
<page>

                          Metrologic Instruments, Inc.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                             (amounts in thousands)


                                                       Nine Months Ended
                                                          September 30,
                                                     2006               2005
                                                   --------           --------
Operating activities
Net income                                         $ 12,353           $ 16,254
Adjustments to reconcile net income to net cash
   provided by operating activities:
  Depreciation                                        2,774              2,638
  Amortization                                        2,537              2,509
  Stock-based compensation                            3,663                  -
  Deferred income tax benefit                          (478)                 -
  Excess tax benefits from stock-based compensation  (2,063)                 -
  Gain on disposal of equipment                           -                 (4)
  Symbol litigation settlement payment              (14,882)                 -
  Note discount amortization                             16                 84
  Changes in operating assets and liabilities:
     Accounts receivable                             (3,338)            (9,959)
     Inventory                                       (8,272)            (1,366)
     Other current assets                             2,114             (1,987)
     Other assets                                       (67)               (77)
     Accounts payable                                   667             (1,531)
     Accrued expenses                                 9,441              1,913
     Other liabilities                                    -                (10)
                                                    -------            -------
Net cash provided by
  operating activities                                4,465              8,464

Investing activities
Purchase of property, plant and equipment             (3,980)           (3,203)
Purchase of minority interest in subsidiary                -            (2,309)
Purchases of marketable securities                  (158,241)         (152,550)
Sales of marketable securities                       154,984           145,925
Patents and trademarks                                (1,751)             (979)
Proceeds from sale of equipment                           39                79
                                                     -------           -------
Net cash used in investing activities                 (8,949)          (13,037)

Financing activities

Proceeds from exercise of stock options and
     employee stock purchase plan                      2,099             1,456
Excess tax benefits from stock-based
     compensation                                      2,063                 -
Net (repayments) borrowings on lines of credit        (1,310)            4,269
Principal payments on notes payable                   (2,400)           (1,658)
Capital lease payments                                   (58)             (107)
Net cash provided by                                 -------            -------
  financing activities                                   394             3,960

Effect of exchange rates on cash                        (564)            1,441
                                                     -------           -------
Net (decrease)increase in cash and cash
     equivalents                                      (4,654)              828
Cash and cash equivalents at beginning of period      49,463            36,340
                                                     -------            -------
Cash and cash equivalents at end of period          $ 44,809          $ 37,168
                                                    ========            =======
Supplemental Disclosure:
     Cash paid for interest                         $  1,188          $    658
                                                    ========            =======
     Cash paid for income taxes                     $  2,432          $  5,027
                                                    ========            =======



                             See accompanying notes.
<page>
                          METROLOGIC INSTRUMENTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                  (amounts in thousands except per share data)
                                   (Unaudited)


1.      Business

Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in one-dimensional and two-dimensional bar code
reading, portable data collection, optical character recognition, and image lift
for customers in retail, commercial, manufacturing, transportation and
logistics, and postal and parcel delivery industries. In September 2006, the
Board of Directors of the Company approved the divestiture of its wholly owned
subsidiary, Adaptive Optics Associates, Inc. ("AOA"), the subsidiary principally
engaged in developing, manufacturing, marketing and distributing custom
electro-optical and opto-mechanical systems which include wavefront correction,
industrial inspection, and scanning and dimensioning systems for commercial and
government customers. The sale of AOA was completed in October 2006 (see Note 9
- Discontinued Operation).

The Company's products are sold in more than 110 countries worldwide through the
Company's sales, service and distribution offices located in North and South
America, Europe and Asia.

On September 12, 2006, the Company entered into a definitive agreement to be
acquired by a group of investors led by Francisco Partners, C. Harry Knowles,
Founder and Interim CEO of the Company, and Elliott Associates, L.P. Under the
terms of the agreement, each outstanding share of common stock of the Company
will be cancelled and converted into the right to receive $18.50 in cash,
without interest. The transaction is anticipated to close during the fourth
quarter of 2006.

2.       Accounting Policies and Basis of Presentation

Interim Financial Information

The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with accounting principles generally accepted in the
United States for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring adjustments, except for the
Brazil tax assessment matter noted below) necessary for a
fair presentation of the Consolidated Financial Statements have been included.
The results of the interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year. The Consolidated Financial Statements and
these Notes should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in this
Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for
the year ended December 31, 2005, including the Consolidated Financial
Statements and the Notes to Consolidated Financial Statements for the year ended
December 31, 2005 contained therein.

The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
<page>
Brazil Tax Assessments

As a result of an audit by Brazilian taxing authorities during the third quarter
of 2006, the Company was assessed approximately $0.4 million for the failure to
withhold certain social taxes on certain payments between 2002 and 2004. This
amount was paid during October 2006. The Company has accrued an additional $0.8
million during the third quarter of 2006 for the potential liability associated
with similar payments during 2005 and 2006 and other similar matters, resulting
in a total charge of approximately $1.2 million which is reflected in selling,
general and administrative expenses in our Consolidated Statement of Operations.

Discontinued Operation

In September 2006, the Company entered into a definitive agreement to sell its
wholly owned subsidiary Adaptive Optics Associates, Inc. ("AOA"). As of
September 30, 2006, AOA met all of the criteria in Statement of Financial
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," to present the results of operations for AOA as a
discontinued operation. Accordingly, all current and prior period Consolidated
Statements of Operations reflect AOA as a discontinued operation. See Note 9 --
Discontinued Operation.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current
period presentation.

Investments

Marketable securities consist of investments in auction rate securities and
other similar type instruments. All of these investments are classified as
available-for-sale. The costs of these marketable securities approximate their
market values as of September 30, 2006 and December 31, 2005. The Company
invests excess cash in a variety of marketable securities, including auction
rate securities. Auction rate securities have long-term underlying maturities,
but have interest rates that are reset every 90 days or less, at which time the
securities can typically be purchased or sold, creating a highly liquid market.
The Company's intent is not to hold these securities to maturity, but rather to
use the interest rate reset feature to provide liquidity as necessary. The
Company's investment in these securities provides higher yields than money
market and other cash equivalent investments.

3.       Earnings per share

Basic earnings per share ("Basic EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding during the period.

Diluted earnings per share ("Diluted EPS") considers the impact of potentially
dilutive securities except in periods in which there is a loss because the
inclusion of the potential common shares would have an anti-dilutive effect.

Diluted EPS excludes certain options to purchase shares of common stock because
the options' exercise prices were greater than the average market price of the
common shares. For the three and nine month periods ended September 30, 2006 and
2005, potential common shares excluded were 1,229,084 and 816,000, respectively
for the three month period and 1,152,696 and 800,023 respectively, for the nine
month period.
<page>
The following table reconciles the numerator and denominator of the computations
of Diluted EPS for common stockholders for the periods presented:


                                  Three Months ended September 30,
                   -----------------------------------------------------------
                               2006                           2005
                   --------------------------    -----------------------------
                                        Per                             Per
                                       Share                           Share
                   Income    Shares    Amount    Income    Shares      Amount
                   ------- ----------  ------    ------- ----------   --------
Earnings from
continuing operations:

Basic EPS         $2,763   22,454,846  $0.12    $7,317   22,202,085   $0.33
Effect of dilutive
  securities                  536,342                       900,935
                   ------- ----------  ------    ------- ----------   --------
Diluted EPS       $2,763   22,991,188  $0.12    $7,317   23,103,020   $0.31
                   ------- ----------  ------    ------- ----------   --------

Earnings from
discontinued operation:

Basic EPS         $  820   22,454,846  $0.04    $  383   22,202,085   $0.02
Effect of dilutive
  securities                  536,342                       900,935
                   ------- ----------  ------    ------- ----------   --------
Diluted EPS       $  820   22,991,188  $0.04    $  383   23,103,020   $0.02
                   ------- ----------  ------    ------- ----------   --------

Net Income:

Basic EPS         $3,583   22,454,846  $0.16    $7,700   22,202,085   $0.35
Effect of dilutive
  securities                  536,342                       900,935
                   ------- ----------  ------    ------- ----------   --------
Diluted EPS       $3,583   22,991,188  $0.16    $7,700   23,103,020   $0.33
                   ------- ----------  ------    ------- ----------   --------


                                  Nine Months ended September 30,
                   -----------------------------------------------------------
                               2006                           2005
                   --------------------------    -----------------------------
                                        Per                             Per
                                       Share                           Share
                   Income    Shares    Amount    Income    Shares      Amount
                   ------- ----------  ------    ------- ----------   --------
Earnings from
continuing operations:

Basic EPS         $10,340  22,518,212  $0.46    $15,161  22,081,901   $0.69
Effect of dilutive
  securities                  626,204                     1,019,128
                   ------- ----------  ------    ------- ----------   --------
Diluted EPS       $10,340  23,144,416  $0.44    $15,161  23,101,029   $0.65
                   ------- ----------  ------    ------- ----------   --------
Earnings from
discontinued operation:

Basic EPS         $ 2,013  22,518,212  $0.09    $ 1,093  22,081,901   $0.05
Effect of dilutive
  securities                  626,204                     1,019,128
                   ------- ----------  ------    ------- ----------   --------
Diluted EPS       $ 2,013  23,144,416  $0.09    $ 1,093  23,101,029   $0.05
                   ------- ----------  ------    ------- ----------   --------

Net Income:

Basic EPS         $12,353  22,518,212  $0.55    $16,254  22,081,901   $0.74
Effect of dilutive
  securities                  626,204                     1,019,128
                   ------- ----------  ------    ------- ----------   --------
Diluted EPS       $12,353  23,144,416  $0.53    $16,254  23,101,029   $0.70
                   ------- ----------  ------    ------- ----------   --------
<page>
4.        Inventory

     Inventory consists of the following:

                                        September 30, 2006  December 31, 2005
                                        ------------------  ------------------
         Raw materials                      $ 10,473             $ 10,368
         Work-in-process                       3,532                4,316
         Finished goods                       22,183               14,680
                                              ------               ------
           Total                            $ 36,188             $ 29,364
                                              ------               ------

5.        Comprehensive Income

     The Company's total comprehensive income was as follows:

                                           Three Months Ended Nine Months Ended
                                             September 30,      Septembeer 30,
                                            2006       2005    2006       2005
                                            ----       ----    ----       ----

     Net income                           $ 3,583    $ 7,700  $12,353   $16,254
     Other comprehensive income (loss):
        Change in equity due to
         foreign currency
         translation adjustments              308       610     1,053      (588)
                                          -------    -------  -------   -------
     Comprehensive income                 $ 3,891    $ 8,310  $13,406   $15,666
                                          =======    =======  =======   =======


6.      Goodwill and Other Intangible Assets

The changes in the net carrying amount of goodwill for the nine months ended
September 30, 2006 consist of the following:



                                         Data
                                        Capture &     Industrial
                                       Collection     Automation       Total
                                        ---------     ----------     ---------

Balance as of January 1, 2006           $  15,067      $  10,678     $  25,745
Reclassification of AOA goodwill to
    assets held for sale                        -        (10,678)      (10,678)
Foreign currency translation
    adjustments                               687              -           687
                                        ---------      ---------     ---------
Balance as of September 30, 2006        $  15,754      $       -     $  15,754
                                        =========      =========     =========
<page>
Other Intangibles

The following table reflects the components of identifiable intangible assets:


                             September 30, 2006          December 31, 2005
                         --------------------------  --------------------------
             Amortizable  Gross                Net     Gross              Net
                Life     Carrying Accumulated  Book  Carrying Accumulated Book
               (years)    Amount  Amortization Value  Amount  Amorization Value
             ----------- --------------------------- ---------------------------
Computer
 software         5      $11,920  $ (4,761)  $ 7,159 $11,920   $(2,971) $ 8,949
Patents and
 trademarks      17       10,735    (3,329)    7,406   9,207    (2,901)   6,306
Holographic
 technology      10        1,082    (1,082)        -   1,082    (1,062)      20
Advance
 license fee     17        2,750    (1,199)    1,551   2,750    (1,075)   1,675
Covenants not
 to compete       3          700      (467)      233     700      (292)     408
                          ------    -------   ------  ------    ------   ------
   Total                 $27,187  $(10,838)  $16,349 $25,659   $(8,301) $17,358
                          ======    =======   ======  ======    ======   ======


The Company has determined that the lives previously assigned to these
finite-lived assets are still appropriate and has recorded $2,537 and $2,509 of
amortization expense for the nine months ended September 30, 2006 and 2005,
respectively.

7.      Stock-Based Compensation

The Company adopted SFAS 123(R), "Share-based Payment" ("SFAS No. 123(R)") on
January 1, 2006. SFAS No. 123(R) requires that the fair value of stock-based
compensation be recognized in financial statements. Prior to January 1, 2006,
the Company followed Accounting Principles Board ("APB") Opinion 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
stock compensation.

The Company elected the modified prospective method in adopting SFAS No. 123(R).
Under this method, the provisions of SFAS No. 123(R) apply to all awards granted
or modified after the date of adoption. In addition, the unrecognized expense of
awards not yet vested at the date of adoption is recognized in net income in the
periods after the date of adoption using the same valuation method
(Black-Scholes) and assumptions determined under the original provisions of SFAS
123, Accounting for Stock-Based Compensation, as disclosed in our previous
filings.

Under the provision of SFAS No. 123(R), the Company recorded $1,022 of
stock-based compensation expense during the three-month period ended September
30, 2006 in relation to its Stock Option Plans. The Company recorded $3,640 and
$23 of stock-based compensation expense during the nine-month period ended
September 30, 2006 in relation to its Stock Option Plans and Employee Stock
Purchase Plan, respectively. The Company recorded an associated tax benefit
related to the stock-based compensation expense of $221 and $869 during the
three-month and nine-month periods ended September 30, 2006, respectively.

SFAS No. 123(R) also required the Company to change its classification, in our
consolidated statement of cash flows, of any tax benefits realized upon the
exercise of stock options in excess of that which is associated with the expense
recognized for financial reporting purposes. This amount totaling $2,063 is
presented as financing cash inflows rather than as reductions of income taxes
paid in our consolidated statements of cash flows for the nine-month period
ended September 30, 2006.
<page>
Stock Option Plans

During 2004, the Company's Board of Directors adopted the 2004 Equity Incentive
Plan as the 1994 Incentive Plan had expired. The Company's Board of Directors
has granted incentive and non-qualified stock options pursuant to the Company's
Incentive Plans to certain eligible employees and board members. The shares
issued will either be authorized and previously unissued common stock or issued
common stock reacquired by the Company. The total number of shares authorized
for issuance under the 2004 Equity Incentive Plan is 1,500,000. Shares canceled
for any reason without having been exercised shall again be available for
issuance under the Plan. An aggregate of 457,399 shares were available for grant
under the 2004 Equity Incentive Plan at September 30, 2006. Options granted
under the 2004 Equity Incentive Plan become exercisable over periods ranging
from one to four years. Each option shall expire no more than ten years after
becoming exercisable.

The weighted-average fair value of the options granted under the stock option
plans for the nine months ended September 30, 2006 and 2005 was $9.66 and
$12.04, respectively. We utilized the Black-Scholes valuation model for
estimating these fair values, with the following weighted-average assumptions:


                                      Nine Months Ended
                                        September 30,
                                     --------------------
                                      2006         2005

Expected Volatility                  56.0  %      72.2  %
Average risk-free interest rate       4.6  %       3.9  %
Expected life (in years)              4.2          4.7  %
Dividend yield                        0.0  %       0.0  %


The dividend yield of zero is based on the fact that we have never paid cash
dividends and have no present intention to pay cash dividends. Expected
volatility is generally based on the historical volatility of our common stock
over the period commensurate with the expected life of the options. The
risk-free interest rate is derived from the U.S. Federal Reserve rate in effect
at the time of grant.   The expected life calculation is based on the observed
and expected time to the exercise of options by our employees based on
historical exercise patterns for similar type options.

Based on our historical experience of pre-vesting option cancellations, the
Company has assumed an annualized forfeiture rate of 2.6% for our options. Under
the true-up provisions of SFAS No.123(R), we will record additional expense if
the actual forfeiture rate is lower than we estimated, and will record a
recovery of prior expense if the actual forfeiture is higher than we estimated.

The amortization of stock compensation under SFAS 123(R) for the period after
its adoption, and under APB 25 or SFAS 123 (pro forma disclosure) for the period
prior to its adoption was calculated using the accelerated method in accordance
with Financial Accounting Standard Board ("FASB") Interpretation ("FIN") No. 28.
Total compensation cost of options granted but not yet vested, as of September
30, 2006, was $5.0 million, which is expected to be recognized over the weighted
average period of 1.56 years.

<page>
The following table summarizes activity under all stock option plans:

                                    Nine Months Ended September 30, 2006
                              -------------------------------------------------

                                            Weighted    Weighted
                                            Average      Average     Aggregate
                                            Exercise    Remaining    Intrinsic
                                 Shares     Price Per  Contractual     Value
                              Outstanding     Share       Term        (000's)
                              -----------   ---------  -----------   ----------

Balance at December 31, 2005   1,712,553       $11.72

Options Granted                  474,900       $20.16

Options Exercised               (436,073)      $ 4.42

Options Cancelled               (175,798)      $18.47
                               ----------

Balance at
  September 30, 2006           1,575,582       $15.53      7.61       $ 6,695
                               ==========

Exercisable at
  September 30, 2006             780,087       $10.84      6.41       $ 6,689


SFAS No. 123R requires us to present pro-forma information for the comparative
period prior to the adoption as if we had accounted for all our stock options
under the fair value method of the original SFAS 123. The following table
illustrates the effect on net income and net income per share if we had applied
the fair value recognition provisions of SFAS 123 to stock-based compensation in
the comparable period in 2005:

                                          Three Months Ended  Nine Months Ended
                                          September 30, 2005  September 30, 2005
                                              (Pro forma)         (Pro forma)
Net income:
   Net income as reported:                      $  7,700            $ 16,254
   Deduct:  (total stock-based
   employee compensation expense
   determined under fair value based
   method, net of related taxes)                    (701)             (2,166)
                                                --------            --------
   Pro forma net income                         $  6,999            $ 14,088
                                                ========            ========
Earnings per share:
      Basic:
         As reported                            $   0.35            $   0.74
         Pro forma                                  0.32                0.64
      Diluted:
         As reported                            $   0.33            $   0.70
         Pro forma                                  0.30                0.61


Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan whereby eligible employees have
the opportunity to acquire the Company's common stock quarterly through payroll
deductions, at 90% of the lower of (a) the fair market value of the stock on the
first day of the applicable quarterly offering period or (b) the fair market
value of the stock on the last day of the applicable quarterly offering period.
This plan is considered a compensatory plan under the provisions of SFAS No.
123(R).
<page>

8.      Business Segment Information

The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in the three-month and
nine-month periods ended September 30, 2006 or 2005. The Company manages its
business on a business segment basis dividing the business into two major
segments: Data Capture and Collection and Industrial Automation. The Industrial
Automation business segment was previously titled "Industrial Automation/Optical
Systems"; however due to the divestiture of our wholly owned subsidiary,
Adaptive Optics Associates, Inc. ("AOA"), we changed its title to be reflective
of the current business activities within this segment. See Note 9 -
Discontinued Operation for additional information regarding the divestiture of
AOA.

The accounting policies of the segments are the same as those described in the
summary of the significant accounting policies. A summary of the business
segment of continuing operations for the three-and nine-month periods ended
September 30, 2006 and 2005 is included below:


                                    Three Months Ended     Nine Months Ended
                                       September 30,         September 30,
                                      2006       2005      2006         2005

                                   ---------------------  --------------------

Business segment net sales:
     Data Capture and Collection   $  50,553    $ 43,962  $ 151,881   $119,618
     Industrial Automation             2,642       1,945      6,202      6,732
                                   ---------------------  --------------------
     Total                         $  53,195    $ 45,907  $ 158,083   $126,350
                                   ---------------------  --------------------
Business segment gross profit:
     Data Capture and Collection   $  22,767    $ 20,510  $  66,031   $ 56,869
     Industrial Automation             1,322       1,318      2,289      3,448
                                   ---------------------  --------------------
     Total                         $  24,089    $ 21,828  $  68,320   $ 60,317
                                   ---------------------  --------------------

Business segment operating income:
     Data Capture and Collection   $   3,441    $  8,739  $  15,483   $ 21,109
     Industrial Automation               213         523       (873)     1,056
                                   ---------------------  --------------------
     Total                         $   3,654    $  9,262  $  14,610   $ 22,165
                                   ---------------------  --------------------
Total other income (expenses)      $     381    $  2,142  $   1,112   $  1,528
                                   ---------------------  --------------------
Income from continuing
  operations before provision
  for income taxes                 $   4,035    $11,404   $  15,722   $ 23,693
                                   ---------------------  --------------------
<page>
9.      Discontinued Operation

In September 2006, the Company entered into a definitive agreement to sell its
wholly owned subsidiary, AOA, for approximately $40 million, subject to certain
working capital adjustments upon finalization of the closing balance sheet. The
agreement also provides for $4 million of the consideration to be placed in
escrow to secure the Company's obligations under certain representation and
warranty provisions. The transaction closed in October 2006 and is expected to
result in a gain on sale before income taxes of approximately $18 million.

Income from discontinued operation consists of direct revenues and direct
expenses of AOA, including cost of revenues, as well as other fixed costs to the
extent that such costs will be eliminated as a result of the transaction.
Certain general corporate overhead costs have not been allocated to the
discontinued operation as they are recorded on a consolidated basis. A summary
of the operating results included in discontinued operation in the accompanying
consolidated statements of operations is as follows:

                                    Three Months Ended     Nine Months Ended
                                       September 30,         September 30,
                                      2006       2005      2006         2005
                                   ---------    --------  ---------   --------

Sales                              $  10.927    $  8,098  $  28,824   $ 23,110
Cost of sales                          8,335       6,262     21,423     18,085
                                   ---------    --------  ---------   --------
Gross profit                           2,592       1,836      7,401      5,025

Selling, general and
 administrative expense                1,125         858      3,329      2,547
Research and Development expenses        200         351        789        774
                                   ---------    --------  ---------   --------
Income from discontinued
 operation before taxes                1,267         627      3,283      1,704

Income taxes on discontinued
 operation                               447         244      1,270        611
                                   ---------    --------  ---------   --------
Income from discontinued
  operation, net of income taxes   $     820    $   383   $   2,013   $  1,093
                                   =========    ========  =========   ========


The following table summarizes the major classes of assets and liabilities of
AOA as of September 30, 2006 and December 31, 2005:


                                                    September 30, December 31,
                                                        2006          2005
                                                        ----          ----

Accounts receivable, net                             $   7,489     $   8,531
Inventory                                                2,374         3,011
Other current assets                                       220           241
Property, plant and equipment, net                       3,384         3,356
Goodwill                                                10,678        10,678
Other intangibles                                          223           214
Other assets                                                30            30
                                                     ---------     ---------
Assets of discontinued operation held for sale       $  24,398     $  26,061
                                                     ---------     ---------

Accounts payable                                     $   1,272     $   1,894
Accrued expenses                                         2,423         3,287
Deferred contract revenue                                  102           239
Deferred income tax liability                              453            36
                                                     ---------     ---------
Liabilities of discontinued operation held for sale  $   4,250     $   5,456
                                                     ---------     ---------
<page>
10.     Acquisitions and Asset Purchases

Visible-RF, LLC

On May 5, 2006, the Company acquired all of the assets of Visible-RF, LLC, a
privately held start-up company located in Needham, MA for $750. The acquisition
of the assets of Visible-RF, LLC represents a significant addition to the
Company's technology portfolio. This technology combines the benefits of a paper
label with the advantages of RFID to display visible information that is updated
via a wireless signal. The Company allocated the cost to intangibles for the
Visible-RF patent portfolio which is being amortized over its estimated useful
life of 17 years.

Omniplanar, Inc.

On September 24, 2004, the Company acquired 100% of the common stock of
Omniplanar, Inc. ("Omniplanar"), an imaging software company, for $12,851, at
present value, including acquisition costs and assumed liabilities. The Company
paid $9,050 at closing, $1,950 during the year ended December 31, 2005 and
$1,950 in March 2006. Omniplanar supplies a complete package of bar code reading
software for 2D imaging for fixed position, conveyor belt and hand held readers
which can be optimized for specific hardware applications. The acquisition of
Omniplanar represents a significant addition to the Company's technology
portfolio. The Company has licensed the SwiftDecoder software since the year
2000 for use in its iQ(R) line of industrial vision-based products. The Company
uses this software's unique decoding ability in other products as well. The
assets acquired have been recorded at their estimated fair values. The results
of operations for Omniplanar have been included in the Industrial Automation
business segment.

In connection with the acquisition, the Company allocated $12,620 to
identifiable intangible assets comprising $11,920 of computer software which is
being amortized over 5 years and $700 to a non-compete agreement which is being
amortized over 3 years.

Metrologic do Brasil

On February 4, 2003, the Company paid cash of $71 and signed three annual
promissory notes with a total discounted value of $204 for the remaining 49%
interest in Metrologic do Brasil. During the period ended March 31, 2006, the
Company paid the final promissory note in the amount of $75. The total purchase
price and costs in excess of assets acquired (goodwill) was $275.

Metrologic Eria Iberica ("MEI")

On August 5, 2003, the Company entered into an agreement to purchase the
remaining 49% interest in MEI for a purchase price of 5,900 Euros. Payments were
being made in twelve quarterly installments over three years which commenced
August 5, 2003 with a scheduled maturity date of April 3, 2006. On December 1,
2005, the Company accelerated the payments and purchased the remaining 23%
interest for approximately 2,700 Euros or $3,200 at the exchange rate on
December 31, 2005. The aggregate purchase price was 5,854 Euros or $7,099 at
various exchange rates over the installment period. The Company now owns 100% of
MEI.

11.     Recently Issued Accounting Standards

In November 2004, the FASB issued Statement No. 151, "Inventory Costs-An
Amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, handling costs and
wasted material (spoilage). Among other provisions, the new rule requires that
such items be recognized as current-period charges, regardless of whether they
meet the criterion of "so abnormal" as stated in ARB 43. SFAS 151 is effective
for fiscal years beginning after June 15, 2005. The adoption of this statement
did not have a material effect on the Company's consolidated financial position,
consolidated results of operations or liquidity.
<page>
In February 2006, the FASB issued Statement No. 155, "Accounting for Certain
Hybrid Financial Instruments-An Amendment of FASB Statements No. 133 and 140"
("SFAS No. 155"). SFAS No. 155 allows financial instruments that contain an
embedded derivative that otherwise would require bifurcation to be accounted for
as a whole on a fair value basis, at the holders' election. SFAS No. 155 also
clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140.
This statement is effective for all financial instruments acquired or issued in
fiscal years beginning after September 15, 2006. The Company does not expect
that the adoption of SFAS No. 155 will have a material impact on the Company's
consolidated financial position, consolidated results of operations or
liquidity.

In March 2006, the FASB issued Statement No. 156, "Accounting for Servicing of
Financial Assets-An Amendment of FASB Statements No. 140" ("SFAS No. 156"). SFAS
No. 156 provides guidance on the accounting for servicing assets and liabilities
when an entity undertakes an obligation to service a financial asset by entering
into a servicing contract. This statement is effective for all transactions in
fiscal years beginning after September 15, 2006. The Company does not expect
that the adoption of SFAS No. 156 will have a material impact on the Company's
consolidated financial position, consolidated results of operations or
liquidity.

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the way companies are
to account for uncertainty in income taxes recognized in financial statements
and prescribes a consistent recognition threshold and measurement attribute for
recognizing, derecognizing, and measuring the tax benefits of a tax position
taken, or expected to be taken, on a tax return. This Interpretation is
effective for fiscal years beginning after December 15, 2006, although early
adoption is permitted. The Company does not plan to adopt early and is currently
in the process of evaluating the impact, if any, the adoption of the
Interpretation will have on the Company's consolidated financial position,
consolidated results of operations or liquidity.

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements for fair-value
measurements that are already required or permitted by other GAAP. The
provisions of SFAS No. 157 are to be applied prospectively and are effective for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact, if any, the adoption of this statement will have on the
Company's consolidated financial position, consolidated results of operations or
liquidity.

12.     Legal Matters

Symbol Technologies, Inc. v. Metrologic

On May 3, 2002, we were served with a lawsuit that was filed on April 12, 2002
by Symbol Technologies, Inc. ("Symbol"), in the U.S. District Court for the
Eastern District of New York alleging that we were in breach of the terms of the
License Agreement between us and Symbol (the "Symbol Agreement"). The Complaint
sought a declaratory judgment from the Court that we were in breach of the
Symbol Agreement. On March 31, 2003, the Court entered its decision on the
parties' respective motions for summary judgment, and finding in our favor, the
Court dismissed certain counts of Symbol's complaint. On April 9, 2003, Symbol
voluntarily dismissed the remaining counts of the complaint. Symbol filed its
Notice of Appeal with the U.S. Court of Appeals for the Second Circuit on May 7,
2003. On December 23, 2003, the Court of Appeals dismissed Symbol's appeal in
this matter. In the interim, Symbol decided to proceed with the arbitration for
which the Company had filed a Demand in June 2002, which had been stayed pending
the decision by the lower court. On June 26, 2003, Symbol filed an Amended
Answer and Counterclaims asserting that (a) eleven of Metrologic's products are
royalty bearing products, as defined under the Symbol Agreement, and (b) in the
alternative, those products infringe upon one or more of Symbol's patents. In
February 2005, the arbitrator entered an interim award, finding that eight of
the products are not royalty bearing products under the Symbol Agreement but
that three of the products are royalty bearing products.
<page>
In August 2005, the arbitrator entered a final ruling in the arbitration
awarding Symbol past royalties on certain of the Company's products plus
interest. Symbol then filed a motion to enter the judgment with the U.S.
District Court for the Southern District of New York. In response, the Company
filed its motion to vacate the arbitrator's award in the same Court. In February
2006, the Judge granted Symbol's motion to enter a judgment affirming the
arbitrator's award for past royalties. On March 13, 2006, the Company paid $14.9
million reflecting royalties and interest due in accordance with the judgment of
which $14.4 million was accrued for at December 31, 2005, and recorded a charge
of $0.5 million for interest due through the payment date. With the payment made
on August 15, 2006 for royalties due for the quarter ended June 30, 2006,
significant royalty obligations for these products ended.

On September 23, 2005, Symbol filed suit against the Company in the U.S.
District Court for the Eastern District of Texas alleging patent infringement.
Symbol filed a related case before the International Trade Commission ("ITC")
also alleging patent infringement of the same patents. A notice of the
investigation instituted by the ITC was served on the Company on October 24,
2005. The case in the U.S. District Court for the Eastern District of Texas has
been stayed pending the outcome of the matter before the ITC. Trial before the
ITC commenced on July 24, 2006 and concluded on August 1, 2006. The parties
submitted post trial briefs and a decision by the Administrative Law Judge is
expected in late January 2007. Metrologic stands firm in its belief that its
products do not infringe Symbol's patents. In this regard, by order dated April
17, 2006, the Administrative Law Judge found one of Symbol's patents to be
invalid. Metrologic has vigorously defended the remaining allegations of patent
infringement.

On November 4, 2005, Symbol filed another suit against the Company in the U.S.
District Court for the Eastern District of Texas alleging patent infringement.
The complaint has been served on and answered by the Company. Symbol claims, and
we deny, that three of our products infringe six of their patents. Discovery is
in the early stages. We plan a vigorous defense of this claim.

Metrologic v. Symbol Technologies, Inc.
On June 18, 2003, the Company filed suit against Symbol in the U.S. District
Court for the District of New Jersey alleging claims of patent infringement of
certain of our patents by at least two Symbol products. The complaint also
contains a claim for breach of the Symbol Agreement between the parties.
Symbol's answer to the complaint, filed on July 30, 2003, included counterclaims
requesting that a declaratory judgment be entered that the patents in suit are
invalid, are not infringed by Symbol and that Symbol is not in breach of the
Symbol Agreement. The Court heard arguments on the construction of the claims in
the patents in suit in March 2006 and issued its decision in this regard on
September 22, 2006. On October 25, 2006, the matter was settled, in principle,
and court papers ending the litigation have been submitted for approval.  Upon
approval, the case will be dismissed.

On May 17, 2005, the Company filed suit against Symbol in the U.S. District
Court for the District of New Jersey for breach of contract for failure to pay
royalties in accordance with the terms of the Symbol Agreement. In September
2005, the parties filed cross motions for summary judgment. On May 1, 2006,
Symbol's motion for summary judgment was denied. On June 27, 2006, our motion
for summary judgment was granted. An order calling for the payment to us of
$2.65 million was signed by the Court on August 3, 2006. Symbol has appealed the
judgment to the Third Circuit Court of Appeals. A briefing schedule for the
appeal is expected shortly. The amounts received as a consequence of the August
3 order, less the approximately $0.8 million previously set up as a receivable
from Symbol, have been recorded as a current liability in the Company's
Consolidated Balance Sheet. The Company will not record a gain relating to this
matter in its Consolidated Statement of Operations until the decision is
finalized and all appeal rights are exhausted by Symbol.

On May 8, 2006, the Company filed a Complaint against Symbol in the U.S.
District Court for New Jersey. This new Complaint asserts infringement by Symbol
of several Metrologic patents and seeks declaratory, injunctive and monetary
relief. More specifically, we assert that several of Symbol's mobile computers
infringe our mobile computing patent portfolio. Symbol has filed an answer and
counterclaim asserting, among other things, that it is licensed to use our
patents and that the patents are invalid. Discovery in this matter is in the
early stages.
<page>
Brazil
Our subsidiary in Brazil has received notices from the local taxing authorities
disputing the amount of import taxes and duties paid on imported products prior
to December 2002. We have filed appeals of their assessments in the
administrative courts and are awaiting decisions on our appeals. We have accrued
a liability for these claims based on what we believe to be the most likely
outcome of these appeals and other potential administrative processes. If we are
unsuccessful in our appeals and other administrative processes, the actual
liability could be approximately $0.7 million higher than the amount we have
accrued as of September 30, 2006.

Janet Norton v. Metrologic Instruments, Inc.
On May 1, 2006, the Company received a Complaint filed in the Superior Court of
New Jersey which asserts an employment based claim by a current employee. Our
investigation to date demonstrates that this claim has no merit. The plaintiff
has filed an amended complaint and we have filed an answer. Discovery is just
beginning.

PSC Scanning v. Metrologic Instruments, Inc.
On May 10, 2006, PSC Scanning ("PSC") filed an action against the Company in the
U. S. District Court in Oregon. In its complaint, PSC asserted that our Stratos
line of bi-optic scanners infringe two new patents issued on December 13, 2005
and January 31, 2006. We have filed an answer and counterclaim and are
vigorously defending this matter. Discovery is underway in anticipation of a
possible August 2007, trial date. Additionally, complying with the terms of the
settlement agreement effective March 16, 2005, we have notified PSC that two
lines of their products infringe our patents.

Metrologic Instruments, Inc. Shareholders Litigation
On September 12, 2006, the Company announced the signing of a merger agreement,
a consequence of which, upon closing, will be that Metrologic will no longer be
a publicly held company. Within approximately two weeks after the announcement,
four shareholder actions were filed naming as defendants the Company and its
individual Board of Directors, among others. All four actions were initiated in
New Jersey state courts. An agreement has been reached to have these four
matters consolidated and heard by the Superior Court, Law Division, Camden
County. An order to this effect will be filed shortly. In anticipation of this
order, an amended class action complaint was filed on October 31, 2006. This
pleading again asserts, among other things, that the redemption price for the
stock specified in the merger agreement is unfair to shareholders. The Amended
Complaint seeks among other relief, an injunction blocking the merger or a
rescission of the merger or damages. The Company plans on vigorously defending
this case. We anticipate that discovery will begin shortly.

On October 6, 2006, the Company received a letter from the Securities and
Exchange Commission ("SEC") notifying us of the commencement of an informal
investigation to determine if violations of the Federal Securities Laws have
occurred and requesting certain information. The Company is in the process of
responding to the SEC's information request.


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

Forward Looking Statements; Certain Cautionary Language

Written and oral statements provided by us from time to time may contain certain
forward looking information, as that term is defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") and in releases made by the Securities
and Exchange Commission ("SEC"). This report contains forward-looking statements
which may be identified by their use of words like "plans," "expects," "will,"
"anticipates," "intends," "projects," "estimates" or other words of similar
meaning. All statements that address expectations or projections about the
future, including statements about the company's strategy for growth, product
development, market position, expenditures, and financial results, are
forward-looking statements. Forward-looking statements are based on certain
assumptions and expectations of future events. The Company cannot guarantee that
these assumptions and expectations are accurate or will be realized. See the
Risk Factors discussion set forth under Item 1A of our Annual Report on Form
10-K for the year ended December 31, 2005 for a description of risk factors that
could significantly affect the Company's financial results.
<page>
General

The following discussion of our results of operations and liquidity and capital
resources should be read in conjunction with our Consolidated Financial
Statements and the related Notes thereto appearing elsewhere in this Quarterly
Report on Form 10-Q and the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements for the year ended December 31, 2005 contained
in our Annual Report on Form 10-K for the year ended December 31, 2005. The
Consolidated Financial Statements for the three and nine months ended September
30, 2006 and 2005 are unaudited.

Metrologic Instruments, Inc. and its subsidiaries (collectively, "we", "us",
"our" or the "Company") are experts in optical image capture and processing
solutions. We utilize our expertise to design, manufacture and market
sophisticated imaging and scanning solutions serving a variety of point-of-sale,
commercial and industrial applications. Our solutions utilize a broad array of
laser, holographic and vision-based technologies designed to provide superior
functionality and a compelling value proposition for our customers.

On September 12, 2006, the Company entered into a definitive agreement to be
acquired by a group of investors led by Francisco Partners, C. Harry Knowles,
Founder and Interim CEO of the Company, and Elliott Associates, L.P. Under the
terms of the agreement, each outstanding share of common stock of the Company
will be cancelled and converted into the right to receive $18.50 in cash,
without interest. The transaction is anticipated to close during the fourth
quarter of 2006.

Critical Accounting Policies

In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States, the Company's management
must make decisions which impact the reported amounts and the related
disclosures. Such decisions include the selection of the appropriate accounting
principles to be applied and assumptions on which to base estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, the Company evaluates its estimates, including those related to
allowances for doubtful accounts, inventory reserves, legal contingencies,
stock-based compensation, and income taxes. 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. Other than the Company's
compliance with the new accounting requirements of Financial Accounting
Standards Board Statement No. 123(R), "Share Based Payment" ("SFAS 123(R)"),
there have been no material changes to the critical accounting policies listed
and described in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Company's 2005 Annual
Report on Form 10-K.

Stock-Based Compensation. Effective January 1, 2006, the Company adopted SFAS
123(R) using the modified prospective method, in which compensation cost is
recognized for (a) all share-based payments granted after the effective date and
(b) for all awards granted to employees prior to the effective date of SFAS
123(R) that remain unvested as of the effective date. Under the fair value
recognition provisions of SFAS 123(R), the Company recognizes share-based
compensation net of an estimated forfeiture rate and only recognizes
compensation cost for those shares expected to vest. The Black-Scholes
option-pricing model used in calculating the fair value of share-based payment
awards requires the input of highly subjective assumptions, including the
expected life of the share-based payment awards and stock price volatility. The
assumptions used in calculating the fair value of share-based payment awards
represent management's best estimates, and these estimates involve inherent
uncertainties and the application of management judgment. As a result, should
factors and assumptions change, such as volatility, the expected life, and
forfeiture rates, the share-based compensation expense could be materially
different in the future.
<page>
Executive Overview

We are experts in optical image capture and processing solutions. In recent
years, we have increased sales, cash flow from operations and net income
primarily through the introduction of new products, penetration into new markets
and a focus on cost reduction activities to maintain a competitive advantage.

Success factors critical to our business include sales growth through continued
penetration within our existing markets through new product introductions and
expanded sales efforts, entering into new markets, maintaining a highly
responsive and cost efficient infrastructure, achieving the financial
flexibility to ensure that we can respond to new market opportunities in order
to return value to our shareholders and selectively pursuing strategic
acquisitions.

In order to continue our penetration into new and existing markets, our strategy
involves expanding our sales channels and expanding our product development
activities. We have concentrated our direct sales efforts to further penetrate
some of the largest retailers in the United States as well as focusing on the
adoption of bar coding technology in the healthcare industry. During fiscal 2005
and year-to-date 2006, we continued to see increased orders with key retail
accounts which contributed to our quarter over quarter sales growth. Another key
factor in achieving this sales growth is expanding our geographic reach by
capitalizing on our presence throughout Asia and emerging markets in Central and
Eastern Europe. We believe these geographic areas will continue to be an
opportunity for continued growth, as evidenced by our investment in the
expansion of our Suzhou, China manufacturing facility which was completed in
2004, as well as the opening of new sales offices in these territories. Our
plans are to open additional offices in the Asia/Pacific region as we continue
to implement and build upon our "globally local" philosophy. In addition, we
continue to invest in developing new and improved products to meet the changing
needs of our existing customers. We are continuing to focus on executing our
core strategy of leveraging our engineering expertise to produce new bar code
scanners and industrial automation products that will allow us to penetrate new
markets that we have not previously served and gain market share in our existing
markets.

To maintain a highly responsive and cost efficient infrastructure, our focus is
to maximize the efficiency of our organization through process improvements and
cost containment. We continue to focus on our strategy for margin expansion
through specific engineering initiatives to reduce product and manufacturing
costs while improving product quality and yields and believe that fiscal 2006
will benefit from these specific initiatives. We also intend to further expand
our manufacturing capabilities at our Suzhou, China facility in future years to
continue to take advantage of these cost efficiencies.

Closely linked to the success factors discussed above is our continued focus to
maintain financial flexibility. As of September 30, 2006, we had total debt of
approximately $16.0 million. Furthermore, we had cash and cash equivalents and
marketable securities of approximately $72.5 million as of September 30, 2006.
We believe that our current cash and working capital positions and expected
operating cash flows will be sufficient to fund our working capital, planned
capital expenditures and debt repayment requirements for the foreseeable future.

In addition to our internal development and organic growth, we may selectively
pursue strategic acquisitions that we believe will broaden or complement our
current technology base and allow us to serve additional end users and the
evolving needs of our existing customers. In an effort to expand our market
presence in RFID (Radio Frequency Identification) as part of our planned growth
strategy, on May 5, 2006, the Company acquired all of the assets of Visible-RF,
LLC, a privately held company located in Needham, MA. The acquisition of
Visible-RF, LLC represents a significant addition to the Company's technology
portfolio. This technology combines the benefits of a paper label with the
advantages of RFID to display visible information that is updated via a wireless
signal. The Company intends to utilize its extensive worldwide sales and
distribution network to expand this new technology through its existing customer
base. In addition, Metrologic entered into a strategic partnership with MaxID
during March 2006 which has resulted in two recently introduced RFID readers for
the North American Market. Adding this RFID technology enables us to serve
customers in the supply chain and transportation/logistics markets and will help
redefine our Industrial Business strategy.
<page>
Results of Operations

The following table sets forth certain of our consolidated statement of
operations data as a percentage of revenues for the periods indicated. The
following discussion should be read in conjunction with our Consolidated
Financial Statements and the Notes to our Consolidated Financial Statements.

                                Three Months Ended     Nine Months Ended
                                  September 30,           Septmeber 30,
                                ------------------     --------------------
                                   2006      2005          2006      2005
                                ------------------     --------------------
Sales                              100.0%    100.0%       100.0%    100.0%
Cost of sales                       54.7%     52.5%        56.8%     52.3%
Gross profit                        45.3%     47.5%        43.2%     47.7%
Operating expenses:
 Selling, general and
  administrative expenses           33.0%     23.0%        29.2%     25.6%
 Research and development
  expenses                           5.4%      4.4%         4.8%      4.6%

Total operating expenses            38.4%     27.4%        34.0%     30.2%

Operating income                     6.9%     20.1%         9.2%     17.5%
Other income (expenses),
 net                                 0.7%      4.7%         0.7%      1.3%

Income from continuing operations
 before income taxes                 7.6%     24.8%         9.9%     18.8%

Provision for income taxes
on continuing operations             2.4%      8.9%         3.4%      6.8%

Net income from
 continuing operations               5.2%     15.9%         6.5%     12.0%

Income from discontinued
 operations net of income taxes      1.5%      0.9%         1.3%      0.9%

Net income                           6.7%     16.8%         7.8%     12.9%


Our business is divided into two major segments: Data Capture and Collection,
and Industrial Automation.

The Industrial Automation business segment was previously titled "Industrial
Automation/Optical Systems"; however, due to the divestiture of our wholly
owned subsidiary, Adaptive Optics Associates, Inc. ("AOA"), we changed its title
to be reflective of the current business activities within this segment.  See
Note 9 - Discontinued Operation for additional information regarding the
divestiture of AOA.

Bar code scanners are typically either handheld scanners or fixed projection
scanners. Handheld bar code scanners are principally suited for retail
point-of-sale, document processing, library, healthcare and inventory
applications. Fixed projection scanners, which can be mounted on or in a
counter, are principally suited for supermarkets, convenience stores, mass
merchandisers, health clubs and specialty retailers.

Industrial automation products are comprised of fixed position systems that are
either laser- or vision-based. These systems range from simple, one-scanner
solutions to complex, integrated systems incorporating multi-scanner, image
capture and dimensioning technologies.


<page>

The following table sets forth certain information regarding our revenues by our
two business segments for the periods indicated.


                                         Three Months Ended  Nine Months Ended
                                            September 30,       September 30,
                                           2006      2005      2006      2005
                                        ---------  --------  --------  --------
                                          ($ in Thousands)    ($ in Thousands)

     Data Capture & Collection          $  50,553  $ 43,962  $151,881  $119,618
     Industrial Automation                  2,642     1,945     6,202     6,732
                                        ---------  --------  --------  --------
     Total Company                      $  53,195  $ 45,907  $158,083  $126,350
                                        =========  ========  ========  ========

Most of our product sales in Western Europe, Brazil and Asia are billed in
foreign currencies and are subject to currency exchange rate fluctuations.
For the nine months ended September 30, 2006, sales and gross profit were
negatively affected by fluctuations in the value of the U.S. dollar relative to
certain foreign currencies, especially the euro, when compared to the
comparable period in 2005.


The following table sets forth certain information as to our sales by
geographic location:

                 ------------------------------ -------------------------------
                       Three Months Ended             Nine Months Ended
                         September 30,                  September 30,
                 2006       %     2005      %      2006      %     2005     %
                 ------------------------------ -------------------------------
($ in Thousands)

The Americas(1) $18,670   35.1% $19,588  42.7% $ 54,314   34.4% $ 50,342  39.8%
EMEA (2)         26,477   49.8%  19,185  41.8%   83,302   52.7%   57,438  45.5%
Asia/Pacific      8,048   15.1%   7,134  15.5%   20,467   12.9%   18,570  14.7%
                -------  ------ ------- ------ --------  ------ -------- ------
  Total         $53,195  100.0% $45,907 100.0% $158,083  100.0% $126,350 100.0%
                =======  ====== ======= ====== ========  ====== ======== ======

(1) The Americas is defined as North America, South America, Canada and Mexico
(2) EMEA is defined as Europe, Middle East and Africa

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

Sales increased 15.9% to $53.2 million in the three months ended September 30,
2006 from $45.9 million in the three months ended September 30, 2005. Sales of
our data capture and collection products increased by 15.0% while sales in our
industrial automation segment increased by 35.8%. Data capture and collection
sales increased approximately $1.5 million due to the strengthening of the euro
against the U.S. dollar and an increase of approximately $7.9 million due to
increased unit sales of handheld and in-counter scanners, including new product
offerings. These factors were partially offset by a decrease of approximately
$2.9 million resulting from lower average selling prices due to competitive
pricing pressures experienced in the retail sector, primarily in the United
States and Europe.

Our Industrial Automation business has exhibited a greater degree of volatility
than our data capture and collection business due to the timing and size of
related contracts in this business. The increase in the industrial automation
sales is attributed to higher contributions from our Omniplanar business during
the three months ended September 30, 2006 when compared to the comparable period
in 2005.
<page>
Sales to "The Americas" region decreased $0.9 million, or 4.7%, in the three
months ended September 30, 2006 when compared to the comparable period in 2005.
The decrease is attributed to the rollout of a significant order with a Tier 1
retailer in 2005. EMEA sales increased $7.3 million, or 38.0% in the three
months ended September 30, 2006 when compared to the same period a year ago. The
increase in EMEA sales is attributable to increased unit volume and the
strengthening of the euro against the U.S. dollar, offset by lower average
selling prices. The increased unit volume, in part, reflects penetration into
Tier 1 retailers. Asia/Pacific sales increased $0.9 million, or 12.8% in the
three months ended September 30, 2006 when compared with the comparable period
in 2005. We continue to experience sizable growth in this region as a result of
continued penetration into both new and existing key markets. No individual
customer accounted for 10.0% or more of sales in the three months ended
September 30, 2006 or 2005.

Cost of sales increased to $29.1 million in the three months ended September 30,
2006 from $24.1 million in the three months ended September 30, 2005. As a
percentage of sales, cost of sales increased to 54.7% in 2006 from 52.5% in
2005. The increase in the percentage of cost of sales can be primarily
attributed to the following key factors:


        o       Competitive pricing on growing direct sales to Tier 1 retailers
                in the United States and EMEA.
        o       Less favorable product mix within our data capture and
                collection business segment resulting from increased sales of
                our newer product offerings that have lower margins and have
                not yet been fully cost reduced as well as sales of certain
                non-Metrologic products.
        o       Increased compensation costs as a result of the adoption of
                SFAS No. 123(R).

Selling, general and administrative ("SG&A") expenses increased 66.0% to $17.5
million in the three months ended September 30, 2006 from $10.6 million for the
three months ended September 30, 2005. As a percentage of sales, SG&A expenses
increased from 23.0% of sales in the three months ended September 30, 2005 to
33.0% of sales in the corresponding period in 2006. The increase in SG&A
expenses was primarily attributable to the following key factors:

        o       Increased legal fees associated with ongoing litigation matters.
        o       Transactions costs incurred as a result of the merger
                transaction.
        o       Higher social taxes accrued during the third quarter of 2006 as
                a result of the completion of a tax audit in Brazil.  Such
                amounts had not been reserved previously.
        o       Severance charges recorded for certain employees whose
                employment ceased during the quarter.
        o       Increased selling expenses associated with the higher sales
                volume than the comparable period in 2005.
        o       Increased compensation costs as a result of the adoption of
                SFAS No. 123(R).

Research and Development ("R&D") expenses increased 44.9% to $2.9 million in the
three months ended September 30, 2006 from $2.0 million in the corresponding
period in 2005. As a percent of sales, R&D expenses increased to 5.5% of sales
from 4.4% of sales. The increase is primarily due to stock-based compensation
expense resulting from the adoption of SFAS No. 123(R) and an increase in
personnel and professional fee costs associated with ongoing product development
initiatives.

Net interest income/expense reflects net interest income of $0.4 million for the
three months ended September 30, 2006 compared with net interest income of $0.1
million for the comparable period in 2005. The increase can be attributed to
higher interest income due to higher cash and cash equivalent balances.

Other income/expense reflects net other expense of $0.06 million for the three
months ended September 30, 2006 compared with net other income of $2.0 million
for the comparable period in 2005. The change can be attributed to the PCS
litigation settlement pursuant to which we recorded income of $2.25 million
during the third quarter of 2005, offset by higher foreign currency exchange
losses in 2005 of approximately $0.2 million.
<page>
Income from continuing operations was $2.8 million, or $0.12 per diluted share
for the three months ended September 30, 2006 compared with income from
continuing operations of $7.3 million or $0.31 per diluted share in the
comparable period in 2005.

Income from discontinued operation, net of income taxes was $0.8 million, or
$0.04 per diluted share for the three months ended September 30, 2006 compared
with income from discontinued operation, net of income taxes of $0.4 million or
$0.02 per diluted share in the comparable period in 2005.  The increase is
primarily due to an increase in optical systems sales for both new and ongoing
customer funded programs.

Net income was $3.6 million, or $0.16 per diluted share for the three months
ended September 30, 2006 compared with net income of $7.7 million or $0.33 per
diluted share in 2005. Net income reflects a 32.4% effective tax rate for 2006
and 36% for 2005. The effective rate for 2006 does not reflect any benefit for
research and development tax credits as the federal legislation authorizing such
credits expired on December 31, 2005, and has not yet been renewed.

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

Sales increased 25.1% to $158.1 million in the nine months ended September 30,
2006 from $126.4 million in the nine months ended September 30, 2005. Sales of
our data capture and collection products increased by 27.0% and sales of our
industrial automation products decreased by 7.9%. Data capture and collection
sales increased approximately $38.3 million due to increased unit sales of
handheld and in-counter scanners, including new product offerings. This was
offset by a weakening of the euro against the U.S. dollar which accounted for a
decrease of approximately $1.0 million and a decrease of approximately $5.1
million resulting from lower average selling prices and increased promotional
programs due to competitive pricing pressures experienced in the retail sector
in all geographic regions.

Our Industrial Automation business has exhibited a greater degree of volatility
than our data capture and collection business due to the timing and size of
related contracts in this business which is the primary reason for the decrease
in revenues during the nine month period ended September 30, 2006.

Sales to "The Americas" region increased $4.0 million, or 7.9%, in 2006 when
compared to the comparable period in 2005. This increase is primarily attributed
to ongoing penetration into new vertical markets and Tier 1 retailers, higher
demand in our South America markets, and consistent growth with our key
distributors. EMEA sales increased $25.9 million, or 45.0% in 2006 when compared
to the same period a year ago. The increase in EMEA sales is attributable to
increased unit volume offset by lower average selling prices. The increased unit
volume, in part, reflects penetration into Tier 1 retailers as well as increased
sales of certain of our products utilized in reverse-vending applications
attributable to legislative mandates. Asia/Pacific sales increased $1.9 million,
or 10.2%, in 2006 when compared with the comparable period in 2005. We continue
to experience growth in this region as a result of continued penetration into
both new and existing key markets. No individual customer accounted for 10.0% or
more of sales in the nine months ended September 30, 2006 or 2005.

Cost of sales increased to $89.8 million in the nine months ended September 30,
2006 from $66.0 million in the nine months ended September 30, 2005. As a
percentage of sales, cost of sales increased to 56.8% in 2006 from 52.3% in
2005. The increase in the percentage of cost of sales can be primarily
attributed to the following key factors:

        o       Competitive pricing on growing direct sales to Tier 1 retailers
                in the United States and EMEA.
        o       Less favorable product mix within our data capture and
                collection business segment resulting from increased sales of
                our newer product offerings that have lower margins and have
                not yet been fully cost reduced as well as sales of certain
                non-Metrologic products.
        o       Increased royalty costs through the first six months of 2006 as
                a result of the court decision upholding the arbitration award
                that we are required to pay royalty payments of $10 per unit on
                sales of certain of our scanners.
        o       Increased compensation costs as a result of the adoption of
                SFAS No. 123(R).
<page>
Selling, general and administrative ("SG&A") expenses increased 42.4% to $46.1
million in the nine months ended September 30, 2006 from $32.4 million for the
nine months ended September 30, 2005. As a percentage of sales, SG&A expenses
increased from 25.6% of sales in the nine months ended September 30, 2005 to
29.2% of sales in the corresponding period in 2006. The increase in SG&A
expenses was primarily attributable to the following key factors:

        o       Increased legal fees associated with ongoing litigation
                matters.
        o       Transactions costs incurred as a result of the merger
                transaction.
        o       Higher social taxes accrued during the third quarter of 2006 as
                a result of the completion of a tax audit in Brazil. Such
                amount had not been previously reserved.
        o       Severance charges recorded for certain employees whose
                employment ceased during the quarter.
        o       Increased selling expenses associated with the higher sales
                volume than the comparable period in 2005.
        o       Increased compensation costs as a result of the adoption of
                SFAS No. 123(R).

Research and Development ("R&D") expenses increased 31.5% to $7.6 million in
the nine months ended September 30, 2006 from $5.8 million in the corresponding
period in 2005. As a percent of sales, R&D expenses increased slightly to 4.8%
of sales from 4.6% of sales. The increase is primarily due to stock-based
compensation expense resulting from the adoption of SFAS No. 123(R) and an
increase in personnel and professional fee costs associated with ongoing
product development initiatives.

Net interest income/expense reflects net interest income of $0.7 million for the
nine months ended September 30, 2006 compared with net interest income of $0.3
million for the comparable period in 2005. The increase can be attributed to
higher invested cash balances and higher interest yields on investment earnings
in 2006 than in the comparable period in 2005, offset by higher interest expense
as a result of the charge of $0.5 million in interest on the Symbol litigation
settlement recorded in the quarter ended March 31, 2006.

Other income/expense reflects net other income of $0.4 million for the nine
months ended September 30, 2006 compared with net other income of $1.3 million
for the comparable period in 2005. The change can be attributed to the PCS
litigation settlement pursuant to which we recorded income of $2.25 million
during the third quarter of 2005, offset by $0.4 million of foreign exchange
gains in 2006 compared to $0.9 million of losses in 2005.

Income from continuing operations was $10.3 million, or $0.44 per diluted share
for the nine months ended September 30, 2006 compared with net income of $15.2
million or $0.65 per diluted share in 2005.

Income from discontinued operation, net of income taxes was $2.0 million, or
$0.09 per diluted share for the nine months ended September 30, 2006 compared
with income from discontinued operation, net of income taxes of $1.1 million or
$0.05 per diluted share in the comparable period in 2005.  The increase is
primarily due to an increase in optical systems sales for both new and ongoing
customer funded programs.

Net income was $12.4 million, or $0.53 per diluted share for the nine months
ended September 30, 2006 compared with net income of $16.3 million or $0.70 per
diluted share in 2005. Net income reflects a 35% effective tax rate for 2006 and
36% for 2005. The effective rate for 2006 does not reflect any benefit for
research and development tax credits as the federal legislation authorizing such
credits expired on December 31, 2005, and has not yet been renewed.

Inflation and Seasonality

Inflation and seasonality have not had a material impact on our results of
operations. However, our sales are typically impacted by fluctuation decreases
in seasonal demand from European customers in our third quarter. In addition,
our first quarter is also impacted by factors, such as: (i) the establishment of
new budgets, (ii) the expiration of legislative calendar-year programs and (iii)
start-up investment of pilot efforts.
<page>
Liquidity and Capital Resources

Operating activities

Net cash provided by operating activities was $4.5 million and $8.5 million for
the nine-month periods ended September 30, 2006 and 2005, respectively. Net
cash provided by operating activities for the nine months ended September 30,
2006 can be attributed primarily to net income of $12.4 million, depreciation
and amortization of approximately $5.3 million and stock-based compensation
expense of $3.7 million; offset by payment of the Symbol litigation award of
$14.9 million and net increases in operating assets and liabilities of $2.0
million.  Included in net cash provided by operating activities for the
nine-month period ended September 30, 2006 was approximately $2.5 million
related to the discontinued operation.

Our working capital increased $39.2 million or 42.5% to $131.5 million as of
September 30, 2006 from $92.3 million as of December 31, 2005. Working capital
as of September 30, 2006 includes $20.1 million of net assets held for sale
relating to our AOA subsidiary, $13.9 million of which were previously
classified as long term. The other key components of the increase in working
capital from continuing operations were increases in inventory of $9.8
million and an increase in accounts receivable of $6.2 million as a result of
sales concentrations at the end of the quarter and increases in marketable
securities of $3.3 million.

Investing activities

Cash used in investing activities was $8.9 million for the nine months ended
September 30, 2006 as compared to $13.0 million for the comparable period in
2005. The decrease in cash used in investing activities is primarily due to
changes in the purchases, sales and maturities of marketable securities of $3.4
million plus the scheduled purchase of the remaining 49% interest in Metrologic
Eria Iberica in 2005 for $2.3 million, offset by increases in patents and
trademarks of $0.8 million as a result of the acquisition of Visible-RF, LLC
(See Note 10-"Acquisitions" for additional information) and increased spending
for capital expenditures of $0.8 million.

Financing activities

Cash provided by financing activities was $0.4 million for the nine months ended
September 30, 2006 as compared to $4.0 million for the comparable period in
2005. Cash provided by financing activities for the nine months ended September
30, 2006 consists primarily of $4.1 million of proceeds and related tax benefits
from the exercise of stock options and purchases under the employee stock
purchase plan offset by repayments of scheduled notes of $2.4 million (See
"Outstanding debt and financing arrangements" below for additional information
on scheduled notes) and repayments under lines of credit by our foreign
subsidiaries of $1.3 million.

Outstanding debt and financing arrangements

In connection with the acquisition of Omniplanar, the Purchase Agreement set
forth a schedule of payments over 18 months. We paid $9.0 million at closing,
$2.0 million in 2005 and the final payment of $2.0 million in March 2006.

On September 1, 2005 the Company entered into a Cross-License Agreement with
Intermec IP Corp., a division of Intermec Inc., which includes a license
origination fee of $0.8 million. The Company paid $0.4 million during the year
ended December 31, 2005, $0.2 million for the period ended March 31, 2006, and
the remaining scheduled payments of $0.2 million in June 2006.

Some of our European subsidiaries have entered into working capital and invoice
discounting agreements with HypoVereinsbank, Dresdner, Societe Generale and GE
Commercial Finance. Outstanding borrowings under the working capital agreement
with HypoVereinsbank have been guaranteed by Metrologic Instruments, Inc., the
parent company. These agreements provide the Company with availability of up to
$21.0 million, using September 30, 2006 exchange rates, at interest rates
ranging from 4.0% to 6.5%. In addition, our subsidiary Metrologic do Brasil has
a working capital agreement with Banco Bradesco SA with availability of up to
0.8 million real or $0.4 million, using September 30, 2006 exchange rates. At
September 30, 2006, $16.0 million was outstanding under such agreements and
accordingly is included in lines of credit in our Consolidated Balance Sheets.
<page>
We believe that our current cash and working capital positions and expected
operating cash flows will be sufficient to fund our working capital, planned
capital expenditures and debt repayment requirements for the foreseeable future.

Foreign Currency Exchange

Our liquidity has been, and may continue to be, affected by changes in foreign
currency exchange rates, particularly the value of the U.S. dollar relative to
the Euro, the Brazilian real, the Singapore dollar, and the
Chinese renminbi. In an effort to mitigate the financial implications of the
volatility in the exchange rate between the Euro and the U.S. dollar, we have in
the past entered and may selectively enter into derivative financial instruments
to offset our exposure to foreign currency risks. Derivative financial
instruments may include (i) foreign currency forward exchange contracts with our
primary bank for periods not exceeding six months, which partially hedge sales
to our German subsidiary and (ii) Euro-based loans, which act as a partial hedge
against outstanding intercompany receivables and the net assets of our European
subsidiary, which are denominated in Euros. Additionally, our European
subsidiary invoices and receives payment in certain other major currencies,
including the British pound, which results in an additional mitigating measure
that reduces our exposure to the fluctuation between the Euro and the U.S.
dollar, although it does not offer protection against fluctuations of that
currency against the U.S. Dollar. No derivative instruments were outstanding at
September 30, 2006.

Impact of Recently Issued Accounting Standards

In November 2004, the FASB issued Statement No. 151, "Inventory Costs, An
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, handling costs and
wasted material (spoilage). Among other provisions, the new rule requires that
such items be recognized as current-period charges, regardless of whether they
meet the criterion of "so abnormal" as stated in ARB 43. SFAS 151 is effective
for fiscal years beginning after June 15, 2005. The adoption of this statement
did not have a material effect on the Company's consolidated financial position,
consolidated results of operations or liquidity.

In February 2006, the FASB issued Statement No. 155, "Accounting for Certain
Hybrid Financial Instruments-An Amendment of FASB Statements No. 133 and 140"
("SFAS No. 155"). SFAS No. 155 allows financial instruments that contain an
embedded derivative that otherwise would require bifurcation to be accounted
for as a whole on a fair value basis, at the holders' election. SFAS No. 155
also clarifies and amends certain other provisions of SFAS No. 133 and SFAS
No. 140. This statement is effective for all financial instruments acquired or
issued in fiscal years beginning after September 15, 2006. The Company does not
expect that the adoption of SFAS No. 155 will have a material impact on the
Company's consolidated financial position, consolidated results of operations
or liquidity.

In March 2006, the FASB issued Statement No. 156, "Accounting for Servicing of
Financial Assets-An Amendment of FASB Statements No. 140" ("SFAS No. 156"). SFAS
No. 156 provides guidance on the accounting for servicing assets and liabilities
when an entity undertakes an obligation to service a financial asset by entering
into a servicing contract. This statement is effective for all transactions in
fiscal years beginning after September 15, 2006. The Company does not expect
that the adoption of SFAS No. 156 will have a material impact on the Company's
consolidated financial position, consolidated results of operations or
liquidity.

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the way companies are
to account for uncertainty in income taxes recognized in financial statements
and prescribes a consistent recognition threshold and measurement attribute for
recognizing, derecognizing, and measuring the tax benefits of a tax position
taken, or expected to be taken, on a tax return. This Interpretation is
effective for fiscal years beginning after December 15, 2006, although early
adoption is permitted. The Company does not plan to adopt early and is currently
in the process of evaluating the impact, if any, the adoption of the
Interpretation will have on the Company's consolidated financial position,
consolidated results of operations or liquidity.
<page>
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements for fair-value
measurements that are already required or permitted by other GAAP. The
provisions of SFAS No. 157 are to be applied prospectively and are effective for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact, if any, the adoption of this statement will have on the
Company's consolidated financial position, consolidated results of operations or
liquidity.


Item 3- Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our quantitative and qualitative
disclosure about market risk since December 31, 2005.

Item 4- Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this report, we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures. This evaluation
was carried out under the supervision and with the participation of our
Management, including our principal executive officer and principal financial
officer. Based on that evaluation these officers concluded that these disclosure
controls and procedures are effective as of the end of the period covered by
this report.

There have been no changes in the Company's internal controls over financial
reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

<PAGE>
                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

We protect our technological position and new product development with domestic
and foreign patents. When we believe competitors are infringing on these
patents, we may pursue claims or other legal action against these parties.
Additionally, from time-to-time, we receive legal challenges to the validity of
our patents or allegations that our products infringe the patents of others.

We are currently involved in matters of litigation arising in the normal course
of business including the matters described below. We believe that such
litigation either individually or in the aggregate will not have a material
adverse effect on our consolidated financial position, results of operations or
cash flows, except as noted below.

Symbol Technologies, Inc. v. Metrologic

On May 3, 2002, we were served with a lawsuit that was filed on April 12, 2002
by Symbol Technologies, Inc. ("Symbol"), in the U.S. District Court for the
Eastern District of New York alleging that we were in breach of the terms of the
License Agreement between us and Symbol (the "Symbol Agreement"). The Complaint
sought a declaratory judgment from the Court that we were in breach of the
Symbol Agreement. On March 31, 2003, the Court entered its decision on the
parties' respective motions for summary judgment, and finding in our favor, the
Court dismissed certain counts of Symbol's complaint. On April 9, 2003, Symbol
voluntarily dismissed the remaining counts of the complaint. Symbol filed its
Notice of Appeal with the U.S. Court of Appeals for the Second Circuit on May 7,
2003. On December 23, 2003, the Court of Appeals dismissed Symbol's appeal in
this matter. In the interim, Symbol decided to proceed with the arbitration for
which the Company had filed a Demand in June 2002, which had been stayed pending
the decision by the lower court. On June 26, 2003, Symbol filed an Amended
Answer and Counterclaims asserting that (a) eleven of Metrologic's products are
royalty bearing products, as defined under the Symbol Agreement, and (b) in the
alternative, those products infringe upon one or more of Symbol's patents. In
February 2005, the arbitrator entered an interim award, finding that eight of
the products are not royalty bearing products under the Symbol Agreement but
that three of the products are royalty bearing products.

In August 2005, the arbitrator entered a final ruling in the arbitration
awarding Symbol past royalties on certain of the Company's products plus
interest. Symbol then filed a motion to enter the judgment with the
U.S. District Court for the Southern District of New York. In
response, the Company filed its motion to vacate the arbitrator's award in the
same Court. In February 2006, the Judge granted Symbol's motion to enter a
judgment affirming the arbitrator's award for past royalties. On March 13, 2006,
the Company paid $14.9 million reflecting royalties and interest due in
accordance with the judgment of which $14.4 million was accrued for at December
31, 2005, and recorded a charge of $0.5 million for interest due through the
payment date. With the payment made on August 15, 2006 for royalties due for the
quarter ended June 30, 2006, significant royalty obligations for these products
ended.

On September 23, 2005, Symbol filed suit against the Company in the U.S.
District Court for the Eastern District of Texas alleging patent infringement.
Symbol filed a related case before the International Trade Commission ("ITC")
also alleging patent infringement of the same patents. A notice of the
investigation instituted by the ITC was served on the Company on October 24,
2005. The case in the U.S. District Court for the Eastern District of Texas has
been stayed pending the outcome of the matter before the ITC. Trial before the
ITC commenced on July 24, 2006 and concluded on August 1, 2006. The parties
submitted post trial briefs and a decision by the Administrative Law Judge is
expected in late January 2007. Metrologic stands firm in its belief that its
products do not infringe Symbol's patents. In this regard, by order dated April
17, 2006, the Administrative Law Judge found one of Symbol's patents to be
invalid. Metrologic has vigorously defended the remaining allegations of patent
infringement.

On November 4, 2005, Symbol filed another suit against the Company in the U.S.
District Court for the Eastern District of Texas alleging patent infringement.
The complaint has been served on and answered by the Company. Symbol claims, and
we deny, that three of our products infringe six of their patents. Discovery is
in the early stages. We plan a vigorous defense of this claim.
<page>
Metrologic v. Symbol Technologies, Inc.
On June 18, 2003, the Company filed suit against Symbol in the U.S. District
Court for the District of New Jersey alleging claims of patent infringement of
certain of our patents by at least two Symbol products. The complaint also
contains a claim for breach of the Symbol Agreement between the parties.
Symbol's answer to the complaint, filed on July 30, 2003, included counterclaims
requesting that a declaratory judgment be entered that the patents in suit are
invalid, are not infringed by Symbol and that Symbol is not in breach of the
Symbol Agreement. The Court heard arguments on the construction of the claims in
the patents in suit in March 2006 and issued its decision in this regard on
September 22, 2006. On October 25, 2006, the matter was settled, in principle,
and court papers ending the litigation are have been submitted for approval.
Upon approval, the case will be dismissed.

On May 17, 2005, the Company filed suit against Symbol in the U.S. District
Court for the District of New Jersey for breach of contract for failure to pay
royalties in accordance with the terms of the Symbol Agreement. In September
2005, the parties filed cross motions for summary judgment. On May 1, 2006,
Symbol's motion for summary judgment was denied. On June 27, 2006, our motion
for summary judgment was granted. An order calling for the payment to us of
$2.65 million was signed by the Court on August 3, 2006. Symbol has appealed the
judgment to the Third Circuit Court of Appeals. A briefing schedule for the
appeal is expected shortly. The amounts received as a consequence of the August
3 order, less the approximately $0.8 million previously set up as a receivable
from Symbol, have been recorded as a current liability in the Company's
Consolidated Balance Sheet. The Company will not record a gain relating to this
matter in its Consolidated Statement of Operations until the decision is
finalized and all appeal rights are exhausted by Symbol.

On May 8, 2006, the Company filed a Complaint against Symbol in the U.S.
District Court for New Jersey. This new Complaint asserts infringement
by Symbol of several Metrologic patents and seeks declaratory, injunctive and
monetary relief. More specifically, we assert that several of Symbol's mobile
computers infringe our mobile computing patent portfolio. Symbol has filed an
answer and counterclaim asserting, among other things, that it is licensed to
use our patents and that the patents are invalid. Discovery in this matter is in
the early stages.

Brazil
Our subsidiary in Brazil has received notices from the local taxing authorities
disputing the amount of import taxes and duties paid on imported products prior
to December 2002. We have filed appeals of their assessments in the
administrative courts and are awaiting decisions on our appeals. We have
accrued a liability for these claims based on what we believe to be the most
likely  outcome of these appeals and other potential administrative processes.
If we are unsuccessful in our appeals and other administrative processes, the
actual liability could be approximately $0.7 million higher than the amount we
have accrued as of September 30, 2006.

Janet Norton v. Metrologic Instruments, Inc.
On May 1, 2006, the Company received a Complaint filed in the Superior Court of
New Jersey which asserts an employment based claim by a current employee. Our
investigation to date demonstrates that this claim has no merit. The plaintiff
has filed an amended complaint and we have filed an answer. Discovery is just
beginning.

PSC Scanning v. Metrologic Instruments, Inc.
On May 10, 2006, PSC Scanning ("PSC") filed an action against the Company in the
U. S. District Court in Oregon. In its complaint, PSC
asserted that our Stratos line of bi-optic scanners infringe two new patents
issued on December 13, 2005 and January 31, 2006. We have filed an answer and
counterclaim and are vigorously defending this matter. Discovery is underway in
anticipation of a possible August 2007, trial date. Additionally, complying with
the terms of the settlement agreement effective March 16, 2005, we have notified
PSC that two lines of their products infringe our patents.
<page>
Metrologic Instruments, Inc. Shareholders Litigation
On September 12, 2006, the Company announced the signing of a merger agreement,
a consequence of which, upon closing, will be that Metrologic will no longer be
a publicly held company. Within approximately two weeks after the announcement,
four shareholder actions were filed naming as defendants the Company and its
individual Board of Directors, among others. All four actions were initiated in
New Jersey state courts. An agreement has been reached to have these four
matters consolidated and heard by the Superior Court, Law Division, Camden
County. An order to this effect will be filed shortly. In anticipation of this
order, an amended class action complaint was filed on October 31, 2006. This
pleading again asserts, among other things, that the redemption price for the
stock specified in the merger agreement is unfair to shareholders. The Amended
Complaint seeks among other relief, an injunction blocking the merger or a
rescission of the merger or damages. The Company plans on vigorously defending
this case. We anticipate that discovery will begin shortly.

On October 6, 2006, the Company received a letter from the Securities and
Exchange Commission ("SEC") notifying us of the commencement of an informal
investigation to determine if violations of the Federal Securities Laws have
occurred and requesting certain information. The Company is in the process of
responding to the SEC's information request.

We are not aware of any other legal claim or action against us, which could be
expected to have a material adverse effect on our consolidated financial
position, results of operations or cash flows.


Item 1A.   Risk Factors

There have been no material changes to the risk factors faced by the Company
since December 31, 2005. For identification and discussion of the most
significant risks applicable to the Company and its business, please refer to
the Risk Factors section in Item 1A of our 2005 Form 10-K.

<PAGE>
Item 6.  Exhibits



                  10.1    Agreement and Plan of Merger dated September 12, 2006
                          by and between Meteor Holding Corporation, Meteor
                          Merger Corporation and Metrologic Instruments, Inc.
                          (incorporated by reference from the Registrant's
                          Current Report on Form 8-K filed September 13, 2006).

                  10.2    Stock Purchase Agreement dated September 19, 2006 by
                          and among MTLG Investments, Inc., Metrologic
                          Instruments, Inc., Adaptive Optics Associates, Inc.
                          and Essex Corporation (incorporated by reference from
                          the Registrant's Current Report on Form 8-K filed
                          September 21, 2006).

                  31.1    Certification by Chairman of the Board and Interim
                          Chief Executive Officer pursuant to Section 302 of
                          the Sarbanes-Oxley Act of 2002.

                  31.2    Certification by Chief Financial Officer pursuant to
                          Section 302 of the Sarbanes-Oxley Act of 2002.

                  32.1    Certification pursuant to 18 U.S.C. Section 1350, as
                          adopted pursuant to Section 906 of the Sarbanes-Oxley
                          Act of 2002 executed by the Chairman of the Board and
                          Interim Chief Executive Officer of the Company.

                  32.2    Certification pursuant to 18 U.S.C. Section 1350, as
                          adopted pursuant to Section 906 of the Sarbanes-Oxley
                          Act of 2002 executed by the Chief Financial Officer
                          of the Company.

<PAGE>





                                   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.



                                   METROLOGIC INSTRUMENTS, INC.



Date: November 8, 2006             By:/s/ C. Harry Knowles
      -----------------            ----------------------------------------
                                   C. Harry Knowles
                                   Chairman of the Board and Interim Chief
                                   Executive Officer
                                   (Interim Principal Executive Officer)





Date: November 8, 2006             By:/s/ Michael Coluzzi
      -----------------            -----------------------------------------
                                   Michael Coluzzi
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)




<PAGE>

Exhibit Index                                                     Page Number


31.1     Certification by Chairman of the Board and Interim Chief
         Executive Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.                                  33

31.2     Certification by Chief Financial Officer pursuant to
         Section 302 of the Sarbanes-Oxley Act of 2002.               34

32.1     Certification pursuant to 18 U.S.C. Section 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley
         Act of 2002 executed by the Chairman of the Board and
         Interim Chief Executive Officer of the Company.              35

32.2     Certification pursuant to 18 U.S.C. Section 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley
         Act of 2002 executed by the Chief Financial Officer of
         the Company.                                                 36







<PAGE>

Exhibit 31.1

                                  CERTIFICATION

                  I, C. Harry Knowles, Chairman of the Board and Interim Chief
Executive Officer of Metrologic Instruments, Inc., certify that:

         1. I have reviewed this report on Form 10-Q of Metrologic Instruments,
Inc.;

         2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we have:

                  a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
                  b. designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
                  c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
                  d. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and

         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):

                  a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize, and report financial information; and
                  b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.

                                  By: /s/C. Harry Knowles
                                  ----------------------------------
                                  Name:  C. Harry Knowles
                                  Title: Chairman of the Board and
                                         Interim Chief Executive Officer
Date: November 8, 2006

<page>

Exhibit 31.2

                                  CERTIFICATION

                  I, Michael Coluzzi, Chief Financial Officer of Metrologic
Instruments, Inc., certify that:

         1. I have reviewed this report on Form 10-Q of Metrologic Instruments,
Inc.;

         2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we have:

                  a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
                  b. designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
                  c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
                  d. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and

         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):

                  a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize, and report financial information; and
                  b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.

                                  By: /s/Michael Coluzzi
                                  ----------------------------------
                                  Name:  Michael Coluzzi
                                  Title: Chief Financial Officer

Date: November 8, 2006



<page>
EXHIBIT 32.1



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                  In connection with the Report of Metrologic Instruments, Inc.
(the "Company") on Form 10-Q for the quarter ended September 30, 2006 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, C. Harry Knowles, Chairman of the Board and Interim Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1.     The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

2.     The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


/s/C. Harry Knowles
------------------------------------
C. Harry Knowles
Chairman of the Board and Interim Chief Executive Officer
November 8, 2006








<PAGE>



EXHIBIT 32.2



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                  In connection with the Report of Metrologic Instruments, Inc.
(the "Company") on Form 10-Q for the quarter ended September 30, 2006 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Michael Coluzzi, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that:

1.     The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

2.     The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


/s/Michael Coluzzi
-------------------------------
Michael Coluzzi
Chief Financial Officer
November 8, 2006