U.S. 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 Quarter Ended June 30, 2005

[  ]  Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _______ to ________

Commission File Number 0-11676

BEL FUSE INC.
(Exact name of registrant as specified in its charter)
 
New Jersey
22-1463699
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

206 Van Vorst Street, Jersey City, New Jersey 07302
(201) 432-0463
(Address and telephone number, including area code, of registrant's principal executive office)

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 o 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)  Yes x No o

At August 1, 2005, there were 2,702,677 shares of Class A Common Stock, $.10 par value, outstanding and 8,886,589 shares of Class B Common Stock, $.10 par value, outstanding.

 

BEL FUSE INC.
  
               
INDEX
  
               
           
Page
  
Part I
  
Financial Information 
  
 
      
               
    Item 1.
 
Financial Statements
  
 
  
 1
  
                  
 
  
Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004  
  
 2-3
  
                  
 
  
Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2005 and 2004 (unaudited)  
   4  
 
                 
 
  
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2004 and 2003 and the Six Months Ended June 30, 2005 (unaudited)    
    5-6  
 
                 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004 (unaudited)  
    7-9  
                  
 
Notes to Consolidated Financial Statements (unaudited)    
  
 10-26
  
                  
    Item 2.  
Management's Discussion and Analysis of Financial Condition and Results of Operations
  
27-45
  
               
    Item 3.  
Quantitative and Qualitative Disclosures About Market Risk
  
45
  
               
    Item 4.  
Controls and Procedures 
  
46
  
               
Part II  
Other Information 
      
               
    Item 1.  
Legal Proceedings 
  
47
  
               
    Item 4.  
Submission of Matters to a Vote of Security Holders 
  
48
  
               
    Item 6.  
Exhibits
  
48
  
               
    Signatures          
49
  
               
 
 
 
PART I.  Financial Information
 
Item 1.     Financial Statements
 
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.
 
The results of operations for the six and three months ended June 30, 2005 and 2004 are not necessarily indicative of the results for the entire fiscal year or for any other period.


- 1 -




BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
           
   
June 30,
 
December 31,
  
   
2005
  
2004
  
   
(Unaudited)
      
ASSETS
          
Current Assets:
          
   Cash and cash equivalents  
$
54,051,516
  
$
71,197,891
  
Marketable securities
    
18,456,292
   
23,120,028
 
Accounts receivable - less allowance for doubtful
          
accounts of $1,273,000 and $1,610,000 as of
              
June 30, 2005 and December 31, 2004, respectively
    
40,436,358
   
33,247,911
 
Inventories
    
33,003,754
   
29,101,060
 
Prepaid expenses and other current
          
assets
    
1,997,279
   
2,404,718
 
Deferred income taxes
    
248,000
   
-
 
Assets held for sale
    
797,724
   
696,013
 
               
    Total Current Assets
    
148,990,923
   
159,767,621
 
               
Property, plant and equipment - net
    
42,599,973
   
41,244,759
 
               
Intangible assets - net
    
4,016,544
   
2,691,682
 
Goodwill
    
24,425,055
   
9,881,854
 
Prepaid pension costs
    
1,127,941
   
1,127,941
 
Other assets
    
2,772,413
   
3,062,714
 
               
    TOTAL ASSETS
  
$
223,932,849
  
$
217,776,571
  
               


See Notes to Unaudited Consolidated Financial Statements.
 
- 2 -



BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
           
   
June 30,
  
December 31,
  
   
2005
  
2004
  
   
(Unaudited)
      
LIABILITIES AND STOCKHOLDERS' EQUITY
          
Current Liabilities:
          
   Current portion of long-term debt  
$
-
  
$
2,000,000
  
Short-term debt
    
482,509
   
-
 
Accounts payable
    
14,007,266
   
8,814,161
 
Accrued expenses
    
9,115,296
   
10,293,576
 
Deferred income taxes
    
-
   
3,322,000
 
Income taxes payable
    
9,093,026
   
7,172,955
 
Dividends payable
    
545,000
   
541,000
 
    Total Current Liabilities
    
33,243,097
   
32,143,692
 
               
Long-term Liabilities:
              
Minimum pension obligation
    
2,602,583
   
2,261,583
 
Long-term debt - net of current portion
    
-
   
4,500,000
 
Deferred income taxes
    
1,234,000
   
410,000
 
    Total Long-term Liabilities
    
3,836,583
   
7,171,583
 
               
    Total Liabilities
    
37,079,680
   
39,315,275
 
               
Commitments and Contingencies
              
               
Stockholders' Equity:
              
Preferred stock, no par value,
              
authorized 1,000,000 shares;
              
none issued
    
-
   
-
 
Class A common stock, par value
             
$.10 per share - authorized
              
10,000,000 shares; outstanding
             
2,702,677 and 2,702,677 shares, respectively
              
(net of 1,072,770 treasury shares)
    
270,268
   
270,268
 
Class B common stock, par value
              
$.10 per share - authorized
          
30,000,000 shares; outstanding 8,778,589
          
and 8,660,589 shares, respectively
              
(net of 3,218,310 treasury shares)
    
877,859
   
866,059
 
Additional paid-in capital
    
24,235,077
   
21,989,174
 
Retained earnings
    
159,841,414
   
149,949,283
 
Accumulated other comprehensive
         
income
    
1,628,551
   
5,386,512
 
    Total Stockholders' Equity
    
186,853,169
   
178,461,296
 
               
    TOTAL LIABILITIES AND
             
    STOCKHOLDERS' EQUITY
  
$
223,932,849
  
$
217,776,571
  
               
               
               

See Notes to Unaudited Consolidated Financial Statements.
 
- 3 -
 

BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
  
                   
   
Six Months Ended
  
Three Months Ended
  
   
June 30,
  
June 30,
  
   
2005
  
2004
  
2005
  
2004
  
 
                  
Net Sales
  
$
102,983,706
  
$
90,747,265
  
$
57,545,421
  
$
48,390,242
  
                           
Costs and expenses:
                          
Cost of sales
    
73,380,908
   
62,987,015
   
40,692,097
   
33,196,001
 
Selling, general and administrative
    
15,839,939
   
15,069,585
   
8,618,636
   
8,118,713
 
Fixed asset impairment
    
-
   
1,032,786
   
-
   
1,032,786
 
     
89,220,847
   
79,089,386
   
49,310,733
   
42,347,500
 
                           
Income from operations
    
13,762,859
   
11,657,879
   
8,234,688
   
6,042,742
 
Interest expense
    
(207,469
)
  
(116,474
)
  
(140,319
)
  
(59,708
)
Interest income
    
632,650
   
279,579
   
407,306
   
175,219
 
Lawsuit proceeds
    
-
   
2,935,000
   
-
   
2,935,000
 
                           
Earnings before provision for income taxes
    
14,188,040
   
14,755,984
   
8,501,675
   
9,093,253
 
Income tax provision
   
3,206,000
   
2,956,000
   
1,833,000
   
1,948,000
 
                           
Net earnings
 
$
10,982,040
  
$
11,799,984
  
$
6,668,675
  
$
7,145,253
  
                           
Earnings per common share - basic
  
$
0.96
  
$
1.05
  
$
0.58
  
$
0.64
  
                           
Earnings per common share - diluted
  
$
0.95
  
$
1.03
  
$
0.58
  
$
0.63
  
                           
Weighted average common shares
                          
outstanding - basic
    
11,420,305
   
11,225,389
   
11,468,398
   
11,247,242
 
Weighted average common shares
                          
outstanding - diluted
    
11,519,992
   
11,418,840
   
11,532,455
   
11,426,868
 
                           

See Notes to Unaudited Consolidated Financial Statements.
 
- 4 -
 

BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
  
(Unaudited)
  
                               
       
 
      
Cumulative
              
       
 
      
Other
              
       
Compre-
      
Compre-
  
Class A
  
Class B
  
Additional
  
       
hensive
  
Retained
 
hensive
  
Common
  
Common
  
Paid-In
  
   
Total
  
Income (loss)
  
Earnings
  
Income (loss)
  
Stock
  
Stock
  
Capital
  
 
                              
Balance, January 1, 2003
 
$
130,659,147
        
$
115,632,819
  
$
(50,132
)
$
267,623
  
$
826,149
  
$
13,982,688
  
                                             
Exercise of stock
                                            
options
    
2,580,224
                     
2,544
   
19,920
   
2,557,760
 
Tax benefits arising
                                            
from the disposition of
                                            
non-qualified
                                            
incentive stock options
    
812,000
                                 
812,000
 
Cash dividends on Class A
                                            
common stock
    
(322,234
)
        
(322,234
)
                        
Cash dividends on Class B
                                            
common stock
    
(1,667,586
)
        
(1,667,586
)
                        
Currency translation
                                            
adjustment - net of taxes
    
1,014,808
 
$
1,014,808
          
1,014,808
                   
Increase in unrealized gain on
                                           
marketable securities-net of taxes
    
14,900
   
14,900
         
14,900
                   
Net earnings
    
13,763,694
   
13,763,694
   
13,763,694
                         
Comprehensive income
        
$
14,793,402
                                
                                             
Balance, December 31, 2003
    
146,854,953
         
127,406,693
   
979,576
   
270,167
   
846,069
   
17,352,448
 
                                             
Exercise of stock
                                            
options
    
3,891,266
                     
101
   
19,990
   
3,871,175
 
Tax benefits arising
                                            
from the disposition of
                                            
non-qualified
                                            
incentive stock options
    
765,551
                                 
765,551
 
Cash dividends on Class A
                                            
common stock
    
(430,707
)
        
(430,707
)
                        
Cash dividends on Class B
                                            
common stock
    
(1,748,292
)
        
(1,748,292
)
                        
Currency translation
                                            
adjustment - net of taxes
    
386,257
 
$
386,257
          
386,257
                   
Increase in unrealized gain on
                                           
marketable securities-net of taxes
    
4,020,679
   
4,020,679
         
4,020,679
                   
Net earnings
    
24,721,589
   
24,721,589
   
24,721,589
                         
Comprehensive income
        
$
29,128,525
                                
                                             
Balance, December 31, 2004
    
178,461,296
         
149,949,283
   
5,386,512
   
270,268
   
866,059
   
21,989,174
 
                                             
                                             
 

See Notes to Unaudited Consolidated Financial Statements.
- 5 -
 

BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
(Unaudited)
  
                               
       
 
      
Cumulative
              
       
 
      
Other
              
       
Compre-
      
Compre-
  
Class A
  
Class B
  
Additional
  
       
hensive
  
Retained
 
hensive
  
Common
  
Common
  
Paid-In
  
   
Total
  
Income (loss)
  
Earnings
  
Income (loss)
  
Stock
  
Stock
  
Capital
  
 
                              
                               
Exercise of stock
                                            
options
    
2,067,330
                     
-
   
11,800
   
2,055,530
 
Tax benefits arising
                                            
from the disposition of
                                            
non-qualified
                                            
incentive stock options
    
190,373
                                 
190,373
 
Cash dividends on Class A
                                            
common stock
    
(215,470
)
        
(215,470
)
                        
Cash dividends on Class B
                                            
common stock
    
(874,439
)
        
(874,439
)
                        
Currency translation
                                            
adjustment - net of taxes
    
(614,665
)
$
(614,665
)
        
(614,665
)
                  
Decrease in unrealized gain on
                                           
marketable securities-net of taxes
    
(3,143,296
)
  
(3,143,296
)
        
(3,143,296
)
                  
Net earnings
    
10,982,040
   
10,982,040
   
10,982,040
                         
Comprehensive income
        
$
7,224,079
                                
                                             
Balance, June 30, 2005 (unaudited)
 
$
186,853,169
        
$
159,841,414
  
$
1,628,551
  
$
270,268
  
$
877,859
  
$
24,235,077
  
                                             
                                             

See Notes to Unaudited Consolidated Financial Statements.
 
- 6 -
 

BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(Unaudited)
  
           
   
Six Months Ended
 
   
June 30,
 
   
2005
  
2004
  
Cash flows from operating
              
activities:
              
Net earnings
  
$
10,982,040
  
$
11,799,984
  
Adjustments to reconcile net
              
earnings to net cash provided
              
by operating activities:
              
Depreciation and amortization
    
4,502,560
   
4,372,332
 
Fixed asset impairment
    
-
   
1,032,786
 
Other
    
531,373
   
674,000
 
Deferred income taxes
    
(1,423,000
)
  
1,665,000
 
Changes in operating assets
          
and liabilities (net of acquisitions)
    
(650,121
)
  
(4,431,561
)
Net Cash Provided by
              
Operating Activities
    
13,942,852
   
15,112,541
 
               
Cash flows from investing activities:
              
Purchase of property, plant
             
and equipment
    
(3,405,163
)
  
(2,010,767
)
Purchase of marketable
             
securities
    
(643,424
)
  
(1,392,146
)
Payment for acquisitions - net of
             
cash acquired
    
(20,340,853
)
  
(74,539
)
Proceeds from repayment
              
by contractors
    
-
   
14,500
 
Proceeds from sale of marketable
              
securities
    
-
   
4,953,449
 
Net Cash Used In
              
Investing Activities
    
(24,389,440
)
  
1,490,497
 
               
 

See Notes to Unaudited Consolidated Financial Statements.
- 7 -
 

BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
  
(Unaudited)
  
           
   
Six Months Ended
 
   
June 30,
 
   
2005
  
2004
  
Cash flows from financing
              
activities:
              
Proceeds from borrowings
    
8,000,000
   
-
 
Loan repayments
    
(15,360,694
)
  
(1,000,000
)
Proceeds from exercise of
          
stock options
    
2,067,330
   
2,927,226
 
Dividends paid to common
         
shareholders
    
(1,086,095
)
  
(1,088,950
)
Net Cash Provided By (Used In)
              
Financing Activities
    
(6,379,459
)
  
838,276
 
               
Effect of exchange rate changes on cash
    
(320,328
)
  
(71,490
)
               
Net Increase (Decrease) in
              
Cash and Cash Equivalents
    
(17,146,375
)
  
17,369,824
 
Cash and Cash Equivalents
         
- beginning of period
    
71,197,891
   
57,461,152
 
Cash and Cash Equivalents
             
- end of period
  
$
54,051,516
  
$
74,830,976
  
               
               
Changes in operating assets
              
and liabilities (net of acquisitions) consist of:
              
Increase in accounts receivable
  
$
(3,735,125
)
$
(4,165,495
)
Increase in inventories
    
(1,181,135
)
  
(4,244,931
)
(Increase) decrease in prepaid
             
expenses and other
             
current assets
    
480,706
   
(645,237
)
Increase in other assets
    
(624,818
)
  
(104,682
)
Increase in accounts payable
   
3,075,709
   
3,628,710
 
Increase in income taxes payable
    
1,925,559
   
410,097
 
Increase (decrease) in accrued expenses
   
(591,017
)
  
689,977
 
               
   
$
(650,121
)
$
(4,431,561
)
               

See Notes to Unaudited Consolidated Financial Statements.
 
- 8 -
 

BEL FUSE INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
  
(Unaudited)
  
           
   
Six Months Ended
 
   
June 30,
 
   
2005
  
2004
  
           
Supplementary information:
              
Cash paid during the six months for:
              
Income taxes
  
$
2,389,322
  
$
410,021
  
Interest
  
$
207,469
  
$
116,474
  
               
Details of acquisitions:
              
Fair value of assets
              
acquired (excluding acquired cash of
             
$311,856 in 2005)
  
$
3,977,256
  
$
-
  
Intangibles
    
2,302,905
   
74,539
 
Goodwill
    
14,543,201
   
-
 
     
20,823,362
   
74,539
 
Less: Amounts due on acquisition payment
    
482,509
   
-
 
               
Cash paid for acquisition
  
$
20,340,853
  
$
74,539
  
               
               

See Notes to Unaudited Consolidated Financial Statements.
 
- 9 -
 

BEL FUSE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.  BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The consolidated balance sheet as of June 30, 2005, and the consolidated statements of operations and cash flows for the periods presented herein have been prepared by Bel Fuse Inc. (the "Company" or "Bel") and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of December 31, 2004 was derived from audited financial statements.

Accounting Policies
 
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Bel Fuse Inc. and subsidiaries operate in one industry with three geographic reporting segments and are engaged in the design, manufacture and sale of a broad array of magnetics, modules, circuit protection devices and interconnect products. The Company manages its operations geographically through its three reporting units: North America, Asia and Europe. Sales are predominantly in North America, Europe and Asia.

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

USE OF ESTIMATES - The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS - Cash equivalents include short-term investments in U.S. treasury bills and commercial paper with an original maturity of three months or less when purchased. At June 30, 2005 and December 31, 2004, cash equivalents approximated $24,363,000 and $38,355,000, respectively.

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

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

- 10 -


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

FOREIGN CURRENCY TRANSLATION - The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments are recorded in Other Comprehensive Income. The U.S. Dollar is used as the functional currency for certain foreign operations that conduct their business in U.S. Dollars. A combination of current and historical exchange rates is used in measuring the local currency transactions of these subsidiaries and the resulting exchange adjustments are included in the statement of operations. Current exchange rates are used for all foreign subsidiaries except for two subsidiaries in the Far East which use both current and historical exchange rates. Realized foreign currency (gains) losses were ($105,000) and ($12,000) for the six months ended June 30, 2005 and 2004, and ($25,000) and ($54,000) for the three months ended June 30, 2005 and 2004, respectively, and are included in Selling, General and Administrative expenses in the consolidated statement of operations.

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

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

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

REVENUE RECOGNITION -The Company recognizes revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). Revenue is recognized when the product has been delivered and title and risk of loss has passed to the customer, collection of the resulting receivable is deemed probable by management, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. Substantially all of the Company's shipments are FCA (free carrier) which provides for title to pass upon delivery to the customer's freight carrier. Some product is shipped DDP/DDU with title passing when the product arrives at the customer's dock.
 
- 11 -

For certain customers, the Company provides consigned inventory, either at the customer’s facility or at a third party warehouse. Sales of consigned inventory are recorded when the customer withdraws inventory from consignment.

The Company typically has a twelve-month warranty policy for workmanship defects. Warranty returns have historically averaged at or below 1% of annual net sales. The Company establishes warranty reserves when a warranty issue becomes known as warranty claims have historically been immaterial. No general reserves for warranties have been established.

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

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

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

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

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

The principal items giving rise to deferred taxes are unrealized gains on marketable securities available for sale, the use of accelerated depreciation methods for machinery and equipment, timing differences between book and tax amortization of intangible assets and goodwill and certain expenses which have been deducted for financial reporting purposes which are not currently deductible for income tax purposes.
 
- 12 -


STOCK-OPTION PLAN - The Company accounts for equity-based compensation issued to employees in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". APB No. 25 requires the use of the intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock. The Company makes disclosures of pro forma net earnings and earnings per share as if the fair-value-based method of accounting had been applied as required by SFAS No. 123, "Accounting for Stock-Based Compensation".

The Company grants stock options with exercise prices at fair market value at the date of the grant. The Company will continue to account for stock-based employee compensation under the recognition and measurement principle of APB Opinion No. 25 and related interpretations through December 31, 2005. Thereafter, the Company will account for stock based compensation under Statement on Financial Accounting Standards ("SFAS") No. 123 (R), "Share-Based Payment" (revised). The Company is currently evaluating its position and will make its determination to account for stock-based compensation costs either prospectively or retroactively at the time of adoption.

The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 2005 and 2004 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:

   
Six Months Ended
  
Three Months Ended
  
   
June 30,
  
June 30,
  
   
2005
  
2004
  
2005
  
2004
  
Net earnings - as reported
  
$
10,982,040
  
$
11,799,984
  
$
6,668,675
  
$
7,145,253
  
Deduct: Total stock-based
                          
employee compensation expense
                          
determined under fair value based
                          
method for all awards
    
(321,736
)
  
(619,797
)
  
(160,868
)
  
(309,899
)
Net earnings- pro forma
  
$
10,660,304
  
$
11,180,187
  
$
6,507,807
  
$
6,835,354
  
Earnings per common share -
                          
basic-as reported
  
$
0.96
  
$
1.05
  
$
0.58
  
$
0.64
  
Earnings per common share -
                          
basic-pro forma
  
$
0.93
  
$
0.99
  
$
0.57
  
$
0.61
  
Earnings per common share -
                          
diluted-as reported
  
$
0.95
  
$
1.03
  
$
0.58
  
$
0.63
  
Earnings per common share -
                          
diluted-pro forma
  
$
0.93
  
$
0.98
  
$
0.56
  
$
0.60
  
 
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2004: dividend yield of .9%, expected volatility of 35% for Class B; risk-free interest rate of 5% and expected lives of 5 years. No options were granted during the six months ended June 30, 2005.

- 13 -


RESEARCH AND DEVELOPMENT - Research and development costs are expensed as incurred, and are included in cost of sales. Generally all research and development is performed internally for the benefit of the Company. The Company does not perform such activities for others. Research and development costs include salaries, building maintenance and utilities, rents, materials, administration costs and miscellaneous other items. Research and development expenses for the six months ended June 30, 2005 and 2004 amounted to $3.8 million and $3.7 million, respectively, and for the three months ended June 30, 2005 and 2004 amounted to $1.9 million and $1.9 million, respectively.

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

EARNINGS PER SHARE - Basic earnings per common share are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed by dividing net earnings by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares used in computing diluted earnings per share relate to stock options and warrants which, if exercised, would have a dilutive effect on earnings per share.
 
The following table includes a reconciliation of shares used in the calculation of basic and diluted earnings per share:

   
Six Months Ended
  
Three Months Ended
  
   
June 30,
  
June 30,
  
   
2005
  
2004
  
2005
  
2004
  
                   
Weighted average shares outstanding - basic
    
11,420,305
   
11,225,389
   
11,468,398
   
11,247,242
 
                           
Dilutive impact of options outstanding
    
99,687
   
193,451
   
64,057
   
179,626
 
                           
Weighted average shares oustanding - diluted
    
11,519,992
   
11,418,840
   
11,532,455
   
11,426,868
 
                           
 
During the six and three months ended June 30, 2005 185,589 and 185,589 outstanding options, respectively, were not included in the foregoing computations because they were antidilutive. No such exclusion occurred during 2004.

FAIR VALUE OF FINANCIAL INSTRUMENTS - For financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, it was assumed that the carrying amount approximated fair value because of the short maturities of such instruments. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for bank debt. Management believes that the carrying amount of bank debt is a reasonable estimate of its fair value.

- 14 -

2.  ACQUISITIONS

On March 22, 2005, the Company acquired the common stock of Galaxy Power Inc. ("Galaxy"), located in Westborough, Massachusetts, for approximately $18.8 million in cash including transaction costs of approximately $.2 million. Galaxy is a designer and manufacturer of high-density dc-dc converters for distributed power and telecommunication applications. Purchase price allocations have been initially estimated by management and are subject to adjustment. Management is in the process of obtaining independent valuations and independent formal appraisals and will adjust the purchase price allocations accordingly. Management has estimated approximately $13.6 million of goodwill and $2.0 million of identifiable intangible assets arose from the transaction. The identifiable intangible assets and related deferred tax liabilities are being amortized on a straight line basis over their estimated useful lives.

The acquisition has been accounted for using the purchase method of accounting and, accordingly, the results of operations of Galaxy have been included in the Company's financial statements from March 23, 2005.

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

On June 30, 2005, the Company acquired the common stock of Netwatch S.S.O., located in Prague, the Czech Republic, for approximately $1.9 million in cash of which $.5 million is due to the sellers by June 30, 2006. Netwatch is a designer and manufacturer of high-performance fiber optic and copper cable assemblies for data and telecommunication applications. Purchase price allocations have been estimated by management and are subject to adjustment. Management has estimated approximately $1.0 million of goodwill arose from the transaction.

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

- 15 -


The following unaudited pro forma summary results of operations assume that Galaxy and Netwatch had been acquired as of January 1, 2004 (in thousands, except per share data):

   
Six Months Ended
 
   
June 30,
  
   
2005
  
2004
  
Net sales
  
$
108,295
  
$
101,478
  
Net earnings
   
10,758
   
12,226
 
Earnings per share - diluted
    
0.93
   
1.07
 
               
 

The information above is not necessarily indicative of the results of operations that would have occurred if the Galaxy and Netwatch acquisitions had been consummated as of January 1, 2004. Such information should not be construed as a representation of the future results of operations of the Company.

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

Cash
  
$
311,856
  
Accounts receivable
    
3,687,331
 
Inventories
    
2,862,571
 
Prepaid expenses
    
96,120
 
Property, plant and
    
 
equipment
    
1,545,526
 
Other assets
    
32,083
 
Goodwill
    
14,543,201
 
Intangible assets
    
2,010,000
 
Notes payable
    
(860,694
)
Accounts payable
    
(2,129,165
)
Accrued expenses
    
(465,002
)
Income taxes receivable
    
5,488
 
Deferred income taxes payable
     (800,000
) 
       
Net assets acquired
  
$
20,839,315
  
 
3.  GOODWILL AND OTHER INTANGIBLES

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to, at a minimum, an annual impairment test which is performed during the fourth quarter. If the carrying value of goodwill or intangible assets exceeds its fair market value, an impairment loss would be recorded.

- 16 -


Other intangibles include patents, product information, covenants not-to-compete and supply agreements. Amounts assigned to these intangibles have been determined by management. Management considered a number of factors in determining the allocations, including valuations and independent appraisals. Other intangibles are being amortized over 1 to 10 years. Amortization expense was $981,000 and $575,000 for the six months ended June 30, 2005 and 2004, respectively and $666,000 and $290,000 for the three months ended June 30, 2005 and 2004, respectively.

Under the terms of the E-Power and Current Concepts, Inc. acquisition agreements of May 11, 2001, the Company is required to make contingent purchase price payments up to an aggregate of $7.6 million should the acquired companies attain specified sales levels. E-Power will be paid $2.0 million in contingent purchase price payments if sales, as defined, reach $15.0 million and an additional $4.0 million if sales reach $25.0 million on a cumulative basis through May 2007. No payments have been required through June 30, 2005 with respect to E-Power. Current Concepts will be paid 16% of sales, as defined, on the first $10.0 million of sales through May 2007. During the six months ended June 30, 2005 and 2004, the Company paid $296,000 and $75,000, respectively, in contingent price payments to Current Concepts. During the three months ended June 30, 2005 and 2004, the Company paid approximately $182,000 and $-0-, respectively, in contingent purchase price payments to Current Concepts. The contingent purchase price payments are accounted for as additional purchase price and as an increase to intangible assets when such payment obligations are incurred.

The changes in the carrying value of goodwill classified by geographic reporting units for the six months ended June 30, 2005 and the year ended December 31, 2004 are as follows:

   
Total
  
Asia
  
North America
  
Europe
  
                   
Balance, January 1, 2004
  
$
9,881,854
  
$
6,407,435
  
$
2,869,092
  
$
605,327
  
                           
Goodwill allocation
                          
related to acquisitions
    
-
   
-
   
-
   
-
 
                           
Balance, December 31, 2004
    
9,881,854
   
6,407,435
   
2,869,092
   
605,327
 
                           
Goodwill allocation
                          
related to acquisitions
    
14,543,201
   
-
   
13,554,381
   
988,820
 
                           
Balance, June 30, 2005
  
$
24,425,055
  
$
6,407,435
  
$
16,423,473
  
$
1,594,147
  
 
 
- 17 -
 
The components of intangible assets other than goodwill by geographic reporting unit are as follows:

December 31, 2004
  
   
   
Total
 
Asia
 
North America
 
   
Gross Carrying
 
Accumulated
 
Gross Carrying
 
Accumulated
 
Gross Carrying
 
Accumulated
 
   
Amount
 
Amortization
 
Amount
 
Amortization
 
Amount
 
Amortization
 
                           
Patents and Product
                                     
Information
 
$
2,935,000
  
$
1,338,765
  
$
2,653,000
  
$
1,188,654
  
$
282,000
  
$
150,111
  
                                       
Covenants not-to-compete
   
3,523,516
   
2,428,069
   
3,523,516
   
2,428,069
   
-
   
-
 
                                       
Supply agreement
   
2,660,000
   
2,660,000
   
1,409,800
   
1,409,800
   
1,250,200
   
1,250,200
 
                                       
   
$
9,118,516
  
$
6,426,834
  
$
7,586,316
  
$
5,026,523
  
$
1,532,200
  
$
1,400,311
  
                                       
June 30, 2005
  
   
 
    
Total  
    
Asia
   
North America
 
 
    
Gross Carrying  
    
Accumulated
   
Gross Carrying
   
Accumulated
   
Gross Carrying
   
Accumulated
 
 
    
Amount 
    
Amortization
   
Amount
   
Amortization
   
Amount
   
Amortization
 
                                       
Patents and Product
                                     
Information
 
$
3,380,112
  
$
1,633,010
  
$
2,653,000
  
$
1,411,610
  
$
727,112
  
$
221,400
  
                                       
Customer relationship
   
500,000
   
26,923
   
-
   
-
   
500,000
   
26,923
 
                                       
Covenants not-to-compete
   
4,918,712
   
3,122,347
   
3,818,712
   
2,868,501
   
1,100,000
   
253,846
 
                                       
   
$
8,798,824
  
$
4,782,280
  
$
6,471,712
  
$
4,280,111
  
$
2,327,112
  
$
502,169
  
 
Estimated amortization expense for intangible assets for the next five years is as follows:

   
Estimated
  
Year Ending
  
Amortization
  
December 31,
  
Expense
  
       
2005
  
$
2,011,770
  
2006
    
646,281
 
2007
    
107,595
 
2008
    
65,287
 
2009 and thereafter
    
107,324
 
 
 
- 18 -
4.   MARKETABLE SECURITIES 

The Company has acquired a total of 2,037,500 shares of the common stock of Artesyn Technologies, Inc. (“Artesyn”) at a total purchase price of $16,331,469. These purchases were reflected on the Company's consolidated statement of cash flows in the third quarter of 2004 as purchases of marketable securities and have since been reflected on the Company's consolidated balance sheet as marketable securities. As of June 30, 2005, the Company has recorded an unrealized gain, net of income taxes, of approximately $821,000, which is included in accumulated other comprehensive income as stated in the Consolidated Statement of Stockholders' Equity. In connection with this transaction, the Company is obligated to pay an investment banker's advisory fee to a third party of 20% of the appreciation in the stock of Artesyn, or $1 million, whichever is lower. As of June 30, 2005, the Company has accrued a fee in the amount of approximately $279,000. Such amount has been classified within other assets. The Company has proposed to Artesyn that the Company acquire Artesyn, but to date Artesyn has not indicated any interest in negotiating such a transaction with the Company. If the proposed acquisition of Artesyn is consummated, the fee will be capitalized as part of the acquisition costs. Such amount will be expensed at such time as the Company deems the consummation of the proposed acquisition to be unsuccessful.

At June 30, 2005 and December 31, 2004, respectively, marketable securities have a cost of approximately $17,159,000 and $16,516,000, an estimated fair value of approximately $18,456,000 and $23,120,000 and gross unrealized gains of approximately $1,297,000 and $6,604,000. Such unrealized gains, net of tax, are included in other comprehensive income.

5.  INVENTORIES

The components of inventories are as follows:

   
June 30,
  
December 31,
  
   
2005
  
2004
  
Raw material
  
$
19,758,766
  
$
15,236,393
  
Work in progress
    
2,253,676
   
1,607,052
 
Finished goods
    
10,991,312
   
12,257,615
 
   
$
33,003,754
  
$
29,101,060
  
               
 
 
- 19 -

6.   Business Segment Information

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

   
Six Months Ended
  
Three Months Ended
  
   
June 30,
  
June 30,
  
   
2005
  
2004
  
2005
  
2004
  
Total segment revenues
                          
North America
  
$
37,119,158
  
$
39,703,801
  
$
19,158,205
  
$
20,090,468
  
Asia
   
71,509,916
   
64,730,050
   
40,691,564
   
34,244,781
 
Europe
    
7,414,308
   
8,019,194
   
3,415,866
   
4,235,094
 
Total segment revenues
    
116,043,382
   
112,453,045
   
63,265,635
   
58,570,343
 
Reconciling items:
                          
Intersegment revenues
    
(13,059,676
)
  
(21,705,780
)
  
(5,720,214
)
  
(10,180,101
)
Net sales
  
$
102,983,706
  
$
90,747,265
  
$
57,545,421
  
$
48,390,242
  
                           
Income (loss) from Operations:
                          
North America
  
$
3,841,040
  
$
1,740,892
  
$
2,556,574
  
$
355,906
  
Asia
    
9,799,777
   
8,829,494
   
5,714,850
   
4,974,342
 
Europe
    
122,042
   
1,087,493
   
(36,736
)
  
712,494
 
   
$
13,762,859
  
$
11,657,879
  
$
8,234,688
  
$
6,042,742
  
                           
 
7.  DEBT

a.   Short-term debt

Previously the Company had available one domestic line of credit of $10 million; the outstanding balance was paid off in its entirety on June 20, 2005. During March 2005, the Company borrowed $8 million against the line of credit to partially finance the acquisition of Galaxy. During July 2005, the Company amended its credit agreement to increase the line of credit to $20 million which expires on July 27, 2009.

- 20 -

b.   Long-term debt

On March 21, 2003, the Company entered into a $10 million secured term loan, which was paid off in June 2005. The loan was used to partially finance the Company's acquisition of Insilco's Passive Components Group. As of June 30, 2005, the balance due on the term loan was paid in full. This term loan facility is no longer available. For the six months ended June 30, 2005 and 2004, the Company recorded interest expense of approximately $207,000 and $116,000, respectively. For the three months ended June 30, 2005 and 2004, the Company recorded interest expense of approximately $140,000 and $60,000, respectively.

8.   ACCRUED EXPENSES

Accrued expenses consist of the following:

   
June 30,
 
December 31,
 
   
2005
  
2004
 
Sales commissions
  
$
1,474,751
  
$
1,431,169
  
Investment banking commissions
    
278,956
   
1,000,000
 
Subcontracting labor
    
1,687,468
   
1,624,963
 
Salaries, bonuses and
          
related benefits
    
2,462,588
   
3,480,213
 
Other
    
3,211,533
   
2,757,231
 
   
$
9,115,296
  
$
10,293,576
  
               
 
9.   RETIREMENT FUND AND PROFIT SHARING PLAN

The Company maintains a domestic profit sharing plan and a contributory stock ownership and savings 401(K) plan, which combines stock ownership and individual voluntary savings provisions to provide retirement benefits for plan participants. The plan provides for participants to voluntarily contribute a portion of their compensation, subject to certain legal maximums. The Company will match, based on a sliding scale, up to $350 for the first $600 contributed by each participant. Matching contributions plus additional discretionary contributions will be made with Company stock purchased in the open market. The expense for the six months ended June 30, 2005 and 2004 amounted to approximately $248,000 and $148,000, respectively. The expense for the three months ended June 30, 2005 and 2004 amounted to approximately $137,000 and $39,000, respectively. These expenses are included as a component of cost of sales and selling, general and administrative expenses on the accompanying Consolidated Statements of Operations. As of June 30, 2005, the plans owned 19,080 and 129,202 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
 
- 21 -

The Company's Far East subsidiaries have a retirement fund covering substantially all of their Hong Kong based full-time employees. Eligible employees contribute up to 5% of salary to the fund. In addition, the Company may contribute an amount up to 7% of eligible salary, as determined by Hong Kong government regulations, in cash or Company stock. The expense for the six months ended June 20, 2005 and 2004 amounted to approximately $208,000 and $218,000, respectively. The expense for the three months ended June 30, 2005 and 2004 amounted to approximately $105,000 and $111,000, respectively. As of June 30, 2005, the plan owned 3,323 and 17,756 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Supplemental Executive Retirement Plan (the “Plan” or "SERP") is designed to provide a limited group of key management and highly compensated associates of the Company supplemental retirement and death benefits. The Plan was established by the Company in 2002. Employees are selected at the sole discretion of the Board of Directors of the Company to participate in the Plan. The Plan is unfunded. The Company utilizes life insurance to partially cover its obligations under the Plan. The benefits available under the Plan vary according to when and how the participant terminates employment with the Company. If a participant retires (with the prior written consent of the Company) on his normal retirement date (65 years old, 20 years of service, and 5 years of Plan participation), his normal retirement benefit under the Plan would be annual payments equal to 40% of his average base compensation (calculated using compensation from the highest 5 consecutive calendar years of Plan participation), payable in monthly installments for the remainder of his life.
 
If a participant retires early from the Company (55 years old, 20 years of service, and 5 years of Plan participation), his early retirement benefit under the Plan would be an amount (i) calculated as if his early retirement date were in fact his normal retirement date, (ii) multiplied by a fraction, with the numerator being the actual years of service the participant has with the Company and the denominator being the years of service the participant would have had if he had retired at age 65, and (iii) actuarially reduced to reflect the early retirement date. If a participant dies prior to receiving 120 monthly payments under the Plan, his beneficiary would be entitled to continue receiving benefits for the shorter of (i) the time necessary to complete 120 monthly payments or (ii) 60 months.
 
If a participant dies while employed by the Company, his beneficiary would receive, as a survivor benefit, an annual amount equal to (i) 100% of the participant’s annual base salary at date of death for one year, and (ii) 50% of the participant’s annual base salary at date of death for each of the following 4 years, each payable in monthly installments. The Plan also provides for disability benefits, and a forfeiture of benefits if a participant terminates employment for reasons other than those contemplated under the Plan. The expense for the six months ended June 20, 2005 and 2004 amounted to approximately $341,000 and $204,000, respectively. The expense for the three months ended June 30, 2005 and 2004 amounted to approximately $121,000 and $110,000, respectively.

- 22 -
 
The components of SERP expense are as follows:

   
Six Months Ended
  
Three Months Ended
  
   
June 30
  
June 30,
  
   
2005
  
2004
  
2005
  
2004
  
Service cost
  
$
154,000
  
$
71,000
  
$
55,000
  
$
43,000
  
Interest cost
    
113,000
   
80,000
   
36,000
   
40,000
 
Amortization of adjustments
    
74,000
   
53,000
   
30,000
   
27,000
 
Total SERP expense
  
$
341,000
  
$
204,000
  
$
121,000
  
$
110,000
  
                           
 

   
June 30,
  
December 31,
  
   
2005
  
2004
  
Balance sheet amounts:
          
Accrued pension liability
  
$
2,602,583
  
$
2,261,583
  
Intangible asset
    
1,127,941
   
1,127,941
 
               
 
10.   COMMON STOCK

During 2000, the Board of Directors of the Company authorized the purchase of up to ten percent (10%) of the Company’s outstanding Class B common shares. As of June 30, 2005, the Company had purchased and retired 23,600 Class B common shares at a cost of approximately $808,000 which reduced the number of Class B common shares outstanding.

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

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

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

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

 
·
Mergers and consolidations - Equal amount and form of consideration per share among Class A and Class B;
 
- 23 -


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

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

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

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

11.   COMPREHENSIVE INCOME
 
Comprehensive income for the six and three months ended June 30, 2005 and 2004 consists of:

   
Six Months Ended
  
Three Months Ended
  
   
June 30,
  
June 30,
  
   
2005
  
2004
  
2005
  
2004
  
Net earnings
  
$
10,982,040
  
$
11,799,984
  
$
6,668,675
  
$
7,145,253
  
Currency translation adjustment-
                          
net of taxes
    
(614,665
)
  
(203,460
)
  
(424,138
)
  
18,978
 
Increase (decrease) in unrealized
                          
gain on marketable securities
                          
- net of taxes
    
(3,143,296
)
  
7,200
   
32,446
   
(8,500
)
                           
Comprehensive income
  
$
7,224,079
  
$
11,603,724
  
$
6,276,983
  
$
7,155,731
  
                           
 
 
- 24 -
 
12.  ASSETS HELD FOR SALE

On July 15, 2004, the Company entered into an agreement for the sale of a certain parcel of land located in Jersey City, New Jersey. The sales agreement is subject to a due diligence period by the buyer. The seller and buyer are aware that a portion of the property may be subject to tidelands claims by the State of New Jersey. Additionally, the Company is obligated for environmental remediation costs of up to $440,000 of which $140,000 has been paid as of June 30, 2005. The buyer has agreed in principle to pay all additional remediation costs. As these costs are incurred the Company capitalizes them on the consolidated balance sheet as a component of assets held for sale. The Company has classified the asset as held for sale with a net book value of $797,724 and $696,013 on the Company's balance sheet at June 30, 2005 and December 31, 2004, respectively. The Company anticipates the sale to take place prior to December 31, 2005.

13.   NEW FINANCIAL ACCOUNTING STANDARDS

In December 2004, the FASB issued SFAS No. 123(R), that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, if granted, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the reward. SFAS No. 123(R) is effective as to the Company as of the beginning of the Company's 2006 fiscal year. The Company is currently evaluating its position and will make its determination to account for stock-based compensation costs either prospectively or retroactively at the time of adoption. The adoption of SFAS 123(R) is expected to have a material effect on the Company's results of operations.

In December 2004, the FASB staff issued FASB Staff Position ("FSP") FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" to provide guidance on the application of Statement 109 to the provision within the American Jobs Creations Act of 2004 (the "Act") that provides tax relief to U.S. domestic manufacturers. The FSP states that the deduction provided for under the Act should be accounted for as a special deduction in accordance with FASB Statement No. 109 and not as a tax rate reduction. The FSP is effective upon issuance. The adoption of FAS 109-1 could have a material effect on the Company's results of operations and financial position.

In December 2004, the FASB staff issued FSP FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004" to provide accounting and disclosure guidance for the repatriation provisions included in the Act. The Act introduced a special limited-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer. The FSP is effective upon issuance. The adoption of FAS 109-2 could have a material effect on the Company's results of operations and financial position.

- 25 -

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

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

- 26 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The Company’s quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2004. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results, and stock prices. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (the “SEC”) contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 (“Forward-Looking Statements”) with respect to the business of the Company. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, which could cause actual results to differ materially from these Forward-Looking Statements. The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date such statements are made or to reflect the occurrence of unanticipated events. An investment in the Company involves various risks, including those which are detailed from time to time in the Company’s SEC filings.
 
Overview

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

During the first six months of 2005, approximately $5.1 million of the sales increase compared to the first six months of 2004 is attributable to the acquisition by the Company of Galaxy Power, Inc. (“Galaxy”) which occurred on March 22, 2005.  Gross profit margins were lower during the first six months of 2005 compared to the first six months of 2004 principally due to increased raw material costs due to changes in the Company’s product mix and additional inventory obsolescence adjustments. During June, 2005 the Company repatriated earnings from a controlled foreign corporation in the amount of $25.6 million to take advantage of the lower federal tax rate of 5.25% which was created under the American Jobs Creation Act of 2004. Additionally, the Company repaid bank debt during June, 2005 in the amount of $14.0 million.
 
- 27 -

Critical Accounting Policies

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

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

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

The Company makes purchasing decisions principally based upon firm sales orders from customers, the availability and pricing of raw materials and projected customer requirements. Future events that could adversely affect these decisions and result in significant charges to the Company’s operations include miscalculating customer requirements, technology changes which render certain raw materials and finished goods obsolete, loss of customers and/or cancellation of sales orders, stock rotation with distributors and termination of distribution agreements. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon the aforementioned assumptions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
 
- 28 -


When inventory is written-off, it is never written back up; the cost remains at zero or the level to which it has been written-down. When inventory that has been written-off is subsequently used in the manufacturing process, the lower adjusted cost of the material is charged to cost of sales. During 2001 the Company wrote down or reserved $12 million of inventory, including non cancelable purchase commitments. At December 31, 2004, approximately $1.4 million of inventory (at original cost before the write-down or reserve in 2001) was on hand. During 2003 and 2004 approximately $2.5 million and $7.0 million of this inventory was scrapped. Management intends to retain the balance of this inventory for possible use in future orders. Should any of this inventory be used in the manufacturing process for customer orders, the improved gross profit will be recognized at the time the completed product is shipped and the sale is recorded.

The following is a quarterly schedule of material reintroduced into production since the initial $12 million charge.

Prior Quarters
      
$ 164,329
 
           
1st Quarter
    
2002
    
4,538
 
2nd Quarter
    
2002
    
68,098
 
3rd Quarter
    
2002
    
38,914
 
4th Quarter
    
2002
    
271,163
 
               
1st Quarter
    
2003
    
77,069
 
2nd Quarter
    
2003
    
80,046
 
3rd Quarter
    
2003
    
28,851
 
4th Quarter
    
2003
    
98,263
 
               
1st Quarter
    
2004
    
31,051
 
2nd Quarter
    
2004
    
78,232
 
3rd Quarter
    
2004
    
72,857
 
4th Quarter
    
2004
    
53,295
 
               
1st Quarter
    
2005
    
777
 
2nd Quarter
    
2005
    
26,737
 
         
$
1,094,220
  
               
 
Acquisitions

On March 22, 2005, the Company acquired the common stock of Galaxy Power Inc. for approximately $18.8 million in cash including transaction costs of approximately $.2 million. Purchase price allocations have been initially estimated by management and are subject to adjustment. Management is in the process of obtaining independent valuations and independent formal appraisals and will adjust purchase price allocations accordingly. Management has estimated that approximately $13.6 million of goodwill and $2.0 million of the identifiable intangible assets arose from the transaction. The identifiable intangible assets and related deferred tax liabilities are being amortized on a straight-line basis over their estimated useful lives.

- 29 -
 
The Company believes that the purchase of Galaxy’s Power Group is a logical strategic fit with Bel’s Power Products group. The Company believes that the products are highly complementary with minimal overlap. The customer base is similar but still affords ample opportunity for cross-selling. While Bel offers Galaxy a much-needed cost competitive manufacturing base in China, Galaxy brings a portfolio of products and technologies aimed at higher end markets. In addition to these strategic synergies, there is significant opportunity for expense reduction and the elimination of redundancies.

This acquisition was accounted for using the purchase method of accounting and accordingly, the results of operations of Galaxy have been included in the Company’s financial statements from March 23, 2005.

On June 30, 2005, the Company acquired the common stock of Netwatch S.S.O., located in Prague, The Czech Republic, for approximately $1.9 million of which $.5 million is due to the sellers by June 30, 2006. Netwatch is a designer and manufacturer of high-performance fiber optic and copper cable assemblies for data and telecommunication applications. Purchase price allocations have been estimated by management and are subject to adjustment. Management has estimated approximately $1.0 million of goodwill arose from the transaction.

The Company believes that strategic value of the Netwatch acquisition is the establishment of a European manufacturing presence for the Company and the addition of fiber optic capability to the Bel Stewart and Connector Group to complement the Company's current copper-based product portfolio. The Company believes that Bel Stewart is now capable of supporting the Company's customer base, including the world's largest structured cabling providers, with a broad range of both copper and fiber based components and assemblies.

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

The following unaudited proforma summary results of operations assumes that Galaxy and Netwatch had been acquired as of January 1, 2004 (in thousands except per share data):

   
Six Months Ended
  
   
June 30,
  
   
2005
  
2004
  
Net sales
  
$
108,295
  
$
101,478
  
Net earnings
    
10,758
   
12,226
 
Earnings per share-diluted
    
0.93
    
1.07
  
               
 
The information above is not necessarily indicative of the results of operations that would have occurred if the acquisition had been consummated as of January 1, 2004. Such information should not be construed as being a representation of the future results of operations of the Company.

- 30 -


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

Cash
  
$
311,856
  
Accounts receivable
    
3,687,331
 
Inventories
    
2,862,571
 
Prepaid expenses
    
96,120
 
Property, plant and
       
equipment
    
1,545,526
 
Other assets
    
32,083
 
Goodwill
    
14,543,201
 
Intangible assets
    
2,010,000
 
Notes payable
    
(860,694
)
Accounts payable
    
(2,129,165
)
Accrued expenses
    
(465,002
)
Income taxes receivable
    
5,488
 
Deferred income taxes payable
     (800,000
)
Net assets acquired
  
$
20,839,315
  
         
 
Income Taxes

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

Revenue Recognition

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

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

- 31 -
 
The Company is not contractually obligated to accept returns except for defective product or in instances where the product does not meet the Company’s quality specifications. If these conditions existed, the Company would be obligated to repair or replace the defective product or make a cash settlement with the customer. If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances for bad debt may be required which could have a material adverse effect on the Company’s results of operations and financial condition. The Company has a significant amount of sales with several major customers. The loss of any one of these customers could have a material adverse effect on the Company’s results of operations and financial position.

Results of Operations

The following table sets forth, for the second quarters of 2005 and 2004, and the first six months of 2005 and 2004, the percentage relationship to net sales of certain items included in the Company’s consolidated statements of operations.

   
Percentage of Net Sales
  
Percentage of Net Sales
  
   
Six Months Ended
  
Three Months Ended
  
   
June 30,
  
June 30,
  
   
2005
  
2004
  
2005
  
2004
  
                   
Net sales
    
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
Cost of sales
    
71.3
   
69.4
   
70.7
   
68.6
 
Selling, general and
                         
administrative expenses
    
15.4
   
16.6
   
15.0
   
16.8
 
Fixed asset impairment
    
-
   
1.1
   
-
   
2.1
 
Interest income - net
    
0.4
   
0.2
   
0.5
   
0.2
 
Lawsuit proceeds
    
-
   
3.2
   
-
   
6.1
 
Earnings before provision
                          
for income taxes
    
13.7
   
16.3
   
14.8
   
18.8
 
Income tax provision
    
3.1
   
3.3
   
3.2
   
4.0
 
Net earnings
    
10.6
   
13.0
   
11.6
   
14.8
 
                           
 
 
- 32 -

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