<PAGE>

                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549
                                    Form 10-K
(Mark One)


/X/              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended ....................................December 31, 1996

                                       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   0-11560
                       -----------

                         WESTERN MICRO TECHNOLOGY, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

               California                                94-2414428
           ------------------                       --------------------
      (State or other jurisdiction          (I.R.S. Employer Identification No.)
    of incorporation or organization)

         254 E. Hacienda Avenue,                            95008
       ---------------------------                         --------
              Campbell, CA                                (Zip Code)
             --------------
(Address of principal executive offices)

             (408) 379-0177
         -----------------------
     (Registrant's telephone number,
          including area code)

           Securities registered under Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                        Common Stock, Without Par Value

     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 at least the past 90 days.

                               YES /X/   NO / /

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $44,759,567 on February 28, 1997.

     The aggregate number of outstanding shares of Common Stock, without par
value, of the registrant was 4,509,244 shares as of February 28, 1997.

                       DOCUMENTS INCORPORATED BY REFERENCE

     None.

<PAGE>

     When used in this Report, the words "estimate," "project," "intend" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. For a discussion of certain of such
risks, see "Business--Factors That May Affect Future Results." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release updates or revisions to these statements.


<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                             INDEX TO 1996 FORM 10-K

Item No.                                                                    Page
--------                                                                    ----

PART I   ...................................................................  1
     ITEM 1.    BUSINESS....................................................  1
     ITEM 2.    PROPERTIES..................................................  5
     ITEM 3.    LEGAL PROCEEDINGS...........................................  6
     ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........  6

PART II  ...................................................................  7
     ITEM 5.    MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                STOCKHOLDER MATTERS.........................................  7
     ITEM 6.    SELECTED FINANCIAL DATA.....................................  8
     ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS.........................  9
     ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 14
     ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE......................... 34

PART III ................................................................... 35
     ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 35
     ITEM 11.   EXECUTIVE COMPENSATION...................................... 38
     ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT.................................................. 41
     ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 43

PART IV  ................................................................... 44
     ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                ON FORM 8-K................................................. 44


                                       -i-

<PAGE>

                                     PART I

ITEM 1.   BUSINESS
          --------

General
-------

     Western Micro Technology, Inc. (the "Company") is a distributor of
commercial mid-range computer systems, peripheral equipment, software and
attendant services, with its headquarters in Northern California's "Silicon
Valley." The Company was incorporated under the name of Silicon Valley Services,
Inc. on December 30, 1975 in the State of California.

     As a distributor of computer systems and peripheral equipment, the Company
sells mid-range file servers and workstations, integrated personal computers and
a full range of storage products and software. In addition, the Company sells
installation and technical services.

     The Company maintains three distribution centers, three integration centers
and nine sales offices, and its geographic market coverage is the entire United
States.

     On January 2, 1996, the Company acquired the assets of R&D Hardware Systems
Company of Colorado ("R&D"), a privately held company, for $1,000,000 in cash
and 125,000 shares of the Company's common stock. The agreement between the
Company and R&D (the "Agreement") contains an earn-out provision which allows
R&D to earn up to an additional 125,000 shares of the Company's common stock
based on attainment of gross profit targets for certain fiscal year 1996 and
1997 sales (as defined in the Agreement) up to a cumulative value not to exceed
$855,000. As of December 31, 1996, approximately 33,000 shares, at an average
price of $9.98, have been earned under this provision. The assets purchased
primarily consisted of certain inventories and trade accounts receivable of R&D.
The acquisition has been accounted for as a purchase with the result that R&D
operations are included in the Company's financial statements since the date of
purchase. In connection with the acquisition, the Company recorded approximately
$1,400,000 of goodwill and other intangible assets. For the year ended December
31, 1995, R&D had revenues of approximately $9,557,000 with net income of
approximately $446,000.

     On November 7, 1996, the Company acquired the net assets of Star
Technologies, Inc. ("Star"), a privately held company, for $950,000, which was
paid in 113,263 shares of the Company's common stock at a per share price of
$8.38. The agreement between the Company and Star (the "Agreement") contains an
earn-out provision which allows Star to earn up to an additional $2,400,000 of
the Company's common stock based on the attainment of gross profit targets for
certain fiscal year 1997 and 1998 sales (as defined in the Agreement). An
additional 89,418 shares were issued by the Company on November 7, 1996 and
placed in escrow for this earn-out provision. If Star does not meet the earn-out
provision targets, the appropriate number of shares will be returned to the
Company. The assets purchased primarily consisted of certain inventories and
trade accounts receivable of Star. The acquisition has been accounted for as a
purchase with the result that Star operations are included in the Company's
financial statements since the date of purchase. In connection with the
acquisition, the Company recorded approximately $400,000 of goodwill and other
intangible assets

                                       -1-

<PAGE>


recorded approximately $400,000 of goodwill and other intangible assets.
For the year ended June 30, 1996, Star had revenues of approximately $7,500,000
with net income of approximately $40,000.

     On November 29, 1996, the Company acquired the net assets of International
Data Products, LLC ("IDP"), a privately held company, for $265,000 in cash and
assumed net liabilities of $424,000. The agreement between the Company and IDP
(the "Agreement") contains an earn out provision which allows IDP to earn up to
140,000 shares of the Company's common stock based on the attainment of gross
profit targets for certain fiscal year 1997 and 1998 sales (as defined in the
Agreement). The value of the shares will be based on the average daily closing
price of the Company's common stock at the end of the earn out period, December
31, 1998. The assets purchased primarily consisted of certain inventories and
trade accounts receivable of IDP. The acquisition has been accounted for as a
purchase with the result that IDP operations are included in the Company's
financial statements since the date of purchase. In connection with the
acquisition, the Company recorded approximately $780,000 of goodwill and other
intangible assets. For the year ended December 31, 1995, IDP had unaudited
revenues of approximately $4,611,000 with net income of approximately $2,000.

Distribution Activities
-----------------------

     The Company is a specialty distributor of mid-range computer systems,
peripheral equipment, software and attendant services. Manufacturers of these
products generally consider master distributors, such as the Company, to be an
important extension of their sales and marketing activities and are moving more
of their business into this channel. As a distributor, the Company sells,
processes orders, delivers, and services (if necessary) the manufacturers'
products, relieving the manufacturer of a portion of the costs associated with
such functions, including the investment in accounts receivable and inventory,
while offering customers off-the- shelf delivery.

     The Company has a broad base of customers in the computer, industrial,
financial, instrumentation, telecommunication and consumer products markets. No
single distribution customer accounted for more than 10% of the Company's net
distribution sales during the year ended December 31, 1996. Distribution is
presently conducted from the Company's major distribution center in Campbell,
California and its facilities in Burr Ridge, Illinois and Framingham,
Massachusetts. The Company also has nine sales offices located in: Irvine,
Laguna Hills and Campbell, California; Burr Ridge, Illinois; Mt. Laurel, New
Jersey; San Antonio, Texas; Colorado Springs, Colorado; Framingham,
Massachusetts and Phoenix, Arizona.

     Mid-range systems distribution is one of the fastest growing segments of
the computer industry. As prices for computer systems and peripheral equipment
have declined and as the systems themselves have become more complex, the market
for these systems has increased and the cost to manufacturers of providing a
field sales force of skilled personnel for on-site customer presentation has
become uneconomical except with respect to large customers. Accordingly,
manufacturers of such equipment are beginning to rely on distributors to augment
and supplement their sales and marketing efforts.


                                       -2-

<PAGE>

     The Company specializes in selling commercial multi-user computer systems
(file servers) and a full range of disk drives, optical and board-level
products, software, and attendant services. The major customers for these
products are VARs (value-added resellers) who purchase computer hardware from
the Company, generally incorporate vertical market software, and sell an
integrated computer system to an end-user customer or original equipment
manufacturers (OEM). In addition, other value-added functions are conducted in
the Company's technology and integration centers located in Campbell,
California, Burr Ridge, Illinois and Laguna Hills, California, which offer
"turnkey" systems assembly, bundling and construction, primarily to OEM. The
Company offers such organizations a single source for hardware, software, and
service needs and makes available to its systems customers a wide range of pre-
and post-sales support from its technical support group. During the year ended
December 31, 1996, the Company estimates that OEMs accounted for 25% of the
Company's systems sales and VARs accounted for 75%.

     The Company offers customers in-warranty and out-of-warranty service
options under which all repairs and maintenance services, including parts and
labor, are performed at Company premises for vendors with which the Company has
service agreements. Because the Company generally performs these services more
rapidly than manufacturers under their warranties, many customers elect this
option. To date, revenue from these services has not been significant.

     Currently, the Company acts as a distributor for approximately 30
manufacturers of computer systems, peripheral equipment and software. The
Company maintains an on-going program for evaluation of new and existing
products and suppliers through market research and customer and supplier
consultations. During the year ended December 31, 1996, approximately 80% of the
Company's net sales were from systems products manufactured by International
Business Machines Corporation ("IBM"), Data General Corporation, NCR
Corporation, and Unisys Corporation. The Company estimates that typical orders
for integrated computer systems range from approximately $10,000 to $300,000.

     Marketing of computer systems, peripheral equipment and software is
currently conducted from all of the Company's locations, with branch offices
electronically linked to the Company's central computer in Campbell, California.
This enables financial and operational information to be monitored on a
real-time basis.

     To become an authorized distributor, the Company normally enters into a
nonexclusive agreement with a manufacturer that is typically cancelable by
either party upon 30 to 120 days' prior written notice. Several of the franchise
agreements with the manufacturers provide (i) that the manufacturer is
obligated, in the event of cancellation by the manufacturer, to repurchase all
of the products in the Company's inventory, (ii) that the Company has the right
to return discontinued products and, to a specified percentage, inventory, in
exchange for other products and (iii) that the Company has price protection in
the form of credits for inventory items, where the price has been reduced by the
manufacturer. Those manufacturers that do not have explicit provisions affording
such protection in their franchise agreements with distributors such as the
Company have, as a matter of policy, generally extended such protection to their
distributors. However, in the absence of explicit provisions, there can be no
assurance that such protection

                                       -3-

<PAGE>

will continue to be extended in the future. If such protection were
discontinued, the potential for inventory write-downs by the Company could be
increased substantially.

Nature of Business and Competition
----------------------------------

     Although the Company's business is not seasonal to any material extent, its
business is influenced by trends affecting the electronics industry in general
and mid-range computer markets in particular. For example, the Company's largest
vendor sells approximately 40% of its products in the last calendar quarter,
which in the future could have an affect on the Company's revenues from quarter
to quarter.

     The Company competes with national, regional, and local distributors in its
marketing areas, some of which have substantially greater financial and
marketing resources than the Company. These competitors can be generally
classified into two types: fulfillment distributors and value-added
distributors. The Company considers itself to be a value-added distributor. In
some limited circumstances, the Company also competes with its own suppliers.
Competition is based primarily on product availability, availability of trade
credit, price, level of service, and the reputation of the manufacturer.

Marketing and Backlog
---------------------

     Systems and computer products are sold by sales personnel who regularly
call on customers in assigned market areas and by inside telephone sales
personnel. Sales are coordinated by sales managers and product managers whose
responsibilities include supplier and product selection and pricing.
Compensation for sales and marketing personnel is based primarily on attainment
of specified gross profit margins, return on assets and inventory turns.

     Although the Company receives volume purchase orders, not all such orders
will necessarily result in sales, as most orders are subject to revision or
cancellation without penalty. Consequently, the Company does not believe backlog
is necessarily a meaningful indicator of sales for future periods.

Employees
---------

     As of December 31, 1996, the Company had 180 full-time employees, 135 of
whom were in operations, and the balance of whom were in corporate
administration. Approximately 70 of the employees engaged in operations were
sales personnel, all of whom participate in ongoing training to keep current on
the latest technological advances in their respective areas.

     The Company is not a party to any collective bargaining agreement and
considers its employee relations to be good.

Impact of Environmental Restrictions
------------------------------------

     The Company believes that compliance with federal, state, and local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protection

                                       -4-


<PAGE>

of the environment will not have a material effect upon its capital
expenditures, operations, or competitive position.

Insurance
---------

     The Company presently carries broad insurance coverage including property
damage, business interruption, earthquake, general liability, product liability
and directors and officers coverage. As a result of reduced availability of
certain types of coverage offered by the insurance industry and increased
premium costs, the Company may, in the future, be forced or may elect to become
self insured for certain risks.

Factors Affecting Future Results
--------------------------------

     The Company's past operating results have been, and its future operating
results will be, subject to a variety of uncertainties. The Company's quarterly
operating results may be subject to fluctuations as a result of a number of
factors, including the addition or loss of key suppliers or customers, price
competition and changes in the supply and demand for computer products. The
Company's revenues are concentrated with a relatively limited number of
customers and the Company's suppliers of systems representing substantially all
of the Company's revenues are concentrated among a few manufacturers. The
Company extends trade credit to its customers and generally does not require
supporting collateral. To reduce credit risk, the Company performs ongoing
credit evaluations of its customers, maintains an allowance for doubtful
accounts and has credit insurance. No single customer accounted for more than
10% of the outstanding accounts receivable balance at December 31, 1996 and
1995. The loss of a major customer or the interruption of certain supplier
relationships could adversely effect operating results. During the year ended
December 31, 1996, approximately 50% of the Company's revenue was generated from
the sales of products purchased from one of the Company's vendors, International
Business Machines Corporation ("IBM"). Price competition in the industries in
which the Company competes is intense and could result in gross margin declines,
which could have a material adverse impact on the Company's profitability. The
Company's future success depends in part on the continued service of its key
personnel, and its ability to identify and hire additional personnel. Loss of
the services of, or failure to recruit, key sales and management personnel could
be significantly detrimental to the Company.


ITEM 2.  PROPERTIES
         ----------

     The Company's executive, administrative, principal sales office, main
distribution warehouse and technology and integration center are located in a
35,563 square foot one-story facility located in Campbell, California. The
facility is occupied under a lease for a monthly rent and other commitments of
$24,183. This rent will increase effective July 1997, to $26,656 per month
through the end of the lease term, June 2000.

     A total of 2,500 square feet of space is leased by the Company for its
sales office in San Antonio, Texas, for a monthly rent of $1,750. The lease
expires in November 1997.

                                       -5-

<PAGE>

     The leases for the Irvine and Laguna Hills, California offices, containing
approximately 2,000 square feet and 10,000 square feet, respectively, provide
for monthly rents and other commitments aggregating $11,550 per month. The
Irvine lease expires in September 1997 and the Laguna Hills lease expires in
March 1997.

     The lease for the Company's Framingham, Massachusetts facility covers
11,200 square feet, with a monthly rent in the amount of $6,864. The lease on
this facility expires in March 2000.

     Approximately 2,500 square feet of space is leased by the Company for its
sales office in Colorado Springs, Colorado, at a monthly rent of $1,927. The
lease expires in December 1999.

     Approximately 16,900 square feet of space is leased by the Company for its
sales, integration and stocking office in Burr Ridge, Illinois, at a monthly
rent of $10,485. This rent will increase effective March 1997, to $11,600 per
month through the end of the lease term, February 2003. There is a six-year
renewal option at the end of the lease term.

     In addition to the leases described above, the Company also rents
professional office space, on a month-to-month or quarter-to-quarter basis, for
sales offices in Phoenix, Arizona and Mt. Laurel, New Jersey.

     The Company also leases various vehicles and other equipment.

     The Company believes its facilities are adequate for its current
operations.


ITEM 3.  LEGAL PROCEEDINGS
         -----------------

     None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

     None.

                                       -6-

<PAGE>

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
         ------------------------------------------------
         STOCKHOLDER MATTERS
         -------------------

     (a)  Common Stock Price Range
          ------------------------

     The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol WSTM. The following table sets forth, for the periods indicated, high and
low sales price information as reported by The Nasdaq Stock Market.

<TABLE>
<CAPTION>
                             Year Ended December 31,
                  ----------------------------------------
                         1996                  1995
                  ------------------     -----------------
                    High        Low       High        Low
                    ----        ---       ----        ---

<S>               <C>         <C>        <C>        <C>
First Quarter     $  7.00     $ 4.63     $ 7.50     $ 4.00
Second Quarter    $ 10.75     $ 6.50     $ 6.38     $ 2.25
Third Quarter     $  9.00     $ 5.88     $ 6.00     $ 2.94
Fourth Quarter    $ 12.25     $ 8.13     $ 6.25     $ 5.00
</TABLE>


     (b) As of February 28, 1997, there were approximately 1,450 beneficial
shareholders and 195 shareholders of record. The Company has never paid a
dividend and has no current plans to do so.


                                       -7-

<PAGE>


<TABLE>
ITEM 6.   SELECTED FINANCIAL DATA (in thousands, except per share data)
          -----------------------

<CAPTION>
                                                                        Year Ended December 31,
                                                  -----------------------------------------------------------------
Income Statement Data                                1996         1995          1994          1993          1992
---------------------                                ----         ----          ----          ----          ----

<S>                                               <C>           <C>           <C>           <C>           <C>
Net sales                                         $  31,697     $106,462      $119,285      $ 96,843      $ 80,478
Selling, general and administrative
         expense                                     14,123       13,703        16,968        16,768        15,165
Restructuring costs                                     --         3,600            --         1,510            --
Income (loss) from continuing
operations                                            2,614       (5,098)       (1,002)       (1,091)         (385)
Discontinued operations, net of tax                     --            --           387           524           427
Net income (loss)                                 $   2,338     $ (5,098)     $   (615)     $   (567)     $     42

Per share:
Income (loss) from continuing
         operations
         -Primary                                 $     .51     $  (1.36)     $  (0.27)     $  (0.31)     $  (0.12)
         -Fully Diluted                                 .50        (1.36)        (0.27)        (0.31)        (0.11)
Income (loss) from discontinued
         operations
         -Primary                                 $     --      $     --      $   0.10      $   0.15      $   0.13
         -Fully Diluted                                 --            --          0.10          0.15          0.12
Net income (loss) per share:
         -Primary                                 $     .51     $  (1.36)     $  (0.17)     $  (0.16)     $   0.01
         -Fully diluted                                 .50        (1.36)        (0.17)        (0.16)         0.01
Number of shares used in per share calculation:
         -Primary                                     4,510        3,756         3,669         3,474         3,320
         -Fully diluted                               4,663        3,756         3,669         3,474         3,418
</TABLE>


<TABLE>
<CAPTION>
                                                                                December 31,
                                                     -----------------------------------------------------------------
Balance Sheet Data                                       1996          1995          1994          1993         1992
------------------                                       ----          ----          ----          ----         ----
<S>                                                  <C>           <C>           <C>           <C>           <C>
Working capital                                      $   7,448     $   7,312     $  12,334     $  12,021     $  10,836
Net trade accounts receivable                        $  25,943     $  14,258     $  15,170     $  13,365     $  10,035
Inventories                                          $  26,142     $  15,251     $  18,959     $  17,467     $  13,391
Total assets                                         $  63,276     $  35,899     $  37,898     $  34,975     $  27,426
Capital lease obligations, less current portion      $      53     $     117     $      65     $      52     $      96
Shareholders' equity                                 $  15,714     $  11,004     $  14,424     $  13,976     $  13,635
</TABLE>

     Amounts for 1993 and 1992 have been restated to reflect the 1994
discontinuation of the Testing Division (see Note 7 of the Notes to Financial
Statements) and the 1994 acquisition of First Computer Corporation accounted for
as a pooling of interests (see Note 11 of the Notes to Financial Statements).

                                       -8-

<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         -------------------------------------------------
         CONDITION AND RESULTS OF OPERATIONS
         -----------------------------------

     On January 2, 1996, the Company acquired the assets of R&D Hardware Systems
Company of Colorado ("R&D"), a privately held company, for $1,000,000 in cash
and 125,000 shares of the Company's common stock. The agreement between the
Company and R&D (the "Agreement") contains an earn-out provision which allows
R&D to earn up to an additional 125,000 shares of the Company's common stock
based on attainment of gross profit targets for certain fiscal year 1996 and
1997 sales (as defined in the Agreement) up to a cumulative value not to exceed
$855,000. As of December 31, 1996, approximately 33,000 shares, at an average
price of $9.98, have been earned under this provision. The assets purchased
primarily consisted of certain inventories and trade accounts receivable of R&D.
The acquisition has been accounted for as a purchase with the result that R&D
operations are included in the Company's financial statements since the date of
purchase. In connection with the acquisition, the Company recorded approximately
$1,400,000 of goodwill and other intangible assets. For the year ended December
31, 1995, R&D had revenues of approximately $9,557,000 with net income of
approximately $446,000.

     On November 7, 1996, the Company acquired the net assets of Star
Technologies, Inc. ("Star"), a privately held company, for $950,000, which was
paid in 113,263 shares of the Company's common stock at a per share price of
$8.38. The agreement between the Company and Star (the "Agreement") contains an
earn-out provision which allows Star to earn up to an additional $2,400,000 of
the Company's common stock based on the attainment of gross profit targets for
certain fiscal year 1997 and 1998 sales (as defined in the Agreement). An
additional 89,418 shares were issued by the Company on November 7, 1996 and
placed in escrow for this earn-out provision. If Star does not meet the earn-out
provision targets, the appropriate number of shares will be returned to the
Company. The assets purchased primarily consisted of certain inventories and
trade accounts receivable of Star. The acquisition has been accounted for as a
purchase with the result that Star operations are included in the Company's
financial statements since the date of purchase. In connection with the
acquisition, the Company recorded approximately $400,000 of goodwill and other
intangible assets. For the year ended June 30, 1996, Star had revenues of
approximately $7,500,000 with net income of approximately $40,000.

     On November 29, 1996, the Company acquired the net assets of International
Data Products, LLC ("IDP"), a privately held company, for $265,000 in cash and
assumed net liabilities of $424,000. The agreement between the Company and IDP
(the "Agreement") contains an earn out provision which allows IDP to earn up to
140,000 shares of the Company's common stock based on the attainment of gross
profit targets for certain fiscal year 1997 and 1998 sales (as defined in the
Agreement). The value of the shares will be based on the average daily closing
price of the Company's common stock at the end of the earn out period, December
31, 1998. The assets purchased primarily consisted of certain inventories and
trade accounts receivable of IDP. The acquisition has been accounted for as a
purchase with the result that IDP operations are included in the Company's
financial statements since the date of purchase. In connection with the
acquisition, the Company recorded approximately $780,000 of goodwill and other
intangible assets. For the year ended December 31, 1995, IDP had unaudited
revenues of approximately $4,611,000 with net income of approximately $2,000.

                                       -9-

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

     On November 18, 1995, the Company acquired all of the common stock of
International Parts, Inc. ("IPI"), a privately held company for 300,000 shares
of the Company's common stock. The agreement between the Company and IPI (the
"Agreement") contains an earn-out provision which allows for IPI to earn up to
an additional 300,000 shares of the Company's common stock based on 30% of gross
profit dollars generated for certain fiscal year 1996 and 1997 sales (as defined
in the Agreement) in excess of $418,550 per quarter. The stock so issued is
valued at an average of prevailing market closing stock prices at each quarterly
payment date. During 1996 the Company issued 39,108 shares, valued at $320,000,
related to this earn out provision. The acquisition has been accounted for as a
purchase with the result that IPI operations are included in the Company's
financial statements since the date of purchase. In connection with this
purchase, the Company has recorded approximately $2,600,000 of goodwill. For the
fiscal year ended December 31, 1994, IPI had revenues of approximately
$15,200,000 with net income of approximately $90,000.

     On July 26, 1995, the Company sold its electronics components distribution
assets to Reptron Electronics Inc. ("Reptron"). The transaction, valued at
approximately $12,500,000, consisted of a $9,200,000 payment in cash and the
assumption of $3,300,000 in accounts payable. Of the $9,200,000 cash payment,
$1,000,000 was held back in escrow for six months to serve as a source of
certain specified rights within the purchase agreement with Reptron. The sale,
which was approved by the Company's shareholders, included the Company's
semi-conductor component inventory, certain receivables, furniture and
equipment. In addition, Reptron assumed certain building and equipment lease
obligations. As a result of this sale, the Company recorded a restructuring
charge of $3,600,000. Of this amount, $2,376,000 was for non-cash write-offs
comprised of $1,353,000 in goodwill and a $1,023,000 increase to long-term
inventory related reserves. Severance and other exit related charges related to
the sale comprised the remaining $1,224,000. In February 1996, approximately
$211,000 was distributed from the escrow to the Company and the balance was paid
to Reptron. Concurrent with the distribution of the escrow funds, Reptron
returned approximately $789,000 of designated assets, valued at historical cost,
to the Company. These designated assets were primarily comprised of
semiconductor inventories. As of December 31, 1996, the Company did not have any
inventory related to the Reptron transaction.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
---------------------------------------------------------------------

     The Company's net sales and gross profits for the year ended December 31,
1996 were generated entirely from the computer systems distribution business, as
the Company sold its components distribution business in July 1995.

     Net sales for the year ended December 31, 1996 of $131,697,000 were 24%
higher than net sales of $106,462,000 for the year ended December 31, 1995.
Gross profit as a percentage of net sales for the years ended December 31, 1996
and 1995 was 13% and 12%, respectively. Prior period results include
semiconductor distribution sales of approximately $28,248,000 and

                                      -10-

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


computer system sales of approximately $78,214,000, resulting in a
year-to-year 68% increase in computer system sales. Computer system sales rose
due to the expansion of the Company's computer systems distribution business,
general market demand for mid-range computer systems and the acquisitions of
IPI, R&D, Star and IDP. The gross profit percentage increased in 1996 versus
1995 primarily due to the fact that the Company has been able to secure
increased purchase discounts from its vendors as a result of higher sales
volume.

     Selling, general and administrative expense increased 3% in the year ended
December 31, 1996 versus the year ended 1995 due to higher labor expense, from
necessary personnel increases as a result of increased sales, higher
depreciation expense, as a result of additions to Company infrastructure and
higher amortization expense as a result of increased goodwill related to
acquisitions. As a percentage of net sales, selling, general and administrative
expense decreased from 13% in 1995 to 11% in 1996. The decrease is a result of
rapid revenue growth, expense management and economies of scale.

     The Company's effective tax rate is 11% versus the statutory rate of 34%.
This reduction is due primarily to the utilization of net operating loss
carryforwards.

     Interest expense increased 15% in the fiscal year ended December 31, 1996
as compared with the year ended December 31, 1995. The increase was due
primarily to an increase in borrowings required to fund the Company's growth and
acquisitions. A decrease in the interest rate partially offset the effect of
increased borrowings.

     The increase in other income in 1996 is primarily due to commissions
generated from assisting customers in finding lease financing for acquired
computer systems as well as a gain recognized on the sale of equipment.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
---------------------------------------------------------------------

     Net sales for the year ended December 31, 1995 of $106,462,000 were 11%
lower than the net sales of $119,285,000 for the year ended December 31, 1994.
Gross profit as a percentage of net sales was 12% and 14%, respectively, for the
years ended December 31, 1995 and 1994. Net sales decreased in 1995 due to the
sale of the Company's semiconductor component business to Reptron in July 1995.
Net sales related to the ongoing computer systems business were $78,214,000 for
the year ended December 31, 1995 as compared to $59,934,000 for the same period
in 1994, an increase of 31%. Semiconductor component sales, representing the
balance of the reported consolidated net sales, decreased 53% as a result of the
sale of the net assets of the semiconductor distribution business in July 1995
and the continued loss of semiconductor component lines in the 19 month period
ending with the date of the sale of the Company's component assets. The decrease
in gross profit was attributable to the lower average gross profit of systems
products sold at the time as well as a decrease in average component selling
prices prior to the sale of the Company's components assets. The Reptron

                                      -11-

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


sale early in the third quarter of 1995 allowed for a significant increase
in the mid-range computer systems sales, as the Company focused its efforts
solely on this business.

     Selling, general and administrative expense as a percentage of net sales
decreased to 13% in the year ended December 31, 1995 from 14% in the year ended
December 31, 1994. The decrease in selling, general and administrative expense
is due to several factors, of which the most significant is the sale of the
Company's component distribution assets and the transfer of employees and
infrastructure associated with that business to Reptron. In the management of
its ongoing computer systems business, the Company had a reduction in force,
consolidated its executive, administrative, distribution and integration
facilities into one location, and aggressively cut back controllable sales
related expenses, which included the modification of management compensation
plans with such compensation determined as a function of return on assets. For
the year ended December 31, 1994, the Company recorded a non-recurring, non-cash
charge of $393,000 to account for the compensation element of certain First
Computer Corporation ("FCC") restricted stock awards exchanged for publicly
traded shares of the Company's stock when FCC was acquired on December 1, 1994.

     As a result of the sale of the Company's component distribution assets to
Reptron, the Company recorded a restructuring charge of $3,600,000. Of this
amount $2,376,000 was for non-cash write-offs comprised of $1,353,000 in
goodwill and a $1,023,000 increase to inventory reserves. Severance and other
exit related charges related to the sale comprised the remaining $1,224,000.

     Interest expense decreased 4% in the fiscal year ended December 31, 1995 as
compared with the year ended December 31, 1994, mainly due to a decrease in
general bank borrowings for the year as the proceeds received from the sale of
the semiconductor distribution assets were used to reduce short-term debt.

     Effective September 30, 1994, the Company discontinued its Testing Division
operations in North Carolina, as a result of its sole customer, Mitsubishi,
discontinuing its testing business with the Company. For the period ended
December 31, 1994, income from discontinued operations, net of income tax, of
$450,000 was reduced by a $63,000 estimated loss on disposition, consisting
primarily of expense related to an employment agreement offset by gains on the
sale of testing equipment.

Liquidity and Capital Resources
-------------------------------

     Net cash used in operating activities during the year ended December 31,
1996 totaled $1,017,000 compared to net cash provided by operations of
$3,719,000 for the same period one year ago. The use of cash was a result of
significant increases in accounts receivable and inventory ($9,648,000 and
$9,831,000, respectively), as a result of increased sales volume and
acquisitions, which were only partially offset by an increase in accounts
payable ($15,591,000).

                                      -12-

<PAGE>

The fiscal year ended December 31, 1995 had positive cash flow from
operating activities due to the sale of the component assets to Reptron, which
reduced, at the time of sale, accounts receivable and inventory by approximately
$9,200,000 and accounts payable by approximately $3,300,000.

     Net cash used in investing activities totaled $2,818,000 for fiscal year
1996 compared to $1,172,000 in the prior year. The investing activities for 1996
consisted of the R&D and IDP asset purchases as well as continuing leasehold,
internal computer hardware and internal software investments made at the
Company's headquarters and sales offices.

     Net cash provided by financing activities totaled $3,673,000 during 1996
compared to net cash used of $2,139,000 for 1995. Short term borrowings
increased due to the need to fund increased working capital requirement as a
result of increased sales and acquisitions.

     The Company has available a $25,000,000 line of credit with a financial
institution that bears interest at the financial institution's prime lending
rate (8.25% as of December 31, 1996) plus 1.50%. Borrowings under the line of
credit are based on eligible accounts receivable and inventory, as defined, and
are collateralized by substantially all assets of the Company. The facility is
renewable annually and contains restrictive covenants which include the
maintenance of minimum revenue, profit and tangible net worth ratios, as
defined. The Company was not in compliance with the tangible net worth covenant
at December 31, 1996. The financial institution granted a waiver as of December
31, 1996 for the specific violation. Borrowings under this line of credit were
$11,277,000 at December 31, 1996. Based on eligible assets, as of December 31,
1996, the Company had borrowings available of approximately $5,300,000. The
weighted average interest rates for the Company's borrowings during 1996 and
1995 were 9.2% and 10.6%, respectively.

     The Company has required substantial working capital to finance accounts
receivable, inventories and capital expenditures and has financed its working
capital requirements, capital expenditures and acquisitions primarily through
bank borrowings. The Company believes that its existing cash and available bank
borrowings are sufficient to fund the Company's operations through the end of
1997. The Company is actively considering other alternatives for raising
additional cash including a public or private equity or debt financing or other
credit arrangement. There can be no assurance that the Company will be able to
obtain additional financing on acceptable terms or at sufficient levels.

                                      -13-

<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
          -------------------------------------------

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
Western Micro Technology, Inc.
Campbell, California

We have audited the accompanying consolidated balance sheets of Western Micro
Technology, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Western Micro
Technology, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

                                         COOPERS & LYBRAND L.L.P.


San Jose, California
January 31, 1997


                                      -14-

<PAGE>

<TABLE>
                         WESTERN MICRO TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
                                   ----------
<CAPTION>
                                                                                  December 31,
                                   ASSETS                                 1996                    1995
                                                                          ----                    ----
<S>                                                                <C>                     <C>
Current assets:
   Cash                                                            $              384      $             546
   Trade accounts receivable, net of allowance for doubtful
         accounts of $411 in 1996 and $380 in 1995                             25,943                 14,258
   Inventories                                                                 26,142                 15,251
   Other current assets                                                         2,254                  1,705
                                                                   ------------------      -----------------
         Total current assets                                                  54,723                 31,760

Property and equipment, net                                                     3,276                  1,720
   Goodwill, net of accumulated amortization of $293 in
   1996 and $12 in 1995                                                         4,937                  2,206
Other assets                                                                      340                    213
                                                                   ------------------      -----------------

         Total assets                                              $           63,276      $          35,899
                                                                   ==================      =================

                                 LIABILITIES
Current liabilities:
   Notes payable                                                   $           11,277      $           7,040
   Current portion of capital lease obligations                                    58                     86
   Accounts payable                                                            33,956                 15,950
   Accrued expenses                                                             1,984                  1,372
                                                                   ------------------      -----------------
         Total current liabilities                                             47,275                 24,448

Capital lease obligations, less current portion                                    53                    117
Other                                                                             234                    330
                                                                   ------------------      -----------------
                                                                               47,562                 24,895
Commitments and contingencies (Notes 4, 9 and 11)

                            SHAREHOLDERS' EQUITY
Preferred stock, without par value:
   Authorized:  10,000,000 shares;
   Issued and outstanding:  none
Common stock, without par value:
   Authorized:  10,000,000 shares;
   Issued and outstanding:  4,488,131 shares in 1996 and
         4,009,988 shares in 1995                                             17,959                  15,587
Retained deficit                                                              (2,245)                 (4,583)
                                                                   -----------------       -----------------
         Total shareholders' equity                                           15,714                  11,004
                                                                   -----------------       -----------------

         Total liabilities and shareholders' equity                $          63,276       $          35,899
                                                                   =================       =================

   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                      -15-

<PAGE>

<TABLE>
                         WESTERN MICRO TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                   ----------

<CAPTION>
                                                                 Year Ended December 31,
                                                 --------------------------------------------------
                                                      1996               1995               1994
                                                      ----               ----               ----
<S>                                              <C>                <C>                <C>
Net sales                                        $     131,697      $     106,462      $    119,285
Cost of goods sold                                     114,389             93,416           102,662
                                                 -------------      -------------      ------------
         Gross profit                                   17,308             13,046            16,623

Selling, general and administrative expenses            14,123             13,703            16,968
Restructuring costs                                                         3,600
Interest expense                                           978                850               884
Other income                                              (407)                (9)              (10)
                                                 -------------      -------------      ------------
         Income (loss) from continuing
         operations before income taxes                  2,614             (5,098)           (1,219)

Income tax (expense) benefit                              (276)                                 217
                                                 -------------      -------------      ------------
         Income (loss) from continuing
         operations                                      2,338             (5,098)           (1,002)

Discontinued operations:
   Income from operations, net of income tax                                                    450
   Estimated loss on disposition                                                                (63)
         Net income (loss)                       $       2,338      $      (5,098)     $       (615)
                                                 =============      =============      ============

Net income (loss) per common share:
Continuing operations                            $        0.50      $       (1.36)     $      (0.27)
Discontinued operations                                                                        0.10
                                                 -------------      -------------      ------------
         Net income (loss) per share             $        0.50      $       (1.36)     $      (0.17)
                                                 =============      =============      ============

Number of shares used in per share
calculations                                              4,663             3,756             3,669
                                                 ==============     =============      ============

   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                      -16-

<PAGE>

<TABLE>
                         WESTERN MICRO TECHNOLOGY, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                      (in thousands, except share amounts)
                                   ----------

<CAPTION>
                                                      Common Stock                     Retained
                                           -----------------------------------         Earnings
                                               Shares               Amount             (Deficit)               Total
                                           --------------      ---------------      --------------       ----------------

<S>                                             <C>            <C>                  <C>                  <C>
Balances, January 1, 1994                       3,618,076      $        12,831      $        1,145       $         13,976
   Exercise of stock options                       51,513                  150                                        150
   Stock compensation                                                      393                                        393
   Issuance of common stock                        35,004                  254                                        254
   Retirement of shares                            (2,586)                 (61)                (15)                   (76)
   Tax benefit from the exercise of
         stock options                                                     342                                        342
   Net loss                                                                                   (615)                  (615)
                                          ---------------      ---------------      --------------       ----------------

Balances, December 31, 1994                     3,702,007               13,909                 515                 14,424
   Exercise of stock options                        7,981                   18                                         18
   Issuance of common stock                       300,000                1,660                                      1,660
   Net loss                                                                                 (5,098)                (5,098)
                                          ---------------      ---------------      --------------       ----------------

Balances, December 31, 1995                      4,009,988               15,587             (4,583)                11,004
   Exercise of stock options                        92,157                  331                                       331
   Issuance of common stock                        366,789                1,949                                     1,949
   Issuance under employee stock
         purchase plan                              19,197                   92                                        92
   Net income                                                                                2,338                  2,338
                                          ----------------     ----------------     --------------       ----------------

Balances, December 31, 1996                      4,488,131     $         17,959     $       (2,245)      $         15,714
                                          ================     ================     ==============       ================

   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                      -17-

<PAGE>

<TABLE>
                         WESTERN MICRO TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   ----------
<CAPTION>
                                                                                        Year Ended December 31,
                                                                        ------------------------------------------------------
                                                                              1996               1995               1994
                                                                              ----               ----               ----
<S>                                                                     <C>                 <C>               <C>
Cash flows from operating activities:
   Net income (loss)                                                    $         2,338     $      (5,098)    $          (615)
   Adjustments to reconcile net income (loss) to net cash
      (used in) provided by operating activities:
      (Gain) loss on disposal of property and equipment                             (11)              (68)                 87
      Depreciation and amortization                                                 983               527                 557
      Provision for doubtful accounts receivable                                    120               291                 302
      Provision for restructuring costs                                                             3,600
      Compensation associated with restricted stock grants                                                                393
      Change in assets and liabilities:
         Trade accounts receivable                                               (9,648)              421              (1,819)
         Inventories                                                             (9,831)            2,035              (1,430)
         Other current assets                                                      (478)             (110)                178
         Other assets                                                              (484)             (154)                  4
         Accounts payable                                                        15,591             4,001                (443)
         Accrued expenses and other liabilities                                     403            (1,726)               (459)
                                                                        ---------------     -------------     ---------------

           Net cash (used in) provided by operating activities                   (1,017)            3,719              (3,245)
                                                                        ---------------     -------------     ---------------

Cash flows from investing activities:
   Acquisition of businesses, net of cash acquired                                 (640)
   Acquisitions of property and equipment                                        (2,200)           (1,364)               (575)
   Proceeds from sale of property and equipment                                      22               192
                                                                        ---------------     -------------     ---------------

           Net cash used in investing activities                                 (2,818)           (1,172)               (575)
                                                                        ---------------     -------------     ---------------

Cash flows from financing activities:
   Net proceeds (repayments) under notes payable                                  3,434            (2,135)              3,087
   Proceeds from exercise of stock options                                          331                18                  74
   Proceeds from employee stock purchase plan                                        92
   Repayment of capital leases and equipment loan                                  (184)             (123)                (75)
   Proceeds from equipment loan                                                                       101                 115
   Tax benefit from the exercise of stock options                                                                         342
                                                                        ---------------     -------------     ---------------

           Net cash provided by (used in) financing activities                    3,673            (2,139)              3,543

Net increase (decrease) in cash                                                    (162)              408                (277)

Cash, beginning of year                                                             546               138                 415
                                                                        ---------------     -------------     ---------------

Cash, end of year                                                       $           384     $         546     $           138
                                                                        ===============     =============     ===============

   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                      -18-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------

1.   Summary of Significant Accounting Policies:
     ------------------------------------------

     Nature of Operations:

     Western Micro Technology, Inc. (the Company) is a distributor of commercial
     mid-range computer systems, peripheral equipment, software and attendant
     services. Prior to July 26, 1995, the Company's operations also included
     distribution of electronic components (see Note 12). The Company's primary
     sales office and distribution center, from which it ships to customers
     throughout the United States, is located in Northern California. In
     addition to the Northern California location, the Company has distribution
     centers in Massachusetts and Illinois and has sales offices throughout the
     United States. The principal customers of the Company are
     value-added-resellers, computer system integrators and original equipment
     manufacturers located in the U.S.

     Financial Statement Presentation:

     The consolidated financial statements include the accounts of the Company
     and its wholly owned subsidiaries. All significant intercompany accounts
     and transactions have been eliminated. During 1994, the Company acquired
     First Computer Corporation (FCC) in a business combination accounted for as
     a pooling of interests. Accordingly, 1994 financial information herein has
     been restated to reflect the combined operations of these companies (see
     Note 11).

     Estimates:

     In preparing financial statements in conformity with generally accepted
     accounting principles, management is required to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     the disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amount of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     Certain Risks and Concentrations:

     The Company maintains cash balances with four major financial institutions.
     The Company sells its products to a broad geographic and demographic base
     of customers, extends trade credit, and generally does not require
     supporting collateral. To reduce credit risk, the Company performs ongoing
     credit evaluations of its customers, maintains an allowance for doubtful
     accounts and has credit insurance. No single customer accounted for more
     than 10% of the outstanding accounts receivable balance at December 31,
     1996 and 1995.


                                      -19-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


1.   Summary of Significant Accounting Policies (Continued):
     ------------------------------------------

     Revenues are concentrated with a relatively limited number of customers and
     the providers of certain systems are concentrated among a few
     manufacturers. The loss of a major customer or the interruption of certain
     supplier relationships could adversely effect operating results. During the
     years ended December 31, 1996, 1995 and 1994, approximately 50%, 30% and
     10%, respectively, of the Company's revenue was generated from the sales of
     products purchased from one of the Company's vendors.

     Fair Value of Financial Instruments:

     Carrying amounts of certain of the Company's financial instruments
     including cash and cash equivalents, accounts receivable, accounts payable
     and other accrued liabilities approximate fair value due to their short
     maturities. Based on borrowing rates currently available to the Company for
     loans with similar terms, the carrying value of capital lease obligations
     and notes payable obligations also approximate fair value.

     Revenue Recognition:

     The Company records revenue, net of allowance for estimated returns, at the
     time of product shipment.

     Inventories:

     Inventories, consisting primarily of purchased product held for resale, are
     stated at the lower of cost (first-in, first-out) or net realizable value.
     The Company's inventories include high technology computer systems that may
     be specialized in nature and subject to rapid technological obsolescence.
     The Company does, however, have certain return privileges with many of its
     vendors. While the Company attempts to minimize the required inventories on
     hand and considers technological obsolescence when estimating required
     reserves to reduce recorded amounts to market values, it is reasonably
     possible that such estimates could change in the near term.

     Property and Equipment:

     Property and equipment are recorded at cost. Depreciation is recorded on a
     straight-line basis over the estimated useful lives, typically two to ten
     years. Leasehold improvements are amortized over the useful lives of the
     improvements or lease term, whichever is shorter.


                                      -20-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


1.   Summary of Significant Accounting Policies (Continued):
     ------------------------------------------

     When assets are sold or retired, the cost and related accumulated
     depreciation are removed from the accounts and the resulting gains or
     losses are included in income.

     Goodwill:

     Goodwill represents the excess cost over the fair value of identifiable net
     assets of businesses acquired and is being amortized on a straight-line
     basis over fifteen years.

     Income Taxes:

     The Company accounts for its income taxes using the liability method under
     which deferred tax assets and liabilities are determined based on
     differences between the financial reporting and tax bases of assets and
     liabilities and are measured using enacted tax rates and laws that will be
     in effect when the differences are expected to reverse. Valuation
     allowances are established when necessary to reduce deferred tax assets to
     amounts expected to be realized.

     Market Development Funds:

     Primary vendors provide the Company with market development funds in an
     amount that is generally based on purchases of the vendors' products and
     services. These funds typically range from 1% to 3% of such purchases and
     are required to be used to market and promote the vendors' products and
     services. The Company applies these funds to offset direct costs of
     selling, general, and administrative expenses.

     Stock-Based Compensation:

     In October 1995, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
     Stock-Based Compensation," which is effective for the Company's financial
     statements for fiscal years beginning after December 15, 1995. SFAS No. 123
     allows companies to either account for stock-based compensation under the
     new provisions of SFAS No. 123 or under the provisions of Accounting
     Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued
     to Employees," but requires pro forma disclosure in the footnotes to the
     financial statements as if the measurement provisions of SFAS No. 123 had
     been adopted. The Company accounts for its stock-based compensation in
     accordance with the provisions of APB No. 25 and presents disclosures
     required by SFAS No. 123.


                                      -21-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------

1.   Summary of Significant Accounting Policies (Continued):
     ------------------------------------------

     Long-Lived Assets:

     In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
     "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to be Disposed Of," was issued. SFAS No. 121 requires that
     long-lived assets and certain identifiable intangibles to be held and used
     or disposed of by an entity be reviewed for impairment whenever events or
     changes in circumstances indicate that the carrying amount of an asset may
     not be recoverable. During 1996, the Company adopted this statement and
     determined that no impairment loss need be recognized for applicable assets
     of continuing operations.

     Net Income (Loss) Per Share:

     Net income (loss) per share is computed using the weighted average number
     of common and common equivalent shares (when dilutive) outstanding during
     each period.


2.   Property and Equipment:
     ----------------------

<TABLE>
     Property and equipment consist of the following (in thousands):

<CAPTION>
                                                         December 31,
                                                -------------------------------
                                                    1996                1995
                                                    ----                ----
<S>                                             <C>                 <C>
Computer and office equipment                   $      4,728        $     4,112
Leasehold improvements                                   682                812
                                                ------------        -----------
                                                       5,410              4,924
Accumulated depreciation and amortization             (2,134)            (3,204)
                                                ------------        -----------
                                                $      3,276        $     1,720
                                                ============        ===========
</TABLE>

     The Company leases various equipment and vehicles under capital leases, all
     of which have been accounted for as installment purchases (Note 3).
     Accordingly, capitalized costs of $357,000 and $310,000, net of accumulated
     amortization of $253,000 and $163,000 at December 31, 1996 and 1995,
     respectively, are included in property and equipment.


                                      -22-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


3.   Notes Payable and Capital Lease Obligations:
     -------------------------------------------

     Notes Payable:

     The Company has available a $25,000,000 line of credit with a financial
     institution that bears interest at the financial institution's prime
     lending rate (8.25% as of December 31, 1996) plus 1.50%. Borrowings under
     the line of credit are based on eligible accounts receivable and inventory,
     as defined, and are collateralized by substantially all assets of the
     Company. The facility is renewable annually and contains restrictive
     covenants which include the maintenance of minimum revenue, profit and
     tangible net worth ratios, as defined. The Company was not in compliance
     with the tangible net worth covenant at December 31, 1996. The financial
     institution granted a waiver as of December 31, 1996 for the specific
     violation. Borrowings under this line of credit were $11,277,000 at
     December 31, 1996. Based on eligible assets, as of December 31, 1996, the
     Company had borrowings available of approximately $5,300,000. The weighted
     average interest rates for the Company's borrowings during 1996 and 1995
     were 9.2% and 10.6%, respectively.

     Capital Lease Obligations:

<TABLE>
     The Company leases property and equipment under capital leases which expire
     through 2000. At December 31, 1996, future minimum payments under capital
     leases are as follows (in thousands):

     <S>                                                     <C>
     1997                                                    $       71
     1998                                                            24
     1999                                                            20
     2000                                                            12
                                                             ----------
     Minimum lease payments                                         127
     Less amount representing interest                               16
                                                             ----------
     Present value of minimum lease payments                        111
     Less current portion                                            58
                                                             ----------
                                                             $       53
                                                             ==========
</TABLE>


4.   Operating Lease Commitments:
     ---------------------------

     The Company leases its warehouse and office space under operating leases.
     These leases expire through 2003 and provide for payment of insurance,
     maintenance and property taxes. In addition, the Company leases certain
     equipment under operating leases and rental arrangements extending for
     periods of up to five years.


                                      -23-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


4.   Operating Lease Commitments (Continued):
     ---------------------------

     The total rent expense, net of sublease income, was $722,000, $934,000 and
     $1,222,000 for 1996, 1995 and 1994, respectively.

     Future minimum rental commitments for all noncancelable operating leases
     are as follows (in thousands):

<TABLE>
<CAPTION>
                Years Ending December 31,
                -------------------------

                        <S>                     <C>
                           1997                 $      621
                           1998                        567
                           1999                        570
                           2000                        320
                           2001                        139
                        Thereafter                     162
                                                ----------
                                                $    2,379
                                                ==========
</TABLE>


5.   Income Taxes:
     ------------

<TABLE>
     The provision for (benefit from) income taxes consist of the following (in
     thousands):

<CAPTION>
                                    Federal         State          Total
                                    -------         -----          -----
<S>                                <C>            <C>            <C>
1996:
         Current                   $     223      $     53       $    276
         Deferred
                                   ---------      --------       --------
                                   $     223      $     53       $    276
                                   =========      ========       ========
1995:
         Current
         Deferred
                                   ---------      --------       --------
                                   $       -      $      -       $      -
                                   =========      ========       ========
1994:
         Current                   $      41      $              $     41
         Deferred
                                   ---------      --------       --------
                                   $      41      $      -       $     41
                                   =========      ========       ========
</TABLE>

     The 1994 provision for income taxes consists of a benefit of $217,000 for
     continuing operations and a provision of $258,000 for discontinued
     operations.

                                      -24-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


5.   Income Taxes (Continued):
     ------------

<TABLE>
     The Company's effective tax expense (benefit) rate differs from the U.S.
     federal statutory tax rate as follows:

<CAPTION>
                                                                        Year Ended
                                                                        December 31,
                                                             ------------------------------
                                                             1996          1995        1994
                                                             ----          ----        ----

<S>                                                            <C>         <C>         <C>
Statutory tax (benefit) rate                                   34 %        (34)%       (34)%
Goodwill and other nondeductible expenses                       4            11          14
Benefit resulting from utilization of federal NOL             (33)                       (3)
State taxes, net of federal benefit                             6
Change in valuation reserve                                                  23          30
                                                             ----          ----        ----
                                                               11 %           - %         7 %
                                                             ====          ====        ====
</TABLE>

<TABLE>
     The components of the net deferred tax asset are as follows (in thousands):

<CAPTION>
                                                                    December 31,
                                                          -----------------------------
                                                              1996             1995
                                                              ----             ----
<S>                                                       <C>               <C>
Deferred tax assets:
Accounts receivable reserve                               $        93       $       154
Accumulated depreciation                                           83                61
Uniform inventory capitalization                                  248               119
Inventory reserve                                                 314               475
Other nondeductible reserves                                      124               418
Other                                                             111               276
Federal and state NOL                                             915             1,679
Valuation allowance                                            (1,888)           (3,182)
                                                          -----------       -----------

                                                          $         -       $         -
                                                          ===========       ===========

     At December 31, 1996, the Company had net operating loss carryforwards of
     approximately $2,400,000 and $1,900,000 available to offset future taxable
     income for federal and state tax purposes, respectively. Excluded from the
     above amounts are net operating losses generated by the
     exercise/dispositions of stock options of $2,000,000 and $1,000,000 for
     federal and state tax purposes, respectively. The operating loss
     carryforwards expire from 1997 to 2010, if not utilized.
</TABLE>


                                      -25-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


6.   Shareholders' Equity:
     --------------------

     Stock Option Plan:

     Under the terms of the 1987 and 1994 Stock Option Plans, the Company may
     grant nonqualified or incentive stock options at prices not less than 85%
     and 100% of the market value at the grant date, respectively. To date, most
     options have been granted at 100% of the market value as of the date of
     grant. Generally, options vest and become exercisable in equal annual
     increments over four years beginning one year after the date of grant and
     expire five years after they become exercisable.

<TABLE>
<CAPTION>
                                                                         Options Outstanding
                                                          --------------------------------------------------
                                            Shares              Number           Price              Total
                                           Available              of              per                (in
                                           for Grant            Shares           Share            thousands)

<S>                                       <C>              <C>                <C>                <C>
Balances, January 1, 1994                     225,998           305,298       $2.00-$9.25        $     1,158
         Additional shares reserved           150,000
         Options granted                     (635,000)          635,000       $6.00-$8.13              4,288
         Options exercised                                      (51,513)      $2.13-$3.00               (150)
         Options terminated                   294,441          (294,441)      $2.13-$9.25             (2,058)
                                         ------------     -------------                          -----------
Balances, December 31, 1994                    35,439           594,344       $2.00-$8.75              3,238
         Options granted                     (342,500)          342,500       $2.25-$5.63              1,151
         Options exercised                                       (7,981)      $2.00-$2.50                (18)
         Options terminated                   324,375          (324,375)      $2.25-$8.25             (1,869)
                                         ------------     -------------                          -----------
Balances, December 31, 1995                    17,314           604,488       $2.00-$8.75              2,502
         Additional shares reserved           400,000
         Options granted                     (441,000)          441,000       $5.00-$10.34             3,367
         Options exercised                                      (92,157)      $2.00-$6.13               (331)
         Options terminated                    23,750           (23,750)      $3.38-$8.25               (108)
                                         ------------     -------------                          -----------
Balances, December 31, 1996                        64           929,581       $2.00-$10.34       $     5,430
                                         ============     =============                          ===========
</TABLE>

     At December 31, 1996, there were 929,645 shares of common stock reserved
     for issuance under the Company's stock option plans and outstanding options
     for 187,956 shares of common stock were exercisable. In June 1994, the
     Board of Directors gave certain employees the right to cancel certain
     outstanding stock options and receive new options with an exercise prices
     of $6.00 per share (the fair market value as of the date of grant). Options
     for 200,000 shares of common stock at original exercise prices ranging from
     $8.13 to $8.50 per share were canceled, and new options for a like number
     of shares were issued in fiscal 1994. The new options retained the vesting
     of the canceled options. Income tax benefits related to the exercise of
     nonqualified stock options, to the extent recognized, have been recorded as
     additional proceeds.


                                      -26-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


6.   Shareholders' Equity (Continued):
     --------------------

     Employee Stock Purchase Plan:

     The Company implemented an Employee Stock Purchase Plan (the Plan) in
     November 1995, under which 175,000 shares of common stock have been
     reserved for issuance. The Plan is qualified under Section 423 of the
     Internal Revenue Code. The Plan allows for the purchase of stock at 85% of
     the lower of the closing stock price at the beginning or the end of each
     six-month purchase period. As of December 31, 1996, 19,197 shares have been
     issued under this Plan.

     The following information concerning the Company's stock option and
     employee stock purchase plans is provided in accordance with SFAS No. 123,
     "Accounting for Stock- Based Compensation." The Company accounts for such
     plans in accordance with APB No. 25 and related Interpretations.

<TABLE>
     The following table summarizes information with respect to stock options
     outstanding at December 31, 1996:

<CAPTION>
                                     Options Outstanding                         Options Exercisable
                      -----------------------------------------------     --------------------------------
                                           Weighted
                                            Average         Weighted
                          Number           Remaining        Average           Number           Weighted
     Range of         Outstanding at      Contractual       Exercise      Exercisable at        Average
  Exercise Prices        12/31/96        Life (Years)        Price           12/31/96       Exercise Price
----------------------------------------------------------------------------------------------------------

<C>                       <C>                 <C>            <C>              <C>                <C>
$2.00-$2.75               166,081             8.03           $2.26            55,456             $2.28
$3.38-$5.00               205,000             8.43           $4.26            43,750             $3.90
$5.25-$7.50               284,000             8.86           $5.96            70,000             $5.97
$8.25-$10.34              274,500             9.21           $9.05            18,750             $8.35
                          -------                                            -------
$2.00-$10.34              929,581             8.72           $5.84           187,956             $4.64
                          =======                                            =======
</TABLE>

     The fair value of each option grant has been estimated on the date of grant
     using the Black-Scholes option pricing model with the following weighted
     average assumptions used for grants in 1996 and 1995:


                                      -27-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------

6.   Shareholders' Equity (Continued):
     --------------------

<TABLE>
<CAPTION>
                                                  Group A                       Group B
                                        --------------------------     ------------------------
                                           1996           1995            1996           1995
                                        -----------    -----------     -----------    ---------

<S>                                       <C>            <C>             <C>            <C>
Risk-free Interest Rates                   5.17           7.68            5.25           7.64
Expected Life                             5 years        5 years         4 years        4 years
Volatility                                87.42%         87.42%          87.42%         87.42%
</TABLE>


     The weighted average expected life was calculated based on the exercise
     behavior of each group. Group A represents officers and directors who are a
     smaller group holding a greater average number of options than other option
     holders and who tend to exercise later in the vesting period. Group B are
     all other option holders, virtually all of whom are employees. This group
     tends to exercise earlier in the vesting period.

     The weighted average fair value of those options granted in 1996 and 1995
     was $7.64 and $3.34 respectively.

     The Company has also estimated the fair value for the purchase rights
     issued under the Company's Employee Stock Purchase Plan under the
     Black-Scholes valuation model using the following assumptions for 1996:

     Risk-free Interest Rates                              5.25%
     Expected Life                                        2 years
     Volatility                                           87.42%


     The weighted average fair value of those purchase rights granted in 1996
     was $4.80.

<TABLE>
     The following pro forma income (loss) information has been prepared
     following the provisions of SFAS No. 123 (amounts in thousands except per
     share data):

<CAPTION>
                                                                   1996          1995
                                                               -----------    ----------
<S>                                                            <C>            <C>
Net income (loss) - pro forma                                  $     1,750    $   (5,213)
                                                               ===========    ==========

Net income (loss) per share - pro forma                        $      0.38    $    (1.39)
                                                               ===========    ==========

     The above pro forma effects on income may not be representative of the
     effects on net income for future years as option grants typically vest over
     several years and additional options are generally granted each year.
</TABLE>

                                      -28-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


7.   Discontinued Operations:
     -----------------------

     As of September 30, 1994, the Company reported its Testing Division as
     discontinued operations. Operating results of these divisions are included
     in the Consolidated Statements of Operations under the caption
     "Discontinued Operations: Income from Operations, Net of Income Tax." The
     related net assets are immaterial. Operating results for the discontinued
     operations were as follows (in thousands):

<TABLE>
<CAPTION>
                                   Year Ended
                                December 31, 1994
                                -----------------

     <S>                              <C>
     Net sales                        $2,116
     Income tax provision             $  258
     Income from operations           $  450
</TABLE>


8.   Supplemental Cash Flow Information (in thousands):
     ----------------------------------

     Supplemental Disclosures of Cash Flow Information:

<TABLE>
     Cash paid for interest and income taxes was:

<CAPTION>
                                        Years Ended December 31,
                          ------------------------------------------------
                                1996              1995             1994
                                ----              ----             ----

<S>                       <C>                <C>                <C>
Interest                  $     1,021        $      895         $      762
Income taxes              $        66        $                  $       37
</TABLE>

<TABLE>
     Supplemental Disclosures of Noncash Investing and Financing Activities:

<CAPTION>
                                                 Years Ended December 31,
                                           ------------------------------------
                                             1996          1995          1994
                                             ----          ----          ----

<S>                                        <C>           <C>           <C>
Capital lease obligations                  $             $     79      $     16
Common stock issued in connection
  with acquisitions                        $  1,949      $  1,660      $    254
Retirement of shares                       $             $             $     76
</TABLE>

                                      -29-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


9.   Contingencies:
     -------------

     The Company is engaged in certain legal and administrative proceedings
     incidental to its normal business activities. While it is not possible to
     determine the ultimate outcome of these actions at this time, management
     believes that any liabilities resulting from such proceedings, or claims
     which are pending or known to be threatened, will not have a material
     adverse effect on the Company's consolidated financial position or results
     of operations.

     The Company has employment agreements with nine employees which provide for
     aggregate cash severance payments of up to $1,321,000 in the event of
     termination without cause, or pursuant to a change in control.


10.  Savings and Retirement Plan:
     ---------------------------

     The Company maintains the "Western Micro Technology Savings and Retirement
     Plan," qualified under section 401(a) of the Internal Revenue Code. The
     Plan provides for tax deferred automatic salary deductions and alternative
     investment options. Employees are eligible to participate after completion
     of six months of employment. Participants may apply for loans from their
     accounts.

     The Plan permits Company contributions determined quarterly by the Board of
     Directors. No contributions were made in the years ended December 31, 1996,
     1995 or 1994.

11.  Business Combinations:
     ---------------------

     On November 29, 1996, the Company acquired the net assets of International
     Data Products, LLC ("IDP"), a privately held company, for $265,000 in cash
     and assumed net liabilities of $424,000. The agreement between the Company
     and IDP (the "Agreement") contains an earn out provision which allows IDP
     to earn up to 140,000 shares of the Company's common stock based on the
     attainment of gross profit targets for certain fiscal year 1997 and 1998
     sales (as defined in the Agreement). The value of the shares will be based
     on the average daily closing price of the Company's common stock at the end
     of the earn out period, December 31, 1998. The assets purchased primarily
     consisted of certain inventories and trade accounts receivable of IDP. The
     acquisition has been accounted for as a purchase with the result that IDP
     operations are included in the Company's financial statements since the
     date of purchase. In connection with the acquisition, the Company recorded
     approximately $780,000 of goodwill and other intangible assets. For the
     year ended December 31, 1995, IDP had unaudited revenues of approximately
     $4,611,000 with net income of approximately $2,000.


                                      -30-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------

11.  Business Combinations (Continued):
     ---------------------

     On November 7, 1996, the Company acquired the net assets of Star
     Technologies, Inc. ("Star"), a privately held company, for $950,000, which
     was paid in 113,263 shares of the Company's common stock at an average
     price of $8.38. The agreement between the Company and Star (the
     "Agreement") contains an earn-out provision which allows Star to earn up to
     an additional $2,400,000 of the Company's common stock based on the
     attainment of gross profit targets for certain fiscal year 1997 and 1998
     sales (as defined in the Agreement). An additional 89,418 shares were
     issued by the Company on November 7, 1996 and placed in escrow for the
     earn-out provision. If Star does not meet the earn-out provision targets,
     the appropriate amount of shares will be returned to the Company. The
     assets purchased primarily consisted of certain inventories and trade
     accounts receivable of Star. The acquisition has been accounted for as a
     purchase with the result that Star operations are included in the Company's
     financial statements since the date of purchase. In connection with the
     acquisition, the Company recorded approximately $400,000 of goodwill and
     other intangible assets. For the year ended June 30, 1996, Star had
     revenues of approximately $7,500,000 with net income of approximately
     $40,000.

     On January 2, 1996, the Company acquired the assets of R&D Hardware Systems
     Company of Colorado ("R&D"), a privately held company, for $1,000,000 and
     125,000 shares of the Company's common stock. The agreement between the
     Company and R&D (the "Agreement") contains an earn-out provision which
     allows R&D to earn up to an additional 125,000 shares of the Company's
     common stock based on attainment of gross profit targets for certain fiscal
     year 1996 and 1997 sales (as defined in the Agreement) up to a cumulative
     value not to exceed $855,000. As of December 31, 1996, approximately 33,000
     shares, at an average price of $9.98, have been earned under this
     provision. The assets purchased primarily consisted of certain inventories
     and trade accounts receivable of R&D. The acquisition has been accounted
     for as a purchase with the result that R&D operations are included in the
     Company's financial statements since the date of purchase. In connection
     with the acquisition, the Company recorded approximately $1,400,000 of
     goodwill and other intangible assets. For the year ended December 31, 1995,
     R&D had revenues of approximately $9,557,000 with net income of
     approximately $446,000.

     On November 18, 1995, the Company acquired all of the common stock of
     International Parts, Inc. ("IPI"), a privately held company for 300,000
     shares of the Company's common stock. The agreement between the Company and
     IPI (the "Agreement") contains an earn-out provision which allows for IPI
     to earn up to an additional 300,000 shares of the Company's common stock
     based on 30% of gross profit dollars generated for certain fiscal year 1996
     and 1997 sales (as defined in the Agreement) in excess of

                                      -31-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


11.  Business Combinations (Continued):
     ---------------------

     $418,550 per quarter. The stock so issued is valued at an average of
     prevailing market closing stock prices at each quarterly payment date.
     During 1996 the Company issued 39,108 shares, valued at $320,000, related
     to this earn out provision. The acquisition has been accounted for as a
     purchase with the result that IPI operations are included in the Company's
     financial statements since the date of purchase. In connection with this
     purchase, the Company has recorded approximately $2,600,000 of goodwill.
     For the fiscal year ended December 31, 1994, IPI had revenues of
     approximately $15,200,000 with net income of approximately $90,000.

     On December 1, 1994, the Company acquired all of the common stock of First
     Computer Corporation ("FCC"), a privately held company, for 328,943 shares
     of the Company's common stock. FCC was also involved in the distribution of
     midrange computer systems. Under terms of the merger agreement, FCC
     stockholders received for each of their shares of common stock .741485
     shares of the Company's common stock. The merger has been accounted for as
     a pooling of interests and, accordingly, the consolidated financial
     statements have been restated to include the amounts and results of the
     operations of FCC for the year ended December 31, 1994.

<TABLE>
     Revenue and net income (loss) from the continuing and discontinued
     operations of the separate companies for the eleven months ended December
     1, 1994 and the year ended December 31, 1993 are presented below:

<CAPTION>
                                      Eleven
                                      Months
                                        Ended          Year Ended
                                     December 1,      December 31,
                                        1994              1993
                                       ------            -----
                                    (unaudited)
<S>                                 <C>              <C>
Revenue:
Western Micro Technology, Inc.      $   103,996      $    93,623
FCC                                       6,886            6,129
                                    -----------      -----------
Combined                            $   110,882      $    99,752
                                    ===========      ===========

Net income (loss):
Western Micro Technology, Inc.      $      (405)     $      (590)
FCC                                        (258)              23
                                    -----------      -----------
Combined                            $      (663)     $      (567)
                                    ===========      ===========
</TABLE>

                                      -32-

<PAGE>

                         WESTERN MICRO TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


12.  Sale of Components Business and Restructuring Charge:
     ----------------------------------------------------

     On July 26, 1995, the Company sold its electronics components distribution
     assets to Reptron Electronics Inc. ("Reptron"). The transaction, valued at
     approximately $12,500,000, consisted of a $9,200,000 payment in cash and
     the assumption of $3,300,000 in accounts payable. Of the $9,200,000 cash
     payment, $1,000,000 was held back in escrow for six months to serve as a
     source of certain specified rights within the purchase agreement with
     Reptron. The sale, which was approved by the Company's shareholders,
     included the Company's semiconductor component inventory, certain
     receivables, furniture and equipment. In addition, Reptron assumed certain
     building and equipment lease obligations. As a result of this sale, the
     Company recorded a restructuring charge of $3,600,000. Of this amount,
     $2,376,000 was for non-cash write-offs comprised of $1,353,000 in goodwill
     and a $1,023,000 increase to long-term inventory related reserves.
     Severance and other exit related charges related to the sale comprised the
     remaining $1,224,000. In February 1996, approximately $211,000 was
     distributed from the escrow to the Company and the balance was paid to
     Reptron. Concurrent with the distribution of the escrow funds, Reptron
     returned approximately $789,000 of designated assets, valued at historical
     cost, to the Company. These designated assets were primarily comprised of
     semiconductor inventories. As of December 31, 1996 the Company did not have
     any inventory related to the Reptron transaction.

13.  Subsequent Event.
     ----------------

     On March 17, 1997, the Company acquired all of the common stock of Target
     Solutions, Inc. ("TSI"), a privately held company, for approximately
     $2,200,000, paid in common stock of the Company. Additional consideration
     can be earned by TSI by meeting certain defined gross profit targets
     through fiscal year 2000. The acquisition will be accounted for as a
     purchase with the result that future TSI operations will be included in the
     Company's financial statements from the date of purchase. In connection
     with the acquisition, the Company expects to record approximately
     $2,500,000 of goodwill and other intangible assets. For the year ended
     December 31, 1996, TSI had unaudited revenues of approximately $16,000,000
     with net income of approximately $200,000.


                                      -33-

<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ------------------------------------------------
          ACCOUNTING AND FINANCIAL DISCLOSURE
          -----------------------------------

     None.

                                      -34-

<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          --------------------------------------------------

     Directors and Executive Officers.

     (a)  Directors
          ---------

     James J. Heffernan, 55, was elected as a Director of the Company in October
1995. Since January 1996 he has been Chief Financial Officer and a Director of
US Web Corporation, a franchisor of World Wide Web developers. He was Chief
Financial Officer of Interlink Computer Sciences, a software company, from March
1995 to January 1996. Prior to such time, Mr. Heffernan was Chairman of the
Board and Chief Financial Officer of Panoramic, Inc., a software company.
Panoramic filed for Chapter 11 bankruptcy in May 1991 and all of its assets were
sold to Computer Associates, Inc. From June 1994 to June 1995, Mr. Heffernan was
a board member of International Microcomputer Software, Inc. He was Vice
President of Finance and Chief Financial Officer of Software Publishing, Inc., a
position he held from 1987 through 1989.

     Jerome A. Martin, 56, was elected as a Director of the Company in October
1995 and has been active in the business development of the Company since
December 1, 1994. Mr. Martin was President and Chairman of the Board of First
Computer Corporation, a systems distributor ("FCC") founded by Mr. Martin in
1976. On December 1, 1994, the Company acquired FCC, which became a wholly owned
subsidiary of the Company.

     P. Scott Munro, 40, was appointed as a Director of the Company in July 1995
and has been the President, Chief Executive Officer and Secretary of the Company
since July 1995. From January 1993 to July 1995, Mr. Munro was President,
Computer Systems Division of the Company and from July 1990 to January 1993
Senior Vice President, Computer Systems Division of the Company.

     K. William Sickler, 47, was elected as a Director of the Company in July
1993. Currently, Mr. Sickler is Chief Executive Officer and President of Gadzoox
Microsystems, Inc., a provider of gigabit fibre channel networking products.
Prior to April 1996, he was Executive Director of Software Business Development
for Seagate Technology, a manufacturer of disk drives and software developer,
with responsibility for analysis of potential software company acquisitions.
Until July 1995, Mr. Sickler was President and Chief Executive Officer of
Network Computing, Inc., a provider of network management software for local
area networks. From 1980 to 1992, he was employed by Ungermann-Bass, Inc., a
provider of networking products and services. His most recent position was that
of Chief Operating Officer. Prior to that, he held the positions of Vice
President of Operations and Vice President of Manufacturing and Quality.

     J. Larry Smart, 49, was elected as a Director of the Company and was
appointed as Chairman of the Board in October 1995. He has been Chairman of the
Board, President and Chief Executive Officer of StreamLogic Corporation, a data
storage company, since July 1995.

                                      -35-

<PAGE>

From March 1994 to February 1995, Mr. Smart was President and Chief
Executive Officer of Maxtor Corporation, a data storage company. From July 1991
to February 1995, Mr. Smart was President and Chief Executive Officer of
Southwall Technologies, Inc., a material science company.

     William H. Welling, 63, was appointed a Director of the Company in April
1993. Since September 1989, he has served as Chairman of the Board and Chief
Executive Officer of Xiox Corporation, a telecommunications software company.
Since September 1983, he has been Managing Partner of Venture Growth Associates
partnerships, investment partnerships.

     (b)  Executive Officers
          ------------------

     P. Scott Munro, 40, see "Directors" above.

     James Dorst, 42, joined the Company in May 1995 as Chief Financial Officer.
From 1994 to 1995, Mr. Dorst was Chief Financial Officer of Accolade, Inc., an
entertainment software developer. From 1986 through 1993 he was the Chief
Financial Officer of Drypers, Corp., a manufacturer of consumer disposable
products, and prior to 1986 he was employed by the public accounting firm of
Coopers & Lybrand L.L.P.

     Donald A. Cochrane, 41, was promoted to the position of Senior Vice
President, Sales and Marketing in July 1995. Mr. Cochrane joined the Company in
March 1993 as General Manager, Reseller Division and was promoted in February
1994 to Vice President, Reseller Division. From 1989 to 1993 he was Director,
Reseller Sales, at NeXT Computer, a software company; from 1985 to 1988, he was
Manager of Peripherals Product Marketing for Apple Computer; from 1983 to 1985
he was Vice President of Sales and Marketing for Mountain Computer; and from
1982 to 1983, he was Western Regional Sales Manager for Mountain Computer.

     (c)  Key Personnel
          -------------

     Michael E. Merriman, 54, was appointed Vice President of Information
Technology in September, 1996. Mr. Merriman joined the Company in 1994 with the
acquisition of First Computer Corporation. As one of the founders of First
Computer, Mr. Merriman held several positions in his eighteen year tenure,
including President. Prior to that, he was an executive officer of a systems
consulting firm, Applied Information Development, which he co-founded in 1968.

     Scott Robertson, 40, joined the Company in September 1995 as Director of
Logistics and was appointed Vice President of Operations in April 1996. Prior to
joining the Company, Mr. Robertson was General Manager of the Custom Computer
Products Group of Arrow Electronics, Inc.

     Robert O'Reilly, 44, joined the Company in February 1996 as Director of
Human Resources and was appointed Vice President of Human Resources in May 1996.
Prior to joining the Company, Mr. O'Reilly was a Director of Human Resources,
with special emphasis

                                      -36-

<PAGE>

on recruitment, training and development during his 10-year career with
Future Electronics, Inc. Mr. O'Reilly has also worked in the academic field and
played professional hockey.

     Fred J. Cuen, 39, joined the Company in January 1996 as General Manager,
IBM Business Unit and was appointed Vice President and General Manager, IBM
Business Unit in October 1996. Prior to joining the Company, Mr. Cuen held
management positions in research, manufacturing, sales and marketing in his
20-year career with IBM.

     Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules of the Securities and Exchange Commission (the "Commission") thereunder
require the Company's directors and executive officers to file reports of their
ownership and change in ownership of the Company's common stock with the
Commission. Based solely upon a review of such reports, the Company believes
that all reports required by Section 16(a) of the Exchange Act to be filed by
its directors and executive officers during the last fiscal year were filed on
time, except that Jerome Martin reported the sale of 10,000 shares of Common
Stock approximately ten months late and Messrs. Munro and Cochrane reported the
purchase of 2,019 and 1,133 shares, respectively, of Common Stock under the
Company's employee stock purchase plan approximately nine months late.


                                      -37-

<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION
          ----------------------

SUMMARY COMPENSATION TABLE

<TABLE>
     The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer and of the Company's
two other executive officers (the "named executive officers"), for the fiscal
years ended December 31, 1996, 1995 and 1994.

<CAPTION>
                                           Summary Compensation Table
                                                                                              Long-Term
                                                                                              Compensa-
                                                           Annual Compensation                tion Awards
                                                 ----------------------------------------     -----------
                                                                                              Securities
                                     Fiscal                                   Other Annual    Underlying         All Other
Name and Principal Position           Year        Salary         Bonus        Compensation      Options         Compensation
---------------------------           ----        ------         -----        ------------      -------         ------------

<S>                                   <C>        <C>           <C>              <C>              <C>               <C>
P. Scott Munro                        1996       $221,286      $122,564            -             125,000                -
    President, Chief Executive        1995       $173,660      $152,530            -              60,000                -
    Officer and Secretary             1994       $161,234       $75,550            -             100,000(1)        $3,414(2)

James W. Dorst(3)                     1996       $150,000       $47,867            -              20,000                -
    Chief Financial Officer           1995       $100,000       $30,640         $20,833           50,000                -

Donald A. Cochrane(4)                 1996       $150,000       $66,384            -              40,000                -
    Senior Vice President, Sales      1995       $106,980       $82,629            -              37,500                -
    and Marketing

----------

(1)  Certain of the Company's executive officers received stock options in 1994,
     which options were subsequently repriced later in the year. The rules of
     the Commission require that both the original option grant and the repriced
     option be reported as separate grants of stock options. However, since the
     original options received in 1994 were canceled at the time of repricing,
     the grantees were entitled only to the amount of the shares covered by the
     repriced options. See also "Change in Control" at page .

(2)  Consists of medical costs covered by the Company's medical reimbursement
     plan.

(3)  Mr. Dorst served as a consultant to the Company until he was hired in May
     1995. During his consultancy with the Company, he was paid $20,833.

(4)  Mr. Cochrane became an executive officer in July 1995.
</TABLE>

                                      -38-

<PAGE>

<TABLE>
     The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1996 to the Company's named
executive officers.

<CAPTION>
                                      Option Grants in Last Fiscal Year(1)
                                                                                             Potential Realized Value of
                                             Percent of                                     Assumed Annual Rates of Stock
                            Number of       Total Options                                   Price Appreciation For Option
                           Securities        Granted to       Exercise or                               Term
                           Underlying       Employees in      Base Price     Expiration                 ----
        Name             Options Granted     Fiscal Year       ($/Share)        Date              5%              10%
        ----             ---------------     -----------       ---------        ----              --              ---

<S>                           <C>               <C>              <C>         <C>            <C>              <C>
P. Scott Munro                40,000            9.6%             $5.00       01/18/06       $125,778.93      $  318,748.49

                              85,000           20.3%             $9.00       09/27/06       $481,104.49      $1,219,212.98

James W. Dorst                20,000            4.8%             $9.00       09/27/06       $113,201.03      $  286,873.64

Donald A. Cochrane            20,000            4.8%             $5.00       01/18/06       $ 62,889.46      $  159,374.25

                              20,000            4.8%             $9.00       09/27/06       $113,201.03      $  286,873.64
---------

(1)  These options vest twenty-five percent (25%) over a four (4) year period,
     except for the options granted in January 1996 to Messrs. Munro and
     Cochrane, which vest over four years beginning two years from the date of
     grant. See also "Change in Control" at page 40.
</TABLE>

<TABLE>
     The following table shows the number of shares of Common Stock represented
by outstanding stock options held by each of the named executive officers as of
December 31, 1996. The Company's Common Stock price as at close of business on
December 31, 1996 was $12.25.

                             FY-End Option Values(1)
<CAPTION>
                       Number of Securities
                      Underlying Unexercised    Value of Unexercised In-the-Money
                       Options at FY-End #             Options at FY-End #
        Name        Exercisable/Unexercisable       Exercisable/Unexercisable
        ----        -------------------------       -------------------------

<S>                       <C>                       <C>
P. Scott Munro            79,218 / 207,500          $633,957.25 / $1,250,625.00

James W. Dorst            12,500 / 57,500            $125,000.00 / $440,000.00

Donald A. Cochrane        24,375 / 78,125            $187,500.00 / $553,750.00

---------

(1)  None of the Company's named executive officers exercised options during
     1996.
</TABLE>


Compensation of Directors

     Outside directors (i.e., those who are not employees of the Company)
receive an annual retainer of $20,000, plus $750 for each board meeting
attended. The Company pays for directors' liability insurance and has entered
into indemnification agreements with each of the directors.


                                      -39-

<PAGE>

     At the 1994 Annual Meeting, the Company approved the adoption of the
Company's 1994 Stock Option Plan, which was amended at the Company's 1996 Annual
Meeting of Stockholders. Among many other benefits, the 1994 Stock Option Plan,
as amended, provides for the grant of an option of 10,000 shares of the
Company's Common Stock to certain directors who are not employees following
their initial election or appointment and an option for 2,500 shares at every
regular annual meeting thereafter at which they are elected. The exercise price
is the fair market value of the shares on the date of each respective grant and
the options vest over a four-year period.

Change in Control

     Stock options held by the Company's directors and named executive officers
under the Company's Stock Option Plans will become fully vested and exercisable
following a change in control of the Company. A "change in control" means the
occurrence of any of the following events: (1) shareholder approval of a merger
or consolidation of the Company with any other corporation resulting in a change
in fifty percent (50%) or more of the total voting power of the Company; (2)
shareholder approval of a plan of complete liquidation of the Company or an
agreement for the sale or disposition of all or substantially all of the
Company's assets; or (3) any person becomes the beneficial owner of more than
fifty percent (50%) of the Company's total outstanding securities.

Employment Agreements

     The Company entered into an Employment Agreement with P. Scott Munro dated
January 1, 1996. Pursuant to the terms of the Agreement, Mr. Munro receives a
base salary of $203,000 per year and is eligible to receive a bonus of up to
$125,000 a year (up to $25,000 of which is payable quarterly pursuant to certain
quarterly performance goals and $25,000 of which is payable annually pursuant to
certain annual performance goals). Effective July, 1, 1996, Mr. Munro's base
salary was increased to $260,000 and his annual incentive bonus was increased to
$30,000. If Mr. Munro is terminated for cause, he will be entitled to receive
his base salary and bonus due through the date of his termination. If Mr. Munro
is terminated without cause, he will be entitled to receive his base salary for
twelve (12) months following his termination. If Mr. Munro's responsibilities
are reduced within twelve (12) months following a change in control, as defined
above, and such reduction in responsibilities is not for cause, any resignation
of employment by Mr. Munro as a consequence of such reduction in
responsibilities will be treated as a termination of employment without cause.

     The Company entered into an Employment Agreement with James W. Dorst dated
June 12, 1995. Pursuant to the terms of the Agreement, Mr. Dorst receives a base
salary of $150,000 per year and is eligible to receive a bonus of up to $50,000
per year, subject to certain performance goals. If Mr. Dorst is terminated for
cause, he will be entitled to receive his base salary and bonus due through the
date of his termination. If Mr. Dorst is terminated without cause, he will be
entitled to receive his base salary for nine (9) months following his
termination in accordance with the Company's severance policy. If Mr. Dorst's
responsibilities are reduced within twelve (12) months following a change in
control, as defined above, and such reduction in responsibilities is not for
cause, any resignation of employment by Mr. Dorst

                                      -40-

<PAGE>

as a consequence of such reduction in responsibilities will be treated as a
termination of employment without cause.

     The Company entered into an Employment Agreement with Donald A. Cochrane
dated January 1, 1996. Pursuant to the terms of the Agreement, Mr. Cochrane
receives a base salary of $150,000 per year and is eligible to receive a bonus
of up to $70,000 a year, (up to $15,000 of which is payable quarterly pursuant
to certain quarterly performance goals and up to $10,000 of which is payable
annually based on the achievement of certain annual performance goals). If Mr.
Cochrane is terminated for cause, he will be entitled to receive his base salary
and bonus due through the date of his termination. If Mr. Cochrane is terminated
without cause, he will be entitled to receive his base salary for nine (9)
months following his termination. If Mr. Cochrane's responsibilities are reduced
within twelve (12) months following a change in control, as defined above, and
such reduction in responsibilities is not for cause, any resignation of
employment by Mr. Cochrane as a consequence of such reduction in
responsibilities will be treated as a termination of employment without cause.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          ---------------------------------------------------
          MANAGEMENT
          ----------

     The following table sets forth information as to the beneficial ownership
of the Company's Common Stock as of March 25, 1997 (unless otherwise indicated),
of each person known to the Company to be the beneficial owner of more than five
percent (5%) of its Common Stock, no par value, and the number of shares owned
by each director, each named executive officer and all executive officers and
directors as a group.

                                      -41-

<PAGE>

<TABLE>
<CAPTION>
                                                       Shares
                                                    Beneficially
     Name of Beneficial Owner(1)                       Owned              Percent
     ------------------------                          -----              -------

<S>                                                    <C>                   <C>
Bernard T. Marren                                     371,400                7.8%
20823 Stevens Creek Blvd., Ste. 400
Cupertino, CA 95014

ROI Capital Management, Inc. ("ROI")                  323,600                6.8%
  and affiliates(2)
One Bush Street, Ste. 1150
San Francisco, CA 94104


Donald A. Cochrane                                     38,723(3)              *

James W. Dorst                                         28,812(3)              *

James J. Heffernan                                      3,125(3)              *

Jerome A. Martin                                       31,842(3)              *

P. Scott Munro                                         87,598(3)             1.9%

K. William Sickler                                     16,875(3)              *

J. Larry Smart                                         17,125                 *

William H. Welling                                     16,165(3)              *

All Executive Officers and Directors as a Group       240,264(4)             5.1%
(8 persons)

----------

*    Less than one percent (1%).

(1)  Unless otherwise indicated, the beneficial owner has sole voting and
     dispositive power over the shares reported in the table.

(2)  Based on a Schedule 13D amendment number 1 dated January 26, 1996 filed
     jointly by ROI, ROI Partners, L.P. ("PTRS"), ROI & Lane, L.P. ("R&L"), Mark
     T. Boyer and Mitchell J. Soboleski reporting beneficial ownership as
     follows:

                                   Shares              Shared Voting and
                             Beneficially Owned        Dispositive Power
                             ------------------        -----------------

     <S>                           <C>                      <C>
     ROI                           323,600                  323,600
     PTRS                          201,000                  201,000
     R&L                            24,000                   24,000
     Mr. Boyer                     201,000                  201,000
     Mr. Soboleski                 201,000                  201,000

     Messrs. Boyer and Soboleski are the sole shareholders of ROI and
     respectively, President and Secretary. Messrs. Boyer and Soboleski and ROI
     are the general partners of PTRS, which is an investment limited
     partnership. ROI is the managing general partner of R&L, which is an
     investment partnership.

                                      -42-

<PAGE>

(3)  Includes shares purchasable under the Company's Stock Option Plans, as of
     March 25, 1997 or within sixty (60) days thereafter as set forth below. See
     also "Change in Control" at page 40.

        Donald A. Cochrane:       17,500 shares at $6.00
                                   9,375 shares at $2.25

        James W. Dorst:           12,500 shares at $2.25

        James J. Heffernan         2,500 shares at $5.63
                                    625 shares at $10.34

        Jerome A. Martin:         3,125 shares at $10.34

        P. Scott Munro:            2,968 shares at $2.13
                                  22,500 shares at $2.25
                                   5,000 shares at $2.75
                                  11,250 shares at $3.63
                                  37,500 shares at $6.00

        K. William Sickler:        7,500 shares at $8.25
                                   3,750 shares at $5.00
                                    625 shares at $10.34

        J. Larry Smart:            2,500 shares at $5.63
                                    625 shares at $10.34

        William H. Welling:        7,500 shares at $8.25
                                   3,750 shares at $5.00
                                    625 shares at $10.34

(4)  Includes 151,718 shares subject to outstanding options held by executive
     officers and directors.
</TABLE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

     (a)  Transactions with Management and Others
          ---------------------------------------

          None.

     (b)  Certain Business Relationships
          ------------------------------

          None.

     (c)  Indebtedness of Management
          --------------------------

          None.

                                      -43-

<PAGE>

                                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          -------------------------------------------------------
          FORM 8-K
          --------

     (a)  1.   Financial Statements
               --------------------

          The financial statements listed below appear on the pages indicated:


                                                                     Page Number
                                                                     -----------

       Consolidated Balance Sheets, December 31, 1996 and
       1995                                                              15

       Consolidated Statements of Operations for the years
       ended December 31, 1996, 1995 and 1994                            16

       Consolidated Statements of Shareholders' Equity for the
       years ended December 31, 1996, 1995 and 1994                      17

       Consolidated Statements of Cash Flows for the years
       ended December 31, 1996, 1995 and 1994                            18

       Notes to Consolidated Financial Statements                        19

          2.   Financial Statement Schedules
               -----------------------------

          The financial statement schedules listed below appear on the pages
          indicated:

                                                                     Page Number
                                                                     -----------
       Schedule II - Valuation and Qualifying Accounts and
       Reserves                                                          49

       Report of Independent Accountants on Financial
       Statement Schedules                                               50

          3.   Exhibits
               --------

          The exhibits listed under Item 14(c) are filed or incorporated by
          reference herein.

     (b)  Reports on Form 8-K
          -------------------

     None.

     (c)  Exhibits
          --------

     The  Exhibits listed below are filed or incorporated by reference herein.

                                      -44-

<PAGE>

                                INDEX TO EXHIBITS

Number    Description
------    -----------

3.1(a)    Articles of Incorporation for Silicon Valley Services, Inc. filed with
          the California Secretary of State on December 30, 1975, filed as
          Exhibit 3-A to the Company's Form S-1, Registration No. 2-86846, is
          hereby incorporated by reference.

3.1(b)    Certificate of Amendment of Articles of Incorporation of Silicon
          Valley Services, Inc. (part of which changed the name of the Company
          to Western Micro Technology, Inc.) filed with the California Secretary
          of State on April 1, 1977, filed as Exhibit 4.2 to the Company's Form
          S-8, Registration No. 33-60778, is hereby incorporated by reference.

3.1(c)    Certificate of Amendment of Articles of Incorporation filed with the
          California Secretary of State on August 30, 1983, filed as Exhibit 4.3
          to the Company's Form S-8, Registration No. 33-60778, is hereby
          incorporated by reference.

3.1(d)    Certificate of Amendment of Articles of Incorporation filed with the
          California Secretary of State on April 5, 1988, filed as Exhibit 3.1
          to the Company's Form 10-K for the year ended March 31, 1988, is
          hereby incorporated by reference.

3.2       Amended Bylaws dated June 15, 1994, filed as Exhibit A to the
          Company's Definitive Proxy Statement dated May 23, 1994 as filed with
          the Commission on May 24, 1994, are hereby incorporated by reference.

*10.1     Amended and Restated Incentive and Non-Incentive Stock Option Plan,
          filed as Exhibit 10.1 with Form 10-K for the year ending December 31,
          1990, is hereby incorporated by reference.

10.2      Amended and Restated 1994 Stock Option Plan of Western Micro
          Technology, Inc., filed as Exhibit B to the Company's Definitive Proxy
          Statement dated May 23, 1994 as filed with the Commission on May 24,
          1994, is hereby incorporated by reference.

10.3      Lease for Saratoga, California facility filed as Exhibit 10.5 with
          Form 10-K for the year ending March 31, 1987 is hereby incorporated by
          reference.

10.4      Amended Lease for Saratoga, California facility dated January 21,
          1992, filed as Exhibit 10.3 with Form 10-K for the year ending
          December 31, 1991, is hereby incorporated by reference.

10.5      Master Lease Commitment dated September 25, 1989 and Supplements 8.01
          and 8.02 thereto, filed as Exhibit 10.5 with Form 10-K for the year
          ending March 31, 1990 is hereby incorporated by reference.

                                      -45-

<PAGE>

Number    Description
-----     -----------

10.6      Loan and Security Agreement with Coastfed Business Credit Corporation
          of California dated January 29, 1992, filed as Exhibit 10.9 with Form
          10-K for the year ending December 31, 1991, is hereby incorporated by
          reference.

10.7      Amendment to Loan Documents between the Company and Coastfed Business
          Credit March 27, 1994, filed as Exhibit 10.23 with Form 10-Q for the
          period ending June 30, 1994, is hereby incorporated by reference.

10.8      Lease for Irvine, California facility dated October 29, 1993, filed as
          Exhibit 10.18 with Form 10-K for the period ending December 31, 1993,
          is hereby incorporated by reference.

*10.9     Promissory Note from Ronald H. Mabry dated March 31, 1994, filed as
          Exhibit 10.21 with Form 10-Q for the period ending March 31, 1994, is
          hereby incorporated by reference.

*10.10    Employment Agreement between the Company and Ronald H. Mabry dated
          April 1, 1994, filed as Exhibit 10.21 with Form 10-Q for the period
          ending March 31, 1994, is hereby incorporated by reference.

10.11     Business Partner (Redistributor) Agreement between the Company and
          International Business Machines Corporation dated October 1, 1992
          filed as Exhibit 10.27 with Form 10-K for the period ending December
          31, 1994, is hereby incorporated by reference.

10.12     Business Partner (Redistributor) Agreement between the Company and
          International Business Machines Corporation dated February 28, 1994
          filed as Exhibit 10.28 with Form 10-K for the period ending December
          31, 1994, is hereby incorporated by reference.

*10.13    Employment Agreement between the Company and P. Scott Munro dated June
          1, 1994 filed as Exhibit 10.29 with Form 10-K for the period ending
          December 31, 1994, is hereby incorporated by reference.

*10.14    Employment Agreement between the Company and John Ashbaugh dated July
          29, 1994 filed as Exhibit 10.30 with Form 10-K for the period ending
          December 31, 1994, is hereby incorporated by reference.

10.15     Asset Purchase Agreement dated May 5, 1995 between the Company and
          Reptron Electronics, Inc., filed as Exhibit 2.1 to the Company's
          Current Report on Form 8-K filed with the Commission on August 9,
          1995, is hereby incorporated by reference.

10.16     Agreement and Plan of Reorganization dated November 18, 1995 between
          the Company and International Parts, Inc., filed as Exhibit 2.1 to the
          Company's

                                      -46-

<PAGE>

Number    Description
------    -----------

          Current Report on Form 8-K filed with the Commission on December 4,
          1995 is hereby incorporated by reference.

10.17     Asset Purchase Agreement dated January 2, 1996 between the Company and
          R&D Hardware Systems Company of Colorado, filed as Exhibit 2.1 to the
          Company's Current Report on Form 8-K filed with the Commission on
          January 17, 1996, is hereby incorporated by reference.

*10.18    Employment Letter between the Company and P. Scott Munro dated January
          18, 1996, filed as exhibit 10.18 to the Company's Form 10-K for the
          year ended December 31, 1995, is hereby incorporated by reference.

*10.19    Employment Letter between the Company and Donald A. Cochrane dated
          January 18, 1996, filed as exhibit 10.19 to the Company's Form 10-K
          for the year ended December 31, 1995, is hereby incorporated by
          reference.

*10.20    Employment Letter between the Company and James W. Dorst dated June
          12, 1995, filed as exhibit 10.20 to the Company's Form 10-K for the
          year ended December 31, 1995, is hereby incorporated by reference.

10.21     Lease Agreement between MP Hacienda, Inc. and the Company dated July
          15, 1995, filed as exhibit 10.21 to the Company's Form 10-K for the
          year ended December 31, 1995, is hereby incorporated by reference.

10.22     Amendment to Loan Documents dated November 20, 1995 between the
          Company and Coast Business Credit, filed as exhibit 10.22 to the
          Company's Form 10-K for the year ended December 31, 1995, is hereby
          incorporated by reference.

10.23     Inventory and Working Capital Financing Agreement dated December 1,
          1996 by and between IBM Credit Corporation and the Company, and
          Amendment #1 thereto.

10.24     Asset Purchase Agreement dated November 7, 1996 by and among the
          Company, Star Technologies, Inc. and the Shareholders of Star
          Technologies, Inc. Schedules to this Agreement omitted from this
          report will be furnished to the Securities and Exchange Commission
          upon request.

10.25     Asset Purchase Agreement dated November 29, 1996 by and among the
          Company, International Data Products, LLC, Oliver-Allen Corporation,
          Inc., International Data Products and Financial, Ltd., Alan M. Bynder
          and Michael R. Duhaime. Schedules to this Agreement omitted from this
          report will be furnished to the Securities and Exchange Commission
          upon request.

11.1      Statement re Computation of Per Share Earnings.

                                      -47-

<PAGE>

23.1      Consent of Coopers & Lybrand L.L.P.

24.0      Power of Attorney [see pages 52-53 of this Form 10-K].

27.0      Financial Data Schedule.

*         Denotes management compensation plan or arrangement.

     (d)  Financial Statement Schedules
          -----------------------------

          The financial statement schedules listed below appear on the pages
          indicated.

                                                                     Page Number
                                                                     -----------
         Schedule II - Valuation and Qualifying Accounts and
         Reserves                                                         49

         Report of Independent Accountants on Financial
         Statement Schedules                                              50

All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.

                                      -48-

<PAGE>

                                                                     SCHEDULE II

<TABLE>
                         WESTERN MICRO TECHNOLOGY, INC.
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (in thousands)
                                   ----------

<CAPTION>
                                       Balance at                                                       Balance
                                       Beginning                                                         At End
                                       of Period     Additions(1)    Other(2)       Deductions(3)      of Period
                                       ----------    ---------       -----          ----------         ---------
<S>                                      <C>            <C>            <C>               <C>              <C>
Year ended December 31, 1994:
Allowance for doubtful accounts          $882           $302           $                 $791             $393

Year ended December 31, 1995:
Allowance for doubtful accounts          $393           $291           $200              $504             $380

Year ended December 31, 1996:
Allowance for doubtful accounts          $380           $120           $250              $339             $411

----------
(1)     Charged to costs and expenses.
(2)     Reserves related to acquisitions.
(3)     Accounts written off against the reserve.
</TABLE>

                                      -49-

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

                         ON FINANCIAL STATEMENT SCHEDULE



To the Board of Directors and Shareholders
Western Micro Technology, Inc.:

Our report on the consolidated financial statements of Western Micro Technology,
Inc. and its subsidiaries is included on page 14 in this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page of this
Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.

                                            COOPERS & LYBRAND L.L.P.


San Jose, California
January 31, 1997

                                      -50-

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:  March 27, 1997              REGISTRANT:

                                    WESTERN MICRO TECHNOLOGY, INC.



                                    By               /s/ P. SCOTT MUNRO
                                       -----------------------------------------
                                                       P. Scott Munro
                                             President, Chief Executive Officer,
                                                   Secretary and Director
                                                (Principal Executive Officer)



                                    By               /s/ JAMES W. DORST
                                       -----------------------------------------
                                                       James W. Dorst
                                                   Chief Financial Officer
                                                  (Principal Financial and
                                                     Accounting Officer)


                                      -51-

<PAGE>

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints P. Scott Munro and James W. Dorst and
each of them, as his attorney-in-fact, with full power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

           Signature and Title                                   Date
           -------------------                                   ----


By         /s/ P. SCOTT MUNRO                               March 27, 1997
   ------------------------------------------
            P. Scott Munro
   President, Chief Executive Officer,
        Secretary and Director
     (Principal Executive Officer)


By         /s/ JAMES W. DORST                               March 27, 1997
   ------------------------------------------
              James W. Dorst
            Chief Financial Officer
  (Principal Financial and Accounting Officer)


By        /s/ JAMES J. HEFFERNAN                            March 27, 1997
   ------------------------------------------
            James J. Heffernan
                 Director


By            /s/ JEROME A. MARTIN                          March 27, 1997
   ------------------------------------------
                 Jerome A. Martin
                     Director

                                      -52-

<PAGE>

           Signature and Title                                   Date
           -------------------                                   ----


By          /s/ K. WILLIAM SICKLER                          March 27, 1997
   ------------------------------------------
              K. William Sickler
                   Director


By           /s/ J. LARRY SMART                             March 27, 1997
   ------------------------------------------
                J. Larry Smart
        Director, Chairman of the Board


By         /s/ WILLIAM H. WELLING                           March 27, 1997
   ------------------------------------------
             William H. Welling
                  Director

                                      -53-