##### 









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K



|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 
     OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31,
2002

Commission file number 1-11471

Bell Industries, Inc.

|                                                                                                                                                                                   |  |                                                                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------
|California(State or other jurisdiction
    of incorporation or organization)1960 E. Grand Ave
    Suite 560
    El Segundo, California(Address of principal executive
    offices) |  | 95-2039211(I.R.S. Employer
    Identification No.)90245(Zip Code)

Registrants telephone number, including
area code:

(310) 563-2355




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Securities registered pursuant to
Section 12(b) of the Act:

|                    |  |                                                   
|------------------- |  | --------------------------------------------------
|Title of each class |  | Name of each exchange on which registered         
|                    |  |                                                   
|Common stock        |  | American Stock Exchange
    Pacific Stock Exchange

Securities registered pursuant to
Section 12(g) of the Act:

None.


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, and (2) has been
subject to such filing requirements for the past 90 days.

Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein.

Not Applicable
þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).

Yes o          No þ

As of June 30, 2002 the aggregate market
value of the voting stock held by non-affiliates of the
Registrant was: $16,771,920.

As of March 14, 2003 the number of shares
outstanding of the Registrants class of common stock was:
8,366,724.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates
by reference information from the Registrants Proxy
Statement for the 2003 Annual Meeting of Shareholders to be held
on May 28, 2003.



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report includes forward-looking
statements within the meaning of Section 27A of the
Securities Exchange Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended, regarding, among
other things, our plans, strategies and prospects, both business
and financial. Although we believe that our plans, intentions
and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you
that we will achieve or realize these plans, intentions or
expectations. Forward-looking statements are inherently subject
to risks, uncertainties, and assumptions. Many of the
forward-looking statements contained in this Annual Report may
be identified by the use of forward-looking words such as
believe, expect, anticipate,
should, planned, will,
may, and estimated, among others.
Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this
Annual Report are set forth in this Annual Report and in other
reports or documents that we file from time to time with the
United States Securities and Exchange Commission (the
SEC), and include, but are not limited to:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | general business conditions and economic
    uncertainty;                                       
|
| |  | reduced technology product sales as major
    suppliers increasingly sell directly to end-users;
|
| |  | decreased margins due to price competition;                                                     
|
| |  | ineffectiveness of our business development
    efforts;                                        
|
| |  | delays and costs associated with new client
    engagements; and                                
|
| |  | adverse weather conditions.                                                                     

All forward looking statements attributable to us
or a person acting on our behalf are expressly qualified in
their entirety by this cautionary statement. We are under no
obligation to update any of the forward-looking statements after
the date of this Annual Report to conform these statements to
actual results or to changes in our expectations.

As used herein, we, us,
our, Bell, and the Company
refer to Bell Industries, Inc.



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PART I

Item 1.     Business

Bell Industries, Inc.s operations include
technology lifecycle services; distribution of aftermarket
products for recreational vehicles, motorcycles, snowmobiles and
powerboats; and manufacturing of specialty electronic
components. Bell employed approximately 600 people at
December 31, 2002. As of January 31, 2003, the number
of employees at Bell totaled approximately 800.

Technology Solutions

The technology lifecycle services business, the
Tech.logix Group (BTL or Technology
Solutions), (2002 sales of $90.6 million) is a
provider of integrated technology solutions for organizations in
the Midwestern and Eastern United States. BTL is headquartered
in Indianapolis, Indiana, and has offices and service facilities
in the Midwest and Atlantic regions.

BTL provides information technology lifecycle
services including technology planning, product sourcing,
migration, support, and disposal services. BTL meets
clients needs by combining a comprehensive offering of
technology outsourcing services with its expertise in sourcing
and deploying technology access devices, servers, storage
equipment, printers, network products, and software.

BTLs suppliers include Hewlett-Packard,
IBM, Panasonic, Sun Microsystems, Cisco, Citrix, 3Com, Nortel
Networks, and Veritas for technology hardware products; and
Microsoft, Symantec, Lotus, Adobe Systems, and Novell for
software. BTL has three clients (two Fortune 500 companies and a
Midwest healthcare provider) accounting for approximately 29% of
2002 BTL revenues.

Although there are no dominant competitors in
BTLs market due to fragmentation of the industry, BTL
competes with national and multi-regional companies such as
CompuCom Systems, Pomeroy Computer Resources, and Sarcom, as
well as a number of smaller regional firms providing technology
products and deployment services. In technology outsourcing
services, BTL may compete with large multi-national
organizations such as IBM Global Services and Electronic Data
Systems, as well as a number of smaller firms providing
specialized services for certain market sectors. Some of the
larger competitors may have greater financial and marketing
resources than BTL.

Recreational Products

The Recreational Products Group (RPG)
(2002 sales of $44.6 million) is a distributor of
replacement parts and accessories for recreational and other
leisure-time vehicles. RPG supplies these products in the upper
Midwestern United States to service departments of dealerships
and retail stores selling recreational vehicles, snowmobiles,
motorcycles, ATVs, and marine products. RPG also sells to
independent repair facilities. For all product groups, RPG
operates distribution and administration facilities in Eagan,
Minnesota; Germantown, Wisconsin; and Grand Rapids, Michigan,
and maintains a sales office in Brainerd, Minnesota.

RPG supplies more than 9,000 recreational
vehicle-related products, as well as over 9,500 marine items,
10,000 motorcycle and ATV items, and 7,000 snowmobile items.
Major product lines distributed by RPG include Dunlop tires
(motorcycle tires), Carefree of Colorado (awnings for RVs
and campers), Reese Products (trailer hitches for all types of
vehicles), and Johnson Fishing, Inc. (marine motors). RPG has
over 4,500 customers, with no single customer accounting for
over 5% of its annual sales. RPG has significant market share in
the distribution of recreational vehicle replacement parts and
accessories in the upper Midwestern United States.

RPG faces significant competition from national
and regional distributors of after-market products for
recreational vehicles, motorcycles, snowmobiles, and marine
products. Significant competitors include Coast Distribution
System and Stag-Parkway (recreational vehicles), Parts Unlimited
and Tucker Rocky Distributing (motorcycles and snowmobiles), and
Coast Distribution System and Land N Sea Marine
(marine).

1



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Electronic Components

The J. W. Miller Division (JWM) of
Bell, located in Gardena, California (2002 sales of
$5.6 million), manufactures and distributes over 6,000
standard and custom magnetic products. JWMs magnetic
products include inductors, coils, chokes, and transformers,
among others. These products are used extensively in all types
of circuitry found in electronic applications including
computer, medical and telecommunications equipment.

JWMs products are sold through national,
regional and international distributors directly and through
manufacturers representatives located in North America,
Europe and Asia. JWMs customers include electronic
distributors and manufacturers with its four largest customers
representing 52% of its total 2002 sales. The majority of
JWMs sales are derived from customers located in North
America.

JWM faces significant competition from national
and international manufacturers including Vishay, Sumida,
Coilcraft, and Delevan.

Item 2.     Properties

At December 31, 2002, the Company leased 17
facilities, containing approximately 305,000 square feet and
owned one facility, containing approximately 20,000 square feet.
The facilities utilized by each of the Companys business
segments are set forth in the following table:

|                      |  |                       |        |        |  |  |     |  |  |  |         |  |  |  |      | 
|--------------------- |  | --------------------- | ------ | ------ |  |  | --- |  |  |  | ------- |  |  |  | ---- | 
|                      |  |                      
|                      |  | Area in square feet  
|                      |  | (number of locations)
|                      |  |                      
|                      |  |                       |        |       
|                      |  | Owned                 |        | Leased
|                      |  |                       |        |       
|                      |  |                       |        |        |  |  |     | 
|Technology Solutions  |  |                       |        |        |  |  |     |  |  |  | 126,000 |  |  |  | (12) | 
|Recreational Products |  |                       |        |        |  |  |     |  |  |  | 176,000 |  |  |  | (4)  | 
|Electronic Components |  |                       | 20,000 |        |  |  | (1) |  |  |  |         |  |  |  |      | 
|Corporate             |  |                       |        |        |  |  |     |  |  |  | 3,000   |  |  |  | (1)  | 
|                      |  |                       |        |        |  |  |     |  |  |  |         |  |  |  |      | 
|                      |  |                       | 20,000 |        |  |  | (1) |  |  |  | 305,000 |  |  |  | (17) | 
|                      |  |                       |        |        |  |  |     |  |  |  |         |  |  |  |      | 

Management believes that these properties are in
good condition and suitable for their present use. Generally,
the Companys facilities are fully utilized although excess
capacity exists from time to time.

Item 3.     Legal
Proceedings

The Company is involved in litigation which is
incidental to its current and discontinued businesses. The
resolution of this litigation is not expected to have a material
adverse effect on the Companys financial position, results
of operations or cash flows.

Item 4.     Submission
of Matters to a Vote of Security Holders

No matters were submitted during the fourth
quarter of 2002.

2



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Executive Officers of the Registrant

The Executive Officers of the Registrant are as
follows:

|                  |  |     |    |          |  |                                                           |  |  |      | 
|----------------- |  | --- | -- | -------- |  | --------------------------------------------------------- |  |  | ---- | 
|                  |  |     |    |          |  | Year First                                               
|Name              |  | Age |    | Position |  | Named Officer                                            
|                  |  |     |    |          |  |                                                          
|Tracy A. Edwards  |  |     | 46 |          |  | President and Chief Executive Officer (1)                 |  |  | 1991 | 
|Russell A. Doll   |  |     | 41 |          |  | Senior Vice President and Chief Financial Officer
    (2) |  |  | 1998 | 
|Charles S. Troy   |  |     | 59 |          |  | Vice President (3)                                        |  |  | 1997 | 
|Mitchell I. Rosen |  |     | 38 |          |  | Vice President and Corporate Controller (4)               |  |  | 2001 | 



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Edwards was appointed President and
    Chief Executive Officer in February 1999. From January 1998 to
    February 1999, he served as Executive Vice President 
    Finance and Operations, and Chief Financial Officer. Prior to
    January 1998, Mr. Edwards was Vice President and Chief
    Financial Officer. He also serves as Chairman of the Board of
    Directors.                                                                                                 
|   
|(2) | Mr. Doll was appointed Senior Vice President
    and Chief Financial Officer in February 2000. From February 1999
    to February 2000, he served as Vice President and Chief
    Financial Officer. From April 1998 to February 1999, he served
    as Vice President, Finance. From November 1994 to April 1998,
    Mr. Doll was employed as Vice President and Chief Financial
    Officer of Predelivery Service Corporation, a privately-held
    automotive services company.
|   
|(3) | Mr. Troy was employed as President and Chief
    Executive Officer of E & S Management Corporation, a
    regional property management firm, for the five years prior to
    his appointment as Vice President in September 1997.                                                                                                                                                                                                                                                   
|   
|(4) | Mr. Rosen has served as Vice President and
    Corporate Controller since December 2000. Prior to December
    2000, he was a senior manager with PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                       

PART II

Item 5.     Market
for the Registrants Common Equity and Related Stockholder
Matters

Bells common stock (ticker symbol BI) is
listed on the American Stock Exchange and the Pacific Stock
Exchange. The following table shows the high, low and closing
market prices for the Companys common stock during the
eight most recent quarters.

|                             |       |         |   |               |  |         |   |         |  |  |   |      |  |  |   |      | 
|---------------------------- | ----- | ------- | - | ------------- |  | ------- | - | ------- |  |  | - | ---- |  |  | - | ---- | 
|                             |       |         |   |               |  |        
|                             |       |         |   | Quarter ended |  |        
|                             |       |         |   |               |  |        
|                             |       | Mar. 31 |   | Jun. 30       |  | Sep. 30 |   | Dec. 31
|                             |       |         |   |               |  |         |   |        
|Year ended December 31, 2002 |       |         |   |               |  |         |   |         |  |  |   |      |  |  |   |     
|                             | High  |         | $ | 2.59          |  |         | $ | 2.30    |  |  | $ | 1.97 |  |  | $ | 1.95 | 
|                             | Low   |         |   | 2.06          |  |         |   | 1.81    |  |  |   | 1.33 |  |  |   | 1.35 | 
|                             | Close |         |   | 2.21          |  |         |   | 1.91    |  |  |   | 1.65 |  |  |   | 1.60 | 
|Year ended December 31, 2001 |       |         |   |               |  |         |   |         |  |  |   |      |  |  |   |     
|                             | High  |         | $ | 3.40          |  |         | $ | 2.99    |  |  | $ | 2.59 |  |  | $ | 2.47 | 
|                             | Low   |         |   | 2.38          |  |         |   | 2.19    |  |  |   | 1.65 |  |  |   | 1.66 | 
|                             | Close |         |   | 2.90          |  |         |   | 2.50    |  |  |   | 1.80 |  |  |   | 2.17 | 

Approximate number of record holders of common
stock as of March 14, 2003: 1,100.

A summary of shareholder approved and
non-shareholder approved stock plan information as of
December 31, 2002 is included at the Stock
Plans footnote within the Notes to the Consolidated
Financial Statements.

3



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Item 6.     Selected
Financial Data

|                                                                                                |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | ----------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                |  |                                               |         |                         |  |     
|                                                                                                |  |                                               |         | Year ended December 31, |  |     
|                                                                                                |  |                                               |         |                         |  |     
|                                                                                                |  | 2002                                          |         | 2001                    |  | 2000 |         | 1999 |  | 1998
|                                                                                                |  |                                               |         |                         |  |      |         |      |  |     
|                                                                                                |  |                                              
|                                                                                                |  | (Dollars in thousands, except per share data)
|Operating Results                                                                               |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net sales                                                                                       |  | $                                             | 140,797 |                         |  | $    | 183,621 |      |  | $    | 251,887 |   |  | $ | 240,420 |   |  | $ | 212,468 |  
|Income (loss) from continuing operations,
    before cumulative effect of accounting change (1) |  | $                                             | (2,033  | )                       |  | $    | (1,041  | )    |  | $    | 2,319   |   |  | $ | 5,488   |   |  | $ | (13,189 | )
|Income from discontinued operations                                                             |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  | $ | 7,275   |  
|Reserve recovery (loss) on sale of
    discontinued operations                                  |  |                                               |         |                         |  |      |         |      |  |      |         |   |  | $ | 1,379   |   |  | $ | (56,849 | )
|Cumulative effect of accounting change                                                          |  | $                                             | (1,280  | )                       |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                                                               |  | $                                             | (3,313  | )                       |  | $    | (1,041  | )    |  | $    | 2,319   |   |  | $ | 6,867   |   |  | $ | (62,763 | )
|Financial Position                                                                              |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Working capital                                                                                 |  | $                                             | 19,609  |                         |  | $    | 21,314  |      |  | $    | 24,678  |   |  | $ | 25,486  |   |  | $ | 84,957  |  
|Total assets                                                                                    |  | $                                             | 49,390  |                         |  | $    | 57,652  |      |  | $    | 74,426  |   |  | $ | 75,951  |   |  | $ | 270,759 |  
|Long-term liabilities                                                                           |  | $                                             | 2,496   |                         |  | $    | 2,810   |      |  | $    | 3,411   |   |  | $ | 4,051   |   |  | $ | 8,319   |  
|Shareholders equity                                                                            |  | $                                             | 25,546  |                         |  | $    | 29,678  |      |  | $    | 30,482  |   |  | $ | 30,796  |   |  | $ | 90,455  |  
|Share and Per Share Data                                                                        |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|BASIC                                                                                           |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations, before
    cumulative effect of accounting change (1) |  | $                                             | (.24    | )                       |  | $    | (.12    | )    |  | $    | .26     |   |  | $ | .57     |   |  | $ | (1.40   | )
|Income from discontinued operations                                                             |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  | $ | .77     |  
|Reserve recovery (loss) on sale of
    discontinued operations                                  |  |                                               |         |                         |  |      |         |      |  |      |         |   |  | $ | .15     |   |  | $ | (6.04   | )
|Cumulative effect of accounting change                                                          |  | $                                             | (.14    | )                       |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                                                               |  | $                                             | (.38    | )                       |  | $    | (.12    | )    |  | $    | .26     |   |  | $ | .72     |   |  | $ | (6.67   | )
|Weighted average common shares (000s)                                                          |  |                                               | 8,743   |                         |  |      | 8,854   |      |  |      | 8,999   |   |  |   | 9,595   |   |  |   | 9,411   |  
|DILUTED                                                                                         |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations, before
    cumulative effect of accounting change (1) |  | $                                             | (.24    | )                       |  | $    | (.12    | )    |  | $    | .26     |   |  | $ | .57     |   |  | $ | (1.40   | )
|Income from discontinued operations                                                             |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  | $ | .77     |  
|Reserve recovery (loss) on sale of
    discontinued operations                                  |  |                                               |         |                         |  |      |         |      |  |      |         |   |  | $ | .14     |   |  | $ | (6.04   | )
|Cumulative effect of accounting change                                                          |  | $                                             | (.14    | )                       |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                                                               |  | $                                             | (.38    | )                       |  | $    | (.12    | )    |  | $    | .26     |   |  | $ | .71     |   |  | $ | (6.67   | )
|Weighted average common shares (000s)                                                          |  |                                               | 8,743   |                         |  |      | 8,854   |      |  |      | 9,025   |   |  |   | 9,646   |   |  |   | 9,411   |  
|OTHER PER SHARE DATA (2)                                                                        |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Shareholders equity                                                                            |  | $                                             | 3.05    |                         |  | $    | 3.34    |      |  | $    | 3.47    |   |  | $ | 3.20    |   |  | $ | 9.49    |  
|Market price  high                                                                             |  | $                                             | 2.59    |                         |  | $    | 3.40    |      |  | $    | 7.75    |   |  | $ | 11.69   |   |  | $ | 14.25   |  
|Market price  low                                                                              |  | $                                             | 1.33    |                         |  | $    | 1.65    |      |  | $    | 1.50    |   |  | $ | 4.38    |   |  | $ | 9.00    |  
|Financial Ratios                                                                                |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Current ratio                                                                                   |  |                                               | 1.9     |                         |  |      | 1.8     |      |  |      | 1.6     |   |  |   | 1.6     |   |  |   | 1.5     |  
|Long-term liabilities to total capitalization                                                   |  |                                               | 8.9     | %                       |  |      | 8.6     | %    |  |      | 10.1    | % |  |   | 11.6    | % |  |   | 8.4     | %



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes before-tax charge for staff separation
    and facilities consolidation ($845) and a before-tax charge for
    settlement costs associated with an executive change-in-control
    contract ($650) in 2001, before-tax gain on the disposition of a
    real estate asset ($2,842) and before-tax charge for facilities
    consolidation and staff relocation costs, asset write-downs and
    a corporate identity program ($2,405) in 2000, before-tax gain
    on the disposition of certain real estate assets ($1,497) and a
    before-tax loss on the disposition of an electronics
    manufacturing business ($455) in 1999, and before-tax business
    system and corporate resizing charges ($9,900) in 1998.
|   
|(2) | Certain other per share data presented for 1999
    and 1998 has not been adjusted to reflect cash distributions
    totaling $7.00 per share made in June 1999 ($5.70 per share) and
    December 1999 ($1.30 per share).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

4



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

In addition to historical information, the
following discussion and analysis of management contains
forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties. The actual results
may differ materially from those anticipated in these
forward-looking statements.

The Companys discussion and analysis of its
financial condition and results of operations are based upon its
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of financial statements in
accordance with generally accepted accounting principles in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, including the recoverability of assets, disclosure
of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and
expenses during the reported period. The Company bases its
estimates on historical experience and on other relevant
assumptions that are believed to be reasonable under the
circumstances. Actual results in the future may differ from
these estimates.

Critical Accounting Policies

The Summary of Accounting Policies within the
Notes to the Consolidated Financial Statements includes the
significant accounting policies and methods used in the
preparation of the Companys consolidated financial
statements. The following is a discussion of each of the
Companys critical accounting policies:

Revenue Recognition

Sales are recognized when products are shipped or
when services are provided assuming no significant Company
obligations remain and the collection of related receivables is
probable. Revenue recognition on product sales is not subject to
significant estimates as the Company has not experienced
significant product returns.

Valuation of Receivables

The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company performs
ongoing credit evaluations of its customers. If the financial
condition of the Companys customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required. Changes in the credit
worthiness of customers, general economic conditions and other
factors may impact the level of future write-offs.

Valuation of Inventory

The Company periodically reviews inventory items
and overall stocking levels to ensure that adequate reserves
exist for inventory deemed obsolete or excessive. In making this
determination, the Company considers historical stocking levels,
recent sales of similar items and forecasted demand for these
items. Changes in factors such as customer demand, technology
and other matters could affect the level of inventory
obsolescence in the future.

Recent Accounting Pronouncements

The Financial Accounting Standard Board recently
issued several Statements of Financial Accounting Standards. The
statements relevant to the Company and their anticipated impact
are disclosed in the New pronouncements section of
the Summary of Accounting Policies within the Notes
to the Consolidated Financial Statements.

5



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Contractual Obligations and Commercial
Commitments

The following summarizes contractual obligations
and commercial commitments as of December 31, 2002 (in
thousands):

|                             |                                          |       |   |       |  |      |   |       |  |      |   |       |  |  |   |       |  |  |   |     |  |  |   |     | 
|---------------------------- | ---------------------------------------- | ----- | - | ----- |  | ---- | - | ----- |  | ---- | - | ----- |  |  | - | ----- |  |  | - | --- |  |  | - | --- | 
|                             |                                          | Total |   | 2003  |  | 2004 |   | 2005  |  | 2006 |   | 2007 
|                             |                                          |       |   |       |  |      |   |       |  |      |   |      
|Contractual obligations      |                                          |       |   |       |  |      |   |       |  |      |   |       |  |  |   |       |  |  |   |     |  |  |   |    
|                             | Operating leases                         |       | $ | 6,237 |  |      | $ | 2,311 |  |      | $ | 1,875 |  |  | $ | 1,164 |  |  | $ | 604 |  |  | $ | 283 | 
|Other commercial commitments |                                          |       |   |       |  |      |   |       |  |      |   |       |  |  |   |       |  |  |   |     |  |  |   |    
|                             | Standby and commercial letters of credit |       | $ | 270   |  |      | $ | 270   |  |      |   |       |  |  |   |       |  |  |   |     |  |  |   |     | 

Results of operations

Results of operations by business segment were as
follows (in thousands):

|                                       |                       |                         |         |        |   |      |         |         |   |   |         |         |  
|-------------------------------------- | --------------------- | ----------------------- | ------- | ------ | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                       |                       |                        
|                                       |                       | Year Ended December 31,
|                                       |                       |                        
|                                       |                       | 2002                    |         | 2001   |   | 2000
|                                       |                       |                         |         |        |   |     
|Net sales                              |                       |                         |         |        |   |      |         |         |   |   |         |        
|                                       | Technology Solutions  |                         | $       | 90,568 |   |      | $       | 130,395 |   |   | $       | 188,907 |  
|                                       | Recreational Products |                         |         | 44,639 |   |      |         | 46,044  |   |   |         | 49,799  |  
|                                       | Electronic Components |                         |         | 5,590  |   |      |         | 7,182   |   |   |         | 13,181  |  
|                                       |                       |                         |         |        |   |      |         |         |   |   |         |        
|                                       |                       | $                       | 140,797 |        |   | $    | 183,621 |         |   | $ | 251,887 |        
|                                       |                       |                         |         |        |   |      |         |         |   |   |         |        
|Operating income (loss)                |                       |                         |         |        |   |      |         |         |   |   |         |        
|                                       | Technology Solutions  |                         | $       | (2,204 | ) |      | $       | (938    | ) |   | $       | 10      |  
|                                       | Recreational Products |                         |         | 819    |   |      |         | 954     |   |   |         | 1,666   |  
|                                       | Electronic Components |                         |         | 489    |   |      |         | 1,590   |   |   |         | 3,317   |  
|                                       | Special items         |                         |         |        |   |      |         | (650    | ) |   |         | 2,242   |  
|                                       | Corporate costs       |                         |         | (2,664 | ) |      |         | (3,137  | ) |   |         | (3,652  | )
|                                       |                       |                         |         |        |   |      |         |         |   |   |         |        
|                                       |                       |                         | (3,560  | )      |   |      | (2,181  | )       |   |   | 3,583   |        
|Interest, net                          |                       |                         | 200     |        |   |      | 460     |         |   |   | 254     |        
|Income tax benefit (provision)         |                       |                         | 1,327   |        |   |      | 680     |         |   |   | (1,518  | )      
|Cumulative effect of accounting change |                       |                         | (1,280  | )      |   |      |         |         |   |   |         |        
|                                       |                       |                         |         |        |   |      |         |         |   |   |         |        
|Net income (loss)                      |                       | $                       | (3,313  | )      |   | $    | (1,041  | )       |   | $ | 2,319   |        
|                                       |                       |                         |         |        |   |      |         |         |   |   |         |        

A summary of comparative operating results data
as a percentage of net sales follows:

|                                                                                 |  |  |       |    |  |  |       |    |  |  |       |  
|-------------------------------------------------------------------------------- |  |  | ----- | -- |  |  | ----- | -- |  |  | ----- | -
|Net sales                                                                        |  |  | 100.0 | %  |  |  | 100.0 | %  |  |  | 100.0 | %
|Cost of sales                                                                    |  |  | (81.8 | )  |  |  | (82.9 | )  |  |  | (85.3 | )
|Selling and administrative                                                       |  |  | (19.1 | )  |  |  | (16.3 | )  |  |  | (12.9 | )
|Depreciation and amortization                                                    |  |  | (1.6  | )  |  |  | (1.2  | )  |  |  | (.6   | )
|Special items                                                                    |  |  |       |    |  |  | (.8   | )  |  |  | .2    |  
|Interest, net                                                                    |  |  | .1    |    |  |  | .3    |    |  |  | .1    |  
|                                                                                 |  |  |       |    |  |  |       |    |  |  |       |  
|Income (loss) before income taxes and cumulative
    effect of accounting change |  |  | (2.4  | )  |  |  | (.9   | )  |  |  | 1.5   |  
|Income tax benefit (provision)                                                   |  |  | .9    |    |  |  | .4    |    |  |  | (.6   | )
|Cumulative effect of accounting change                                           |  |  | (.9   | )  |  |  |       |    |  |  |       |  
|                                                                                 |  |  |       |    |  |  |       |    |  |  |       |  
|Net income (loss)                                                                |  |  | (2.4  | )% |  |  | (.5   | )% |  |  | .9    | %
|                                                                                 |  |  |       |    |  |  |       |    |  |  |       |  



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    to Year Ended December 31, 2001

Net sales

Net sales for the year ended December 31,
2002 decreased 23.3% to $140.8 million from
$183.6 million in 2001. Net sales are further discussed in
Technology Solutions, Recreational
Products, and Electronic Components below.

6



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##### 



Operating income (loss)

Operating loss for the year ended
December 31, 2002 increased 63.2% to $3.6 million from
$2.2 million in 2001. Operating results are further
discussed in Technology Solutions,
Recreational Products, and Electronic
Components below.

Special items

Operating results for 2001 include pre-tax
charges totaling $1.5 million composed of $845,000 of costs
related to the strategic repositioning of BTLs Midwest
operations and $650,000 in settlement costs associated with a
change-in-control contract. The $845,000 repositioning charge
has been included in the operating results of Technology
Solutions and is further discussed in Technology
Solutions below. No special items were recorded during the
year ended December 31, 2002.

Corporate costs

Corporate costs for the year ended
December 31, 2002 decreased 15.1% to $2.7 million from
$3.1 million in 2001. The decrease is primarily
attributable to reduced costs associated with the Companys
strategic change initiatives, miscellaneous income arising from
insurance proceeds and reduced bonus accruals during 2002 as
compared to 2001.

Interest, net

Net interest income for the year ended
December 31, 2002 decreased 56.5% to $200,000 from $460,000
in 2001. The decrease is attributable to reduced interest rates
and lower average cash balances.

Cumulative effect of accounting
change

The Company recorded a pre-tax goodwill
impairment loss of $2.1 million, $1.3 million after
tax, following the adoption of Statement of Financial Accounting
Standards No. 142 effective January 1, 2002.

Technology Solutions

Technology Solutions sales for the year ended
December 31, 2002 decreased 30.5% to $90.6 million
from $130.4 million in 2001. Approximately half of the
decrease in sales is attributable to decreased technology
product deliveries as business enterprises have continued to
defer information technology expenditures. Sales have also been
negatively impacted as major suppliers increasingly market their
products directly to end-user customers, rather than utilizing
traditional distribution channels. The operating loss totaled
$2.2 million for the year ended December 31, 2002
compared to a $938,000 loss in 2001. Excluding the $845,000
special charge associated with this business unit in 2001, the
operating loss was $93,000. Components of the 2001 special
charge included facilities consolidation costs and asset
write-downs in connection with the opening of a technology
center and separation costs. The results for 2002 have been
adversely impacted by continued costs associated with building
our technology outsourcing practices. Additional costs,
generally including salaries, travel, information technology and
related expenditures, associated with business development
efforts and strategic investments to integrate new client
engagements will be required to fully leverage and optimize our
infrastructure and capabilities. The cost of these initiatives
will likely continue to impact near-term operating results, but
should provide effective technology solutions for our clients
and planned improvement in long-term operating results. This
business unit also discontinued its application development
service line, in response to weak market demand, that further
contributed to the operating loss during 2002.

Recreational Products

Recreational Products sales for the year ended
December 31, 2002 decreased 3.1% to $44.6 million from
$46.0 million in 2001, and operating income decreased 14.2%
to $819,000 from $954,000. The decrease in sales for 2002 is
attributable to lower snow product sales during the first
quarter as compared to the comparable period in 2001. This
unseasonably warm winter weather has also been prevalent in
early 2003.

7



---



##### 



Operating results were also impacted by the
relocation of this business units Minnesota distribution
center to a new facility during the second half of 2002.


Electronic Components

Electronic Components sales for the year ended
December 31, 2002 decreased 22.2% to $5.6 million from
$7.2 million in 2001, and operating income decreased 69.2%
to $489,000 from $1.6 million. The decrease in sales and
operating income is attributable to weak demand for electronics
components in the computer and telecommunications sectors,
shifts in product mix, pricing pressures, and additions to
inventory reserves arising from difficult market conditions.

Cost of sales

As a percentage of sales, cost of sales for the
year ended December 31, 2002 decreased to 81.8% from 82.9%
in 2001 primarily due to reductions in lower margin product
sales at the Technology Solutions business unit.

Selling and administrative expenses

As a percentage of sales, selling and
administrative expenses for the year ended December 31,
2002 increased to 19.1% from 16.3% in 2001 primarily due to the
overall reduction in sales in 2002 and the existence of certain
fixed costs.

Income tax

The Companys effective income tax rate was
approximately 39.5% in both years. Taxable losses during the
year ended December 31, 2002 are expected to result in a
federal tax refund of approximately $2.4 million as losses
in this year have been carried back to previously profitable
years.

Net income (loss)

The net loss totaled $3.3 million for the
year ended December 31, 2002, an increase of
$2.3 million from the net loss in the prior year. The
increase in net loss resulted from the factors described above,
including the goodwill impairment charge of $1.3 million.

Year Ended December 31, 2001 Compared
to Year Ended December 31, 2000

Net sales

Net sales for the year ended December 31,
2001 decreased 27.1% to $183.6 million from $251.9 million
in 2000. Net sales are further discussed in Technology
Solutions, Recreational Products, and
Electronic Components below.

Operating income (loss)

Operating loss for the year ended
December 31, 2001 was $2.2 million compared to
operating income of $3.6 million in 2000. Operating results
are further discussed in Technology Solutions,
Recreational Products, and Electronic
Components below.

Special items

Operating results for 2001 include pre-tax
charges totaling $1.5 million composed of $845,000 of costs
related to the strategic repositioning of BTLs Midwest
operations and $650,000 in settlement costs associated with a
change-in-control contract. The 2000 results include pre-tax
charges totaling $2.4 million consisting of
$1.8 million of realignment costs and $600,000 for costs
associated with a corporate identity program. The 2000 results
also include a pre-tax gain of $2.8 million from the
disposition of a real estate asset related to a previously
disposed business. The $845,000 repositioning charge from 2001
and the $1.8 million realignment

8



---



##### 



charge from 2000 have been included in the
operating Results of Technology Solutions and are further
discussed in Technology Solutions below.


Corporate costs

Corporate costs for the year ended
December 31, 2001 decreased 14.1% to $3.1 million from
$3.7 million in 2000. The decrease is primarily
attributable to reduced costs associated with the Companys
strategic change initiatives.

Interest, net

Net interest income for the year ended
December 31, 2002 increased 81.1% to $460,000 from $254,000
in 2001. The increase is primarily attributable to higher
average cash balances.

Technology Solutions

Technology Solutions sales for the year ended
December 31, 2001 decreased 31.0% to $130.4 million
from $188.9 million in 2000. The decrease in sales is
primarily attributable to the challenging economic conditions in
the technology sector, which has resulted in businesses
curtailing and delaying IT-related expenditures. The decrease in
sales also reflects the trend by personal computer manufactures
toward the direct and agency models in serving the marketplace.
Manufacturers are directly targeting certain enterprise
customers traditionally served by the Technology Solutions
business unit in the sourcing of personal computers and related
products. In the agency model, revenues represent fees from
manufacturers on certain direct product sales. In previous
years, these transactions were at full sales value as this
business purchased products from manufacturers and resold to its
customers. Excluding the $845,000 repositioning charge that was
allocated to this business unit, the operating loss was $93,000
in for the year ended December 31, 2001 compared to
$1.8 million in operating income, excluding a
$1.8 million realignment charge allocated to this business
unit in 2000. Components of the 2001 special charge included
facilities consolidation costs and asset write-downs in
connection with the opening of a new technology center and
separation costs. Components of the 2000 special charge included
separation costs, asset write-downs and other exit costs related
to the consolidation of facilities, logistics, and sales and
service operations.

Recreational Products

Recreational Products sales for the year ended
December 31, 2001 decreased 7.5% to $46.0 million from
$49.8 million in 2000, and operating income decreased 42.7%
to $954,000 from $1.7 million. The decrease in sales for
2001 is primarily attributable to challenging economic
conditions, which resulted in reduced spending on recreational
products. Also contributing to the decline in operating income
and margins was a concentrated effort during 2001 to promote
certain products by aggressively reducing prices.

Electronic Components

Electronic Components sales for the year ended
December 31, 2002 decreased 45.5% to $7.2 million from
$13.2 million in 2000, and operating income decreased 52.1%
to $1.6 million from $3.3 million. The decrease in
sales and operating income is attributable to the weakness in
demand for electronics and telecommunication components
throughout the majority of 2001.

Cost of sales

As a percentage of sales, cost of sales for the
year ended December 31, 2001 decreased to 82.9% from 85.3%
in 2001 primarily due to the change to the agency model on
certain Technology Solutions transactions for which no cost of
sales is recognized, partially offset by lower overall margins
on Recreational Product sales resulting from the aggressive
price reductions on certain products.

9



---



##### 



Selling and administrative expenses

As a percentage of sales, selling and
administrative expenses for the year ended December 31,
2001 increased to 16.3% from 12.9% in 2000 primarily due to the
overall reduction in sales in 2001 and the existence of certain
fixed costs.

Income tax

The Companys effective income tax rate was
approximately 39.5% for both years.

Net income (loss)

Net loss totaled $1.0 million for the year
ended December 31, 2001 compared to net income of
$2.3 million in the prior year. The $3.3 million
change resulted from the factors described above.

Changes in Financial Condition

Liquidity and Capital Resources

Selected financial data is set forth in the
following table (dollars in thousands, except per share amounts):

|                                              |  |              |        |      |  |   |        |  
|--------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                              |  |             
|                                              |  | December 31,
|                                              |  |             
|                                              |  | 2002         |        | 2001
|                                              |  |              |        |     
|Cash and cash equivalents                     |  | $            | 10,079 |      |  | $ | 10,418 |  
|Working capital                               |  | $            | 19,609 |      |  | $ | 21,314 |  
|Current ratio                                 |  |              | 1.9:1  |      |  |   | 1.8:1  |  
|Long-term liabilities to total capitalization |  |              | 8.9    | %    |  |   | 8.6    | %
|Shareholders equity per share                |  | $            | 3.05   |      |  | $ | 3.34   |  
|Days sales in receivables                    |  |              | 51     |      |  |   | 51     |  
|Days sales in inventories                    |  |              | 38     |      |  |   | 32     |  

Net cash provided by operating activities was
$1.9 million for the year ended December 31, 2002
compared with $597,000 in 2001. The cash flow from operating
activities in 2002 reflects cash collected on accounts
receivable partially offset by payment of accounts payable and
accrued liabilities and an increase in income tax receivable.
The decrease in accounts receivable was primarily due to the
$5.1 million decline in revenues during the fourth quarter
of 2002 as compared to the prior year. Accounts payable was also
lower at the end of 2002 as a result of reduced inventory
purchases in light of the reduced sales levels. The increase in
income tax receivable totaling $1.7 million represents the
increase in the anticipated 2002 federal tax refund over the
refund received related to the 2001 tax year. The cash flow from
operating activities in 2001 primarily represents cash collected
on accounts receivable offset by payments of accounts payable.
The decrease in receivables was primarily due to the 49% decline
in revenues during the fourth quarter of 2001 as compared to the
prior year. Accounts payable was also significantly lower as of
the end of 2001 as a result of reduced inventory purchases late
in the year.

Net cash used in investing activities totaled
$1.5 million for the year ended December 31, 2002,
which was used to purchase fixed assets used in our business,
compared to $4.8 million in 2001. The $4.8 million
included expenditures for a technology center in the Midwest, a
client dedicated technology center in the Atlantic region,
expenditures on information technology, and the purchase of a
business.

Net cash used in financing activities totaled
$819,000 for the year ended December 31, 2002 compared to
cash provided by financing activities of $237,000 during 2001.
During 2002, cash used in financing activities included $872,000
utilized to purchase 556,721 shares under the Companys
Stock Repurchase Program, which was offset by $53,000 from stock
purchases under our Employees Stock Purchase Plan. Cash
provided by financing activities in 2001 included stock
purchases under our Employees Stock Purchase Plan and the
exercise of outstanding warrants.

10



---



##### 



The Company believes that sufficient cash
resources exist to support requirements for its operations and
commitments through available cash, bank borrowings and cash
generated by operations. The Company has a line of credit in the
amount of $10.0 million, expiring in May 2004, for general
corporate purposes. No amounts were borrowed under the line of
credit during 2002 or 2001. Although the Company has a
sufficient asset borrowing base and was in compliance with all
bank covenants during 2002 and 2001, due to recent operating
losses the Company is not able to borrow under its line of
credit as of December 31, 2002. Management is currently in
discussions with its lender to revise the existing covenants or
otherwise amend the agreement to allow for a level of
borrowings, if necessary. There can be no assurance that the
Company and its lender will reach an agreement regarding such
matters. Although management does not currently anticipate the
need to borrow under the line of credit, this additional cash
resource may be needed to support future operations. Despite
recent operating losses, the Company believes that it has
sufficient cash resources to fund 2003 operations.

Trends and Uncertainties

The challenging technology market conditions and
costs associated with building our technology outsourcing
practices have impacted results during 2002 and are expected to
continue to impact near term operating results. We have added
almost 200 professionals during January 2003 at our Technology
Solutions business unit to fulfill new outsourcing engagements.
We believe that these new client relationships and continued
aggressive business development efforts are key steps towards
long term growth. However, there can be no assurance that
managements plans will be successful in improving the
Companys overall profitability.



|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7a. | Quantitative and Qualitative Disclosures
    About Market Risk

Not applicable.

11



---



##### 





|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

INDEX TO FINANCIAL STATEMENTS

|                              |                                                                                                |      |  |    | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                              |                                                                                                | Page
|                              |                                                                                                |     
|Financial Statements:         |                                                                                                |      |  |   
|                              | Report of Independent Accountants                                                              |      |  | 13 | 
|                              | Consolidated Statement of Operations for the
    three years ended December 31, 2002           |      |  | 14 | 
|                              | Consolidated Balance Sheet at December 31,
    2002 and 2001                                   |      |  | 15 | 
|                              | Consolidated Statement of Shareholders
    Equity for the three years ended December 31, 2002 |      |  | 16 | 
|                              | Consolidated Statement of Cash Flows for the
    three years ended December 31, 2002           |      |  | 17 | 
|                              | Notes to Consolidated Financial Statements                                                     |      |  | 18 | 
|Financial Statement Schedule: |                                                                                                |      |  |   
|                              | Schedule II  Valuation and
    Qualifying Accounts                                            |      |  | 27 | 

The financial data included in the financial
statement schedule should be read in conjunction with the
consolidated financial statements. All other schedules have been
omitted because they are not applicable or the required
information is shown in the consolidated financial statements or
notes thereto.

12



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and

Shareholders of Bell Industries, Inc.


In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in
all material respects, the financial position of Bell
Industries, Inc. and its subsidiaries at December 31, 2002
and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

As discussed in the notes to the consolidated
financial statements, effective January 1, 2002, the
Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.

PRICEWATERHOUSECOOPERS LLP

Los Angeles, California

February 7, 2003


13



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##### 



CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share
data)


|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |         |  
|-------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                 |                                                                 |                        
|                                                                                 |                                                                 | Year ended December 31,
|                                                                                 |                                                                 |                        
|                                                                                 |                                                                 | 2002                    |         | 2001    |   | 2000
|                                                                                 |                                                                 |                         |         |         |   |     
|Net sales                                                                        |                                                                 | $                       | 140,797 |         |   | $    | 183,621 |         |   | $ | 251,887 |        
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|Costs and expenses                                                               |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 | Cost of sales                                                   |                         |         | 115,141 |   |      |         | 152,163 |   |   |         | 214,831 |  
|                                                                                 | Selling and administrative                                      |                         |         | 26,883  |   |      |         | 29,870  |   |   |         | 32,317  |  
|                                                                                 | Depreciation and amortization                                   |                         |         | 2,333   |   |      |         | 2,274   |   |   |         | 1,593   |  
|                                                                                 | Interest, net                                                   |                         |         | (200    | ) |      |         | (460    | ) |   |         | (254    | )
|                                                                                 | Special items, net                                              |                         |         |         |   |      |         | 1,495   |   |   |         | (437    | )
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 |                                                                 |                         | 144,157 |         |   |      | 185,342 |         |   |   | 248,050 |        
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|Income (loss) before income taxes and cumulative
    effect of accounting change |                                                                 |                         | (3,360  | )       |   |      | (1,721  | )       |   |   | 3,837   |        
|Income tax provision (benefit)                                                   |                                                                 |                         | (1,327  | )       |   |      | (680    | )       |   |   | 1,518   |        
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|Income (loss) before cumulative effect of
    accounting change                  |                                                                 |                         | (2,033  | )       |   |      | (1,041  | )       |   |   | 2,319   |        
|Cumulative effect of accounting change, net of
    income tax benefit of $836    |                                                                 |                         | (1,280  | )       |   |      |         |         |   |   |         |        
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|Net income (loss)                                                                |                                                                 | $                       | (3,313  | )       |   | $    | (1,041  | )       |   | $ | 2,319   |        
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|SHARE AND PER SHARE DATA                                                         |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|BASIC                                                                            |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 | Income (loss) before cumulative effect of
    accounting change |                         | $       | (.24    | ) |      | $       | (.12    | ) |   | $       | .26     |  
|                                                                                 | Cumulative effect of accounting change                          |                         |         | (.14    | ) |      |         |         |   |   |         |         |  
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 | Net income (loss)                                               |                         | $       | (.38    | ) |      | $       | (.12    | ) |   | $       | .26     |  
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 | Weighted average common shares                                  |                         |         | 8,743   |   |      |         | 8,854   |   |   |         | 8,999   |  
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|DILUTED                                                                          |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 | Income (loss) before cumulative effect of
    accounting change |                         | $       | (.24    | ) |      | $       | (.12    | ) |   | $       | .26     |  
|                                                                                 | Cumulative effect of accounting change                          |                         |         | (.14    | ) |      |         |         |   |   |         |         |  
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 | Net income (loss)                                               |                         | $       | (.38    | ) |      | $       | (.12    | ) |   | $       | .26     |  
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                 | Weighted average common shares                                  |                         |         | 8,743   |   |      |         | 8,854   |   |   |         | 9,025   |  
|                                                                                 |                                                                 |                         |         |         |   |      |         |         |   |   |         |        

See Accompanying Notes to Consolidated Financial
Statements.

14



---



##### 



CONSOLIDATED BALANCE SHEET

(Dollars in thousands)


|                                                                                                  |                                                                                   |                            |        |        |        |   |        |        |        | 
|------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                                  |                                                                                   |                           
|                                                                                                  |                                                                                   | December 31,              
|                                                                                                  |                                                                                   |                           
|                                                                                                  |                                                                                   | 2002                       |        | 2001  
|                                                                                                  |                                                                                   |                            |        |       
|ASSETS                                                                                           
|Current assets                                                                                    |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  | Cash and cash equivalents                                                         |                            | $      | 10,079 |        |   | $      | 10,418 |       
|                                                                                                  | Accounts receivable, less allowance for doubtful
    accounts of $749 and $1,525. |                            |        | 13,078 |        |   |        | 17,827 |       
|                                                                                                  | Income tax receivable                                                             |                            |        | 2,400  |        |   |        | 746    |       
|                                                                                                  | Inventories                                                                       |                            |        | 12,349 |        |   |        | 13,608 |       
|                                                                                                  | Prepaid expenses and other                                                        |                            |        | 3,051  |        |   |        | 3,879  |       
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  |                                                                                   | Total current assets       |        |        | 40,957 |   |        |        | 46,478 | 
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|Fixed assets, at cost                                                                             |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  | Land                                                                              |                            |        | 35     |        |   |        | 35     |       
|                                                                                                  | Buildings and improvements                                                        |                            |        | 1,390  |        |   |        | 1,414  |       
|                                                                                                  | Equipment                                                                         |                            |        | 8,904  |        |   |        | 8,243  |       
|                                                                                                  | Furniture and fixtures                                                            |                            |        | 4,317  |        |   |        | 4,235  |       
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  |                                                                                   |                            | 14,646 |        |        |   | 13,927 |       
|                                                                                                  | Less accumulated depreciation                                                     |                            |        | (9,210 | )      |   |        | (7,608 | )     
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  |                                                                                   | Total fixed assets         |        |        | 5,436  |   |        |        | 6,319  | 
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|Goodwill                                                                                          |                                                                                   |                            |        |        |        |   | 2,116  |       
|Other assets                                                                                      |                                                                                   |                            | 2,997  |        |        |   | 2,739  |       
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  |                                                                                   | $                          | 49,390 |        |        | $ | 57,652 |       
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                         
|Current liabilities                                                                               |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  | Accounts payable                                                                  |                            | $      | 10,687 |        |   | $      | 11,833 |       
|                                                                                                  | Accrued payroll                                                                   |                            |        | 1,871  |        |   |        | 1,472  |       
|                                                                                                  | Accrued liabilities                                                               |                            |        | 8,790  |        |   |        | 11,859 |       
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  |                                                                                   | Total current liabilities  |        |        | 21,348 |   |        |        | 25,164 | 
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|Deferred compensation and other                                                                   |                                                                                   |                            | 2,496  |        |        |   | 2,810  |       
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|Shareholders equity                                                                              |                                                                                   |                            |        |        |        |   |        |       
|Preferred stock
    Authorized  1,000,000 shares,
    outstanding  none                         |                                                                                   |                            |        |        |        |   |        |       
|Common stock
    Authorized  35,000,000 shares,
    outstanding  8,366,724 and 8,889,708 shares |                                                                                   |                            | 32,535 |        |        |   | 33,354 |       
|                                                                                                  | Accumulated deficit                                                               |                            |        | (6,989 | )      |   |        | (3,676 | )     
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  |                                                                                   | Total shareholders equity |        |        | 25,546 |   |        |        | 29,678 | 
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       
|Commitments and contingencies                                                                     |                                                                                   |                            |        |        |        |   |        |       
|                                                                                                  |                                                                                   | $                          | 49,390 |        |        | $ | 57,652 |       
|                                                                                                  |                                                                                   |                            |        |        |        |   |        |       

See Accompanying Notes to Consolidated Financial
Statements.

15



---



##### 



CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY

(Dollars in thousands)


|                              |                                |              |           |              |   |          |        |        |   |   |        |        |  
|----------------------------- | ------------------------------ | ------------ | --------- | ------------ | - | -------- | ------ | ------ | - | - | ------ | ------ | -
|                              |                                |              |           | Retained    
|                              |                                | Common Stock |           | earnings    
|                              |                                |              |           | (accumulated
|                              |                                | Shares       |           | Amount       |   | deficit)
|                              |                                |              |           |              |   |         
|Balance at December 31, 1999. |                                |              | 9,608,315 |              |   | $        | 35,750 |        |   | $ | (4,954 | )     
|                              | Employee stock plans           |              |           | 42,521       |   |          |        | 89     |   |   |        |        |  
|                              | Stock repurchase program       |              |           | (859,900     | ) |          |        | (2,946 | ) |   |        |        |  
|                              | Other stock transactions       |              |           |              |   |          |        | 224    |   |   |        |        |  
|                              | Net income                     |              |           |              |   |          |        |        |   |   |        | 2,319  |  
|                              |                                |              |           |              |   |          |        |        |   |   |        |       
|Balance at December 31, 2000. |                                |              | 8,790,936 |              |   |          | 33,117 |        |   |   | (2,635 | )     
|                              | Employee stock plans and other |              |           | 98,772       |   |          |        | 237    |   |   |        |        |  
|                              | Net loss                       |              |           |              |   |          |        |        |   |   |        | (1,041 | )
|                              |                                |              |           |              |   |          |        |        |   |   |        |       
|Balance at December 31, 2001. |                                |              | 8,889,708 |              |   |          | 33,354 |        |   |   | (3,676 | )     
|                              | Employee stock plans           |              |           | 33,737       |   |          |        | 53     |   |   |        |        |  
|                              | Stock repurchase program       |              |           | (556,721     | ) |          |        | (872   | ) |   |        |        |  
|                              | Net loss                       |              |           |              |   |          |        |        |   |   |        | (3,313 | )
|                              |                                |              |           |              |   |          |        |        |   |   |        |       
|Balance at December 31, 2002. |                                |              | 8,366,724 |              |   | $        | 32,535 |        |   | $ | (6,989 | )     
|                              |                                |              |           |              |   |          |        |        |   |   |        |       

See Accompanying Notes to Consolidated Financial
Statements.

16



---



##### 



CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)


|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |        |        |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------------- | ------ | ------ | ------ | ---- | ------- | ---------- | -------- | - | ------ | ------ | ------ | -
|                                                                          |                                                                          |                                                        
|                                                                          |                                                                          | Year ended December 31,                                
|                                                                          |                                                                          |                                                        
|                                                                          |                                                                          | 2002                                                    |        | 2001   |        | 2000
|                                                                          |                                                                          |                                                         |        |        |        |     
|Cash flows from operating activities:                                     |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          | Net income (loss)                                                        |                                                         | $      | (3,313 | )      |      |         | $(1,041    | )        |   | $      | 2,319  |       
|                                                                          | Cumulative effect of accounting change                                   |                                                         |        | 1,280  |        |      |         |            |          |   |        |        |       
|                                                                          | Depreciation                                                             |                                                         |        | 2,333  |        |      |         | 2,161      |          |   |        | 1,514  |       
|                                                                          | Amortization of goodwill                                                 |                                                         |        |        |        |      |         | 113        |          |   |        | 79     |       
|                                                                          | Provision for losses on accounts receivable                              |                                                         |        | 63     |        |      |         | 168        |          |   |        | 166    |       
|                                                                          | Gain on sale of real estate                                              |                                                         |        |        |        |      |         |            |          |   |        | (2,842 | )     
|                                                                          | Changes in assets and liabilities, net of
    acquisitions and disposals |                                                         |        | 1,574  |        |      |         | (804       | )        |   |        | 5,764  |       
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          |                                                                          | Net cash provided by operating activities               |        |        | 1,937  |      |         |            | 597      |   |        |        | 7,000  |  
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|Cash flows from investing activities:                                     |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          | Purchases of fixed assets and other                                      |                                                         |        | (1,457 | )      |      |         | (4,449     | )        |   |        | (1,435 | )     
|                                                                          | Purchase of business                                                     |                                                         |        |        |        |      |         | (400       | )        |   |        |        |       
|                                                                          | Net proceeds from sale of real estate                                    |                                                         |        |        |        |      |         |            |          |   |        | 2,951  |       
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          |                                                                          | Net cash provided by (used in) investing
    activities |        |        | (1,457 | )    |         |            | (4,849   | ) |        |        | 1,516  |  
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|Cash flows from financing activities:                                     |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          | Employee stock plans and other                                           |                                                         |        | 53     |        |      |         | 237        |          |   |        | 313    |       
|                                                                          | Purchases of common stock                                                |                                                         |        | (872   | )      |      |         |            |          |   |        | (2,946 | )     
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          |                                                                          | Net cash provided by (used in) financing
    activities |        |        | (819   | )    |         |            | 237      |   |        |        | (2,633 | )
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|Net increase (decrease) in cash and cash
    equivalents                  |                                                                          |                                                         | (339   | )      |        |      | (4,015  | )          |          |   | 5,883  |       
|Cash and cash equivalents at beginning of year                            |                                                                          |                                                         | 10,418 |        |        |      | 14,433  |            |          |   | 8,550  |       
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|Cash and cash equivalents at end of year                                  |                                                                          | $                                                       | 10,079 |        |        |      | $10,418 |            |          | $ | 14,433 |       
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|Changes in assets and liabilities, net of
    acquisitions and disposals: |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          | Accounts receivable                                                      |                                                         | $      | 5,525  |        |      |         | $13,571    |          |   | $      | 2,169  |       
|                                                                          | Income tax receivable                                                    |                                                         |        | (1,654 | )      |      |         | (746       | )        |   |        |        |       
|                                                                          | Inventories                                                              |                                                         |        | 1,259  |        |      |         | 1,457      |          |   |        | 4,523  |       
|                                                                          | Accounts payable                                                         |                                                         |        | (1,146 | )      |      |         | (12,659    | )        |   |        | 1,048  |       
|                                                                          | Accrued liabilities and other                                            |                                                         |        | (2,410 | )      |      |         | (2,427     | )        |   |        | (1,976 | )     
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          |                                                                          | Net change                                              |        | $      | 1,574  |      |         |            | $   (804 | ) |        | $      | 5,764  |  
|                                                                          |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|Supplemental cash flow information:                                       |                                                                          |                                                         |        |        |        |      |         |            |          |   |        |       
|                                                                          | Interest paid                                                            |                                                         | $      |       |        |      |         | $        4 |          |   | $      | 35     |       
|                                                                          | Income taxes paid                                                        |                                                         | $      |       |        |      |         | $         |          |   | $      | 1,854  |       

See Accompanying Notes to Consolidated Financial
Statements.

17



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Summary of Accounting Policies

Principles of
consolidation The
consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions have been eliminated.

Cash and cash
equivalents The Company
considers all highly liquid investments purchased with an
original maturity date of three months or less to be cash
equivalents.

Revenue recognition and
receivables The
Companys operations include technology lifecycle services
(Technology Solutions); distribution of aftermarket
products for recreational vehicles, motorcycles, snowmobiles and
powerboats (Recreational Products); and specialty
components manufacturing and distribution for the computer and
electronics markets (Electronic Components). Sales
are recognized and trade receivables are recorded when products
are shipped or when services are provided assuming no
significant Company obligations remain and collection of related
receivables is probable. Concentrations of credit risk with
respect to trade receivables are generally limited due to the
large number and general dispersion of trade accounts, which
constitute the Companys customer base. During 2002 and
2001, the Company had one Technology Solutions customer that
accounted for approximately 12% and 10% of net sales,
respectively. At December 31, 2002 and 2001, the Company
had one Technology Solutions customer that accounted for
approximately 15% and 22% of accounts receivable, respectively.
The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company estimates
reserves for potential credit losses and such losses have been
within these estimates.

Inventories
Inventories, consisting primarily of finished goods, are stated
at the lower of cost (determined using weighted average and
first-in, first-out methods) or market (net realizable value).

Shipping and handling
costs Shipping and
handling costs, consisting primarily of freight paid to
carriers, Company-owned delivery vehicle expenses, employee
payroll related costs incurred in connection with storing,
moving and preparing products for shipment, and employee payroll
related costs for delivery vehicle drivers totaled approximately
$3.3 million in 2002, $3.7 million in 2001 and
$4.2 million in 2000. These costs are included, net of
amounts billed to customers, within selling and administrative
expenses in the Consolidated Statement of Operations. Amounts
billed to customers totaled approximately $550,000 in 2002,
$800,000 in 2001 and $1.1 million in 2000.

Vendor
rebates The Company
receives volume incentives from certain vendors related to sales
activity of certain products that are recognized when deemed
earned.

Fixed assets, depreciation and
amortization All fixed
assets are recorded at cost and depreciated using the
straight-line method based upon estimated useful lives of
10 years for building improvements, 2 to 10 years
for equipment and 5 to 7 years for furniture and fixtures.
Leasehold improvements are amortized over the shorter of their
estimated service lives or the term of the lease.

Goodwill and other intangible
assets In July 2001, the
Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Upon
adoption of SFAS No. 142, goodwill is tested at least
annually and whenever events or circumstances occur indicating
that goodwill might be impaired. Amortization of goodwill,
including goodwill recorded in past business combinations,
ceases. During the quarter ended June 30, 2002, the Company
completed both steps of the transitional impairment tests, as
required by SFAS No. 142, and recorded a pre-tax goodwill
impairment loss of $2.1 million, $1.3 million after
tax, representing the total goodwill balance as of
January 1, 2002 (date of adoption). The goodwill resulted
from Technology Solutions acquisitions in previous years. The
fair value of the Technology Solutions reporting unit was
determined using the discounted cash flow approach as allowed by
SFAS No. 142. Goodwill amortization recorded during the
years ended December 31, 2001 and 2000 was $113,000 or
$0.01 per share and $79,000 or $0.01 per share, respectively.

18



---



##### 



Long-lived
assets In 2002, the
Company adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets. In accordance with SFAS No. 144, the Company
assesses potential impairments to its long-lived assets when
events or changes in circumstances indicate that the carrying
amount may not be fully recoverable. If required, an impairment
loss is recognized as the difference between the carrying value
and the fair value of the assets.

Income
taxes Provision is made
for the tax effects of temporary differences between the
financial reporting basis and the tax basis of the
Companys assets and liabilities. In estimating deferred
tax balances, the Company considers all expected future events
other than enactments of changes in the tax law or rates.

Accrued
liabilities The
Companys accrued liabilities include approximately
$5.4 million and $6.4 million of amounts attributable
to disposed businesses at December 31, 2002 and 2001,
respectively. These amounts relate to certain legal,
environmental and contractual matters specifically identifiable
to these disposed businesses.

Stock option
plans The Company measures
and records compensation expense relating to stock options as
the excess, if any, between the market value of shares on the
date of option grant and the expected proceeds upon exercise.
Such expense is accrued ratably over the period to be benefited.
The Company has adopted the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to disclose
the impact of compensation cost on earnings as determined under
the fair value method prescribed by SFAS No. 123.

Per share
data Basic earnings per
share data are based upon the weighted average number of common
shares outstanding. Diluted earnings per share data are based
upon the weighted average number of common shares outstanding
plus the number of common shares potentially issuable for
dilutive securities such as stock options and warrants.

Use of
estimates Certain amounts
and disclosures included in the consolidated financial
statements required the use of management estimates which could
differ from actual results.

Reclassifications
Certain amounts shown in the prior years consolidated
financial statements have been reclassified to conform to the
current year presentation.

New
pronouncements In June
2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS
No. 146 supersedes Emerging Issues Task Force
(EITF) No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a
Restructuring). SFAS No. 146 eliminates the
provisions of EITF No. 94-3 that required a liability to be
recognized for certain exit or disposal activities at the date
an entity committed to an exit plan. SFAS No. 146 requires
a liability for costs associated with an exit or disposal
activity to be recognized when the liability is incurred. SFAS
No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The Company does not
expect the adoption of this statement to have a material effect
on the Companys consolidated financial position, results
of operations or cash flows.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123. SFAS
No. 148, which is effective for fiscal years ending after
December 15, 2002, provides alternative methods of
transition for a voluntary change to the fair-value based method
of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure provisions of
SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. The Company has chosen
to continue to utilize the disclosure only provisions as
prescribed by SFAS No. 123. The adoption of
SFAS No. 148 did not have a material impact on the
Companys consolidated financial position, results of
operations or cash flows.

19



---



##### 



Special Items

Repositioning and settlement
costs During the second
quarter of 2001, the Company recorded special pre-tax charges
totaling $1.5 million. The charges consisted of $845,000
for costs related to strategic repositioning of the
Companys operations and $650,000 in settlement costs
associated with an executive change-in-control contract.
Components of the repositioning charge included facilities
consolidation costs and asset write-downs in connection with the
opening of a new technology center and separation costs.
Substantially all costs relating to these charges, other than a
lump sum payment made in January 2002 relating to the
change-in-control contract, were paid during 2001.

Realignment and corporate
identity During the second
quarter of 2000, the Company recorded special pre-tax charges
totaling $2.4 million. The charges consisted of
$1.8 million for costs associated with the realignment of
the Companys operations and $600,000 for costs associated
with a corporate identity program, which included new marketing
initiatives for branding and sales development. Components of
the realignment charge included separation costs, asset
write-downs and other exit costs related to the consolidation of
facilities, logistics, and sales and service operations.
Substantially all costs relating to these charges were paid
during 2000.

Sale of real
estate During 2000, the
Company recorded a pre-tax gain of $2.8 million from the
disposition of a real estate asset. This sale represented the
final property disposition in connection with a 1998 Board of
Directors approved plan.

Floor Plan Arrangements

The Company finances certain inventory purchases
in its Technology Solutions business unit through floor plan
arrangements with two finance companies. The amount of aggregate
outstanding floor plan obligations ranged between
$3.1 million and $5.5 million during 2002 and
$4.4 million and $11.2 million during 2001, and were
secured by certain of the Companys inventory and accounts
receivable. Additionally, the finance companies maintain
intercreditor agreements with the Companys primary lender.
The outstanding amounts are payable in 30 to 45 days. The
arrangements are generally subsidized by computer products
manufacturers and are interest free if amounts are paid within
the specified terms. The Company paid minimal interest under
floor plan arrangements for the periods presented. At December
31, 2002 and 2001, the Company had outstanding floor plan
obligations of $3.1 million and $4.8 million,
respectively, which are classified within accounts payable.

Borrowings and Liquidity

Under a credit agreement dated April 1999, as
amended, with its primary lender, the Company has a line of
credit in the amount of $10.0 million to finance short term
cash flow and working capital requirements. The credit agreement
expires in May 2004 and provides for interest at either the
banks reference rate or LIBOR plus 1.75%. The line of
credit is subject to an annual commitment fee of .5% on the
unused line of credit. Available borrowing capacity is subject
to a borrowing base calculation based on a percentage of the
Companys available accounts receivable and inventories.
The Company is subject to certain restrictive covenants
including minimum interest coverage, minimum tangible net worth
and a maximum leverage ratio. Outstanding borrowings are secured
by the assets of the Company, except those assets that secure
borrowings under floor plan arrangements. At December 31,
2002 and 2001, the Company had no outstanding borrowings under
the credit agreement.

The Company believes that sufficient cash
resources exist to support requirements for its operations and
commitments through available cash, bank borrowings and cash
generated by operations. Although the Company has a sufficient
asset borrowing base and was in compliance with all bank
covenants during 2002 and 2001, due to recent operating losses
the Company is not able to borrow under its line of credit as of
December 31, 2002. Management is currently in discussions
with its lender to revise the existing covenants or otherwise
amend the agreement to allow for a level of borrowings, if
necessary. There can be no assurance that the Company and its
lender will reach an agreement regarding such matters. Although
management does not currently anticipate the need to borrow
under the line of credit, this additional cash resource may be
needed to

20



---



##### 



support future operations. Despite recent
operating losses, the Company believes that it has sufficient
cash resources to fund 2003 operations.


Stock Repurchase Program

In July 2001 and February 2000, the Board of
Directors authorized stock repurchase programs (the 2001
Program and 2000 Program) of up to 1,000,000
shares each of the Companys outstanding common stock. The
common stock can be repurchased in the open market at varying
prices depending on market conditions and other factors.

During 2002, the Company repurchased 556,721
shares of common stock at an average price of $1.57 per share
under the 2001 Program. During 2000, the Company repurchased
859,900 shares of common stock at an average price of $3.43 per
share under the 2000 Program. The 2000 Program expired on
December 31, 2000.

Stock Plans

The Company maintains certain stock option plans
which provide for the issuance of common stock to be available
for purchase by employees and by non-employee directors of the
Company. Under the stock option plans, both incentive and
nonqualified stock options, stock appreciation rights and
restricted stock may be granted. Options outstanding under the
plans have terms of five or ten years, vest over a period of up
to four years and were issued at market value on the date of
grant.

A summary of activity under the plans follows:

|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |      | 
|-------------------------------- | --------------------- | ---------- | ------- | -------- | - | --------- | --------- | --------- | - | - | ---- | ---- |  |  | - | ---- | 
|                                 |                       |            |         |          |   | Weighted  |           |          
|                                 |                       |            |         |          |   | average   |           | Fair     
|                                 |                       | Available  |         | Shares   |   | exercise  |           | value of 
|                                 |                       | for future |         | under    |   | price per |           | option   
|                                 |                       | grant      |         | option   |   | share     |           | per share
|                                 |                       |            |         |          |   |           |           |          
|Outstanding at December 31, 1999 |                       |            | 698,023 |          |   |           | 1,145,323 |           |   | $ | 5.17 |      |  |  |   |     
|                                 | Granted               |            |         | (143,500 | ) |           |           | 143,500   |   |   |      | 2.43 |  |  | $ | 1.48 | 
|                                 | Canceled              |            |         | 276,664  |   |           |           | (276,664  | ) |   |      | 6.68 |  |  |   |      | 
|                                 | Expired               |            |         | (373,157 | ) |           |           |           |   |   |      |      |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     
|Outstanding at December 31, 2000 |                       |            | 458,030 |          |   |           | 1,012,159 |           |   |   | 4.37 |      |  |  |   |     
|                                 | Granted               |            |         | (245,000 | ) |           |           | 245,000   |   |   |      | 2.44 |  |  | $ | 1.24 | 
|                                 | Canceled              |            |         | 239,830  |   |           |           | (239,830  | ) |   |      | 4.82 |  |  |   |      | 
|                                 | Adoption of 2001 Plan |            |         | 500,000  |   |           |           |           |   |   |      |      |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     
|Outstanding at December 31, 2001 |                       |            | 952,860 |          |   |           | 1,017,329 |           |   |   | 3.80 |      |  |  |   |     
|                                 | Granted               |            |         | (130,000 | ) |           |           | 130,000   |   |   |      | 2.00 |  |  | $ | 0.95 | 
|                                 | Canceled              |            |         | 65,100   |   |           |           | (65,100   | ) |   |      | 4.46 |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     
|Outstanding at December 31, 2002 |                       |            | 887,960 |          |   |           | 1,082,229 |           |   | $ | 3.55 |      |  |  |   |     
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     

A summary of stock options outstanding at
December 31, 2002 follows:

|            |  |             |           |             |  |                |         |  |  |   |      | 
|----------- |  | ----------- | --------- | ----------- |  | -------------- | ------- |  |  | - | ---- | 
|Remaining   |  |             |           |             |  | Weighted      
|option life |  | Options     |           | Options     |  | average       
|in years    |  | outstanding |           | exercisable |  | exercise price
|            |  |             |           |             |  |               
|1           |  |             | 1,000     |             |  |                | 1,000   |  |  | $ | 6.69 | 
|2           |  |             | 112,729   |             |  |                | 81,529  |  |  |   | 5.17 | 
|3           |  |             | 138,500   |             |  |                | 63,250  |  |  |   | 2.50 | 
|4           |  |             | 75,000    |             |  |                | 43,500  |  |  |   | 2.58 | 
|5 or more   |  |             | 755,000   |             |  |                | 401,667 |  |  |   | 4.07 | 
|            |  |             |           |             |  |                |         |  |  |   |      | 
|            |  |             | 1,082,229 |             |  |                | 590,946 |  |  | $ | 3.95 | 
|            |  |             |           |             |  |                |         |  |  |   |      | 

21



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##### 



At December 31, 2001 and 2000, 348,079 and
228,129 options were exercisable at weighted average exercise
prices of $4.61 and $5.62, respectively.

A summary of shareholder approved and
non-shareholder approved plan information as of
December 31, 2002 follows:

|                              |  |        |           |                |  |            |      |  |  |  |         | 
|----------------------------- |  | ------ | --------- | -------------- |  | ---------- | ---- |  |  |  | ------- | 
|                              |  |        |           | Weighted       |  |           
|                              |  | Shares |           | average        |  | Available 
|                              |  | under  |           | exercise price |  | for future
|                              |  | option |           | per share      |  | grant     
|                              |  |        |           |                |  |           
|Shareholder approved plans    |  |        | 1,042,229 |                |  | $          | 3.59 |  |  |  | 427,960 | 
|Non-shareholder approved plan |  |        | 40,000    |                |  | $          | 2.59 |  |  |  | 460,000 | 
|                              |  |        |           |                |  |            |      |  |  |  |         | 
|                              |  |        | 1,082,229 |                |  |            |      |  |  |  | 887,960 | 
|                              |  |        |           |                |  |            |      |  |  |  |         | 

Under the Bell Industries Employees Stock
Purchase Plan (the ESPP) 750,000 shares were
authorized for issuance to Bell employees. Eligible employees
may purchase Bell stock at 85% of market value through the ESPP
at various offering times during the year. Under the ESPP, the
Company issued 33,737, 61,802, and 42,521 shares during
2002, 2001 and 2000, respectively. The weighted average fair
value per share of the purchase rights granted in 2002, 2001 and
2000 were $.66, $.62 and $.79, respectively. During the third
quarter of 2002, the Company suspended the ESPP. At
December 31, 2002, 419,450 shares were available for future
issuance under the ESPP.

The Black-Scholes model was utilized for
estimating the fair value of stock-based grants using an assumed
volatility of approximately 60% for all years presented and an
expected four year life for stock options, and an assumed
volatility of approximately 60% for all years presented and an
expected four month life for the ESPP. The assumed risk free
interest rate was approximately 4.0% in 2002, 5.0% in 2001 and
6.0% in 2000 for the stock option plans and approximately 2.5%
in 2002, 3.5% in 2001 and 5.5% in 2000 for the ESPP. Stock-based
compensation costs determined under the fair value method would
have increased net loss by $.4 million ($.05 per share) in
2002, increased net loss by $.4 million ($.05 per share) in
2001 and decreased net income by $.5 million ($.05 per
share) in 2000.

Income Taxes

The income tax provision (benefit) charged
(credited) before cumulative effect of accounting change
was as follows (in thousands):

|         |         |      |        |        |   |      |      |      |   |   |       |       |  
|-------- | ------- | ---- | ------ | ------ | - | ---- | ---- | ---- | - | - | ----- | ----- | -
|         |         | 2002 |        | 2001   |   | 2000
|         |         |      |        |        |   |     
|Current  |         |      |        |        |   |      |      |      |   |   |       |      
|         | Federal |      | $      | (2,057 | ) |      | $    | (394 | ) |   | $     | 1,387 |  
|         | State   |      |        | (422   | ) |      |      | (136 | ) |   |       | 416   |  
|Deferred |         |      |        |        |   |      |      |      |   |   |       |      
|         | Federal |      |        | 1,117  |   |      |      | (146 | ) |   |       | (247  | )
|         | State   |      |        | 35     |   |      |      | (4   | ) |   |       | (38   | )
|         |         |      |        |        |   |      |      |      |   |   |       |      
|         |         | $    | (1,327 | )      |   | $    | (680 | )    |   | $ | 1,518 |      
|         |         |      |        |        |   |      |      |      |   |   |       |      

A reconciliation of the federal statutory tax
rate to the effective tax rate follows:

|                                    |  |      |       |      |  |      |       |    |  |  |      |  
|----------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ---- | -
|                                    |  | 2002 |       | 2001 |  | 2000
|                                    |  |      |       |      |  |     
|Federal statutory tax rate          |  |      | (34.0 | )%   |  |      | (34.0 | )% |  |  | 34.0 | %
|State taxes, net of federal benefit |  |      | (4.8  | )    |  |      | (5.2  | )  |  |  | 4.9  |  
|Other, net                          |  |      | (.7   | )    |  |      | (.3   | )  |  |  | .6   |  
|                                    |  |      |       |      |  |      |       |    |  |  |      |  
|Effective tax rate                  |  |      | (39.5 | )%   |  |      | (39.5 | )% |  |  | 39.5 | %
|                                    |  |      |       |      |  |      |       |    |  |  |      |  

22



---



##### 



The provision (benefit) for deferred income
taxes is summarized as follows (in thousands):

|                          |  |      |       |      |  |      |      |   |  |   |      |  
|------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                          |  | 2002 |       | 2001 |  | 2000
|                          |  |      |       |      |  |     
|Receivables allowance     |  | $    | 272   |      |  | $    | (44  | ) |  | $ | (177 | )
|Inventory reserves        |  |      | 9     |      |  |      | 10   |   |  |   | 20   |  
|Employee benefit accruals |  |      | 241   |      |  |      | (130 | ) |  |   | (21  | )
|Depreciation              |  |      | 85    |      |  |      | 3    |   |  |   | 97   |  
|Prepaid items             |  |      | 330   |      |  |      |      |   |  |   |      |  
|Other                     |  |      | 215   |      |  |      | 11   |   |  |   | (204 | )
|                          |  |      |       |      |  |      |      |   |  |   |      |  
|                          |  | $    | 1,152 |      |  | $    | (150 | ) |  | $ | (285 | )
|                          |  |      |       |      |  |      |      |   |  |   |      |  

Deferred tax balances were composed of the
following (in thousands):

|                          |                           |              |       |       |   |   |       |       |  
|------------------------- | ------------------------- | ------------ | ----- | ----- | - | - | ----- | ----- | -
|                          |                           |             
|                          |                           | December 31,
|                          |                           |             
|                          |                           | 2002         |       | 2001 
|                          |                           |              |       |      
|Deferred tax assets:      |                           |              |       |       |   |   |       |      
|                          | Receivables allowance     |              | $     | 223   |   |   | $     | 431   |  
|                          | Inventory reserves        |              |       | 178   |   |   |       | 187   |  
|                          | Employee benefit accruals |              |       | 545   |   |   |       | 984   |  
|                          | Discontinued operations   |              |       | 1,711 |   |   |       | 2,062 |  
|                          | Goodwill                  |              |       | 439   |   |   |       |       |  
|                          |                           |              |       |       |   |   |       |      
|                          |                           |              | 3,096 |       |   |   | 3,664 |      
|Deferred tax liabilities: |                           |              |       |       |   |   |       |      
|                          | Depreciation              |              |       | (197  | ) |   |       | (96   | )
|                          | Prepaid items             |              |       | (330  | ) |   |       |       |  
|                          | Other                     |              |       | (140  | ) |   |       | (230  | )
|                          |                           |              |       |       |   |   |       |      
|Net deferred tax balances |                           | $            | 2,429 |       |   | $ | 3,338 |      
|                          |                           |              |       |       |   |   |       |      

Net current deferred tax assets, included with
prepaid expenses and other, and non-current deferred tax assets,
included with other assets, were as follows (in thousands):

|                                                   |         |              |       |       |  |   |       |       |  
|-------------------------------------------------- | ------- | ------------ | ----- | ----- |  | - | ----- | ----- | -
|                                                   |         |             
|                                                   |         | December 31,
|                                                   |         |             
|                                                   |         | 2002         |       | 2001 
|                                                   |         |              |       |      
|Current deferred income tax benefits (liabilities) |         |              |       |       |  |   |       |      
|                                                   | Federal |              | $     | 1,591 |  |   | $     | 3,128 |  
|                                                   | State   |              |       | 47    |  |   |       | (79   | )
|Noncurrent deferred income tax benefits            |         |              |       |       |  |   |       |      
|                                                   | Federal |              |       | 758   |  |   |       | 277   |  
|                                                   | State   |              |       | 33    |  |   |       | 12    |  
|                                                   |         |              |       |       |  |   |       |      
|                                                   |         | $            | 2,429 |       |  | $ | 3,338 |      
|                                                   |         |              |       |       |  |   |       |      

Employee Benefit and Deferred Compensation
Plans

The Company has a qualified, trusteed, savings
and profit sharing plan for eligible employees. The
Companys matching contributions and discretionary
contributions to the plan, as determined by the Board of
Directors, were $112,000 in 2002, $150,000 in 2001 and $178,000
in 2000.

The Company has deferred compensation plans
available for certain officers and other key employees. Expense
associated with the deferred compensation element of these plans
was $134,000 in 2002, $110,000 in 2001 and $119,000 in 2000.

23



---



##### 



The Company provides postretirement medical
coverage for qualifying employees who were employed prior to
January 1, 1998. The estimated liability for postretirement
medical benefits, included in Deferred Compensation and other
long term liabilities, totaled $1.0 million and
$1.1 million at December 31, 2002 and 2001,
respectively. Annual costs for active and potentially eligible
employees were not significant during any of the years presented.

Commitments and Contingencies

At December 31, 2002, the Company had
operating leases on certain of its facilities and equipment
expiring in various years through 2007. Under certain operating
leases, the Company is required to pay property taxes and
insurance. Rent expense under operating leases was
$2.0 million in 2002, $2.1 million in 2001 and
$1.9 million in 2000.

Minimum annual rentals on operating leases for
the five years subsequent to 2002 are as follows (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2003 |  | $ | 2,311 | 
|2004 |  |   | 1,875 | 
|2005 |  |   | 1,164 | 
|2006 |  |   | 604   | 
|2007 |  |   | 283   | 
|     |  |   |       | 
|     |  | $ | 6,237 | 
|     |  |   |       | 

The Company has outstanding letters of credit
totaling $270,000 at December 31, 2002 which primarily
support inventory purchases. All letters of credit are renewable
annually.

The Company is involved in litigation which is
incidental to its current and discontinued businesses. The
resolution of this litigation is not expected to have a material
adverse effect on the Companys financial position, results
of operations or cash flows.

Shareholder Rights Plan

On February 1, 1999, the Board of Directors
adopted a Shareholder Rights Plan (the Plan) as
amended. Under the Plan, the Board of Directors declared a
dividend of one Preferred Share Purchase Right (the
Right) for each outstanding share of the
Companys common stock.

Generally, the Rights become exercisable in a
specified period of time after any person or group of affiliated
persons becomes a holder of 18% or more of the aggregate
outstanding common stock. Once the Rights become exercisable
they entitle all other shareholders to purchase, by payment of a
$17.25 exercise price, one one-hundredth of a share of
Series A Junior participating Preferred Stock, subject to
adjustment, with a value of twice the exercise price. In
addition, at any time after an 18% position is acquired and
prior to the acquisition of a 50% position, the Board of
Directors may require, in whole or in part, each outstanding
Right (other than Rights held by the acquiring person or group
of affiliated persons) to be exchanged for one share of common
stock or one one-hundredth of a share of Series A Junior
Participating Preferred Stock. The Rights may be redeemed by the
Company at a price of $0.01 per Right at anytime prior to their
expiration on May 31, 2003 unless extended or earlier
redeemed or exchanged.

Business Segment and Related
Information

The Company has three reportable business
segments: Technology Solutions, a provider of technology
lifecycle services; Recreational Products, a distributor of
replacement parts and accessories for recreational and other
leisure-time vehicles; and Electronic Components, a specialty
manufacturer and distributor of standard and custom magnetic
products. Each operating segment offers unique products and
services and has separate management. The accounting policies of
the segments are the same as described in the Summary of
Accounting Policies.

24



---



##### 



Summarized financial information regarding the
Companys reportable segments is shown in the following
table (in thousands):

|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |         |  
|----------------------------- | -------------------------------------------------------------------------------- | ----------------------- | ------- | ------ | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                              |                                                                                  |                        
|                              |                                                                                  | Year ended December 31,
|                              |                                                                                  |                        
|                              |                                                                                  | 2002                    |         | 2001   |   | 2000
|                              |                                                                                  |                         |         |        |   |     
|Net sales                     |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              | Technology Solutions                                                             |                         | $       | 90,568 |   |      | $       | 130,395 |   |   | $       | 188,907 |  
|                              | Recreational Products                                                            |                         |         | 44,639 |   |      |         | 46,044  |   |   |         | 49,799  |  
|                              | Electronic Components                                                            |                         |         | 5,590  |   |      |         | 7,182   |   |   |         | 13,181  |  
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              |                                                                                  | $                       | 140,797 |        |   | $    | 183,621 |         |   | $ | 251,887 |        
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|Operating income (loss)       |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              | Technology Solutions                                                             |                         | $       | (2,204 | ) |      | $       | (938    | ) |   | $       | 10      |  
|                              | Recreational Products                                                            |                         |         | 819    |   |      |         | 954     |   |   |         | 1,666   |  
|                              | Electronic Components                                                            |                         |         | 489    |   |      |         | 1,590   |   |   |         | 3,317   |  
|                              | Special items                                                                    |                         |         |        |   |      |         | (650    | ) |   |         | 2,242   |  
|                              | Corporate costs                                                                  |                         |         | (2,664 | ) |      |         | (3,137  | ) |   |         | (3,652  | )
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              |                                                                                  |                         | (3,560  | )      |   |      | (2,181  | )       |   |   | 3,583   |        
|                              | Interest, net                                                                    |                         |         | 200    |   |      |         | 460     |   |   |         | 254     |  
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              | Income (loss) before income taxes and
    cumulative effect of accounting change |                         | $       | (3,360 | ) |      | $       | (1,721  | ) |   | $       | 3,837   |  
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|Depreciation and amortization |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              | Technology Solutions                                                             |                         | $       | 1,150  |   |      | $       | 1,114   |   |   | $       | 691     |  
|                              | Recreational Products                                                            |                         |         | 190    |   |      |         | 181     |   |   |         | 229     |  
|                              | Electronic Components                                                            |                         |         | 32     |   |      |         | 33      |   |   |         | 34      |  
|                              | Corporate                                                                        |                         |         | 961    |   |      |         | 946     |   |   |         | 639     |  
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              |                                                                                  | $                       | 2,333   |        |   | $    | 2,274   |         |   | $ | 1,593   |        
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|Total assets                  |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              | Technology Solutions                                                             |                         | $       | 10,472 |   |      | $       | 17,281  |   |   | $       | 28,595  |  
|                              | Recreational Products                                                            |                         |         | 15,803 |   |      |         | 16,193  |   |   |         | 16,571  |  
|                              | Electronic Components                                                            |                         |         | 2,410  |   |      |         | 2,916   |   |   |         | 3,940   |  
|                              | Corporate                                                                        |                         |         | 20,705 |   |      |         | 21,262  |   |   |         | 25,320  |  
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              |                                                                                  | $                       | 49,390  |        |   | $    | 57,652  |         |   | $ | 74,426  |        
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|Capital expenditures          |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              | Technology Solutions                                                             |                         | $       | 396    |   |      | $       | 3,172   |   |   | $       | 609     |  
|                              | Recreational Products                                                            |                         |         | 382    |   |      |         | 217     |   |   |         | 115     |  
|                              | Electronic Components                                                            |                         |         | 12     |   |      |         | 5       |   |   |         | 45      |  
|                              | Corporate                                                                        |                         |         | 745    |   |      |         | 951     |   |   |         | 736     |  
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        
|                              |                                                                                  | $                       | 1,535   |        |   | $    | 4,345   |         |   | $ | 1,505   |        
|                              |                                                                                  |                         |         |        |   |      |         |         |   |   |         |        

25



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##### 



QUARTERLY RESULTS OF OPERATIONS

(Unaudited)


(In thousands, except per share
data)


|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |        |  
|-------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------- | ------ | ------- | - | ------- | ------ | ------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                 |                                                                 |              
|                                                                                 |                                                                 | Quarter ended
|                                                                                 |                                                                 |              
|                                                                                 |                                                                 | Mar. 31       |        | Jun. 30 |   | Sep. 30 |        | Dec. 31
|                                                                                 |                                                                 |               |        |         |   |         |        |        
|Year ended December 31, 2002                                                     |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net sales                                                                        |                                                                 | $             | 32,117 |         |   | $       | 41,349 |         |   | $ | 40,441 |        |   | $ | 26,890 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Costs and expenses                                                               |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Cost of sales                                                   |               |        | 26,357  |   |         |        | 33,504  |   |   |        | 33,533 |   |   |        | 21,747 |  
|                                                                                 | Selling and administrative                                      |               |        | 6,744   |   |         |        | 6,570   |   |   |        | 7,103  |   |   |        | 6,466  |  
|                                                                                 | Depreciation and amortization                                   |               |        | 608     |   |         |        | 587     |   |   |        | 564    |   |   |        | 574    |  
|                                                                                 | Interest, net                                                   |               |        | (56     | ) |         |        | (37     | ) |   |        | (71    | ) |   |        | (36    | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               | 33,653 |         |   |         | 40,624 |         |   |   | 41,129 |        |   |   | 28,751 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Income (loss) before income taxes and cumulative
    effect of accounting change |                                                                 |               | (1,536 | )       |   |         | 725    |         |   |   | (688   | )      |   |   | (1,861 | )     
|Income tax provision (benefit)                                                   |                                                                 |               | (606   | )       |   |         | 287    |         |   |   | (272   | )      |   |   | (736   | )     
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Income (loss) before cumulative effect of
    accounting change                  |                                                                 |               | (930   | )       |   |         | 438    |         |   |   | (416   | )      |   |   | (1,125 | )     
|Cumulative effect of accounting change                                           |                                                                 |               | (1,280 | )       |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net income (loss)                                                                |                                                                 | $             | (2,210 | )       |   | $       | 438    |         |   | $ | (416   | )      |   | $ | (1,125 | )     
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Share and Per Share Data                                                         |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|BASIC                                                                            |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Income (loss) before cumulative effect of
    accounting change |               | $      | (.10    | ) |         | $      | .05     |   |   | $      | (.05   | ) |   | $      | (.13   | )
|                                                                                 | Cumulative effect of accounting change                          |               |        | (.14    | ) |         |        |         |   |   |        |        |   |   |        |        |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Net income (loss)                                               |               | $      | (.24    | ) |         | $      | .05     |   |   | $      | (.05   | ) |   | $      | (.13   | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Weighted average common shares                                  |               |        | 8,890   |   |         |        | 8,900   |   |   |        | 8,777  |   |   |        | 8,404  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|DILUTED                                                                          |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Income (loss) before cumulative effect of
    accounting change |               | $      | (.10    | ) |         | $      | .05     |   |   | $      | (.05   | ) |   | $      | (.13   | )
|                                                                                 | Cumulative effect of accounting change                          |               |        | (.14    | ) |         |        |         |   |   |        |        |   |   |        |        |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Net income (loss)                                               |               | $      | (.24    | ) |         | $      | .05     |   |   | $      | (.05   | ) |   | $      | (.13   | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Weighted average common shares                                  |               |        | 8,890   |   |         |        | 8,900   |   |   |        | 8,777  |   |   |        | 8,404  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Year ended December 31, 2001                                                     |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net sales                                                                        |                                                                 | $             | 52,986 |         |   | $       | 52,401 |         |   | $ | 46,212 |        |   | $ | 32,022 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Costs and expenses                                                               |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Cost of sales                                                   |               |        | 44,885  |   |         |        | 43,449  |   |   |        | 37,806 |   |   |        | 26,023 |  
|                                                                                 | Selling and administrative                                      |               |        | 7,638   |   |         |        | 8,086   |   |   |        | 7,677  |   |   |        | 6,469  |  
|                                                                                 | Depreciation and amortization                                   |               |        | 449     |   |         |        | 569     |   |   |        | 595    |   |   |        | 661    |  
|                                                                                 | Interest, net                                                   |               |        | (164    | ) |         |        | (108    | ) |   |        | (108   | ) |   |        | (80    | )
|                                                                                 | Special items, net                                              |               |        |         |   |         |        | 1,495   |   |   |        |        |   |   |        |        |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               | 52,808 |         |   |         | 53,491 |         |   |   | 45,970 |        |   |   | 33,073 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Income (loss) before income taxes                                                |                                                                 |               | 178    |         |   |         | (1,090 | )       |   |   | 242    |        |   |   | (1,051 | )     
|Income tax provision (benefit)                                                   |                                                                 |               | 70     |         |   |         | (431   | )       |   |   | 96     |        |   |   | (415   | )     
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net income (loss)                                                                |                                                                 | $             | 108    |         |   | $       | (659   | )       |   | $ | 146    |        |   | $ | (636   | )     
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Share and Per Share Data                                                         |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|BASIC                                                                            |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Net income (loss)                                               |               | $      | .01     |   |         | $      | (.07    | ) |   | $      | .02    |   |   | $      | (.07   | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Weighted average common shares                                  |               |        | 8,823   |   |         |        | 8,852   |   |   |        | 8,867  |   |   |        | 8,876  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|DILUTED                                                                          |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Net income (loss)                                               |               | $      | .01     |   |         | $      | (.07    | ) |   | $      | .02    |   |   | $      | (.07   | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Weighted average common shares                                  |               |        | 8,879   |   |         |        | 8,852   |   |   |        | 8,867  |   |   |        | 8,876  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       

26



---



##### 



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

(In thousands)


|                                 |                         |            |  |           |       |             |  |           |     |  |  |  |      |   |  |   |       | 
|-------------------------------- | ----------------------- | ---------- |  | --------- | ----- | ----------- |  | --------- | --- |  |  |  | ---- | - |  | - | ----- | 
|                                 |                         |            |  | Additions |       | Deductions  |  |          
|                                 |                         | Balance at |  | charge to |       | accounts    |  | Balance  
|                                 |                         | beginning  |  | costs and |       | charged off |  | at end of
|Description                      |                         | of period  |  | expenses  |       | (recovered) |  | period   
|                                 |                         |            |  |           |       |             |  |          
|Allowance for doubtful accounts: |                         |            |  |           |       |             |  |           |     |  |  |  |      |   |  |  
|                                 | Year ended December 31: |            |  |           |       |             |  |           |     |  |  |  |      |   |  |   |      
|                                 |                         | 2000       |  | $         | 1,112 |             |  |           | 166 |  |  |  | 56   |   |  | $ | 1,222 | 
|                                 |                         | 2001       |  | $         | 1,222 |             |  |           | 168 |  |  |  | (135 | ) |  | $ | 1,525 | 
|                                 |                         | 2002       |  | $         | 1,525 |             |  |           | 63  |  |  |  | 839  |   |  | $ | 749   | 

Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.

PART III

Item 10.     Directors
and Executive Officers of the Registrant

(a) Directors: The information required by
Item 10 with respect to directors will appear in the Proxy
Statement for the 2003 Annual Meeting of Shareholders and is
hereby incorporated by reference.

(b) Executive Officers: The information
required by Item 10 with respect to Executive Officers
appears in Part I of this Annual Report on Form 10-K.

Item 11.     Executive
Compensation

The information required by Item 11 will
appear in the Proxy Statement for the 2003 Annual Meeting of
Shareholders and is hereby incorporated by reference.

Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by Item 12 will
appear under Election of Directors in the Proxy
Statement for the 2003 Annual Meeting of Shareholders and is
hereby incorporated by reference.

Item 13.     Certain
Relationships and Related Transactions

The information required by Item 13 will
appear in the Proxy Statement for the 2003 Annual Meeting of
Shareholders and is hereby incorporated by reference.

Item 14.     Controls
and Procedures

The Companys President and Chief Executive
Officer and the Companys Senior Vice President and Chief
Financial Officer have concluded that the Companys
disclosure controls and procedures are effective, based on their
evaluation of these controls and procedures within 90 days
of the date of this report.

There have been no significant changes in the
Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

27



---



##### 



PART IV



|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedule, and
    Reports on Form 8-K

(a)1.     Financial
Statements:

The Consolidated Financial Statements and Report
of Independent Accountants dated February 7, 2003 are
included under Item 8 of this Annual Report on
Form 10-K.

2.     Financial
Statement Schedule:

The financial statement schedule listed in the
Index to Financial Statements included under Item 8 is
filed as part of this Annual Report on Form 10-K.

3.     Exhibits:

|       |     |               |  |                                                                                                                                                                                                                                                                                                                       
|------ | --- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |     | Exhibit Title
|       |     |              
|       | 2.  |               |  | Agreement and Plan of Merger, dated as of
    November 26, 1996 among Registrant, ME Acquisitions,
    Inc., and Milgray Electronics, Inc. is incorporated by reference
    to Exhibit 2.1 of the Form 8-K dated January 7,
    1997.                                                                                 
|       | 3.  |               |  | The Restated Articles of Incorporation and
    Restated By-laws are incorporated by reference to
    Exhibits 3.1 and 3.2, respectively, to Registrants
    Form 8-B dated March 22, 1995, as amended.                                                                                                               
|       | 4.  | a.            |  | The Specimen of Registrants Common Stock
    certificates is incorporated by reference to Exhibit 5 to
    Amendment number 1 to Registrants Form 8-B filed
    January 15, 1980.                                                                                                                                   
|       |     | b.            |  | Warrant Agreement dated September 15, 1993
    including Form of Warrant Certificate issued to the named
    Insurance Companies included in the Note Purchase Agreement
    dated February 1, 1991, as amended, is incorporated by
    reference to Exhibit 4.e of the Form 10-K dated
    June 30, 1993.            
|       | 10. | a.            |  | The Employment and Deferred Compensation
    Agreements dated January 1, 1979 and the Amendment thereto
    dated August 6, 1979 concerning certain officers of
    Registrant are incorporated by reference to Exhibits 9A, 9C
    and 9D to Amendment number 1 to Registrants
    Form 8-B dated November 19, 1979.
|       |     | b.            |  | The 1990 Stock Option and Incentive Plan is
    incorporated by reference to Exhibit A of Registrants
    definitive Proxy Statement (File No. 1-7899) filed in
    connection with the Annual Meeting of Shareholders held
    October 29, 1990.                                                                    
|       |     | c.            |  | The 1993 Employees Stock Purchase Plan is
    incorporated by reference to Exhibit A of Registrants
    definitive Proxy Statement (File No. 1-7899) filed in
    connection with the Annual Meeting of Shareholders held
    November 2, 1993.                                                                     
|       |     | d.            |  | The 1994 Stock Option Plan is incorporated by
    reference to Exhibit A of the Registrants definitive
    Proxy Statement (File No. 1-7899) filed in connection with
    the Annual Meeting of Shareholders held on November 1, 1994.                                                                               
|       |     | e.            |  | Form of Severance Agreement between the
    Registrant and its executive officers is incorporated by
    reference to Exhibit 10.9 to Registrants
    Form 8-B dated March 22, 1995, as amended.                                                                                                                     
|       |     | f.            |  | Form of Indemnity Agreement between the
    Registrant and its executive officers and directors is
    incorporated by reference to Exhibit 10.10 to
    Registrants Form 8-B dated March 22, 1995, as
    amended.                                                                                                  
|       |     | g.            |  | Non-Employee Directors Stock Option Plan,
    as revised is, incorporated by reference to Exhibit 10.1 to
    Registrants Form 10-K dated December 31, 1995.                                                                                                                                                        
|       |     | h.            |  | Form of Stock Option Agreement between the
    Registrant and Non-employee Directors is incorporated by
    reference to Exhibit 10.m to Registrants
    Form 10-K dated December 31, 1995.                                                                                                                          
|       |     | i.            |  | Amendment to the 1994 Stock Option Plan dated
    August 8, 1997 is incorporated by reference to
    Exhibit 99 to Registrants Form 10-Q dated
    June 30, 1997.                                                                                                                                                    
|       |     | j.            |  | Post-effective Amendment No. 1 to the 1994
    Stock Option Plan dated August 12, 1997 is incorporated by
    reference to Exhibit 4.1.1 to Registrants
    Form S-8 dated August 12, 1997.                                                                                                                          
|       |     | k.            |  | 1997 Deferred Compensation Plan dated
    August 27, 1997 is incorporated by reference to
    Registrants Form S-8 dated August 28, 1997.                                                                                                                                                                            

28



---



##### 



|       |     |               |  |                                                                                                                                                                                                                                                                                     
|------ | --- | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |     | Exhibit Title
|       |     |              
|       |     | l.            |  | The Employment Agreement between the Registrant
    and Tracy A. Edwards, dated February 1, 1999 is
    incorporated by reference to Exhibit 10.s. and 10.t.                                                                                                                        
|       |     | m.            |  | The Rights Agreement, dated February 1,
    1999, by and between Bell Industries, Inc. and Harris Trust
    Company of California, as Rights Agent, is incorporated by
    reference to Exhibit 1 to the Registrants
    Form 8-A12B, dated February 25, 1999.                     
|       |     | n.            |  | The Asset Purchase Agreement dated
    August 28, 1998 between Bell Industries, Inc. and
    PrimeSource Corporation is incorporated by reference to
    Exhibit 2.1 of the Registrants Form 8-K, event
    date September 14, 1998.                                               
|       |     | o.            |  | The Agreement of Purchase and Sale dated
    October 1, 1998 between Bell Industries, Inc. and Arrow
    Electronics, Inc. is incorporated by reference to
    Exhibit 2.1 of the Registrants Form 8-K, event
    date October 1, 1998.                                            
|       |     | p.            |  | Credit Agreement dated as of April 14, 1999
    between the Registrant and Union Bank of California, N.A. is
    incorporated by reference to Exhibit 10.x of the
    Registrants Annual Report on Form 10-K dated
    December 31, 2000.                                          
|       |     | q.            |  | First Amendment to Credit Agreement dated as of
    April 26, 2000 between the Registrant and Union Bank of
    California, N.A. is incorporated by reference to
    Exhibit 10.y of the Registrants. Annual Report on
    Form 10-K dated December 31, 2000.                      
|       |     | r.            |  | Agreement for Wholesale Financing dated as of
    May 11, 2001 between the Registrant and Deutsche Financial
    Services Corporation is incorporated by reference to
    Exhibit 10.1 of the Registrants Quarterly Report on
    Form 10-Q dated June 30, 2001.                   
|       |     | s.            |  | Agreement for Wholesale Financing dated as of
    June 27, 2001 between the Registrant and IBM Credit
    Corporation is incorporated by reference to Exhibit 10.2 of
    the Registrants Quarterly Report on Form 10-Q dated
    June 30, 2001.                                   
|       |     | t.            |  | First Amendment to Rights Agreement, dated
    May 30, 2001, by and between the Registrant, Harris Trust
    Company of California and Computershare Investor Services, LLC
    is incorporated by reference to Exhibit 1 to the
    Registrants Form 8-A12(b), dated May 30, 2001.
|       |     | u.            |  | Second Amendment to Rights Agreement, dated
    May 30, 2001, by and between the Registrant and
    Computershare Investor Services, LLC, as Rights Agent, is
    incorporated by reference to Exhibit 1 to the
    Registrants Form 8-A12(b), dated May 30, 2001.                 
|       |     | v.            |  | The Bell Industries, Inc. 2001 Stock Option Plan
    is incorporated by reference to Exhibit 99. of the
    Registrants Quarterly Report on Form 10-Q dated
    September 30, 2001.                                                                                                
|       |     | w.            |  | Second Amendment to Credit Agreement dated as of
    March 27, 2002 between the Registrant and Union Bank of
    California, N.A. is incorporated by reference to
    Exhibit 10.w of the Registrants Annual Report on
    Form 10-K dated December 31, 2001.                      
|       | 21. |               |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                     
|       | 23. |               |  | Consent of Independent Accountants.                                                                                                                                                                                                                                                 
|       | 99. | 1             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                     
|       | 99. | 2             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                     

(b) Reports on Form 8-K:

a) None.

29



---



##### 



SIGNATURES

Pursuant to the requirement 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.



| |                      
| | ---------------------
| | BELL INDUSTRIES, INC.



| |    |                     
| | -- | --------------------
| | By | /s/ TRACY A. EDWARDS

| |                                          
| | -----------------------------------------
| |                                          
| | Tracy A. Edwards                         
| | President and Chief Executive
    Officer

Date: March 28, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below on
March 28, 2003 by the following persons on behalf of the
Registrant and in the capacities indicated.

|                                     |  |                                                                     
|------------------------------------ |  | --------------------------------------------------------------------
|Signature                            |  | Title                                                               
|                                     |  |                                                                     
|/s/ TRACY A. EDWARDSTracy A. Edwards |  | President and Chief Executive Officer, Director                     
|                                    
|/s/ RUSSELL A. DOLLRussell A. Doll   |  | Senior Vice President and Chief Financial
    and Accounting Officer
|                                    
|/s/ JOHN J. COSTJohn J. Cost         |  | Director and Secretary                                              
|                                    
|/s/ L. JAMES LAWSONL. James Lawson   |  | Director                                                            
|                                    
|/s/ MICHAEL R. PARKSMichael R. Parks |  | Director                                                            
|                                    
|/s/ MARK E. SCHWARZMark E. Schwarz   |  | Director                                                            

30



---



##### 



CERTIFICATIONS

I, Tracy A. Edwards, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Bell Industries, Inc.                                                                                                                                                                                                                                                                
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                        



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                                          
| | -----------------------------------------
| | /s/ TRACY A. EDWARDS                     
|
| | Tracy A. Edwards                         
| | President and Chief Executive
    Officer

March 28, 2003

31



---



##### 



I, Russell A. Doll, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Bell Industries, Inc.                                                                                                                                                                                                                                                                
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                        



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                                                      
| | -----------------------------------------------------
| | /s/ RUSSELL A. DOLL                                  
|
| | Russell A. Doll                                      
| | Senior Vice President and Chief Financial
    Officer

March 28, 2003

32



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##### 



EXHIBIT INDEX

|        |     |             |  |                                                                                                                                                                                                                                                                     
|------- | --- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 2.  |             |  | Agreement and Plan of Merger dated as of
    November 26, 1996 among Registrant, ME Acquisition, Inc.
    and Milgray Electronics, Inc.(*)                                                                                                                          
|        | 3.  |             |  | Articles of incorporation and by-laws(*)                                                                                                                                                                                                                            
|        | 4.  |             |  | Instruments defining the rights of security
    holders, including indentures                                                                                                                                                                                       
|        |     | a.          |  | Specimen of Registrants Common Stock
    certificate(*)                                                                                                                                                                                                            
|        |     | b.          |  | Warrant Agreement dated September 15, 1993
    including Form of Warrant Certificate issued to the named
    Insurance Companies included in the Note Purchase Agreement
    dated February 1, 1991, as amended(*)                                                  
|        | 10. |             |  | Material contracts                                                                                                                                                                                                                                                  
|        |     | a.          |  | The Employment and Deferred Compensation
    Agreements dated January 1, 1979 and the Amendment thereto
    dated August 6, 1979 concerning certain officers of
    Registrant(*)                                                                                   
|        |     | b.          |  | The 1990 Stock Option and Incentive Plan included
    as Exhibit A to Registrants definitive Proxy
    Statement (File No. 1-7899) filed in connection with the
    Annual Meeting of Shareholders held October 29, 1990(*)                                        
|        |     | c.          |  | The 1993 Employees Stock Purchase Plan
    included as Exhibit A to Registrants definitive Proxy
    Statement (File No. 1-7899) filed in connection with the
    Annual Meeting of Shareholders held November 2, 1993(*)                                         
|        |     | d.          |  | The 1994 Stock Option Plan included as Exhibit A
    of the Registrants definitive Proxy Statement (File
    No. 1-7899) filed in connection with the Annual Meeting of
    Shareholders held on November 1, 1994(*)                                               
|        |     | e.          |  | Form of Severance Compensation Agreement between
    the Registrant and its executive officers(*)                                                                                                                                                                   
|        |     | f.          |  | Form of Indemnity Agreement between the
    Registrant and its executive officers and directors(*)                                                                                                                                                                  
|        |     | g.          |  | Non-Employee Directors Stock Option Plan,
    as revised(*)                                                                                                                                                                                                        
|        |     | h.          |  | Form of Stock Option Agreement between the
    Registrant and Non-employee Directors(*)                                                                                                                                                                             
|        |     | i.          |  | Amendment to the 1994 Stock Option Plan dated
    August 8, 1997(*)                                                                                                                                                                                                 
|        |     | j.          |  | Post-effective Amendment No. 1 to the 1994
    Stock Option Plan dated August 12, 1997(*)                                                                                                                                                                           
|        |     | k.          |  | 1997 Deferred Compensation Plan dated
    August 27, 1997(*)                                                                                                                                                                                                        
|        |     | l.          |  | Employment Agreement between the Registrant and
    Tracy A. Edwards, dated February 1, 1999(*)                                                                                                                                                                     
|        |     | m.          |  | The Rights Agreement, dated February 1,
    1999, by and between Bell Industries, Inc. and Harris Trust
    Company of California, as Rights Agent(*)                                                                                                               
|        |     | n.          |  | Asset Purchase Agreement dated August 28,
    1998 between Bell Industries, Inc. and PrimeSource Corporation(*)                                                                                                                                                     
|        |     | o.          |  | The Agreement of Purchase and Sale dated
    October 1, 1998 between Bell Industries, Inc. and Arrow
    Electronics, Inc.(*)                                                                                                                                       
|        |     | p.          |  | Credit Agreement dated as of April 14, 1999
    between the Registrant and Union Bank of California, N.A. is
    incorporated by References to Exhibit 10.x of the
    Registrants Annual Report on Form 10-K dated
    December 31, 2000.(*)                     
|        |     | q.          |  | First Amendment to Credit Agreement dated as of
    April 26, 2000 between the Registrant and Union Bank of
    California, N.A. is incorporated by reference to Exhibit 10.y of
    the Registrants Annual Report on Form 10-K dated
    December 31, 2000.(*)    
|        |     | r.          |  | Agreement for Wholesale Financing dated as of
    May 11, 2001 between the Registrant and Deutsche Financial
    Services Corporation is incorporated by reference to
    Exhibit 10.1 of the Registrants Quarterly Report on
    Form 10-Q dated June 30, 2001.(*)
|        |     | s.          |  | Agreement for Wholesale Financing dated as of
    June 27, 2001 between the Registrant and IBM Credit
    Corporation is incorporated by reference to Exhibit 10.2 of
    the Registrants Quarterly Report on Form 10-Q dated
    June 30, 2001.(*)                

33



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##### 



|        |     |             |  |                                                                                                                                                                                                                                                                                        
|------- | --- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        |     | t.          |  | First Amendment to Rights Agreement, dated
    May 30, 2001, by and between the Registrant, Harris Trust
    Company of California and Computershare Investor Services, LLC
    is incorporated by reference to Exhibit 1 to the
    Registrants Form 8-A12(b), dated May 30, 2001.(*)
|        |     | u.          |  | Second Amendment to Rights Agreement, dated
    May 30, 2001, by and between the Registrant and
    Computershare Investor Services, LLC, as Rights Agent, is
    incorporated by reference to Exhibit 1 to the
    Registrants Form 8-A12(b), dated May 30, 2001.(*)                 
|        |     | v.          |  | The Bell Industries, Inc. 2001 Stock Option Plan
    is incorporated by reference to Exhibit 99. of the
    Registrants Quarterly Report on Form 10-Q dated
    September 30, 2001.(*)                                                                                                
|        |     | w.          |  | Second Amendment to Credit Agreement dated as of
    March 27, 2002 between the Registrant and Union Bank of
    California, N.A. is incorporated by reference to
    Exhibit 10.w of the Registrants Annual Report on
    Form 10-K dated December 31, 2001.(*)                      
|        | 21. |             |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                         
|        | 23. |             |  | Consent of Independent Accountants                                                                                                                                                                                                                                                     
|        | 99. | 1           |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                        
|        | 99. | 2           |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                        



---



|    |                           
|--- | --------------------------
|(*) | Incorporated by reference.

34