##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K



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|  |  |                                                                                       
|- |  | --------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the year ended December 31,
	2001                                                 

Commission file number 1-11471

Bell Industries, Inc.


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

Registrants telephone number, including
area code: (310) 563-2355



---

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

As of March 15, 2002, the aggregate market
value of the voting stock held by non-affiliates of the
Registrant was: $18,901,873.

As of March 15, 2002, the number of shares
outstanding of the Registrants class of common stock was:
8,889,708.

DOCUMENT INCORPORATED BY REFERENCE

None.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|              | Item 6. Selected Financial Data                                                              
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7a. Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                          
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                  
|              | Item 11. Executive Compensation                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13. Certain Relationships and Related Transactions                                      
|PART IV      
|              | Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 10.W 
|EXHIBIT 21   
|EXHIBIT 23   



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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

Bell Industries, Inc.s (Bell or
the Company) operations include computer systems
integration; distribution of aftermarket products for
recreational vehicles, motorcycles, snowmobiles and powerboats;
and specialty electronics manufacturing. Bell employed
approximately 600 people at December 31, 2001.



| |                    
| | -------------------
| | Systems Integration

The systems integration business, the Tech.logix
Group (BTL or Systems Integration),
(2001 sales of $130.4 million) is a provider of integrated
technology solutions for middle market organizations in the
Midwestern and Eastern United States. BTL is headquartered in
Indiana and has offices and service facilities in the Midwest
and Atlantic regions.

BTLs services focus on the design and
management of wide scale technology infrastructure solutions.
Core service areas include strategic sourcing, product services,
technical support, technology integration, and project
management. BTL meets clients needs by combining a
comprehensive offering of value-added services with its
expertise in sourcing and distributing microcomputers, network
products, computer peripherals, and software.

BTLs suppliers include: Compaq, IBM,
Hewlett-Packard and Sun Microsystems for personal computers and
servers; Microsoft, Symantec, Lotus, Adobe Systems and Novell
for software; and Cisco, Citrix, 3Com, Nortel Networks, and
Veritas for network-related products. BTL has over 2,000
clients, with three clients (all Fortune 500 companies)
accounting for approximately 30% of 2001 BTL revenues.

Although there are no dominant competitors in
BTLs market due to fragmentation of the industry, BTL
competes with companies such as CompuCom Systems, Pomeroy
Computer Resources, and Sarcom, as well as a number of smaller
regional firms in specialized services. Some of the larger
competitors may have greater financial and marketing resources
than BTL.



| |                      
| | ---------------------
| | Recreational Products

The Recreational Products Group (RPG)
(2001 sales of $46.0 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 dealers and
retail stores selling recreational vehicles, snowmobiles,
motorcycles, ATVs, marine products and apparel. RPG also
sells to independent repair facilities. For all product groups,
RPG operates distribution and administration facilities in
Germantown, Wisconsin; St. Paul, Minnesota; 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, 7,000 snowmobile items, and
1,000 apparel products. 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), Fieldsheer Corporation
(clothing apparel for cycling), and Johnson Fishing, Inc.
(marine motors). RPG has over 4,800 customers, none of which
accounts 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, marine
products, and apparel products.



| |                          
| | -------------------------
| | Electronics Manufacturing

The J. W. Miller Division (JWM) of
Bell Industries, located in Gardena, California (2001 sales of
$7.2 million), manufactures and distributes over 5,000
different radio frequency (RF) standard and surface
mount magnetic products. JWMs RF magnetic products include
inductors, coils, and chokes, among others.

1



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##### Table of Contents



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 47% of its total sales. The majority of JWMs
sales are derived from customers located in North America.



| |                
| | ---------------
| | Sold Businesses



| |                              
| | -----------------------------
| | Precision Metalcraft Division

In July 1999, Bell completed the sale of its
Precision Metalcraft Division (PMD) to a
privately-held company. During 1999, PMD had sales of $6.1
million. PMD, located in Mountain View, California, manufactured
high quality, precision metal stamped parts. Its products were
sold to original equipment manufacturers and contract
manufacturers in a variety of industries including electronic
components, computers and related peripheral equipment.



| |                         
| | ------------------------
| | Electronics Distribution

In January 1999, Bell completed the sale of its
Electronics Distribution Group (EDG) to Arrow
Electronics, Inc. Under Bells ownership, EDG sold
electronic components to approximately 10,000 customers in North
America, including: semiconductors, passive components,
connectors, and board-level products. EDG also provided various
value-added services. EDG was based in El Segundo, California
and marketed electronic components from more than 30 sales
facilities located throughout the United States and Canada to a
broad base of customers and markets.






|        |           
|------- | ----------
|Item 2. | Properties

At December 31, 2001, the Company leased 18
facilities, containing approximately 353,000 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
|                          |  |                       |        |       
|Systems Integration       |  |                       |        |        |  |  | 138,000 | (13)
|Recreational Products     |  |                       |        |        |  |  | 212,000 | (4) 
|Electronics Manufacturing |  |                       | 20,000 | (1)    |  |  |         |     
|Corporate                 |  |                       |        |        |  |  | 3,000   | (1) 
|                          |  |                       |        |        |  |  |         |     
|                          |  |                       | 20,000 | (1)    |  |  | 353,000 | (18)
|                          |  |                       |        |        |  |  |         |     

Management believes that these properties are in
good condition and suitable for their present use. Generally,
the Companys facilities are fully utilized.






|        |                  
|------- | -----------------
|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
effect on the Companys financial position.

2



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##### Table of Contents








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

No matters were submitted during the fourth
quarter of 2001.



| |                                      
| | -------------------------------------
| | Executive Officers of the
	Registrant

The Executive Officers of the Registrant are as
follows:

|                  |  |     |    |          |  |                                                        |  |  |      | 
|----------------- |  | --- | -- | -------- |  | ------------------------------------------------------ |  |  | ---- | 
|                  |  |     |    |          |  | Year First                                            
|Name              |  | Age |    | Position |  | Named Officer                                         
|                  |  |     |    |          |  |                                                       
|Tracy A. Edwards  |  |     | 45 |          |  | President and Chief Executive Officer (1)              |  |  | 1991 | 
|Russell A. Doll   |  |     | 40 |          |  | Senior Vice President and Chief Financial Officer
	(2) |  |  | 1998 | 
|Charles S. Troy   |  |     | 58 |          |  | Vice President (3)                                     |  |  | 1997 | 
|Mitchell I. Rosen |  |     | 37 |          |  | Vice President and Corporate Controller (4)            |  |  | 2001 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 former subsidiary
	of Ford Motor 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 was appointed Vice President and
	Corporate Controller in May 2001. He was employed in a similar
	capacity with the Company from December 2000 to May 2001. 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) was
previously listed on the New York and Pacific Stock Exchanges.
Effective March 13, 2000, Bells shares began trading
on the American Stock Exchange (AMEX) and ceased trading on
the New York 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
|                             |       |              
|                             |       | March 31      |   | June 30 |  | September 30 |   | December 31
|                             |       |               |   |         |  |              |   |            
|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 | 
|Year ended December 31, 2000 |       |               |   |         |  |              |   |             |  |  |   |      |  |  |   |     
|                             | High  |               | $ | 7.75    |  |              | $ | 3.38        |  |  | $ | 2.69 |  |  | $ | 3.56 | 
|                             | Low   |               |   | 3.19    |  |              |   | 2.44        |  |  |   | 2.00 |  |  |   | 1.50 | 
|                             | Close |               |   | 3.19    |  |              |   | 2.63        |  |  |   | 2.31 |  |  |   | 2.50 | 

Approximate number of record holders of common
stock as of March 15, 2002: 1,150.

3



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                                         |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------ |  | --------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                         |  |                                              
|                                                                         |  | Year Ended December 31,                      
|                                                                         |  |                                              
|                                                                         |  | 2001                                          |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                                         |  |                                               |         |      |  |      |         |      |  |     
|                                                                         |  |                                              
|                                                                         |  | (Dollars in thousands, except per share data)
|Operating Results                                                        |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net sales                                                                |  | $                                             | 183,621 |      |  | $    | 251,887 |      |  | $    | 240,420 |   |  | $ | 212,468 |   |  | $ | 194,641 |  
|Income (loss) from continuing operations,
	before extraordinary loss (1) |  | $                                             | (1,041  | )    |  | $    | 2,319   |      |  | $    | 5,488   |   |  | $ | (13,189 | ) |  | $ | (6,135  | )
|Income from discontinued operations                                      |  |                                               |         |      |  |      |         |      |  |      |         |   |  | $ | 7,275   |   |  | $ | 16,216  |  
|Reserve recovery (loss) on sale of
	discontinued operations              |  |                                               |         |      |  |      |         |      |  | $    | 1,379   |   |  | $ | (56,849 | ) |  |   |         |  
|Net income (loss) (2)                                                    |  | $                                             | (1,041  | )    |  | $    | 2,319   |      |  | $    | 6,867   |   |  | $ | (62,763 | ) |  | $ | 9,406   |  
|Financial Position                                                       |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Working capital                                                          |  | $                                             | 21,314  |      |  | $    | 24,678  |      |  | $    | 25,486  |   |  | $ | 84,957  |   |  | $ | 208,012 |  
|Total assets                                                             |  | $                                             | 56,906  |      |  | $    | 74,426  |      |  | $    | 75,951  |   |  | $ | 270,759 |   |  | $ | 431,233 |  
|Long-term liabilities                                                    |  | $                                             | 2,810   |      |  | $    | 3,411   |      |  | $    | 4,051   |   |  | $ | 8,319   |   |  | $ | 178,825 |  
|Shareholders equity                                                     |  | $                                             | 29,678  |      |  | $    | 30,482  |      |  | $    | 30,796  |   |  | $ | 90,455  |   |  | $ | 151,352 |  
|Share and Per Share Data (3)                                             |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|BASIC                                                                    |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations,
	before extraordinary loss (1) |  | $                                             | (.12    | )    |  | $    | .26     |      |  | $    | .57     |   |  | $ | (1.40   | ) |  | $ | (.67    | )
|Income from discontinued operations                                      |  |                                               |         |      |  |      |         |      |  |      |         |   |  | $ | .77     |   |  | $ | 1.77    |  
|Reserve recovery (loss) on sale of
	discontinued operations              |  |                                               |         |      |  |      |         |      |  | $    | .15     |   |  | $ | (6.04   | ) |  |   |         |  
|Net income (loss) (2)                                                    |  | $                                             | (.12    | )    |  | $    | .26     |      |  | $    | .72     |   |  | $ | (6.67   | ) |  | $ | 1.03    |  
|Weighted average common shares (000s)                                   |  |                                               | 8,854   |      |  |      | 8,999   |      |  |      | 9,595   |   |  |   | 9,411   |   |  |   | 9,157   |  
|DILUTED                                                                  |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations,
	before extraordinary loss (1) |  | $                                             | (.12    | )    |  | $    | .26     |      |  | $    | .57     |   |  | $ | (1.40   | ) |  | $ | (.67    | )
|Income from discontinued operations                                      |  |                                               |         |      |  |      |         |      |  |      |         |   |  | $ | .77     |   |  | $ | 1.77    |  
|Reserve recovery (loss) on sale of
	discontinued operations              |  |                                               |         |      |  |      |         |      |  | $    | .14     |   |  | $ | (6.04   | ) |  |   |         |  
|Net income (loss) (2)                                                    |  | $                                             | (.12    | )    |  | $    | .26     |      |  | $    | .71     |   |  | $ | (6.67   | ) |  | $ | 1.03    |  
|Weighted average common shares (000s)                                   |  |                                               | 8,854   |      |  |      | 9,025   |      |  |      | 9,646   |   |  |   | 9,411   |   |  |   | 9,157   |  
|OTHER PER SHARE DATA (4)                                                 |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Shareholders equity                                                     |  | $                                             | 3.34    |      |  | $    | 3.47    |      |  | $    | 3.20    |   |  | $ | 9.49    |   |  | $ | 16.23   |  
|Market price  high                                                      |  | $                                             | 3.40    |      |  | $    | 7.75    |      |  | $    | 11.69   |   |  | $ | 14.25   |   |  | $ | 20.00   |  
|Market price  low                                                       |  | $                                             | 1.65    |      |  | $    | 1.50    |      |  | $    | 4.38    |   |  | $ | 9.00    |   |  | $ | 12.00   |  
|Financial Ratios                                                         |  |                                               |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Current ratio                                                            |  |                                               | 1.9     |      |  |      | 1.6     |      |  |      | 1.6     |   |  |   | 1.5     |   |  |   | 3.1     |  
|Long-term liabilities to total capitalization                            |  |                                               | 8.6     | %    |  |      | 10.1    | %    |  |      | 11.6    | % |  |   | 8.4     | % |  |   | 54.2    | %



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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) | Includes loss on early retirement of debt ($675
	or $.07 per share) in 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(3) | Share and per share data have been adjusted to
	give effect to a 20% stock dividend declared in May 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(4) | Other per share data prior to the 1999 cash
	distribution dates does not 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 tangible and
intangible 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. The Company receives volume
incentives from certain vendors related to sales activity of
certain products that are recognized when deemed earned.



| |                         
| | ------------------------
| | 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.

5



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##### Table of Contents



RESULTS OF OPERATIONS

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

|                                         |                           |                         |         |         |   |      |         |         |   |   |         |         |  
|---------------------------------------- | ------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                         |                           |                        
|                                         |                           | Year Ended December 31,
|                                         |                           |                        
|                                         |                           | 2001                    |         | 2000    |   | 1999
|                                         |                           |                         |         |         |   |     
|Net sales                                |                           |                         |         |         |   |      |         |         |   |   |         |        
|                                         | Systems Integration       |                         | $       | 130,395 |   |      | $       | 188,907 |   |   | $       | 177,530 |  
|                                         | Recreational Products     |                         |         | 46,044  |   |      |         | 49,799  |   |   |         | 48,985  |  
|                                         | Electronics Manufacturing |                         |         | 7,182   |   |      |         | 13,181  |   |   |         | 13,905  |  
|                                         |                           |                         |         |         |   |      |         |         |   |   |         |        
|                                         |                           | $                       | 183,621 |         |   | $    | 251,887 |         |   | $ | 240,420 |        
|                                         |                           |                         |         |         |   |      |         |         |   |   |         |        
|Operating income (loss)                  |                           |                         |         |         |   |      |         |         |   |   |         |        
|                                         | Systems Integration       |                         | $       | (938    | ) |      | $       | 10      |   |   | $       | 5,726   |  
|                                         | Recreational Products     |                         |         | 954     |   |      |         | 1,666   |   |   |         | 3,029   |  
|                                         | Electronics Manufacturing |                         |         | 1,590   |   |      |         | 3,317   |   |   |         | 1,765   |  
|                                         | Special items             |                         |         | (650    | ) |      |         | 2,242   |   |   |         | 1,497   |  
|                                         | Corporate costs           |                         |         | (3,137  | ) |      |         | (3,652  | ) |   |         | (3,081  | )
|                                         |                           |                         |         |         |   |      |         |         |   |   |         |        
|                                         |                           |                         | (2,181  | )       |   |      | 3,583   |         |   |   | 8,936   |        
|Interest, net                            |                           |                         | 460     |         |   |      | 254     |         |   |   | 139     |        
|Income tax benefit (provision)           |                           |                         | 680     |         |   |      | (1,518  | )       |   |   | (3,587  | )      
|                                         |                           |                         |         |         |   |      |         |         |   |   |         |        
|Income (loss) from continuing operations |                           | $                       | (1,041  | )       |   | $    | 2,319   |         |   | $ | 5,488   |        
|                                         |                           |                         |         |         |   |      |         |         |   |   |         |        

A summary of comparative operating results data
follows:

|                                                              |  |  |       |    |  |  |       |   |  |  |       |  
|------------------------------------------------------------- |  |  | ----- | -- |  |  | ----- | - |  |  | ----- | -
|Net sales                                                     |  |  | 100.0 | %  |  |  | 100.0 | % |  |  | 100.0 | %
|Cost of sales                                                 |  |  | (82.9 | )  |  |  | (85.3 | ) |  |  | (82.8 | )
|Selling and administrative                                    |  |  | (16.3 | )  |  |  | (12.9 | ) |  |  | (13.3 | )
|Depreciation and amortization                                 |  |  | (1.2  | )  |  |  | (.6   | ) |  |  | (.6   | )
|Special items                                                 |  |  | (.8   | )  |  |  | .2    |   |  |  | .4    |  
|Interest, net                                                 |  |  | .3    |    |  |  | .1    |   |  |  | .1    |  
|                                                              |  |  |       |    |  |  |       |   |  |  |       |  
|Income (loss) from continuing operations
	before income taxes |  |  | (.9   | )% |  |  | 1.5   | % |  |  | 3.8   | %
|                                                              |  |  |       |    |  |  |       |   |  |  |       |  



| |                        
| | -----------------------
| | 2001 Compared with 2000

Net sales for 2001 decreased 27% to
$183.6 million from $251.9 million. The operating loss
for 2001 was $2.2 million compared to operating income of
$3.6 million in 2000. Operating results for 2001 include
pre-tax charges totaling $1.5 million composed of $845,000
of costs related to the strategic repositioning of the
Companys Systems Integration Midwest 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. The $845,000 repositioning charge
has been included in the operating results of Systems
Integration. 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.

Systems Integration sales decreased 31% to
$130.4 million in 2001 from $188.9 million in 2000.
Excluding the $845,000 repositioning charge that was allocated
to this business unit, operating loss was $93,000 in 2001
compared to $1.8 million in operating income, excluding
$1.8 million realignment charge allocated to this business
unit in 2000. Including the charges, operating loss was $938,000
in 2001 compared to operating income of $10,000 in 2000. The
decrease in sales for 2001 is primarily attributable to the
challenging economic conditions in the technology sector, which
has resulted in businesses curtailing and delaying

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IT-related expenditures. The decrease in sales
also reflects the trend by personal computer manufacturers
toward the direct and agency models in serving the marketplace.
Manufacturers are directly targeting certain enterprise
customers traditionally served by the Systems Integration
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 Systems
Integration purchased products from manufacturers and resold to
its customers.


Recreational Products sales decreased 8% to
$46.0 million in 2001 from $49.8 million in 2000 and
operating income decreased 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.

Electronics Manufacturing sales decreased 46% to
$7.2 million in 2001 from $13.2 million in 2000 and
operating income decreased 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.

As a percentage of sales, cost of sales for 2001
decreased to 82.9% from 85.3% in 2000. The decrease is primarily
attributable to the change to the agency model on Systems
Integration transactions for which no cost of sales is
recognized, partially offset by lower overall margins on
Recreational Products sales resulting from the aggressive price
reductions on certain products. Selling and administrative
expenses as a percentage of sales increased to 16.3% in 2001
from 12.9% in 2000 due to the overall reduction in sales in 2001
compared to 2000 and the existence of certain fixed costs. The
Companys effective tax rate was 39.5% in both years.



| |                        
| | -----------------------
| | 2000 Compared with 1999

Net sales for 2000 increased 5% to
$251.9 million from $240.4 million in 1999. Operating
income decreased to $3.6 million from $8.9 million in
1999. Operating results for 2000 include pre-tax charges
totaling $2.4 million consisting of $1.8 million of
costs associated with the realignment of the Companys
Midwest operations of its Systems Integration business and
$600,000 for costs, included with special items, associated with
a corporate identity program. The Midwest realignment charge
included separation costs, asset write-downs and other exit
costs related to the consolidation of facilities, logistics, and
sales and service operations. The $1.8 million realignment
charge has been included in the results of Systems Integration.
Additionally, the 2000 operating results include $880,000 of
costs associated with the Companys strategic planning and
realignment initiatives, included with corporate costs, and a
pre-tax gain of $2.8 million, included with special items,
from the disposition of a real estate asset related to a
previously disposed business. The 1999 results include a pre-tax
gain of $1.5 million from the disposition of real estate
assets and a pre-tax loss of $455,000 on the disposition of an
electronics manufacturing business.

Systems Integration sales increased 6% to
$188.9 million in 2000 from $177.5 million in 1999.
Excluding the $1.8 million realignment charge that was
allocated to this business unit, operating income was
$1.8 million in 2000 compared to $5.7 million in 1999.
Including the charge, System Integration recorded operating
income of $10,000. The increase in sales during 2000 is
primarily attributable to major deployment projects with a large
customer during the fourth quarter. The operating results for
2000 were impacted by general economic weakness in the
technology sector, as well as continued downward pressure on
product margins.

Recreational Products sales increased slightly to
$49.8 million in 2000 from $49.0 million in 1999 while
operating income decreased to $1.7 million from
$3.0 million. Product mix, continued margin pressures,
generally higher selling and administrative expenses, and
increased operating costs, primarily fuel and related delivery
costs, impacted the 2000 results. Additionally, the 2000 results
were adversely affected by warmer weather conditions that
resulted in a reduction in snow related products shipments.

Excluding $6.1 million in sales from a
business sold in July 1999, Electronics Manufacturing sales
increased 69% to $13.2 million in 2000 from
$7.8 million in 1999. Operating income increased to
$3.3 million in 2000 from $1.8 million in 1999. The
1999 results include operating income of $485,000 from the sold

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##### Table of Contents



business and a $455,000 loss from the sale. The
remaining electronics manufacturing business was favorably
impacted by generally strong demand for magnetic and related
electronic components throughout 2000.


As a percentage of sales, cost of products sold
for 2000 increased to 85.3% from 82.8% in 1999. The increase in
cost of products sold as a percentage of sales reflects the
continued downward pressure on gross profit margins from product
sales at System Integration and Recreational Products. Selling
and administrative expenses as a percentage of sales decreased
to 12.9% in 2000 from 13.3% in 1999 due to a full year of
reduced corporate structure costs partially offset by costs
associated with the Companys strategic planning and
realignment initiatives. The Companys effective tax rate
was 39.5% in both years.

FINANCIAL CONDITION

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

|                                              |  |              |        |      |  |   |        |  
|--------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                              |  |             
|                                              |  | December 31,
|                                              |  |             
|                                              |  | 2001         |        | 2000
|                                              |  |              |        |     
|Cash and cash equivalents                     |  | $            | 10,418 |      |  | $ | 14,433 |  
|Working capital                               |  | $            | 21,314 |      |  | $ | 24,678 |  
|Current ratio                                 |  |              | 1.9:1  |      |  |   | 1.6:1  |  
|Long-term liabilities to total capitalization |  |              | 8.6    | %    |  |   | 10.1   | %
|Shareholders equity per share                |  | $            | 3.34   |      |  | $ | 3.47   |  
|Days sales in receivables                    |  |              | 51     |      |  |   | 54     |  
|Days sales in inventories                    |  |              | 32     |      |  |   | 26     |  

Net cash provided by operating activities was
$597,000 in 2001 compared with $7.0 million in 2000. The
cash flow from operating activities in 2001 reflects cash
collected for 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 in light of the reduced sales levels. Cash
used in investing activities during 2001, totaling
$4.8 million, included expenditures for a new technology
center in the Midwest, a client dedicated technology support
center in the Atlantic region, expenditures on information
technology, and the purchase of a business.

The cash flow from operating activities in 2000
is attributable to reduced inventory and accounts receivable.
Favorable collection results during the fourth quarter of 2000
contributed to the Companys strong cash position as of
December 31, 2000. Cash flows from investing activities
during 2000 included approximately $3.0 million from the
sale of a real estate asset. Approximately $2.9 million in
cash was also utilized to purchase 859,900 shares under the
Companys stock repurchase program during 2000.

The Company believes that sufficient cash
resources exist to support requirements for its operations and
commitments through available cash, bank borrowings and cash
generated from operations. Capital expenditures during 2001 were
in excess of $4.0 million. The Company currently expects
that its capital expenditures in 2002 will be in a range between
$1.5 million and $2.0 million, at a level consistent
with 1999 and 2000. The Company has a line of credit of
$10.0 million with its primary lender expiring in May 2004.
Management believes that this facility will be adequate to
support cash requirements and believes that it has access to
additional financing as necessary.






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

Not applicable.

8



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##### Table of Contents






Item 8.     Financial
Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                              |                                                                                             |      |  |    | 
|----------------------------- | ------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                              |                                                                                             | Page
|                              |                                                                                             |     
|Financial Statements:         |                                                                                             |      |  |   
|                              | Report of Independent Accountants                                                           |      |  | 10 | 
|                              | Consolidated Statement of Operations for the
	three years ended December 31, 2001           |      |  | 11 | 
|                              | Consolidated Balance Sheet at December 31,
	2001 and 2000                                   |      |  | 12 | 
|                              | Consolidated Statement of Shareholders
	Equity for the three years ended December 31, 2001 |      |  | 13 | 
|                              | Consolidated Statement of Cash Flows for the
	three years ended December 31, 2001.          |      |  | 14 | 
|                              | Notes to Consolidated Financial Statements                                                  |      |  | 15 | 
|Financial Statement Schedule: |                                                                                             |      |  |   
|                              | Schedule II  Valuation and
	Qualifying Accounts                                            |      |  | 24 | 

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.

9



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##### Table of Contents



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, 2001
and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2001 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.



| |                           
| | --------------------------
| | PRICEWATERHOUSECOOPERS LLP

Los Angeles, California

February 14, 2002


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##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share
data)


|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------------------------- | ---------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                              |                                                      |                        
|                                                              |                                                      | Year Ended December 31,
|                                                              |                                                      |                        
|                                                              |                                                      | 2001                    |         | 2000    |   | 1999
|                                                              |                                                      |                         |         |         |   |     
|Net sales                                                     |                                                      | $                       | 183,621 |         |   | $    | 251,887 |         |   | $ | 240,420 |        
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|Costs and expenses                                            |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              | Cost of sales                                        |                         |         | 152,163 |   |      |         | 214,831 |   |   |         | 199,011 |  
|                                                              | Selling and administrative                           |                         |         | 29,870  |   |      |         | 32,317  |   |   |         | 31,977  |  
|                                                              | Depreciation and amortization                        |                         |         | 2,274   |   |      |         | 1,593   |   |   |         | 1,538   |  
|                                                              | Interest, net                                        |                         |         | (460    | ) |      |         | (254    | ) |   |         | (139    | )
|                                                              | Special items, net                                   |                         |         | 1,495   |   |      |         | (437    | ) |   |         | (1,042  | )
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              |                                                      |                         | 185,342 |         |   |      | 248,050 |         |   |   | 231,345 |        
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|Income (loss) from continuing operations
	before income taxes |                                                      |                         | (1,721  | )       |   |      | 3,837   |         |   |   | 9,075   |        
|Income tax provision (benefit)                                |                                                      |                         | (680    | )       |   |      | 1,518   |         |   |   | 3,587   |        
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|Income (loss) from continuing operations                      |                                                      |                         | (1,041  | )       |   |      | 2,319   |         |   |   | 5,488   |        
|Reserve recovery on sale of discontinued
	operations          |                                                      |                         |         |         |   |      |         |         |   |   | 1,379   |        
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|Net income (loss)                                             |                                                      | $                       | (1,041  | )       |   | $    | 2,319   |         |   | $ | 6,867   |        
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|SHARE AND PER SHARE DATA                                      |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|BASIC                                                         |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              | Income (loss) from continuing operations             |                         | $       | (.12    | ) |      | $       | .26     |   |   | $       | .57     |  
|                                                              | Reserve recovery on sale of discontinued
	operations |                         |         |         |   |      |         |         |   |   |         | .15     |  
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              | Net income (loss)                                    |                         | $       | (.12    | ) |      | $       | .26     |   |   | $       | .72     |  
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              | Weighted average common shares                       |                         |         | 8,854   |   |      |         | 8,999   |   |   |         | 9,595   |  
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|DILUTED                                                       |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              | Income (loss) from continuing operations             |                         | $       | (.12    | ) |      | $       | .26     |   |   | $       | .57     |  
|                                                              | Reserve recovery on sale of discontinued
	operations |                         |         |         |   |      |         |         |   |   |         | .14     |  
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              | Net income (loss)                                    |                         | $       | (.12    | ) |      | $       | .26     |   |   | $       | .71     |  
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        
|                                                              | Weighted average common shares                       |                         |         | 8,854   |   |      |         | 9,025   |   |   |         | 9,646   |  
|                                                              |                                                      |                         |         |         |   |      |         |         |   |   |         |        

See Accompanying Notes to Consolidated Financial
Statements.

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CONSOLIDATED BALANCE SHEET

(Dollars in thousands)


|                                                                                            |                                                                                 |                            |        |        |        |   |        |        |        | 
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                            |                                                                                 |                           
|                                                                                            |                                                                                 | December 31,              
|                                                                                            |                                                                                 |                           
|                                                                                            |                                                                                 | 2001                       |        | 2000  
|                                                                                            |                                                                                 |                            |        |       
|ASSETS                                                                                     
|Current assets                                                                              |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            | Cash and cash equivalents                                                       |                            | $      | 10,418 |        |   | $      | 14,433 |       
|                                                                                            | Accounts receivable, less allowance for doubtful
	accounts of $1,525 and $1,222 |                            |        | 17,827 |        |   |        | 31,701 |       
|                                                                                            | Inventories                                                                     |                            |        | 13,608 |        |   |        | 15,065 |       
|                                                                                            | Prepaid expenses and other                                                      |                            |        | 3,879  |        |   |        | 4,012  |       
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            |                                                                                 | Total current assets       |        |        | 45,732 |   |        |        | 65,211 | 
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|Fixed assets, at cost                                                                       |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            | Land                                                                            |                            |        | 35     |        |   |        | 35     |       
|                                                                                            | Buildings and improvements                                                      |                            |        | 1,414  |        |   |        | 769    |       
|                                                                                            | Equipment                                                                       |                            |        | 12,478 |        |   |        | 9,522  |       
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            |                                                                                 |                            | 13,927 |        |        |   | 10,326 |       
|                                                                                            | Less accumulated depreciation                                                   |                            |        | (7,608 | )      |   |        | (6,088 | )     
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            |                                                                                 | Total fixed assets         |        |        | 6,319  |   |        |        | 4,238  | 
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|Goodwill, less accumulated amortization of $904
	and $791                                   |                                                                                 |                            | 2,116  |        |        |   | 1,540  |       
|Other assets                                                                                |                                                                                 |                            | 2,739  |        |        |   | 3,437  |       
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            |                                                                                 | $                          | 56,906 |        |        | $ | 74,426 |       
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|LIABILITIES AND SHAREHOLDERS
	EQUITY                                                      
|Current liabilities                                                                         |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            | Accounts payable                                                                |                            | $      | 11,833 |        |   | $      | 24,492 |       
|                                                                                            | Accrued payroll                                                                 |                            |        | 1,472  |        |   |        | 2,685  |       
|                                                                                            | Accrued liabilities                                                             |                            |        | 11,113 |        |   |        | 13,356 |       
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            |                                                                                 | Total current liabilities  |        |        | 24,418 |   |        |        | 40,533 | 
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|Deferred compensation and other                                                             |                                                                                 |                            | 2,810  |        |        |   | 3,411  |       
|Shareholders equity                                                                        |                                                                                 |                            |        |        |        |   |        |       
|Preferred stock
	Authorized  1,000,000 shares, outstanding 
	none                         |                                                                                 |                            |        |        |        |   |        |       
|Common stock
	Authorized  35,000,000 shares,
	outstanding  8,889,708 and 8,790,936 shares |                                                                                 |                            | 33,354 |        |        |   | 33,117 |       
|                                                                                            | Accumulated deficit                                                             |                            |        | (3,676 | )      |   |        | (2,635 | )     
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            |                                                                                 | Total shareholders equity |        |        | 29,678 |   |        |        | 30,482 | 
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       
|Commitments and contingencies                                                               |                                                                                 |                            |        |        |        |   |        |       
|                                                                                            |                                                                                 | $                          | 56,906 |        |        | $ | 74,426 |       
|                                                                                            |                                                                                 |                            |        |        |        |   |        |       

See Accompanying Notes to Consolidated Financial
Statements.

12



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##### Table of Contents



CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY

(Dollars in thousands)


|                             |                                |              |           |              |   |          |         |         |   |   |         |        |  
|---------------------------- | ------------------------------ | ------------ | --------- | ------------ | - | -------- | ------- | ------- | - | - | ------- | ------ | -
|                             |                                |              |           | Retained    
|                             |                                | Common stock |           | Earnings    
|                             |                                |              |           | (Accumulated
|                             |                                | Shares       |           | Amount       |   | Deficit)
|                             |                                |              |           |              |   |         
|Balance at December 31, 1998 |                                |              | 9,530,301 |              |   | $        | 102,276 |         |   | $ | (11,821 | )     
|                             | Net income                     |              |           |              |   |          |         |         |   |   |         | 6,867  |  
|                             | Payment of cash distributions  |              |           |              |   |          |         | (67,258 | ) |   |         |        |  
|                             | Exercise of warrants           |              |           | 78,014       |   |          |         | 732     |   |   |         |        |  
|                             |                                |              |           |              |   |          |         |         |   |   |         |       
|Balance at December 31, 1999 |                                |              | 9,608,315 |              |   |          | 35,750  |         |   |   | (4,954  | )     
|                             | Employee stock plans           |              |           | 42,521       |   |          |         | 89      |   |   |         |        |  
|                             | Net income                     |              |           |              |   |          |         |         |   |   |         | 2,319  |  
|                             | Stock repurchase program       |              |           | (859,900     | ) |          |         | (2,946  | ) |   |         |        |  
|                             | Other stock transactions       |              |           |              |   |          |         | 224     |   |   |         |        |  
|                             |                                |              |           |              |   |          |         |         |   |   |         |       
|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  | )     
|                             |                                |              |           |              |   |          |         |         |   |   |         |       

See Accompanying Notes to Consolidated Financial
Statements.

13



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##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)


|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |          |          |  
|---------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------------------------------- | ------ | ------- | ------ | ---- | ------ | ------ | ------ | - | ----- | -------- | -------- | -
|                                                                       |                                                                       |                                                     
|                                                                       |                                                                       | Year Ended December 31,                             
|                                                                       |                                                                       |                                                     
|                                                                       |                                                                       | 2001                                                 |        | 2000    |        | 1999
|                                                                       |                                                                       |                                                      |        |         |        |     
|Cash flows from operating activities:                                  |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       | Net income (loss)                                                     |                                                      | $      | (1,041  | )      |      | $      | 2,319  |        |   | $     | 6,867    |         
|                                                                       | Depreciation                                                          |                                                      |        | 2,161   |        |      |        | 1,514  |        |   |       | 1,464    |         
|                                                                       | Amortization of intangibles                                           |                                                      |        | 113     |        |      |        | 79     |        |   |       | 74       |         
|                                                                       | Provision for losses on accounts receivable                           |                                                      |        | 168     |        |      |        | 166    |        |   |       | 663      |         
|                                                                       | Gain on sale of real estate                                           |                                                      |        |         |        |      |        | (2,842 | )      |   |       | (1,497   | )       
|                                                                       | Loss on sale of business                                              |                                                      |        |         |        |      |        |        |        |   |       | 455      |         
|                                                                       | Reserve recovery on sale of discontinued
	operations                  |                                                      |        |         |        |      |        |        |        |   |       | (1,379   | )       
|                                                                       | Changes in assets and liabilities, net of
	acquisitions and disposals |                                                      |        | (804    | )      |      |        | 5,764  |        |   |       | (19,310  | )       
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       |                                                                       | Net cash provided by (used in) operating
	activities |        |         | 597    |      |        |        | 7,000  |   |       |          | (12,663  | )
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|Cash flows from investing activities:                                  |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       | Purchases of fixed assets and other                                   |                                                      |        | (4,634  | )      |      |        | (1,730 | )      |   |       | (2,086   | )       
|                                                                       | Net proceeds from sale of businesses                                  |                                                      |        | 185     |        |      |        | 295    |        |   |       | 178,692  |         
|                                                                       | Purchase of business                                                  |                                                      |        | (400    | )      |      |        |        |        |   |       |          |         
|                                                                       | Net proceeds from sale of real estate                                 |                                                      |        |         |        |      |        | 2,951  |        |   |       | 13,434   |         
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       |                                                                       | Net cash provided by investing activities            |        |         | (4,849 | )    |        |        | 1,516  |   |       |          | 190,040  |  
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|Cash flows from financing activities:                                  |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       | Bank payments                                                         |                                                      |        |         |        |      |        |        |        |   |       | (109,000 | )       
|                                                                       | Cash distributions to shareholders                                    |                                                      |        |         |        |      |        |        |        |   |       | (67,258  | )       
|                                                                       | Employee stock plans and other                                        |                                                      |        | 237     |        |      |        | 313    |        |   |       | 732      |         
|                                                                       | Purchases of common stock                                             |                                                      |        |         |        |      |        | (2,946 | )      |   |       |          |         
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       |                                                                       | Net cash provided by (used in) financing
	activities |        |         | 237    |      |        |        | (2,633 | ) |       |          | (175,526 | )
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|Net increase (decrease) in cash and cash
	equivalents                  |                                                                       |                                                      | (4,015 | )       |        |      | 5,883  |        |        |   | 1,851 |         
|Cash and cash equivalents at beginning of year                         |                                                                       |                                                      | 14,433 |         |        |      | 8,550  |        |        |   | 6,699 |         
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|Cash and cash equivalents at end of year                               |                                                                       | $                                                    | 10,418 |         |        | $    | 14,433 |        |        | $ | 8,550 |         
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|Changes in assets and liabilities, net of
	acquisitions and disposals: |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       | Accounts receivable                                                   |                                                      | $      | 13,571  |        |      | $      | 2,169  |        |   | $     | (4,518   | )       
|                                                                       | Inventories                                                           |                                                      |        | 1,457   |        |      |        | 4,523  |        |   |       | (1,836   | )       
|                                                                       | Accounts payable                                                      |                                                      |        | (12,659 | )      |      |        | 1,048  |        |   |       | (4,011   | )       
|                                                                       | Accrued liabilities and other                                         |                                                      |        | (3,173  | )      |      |        | (1,976 | )      |   |       | (8,945   | )       
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       |                                                                       | Net change                                           |        | $       | (804   | )    |        | $      | 5,764  |   |       | $        | (19,310  | )
|                                                                       |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|Supplemental cash flow information:                                    |                                                                       |                                                      |        |         |        |      |        |        |        |   |       |         
|                                                                       | Interest paid                                                         |                                                      | $      | 4       |        |      | $      | 35     |        |   | $     | 729      |         
|                                                                       | Income taxes paid                                                     |                                                      | $      |        |        |      | $      | 1,854  |        |   | $     |         |         

See Accompanying Notes to Consolidated Financial
Statements.

14



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##### Table of Contents



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 computer systems integration;
distribution of aftermarket products for recreational vehicles,
motorcycles, snowmobiles and powerboats; and specialty
manufacturing for the computer and electronics markets. 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 2001 and
2000, the Company had one Systems Integration customer that
accounted for approximately 10% and 12% of net sales,
respectively. At December 31, 2001 and 2000, the Company
had one Systems Integration customer that accounted for
approximately 22% and 29% 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).

Fixed assets, depreciation and
amortization All fixed
assets are recorded at cost and depreciated using the
straight-line method based upon estimated useful lives which
range from 25 to 40 years for buildings and 2 to
10 years for equipment. Leasehold improvements are
amortized over the shorter of their estimated service lives or
the term of the lease.

Goodwill
Cost in excess of the fair value of net assets of purchased
businesses (goodwill) is amortized using the straight-line
method over 25 years. The Company periodically evaluates the
recorded value of its operating assets, including goodwill, and
recognizes impairments when the estimated future undiscounted
cash flows from the use of the assets are less than the recorded
value.

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.

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 Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) 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.

New
pronouncements In July
2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141, Business
Combinations and SFAS

15



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 establishes new standards for
accounting and reporting requirements for business combinations
initiated after June 30, 2001 and prohibits the use of the
pooling-of-interests method for combinations initiated after
June 30, 2001. SFAS No. 142 changes the accounting for
goodwill from an amortization method to an impairment-only
approach. Upon adoption of SFAS No. 142, goodwill will be
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, will cease. The adoption date for the Company will
be January 1, 2002 and is not expected to have a material
effect on the Companys consolidated financial position,
result of operations or cash flow.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS No.
121 but retains many of its fundamental provisions. In addition,
SFAS No. 144 expands the scope of discontinued operations
to include more disposal transactions. The adoption date for the
Company will be January 1, 2002 and is not expected to have
a material effect on the Companys consolidated financial
position, results of operations or cash flows.

Discontinued Operations

Sale of Electronics Distribution
Group In January 1999, the
Company completed the sale of its Electronics Distribution Group
(EDG).

During 1999, the Company released approximately
$2.3 million ($1.4 million net of tax) of reserves,
based on a reassessment of estimated exposures, related to
discontinued operations. The Companys accrued liabilities
include approximately $6.4 million and $7.6 million of
amounts attributable to discontinued operations at
December 31, 2001 and 2000, respectively.

Special Items

Systems Integration 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 Midwest operations of its Systems Integration
business 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.

Systems Integration 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 Systems Integration 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 In connection with
the sale of EDG, the Companys Board of Directors approved
a plan to dispose of certain real estate assets. The real estate
assets and related improvements, consisting of six properties,
had an aggregate net book value of $12.0 million. 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
the Board of Directors approved plan. During 1999, the Company
completed the sale of five properties for aggregate net proceeds
of $13.4 million. These 1999 sales resulted in a pre-tax
gain of $1.5 million.

16



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Sale of Precision Metalcraft Division
(PMD) In July
1999, the Company sold substantially all of the assets and
liabilities of one of its electronics manufacturing businesses
for $3 million ($2 million cash and a note receivable
of $1 million). The sale resulted in a pre-tax loss of
$455,000. For the year ended December 31, 1999, PMD had
sales of $6.1 million and operating income of $485,000.

Floor Plan Arrangements

The Company finances certain inventory purchases
through floor plan arrangements with two finance companies. The
amount of aggregate outstanding floor plan obligations ranged
between $4.4 million and $11.2 million during 2001 and
$8.8 million and $16.2 million during 2000, 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, 2001 and 2000, the Company had outstanding
floor plan obligations of $4.8 and $16.2 million,
respectively, which are classified with accounts payable.

Borrowings

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,
2001 and 2000, the Company had no outstanding borrowings under
the credit agreement.

In January 1999, the Company repaid all bank
borrowings under a previously existing $250 million
revolving credit facility with a portion of the proceeds from
the sale of EDG.

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 2000, the company repurchased 859,900
shares at an average price of $3.43 per share. The 2000 Program
expired on December 31, 2000.

Cash Distributions to Shareholders

During 1999, the Company paid two cash
distributions totaling $67.3 million ($7.00 per share) to
shareholders representing the net proceeds from the sale of EDG
and the disposition of certain real estate properties. The first
distribution ($5.70 per share) was paid on June 8, 1999 to
shareholders of record on May 25, 1999. The second
distribution ($1.30 per share) was paid on December 17,
1999 to shareholders of record on December 10, 1999. The
distributions represented a return of capital and the aggregate
amount has been recorded as a reduction in the carrying value of
common stock.

17



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Stock Plans and Warrants

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. The shares initially authorized for issuance under
these plans and for outstanding warrants have been subsequently
increased by certain stock dividends declared in previous years.

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 four years and
were issued at market value. During 1999, option exercise prices
for previously issued options were reduced by $7.00 per share
for the effect of the Companys cash distributions to
shareholders.

A summary of activity under the plans follows:

|                                 |                       |            |         |          |   |           |           |           |   |   |       |       |  |  |   |      | 
|-------------------------------- | --------------------- | ---------- | ------- | -------- | - | --------- | --------- | --------- | - | - | ----- | ----- |  |  | - | ---- | 
|                                 |                       |            |         |          |   | Weighted  |           |          
|                                 |                       |            |         |          |   | Average   |           | Fair     
|                                 |                       | Available  |         | Shares   |   | Exercise  |           | Value of 
|                                 |                       | for Future |         | Under    |   | Price     |           | Option   
|                                 |                       | Grant      |         | Option   |   | Per Share |           | Per Share
|                                 |                       |            |         |          |   |           |           |          
|Outstanding at December 31, 1998 |                       |            | 948,624 |          |   |           | 894,722   |           |   |   | 14.55 |       |  |  |   |     
|                                 | Granted               |            |         | (815,000 | ) |           |           | 815,000   |   |   |       | 4.13  |  |  | $ | 1.34 | 
|                                 | Canceled              |            |         | 564,399  |   |           |           | (564,399  | ) |   |       | 12.36 |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |       |       |  |  |   |     
|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   |   |   |       |       |  |  | $ | 1.24 | 
|                                 | Canceled              |            |         | 239,830  |   |           |           | (239,830  | ) |   |       |       |  |  |   |      | 
|                                 | Adoption of 2001 Plan |            |         | 500,000  |   |           |           |           |   |   |       |       |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |       |       |  |  |   |     
|Outstanding at December 31, 2001 |                       |            | 952,860 |          |   |           | 1,017,329 |           |   | $ | 3.80  |       |  |  |   |     
|                                 |                       |            |         |          |   |           |           |           |   |   |       |       |  |  |   |     

A summary of stock options outstanding at
December 31, 2001 follows:

|            |  |             |           |             |  |                |         |  |  |   |      | 
|----------- |  | ----------- | --------- | ----------- |  | -------------- | ------- |  |  | - | ---- | 
|Remaining   |  |             |           |             |  | Weighted      
|Option Life |  | Options     |           | Options     |  | Average       
|in Years    |  | Outstanding |           | Exercisable |  | Exercise Price
|            |  |             |           |             |  |               
|1           |  |             | 18,100    |             |  |                | 18,100  |  |  | $ | 8.40 | 
|2           |  |             | 1,000     |             |  |                | 1,000   |  |  |   | 6.69 | 
|3           |  |             | 124,729   |             |  |                | 61,729  |  |  |   | 5.46 | 
|4           |  |             | 143,500   |             |  |                | 42,250  |  |  |   | 2.56 | 
|5 or more   |  |             | 730,000   |             |  |                | 225,00  |  |  |   | 4.44 | 
|            |  |             |           |             |  |                |         |  |  |   |      | 
|            |  |             | 1,017,329 |             |  |                | 348,079 |  |  | $ | 4.61 | 
|            |  |             |           |             |  |                |         |  |  |   |      | 

At December 31, 2000 and 1999, 228,129 and
192,467 options were exercisable at weighted average exercise
prices of $5.62 and $7.26, respectively.

Under the Bell Industries Employees Stock
Purchase Plan (the ESPP) 750,000 shares were
authorized for future 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. During 1999,
the Company temporarily suspended the ESPP while completing the
sale of certain businesses and the cash distributions to
shareholders. The ESPP resumed during the second quarter of
2000. Under the ESPP, the Company issued

18



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


61,802, 42,521 and -0- shares during 2001, 2000
and 1999. The weighted average fair value per share of the
purchase rights granted in 2001 and 2000 were $.62 and $.79. At
December 31, 2001, 453,187 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 2001 and 2000 and 30% for
1999 and an expected four year life for stock options, and an
assumed volatility of approximately 60% for 2001 and 2000 and an
expected four month life for the ESPP. The assumed risk free
interest rate ranged between 5% and 6% for all years for the
stock option plans and approximately 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 2001, decreased net
income by $.5 million ($.05 per share) in 2000 and
decreased net income by $1.2 million ($.13 per share in
1999).

In 1993, the Companys previous senior
noteholders received warrants to purchase 258,320 shares of the
Companys common stock, exercisable at any time prior to
February 1, 2001 at $9.40 per share. Warrants representing
47,870, -0-and 78,014 shares were exercised in 2001, 2000 and
1999. In accordance with a formula in the warrant agreement, the
number and exercise price of the warrants were adjusted in 1999
following the $7.00 per share cash distributions to
shareholders. On February 1, 2001, the remaining 478,686 of
unexercised warrants expired.

Income Taxes

The income tax provision (benefit) charged
(credited) to continuing operations was as follows (in
thousands):

|         |         |      |      |      |   |      |       |       |   |   |       |       |  
|-------- | ------- | ---- | ---- | ---- | - | ---- | ----- | ----- | - | - | ----- | ----- | -
|         |         | 2001 |      | 2000 |   | 1999
|         |         |      |      |      |   |     
|Current  |         |      |      |      |   |      |       |       |   |   |       |      
|         | Federal |      | $    | (394 | ) |      | $     | 1,387 |   |   | $     | (546  | )
|         | State   |      |      | (136 | ) |      |       | 416   |   |   |       | 86    |  
|Deferred |         |      |      |      |   |      |       |       |   |   |       |      
|         | Federal |      |      | (146 | ) |      |       | (247  | ) |   |       | 3,667 |  
|         | State   |      |      | (4   | ) |      |       | (38   | ) |   |       | 380   |  
|         |         |      |      |      |   |      |       |       |   |   |       |      
|         |         | $    | (680 | )    |   | $    | 1,518 |       |   | $ | 3,587 |      
|         |         |      |      |      |   |      |       |       |   |   |       |      

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

|                                    |  |      |       |      |  |      |      |   |  |  |      |  
|----------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                    |  | 2001 |       | 2000 |  | 1999
|                                    |  |      |       |      |  |     
|Federal statutory tax rate          |  |      | (34.0 | )%   |  |      | 34.0 | % |  |  | 34.0 | %
|State taxes, net of federal benefit |  |      | (5.2  | )    |  |      | 4.9  |   |  |  | 4.6  |  
|Other, net                          |  |      | (.3   | )    |  |      | .6   |   |  |  | .9   |  
|                                    |  |      |       |      |  |      |      |   |  |  |      |  
|Effective tax rate                  |  |      | (39.5 | )%   |  |      | 39.5 | % |  |  | 39.5 | %
|                                    |  |      |       |      |  |      |      |   |  |  |      |  

19



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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

|                                       |  |      |      |      |  |      |      |   |  |   |       |  
|-------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ----- | -
|                                       |  | 2001 |      | 2000 |  | 1999
|                                       |  |      |      |      |  |     
|Business system and corporate resizing |  | $    |     |      |  | $    |     |   |  | $ | 3,603 |  
|Receivables allowance                  |  |      | (44  | )    |  |      | (177 | ) |  |   | (332  | )
|Inventory reserves                     |  |      | 10   |      |  |      | 20   |   |  |   | (15   | )
|Employee benefit accruals              |  |      | (130 | )    |  |      | (21  | ) |  |   | 889   |  
|Depreciation                           |  |      | 3    |      |  |      | 97   |   |  |   | (555  | )
|Lease commitment provision             |  |      |      |      |  |      |      |   |  |   | 505   |  
|Other                                  |  |      | 11   |      |  |      | (204 | ) |  |   | (48   | )
|                                       |  |      |      |      |  |      |      |   |  |   |       |  
|                                       |  | $    | (150 | )    |  | $    | (285 | ) |  | $ | 4,047 |  
|                                       |  |      |      |      |  |      |      |   |  |   |       |  

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

|                          |                           |              |       |       |   |   |       |       |  
|------------------------- | ------------------------- | ------------ | ----- | ----- | - | - | ----- | ----- | -
|                          |                           |             
|                          |                           | December 31,
|                          |                           |             
|                          |                           | 2001         |       | 2000 
|                          |                           |              |       |      
|Deferred tax assets:      |                           |              |       |       |   |   |       |      
|                          | Receivables allowance     |              | $     | 431   |   |   | $     | 387   |  
|                          | Inventory reserves        |              |       | 187   |   |   |       | 211   |  
|                          | Employee benefit accruals |              |       | 984   |   |   |       | 855   |  
|                          | Discontinued operations   |              |       | 2,062 |   |   |       | 2,462 |  
|                          |                           |              |       |       |   |   |       |      
|                          |                           |              | 3,664 |       |   |   | 3,915 |      
|Deferred tax liabilities: |                           |              |       |       |   |   |       |      
|                          | Depreciation              |              |       | (96   | ) |   |       | (93   | )
|                          | Other                     |              |       | (230  | ) |   |       | (219  | )
|                          |                           |              |       |       |   |   |       |      
|Net deferred tax balances |                           | $            | 3,338 |       |   | $ | 3,603 |      
|                          |                           |              |       |       |   |   |       |      

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,
|                                                   |         |             
|                                                   |         | 2001         |       | 2000 
|                                                   |         |              |       |      
|Current deferred income tax benefits (liabilities) |         |              |       |       |   |   |       |      
|                                                   | Federal |              | $     | 3,128 |   |   | $     | 3,269 |  
|                                                   | State   |              |       | (79   | ) |   |       | (73   | )
|Noncurrent deferred income tax benefits            |         |              |       |       |   |   |       |      
|                                                   | Federal |              |       | 277   |   |   |       | 390   |  
|                                                   | State   |              |       | 12    |   |   |       | 17    |  
|                                                   |         |              |       |       |   |   |       |      
|                                                   |         | $            | 3,338 |       |   | $ | 3,603 |      
|                                                   |         |              |       |       |   |   |       |      

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 $150,000 in 2001, $178,000 in 2000 and $360,000
in 1999.

20



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 $110,000 in 2001, $119,000 in 2000 and $254,000 in 1999.

The Company provides postretirement medical
coverage for qualifying employees who were employed prior to
January 1, 1998. Annual costs and accumulated and vested
benefit obligations relating to postretirement medical benefits
were not significant.

Commitments and Contingencies

At December 31, 2001, the Company had
operating leases on certain of its facilities and equipment
expiring in various years through 2006. Under certain operating
leases, the Company is required to pay property taxes and
insurance. Rent expense under operating leases was
$2.1 million in 2001, $1.9 million in 2000 and
$1.7 million in 1999.

Minimum annual rentals on operating leases for
the five years subsequent to 2001 are as follows (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2002 |  | $ | 2,366 | 
|2003 |  |   | 1,683 | 
|2004 |  |   | 1,208 | 
|2005 |  |   | 788   | 
|2006 |  |   | 284   | 
|     |  |   |       | 
|     |  | $ | 6,329 | 
|     |  |   |       | 

The Company is involved in litigation incidental
to its current and discontinued businesses. The resolution of
this litigation is not expected to have a material effect on the
Companys financial position.

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: Systems Integration, a provider of integrated
technology solutions; Recreational Products, a distributor of
replacement parts and accessories for recreational and other
leisure-time vehicles; and Electronics Manufacturing, a
specialty manufacturer and distributor of radio frequency
(RF) standard and surface mount magnetic products. A
specialty manufacturing business engaged in high precision
stamping was sold in July 1999. Each operating segment offers
unique products and

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


services and has separate management. The
accounting policies of the segments are the same as described in
the Summary of Accounting Policies.

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

|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |         |  
|----------------------------- | ------------------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                              |                                                               |                        
|                              |                                                               | Year Ended December 31,
|                              |                                                               |                        
|                              |                                                               | 2001                    |         | 2000    |   | 1999
|                              |                                                               |                         |         |         |   |     
|Net sales                     |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              | Systems Integration                                           |                         | $       | 130,395 |   |      | $       | 188,907 |   |   | $       | 177,530 |  
|                              | Recreational Products                                         |                         |         | 46,044  |   |      |         | 49,799  |   |   |         | 48,985  |  
|                              | Electronics Manufacturing                                     |                         |         | 7,182   |   |      |         | 13,181  |   |   |         | 13,905  |  
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              |                                                               | $                       | 183,621 |         |   | $    | 251,887 |         |   | $ | 240,420 |        
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|Operating income (loss)       |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              | Systems Integration                                           |                         | $       | (938    | ) |      | $       | 10      |   |   | $       | 5,726   |  
|                              | Recreational Products                                         |                         |         | 954     |   |      |         | 1,666   |   |   |         | 3,029   |  
|                              | Electronics Manufacturing                                     |                         |         | 1,590   |   |      |         | 3,317   |   |   |         | 1,765   |  
|                              | Special items                                                 |                         |         | (650    | ) |      |         | 2,242   |   |   |         | 1,497   |  
|                              | Corporate costs                                               |                         |         | (3,137  | ) |      |         | (3,652  | ) |   |         | (3,081  | )
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              |                                                               |                         | (2,181  | )       |   |      | 3,583   |         |   |   | 8,936   |        
|                              | Interest, net                                                 |                         |         | 460     |   |      |         | 254     |   |   |         | 139     |  
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              | Income (loss) from continuing operations before
	income taxes |                         | $       | (1,721  | ) |      | $       | 3,837   |   |   | $       | 9,075   |  
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|Depreciation and amortization |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              | Systems Integration                                           |                         | $       | 1,114   |   |      | $       | 691     |   |   | $       | 819     |  
|                              | Recreational Products                                         |                         |         | 181     |   |      |         | 229     |   |   |         | 212     |  
|                              | Electronics Manufacturing                                     |                         |         | 33      |   |      |         | 34      |   |   |         | 294     |  
|                              | Corporate                                                     |                         |         | 946     |   |      |         | 639     |   |   |         | 213     |  
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              |                                                               | $                       | 2,274   |         |   | $    | 1,593   |         |   | $ | 1,538   |        
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|Total assets                  |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              | Systems Integration                                           |                         | $       | 17,281  |   |      | $       | 28,595  |   |   | $       | 31,788  |  
|                              | Recreational Products                                         |                         |         | 16,193  |   |      |         | 16,571  |   |   |         | 18,276  |  
|                              | Electronics Manufacturing                                     |                         |         | 2,916   |   |      |         | 3,940   |   |   |         | 2,499   |  
|                              | Corporate                                                     |                         |         | 20,516  |   |      |         | 25,320  |   |   |         | 23,388  |  
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              |                                                               | $                       | 56,906  |         |   | $    | 74,426  |         |   | $ | 75,951  |        
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|Capital expenditures          |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              | Systems Integration                                           |                         | $       | 3,172   |   |      | $       | 609     |   |   | $       | 491     |  
|                              | Recreational Products                                         |                         |         | 217     |   |      |         | 115     |   |   |         | 182     |  
|                              | Electronics Manufacturing                                     |                         |         | 5       |   |      |         | 45      |   |   |         | 115     |  
|                              | Corporate                                                     |                         |         | 951     |   |      |         | 736     |   |   |         | 1,298   |  
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        
|                              |                                                               | $                       | 4,345   |         |   | $    | 1,505   |         |   | $ | 2,086   |        
|                              |                                                               |                         |         |         |   |      |         |         |   |   |         |        

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QUARTERLY RESULTS OF OPERATIONS

|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |        |  
|--------------------------------- | ------------------------------ | ------------------------------------- | ------ | ------- | - | ------------ | ------ | ----------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                  |                                |                                      
|                                  |                                | Quarter Ended                        
|                                  |                                |                                      
|                                  |                                | March 31                              |        | June 30 |   | September 30 |        | December 31
|                                  |                                |                                       |        |         |   |              |        |            
|                                  |                                |                                      
|                                  |                                | (Unaudited)                          
|                                  |                                |                                      
|                                  |                                | (In thousands, except per share data)
|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  |  
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|Year ended December 31, 2000      |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|Net sales                         |                                | $                                     | 54,927 |         |   | $            | 61,064 |             |   | $ | 72,718 |        |   | $ | 63,178 |       
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|Costs and expenses                |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|                                  | Cost of sales                  |                                       |        | 46,729  |   |              |        | 51,327      |   |   |        | 62,985 |   |   |        | 53,790 |  
|                                  | Selling and administrative     |                                       |        | 7,385   |   |              |        | 8,227       |   |   |        | 8,598  |   |   |        | 8,107  |  
|                                  | Depreciation and amortization  |                                       |        | 389     |   |              |        | 384         |   |   |        | 397    |   |   |        | 423    |  
|                                  | Interest, net                  |                                       |        | (43     | ) |              |        | (21         | ) |   |        | (104   | ) |   |        | (86    | )
|                                  | Special items, net             |                                       |        |         |   |              |        | (437        | ) |   |        |        |   |   |        |        |  
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|                                  |                                |                                       | 54,460 |         |   |              | 59,480 |             |   |   | 71,876 |        |   |   | 62,234 |       
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|Income before income taxes        |                                |                                       | 467    |         |   |              | 1,584  |             |   |   | 842    |        |   |   | 944    |       
|Income tax provision              |                                |                                       | 185    |         |   |              | 626    |             |   |   | 333    |        |   |   | 374    |       
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|Net income                        |                                | $                                     | 282    |         |   | $            | 958    |             |   | $ | 509    |        |   | $ | 570    |       
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|Share and Per Share Data          |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|BASIC                             |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|                                  | Net income                     |                                       | $      | .03     |   |              | $      | .11         |   |   | $      | .06    |   |   | $      | .06    |  
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|                                  | Weighted average common shares |                                       |        | 9,529   |   |              |        | 8,860       |   |   |        | 8,835  |   |   |        | 8,773  |  
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|DILUTED                           |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|                                  | Net income                     |                                       | $      | .03     |   |              | $      | .11         |   |   | $      | .06    |   |   | $      | .06    |  
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       
|                                  | Weighted average common shares |                                       |        | 9,631   |   |              |        | 8,860       |   |   |        | 8,836  |   |   |        | 8,773  |  
|                                  |                                |                                       |        |         |   |              |        |             |   |   |        |        |   |   |        |       

23



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##### Table of Contents



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                 |                         |                |  |           |       |             |  |           |     |  |  |  |      |   |  |   |       | 
|-------------------------------- | ----------------------- | -------------- |  | --------- | ----- | ----------- |  | --------- | --- |  |  |  | ---- | - |  | - | ----- | 
|                                 |                         |                |  | Additions |       |             |  |          
|                                 |                         |                |  | Charge to |       | Deductions  |  |          
|                                 |                         | Balance at     |  | Costs     |       | Accounts    |  | Balance  
|                                 |                         | Beginning      |  | and       |       | Charged Off |  | at End   
|Description                      |                         | of Period      |  | Expenses  |       | (Recovered) |  | of Period
|                                 |                         |                |  |           |       |             |  |          
|                                 |                         |               
|                                 |                         | (In thousands)
|Allowance for doubtful accounts: |                         |                |  |           |       |             |  |           |     |  |  |  |      |   |  |  
|                                 | Year ended December 31: |                |  |           |       |             |  |           |     |  |  |  |      |   |  |   |      
|                                 |                         | 1999           |  | $         | 484   |             |  |           | 495 |  |  |  | (133 | ) |  | $ | 1,112 | 
|                                 |                         | 2000           |  | $         | 1,112 |             |  |           | 166 |  |  |  | 56   |   |  | $ | 1,222 | 
|                                 |                         | 2001           |  | $         | 1,222 |             |  |           | 168 |  |  |  | (135 | ) |  | $ | 1,525 | 

24



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##### Table of Contents








|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|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 2002 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 2002 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 2002 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 2002 Annual Meeting of
Shareholders and is hereby incorporated by reference.




PART IV






|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | 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 14, 2002 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:

|   |  |  |  |                                                                                                                                                                                                                          
|-- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                           

25



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##### Table of Contents



|    |  |    |  |                                                                                                                                                                                                                                                                                                        
|--- |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                   
|    |  | 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.                                                                                                                                                                                                 
|    |  | q. |  | First Amendment to Credit Agreement dated as of
	April 26, 2000 between the Registrant and Union Bank of
	California, N.A.                                                                                                                                                                             
|    |  | 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.                                                  

26



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##### Table of Contents



|    |  |                                     |  |                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 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.                                                                                                                                             
|21. |  | Subsidiaries of the Registrant.    
|23. |  | Consent of Independent Accountants.

(b) Reports on Form 8-K:

a) None.

27



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##### Table of Contents






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, 2002

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below on
March 28, 2002 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                                                         

28



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##### Table of Contents






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.(*)                                                                                                                                               
|        |     |  |  | q.                                                                                                                                   |  | First Amendment to Credit Agreement dated as of
	April 26, 2000 between the Registrant and Union Bank of
	California, N.A.(*)                                                                                                                           
|        |     |  |  | 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.(*)                

29



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##### Table of Contents



|        |     |  |  |                                    |  |                                                                                                                                                                                                                                                                            
|------- | --- |  |  | ---------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                
|        | 21. |  |  | Subsidiaries of the Registrant    
|        | 23. |  |  | Consent of Independent Accountants



---



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

30