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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K



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

For the year ended December 31,
2003

Commission file number 1-11471

(BELL INDUSTRIES LOGO)

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

Registrants telephone number, including
area code:

(310) 563-2355




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

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

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

None.


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.

Yes þ          No o

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

Not Applicable
þ

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

Yes o          No þ

As of June 30, 2003 the aggregate market
value of the voting stock held by non-affiliates of the
Registrant was: $17,092,840.

As of March 15, 2004 the number of shares
outstanding of the Registrants class of common stock was:
8,373,224.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates
by reference information from the Registrants Proxy
Statement for the 2004 Annual Meeting of Shareholders to be held
on May 26, 2004.



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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 and Issuer Purchases of Equity Securities
|              | 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                               
|              | Item 9A. Controls and Procedures                                                                                           
|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                                                                    
|              | Item 14. Principal Accounting Fees and Services                                                                            
|PART IV      
|              | Item 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K                                                   
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 10.X 
|EXHIBIT 10.Y 
|EXHIBIT 21   
|EXHIBIT 23   
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32   



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

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



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | reduced technology product sales as major
    suppliers increasingly sell directly to end-users;       
|
| |  | decreased margins due to price competition;                                                            
|
| |  | increase in outsourced services to foreign
    countries;                                              
|
| |  | ineffectiveness of our business development
    efforts and inability to obtain new client engagements;
|
| |  | delays and costs associated with new client
    engagements;                                           
|
| |  | non renewal or termination of existing client
    engagements;                                         
|
| |  | continued transition of electronics manufacturing
    to Asia;                                         
|
| |  | the impact of adverse weather conditions on our
    Recreational Products business unit; and           
|
| |  | general business conditions and economic
    uncertainty                                               

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

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



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##### Table of Contents






PART I






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

Bell Industries, Inc.s operations
include technology lifecycle and outsourced services;
distribution of aftermarket products for recreational vehicles,
motorcycles, snowmobiles and powerboats; and manufacturing of
specialty electronic components. Bell employed approximately
775 people at December 31, 2003.

Technology Solutions

The technology lifecycle services business, the
Tech.logix Group (BTL or Technology
Solutions), (2003 sales of $90.8 million) is a
provider of integrated technology solutions for organizations in
the Midwestern and Eastern United States. BTL is headquartered
in Indianapolis, Indiana, and has offices and service
facilities in the Midwest and Atlantic regions.

BTL provides information technology lifecycle
services including planning, product sourcing, migration,
support, and disposal services. Recurring support services,
include help desk, depot, and on-site expertise for desktop and
mobile devices, business software applications, and network
infrastructures. BTL meets clients needs by combining a
comprehensive offering of technology outsourcing services with
its expertise in sourcing and deploying technology access
devices, servers, storage equipment, printers, network products,
and software.

BTLs suppliers include
Hewlett-Packard, IBM, Panasonic, Sun Microsystems, Cisco,
Citrix, 3Com, Nortel Networks, and Veritas for technology
hardware products; and Microsoft, Symantec, Lotus, Adobe
Systems, and Novell for software. Three clients (two Fortune
500 companies and a Midwest healthcare provider) account
for approximately 30% of BTL revenues for fiscal 2003.

There are a number of competitors in BTLs
market. BTL competes with national and multi-regional companies
such as CompuCom Systems, Pomeroy Computer Resources, and
Sarcom, as well as a number of local and regional firms
providing technology products and deployment services. In
technology outsourcing services, BTL may compete with large
multi-national organizations such as IBM Global Services and
Electronic Data Systems, as well as a number of small to
mid-sized firms providing specialized services for certain
market sectors. Many of BTLs competitors have greater
financial and marketing resources.

Recreational Products

The Recreational Products Group (RPG)
(2003 sales of $44.8 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 dealerships and retail stores
selling recreational vehicles, snowmobiles, motorcycles,
ATVs, and marine products. RPG also supplies these
products to independent repair facilities. For all product
groups, RPG operates distribution, sales and administration
facilities in Eagan, Minnesota; Germantown, Wisconsin; and Grand
Rapids, Michigan.

RPG has significant market share in the
distribution of recreational vehicle replacement parts and
accessories in the upper Midwestern United States. RPG supplies
over 8,000 recreational vehicle-related products, 11,000
marine items, 9,000 motorcycle and ATV items, and
5,000 snowmobile items. Major product lines distributed by
RPG include Dunlop tires (motorcycle tires), Carefree of
Colorado (awnings for RVs and campers), Reese Products
(trailer hitches for all types of vehicles), and Johnson
Fishing, Inc. (marine motors). RPG has over
4,500 customers, with no single customer accounting for
over 5% of its annual sales.

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

1



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Electronic Components

The J. W. Miller Division (JWM or
Electronic Components) of Bell, located in Gardena,
California (2003 sales of $6.3 million), manufactures and
distributes over 6,000 standard and custom magnetic
products. JWMs magnetic products include inductors, coils,
chokes, and transformers, among others. These products are used
extensively in all types of circuitry found in electronic
applications including computer, medical and telecommunications
equipment.

JWMs products are sold through national,
regional and international distributors directly and through
manufacturers representatives located in North America,
Europe and Asia. JWMs customers include electronic
distributors and manufacturers with its four largest customers
representing 53% of its total 2003 sales. The majority of
JWMs sales are derived from customers located in North
America.

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






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

At December 31, 2003, the Company leased 15
facilities, containing approximately 295,000 square feet
and owned one facility, containing approximately
20,000 square feet. The following table sets forth the
facilities utilized by each of the Companys business
segments:

|                      |  |                       |        |        |  |  |     |  |  |  |         |  |  |  |      | 
|--------------------- |  | --------------------- | ------ | ------ |  |  | --- |  |  |  | ------- |  |  |  | ---- | 
|                      |  |                      
|                      |  | Area in square feet  
|                      |  | (number of locations)
|                      |  |                      
|                      |  |                       |        |       
|                      |  | Owned                 |        | Leased
|                      |  |                       |        |       
|                      |  |                       |        |        |  |  |     | 
|Technology Solutions  |  |                       |        |        |  |  |     |  |  |  | 108,000 |  |  |  | (11) | 
|Recreational Products |  |                       |        |        |  |  |     |  |  |  | 184,000 |  |  |  | (3)  | 
|Electronic Components |  |                       | 20,000 |        |  |  | (1) |  |  |  |         |  |  |  |      | 
|Corporate             |  |                       |        |        |  |  |     |  |  |  | 3,000   |  |  |  | (1)  | 
|                      |  |                       |        |        |  |  |     |  |  |  |         |  |  |  |      | 
|                      |  |                       | 20,000 |        |  |  | (1) |  |  |  | 295,000 |  |  |  | (15) | 
|                      |  |                       |        |        |  |  |     |  |  |  |         |  |  |  |      | 

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






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

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






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

No matters were submitted to a vote of security
holders during the fourth quarter of 2003.

2



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##### Table of Contents



Executive Officers of the Registrant

The Executive Officers of the Registrant are as
follows:

|                  |  |     |    |          |  |                                             |  |  |      | 
|----------------- |  | --- | -- | -------- |  | ------------------------------------------- |  |  | ---- | 
|                  |  |     |    |          |  | Year First                                 
|Name              |  | Age |    | Position |  | Named Officer                              
|                  |  |     |    |          |  |                                            
|Tracy A. Edwards  |  |     | 47 |          |  | President and Chief Executive Officer (1)   |  |  | 1991 | 
|Russell A. Doll   |  |     | 42 |          |  | Senior Vice President (2)                   |  |  | 1998 | 
|Charles S. Troy   |  |     | 60 |          |  | Vice President (3)                          |  |  | 1997 | 
|Mitchell I. Rosen |  |     | 39 |          |  | 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. He also
    serves as Chairman of the Board of Directors.                                                                                                                                             
|   
|(2) | Mr. Doll was appointed President of the BTL
    business unit in November 2003 and continues to serve as a
    Senior Vice President. Concurrent with this appointment,
    Mr. Dolls Chief Financial Officer responsibilities
    were assumed by Mr. Edwards. From February 1999 to November
    2003, Mr. Doll served as Chief Financial Officer. From
    April 1998 to February 1999, he served as Vice President,
    Finance.
|   
|(3) | Mr. Troy has served as Vice President since
    September 1997.                                                                                                                                                                                                                                                                                                                                                                      
|   
|(4) | Mr. Rosen has served as Vice President and
    Corporate Controller since December 2000. Prior to December
    2000, he was a senior manager with PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                        




PART II






|        |                                                                                                                            
|------- | ---------------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters and Issuer Purchases of
    Equity Securities

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

|                             |       |         |   |               |  |         |   |         |  |  |   |      |  |  |   |      | 
|---------------------------- | ----- | ------- | - | ------------- |  | ------- | - | ------- |  |  | - | ---- |  |  | - | ---- | 
|                             |       |         |   |               |  |        
|                             |       |         |   | Quarter ended |  |        
|                             |       |         |   |               |  |        
|                             |       | Mar. 31 |   | Jun. 30       |  | Sep. 30 |   | Dec. 31
|                             |       |         |   |               |  |         |   |        
|Year ended December 31, 2003 |       |         |   |               |  |         |   |         |  |  |   |      |  |  |   |     
|                             | High  |         | $ | 1.69          |  |         | $ | 2.24    |  |  | $ | 2.36 |  |  | $ | 2.94 | 
|                             | Low   |         |   | 1.47          |  |         |   | 1.56    |  |  |   | 1.79 |  |  |   | 2.06 | 
|                             | Close |         |   | 1.68          |  |         |   | 2.17    |  |  |   | 2.12 |  |  |   | 2.57 | 
|Year ended December 31, 2002 |       |         |   |               |  |         |   |         |  |  |   |      |  |  |   |     
|                             | High  |         | $ | 2.59          |  |         | $ | 2.30    |  |  | $ | 1.97 |  |  | $ | 1.95 | 
|                             | Low   |         |   | 2.06          |  |         |   | 1.81    |  |  |   | 1.33 |  |  |   | 1.35 | 
|                             | Close |         |   | 2.21          |  |         |   | 1.91    |  |  |   | 1.65 |  |  |   | 1.60 | 

As of March 15, 2004 there were
approximately 1,000 record holders of common stock.

A summary of shareholder approved and
non-shareholder approved stock plan information as of
December 31, 2003 is included at the Stock
Plans footnote within the Notes to the Consolidated
Financial Statements.

3



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##### Table of Contents








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

|                                                                                                |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | ----------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                |  |                                               |         |                         |  |     
|                                                                                                |  |                                               |         | Year ended December 31, |  |     
|                                                                                                |  |                                               |         |                         |  |     
|                                                                                                |  | 2003                                          |         | 2002                    |  | 2001 |         | 2000 |  | 1999
|                                                                                                |  |                                               |         |                         |  |      |         |      |  |     
|                                                                                                |  |                                              
|                                                                                                |  | (Dollars in thousands, except per share data)
|Operating Results                                                                               |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net revenues                                                                                    |  | $                                             | 141,905 |                         |  | $    | 140,797 |      |  | $    | 183,621 |   |  | $ | 251,887 |   |  | $ | 240,420 |  
|Operating income (loss) (1)                                                                     |  | $                                             | (2,744  | )                       |  | $    | (3,560  | )    |  | $    | (2,181  | ) |  | $ | 3,583   |   |  | $ | 8,936   |  
|Income (loss) from continuing operations, before
    cumulative effect of accounting change (1) |  | $                                             | (3,787  | )                       |  | $    | (2,033  | )    |  | $    | (1,041  | ) |  | $ | 2,319   |   |  | $ | 5,488   |  
|Reserve recovery on sale of discontinued
    operations                                         |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  | $ | 1,379   |  
|Cumulative effect of accounting change                                                          |  |                                               |         |                         |  | $    | (1,280  | )    |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                                                               |  | $                                             | (3,787  | )                       |  | $    | (3,313  | )    |  | $    | (1,041  | ) |  | $ | 2,319   |   |  | $ | 6,867   |  
|Financial Position                                                                              |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Working capital                                                                                 |  | $                                             | 17,826  |                         |  | $    | 19,609  |      |  | $    | 21,314  |   |  | $ | 24,678  |   |  | $ | 25,486  |  
|Total assets                                                                                    |  | $                                             | 46,633  |                         |  | $    | 49,390  |      |  | $    | 57,652  |   |  | $ | 74,426  |   |  | $ | 75,951  |  
|Long-term liabilities                                                                           |  | $                                             | 2,520   |                         |  | $    | 2,496   |      |  | $    | 2,810   |   |  | $ | 3,411   |   |  | $ | 4,051   |  
|Shareholders equity                                                                            |  | $                                             | 21,597  |                         |  | $    | 25,546  |      |  | $    | 29,678  |   |  | $ | 30,482  |   |  | $ | 30,796  |  
|Share and Per Share Data                                                                        |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|BASIC                                                                                           |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations, before
    cumulative effect of accounting change (1) |  | $                                             | (.45    | )                       |  | $    | (.24    | )    |  | $    | (.12    | ) |  | $ | .26     |   |  | $ | .57     |  
|Reserve recovery on sale of discontinued
    operations                                         |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  | $ | .15     |  
|Cumulative effect of accounting change                                                          |  |                                               |         |                         |  | $    | (.14    | )    |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                                                               |  | $                                             | (.45    | )                       |  | $    | (.38    | )    |  | $    | (.12    | ) |  | $ | .26     |   |  | $ | .72     |  
|Weighted average common shares (000s)                                                          |  |                                               | 8,367   |                         |  |      | 8,743   |      |  |      | 8,854   |   |  |   | 8,999   |   |  |   | 9,595   |  
|DILUTED                                                                                         |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations, before
    cumulative effect of accounting change (1) |  | $                                             | (.45    | )                       |  | $    | (.24    | )    |  | $    | (.12    | ) |  | $ | .26     |   |  | $ | .57     |  
|Reserve recovery on sale of discontinued
    operations                                         |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  | $ | .14     |  
|Cumulative effect of accounting change                                                          |  |                                               |         |                         |  | $    | (.14    | )    |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                                                               |  | $                                             | (.45    | )                       |  | $    | (.38    | )    |  | $    | (.12    | ) |  | $ | .26     |   |  | $ | .71     |  
|Weighted average common shares (000s)                                                          |  |                                               | 8,367   |                         |  |      | 8,743   |      |  |      | 8,854   |   |  |   | 9,025   |   |  |   | 9,646   |  
|OTHER PER SHARE DATA (2)                                                                        |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Shareholders equity                                                                            |  | $                                             | 2.58    |                         |  | $    | 3.05    |      |  | $    | 3.34    |   |  | $ | 3.47    |   |  | $ | 3.20    |  
|Market price  high                                                                             |  | $                                             | 2.94    |                         |  | $    | 2.59    |      |  | $    | 3.40    |   |  | $ | 7.75    |   |  | $ | 11.69   |  
|Market price  low                                                                              |  | $                                             | 1.47    |                         |  | $    | 1.33    |      |  | $    | 1.65    |   |  | $ | 1.50    |   |  | $ | 4.38    |  
|Financial Ratios                                                                                |  |                                               |         |                         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Current ratio                                                                                   |  |                                               | 1.8     |                         |  |      | 1.9     |      |  |      | 1.8     |   |  |   | 1.6     |   |  |   | 1.6     |  
|Long-term liabilities to total capitalization                                                   |  |                                               | 10.4    | %                       |  |      | 8.9     | %    |  |      | 8.6     | % |  |   | 10.1    | % |  |   | 11.6    | %



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.
|   
|(2) | Certain other per share data presented for 1999
    has not been adjusted to reflect cash distributions totaling
    $7.00 per share made in June 1999 ($5.70 per share)
    and December 1999 ($1.30 per share).                                                                                                                                                                                                                                                                                                                                                                                                                              






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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. Our 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

4



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##### Table of Contents



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


Critical Accounting Policies

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

Revenue Recognition

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

Valuation of Receivables

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

Valuation of Inventory

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

Recent Accounting Pronouncements

In November 2002, the Emerging Issues Task Force
(EITF) reached a consensus on EITF No. 00-21,
Revenue Arrangements with Multiple Deliverables.
EITF No. 00-21 provides guidance as to when deliverables
must be divided into separate units of accounting. This guidance
was effective for revenue arrangements entered into after
June 30, 2003. The adoption of EITF No. 00-21 did not
have a material effect on the Companys financial position,
results of operations or cash flows.

In May 2003, the FASB issued Statement of
Financial Accounting Standards No. 150, Accounting
for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity (SFAS 150) that
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both
liabilities and equity. SFAS 150 was effective for
financial instruments entered into or modified after
May 31, 2003, and otherwise was effective at the beginning
of the first interim period beginning after June 15, 2003.
On November 7, 2003, Financial Accounting Standards Board
Staff Position 150-3 was issued, which indefinitely deferred the
effective date of SFAS 150 for certain mandatory redeemable
noncontrolling interests. The adoption of SFAS 150 had no
effect on the Companys consolidated financial position,
results of operations or cash flows.

5



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##### Table of Contents



Contractual Obligations and Commercial
Commitments

The following summarizes contractual obligations
and commercial commitments as of December 31, 2003 (in
thousands):

|                             |                          |       |   |       |  |      |   |       |  |      |   |       |  |  |   |     |  |  |   |     |  |  |   |    | 
|---------------------------- | ------------------------ | ----- | - | ----- |  | ---- | - | ----- |  | ---- | - | ----- |  |  | - | --- |  |  | - | --- |  |  | - | -- | 
|                             |                          | Total |   | 2004  |  | 2005 |   | 2006  |  | 2007 |   | 2008 
|                             |                          |       |   |       |  |      |   |       |  |      |   |      
|Contractual obligations      |                          |       |   |       |  |      |   |       |  |      |   |       |  |  |   |     |  |  |   |     |  |  |   |   
|                             | Operating leases         |       | $ | 4,358 |  |      | $ | 2,168 |  |      | $ | 1,249 |  |  | $ | 626 |  |  | $ | 304 |  |  | $ | 11 | 
|Other commercial commitments |                          |       |   |       |  |      |   |       |  |      |   |       |  |  |   |     |  |  |   |     |  |  |   |   
|                             | Standby letter of credit |       | $ | 20    |  |      | $ | 20    |  |      |   |       |  |  |   |     |  |  |   |     |  |  |   |    | 

Results of Operations

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

|                                       |                       |          |         |        |        |      |         |        |        |   |         |        |         | 
|-------------------------------------- | --------------------- | -------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------- | 
|                                       |                       | 2003     |         | 2002   |        | 2001
|                                       |                       |          |         |        |        |     
|Net revenues                           |                       |          |         |        |        |      |         |        |        |   |         |       
|                                       | Technology Solutions  |          |         |        |        |      |         |        |        |   |         |        |        
|                                       |                       | Products |         | $      | 55,826 |      |         | $      | 68,219 |   |         | $      | 105,009 | 
|                                       |                       | Services |         |        | 34,949 |      |         |        | 22,349 |   |         |        | 25,386  | 
|                                       |                       |          |         |        |        |      |         |        |        |   |         |       
|                                       |                       |          | 90,775  |        |        |      | 90,568  |        |        |   | 130,395 |       
|                                       | Recreational Products |          |         | 44,804 |        |      |         | 44,639 |        |   |         | 46,044 |        
|                                       | Electronic Components |          |         | 6,326  |        |      |         | 5,590  |        |   |         | 7,182  |        
|                                       |                       |          |         |        |        |      |         |        |        |   |         |       
|                                       |                       | $        | 141,905 |        |        | $    | 140,797 |        |        | $ | 183,621 |       
|                                       |                       |          |         |        |        |      |         |        |        |   |         |       
|Operating income (loss)                |                       |          |         |        |        |      |         |        |        |   |         |       
|                                       | Technology Solutions  |          | $       | (2,135 | )      |      | $       | (2,204 | )      |   | $       | (938   | )      
|                                       | Recreational Products |          |         | 1,321  |        |      |         | 819    |        |   |         | 954    |        
|                                       | Electronic Components |          |         | 939    |        |      |         | 489    |        |   |         | 1,590  |        
|                                       | Special items         |          |         |        |        |      |         |        |        |   |         | (650   | )      
|                                       | Corporate costs       |          |         | (2,869 | )      |      |         | (2,664 | )      |   |         | (3,137 | )      
|                                       |                       |          |         |        |        |      |         |        |        |   |         |       
|                                       |                       |          | (2,744  | )      |        |      | (3,560  | )      |        |   | (2,181  | )     
|Interest, net                          |                       |          | 166     |        |        |      | 200     |        |        |   | 460     |       
|Income tax benefit (provision)         |                       |          | (1,209  | )      |        |      | 1,327   |        |        |   | 680     |       
|Cumulative effect of accounting change |                       |          |         |        |        |      | (1,280  | )      |        |   |         |       
|                                       |                       |          |         |        |        |      |         |        |        |   |         |       
|Net loss                               |                       | $        | (3,787  | )      |        | $    | (3,313  | )      |        | $ | (1,041  | )     
|                                       |                       |          |         |        |        |      |         |        |        |   |         |       

The following summarizes comparative operating
results data as a percentage of net revenues:

|                                                                        |          |  |       |      |   |  |       |      |   |  |       |      |  
|----------------------------------------------------------------------- | -------- |  | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|Net revenues                                                            |          |  |       |      |   |  |       |      |   |  |       |     
|                                                                        | Products |  |       | 75.4 | % |  |       | 84.1 | % |  |       | 86.2 | %
|                                                                        | Services |  |       | 24.6 |   |  |       | 15.9 |   |  |       | 13.8 |  
|                                                                        |          |  |       |      |   |  |       |      |   |  |       |     
|                                                                        |          |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|Cost of products sold                                                   |          |  | (61.4 | )    |   |  | (69.7 | )    |   |  | (72.5 | )   
|Cost of services provided                                               |          |  | (20.0 | )    |   |  | (12.1 | )    |   |  | (10.4 | )   
|Selling and administrative                                              |          |  | (19.0 | )    |   |  | (19.1 | )    |   |  | (16.3 | )   
|Depreciation and amortization                                           |          |  | (1.5  | )    |   |  | (1.6  | )    |   |  | (1.2  | )   
|Special items                                                           |          |  |       |      |   |  |       |      |   |  | (.8   | )   
|Interest, net                                                           |          |  | .1    |      |   |  | .1    |      |   |  | .3    |     
|                                                                        |          |  |       |      |   |  |       |      |   |  |       |     
|Loss before income taxes and cumulative effect of
    accounting change |          |  | (1.8  | )    |   |  | (2.4  | )    |   |  | (.9   | )   
|Income tax benefit (provision)                                          |          |  | (.9   | )    |   |  | .9    |      |   |  | .4    |     
|Cumulative effect of accounting change                                  |          |  |       |      |   |  | (.9   | )    |   |  |       |     
|                                                                        |          |  |       |      |   |  |       |      |   |  |       |     
|Net loss                                                                |          |  | (2.7  | )%   |   |  | (2.4  | )%   |   |  | (.5   | )%  
|                                                                        |          |  |       |      |   |  |       |      |   |  |       |     

The following summarizes other comparative
operating results data:

|                                                                   |  |  |      |   |  |  |      |   |  |  |      |  
|------------------------------------------------------------------ |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|Cost of products sold as a percentage of products
    revenues     |  |  | 81.5 | % |  |  | 82.8 | % |  |  | 84.1 | %
|Cost of services provided as a percentage of
    services revenues |  |  | 81.4 | % |  |  | 76.4 | % |  |  | 75.3 | %

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| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    to Year Ended December 31, 2002

Net revenues

Net revenues for the year ended December 31,
2003 increased 0.8% to $141.9 million from
$140.8 million in 2002. Net revenues are further discussed
in Technology Solutions, Recreational
Products, and Electronic Components, below.

Operating income (loss)

Operating loss for the year ended
December 31, 2003 decreased 22.9% to $2.7 million from
$3.6 million in 2002. Operating results are further
discussed in Technology Solutions,
Recreational Products, and Electronic
Components, below.

Corporate costs

Corporate costs for the year ended
December 31, 2003 increased 7.7% to $2.9 million from
$2.7 million in 2002. During 2002, corporate costs were
reduced by miscellaneous income arising from insurance proceeds.
Excluding such miscellaneous income, corporate costs were
relatively consistent between the two years.

Interest, net

Net interest income for the year ended
December 31, 2003 decreased 17.0% to $166,000 from $200,000
in 2002. The decrease in net interest income is primarily
attributable to lower interest rates that were partially offset
by higher average cash balances during 2003.

Cumulative effect of accounting
change

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

Technology Solutions

Technology Solutions revenues for the year ended
December 31, 2003 increased slightly to $90.8 million
from $90.6 million in 2002. Services revenues for the year
ended December 31, 2003 increased 56.4% to
$34.9 million from $22.3 million in 2002 and rose to
38.5% of total Technology Solutions revenues during 2003 from
24.7% in 2002. Several new outsourcing engagements have
contributed to the increase in services revenues during 2003.
Services revenues for 2004 will be impacted due to the ending of
an outsourcing engagement in March 2004 that generated
approximately $6 million in revenues during 2003. Product
revenues for the year ended December 31, 2003 decreased
18.2% to $55.8 million from $68.2 million. The
decrease in product revenues is primarily attributable to
decreased technology product deliveries, as business enterprises
continued to defer information technology expenditures. Product
revenues have also continued to be negatively impacted as major
suppliers continued to market their products directly to
end-user customers, rather than utilizing traditional
distribution channels. The operating loss for the year ended
December 31, 2003 decreased 3.1% to $2.1 million from
$2.2 million in 2002. Operating results continue to be
challenged due to the start-up and implementation costs of new
engagements and a continued investment in expanded business
development efforts. The costs associated with these efforts
will continue to impact near term results, but are considered
essential to the Companys efforts in generating new
business opportunities and expanding its market penetration.

Recreational Products

Recreational Products revenues for the year ended
December 31, 2003 increased slightly to $44.8 million
from $44.6 million in 2002, and operating income increased
61.3% to $1.3 million from $819,000. Strong marine product
sales have been partially offset by generally weak sales in snow
related products as a result of mild winter conditions in the
Northern Midwest in early 2003. Reduced operating expenses,
including lower

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##### Table of Contents



payroll costs, advertising expenses and catalog
expenses, have contributed to the overall increase in operating
income. Results for 2002 also included distribution center
relocation costs.


Electronic Components

Electronic Components revenues for the year ended
December 31, 2003 increased 13.2% to $6.3 million from
$5.6 million in 2002, and operating income increased 92.0%
to $939,000 from $489,000. Increased product demand contributed
to the higher revenues in 2003. Increased revenues and shifts in
product mix contributed to the improvement in operating income.
In addition, in the prior year certain inventory reserves were
increased in light of difficult market conditions at the time.

Cost of products sold

As a percentage of product revenues, cost of
products sold for the year ended December 31, 2003
decreased to 81.5% from 82.8% in 2002. This decrease is
primarily due to reductions in lower margin product sales at the
Technology Solutions business unit.

Cost of services provided

As a percentage of services revenues, cost of
services provided for the year ended December 31, 2003
increased to 81.4% from 76.4%. This increase is primarily due to
higher payroll related costs incurred to integrate new clients
and deliver services within the Technology Solutions business
unit.

Selling and administrative expenses

As a percentage of sales, selling and
administrative expenses for the year ended December 31,
2003 decreased slightly to 19.0% from 19.1% in 2002. This
decrease is primarily attributable to reduced operating expenses
at the Recreational Products business unit offset by higher
travel, telecommunications and other related costs incurred to
integrate new clients at the Technology Solutions business unit.

Income tax

For the year ended December 31, 2003, the
Companys effective income tax rate was a provision of
approximately 46.9% compared to a benefit of approximately 39.5%
in 2002. After consideration of relevant factors, including
recent operating results and the prior utilization of all
previously available tax benefit carry-back opportunities, the
Company recorded a full valuation allowance against net deferred
tax asset balances. The establishment of the valuation
allowance, net of reversals of tax accruals no longer required,
resulted in an income tax provision of $1.2 million for the
year ended December 31, 2003. Before accounting changes,
during the year ended December 31, 2002, the Company
recognized income tax benefits of $1.3 million all of which
were realized through carry-back opportunities.

Net loss

Net loss totaled $3.8 million for the year
ended December 31, 2003, an increase of $0.5 million
from the net loss in the prior year. The change in net loss
resulted from improvements in operating results offset by the
income tax effects described above.

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

Net revenues

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

Operating income (loss)

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

Special items

Operating results for 2001 include pre-tax
charges totaling $1.5 million composed of $845,000 of costs
related to the strategic repositioning of BTLs Midwest
operations and $650,000 in settlement costs associated with a
change-in-control contract. The $845,000 repositioning charge
has been included in the operating results of Technology
Solutions and is further discussed in Technology
Solutions below.

Corporate costs

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

Interest, net

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

Cumulative effect of accounting
change

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

Technology Solutions

Technology Solutions revenues for the year ended
December 31, 2002 decreased 30.5% to $90.6 million
from $130.4 million in 2001. Approximately half of the
decrease in revenues is attributable to decreased technology
product deliveries, as business enterprises have continued to
defer information technology expenditures. Revenues have also
been negatively impacted as major suppliers increasingly market
their products directly to end-user customers, rather than
utilizing traditional distribution channels. Product revenues
for the year ended December 31, 2002 decreased 35.0% to
$68.2 million from $105.0 million in 2001. Services
revenues for the year ended December 31, 2002 decreased
12.0% to $22.3 million from $25.4 million in 2001. The
decrease in services revenues is primarily attributable to a
significant technology project in 2001 and no such similar
project in 2002. The operating loss totaled $2.2 million
for the year ended December 31, 2002 compared to a $938,000
loss in 2001, which includes the $845,000 special charge
associated with this business unit in 2001. Components of the
2001 special charge included facilities consolidation costs and
asset write-downs in connection with the opening of a technology
center and separation costs. The results for 2002 have been
adversely impacted by continued costs associated with building
BTLs technology outsourcing practices. This business unit
also discontinued its application development service line, in
response to weak market demand, that further contributed to the
operating loss during 2002.

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##### Table of Contents



Recreational Products

Recreational Products revenues for the year ended
December 31, 2002 decreased 3.1% to $44.6 million from
$46.0 million in 2001, and operating income decreased 14.2%
to $819,000 from $954,000. The decrease in revenues for 2002 is
attributable to lower snow product sales during the first
quarter as compared to the comparable period in 2001. Operating
results were also impacted by the relocation of this business
units Minnesota distribution center to a new facility
during the second half of 2002.

Electronic Components

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

Cost of products sold

As a percentage of product revenues, cost of
products sold for the year ended December 31, 2002
decreased to 82.8% from 84.1% in 2001. The decrease is primarily
due to reductions in lower margin product sales at the
Technology Solutions business unit.

Cost of services provided

As a percentage of services revenues, cost of
services provided for the year ended December 31, 2002
increased to 76.4% from 75.3% in 2001. This increase is
primarily due to higher margins associated with a technology
project in 2001.

Selling and administrative expenses

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

Income tax

The Companys effective income tax rate was
a benefit of approximately 39.5% in both 2002 and 2001. Taxable
losses during the year ended December 31, 2002 resulted in
a federal tax refund of approximately $2.4 million as
losses in this year have been carried back to previously
profitable years.

Net loss

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

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##### Table of Contents



Changes in Financial Condition

Liquidity and Capital Resources

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

|                                              |  |              |        |      |  |   |        |  
|--------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                              |  |             
|                                              |  | December 31,
|                                              |  |             
|                                              |  | 2003         |        | 2002
|                                              |  |              |        |     
|Cash and cash equivalents                     |  | $            | 12,203 |      |  | $ | 10,079 |  
|Working capital                               |  | $            | 17,826 |      |  | $ | 19,609 |  
|Current ratio                                 |  |              | 1.8:1  |      |  |   | 1.9:1  |  
|Long-term liabilities to total capitalization |  |              | 10.4   | %    |  |   | 8.9    | %
|Shareholders equity per share                |  | $            | 2.58   |      |  | $ | 3.05   |  
|Days sales in receivables                    |  |              | 46     |      |  |   | 51     |  
|Days sales in inventories                    |  |              | 36     |      |  |   | 47     |  

Net cash provided by operating activities was
$2.9 million for the year ended December 31, 2003
compared with $1.9 million in 2002. The cash flow from
operating activities in 2003 reflects an increase in accounts
payable and accrued payroll and the collection of a
$2.4 million federal tax refund, partially offset by an
increase in accounts receivable. The increase in accounts
payable was primarily due to a $1.5 million increase in
December 2003 inventory purchases at the Technology Solutions
business unit as compared to December 2002. This inventory was
sold prior to December 31, 2003. The increases in accounts
receivable and accrued payroll were primarily attributable to
the increase in sales at the Technology Solutions business unit
during the fourth quarter of 2003 as compared to the prior year
and an increase in accrued payroll costs at year-end for
employees hired on new services engagements. The cash flow from
operating activities in 2002 reflects cash collected on accounts
receivable partially offset by payment of accounts payable and
accrued liabilities and an increase in income tax receivable.
The decrease in accounts receivable was primarily due to the
$5.1 million decline in revenues during the fourth quarter
of 2002 as compared to 2001. Accounts payable was also lower at
the end of 2002 as a result of reduced inventory purchases in
light of the reduced sales levels. The increase in income tax
receivable totaling $1.7 million represents the increase in
2002 federal tax refund over the refund received related to the
2001 tax year.

Net cash used in investing activities totaled
$789,000 for the year ended December 31, 2003 compared to
$1.5 million in 2002. Investing activities included the
addition of fixed assets as well as expenditures for a relocated
distribution center in 2002.

Net cash used in financing activities totaled
$819,000 for the year ended December 31, 2002. This total
included funds utilized to purchase shares of common stock under
the Companys 2001 Stock Repurchase Program, offset by
proceeds from stock issued under the Companys
Employees Stock Purchase Plan.

Despite recent operating losses, the Company
believes that sufficient cash resources exist for 2004 to
support requirements for its operations and commitments through
available cash and cash generated by operations. The Company has
a line of credit for general corporate purposes in the amount of
$10.0 million, expiring in May 2004. No amounts were
borrowed under the line during 2003 or 2002. The Company is
currently able to borrow up to $2.5 million of the
$10.0 million credit line, subject to certain requirements,
including maintaining minimum cash and cash equivalents on
deposit of at least $3.5 million. Management does not
currently anticipate the need to borrow under the line of credit
and is evaluating its options in regards to renewing or
terminating the facility.

The Company does not have any material
off-balance sheet arrangements.

Trends and Uncertainties

The challenging technology market conditions and
costs associated with building our technology outsourcing
practices have impacted results during 2003 and are expected to
continue to impact near term financial performance. Operating
results continue to be challenged due to the start-up and
implementation

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##### Table of Contents



costs of new engagements and a continued
investment in expanded business development efforts. The success
of BTLs business is dependent to a significant extent on
the ability to generate services business with new and existing
clients. We believe that continued focus on developing new
business opportunities and expanding market penetration are key
steps towards long term growth. Because of the challenges in
selling technology lifecycle and outsourced services to new
clients in the current difficult technology environment, there
can be no assurance that such efforts will be successful. The
success of these efforts is critical in returning the Company to
profitability.







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

The Company has no investments in market
risk-sensitive investments for either trading purposes or
purposes other than trading purposes.

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

INDEX TO FINANCIAL STATEMENTS

|                              |                                                                                                |      |  |    | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                              |                                                                                                | Page
|                              |                                                                                                |     
|Financial Statements:         |                                                                                                |      |  |   
|                              | Report of Independent Auditors                                                                 |      |  | 14 | 
|                              | Consolidated Statement of Operations for the
    three years ended December 31, 2003           |      |  | 15 | 
|                              | Consolidated Balance Sheet at December 31,
    2003 and 2002                                   |      |  | 16 | 
|                              | Consolidated Statement of Shareholders
    Equity for the three years ended December 31, 2003 |      |  | 17 | 
|                              | Consolidated Statement of Cash Flows for the
    three years ended December 31, 2003           |      |  | 18 | 
|                              | Notes to Consolidated Financial Statements                                                     |      |  | 19 | 
|Financial Statement Schedule: |                                                                                                |      |  |   
|                              | Schedule II  Valuation and
    Qualifying Accounts                                            |      |  | 28 | 

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.

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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

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,
2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

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

PRICEWATERHOUSECOOPERS LLP

Los Angeles, California

February 17, 2004


14



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##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share
data)


|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |         |  
|----------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                              |                                                    |                        
|                                                                              |                                                    | Year ended December 31,
|                                                                              |                                                    |                        
|                                                                              |                                                    | 2003                    |         | 2002    |   | 2001
|                                                                              |                                                    |                         |         |         |   |     
|Net revenues                                                                  |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|                                                                              | Products                                           |                         | $       | 106,956 |   |      | $       | 118,448 |   |   | $       | 158,235 |  
|                                                                              | Services                                           |                         |         | 34,949  |   |      |         | 22,349  |   |   |         | 25,386  |  
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|                                                                              |                                                    |                         | 141,905 |         |   |      | 140,797 |         |   |   | 183,621 |        
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|Costs and expenses                                                            |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|                                                                              | Cost of products sold                              |                         |         | 87,181  |   |      |         | 98,076  |   |   |         | 133,039 |  
|                                                                              | Cost of services provided                          |                         |         | 28,449  |   |      |         | 17,065  |   |   |         | 19,124  |  
|                                                                              | Selling and administrative                         |                         |         | 26,914  |   |      |         | 26,883  |   |   |         | 29,870  |  
|                                                                              | Depreciation and amortization                      |                         |         | 2,105   |   |      |         | 2,333   |   |   |         | 2,274   |  
|                                                                              | Interest, net                                      |                         |         | (166    | ) |      |         | (200    | ) |   |         | (460    | )
|                                                                              | Special items, net                                 |                         |         |         |   |      |         |         |   |   |         | 1,495   |  
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|                                                                              |                                                    |                         | 144,483 |         |   |      | 144,157 |         |   |   | 185,342 |        
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|Loss before income taxes and cumulative effect of
    accounting change       |                                                    |                         | (2,578  | )       |   |      | (3,360  | )       |   |   | (1,721  | )      
|Income tax provision (benefit)                                                |                                                    |                         | 1,209   |         |   |      | (1,327  | )       |   |   | (680    | )      
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|Loss before cumulative effect of accounting change                            |                                                    |                         | (3,787  | )       |   |      | (2,033  | )       |   |   | (1,041  | )      
|Cumulative effect of accounting change, net of
    income tax benefit of $836 |                                                    |                         |         |         |   |      | (1,280  | )       |   |   |         |        
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|Net loss                                                                      |                                                    | $                       | (3,787  | )       |   | $    | (3,313  | )       |   | $ | (1,041  | )      
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|SHARE AND PER SHARE DATA                                                      |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|BASIC AND DILUTED                                                             |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|                                                                              | Loss before cumulative effect of accounting change |                         | $       | (.45    | ) |      | $       | (.24    | ) |   | $       | (.12    | )
|                                                                              | Cumulative effect of accounting change             |                         |         |         |   |      |         | (.14    | ) |   |         |         |  
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|                                                                              | Net loss                                           |                         | $       | (.45    | ) |      | $       | (.38    | ) |   | $       | (.12    | )
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        
|                                                                              | Weighted average common shares                     |                         |         | 8,367   |   |      |         | 8,743   |   |   |         | 8,854   |  
|                                                                              |                                                    |                         |         |         |   |      |         |         |   |   |         |        

See Accompanying Notes to Consolidated Financial
Statements.

15



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##### Table of Contents



CONSOLIDATED BALANCE SHEET

(Dollars in thousands)


|                                                           |                                                                                |                            |        |         |        |   |        |        |        | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------- | ------ | ------- | ------ | - | ------ | ------ | ------ | 
|                                                           |                                                                                |                           
|                                                           |                                                                                | December 31,              
|                                                           |                                                                                |                           
|                                                           |                                                                                | 2003                       |        | 2002   
|                                                           |                                                                                |                            |        |        
|ASSETS                                                    
|Current assets                                             |                                                                                |                            |        |         |        |   |        |       
|                                                           | Cash and cash equivalents                                                      |                            | $      | 12,203  |        |   | $      | 10,079 |       
|                                                           | Accounts receivable, less allowance for doubtful
    accounts of $936 and $749 |                            |        | 16,164  |        |   |        | 13,078 |       
|                                                           | Income tax receivable                                                          |                            |        |         |        |   |        | 2,400  |       
|                                                           | Inventories                                                                    |                            |        | 11,286  |        |   |        | 12,349 |       
|                                                           | Prepaid expenses and other                                                     |                            |        | 689     |        |   |        | 3,051  |       
|                                                           |                                                                                |                            |        |         |        |   |        |       
|                                                           |                                                                                | Total current assets       |        |         | 40,342 |   |        |        | 40,957 | 
|                                                           |                                                                                |                            |        |         |        |   |        |       
|Fixed assets, at cost
    Land, buildings and improvements |                                                                                |                            | 554    |         |        |   | 554    |       
|                                                           | Leasehold improvements                                                         |                            |        | 926     |        |   |        | 932    |       
|                                                           | Computer equipment and software                                                |                            |        | 8,754   |        |   |        | 7,798  |       
|                                                           | Furniture, fixtures and other                                                  |                            |        | 4,547   |        |   |        | 5,362  |       
|                                                           |                                                                                |                            |        |         |        |   |        |       
|                                                           |                                                                                |                            | 14,781 |         |        |   | 14,646 |       
|                                                           | Less accumulated depreciation                                                  |                            |        | (10,575 | )      |   |        | (9,210 | )     
|                                                           |                                                                                |                            |        |         |        |   |        |       
|                                                           |                                                                                | Total fixed assets         |        |         | 4,206  |   |        |        | 5,436  | 
|                                                           |                                                                                |                            |        |         |        |   |        |       
|Other assets                                               |                                                                                |                            | 2,085  |         |        |   | 2,997  |       
|                                                           |                                                                                |                            |        |         |        |   |        |       
|                                                           |                                                                                | $                          | 46,633 |         |        | $ | 49,390 |       
|                                                           |                                                                                |                            |        |         |        |   |        |       
|                                                          
|LIABILITIES AND SHAREHOLDERS
    EQUITY                  
|Current liabilities                                        |                                                                                |                            |        |         |        |   |        |       
|                                                           | Accounts payable                                                               |                            | $      | 12,882  |        |   | $      | 10,687 |       
|                                                           | Accrued payroll                                                                |                            |        | 2,414   |        |   |        | 1,871  |       
|                                                           | Accrued liabilities                                                            |                            |        | 7,220   |        |   |        | 8,790  |       
|                                                           |                                                                                |                            |        |         |        |   |        |       
|                                                           |                                                                                | Total current liabilities  |        |         | 22,516 |   |        |        | 21,348 | 
|                                                           |                                                                                |                            |        |         |        |   |        |       
|Deferred compensation and other                            |                                                                                |                            | 2,520  |         |        |   | 2,496  |       
|                                                           |                                                                                |                            |        |         |        |   |        |       
|Shareholders equity                                       |                                                                                |                            |        |         |        |   |        |       
|Preferred stock                                            |                                                                                |                            |        |         |        |   |        |       
|                                                           | Authorized  1,000,000 shares,
    outstanding  none                          |                            |        |         |        |   |        |        |       
|Common stock                                               |                                                                                |                            |        |         |        |   |        |       
|                                                           | Authorized  35,000,000 shares,
    outstanding  8,366,724 shares             |                            |        | 32,373  |        |   |        | 32,535 |       
|                                                           | Accumulated deficit                                                            |                            |        | (10,776 | )      |   |        | (6,989 | )     
|                                                           |                                                                                |                            |        |         |        |   |        |       
|                                                           |                                                                                | Total shareholders equity |        |         | 21,597 |   |        |        | 25,546 | 
|                                                           |                                                                                |                            |        |         |        |   |        |       
|Commitments and contingencies                              |                                                                                |                            |        |         |        |   |        |       
|                                                           |                                                                                | $                          | 46,633 |         |        | $ | 49,390 |       
|                                                           |                                                                                |                            |        |         |        |   |        |       

See Accompanying Notes to Consolidated Financial
Statements.

16



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##### Table of Contents



CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY

(Dollars in thousands)


|                             |                                |              |           |             |   |         |        |      |   |   |         |        |  
|---------------------------- | ------------------------------ | ------------ | --------- | ----------- | - | ------- | ------ | ---- | - | - | ------- | ------ | -
|                             |                                |              |           |            
|                             |                                | Common stock |           |            
|                             |                                |              |           | Accumulated
|                             |                                | Shares       |           | Amount      |   | deficit
|                             |                                |              |           |             |   |        
|Balance at December 31, 2000 |                                |              | 8,790,936 |             |   | $       | 33,117 |      |   | $ | (2,635  | )     
|                             | Employee stock plans and other |              |           | 98,772      |   |         |        | 237  |   |   |         |        |  
|                             | Net loss                       |              |           |             |   |         |        |      |   |   |         | (1,041 | )
|                             |                                |              |           |             |   |         |        |      |   |   |         |       
|Balance at December 31, 2001 |                                |              | 8,889,708 |             |   |         | 33,354 |      |   |   | (3,676  | )     
|                             | Employee stock plans           |              |           | 33,737      |   |         |        | 53   |   |   |         |        |  
|                             | Stock repurchase program       |              |           | (556,721    | ) |         |        | (872 | ) |   |         |        |  
|                             | Net loss                       |              |           |             |   |         |        |      |   |   |         | (3,313 | )
|                             |                                |              |           |             |   |         |        |      |   |   |         |       
|Balance at December 31, 2002 |                                |              | 8,366,724 |             |   |         | 32,535 |      |   |   | (6,989  | )     
|                             | Other stock transactions       |              |           |             |   |         |        | (162 | ) |   |         |        |  
|                             | Net loss                       |              |           |             |   |         |        |      |   |   |         | (3,787 | )
|                             |                                |              |           |             |   |         |        |      |   |   |         |       
|Balance at December 31, 2003 |                                |              | 8,366,724 |             |   | $       | 32,373 |      |   | $ | (10,776 | )     
|                             |                                |              |           |             |   |         |        |      |   |   |         |       

See Accompanying Notes to Consolidated Financial
Statements.

17



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##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)


|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |         |        |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------------- | ------ | ------ | ----- | ---- | ------ | ------ | ------ | - | ------ | ------- | ------ | -
|                                                                          |                                                                          |                                                        
|                                                                          |                                                                          | Year ended December 31,                                
|                                                                          |                                                                          |                                                        
|                                                                          |                                                                          | 2003                                                    |        | 2002   |       | 2001
|                                                                          |                                                                          |                                                         |        |        |       |     
|Cash flows from operating activities:                                     |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          | Net loss                                                                 |                                                         | $      | (3,787 | )     |      | $      | (3,313 | )      |   | $      | (1,041  | )     
|                                                                          | Cumulative effect of accounting change                                   |                                                         |        |        |       |      |        | 1,280  |        |   |        |         |       
|                                                                          | Depreciation                                                             |                                                         |        | 2,105  |       |      |        | 2,333  |        |   |        | 2,161   |       
|                                                                          | Amortization of goodwill                                                 |                                                         |        |        |       |      |        |        |        |   |        | 113     |       
|                                                                          | Provision for losses on accounts receivable                              |                                                         |        | 207    |       |      |        | 63     |        |   |        | 168     |       
|                                                                          | Changes in assets and liabilities, net of
    acquisitions and disposals |                                                         |        | 4,388  |       |      |        | 1,574  |        |   |        | (804    | )     
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          |                                                                          | Net cash provided by operating activities               |        |        | 2,913 |      |        |        | 1,937  |   |        |         | 597    |  
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|Cash flows from investing activities:                                     |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          | Purchases of fixed assets and other                                      |                                                         |        | (789   | )     |      |        | (1,457 | )      |   |        | (4,449  | )     
|                                                                          | Purchase of business                                                     |                                                         |        |        |       |      |        |        |        |   |        | (400    | )     
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          |                                                                          | Net cash used in investing activities                   |        |        | (789  | )    |        |        | (1,457 | ) |        |         | (4,849 | )
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|Cash flows from financing activities:                                     |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          | Employee stock plans and other                                           |                                                         |        |        |       |      |        | 53     |        |   |        | 237     |       
|                                                                          | Purchases of common stock                                                |                                                         |        |        |       |      |        | (872   | )      |   |        |         |       
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          |                                                                          | Net cash provided by (used in) financing
    activities |        |        |       |      |        |        | (819   | ) |        |         | 237    |  
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|Net increase (decrease) in cash and cash
    equivalents                  |                                                                          |                                                         | 2,124  |        |       |      | (339   | )      |        |   | (4,015 | )      
|Cash and cash equivalents at beginning of year                            |                                                                          |                                                         | 10,079 |        |       |      | 10,418 |        |        |   | 14,433 |        
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|Cash and cash equivalents at end of year                                  |                                                                          | $                                                       | 12,203 |        |       | $    | 10,079 |        |        | $ | 10,418 |        
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|Changes in assets and liabilities, net of
    acquisitions and disposals: |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          | Accounts receivable                                                      |                                                         | $      | (3,273 | )     |      | $      | 5,525  |        |   | $      | 13,571  |       
|                                                                          | Income tax receivable                                                    |                                                         |        | 2,400  |       |      |        | (1,654 | )      |   |        | (746    | )     
|                                                                          | Inventories                                                              |                                                         |        | 1,063  |       |      |        | 1,259  |        |   |        | 1,457   |       
|                                                                          | Accounts payable                                                         |                                                         |        | 2,195  |       |      |        | (1,146 | )      |   |        | (12,659 | )     
|                                                                          | Accrued liabilities and other                                            |                                                         |        | 2,003  |       |      |        | (2,410 | )      |   |        | (2,427  | )     
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          |                                                                          | Net change                                              |        | $      | 4,388 |      |        | $      | 1,574  |   |        | $       | (804   | )
|                                                                          |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|Supplemental cash flow information:                                       |                                                                          |                                                         |        |        |       |      |        |        |        |   |        |        
|                                                                          | Interest paid                                                            |                                                         | $      |       |       |      | $      |       |        |   | $      | 4       |       
|                                                                          | Income taxes paid                                                        |                                                         | $      | 36     |       |      | $      |       |        |   | $      |        |       

See Accompanying Notes to Consolidated Financial
Statements.

18



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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 technology lifecycle services
(Technology Solutions); distribution of aftermarket
products for recreational vehicles, motorcycles, snowmobiles and
powerboats (Recreational Products); and specialty
components manufacturing and distribution for the computer and
electronics markets (Electronic Components). Sales
are recognized and trade receivables are recorded when products
are shipped or when services are provided assuming no
significant Company obligations remain and collection of related
receivables is probable. Concentrations of credit risk with
respect to trade receivables are generally limited due to the
large number and general dispersion of trade accounts, which
constitute the Companys customer base. During 2003 and
2002, the Company had one Technology Solutions customer that
accounted for approximately 10% and 12% of net sales,
respectively. At December 31, 2003 and 2002, the Company
had one Technology Solutions customer that accounted for
approximately 14% and 15% of accounts receivable, respectively.
The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company estimates
reserves for potential credit losses and such losses have been
within these estimates.

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

Shipping and handling
costs Shipping and
handling costs, consisting primarily of freight paid to
carriers, Company-owned delivery vehicle expenses and payroll
related costs incurred in connection with storing, moving,
preparing, and delivering products totaled approximately
$3.4 million in 2003, $3.3 million in 2002 and
$3.7 million in 2001. These costs are included, net of
amounts billed to customers, within selling and administrative
expenses in the Consolidated Statement of Operations. Amounts
billed to customers totaled approximately $550,000 in 2003,
$550,000 in 2002 and $800,000 in 2001.

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

Fixed assets, depreciation and
amortization All fixed
assets are recorded at cost and depreciated using the
straight-line method based upon estimated useful lives of
10 years for building improvements, 3 to 5 years for
computer equipment and software and 3 to 7 years for
furniture, fixtures and other. Leasehold improvements are
amortized over the shorter of their estimated service lives or
the term of the lease.

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

19



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##### Table of Contents



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

Income
taxes Provision is made
for the tax effects of temporary differences between the
financial reporting basis and the tax basis of the
Companys assets and liabilities. In estimating deferred
tax balances, the Company considers all expected future events
other than enactments of changes in the tax law or rates. A
valuation allowance is recorded when it is more likely than not
that some or all of the deferred tax assets will not be realized.

Accrued
liabilities The
Companys accrued liabilities include approximately
$4.9 million and $5.4 million of amounts attributable
to disposed businesses at December 31, 2003 and 2002,
respectively. These amounts relate to certain legal,
environmental and contractual matters specifically identifiable
to these disposed businesses.

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

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

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

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

New
pronouncements In November
2002, the Emerging Issues Task Force (EITF) reached
a consensus on EITF No. 00-21, Revenue Arrangements
with Multiple Deliverables. EITF No. 00-21 provides
guidance as to when deliverables must be divided into separate
units of accounting. This guidance was effective for revenue
arrangements entered into after June 30, 2003. The adoption
of EITF No. 00-21 did not have a material effect on the
Companys financial position, results of operations or cash
flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity that establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150
was effective for financial instruments entered into or modified
after May 31, 2003, and otherwise was effective at the
beginning of the first interim period beginning after
June 15, 2003. On November 7, 2003, Financial
Accounting Standards Board Staff Position 150-3 was issued,
which indefinitely deferred the effective date of SFAS 150
for certain mandatory redeemable noncontrolling interests. The
adoption of SFAS 150 had no effect on our consolidated
financial position, results of operations or cash flows.

Special Items

Repositioning and settlement
costs During 2001, the
Company recorded special pre-tax charges totaling
$1.5 million. The charges consisted of $845,000 for costs
related to strategic repositioning of the Companys
operations and $650,000 in settlement costs associated with an
executive change-in-control contract. Components of the
repositioning charge included facilities consolidation costs and
asset write-downs

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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.


Floor Plan Arrangements

The Company finances certain inventory purchases
in its Technology Solutions business unit through floor plan
arrangements with two finance companies. The amount of aggregate
outstanding floor plan obligations ranged between
$2.0 million and $5.6 million during 2003 and
$3.1 million and $5.5 million during 2002, 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, 2003 and 2002, the Company had outstanding
floor plan obligations of $4.1 million and
$3.1 million, respectively, which are classified within
accounts payable.

Borrowings and Liquidity

Under a credit agreement dated April 1999, as
amended, with its primary lender, the Company has a line of
credit in the amount of $10.0 million to finance short term
cash flow and working capital requirements. The credit agreement
expires in May 2004 and provides for interest at either the
banks reference rate or LIBOR plus 1.75%. The line of
credit is subject to an annual commitment fee of .5% on the
unused line of credit. Available borrowing capacity is subject
to a borrowing base calculation based on a percentage of the
Companys available accounts receivable and inventories.
The Company is subject to certain restrictive covenants
including minimum interest coverage, minimum tangible net worth
and a maximum leverage ratio. Outstanding borrowings are secured
by the assets of the Company, except those assets that secure
borrowings under floor plan arrangements. At December 31,
2003 and 2002, the Company had no outstanding borrowings under
the credit agreement. The Company currently is able to borrow up
to $2.5 million of the $10.0 million credit line,
subject to certain requirements, including maintaining minimum
cash and cash equivalents on deposit of at least
$3.5 million.

Despite recent operating losses, the Company
believes that sufficient cash resources exist for 2004 to
support requirements for its operations and commitments through
available cash and cash generated by operations. Management does
not currently anticipate the need to borrow under the line of
credit and is evaluating its options in regards to renewing or
terminating the facility.

Stock Repurchase Program

In July 2001, the Board of Directors authorized a
stock repurchase program (the 2001 Program) of up to
1,000,000 shares of the Companys outstanding common
stock. The common stock can be repurchased in the open market at
varying prices depending on market conditions and other factors.
During 2002, the Company repurchased 556,721 shares of
common stock at an average price of $1.57 per share under
the 2001 Program.

Stock Plans

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

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The following summaries activity under the plans:

|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |      | 
|-------------------------------- | --------------------- | ---------- | ------- | -------- | - | --------- | --------- | --------- | - | - | ---- | ---- |  |  | - | ---- | 
|                                 |                       |            |         |          |   | Weighted  |           |          
|                                 |                       |            |         |          |   | average   |           | Fair     
|                                 |                       | Available  |         | Shares   |   | exercise  |           | value of 
|                                 |                       | for future |         | under    |   | price per |           | option   
|                                 |                       | grant      |         | option   |   | share     |           | per share
|                                 |                       |            |         |          |   |           |           |          
|Outstanding at December 31, 2000 |                       |            | 458,030 |          |   |           | 1,012,159 |           |   | $ | 4.37 |      |  |  |   |     
|                                 | Granted               |            |         | (245,000 | ) |           |           | 245,000   |   |   |      | 2.44 |  |  | $ | 1.24 | 
|                                 | Canceled              |            |         | 239,830  |   |           |           | (239,830  | ) |   |      | 4.82 |  |  |   |      | 
|                                 | Adoption of 2001 Plan |            |         | 500,000  |   |           |           |           |   |   |      |      |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     
|Outstanding at December 31, 2001 |                       |            | 952,860 |          |   |           | 1,017,329 |           |   |   | 3.80 |      |  |  |   |     
|                                 | Granted               |            |         | (130,000 | ) |           |           | 130,000   |   |   |      | 2.00 |  |  | $ | 0.95 | 
|                                 | Canceled              |            |         | 65,100   |   |           |           | (65,100   | ) |   |      | 4.46 |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     
|Outstanding at December 31, 2002 |                       |            | 887,960 |          |   |           | 1,082,229 |           |   |   | 3.55 |      |  |  |   |     
|                                 | Granted               |            |         | (45,000  | ) |           |           | 45,000    |   |   |      | 1.79 |  |  | $ | 0.89 | 
|                                 | Canceled              |            |         | 89,500   |   |           |           | (89,500   | ) |   |      | 2.81 |  |  |   |      | 
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     
|Outstanding at December 31, 2003 |                       |            | 932,460 |          |   |           | 1,037,729 |           |   | $ | 3.54 |      |  |  |   |     
|                                 |                       |            |         |          |   |           |           |           |   |   |      |      |  |  |   |     

The following summarizes stock options
outstanding as of December 31, 2003:

|            |  |             |           |             |  |                |         |  |  |   |      | 
|----------- |  | ----------- | --------- | ----------- |  | -------------- | ------- |  |  | - | ---- | 
|Remaining   |  |             |           |             |  | Weighted      
|Option life |  | Options     |           | Options     |  | average       
|in years    |  | outstanding |           | exercisable |  | exercise price
|            |  |             |           |             |  |               
|1           |  |             | 84,229    |             |  |                | 84,229  |  |  | $ | 5.14 | 
|2           |  |             | 118,500   |             |  |                | 83,500  |  |  |   | 2.47 | 
|3           |  |             | 75,000    |             |  |                | 50,500  |  |  |   | 2.56 | 
|4           |  |             | 140,000   |             |  |                | 95,000  |  |  |   | 4.77 | 
|5 or more   |  |             | 620,000   |             |  |                | 548,333 |  |  |   | 3.81 | 
|            |  |             |           |             |  |                |         |  |  |   |      | 
|            |  |             | 1,037,729 |             |  |                | 861,562 |  |  | $ | 3.84 | 
|            |  |             |           |             |  |                |         |  |  |   |      | 

At December 31, 2002 and 2001, 590,946 and
348,079 options were exercisable at weighted average exercise
prices of $3.95 and $4.61, respectively.

The following summarizes shareholder approved and
non-shareholder approved plan information as of
December 31, 2003:

|                              |  |        |           |                |  |            |      |  |  |  |         | 
|----------------------------- |  | ------ | --------- | -------------- |  | ---------- | ---- |  |  |  | ------- | 
|                              |  |        |           | Weighted       |  |           
|                              |  | Shares |           | average        |  | Available 
|                              |  | under  |           | exercise price |  | for future
|                              |  | option |           | per share      |  | grant     
|                              |  |        |           |                |  |           
|Shareholder approved plans    |  |        | 997,729   |                |  | $          | 3.57 |  |  |  | 472,460 | 
|Non-shareholder approved plan |  |        | 40,000    |                |  | $          | 2.59 |  |  |  | 460,000 | 
|                              |  |        |           |                |  |            |      |  |  |  |         | 
|                              |  |        | 1,037,729 |                |  |            |      |  |  |  | 932,460 | 
|                              |  |        |           |                |  |            |      |  |  |  |         | 

Under the Bell Industries Employees Stock
Purchase Plan (the ESPP) 750,000 shares were
authorized for issuance to Bell employees. Eligible employees
may purchase Bell stock at 85% of market value through the ESPP
at various offering times during the year. Under the ESPP, the
Company issued 33,737 and 61,802 shares during 2002 and
2001, respectively. The weighted average fair value per share of
the purchase rights granted in 2002 and 2001 were $.66 and $.62,
respectively. During the third quarter of 2002, the Company
suspended the ESPP. At December 31, 2003,
419,450 shares were available for future issuance under the
ESPP.

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The Black-Scholes model was utilized for
estimating the fair value of stock-based grants using an assumed
volatility of approximately 60% for all years presented and an
expected four year life for stock options, and an assumed
volatility of approximately 60% for all years presented and an
expected four month life for the ESPP. The assumed risk free
interest rate was approximately 4.0% in 2003, 4.0% in 2002 and
5.0% in 2001 for the stock option plans and approximately 2.5%
in 2002 and 3.5% in 2001 for the ESPP. Stock-based compensation
costs determined under the fair value method would have
increased net loss by $.2 million ($.02 per share) in
2003, $.4 million ($.05 per share) in 2002 and
$.4 million ($.05 per share) in 2001.

Income Taxes

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

|         |         |      |       |        |   |      |        |        |   |   |      |      |  
|-------- | ------- | ---- | ----- | ------ | - | ---- | ------ | ------ | - | - | ---- | ---- | -
|         |         | 2003 |       | 2002   |   | 2001
|         |         |      |       |        |   |     
|Current  |         |      |       |        |   |      |        |        |   |   |      |     
|         | Federal |      | $     | (1,290 | ) |      | $      | (2,057 | ) |   | $    | (394 | )
|         | State   |      |       | 70     |   |      |        | (422   | ) |   |      | (136 | )
|Deferred |         |      |       |        |   |      |        |        |   |   |      |     
|         | Federal |      |       | 2,349  |   |      |        | 1,117  |   |   |      | (146 | )
|         | State   |      |       | 80     |   |      |        | 35     |   |   |      | (4   | )
|         |         |      |       |        |   |      |        |        |   |   |      |     
|         |         | $    | 1,209 |        |   | $    | (1,327 | )      |   | $ | (680 | )   
|         |         |      |       |        |   |      |        |        |   |   |      |     

The following is a reconciliation of the federal
statutory tax rate to the effective tax rate:

|                                                        |  |      |       |      |  |      |       |    |  |  |       |   
|------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                                        |  | 2003 |       | 2002 |  | 2001
|                                                        |  |      |       |      |  |     
|Federal statutory tax rate                              |  |      | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )%
|State taxes, net of federal benefit                     |  |      | 1.8   |      |  |      | (4.8  | )  |  |  | (5.2  | ) 
|Reversal of previously recorded tax accruals            |  |      | (50.8 | )    |  |      |       |    |  |  |       |   
|Valuation allowance against net deferred tax
    assets |  |      | 130.1 |      |  |      |       |    |  |  |       |   
|Other, net                                              |  |      | (.2   | )    |  |      | (.7   | )  |  |  | (.3   | ) 
|                                                        |  |      |       |      |  |      |       |    |  |  |       |   
|Effective tax rate                                      |  |      | 46.9  | %    |  |      | (39.5 | )% |  |  | (39.5 | )%
|                                                        |  |      |       |      |  |      |       |    |  |  |       |   

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

|                                                         |                                  |              |        |       |   |   |       |       |  
|-------------------------------------------------------- | -------------------------------- | ------------ | ------ | ----- | - | - | ----- | ----- | -
|                                                         |                                  |             
|                                                         |                                  | December 31,
|                                                         |                                  |             
|                                                         |                                  | 2003         |        | 2002 
|                                                         |                                  |              |        |      
|Deferred tax assets:                                     |                                  |              |        |       |   |   |       |      
|                                                         | Discontinued operations          |              | $      | 1,521 |   |   | $     | 1,711 |  
|                                                         | Net operating loss carryforwards |              |        | 1,014 |   |   |       |       |  
|                                                         | Employee benefit accruals        |              |        | 469   |   |   |       | 545   |  
|                                                         | Goodwill                         |              |        | 370   |   |   |       | 439   |  
|                                                         | Receivables allowance            |              |        | 288   |   |   |       | 223   |  
|                                                         | Inventory reserves               |              |        | 177   |   |   |       | 178   |  
|                                                         |                                  |              |        |       |   |   |       |      
|                                                         |                                  |              | 3,839  |       |   |   | 3,096 |      
|Deferred tax liabilities:                                |                                  |              |        |       |   |   |       |      
|                                                         | Prepaid items                    |              |        | (209  | ) |   |       | (330  | )
|                                                         | Depreciation                     |              |        | (39   | ) |   |       | (197  | )
|                                                         | Other                            |              |        | (238  | ) |   |       | (140  | )
|                                                         |                                  |              |        |       |   |   |       |      
|Net deferred tax balances before valuation
    allowance |                                  |              | 3,353  |       |   |   | 2,429 |      
|Valuation allowance                                      |                                  |              | (3,353 | )     |   |   |       |      
|                                                         |                                  |              |        |       |   |   |       |      
|Net deferred tax balances after valuation
    allowance  |                                  | $            | 0      |       |   | $ | 2,429 |      
|                                                         |                                  |              |        |       |   |   |       |      

After consideration of relevant factors,
including recent operating results and the prior utilization of
all previously available tax carry-back opportunities, the
Company recorded a full valuation allowance against net deferred
tax asset balances in the fourth quarter of 2003.

Net current deferred tax assets, included with
prepaid expenses and other, and net non-current deferred tax
assets, included with other assets, totaled $1.6 million
and $791,000, respectively, at December 31, 2002.

As of December 31, 2003, the Company has a
Federal net operating loss carry forward of $3.0 million
which expires in 2023.

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 $59,000 in 2003, $112,000 in 2002 and $150,000
in 2001.

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 $207,000 in 2003, $134,000 in 2002 and $110,000 in 2001.

The Company provides postretirement medical
coverage for qualifying employees who were employed prior to
January 1, 1998. The estimated liability for postretirement
medical benefits, included in deferred compensation and other
long term liabilities, totaled $868,000 and $987,000 at
December 31, 2003 and 2002, respectively. Annual costs for
active and potentially eligible employees were not significant
during any of the years presented.

Commitments and Contingencies

At December 31, 2003, the Company had
operating leases on certain of its facilities and equipment
expiring in various years through 2008. Under certain operating
leases, the Company is required to pay property taxes and
insurance. Rent expense under operating leases was
$2.2 million in 2003, $2.0 million in 2002 and
$2.1 million in 2001.

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Minimum annual rentals on operating leases for
the five years subsequent to 2003 are as follows (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 2,168 | 
|2005 |  |   | 1,249 | 
|2006 |  |   | 626   | 
|2007 |  |   | 304   | 
|2008 |  |   | 11    | 
|     |  |   |       | 
|     |  | $ | 4,358 | 
|     |  |   |       | 

The Company has an outstanding letter of credit
totaling $20,000 at December 31, 2003 that renews annually.

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

Business Segment and Related
Information

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

The following is summarized financial information
for the Companys reportable segments (in thousands):

|                        |                                                                         |                         |         |        |        |      |         |        |        |   |         |        |         | 
|----------------------- | ----------------------------------------------------------------------- | ----------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------- | 
|                        |                                                                         |                        
|                        |                                                                         | Year ended December 31,
|                        |                                                                         |                        
|                        |                                                                         | 2003                    |         | 2002   |        | 2001
|                        |                                                                         |                         |         |        |        |     
|Net revenues            |                                                                         |                         |         |        |        |      |         |        |        |   |         |       
|                        | Technology Solutions                                                    |                         |         |        |        |      |         |        |        |   |         |        |        
|                        |                                                                         | Products                |         | $      | 55,826 |      |         | $      | 68,219 |   |         | $      | 105,009 | 
|                        |                                                                         | Services                |         |        | 34,949 |      |         |        | 22,349 |   |         |        | 25,386  | 
|                        |                                                                         |                         |         |        |        |      |         |        |        |   |         |       
|                        |                                                                         |                         | 90,775  |        |        |      | 90,568  |        |        |   | 130,395 |       
|                        | Recreational Products                                                   |                         |         | 44,804 |        |      |         | 44,639 |        |   |         | 46,044 |        
|                        | Electronic Components                                                   |                         |         | 6,326  |        |      |         | 5,590  |        |   |         | 7,182  |        
|                        |                                                                         |                         |         |        |        |      |         |        |        |   |         |       
|                        |                                                                         | $                       | 141,905 |        |        | $    | 140,797 |        |        | $ | 183,621 |       
|                        |                                                                         |                         |         |        |        |      |         |        |        |   |         |       
|Operating income (loss) |                                                                         |                         |         |        |        |      |         |        |        |   |         |       
|                        | Technology Solutions                                                    |                         | $       | (2,135 | )      |      | $       | (2,204 | )      |   | $       | (938   | )      
|                        | Recreational Products                                                   |                         |         | 1,321  |        |      |         | 819    |        |   |         | 954    |        
|                        | Electronic Components                                                   |                         |         | 939    |        |      |         | 489    |        |   |         | 1,590  |        
|                        | Special items                                                           |                         |         |        |        |      |         |        |        |   |         | (650   | )      
|                        | Corporate costs                                                         |                         |         | (2,869 | )      |      |         | (2,664 | )      |   |         | (3,137 | )      
|                        |                                                                         |                         |         |        |        |      |         |        |        |   |         |       
|                        |                                                                         |                         | (2,744  | )      |        |      | (3,560  | )      |        |   | (2,181  | )     
|                        | Interest, net                                                           |                         |         | 166    |        |      |         | 200    |        |   |         | 460    |        
|                        |                                                                         |                         |         |        |        |      |         |        |        |   |         |       
|                        | Loss before income taxes and cumulative effect of
    accounting change |                         | $       | (2,578 | )      |      | $       | (3,360 | )      |   | $       | (1,721 | )      
|                        |                                                                         |                         |         |        |        |      |         |        |        |   |         |       

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|                              |                       |                         |        |        |  |      |        |        |  |   |        |        | 
|----------------------------- | --------------------- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                              |                       |                        
|                              |                       | Year ended December 31,
|                              |                       |                        
|                              |                       | 2003                    |        | 2002   |  | 2001
|                              |                       |                         |        |        |  |     
|Depreciation and amortization |                       |                         |        |        |  |      |        |        |  |   |        |       
|                              | Technology Solutions  |                         | $      | 841    |  |      | $      | 1,150  |  |   | $      | 1,114  | 
|                              | Recreational Products |                         |        | 259    |  |      |        | 190    |  |   |        | 181    | 
|                              | Electronic Components |                         |        | 31     |  |      |        | 32     |  |   |        | 33     | 
|                              | Corporate             |                         |        | 974    |  |      |        | 961    |  |   |        | 946    | 
|                              |                       |                         |        |        |  |      |        |        |  |   |        |       
|                              |                       | $                       | 2,105  |        |  | $    | 2,333  |        |  | $ | 2,274  |       
|                              |                       |                         |        |        |  |      |        |        |  |   |        |       
|Total assets                  |                       |                         |        |        |  |      |        |        |  |   |        |       
|                              | Technology Solutions  |                         | $      | 12,829 |  |      | $      | 10,472 |  |   | $      | 17,281 | 
|                              | Recreational Products |                         |        | 14,087 |  |      |        | 15,803 |  |   |        | 16,193 | 
|                              | Electronic Components |                         |        | 2,110  |  |      |        | 2,410  |  |   |        | 2,916  | 
|                              | Corporate             |                         |        | 17,607 |  |      |        | 20,705 |  |   |        | 21,262 | 
|                              |                       |                         |        |        |  |      |        |        |  |   |        |       
|                              |                       | $                       | 46,633 |        |  | $    | 49,390 |        |  | $ | 57,652 |       
|                              |                       |                         |        |        |  |      |        |        |  |   |        |       
|Capital expenditures          |                       |                         |        |        |  |      |        |        |  |   |        |       
|                              | Technology Solutions  |                         | $      | 336    |  |      | $      | 396    |  |   | $      | 3,172  | 
|                              | Recreational Products |                         |        | 266    |  |      |        | 382    |  |   |        | 217    | 
|                              | Electronic Components |                         |        | 8      |  |      |        | 12     |  |   |        | 5      | 
|                              | Corporate             |                         |        | 390    |  |      |        | 745    |  |   |        | 951    | 
|                              |                       |                         |        |        |  |      |        |        |  |   |        |       
|                              |                       | $                       | 1,000  |        |  | $    | 1,535  |        |  | $ | 4,345  |       
|                              |                       |                         |        |        |  |      |        |        |  |   |        |       

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QUARTERLY RESULTS OF OPERATIONS

(Unaudited)


(In thousands, except per share
data)


|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |        |  
|-------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------- | ------ | ------- | - | ------- | ------ | ------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                 |                                                                 |              
|                                                                                 |                                                                 | Quarter ended
|                                                                                 |                                                                 |              
|                                                                                 |                                                                 | Mar. 31       |        | Jun. 30 |   | Sep. 30 |        | Dec. 31
|                                                                                 |                                                                 |               |        |         |   |         |        |        
|Year ended December 31, 2003                                                     |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net revenues                                                                     |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Products                                                        |               | $      | 23,568  |   |         | $      | 30,398  |   |   | $      | 30,625 |   |   | $      | 22,365 |  
|                                                                                 | Services                                                        |               |        | 8,509   |   |         |        | 8,977   |   |   |        | 8,953  |   |   |        | 8,510  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               | 32,077 |         |   |         | 39,375 |         |   |   | 39,578 |        |   |   | 30,875 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Costs and expenses                                                               |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Cost of products sold                                           |               |        | 19,007  |   |         |        | 24,721  |   |   |        | 25,278 |   |   |        | 18,175 |  
|                                                                                 | Cost of services provided                                       |               |        | 6,972   |   |         |        | 6,998   |   |   |        | 7,258  |   |   |        | 7,221  |  
|                                                                                 | Selling and administrative                                      |               |        | 6,833   |   |         |        | 6,847   |   |   |        | 6,845  |   |   |        | 6,389  |  
|                                                                                 | Depreciation and amortization                                   |               |        | 590     |   |         |        | 519     |   |   |        | 489    |   |   |        | 507    |  
|                                                                                 | Interest, net                                                   |               |        | (22     | ) |         |        | (44     | ) |   |        | (59    | ) |   |        | (41    | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               | 33,380 |         |   |         | 39,041 |         |   |   | 39,811 |        |   |   | 32,251 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Income (loss) before income taxes                                                |                                                                 |               | (1,303 | )       |   |         | 334    |         |   |   | (233   | )      |   |   | (1,376 | )     
|Income tax provision (benefit)                                                   |                                                                 |               | (391   | )       |   |         | 114    |         |   |   | 277    |        |   |   | 1,209  |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net income (loss)                                                                |                                                                 | $             | (912   | )       |   | $       | 220    |         |   | $ | (510   | )      |   | $ | (2,585 | )     
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Share and Per Share Data                                                         |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|BASIC AND DILUTED                                                                |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Net income (loss)                                               |               | $      | (.11    | ) |         | $      | .03     |   |   | $      | (.06   | ) |   | $      | (.31   | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Weighted average common shares                                  |               |        | 8,367   |   |         |        | 8,367   |   |   |        | 8,367  |   |   |        | 8,367  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Year ended December 31, 2002                                                     |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net revenues                                                                     |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Products                                                        |               | $      | 26,444  |   |         | $      | 35,643  |   |   | $      | 35,336 |   |   | $      | 21,025 |  
|                                                                                 | Services                                                        |               |        | 5,673   |   |         |        | 5,706   |   |   |        | 5,105  |   |   |        | 5,865  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               | 32,117 |         |   |         | 41,349 |         |   |   | 40,441 |        |   |   | 26,890 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Costs and expenses                                                               |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Cost of products sold                                           |               |        | 22,043  |   |         |        | 29,410  |   |   |        | 29,436 |   |   |        | 17,187 |  
|                                                                                 | Cost of services provided                                       |               |        | 4,314   |   |         |        | 4,094   |   |   |        | 4,097  |   |   |        | 4,560  |  
|                                                                                 | Selling and administrative                                      |               |        | 6,744   |   |         |        | 6,570   |   |   |        | 7,103  |   |   |        | 6,466  |  
|                                                                                 | Depreciation and amortization                                   |               |        | 608     |   |         |        | 587     |   |   |        | 564    |   |   |        | 574    |  
|                                                                                 | Interest, net                                                   |               |        | (56     | ) |         |        | (37     | ) |   |        | (71    | ) |   |        | (36    | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               | 33,653 |         |   |         | 40,624 |         |   |   | 41,129 |        |   |   | 28,751 |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Income (loss) before income taxes and cumulative
    effect of accounting change |                                                                 |               | (1,536 | )       |   |         | 725    |         |   |   | (688   | )      |   |   | (1,861 | )     
|Income tax provision (benefit)                                                   |                                                                 |               | (606   | )       |   |         | 287    |         |   |   | (272   | )      |   |   | (736   | )     
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Income (loss) before cumulative effect of
    accounting change                  |                                                                 |               | (930   | )       |   |         | 438    |         |   |   | (416   | )      |   |   | (1,125 | )     
|Cumulative effect of accounting change                                           |                                                                 |               | (1,280 | )       |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Net income (loss)                                                                |                                                                 | $             | (2,210 | )       |   | $       | 438    |         |   | $ | (416   | )      |   | $ | (1,125 | )     
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|Share and Per Share Data                                                         |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|BASIC AND DILUTED                                                                |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Income (loss) before cumulative effect of
    accounting change |               | $      | (.10    | ) |         | $      | .05     |   |   | $      | (.05   | ) |   | $      | (.13   | )
|                                                                                 | Cumulative effect of accounting change                          |               |        | (.14    | ) |         |        |         |   |   |        |        |   |   |        |        |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Net income (loss)                                               |               | $      | (.24    | ) |         | $      | .05     |   |   | $      | (.05   | ) |   | $      | (.13   | )
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       
|                                                                                 | Weighted average common shares                                  |               |        | 8,890   |   |         |        | 8,900   |   |   |        | 8,777  |   |   |        | 8,404  |  
|                                                                                 |                                                                 |               |        |         |   |         |        |         |   |   |        |        |   |   |        |       

27



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##### Table of Contents



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

(In thousands)


|                                  |                              |            |   |           |       |             |  |           |     |  |  |   |      |   |   |       |       | 
|--------------------------------- | ---------------------------- | ---------- | - | --------- | ----- | ----------- |  | --------- | --- |  |  | - | ---- | - | - | ----- | ----- | 
|                                  |                              |            |   | Additions |       | Deductions  |  |          
|                                  |                              |            |   |           |       |             |  |          
|                                  |                              | Balance at |   | Charge to |       | Accounts    |  | Balance  
|                                  |                              | beginning  |   | costs and |       | charged off |  | at end of
|Description                       |                              | of period  |   | expenses  |       | (recovered) |  | period   
|                                  |                              |            |   |           |       |             |  |          
|Allowance for doubtful accounts:  |                              |            |   |           |       |             |  |           |     |  |  |   |      |   |   |      
|                                  | Year ended December 31:      |            |   |           |       |             |  |           |     |  |  |   |      |   |   |       |      
|                                  |                              | 2001       |   | $         | 1,222 |             |  |           | 168 |  |  |   | (135 | ) |   | $     | 1,525 | 
|                                  |                              | 2002       |   | $         | 1,525 |             |  |           | 63  |  |  |   | 839  |   |   | $     | 749   | 
|                                  |                              | 2003       |   | $         | 749   |             |  |           | 207 |  |  |   | 20   |   |   | $     | 936   | 
|Deferred tax valuation allowance: |                              |            |   |           |       |             |  |           |     |  |  |   |      |   |   |      
|                                  | Year ended December 31, 2003 |            | $ | 0         |       |             |  | 3,353     |     |  |  | 0 |      |   | $ | 3,353 |      






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

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Our management, with the participation of our
principal executive and financial officer, evaluated the
effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of December 31, 2003. Based on this evaluation, the
Companys principal executive and financial officer
concluded that, as of December 31, 2003, our disclosure
controls and procedures were (1) designed to ensure that
material information relating to us, including our consolidated
subsidiaries, is made known to our principal executive and
financial officer by others within those entities, particularly
during the period in which this report was being prepared and
(2) effective, in that they provide reasonable assurance
that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms.

No change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) occurred during the fiscal quarter ended
December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.




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 2004 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.

(c) Code of Ethics: Our code of Ethics, as
required by Item 406 of Regulation S-K under the
Securities Act of 1933, as amended, is available, without
charge, upon written request sent to Bell Industries, Inc.,
Attention Secretary, at the address set forth on the cover page
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 2004 Annual Meeting of
Shareholders and is hereby incorporated by reference.

28



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##### Table of Contents








|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by Item 12 will
appear in the Proxy Statement for the 2004 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 2004 Annual Meeting of
Shareholders and is hereby incorporated by reference.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The information required by Item 14 will
appear in the Proxy Statement for the 2004 Annual Meeting of
Shareholders and is hereby incorporated by reference.




PART IV






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

(a)1.     Financial
Statements:

The Consolidated Financial Statements and Report
of Independent Accountants dated February 7, 2004 are
included under Item 8 of this Annual Report on
Form 10-K.

2.     Financial
Statement Schedule:

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

3.     Exhibits:

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

29



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##### Table of Contents



|       |  |               |  |                                                                                                                                                                                                                                                                                     
|------ |  | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit Title
|       |  |              
|       |  | 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
    Exhibit 4.1 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. of the
    Registrants Annual Report on Form 10-K dated December 31,
    1998.                                                   
|       |  | m.            |  | The Rights Agreement, dated February 1,
    1999, by and between Bell Industries, Inc. and Harris Trust
    Company of California, as Rights Agent, is incorporated by
    reference to Exhibit 1 to the Registrants
    Form 8-A12B, dated February 25, 1999.                     
|       |  | n.            |  | The Asset Purchase Agreement dated
    August 28, 1998 between Bell Industries, Inc. and
    PrimeSource Corporation is incorporated by reference to
    Exhibit 2.1 of the Registrants Form 8-K, event
    date September 14, 1998.                                               
|       |  | o.            |  | The Agreement of Purchase and Sale dated
    October 1, 1998 between Bell Industries, Inc. and
    Arrow Electronics, Inc. is incorporated by reference to
    Exhibit 2.1 of the Registrants Form 8-K, event
    date October 1, 1998.                                            
|       |  | p.            |  | Credit Agreement dated as of April 14, 1999
    between the Registrant and Union Bank of California, N.A. is
    incorporated by reference to Exhibit 10.x of the
    Registrants Annual Report on Form 10-K dated
    December 31, 2000.                                          
|       |  | q.            |  | First Amendment to Credit Agreement dated as of
    April 26, 2000 between the Registrant and Union Bank of
    California, N.A. is incorporated by reference to
    Exhibit 10.y of the Registrants. Annual Report on
    Form 10-K dated December 31, 2000.                      
|       |  | r.            |  | Agreement for Wholesale Financing dated as of
    May 11, 2001 between the Registrant and Deutsche Financial
    Services Corporation is incorporated by reference to
    Exhibit 10.1 of the Registrants Quarterly Report on
    Form 10-Q dated June 30, 2001.                   
|       |  | s.            |  | Agreement for Wholesale Financing dated as of
    June 27, 2001 between the Registrant and IBM Credit
    Corporation is incorporated by reference to Exhibit 10.2 of
    the Registrants Quarterly Report on Form 10-Q dated
    June 30, 2001.                                   
|       |  | t.            |  | First Amendment to Rights Agreement, dated
    May 30, 2001, by and between the Registrant, Harris Trust
    Company of California and Computershare Investor Services, LLC
    is incorporated by reference to Exhibit 1 to the
    Registrants Form 8-A12(b), dated May 30, 2001.
|       |  | u.            |  | Second Amendment to Rights Agreement, dated
    May 30, 2001, by and between the Registrant and
    Computershare Investor Services, LLC, as Rights Agent, is
    incorporated by reference to Exhibit 1 to the
    Registrants Form 8-A12(b), dated May 30, 2001.                 
|       |  | v.            |  | The Bell Industries, Inc. 2001 Stock Option
    Plan is incorporated by reference to Exhibit 99. of the
    Registrants Quarterly Report on Form 10-Q dated
    September 30, 2001.                                                                                                
|       |  | w.            |  | Second Amendment to Credit Agreement dated as of
    March 27, 2002 between the Registrant and Union Bank of
    California, N.A. is incorporated by reference to
    Exhibit 10.w of the Registrants Annual Report on
    Form 10-K dated December 31, 2001.                      

30



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##### Table of Contents



|       |     |               |  |                                                                                                                                                                                                                                         
|------ | --- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |     | Exhibit Title
|       |     |              
|       |     | x.            |  | Third Amendment to Credit Agreement dated as of
    May 12, 2003 between the Registrant and Union Bank of
    California, N.A.                                                                                                          
|       |     | y.            |  | Letter Agreement dated as of August 12, 2003
    between the Registrant and Union Bank of California, N.A.                                                                                                                              
|       | 21. |               |  | Subsidiaries of the Registrant.                                                                                                                                                                                                         
|       | 23. |               |  | Consent of Independent Auditors.                                                                                                                                                                                                        
|       | 31. | 1             |  | Certification of Tracy A. Edwards, Chief
    Executive Officer of Registrant pursuant to Rule 13a-14
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002.          
|       | 31. | 2             |  | Certification of Tracy A. Edwards, Chief
    Financial Officer of Registrant, pursuant to Rule 13a-14
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002.         
|       | 32. |               |  | Certification of Tracy A. Edwards, Chief
    Executive Officer and Chief Financial Officer of Registrant
    furnished pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.

(b) Reports on Form 8-K:



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) On February 24, 2004, the Company
    filed a current Report on Form 8-K related to its issuance
    of a press release describing selected financial results of the
    Company for the quarter and year ended December 31, 2003.

31



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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 26, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below on
March 26, 2004 by the following persons on behalf of the
Registrant and in the capacities indicated.

|                                       |  |                                                                                                    
|-------------------------------------- |  | ---------------------------------------------------------------------------------------------------
|Signature                              |  | Title                                                                                              
|                                       |  |                                                                                                    
|/s/ TRACY A. EDWARDSTracy A. Edwards   |  | Chairman, President and Chief Executive
    Officer
    (Principal Executive and Financial Officer)
|                                      
|/s/ MITCHELL I. ROSENMitchell I. Rosen |  | Vice President and Corporate Controller
    (Principal Accounting Officer)                         
|                                      
|/s/ JOHN J. COSTJohn J. Cost           |  | Director and Secretary                                                                             
|                                      
|/s/ CHARLES B. GRAVESCharles B. Graves |  | Director                                                                                           
|                                      
|/s/ L. JAMES LAWSONL. James Lawson     |  | Director                                                                                           
|                                      
|/s/ MICHAEL R. PARKSMichael R. Parks   |  | Director                                                                                           
|                                      
|/s/ MARK E. SCHWARZMark E. Schwarz     |  | Director                                                                                           

32



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EXHIBIT INDEX

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

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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. is incorporated by reference to
    Exhibit 10.w of the Registrants Annual Report on
    Form 10-K dated December 31, 2001.(*)                      
|        |     | x.          |  | Third Amendment to Credit Agreement dated as of
    May 12, 2003 between the Registrant and Union Bank of
    California, N.A.                                                                                                                                                         
|        |     | y.          |  | Letter Agreement dated as of August 12, 2003
    between the Registrant and Union Bank of California, N.A.                                                                                                                                                                             
|        | 21. |             |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                        
|        | 23. |             |  | Consent of Independent Auditors.                                                                                                                                                                                                                                                       
|        | 31. | 1           |  | Certification of Tracy A. Edwards, Chief
    Executive Officer of Registrant pursuant to Rule 13a-14
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|        | 31. | 2           |  | Certification of Tracy A. Edwards, Chief
    Financial Officer of Registrant pursuant to Rule 13a-14
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|        | 32. |             |  | Certification of Tracy A. Edwards, Chief
    Executive Officer and Chief Financial Officer of Registrant
    furnished pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                               



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(*) Incorporated by reference.

34