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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
 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, 2007o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.For the transition period
    from          to   Commission file number 1-11471
 BELL INDUSTRIES, INC.
 (Exact Name of Registrant as
    Specified in its Charter)
  California

95-2039211(State or other jurisdiction
    of incorporation or organization)

(I.R.S. Employer
    Identification No.)8888 Keystone Crossing

46240Suite 1700

(Zip Code)Indianapolis, Indiana(Address of principal executive
    offices)   Registrants telephone number, including area code:
 (317) 704-6000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which registeredCommon stock


American Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None.
    o þ
    o þ
    þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company þ (Do not check if a smaller
    reporting company)
  Rule 12b-2).
  o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 





TABLE OF
    CONTENTS
   
 PART IItem 1.


Business


1Item 1A.


Risk Factors


6Item 1B.


Unresolved Staff Comments


14Item 2.


Properties


14Item 3.


Legal Proceedings


15Item 4.


Submission of Matters to a Vote of Security
    Holders


15PART IIItem 5.


Market for the Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities


16Item 6.


Selected Consolidated Financial Data


17Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


18Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


25Item 8.


Financial Statements and Supplementary Data


25Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


50Item 9A(T).


Controls and Procedures


50Item 9B.


Other Information


52PART IIIItem 10.


Directors, Executive Officers of the
    Registrant


53Item 11.


Executive Compensation


53Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters


53Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


53Item 14.


Principal Accountant Fees and Services


53PART IVItem 15.


Exhibits and Financial Statement Schedules


53SIGNATURES


54EXHIBIT INDEX


55EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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CAUTIONARY
    STATEMENT REGARDING FORWARD-LOOKING STATEMENTS




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##### Table of Contents



PART I  Item 1.
    Business  Overview
          Recent
    Events
  Sale of
    SkyTel Division
           1




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Settlement
    Agreement
    Amendment
    of Credit Facility
    Proposed
    Modification to Convertible Note
   2




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De-Listing
    from American Stock Exchange
    Technology
    Solutions Group
           3




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T-Mobile.
  
    24 hours x 7 days a week single point of contact help
    desk and customer support
    Online ordering and provisioning portal
    Technical support help desk integrated with our depot repair
    operations and customer relationship management infrastructure
    Asset and inventory management
    Pre-imaged advanced exchange spares
    Returns processing
    Device retirement and disposal
    Reporting and analysis     4




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Recreational
    Products Group
        SkyTel
       5




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Company
    Information
  (317) 704-6000 (317) 704-0064.
  Availability
    of Reports and Other Information
  Form 10-K, Form 10-Q, Form 8-K,
  
    its corporate Code of Ethics for Directors, Officers and
    Employees, which qualifies as a code of ethics as
    defined by Item 406 of
    Regulation S-K
    of the Securities and Exchange Act of 1934;
    charters for its Audit Committee, Nominating Committee and
    Compensation Committee.    Item 1A.
    Risk
    Factors  and/or Form 10-K, Form 10-K,
  Risks
    Related to Our Turnaround Initiative
  The
    Companys turnaround and restructuring efforts may not
    achieve the intended benefits.
    We
    might fail to execute our turnaround plan.
   6




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We
    might not be able to execute under our turnaround plan if we
    lose key management or technical personnel, on whose knowledge,
    leadership and technical expertise we rely.
    Risks
    Related to our Transaction with Velocita
  The
    Transaction with Velocita may not be completed if the conditions
    to closing are not satisfied or waived.
    If the
    Transaction is not completed, we may incur operating losses in
    our SkyTel Business.
    It is
    possible that we may not receive all of the cash provided for in
    the Velocita Purchase Agreement and accordingly, we may have
    less cash to fund our remaining operations.
     7




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Under
    the Velocita Purchase Agreement we will continue to be exposed
    to contingent liabilities relating to the SkyTel Business and
    the Transaction, which could adversely affect our financial
    condition.
    If the
    proposed Transaction with Velocita is not completed, we may
    explore other potential transactions but there may not be any
    other offers from potential acquirors.
    If the
    proposed Transaction with Velocita is not completed, we may need
    additional funds to continue or grow our existing business and
    we may not have sufficient funds to continue the SkyTel
    business.
    Our
    business will be harmed if the proposed Transaction with
    Velocita disrupts the operations of our business and prevents us
    from realizing intended benefits.
    
    loss of key employees, sales representatives, vendors, or
    customers;
    expenses incurred in connection with the proposed
    Transaction; and
    the diversion of managements attention from our day-to-day
    business.  We may
    be required to make substantial concessions to our secured
    lenders in order to obtain the necessary consents to consummate
    the Transaction.
   8




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If we agree to the Proposed Modifications, including
    issuance of the Warrant and an amended Convertible Note,
    Newcastle may have the ability to acquire in excess of a
    majority of our outstanding common stock, as well as the right
    to designate at least 50% of the members of our Board of
    Directors, which could give Newcastle control over the
    management of our business to the detriment of our other
    shareholders.
    Risks
    Relating to the Companys Capital Structure
  The
    Companys ability to make payments on its debt will be
    contingent on the Companys future operating performance,
    which will depend on a number of factors that are outside of its
    control.
      
    the Company must dedicate a substantial portion of its cash
    flows from operations to the payment of its indebtedness,
    reducing the funds available for future working capital
    requirements, capital expenditures, acquisitions or other
    general corporate requirements;
    a portion of its borrowings are, and will continue to be, at
    variable rates of interest, which may result in higher interest
    expense in the event of increases in interest rates;
    the Company may be more vulnerable to a downturn in the
    industries in which it operates or a downturn in the economy in
    general; 9




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
    the Company may be limited in its flexibility to plan for, or
    react to, changes in its businesses and the industries in which
    it operates;
    the Company may be placed at a competitive disadvantage compared
    to its competitors that have less debt;
    the Company may be limited in its ability to react to unforeseen
    increases in certain costs and obligations arising in its
    existing or previously owned businesses, including
    environmental, legal and tax liabilities;
    the Company may determine it to be necessary to dispose of
    certain assets or one or more of its businesses to reduce its
    debt; and
    the Companys ability to borrow additional funds may be
    limited.    The
    Company is subject to restrictive debt covenants pursuant to its
    indebtedness. These covenants may restrict its ability to
    finance its business and, if the Company does not comply with
    the covenants or otherwise default under them, the Company may
    not have the funds necessary to pay all amounts that could
    become due and the lenders could foreclose on substantially all
    of its assets.
    
    incur additional debt;
    create or incur liens;
    pay dividends or make other equity distributions to the
    Companys shareholders;
    purchase or redeem share capital;
    make investments;
    sell assets;
    issue or sell share capital of certain subsidiaries;
    engage in transactions with affiliates;
    issue or become liable on a guarantee;
    voluntarily prepay, repurchase or redeem debt;
    create or acquire new subsidiaries; and
    effect a merger or consolidation of, or sell all or
    substantially all of its assets.  and/or
   10




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Our
    common stock will not be traded on a national securities
    exchange.
      Risks
    Related to the Companys Operations
  We
    have a history of operating losses.
    We
    face certain significant risks related to the currently pending
    Williams litigation and from other potential litigation that
    could materially adversely affect our financial condition and
    results of operations.
  and/or
  Our
    previously owned businesses subject us to potential
    environmental liabilities, which could adversely affect our
    results of operations.
   11




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We may
    not be able to compete effectively with other companies in our
    business segments, which will cause our net sales and market
    share to decline and adversely affect our business, financial
    condition and results of operations.
    We may
    need to implement additional finance and accounting systems,
    procedures and controls to satisfy new reporting
    requirements.
    Future
    changes in financial accounting standards or practices could
    affect our reported results of operations.
    If we
    fail to maintain an effective system of internal control over
    financial reporting and disclosure controls and procedures, we
    may be unable to accurately report our financial results and
    comply with the reporting requirements under the Exchange Act.
    As a result, current and potential stockholders may lose
    confidence in our financial reporting and disclosure required
    under the Exchange Act, which could adversely affect our
    business and we could be subject to regulatory
    scrutiny.
  Form 10-K Form 10-K, Form 10-K
 12




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Risks
    Related to the Companys Technology Solutions
    Business
  We
    rely on a limited number of hardware and software vendors to
    supply us with products in our technology solutions business and
    the loss of our ability to rely upon any of those vendors, or to
    obtain their products in the future would adversely affect our
    results of operations.
    Our
    technology solutions business is dependent on a limited number
    of major clients and the loss of any of these major clients
    would materially and adversely affect our business, financial
    condition and results of operations.
    Our
    technology solutions business could be adversely impacted by
    conditions affecting the information technology
    market.
    Many
    of our contracts can be terminated by our clients on short
    notice and in many cases without penalty. We also generally do
    not have exclusive arrangements with our clients or a minimum
    revenue commitment from our clients, which creates uncertainty
    about the volume of services we will provide and the amount of
    revenues we will generate from these clients.
   13




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Risks
    Related to the Companys Recreational Products
    Business
  Our
    recreational products business is seasonal and is subject to
    fluctuations, based upon various economic and climatic
    conditions that could harm us.
    Our
    recreational products business relies heavily upon vendors with
    which we have no long-term contracts.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Area in square feet (number of locations)LeasedTechnology Solutions Group


122,000



(10
)Recreational Products Group


154,000



(3
)SkyTel


86,000



(12
)Corporate


24,000



(1
)386,000



(26
)    14




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Item 3.
    Legal
    Proceedings  Williams litigation:
      Other litigation:
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   15




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PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Shareholder
    Matters and Issuer Purchases of Equity Securities    Quarter endedMar. 31


Jun. 30


Sep. 30


Dec. 31Year ended December 31, 2007High

$
5.11


$
5.17


$
3.75


$
2.42Low


3.60



3.45



1.73



0.82Close


4.95



3.61



2.10



0.90Year ended December 31, 2006High

$
2.75


$
3.15


$
3.18


$
3.90Low


2.40



2.25



2.70



2.77Close


2.68



2.77



2.99



3.80     Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forNumber of Securities





Future Issuanceto be Issued upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation PlansOutstanding Options,


Outstanding Options,


(Excluding SecuritiesPlan Category

Warrants, and Rights


Warrants, and Rights


Reflected in Column (a))(a)


(b)


(c)Equity compensation plans approved by shareholders


295,000


$
3.63



850,000Equity compensation plans not approved by shareholders


798,000
(1)

$
3.78Total


1,093,000


$
3.74



850,000     (1)
    
    Shares issued under equity compensation plans not approved by
    shareholders include (i) 225,000 shares issued under
    the Companys 2001 Stock Option Plan; and
    (ii) 573,000 shares issued during 2006 and 2007,
    pursuant to employment agreements, as inducements for such
    employees to join the Company. 16




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Item 6.
    Selected
    Consolidated Financial Data    Year ended December 31,2007


2006


2005


2004


2003(Dollars in thousands, except per share data)Operating ResultsNet revenues

$
119,918


$
120,296


$
122,563


$
136,178


$
135,579Operating loss (1)

$
(11,059
)

$
(10,042
)

$
2,924


$
(2,565
)

$
(3,683
)Loss from continuing operations (1)

$
(9,111
)

$
(7,364
)

$
(2,068
)

$
(1,960
)

$
(4,407
)(Loss) income from discontinued operations, net of tax

$
(2,196
)

$
441


$
1,269


$
1,007


$
620(Loss) gain on sale of discontinued operations, net of tax

$
(3,940
)

$
4,030


$



$



$Net loss

$
(15,247
)

$
(2,893
)

$
(799
)

$
(953
)

$
(3,787
)Financial PositionWorking capital

$
9,983


$
11,543


$
18,571


$
19,085


$
17,826Total assets

$
62,019


$
43,114


$
44,353


$
45,189


$
46,633Long-term liabilities

$
14,387


$
3,622


$
4,518


$
5,025


$
2,520Shareholders equity

$
4,783


$
18,254


$
20,304


$
20,816


$
21,597Share and Per Share DataBASIC AND DILUTEDLoss from continuing operations (1)

$
(1.06
)

$
(0.86
)

$
(0.24
)

$
(0.23
)

$
(0.53
)(Loss) income from discontinued operations, net of tax

$
(.25
)

$
0.05


$
0.15


$
0.12


$
0.08(Loss) gain on sale of discontinued operations, net of tax

$
(.46
)

$
0.47


$



$Net loss

$
(1.77
)

$
(0.34
)

$
(0.09
)

$
(0.11
)

$
0.45Weighted average common shares (000s)


8,633



8,568



8,466



8,385



8,367OTHER PER SHARE DATAShareholders equity

$
0.55


$
2.12


$
2.37


$
2.47


$
2.58Market price  high

$
5.17


$
3.90


$
3.35


$
3.70


$
2.94Market price  low

$
0.82


$
2.25


$
1.98


$
2.36


$
1.47Financial RatiosCurrent ratio


1.2



1.5



2.0



2.0



1.8Long-term liabilities to total capitalization


75.0
%


16.6
%


18.2
%


19.4
%


10.4
%     (1)
    
    Includes a before-tax charge of $325 in connection with a
    severance agreement for former executive in 2005 and a
    before-tax charge of $700 in connection with an employment
    agreement for another former executive in 2004. 17




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations      Critical
    Accounting Policies and Estimates
    Income
    Taxes
    Environmental
    Matters
    Recent
    Accounting Pronouncements
   18




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FAS 157-2,
 19




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Results
    of Operations
      Year ended December 31,2007


2006Net revenues:Technology Solutions GroupProducts

$
42,633


$
43,477Services


32,670



32,076Total Technology Solutions Group


75,303



75,553Recreational Products Group


44,615



44,743Total net revenues

$
119,918


$
120,296Operating income (loss):Technology Solutions Group

$
(3,661
)

$
(4,714
)Recreational Products Group


555



1,455Corporate costs


(7,953
)


(6,783
)Total operating loss


(11,059
)


(10,042
)Gain on sale of assets


(2,024
)Interest expense (income), net






(456
)Provision for (benefit from) income taxes


76



(2,222
)Loss from continuing operations


(9,111
)


(7,364
)Discontinued operations:(Loss) income from discontinued operations, net of tax


(2,196
)


441(Loss) gain on sale of discontinued operations, net of tax


(3,940
)


4,030Income (loss) from discontinued operations, net of tax


(6,136
)


4,471Net loss

$
(15,247
)

$
(2,893
)  20




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Year ended December 31,2007


2006Net revenues:Products


72.8
%


73.3
%Services


27.2



26.7Total net revenues


100.0



100.0Costs and expenses:Cost of products sold


(60.5
)


(59.8
)Cost of service provided


(18.5
)


(21.8
)Selling and administrative


(29.1
)


(25.7
)Depreciation and amortization


(1.0
)


(1.0
)Gain on sale of assets


1.7Interest (expense) income, net






0.4Loss from continuing operations before income taxes


(7.5
)


(7.9
)Provision for (benefit from) income taxes


(0.1
)


1.8Loss from continuing operations


(7.6
)%


(6.1
)%The following summarizes other comparative operating results
    data:Cost of products sold as a percentage of products revenues


83.2
%


81.5
%Cost of services provided as a percentage of services revenues


68.1
%


81.9
%   Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
    Net
    revenues
    Gross
    profit
    Selling,
    general and administrative expenses
   21




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Interest
    and other, net
    Income
    taxes
    Discontinued
    operations
      Business
    Segment Results
    Technology
    Solutions Group
   22




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Recreational
    Products Group
      Corporate
    Changes
    in Financial Condition
  Liquidity
    and Capital Resources
    December 31,2007


2006Cash and cash equivalents

$
409


$
3,637Net working capital

$
9,983


$
11,543Current ratio


1.23



1.54Long-term liabilities to capitalization


75.0
%


16.6
%Shareholders equity per share

$
0.55


$
2.12Days sales in receivables


54



59    23




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Secured
    Credit Facility with Wells Fargo Foothill
     24




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Convertible
    Note Held By Newcastle
  pay-in-kind and/or
    Off-Balance
    Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data 25




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INDEX TO
    FINANCIAL STATEMENTS
  Financial Statements:Report of Independent Registered Public Accounting Firm


27Report of Independent Registered Public
    Accounting Firm


28Consolidated Statements of Operations for the
    years ended December 31, 2007 and 2006


29Consolidated Balance Sheets at December 31,
    2007 and 2006


30Consolidated Statements of Shareholders
    Equity for the years ended December 31, 2007 and 2006


31Consolidated Statements of Cash Flows for the
    years ended December 31, 2007 and 2006


32Notes to Consolidated Financial Statements


33Financial Statement Schedule:Schedule II  Valuation and Qualifying
    Accounts


50    26




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
        Crowe
    Chizek and Company LLC
  
 27




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
 
             
  28




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##### Table of Contents



BELL
    INDUSTRIES, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 (In
    thousands, except per share data)
  Year ended December 31,2007


2006Net revenues:Products

$
87,248


$
88,220Services


32,670



32,076Total net revenues


119,918



120,296Costs and expenses:Cost of products sold


72,553



71,872Cost of services provided


22,244



26,260Selling, general and administrative


34,935



30,969Depreciation and amortization


1,245



1,237Interest expense (income), net






(456
)Gain on sale of assets


(2,024
)Total costs and expenses


128,953



129,882Loss from continuing operations before provision for (benefit
    from) income taxes


(9,035
)


(9,586
)Provision for (benefit from) income taxes


76



(2,222
)Loss from continuing operations


(9,111
)


(7,364
)Discontinued operations:(Loss) income from discontinued operations, net of tax


(2,196
)


441(Loss) gain on sale of discontinued operations, net of tax


(3,940
)


4,030Income (loss) from discontinued operations, net of tax


(6,136
)


4,471Net loss

$
(15,247
)

$
(2,893
)Share and per share dataBasic and diluted:Loss from continuing operations

$
(1.06
)

$
(0.86
)(Loss) income from discontinued operations


(0.71
)


0.52Net loss

$
(1.77
)

$
(0.34
)Weighted average common shares outstanding


8,633



8,568    29




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BELL
    INDUSTRIES, INC.
  CONSOLIDATED
    BALANCE SHEETS
 (Dollars
    in thousands)
  December 31,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
409


$
3,637Accounts receivable, less allowance for doubtful accounts of
    $730 and $547, respectively


12,304



16,835Inventories, net


10,323



9,548Prepaid expenses and other current assets


1,982



2,761Assets held for sale


27,814Total current assets


52,832



32,781Fixed assets, at cost:Land, buildings and improvements






565Leasehold improvements


1,167



1,170Computer equipment and software


8,163



11,390Furniture, fixtures and other


4,851



4,541Total fixed assets


14,181



17,666Less accumulated depreciation and amortization


(12,225
)


(14,113
)Fixed assets, net


1,956



3,553Assets held for sale


5,000Other assets


2,231



1,641Acquisition deposits






3,450Acquisition related costs






1,689Total assets

$
62,019


$
43,114LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Floor plan payables

$
1,064


$
213Revolving credit facility


4,775Accounts payable


10,438



12,419Accrued payroll


1,639



1,922Liabilities associated with assets held for sale


19,084Other accrued liabilities


5,849



6,684Total current liabilities


42,849



21,238Convertible note


8,969Other long-term liabilities


5,418



3,622Total liabilities


57,236



24,860Commitments and contingenciesShareholders equity:Preferred stock:Authorized  1,000,000 shares,
    outstanding  noneCommon stock:Authorized 35,000,000 shares, outstanding 
    8,650,224 and 8,593,224 shares, respectively


34,983



33,400Accumulated deficit


(30,536
)


(15,421
)Accumulated other comprehensive income


336



275Total shareholders equity


4,783



18,254Total liabilities and shareholders equity

$
62,019


$
43,114    30




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BELL
    INDUSTRIES, INC.
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars
    in thousands)
  Accumulatedother


TotalCommon stock


Accumulated


comprehensive


shareholdersShares


Amount


deficit


income


equityBalance at December 31, 2005


8,559,224


$
32,832


$
(12,528
)

$



$
20,304Employee stock plans


34,000



68











68Stock-based compensation






500











500Adoption of SFAS 158, net of tax














275



275Net loss










(2,893
)






(2,893
)Balance at December 31, 2006


8,593,224


$
33,400


$
(15,421
)

$
275


$
18,254Employee stock plans


57,000



123











123Stock-based compensation






310











310Employee benefit plan














61



61Adoption of FIN 48










132







132Beneficial conversion feature, net of tax






1,150











1,150Net loss










(15,247
)






(15,247
)Balance at December 31, 2007


8,650,224


$
34,983


($
30,536
)

$
336


$
4,783    31




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##### Table of Contents



BELL
    INDUSTRIES, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (In
    thousands)
  Year ended December 31,2007


2006Cash flows from operating activities:Net loss

$
(15,247
)

$
(2,893
)Loss (income) from discontinued operations, net of tax


2,196



(441
)Loss (gain) on sale of discontinued operations, net of tax


3,940



(4,030
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities for continuing operations:Gain on sale of assets


(2,024
)Depreciation, amortization and accretion


2,041



2,193Stock-based compensation


208



500Non-cash interest expense


1,198Provision for losses on accounts receivable, net


2,734



134Provision for losses on inventory


172Changes in assets and liabilities, net of acquisitions and
    disposals:Accounts receivable


1,776



(2,469
)Inventories


(948
)


2,008Accounts payable


128



1,934Accrued payroll


(286
)Accrued liabilities and other


534



542Net cash used in operating activities for continuing operations


(3,578
)


(2,522
)Net cash provided by (used in) operating activities for
    discontinued operations


9,960



(1,954
)Net cash provided by (used in) operating activities


6,382



(4,476
)Cash flows from investing activities:Purchases of fixed assets and other


(1,430
)


(2,711
)Proceeds from sale of assets


3,026Net cash provided by (used in) investing activities for
    continuing operations


1,596



(2,711
)Net cash provided by (used in) investing activities for
    discontinued operations


(26,043
)


3,645Net cash provided by (used in) investing activities


(24,447
)


934Cash flows from financing activities:Net borrowings under revolving credit facility


4,775Proceeds from issuance of convertible note


10,000Debt acquisition costs


(823
)Net proceeds of floor plan payables


851



145Employee stock plans


122



68Principal payments on capital leases


(88
)


(365
)Net cash provided by (used in) financing activities


14,837



(152
)Net decrease in cash and cash equivalents


(3,228
)


(3,694
)Cash and cash equivalents at beginning of period


3,637



7,331Cash and cash equivalents at end of period

$
409


$
3,637Supplemental cash flow information:Interest paid

$
742


$Income taxes paid

$
54


$
79Capital lease obligations incurred (related to discontinued
    operations)

$
1,727


$    32




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##### Table of Contents



BELL
    INDUSTRIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Note 1 
    Summary
    of Accounting Policies  Principles of consolidation
  Cash and cash equivalents
    Revenue recognition and receivables
  Technology
    Solutions Group
  No. 00-21 No. 00-21.
  No. 99-19,
 33




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##### Table of Contents



Recreational
    Products Group
      Inventories first-in,
  Shipping and handling costs
  Deferred catalog and advertising costs
  Vendor rebates
  Deferred financing costs
  Fixed assets, depreciation and amortization
 34




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##### Table of Contents



Long-lived assets
  Income taxes
    Environmental matters
  Retiree medical program
  Comprehensive income (loss)
  Stock-based compensation
  Per share data
  2007


2006Basic weighted average shares outstanding


8,633



8,568Potentially dilutive stock options and convertible debt


2,668



53Anti-dilutive due to net loss in period


(2,668
)


(53
)Diluted weighted average shares outstanding


8,633



8,568    35




---



##### Table of Contents



Use of estimates
  New Pronouncements
       36




---



##### Table of Contents



Note 2 
    Sale of
    J. W. Miller Division      Note 3 
    Sale of
    Assets    Note 4 
    Acquisition and Sale of SkyTel Division
      Accounts receivable, net

$
14,101Inventories, net


1,406Prepaid expenses


3,544Assets held for sale


13,690Fixed assets


15,010Intangible assets


3,524Accrued exit costs


(5,096
)Asset retirement obligation


(3,071
)Deferred revenue


(7,444
)Other


(1,070
)Net assets acquired

$
34,594  37




---



##### Table of Contents



Trademarks

$
1,227Patents


963Licenses


914Customer relationships


420Total intangible assets

$
3,524   No. 95-3,
       38




---



##### Table of Contents



Accounts receivables (net of allowance of $558)

$
12,951Inventories


1,936Prepaid expenses


736Property and equipment, net


14,136Other assets


3,055Total assets held for sale


32,814Accounts payable


6,540Accrued tower termination costs


3,338Accrued other liabilities


9,206Total liabilities associated with assets held for sale


19,084Carrying value of net assets held for sale

$
13,730       Net revenue

$
83,619Loss before income taxes


(6,136
)Provision for income taxesLoss from discontinued operations, net of tax

$
(6,136
)       Note 5 
    Floor
    Plan Arrangements    Note 6 
    Stock
    Repurchase Program   39




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##### Table of Contents



Note 7 
    Stock
    Plans        Market price onNumber of shares


Grant price


date of grant


Option life250,000


$
2.67


$
2.46



10 years250,000


$
4.00


$
2.46



10 years250,000


$
6.00


$
2.46



10 years250,000


$
8.00


$
2.46



10 years          40




---



##### Table of Contents



WeightedWeighted


averageaverage


remainingexercise


contractual term


AggregateShares


price


(in years)


intrinsic valueOutstanding at December 31, 2005


268,000


$
2.78Granted to John A. Fellows


1,000,000



5.17Other non qualified grants


448,000



3.25Granted from predecessor to 2007 Plan


285,000



3.78Exercised


(34,000
)


2.00Canceled or expired


(34,000
)


2.52Outstanding at December 31, 2006


1,933,000



4.29Granted


275,000



4.50Exercised


(57,000
)


2.14Canceled or expired


(1,058,000
)


5.03Outstanding at December 31, 2007


1,093,000


$
3.74



6.4


$Exercisable at December 31, 2007


532,200


$
3.57



5.3


$     Weightedaveragegrant dateShares


fair valueNon vested at December 31, 2006


1,152,400


$
0.90Granted


275,000



1.40Vested


(240,600
)


1.27Canceled


(626,000
)


0.65Non vested at December 31, 2007


560,800


$
1.12       Note 8 
    Debt   41




---



##### Table of Contents



pay-in-kind
  Revolving
    Credit Facility
        Convertible
    Note
  and/or
 42




---



##### Table of Contents



No. 00-27, No. 98-5
  Convertible note at January 31, 2007

$
10,000Beneficial conversion feature


(1,916
)Accretion of beneficial conversion feature


153Accrued interest


732Convertible note at December 31, 2007

$
8,969     Note 9 
    Income
    Taxes    2007


2006CurrentFederal

$
49


$
(2,302
)State


27



80$
76


$
(2,222
)     2007


2006Federal statutory tax rate


(34.0
)%


(34.0
)%State taxes, net of federal benefit


0.2



0.60Change in valuation allowance against net deferred tax assets


33.8



9.80Nondeductible items and other, net


0.5



0.4Effective tax rate


0.5
%


(23.2
)%  43




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##### Table of Contents



December 31,2007


2006Deferred tax assets:Discontinued operations

$
2,787


$
1,213Net operating loss carryforwards


6,360



4,085Accrued environmental and legal


1,335Employee benefit accruals


120



311Stock-based compensation


560



194Deferred rent


318



260Goodwill


302



180Receivables allowance


453



202Inventory reserves


351



65Other


81



012,667



6,510Deferred tax liabilities:Prepaid items


(159
)


(102
)Depreciation and amortization


13



(37
)Other


(374
)


(40
)Net deferred tax balance before valuation allowance


12,147



6,331Valuation allowance


(12,147
)


(6,331
)Net deferred tax balance after valuation allowance

$



$         Balance as of January 1, 2007

$
358Tax positions related to current year:AdditionsTax positions related to prior years:Additions


37Balance as of December 31, 2007

$
395    44




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##### Table of Contents



Note 10 
    Employee
    Benefit and Deferred Compensation Plans      Note 11 
    Retiree
    Medical Program      Before application





After applicationof SFAS 158


Adjustment


of SFAS 158Other long-term liabilities

$
3,897


$
(275
)

$
3,622Accumulated other comprehensive income






275



275Total shareholders equity


17,979



275



18,254     Note 12 
    Environmental
    Matters   45




---



##### Table of Contents



1-4
      Note 13 
    Litigation  Williams Electronic Games litigation:
     46




---



##### Table of Contents



Other litigation:
  Note 14 
    Commitments
    and Contingencies      December 312006Hardware and software

$
454Less accumulated amortization


(366
)$
88       Operatingleases2008

$
2,6152009


2,2862010


1,6292011


1,4692012


992$
8,991   Note 15 
    Related
    Party Transactions     47




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##### Table of Contents



Note 16 
    Business
    Segment and Related Information      Year endedDecember 31,2007


2006Net revenuesTechnology Solutions GroupProducts

$
42,633


$
43,477Services


32,670



32,07675,303



75,553Recreational Products Group


44,615



44,743$
119,918


$
120,296Operating income (loss):Technology Solutions Group

$
(3,661
)

$
(4,714
)Recreational Products Group


555



1,455Corporate


(7,953
)


(6,783
)Gain on sale of assets


2,024(9,035
)


(10,042
)Interest income, net






456Loss from continuing operations before income taxes

$
(9,035
)

$
(9,586
)Depreciation and amortizationTechnology Solutions Group

$
1,559


$
1,703Recreational Products Group


262



355Corporate


220



135$
2,041


$
2,193Total assetsTechnology Solutions Group

$
10,448


$
16,085Recreational Products Group


13,557



13,033Corporate


5,200



13,996Discontinued operations


32,814$
62,019


$
43,114Capital expendituresTechnology Solutions Group

$
1,264


$
2,333Recreational Products Group


132



152Corporate


34



226Discontinued operations


4,471$
5,901


$
2,711  48




---



##### Table of Contents



Note 17 
    Subsequent
    Events  Sale of SkyTel Divisions
  Amendment to Credit Facility
  Settlement of Litigation
 49




---



##### Table of Contents



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS

(In thousands) Balance at


Charge to





Balancebeginning


costs and





at end ofDescription

of period


expenses


Deductions


periodYear ended December 31, 2007:Allowance for doubtful accounts

$
547


$
2,734


$
2,551


$
730Inventory reserves


567



236



128



675Deferred tax valuation allowance


6,331



5,815







12,147$
7,445


$
8,986


$
2,679


$
13,552Year ended December 31, 2006:Allowance for doubtful accounts

$
811


$
134


$
398
(1)

$
547Inventory reserves


865



75



373
(1)


567Deferred tax valuation allowance


5,181



1,150







6,331$
6,857


$
1,359


$
771


$
7,445     (1)
    
    Amount includes balances related to the discontinued operations
    of J. W. Miller.  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A(T).
    Controls
    and Procedures  Rules 13a-15(e) 15d-15(e)
    Rules 13a-15(f) 15d-15(f)
 50




---



##### Table of Contents



Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f)
              Material
    Weakness in Internal Control over Financial Reporting related to
    the Sale of the Skytel Division     51




---



##### Table of Contents



Form 10-K
  Item 9B.
    Other
    Information   52




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant      Regulation S-K Form 10-K.
  Item 11.
    Executive
    Compensation    Item 12.  Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters
    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedule  Financial Statements:
  Form 10-K.
  Financial Statement Schedule:
  Form 10-K.
  Form 10-K.
 53




---



##### Table of Contents



SIGNATURES    Bell Industries, Inc.
  By:
    /s/  Clinton
    J. Coleman         Signature

Title/s/  Mark
    E. SchwarzMark
    E. Schwarz

Director and Chairman of the Board/s/  Clinton
    J. ColemanClinton
    J. Coleman

Chief Executive Officer
    (Principal Executive Officer)
    Director/s/  Kevin
    J. ThimjonKevin
    J. Thimjon

President and
    Chief Financial Officer
    (Principal Financial and Accounting Officer)/s/  L.
    James LawsonL.
    James Lawson

Director/s/  Michael
    R. ParksMichael
    R. Parks

Director  54




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##### Table of Contents



EXHIBIT INDEX  ExhibitNumber

Description2
.

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
.

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. (*)10a
.

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. (*)b
.

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. (*)c
.

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. (*)d
.

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. (*)e
.

Amended and Restated Agreement for Wholesale Financing dated as
    of July 18, 2002 between the Registrant and IBM Credit
    Corporation is incorporated by reference to Exhibit 10.r of
    the Registrants Annual Report on
    Form 10-K
    dated December 31, 2004. (*)f
.

Amendment to Agreement for Wholesale financing dated as of
    December 12, 2003 between the Registrant and GE Commercial
    Distribution Finance Corporation (formerly known as Deutsche
    Financial Corporation) is incorporated by reference to
    Exhibit 10.v of the Registrants Annual Report on
    Form 10-K
    dated December 31, 2004. (*)g
.

Letter Agreement dated as of May 11, 2004 between the
    Registrant and IBM Credit LLC (formerly IBM Credit Corporation)
    is incorporated by reference to Exhibit 10.w of the
    Registrants Annual Report on
    Form 10-K
    dated December 31, 2004. (*)h
.

The Asset Purchase Agreement between SkyTel Corp. and the
    Registrant is incorporated by reference to Exhibit 10.1 of
    the Registrants Current Report on
    Form 8-K
    dated November 10, 2006. (*)i
.

The Amendment No. 1 to the Asset Purchase Agreement between
    SkyTel Corp. and the Registrant is incorporated by reference to
    Exhibit 10.1 of the Registrants Current Report on
    Form 8-K
    dated November 16, 2006. (*)j
.

The Employment Letter between the Registrant and Kevin Thimjon
    dated as of January 5, 2007 is incorporated by reference to
    Exhibit 10.1 of the Registrants Current Report on
    Form 8-K
    dated January 5, 2007. (*)k
.

Credit Agreement, dated as of January 31, 2007 between the
    Registrant and Wells Fargo Foothill, Inc. is incorporated by
    reference to Exhibit 10.1 of the Registrants Current
    Report on
    Form 8-K
    dated January 31, 2007. (*)l
.

$10,000,000 Amended and Restated Convertible Promissory Note,
    dated March 12, 2007 issued by the Registrant to Newcastle
    Partners, L.P. is incorporated by reference to Exhibit 4.1
    of the Registrants Current Report on
    Form 8-K
    dated March 12, 2007. (*)m
.

Purchase Agreement, dated as of January 31, 2007 between
    the Registrant and Newcastle Partners, L.P. is incorporated by
    reference to Exhibit 4.1 of the Registrants Current
    Report on
    Form 8-K
    dated January 31, 2007. (*)n
.

Security Agreement, dated as of January 31, 2007 between
    the Registrant and Wells Fargo Foothill, Inc. is incorporated by
    reference to Exhibit 10.2 of the Registrants Current
    Report on
    Form 8-K
    dated January 31, 2007. (*)o
.

Security Agreement, dated as of March 12, 2007 between the
    Registrant and Newcastle Partners, L.P. is incorporated by
    reference to Exhibit 10.1 of the Registrants Current
    Report on
    Form 8-K
    dated March 12, 2007. (*) 55




---



##### Table of Contents



ExhibitNumber

Descriptionp
.

Registration Rights Agreement, dated as of January 31, 2007
    between the Registrant and Newcastle Partners, L.P. is
    incorporated by reference to Exhibit 4.3 of the
    Registrants Current Report on
    Form 8-K
    dated January 31, 2007. (*)q
.

Stock Purchase Agreement dated June 15, 2007 among Sprint
    Nextel Corporation, each of the stockholders of New York MDS,
    Inc. and the Stockholders Representative is incorporated by
    reference to Exhibit 10.1 of the Registrants Current
    Report on
    Form 8-K
    dated June 15, 2007. (*)r
.

Stock Purchase Agreement dated June 15, 2007 among Sprint
    Nextel Corporation, each of the stockholders of Atlanta MDS Co.,
    Inc. and the Stockholders Representative is incorporated by
    reference to Exhibit 10.2 of the Registrants Current
    Report on
    Form 8-K
    dated June 15, 2007. (*)s
.

Asset Purchase Agreement dated February 14, 2008 between
    the Company and SkyGuard, LLC is incorporated by reference to
    Exhibit 10.1 of the Registrants Current Report on
    Form 8-K
    dated February 20, 2008. (*)t
.

First Amendment to Employment Letter effective February 15,
    2008 between the Company and Kevin Thimjon is incorporated by
    reference to Exhibit 10.2 of the Registrants Current
    Report on
    Form 8-K
    dated February 20, 2008. (*)u
.

Asset Purchase Agreement dated March 30, 2008 between the
    Company and Velocita Wireless, LLC is incorporated by reference
    to Exhibit 10.1 of the Registrants Current Report on
    Form 8-K
    dated April 3, 2008. (*)21
.1

Subsidiaries of the Registrant.23
.1

Consent of Independent Registered Public Accounting Firm.23
.2

Consent of Independent Registered Public Accounting Firm.31
.1

Certification of Clinton J. Coleman, President and 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 Kevin J. Thimjon, Clinton J. Coleman President
    and 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
.1

Certification of Clinton J. Coleman, President and Chief
    Executive Officer of Registrant furnished pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Kevin J. Thimjon, Clinton J. Coleman President
    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.     (*)
    
    Incorporated by reference. 56