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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998

                                       OR

[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from ____________ to ____________.

                         Commission file number: 0-21528

                             BELL MICROPRODUCTS INC.
             (Exact name of registrant as specified in its charter)

             California                                         94-3057566
    (State or other jurisdiction                             (I.R.S. Employer
 of incorporation or organization)                        Identification Number)

              1941 Ringwood Avenue, San Jose, California 95131-1721
           (Address of principal executive office, including zip code)

       Registrant's telephone number, including area code: (408) 451-9400

        Securities registered pursuant to Section 12(b) of the Act: None.

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
                                Yes    X      No       
                                     ----         ----

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant,  as of March 15, 1999, was  approximately  $50,506,721  based
upon the last sale price reported for such date on the Nasdaq  National  Market.
For  purposes of this  disclosure,  shares of Common  Stock held by officers and
directors  of the  Registrant  have been  excluded  because  such persons may be
deemed to be affiliates. This determination is not necessarily conclusive.

         The number of shares of  Registrant's  Common Stock  outstanding  as of
March 15, 1999 was 8,935,339.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive  Proxy Statement for the Company's  Annual Meeting of
Shareholders to be held on May 13, 1999 are  incorporated by reference into Part
III of this Form 10-K

         Index of Exhibits appears on Pages 43 and 44.

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                                     PART I

ITEM 1:  Business


         Founded in 1987,  Bell  Microproducts  Inc. and its  subsidiaries  (the
"Company")  markets and distributes a select group of semiconductor and computer
products to original equipment  manufacturers ("OEMs") and value-added resellers
("VARs").   Semiconductor   products  include  memory,  logic,   microprocessor,
peripheral and specialty  components.  Computer  products include disk, tape and
optical  drives and  subsystems,  drive  controllers,  monitors,  computers  and
board-level  products.  The Company also provides a variety of manufacturing and
value-added   services  to  its  customers,   including  the   manufacturing  of
board-level and systems products to customer specifications,  as well as certain
types of components and subsystem testing services, systems integration and disk
drive formatting and testing,  and the packaging of electronic component kits to
customer specifications.


         When  used  in  this  report,   the  words  "expects,"   "anticipates,"
"estimates,"   "intends"  and  similar  expressions  are  intended  to  identify
forward-looking   statements  within  the  meaning  of  Section  27A  under  the
Securities  Act of 1933 and Section  21E under the  Securities  Exchange  Act of
1934.  Such statements  include but are not limited to statements  regarding the
ability to obtain favorable product  allocations,  the ability to increase gross
profit while  controlling  expenses,  the ability to realize  synergies  between
contract manufacturing and distribution,  and the costs of Year 2000 compliance.
These statements are subject to risks and uncertainties  that could cause actual
results to differ  materially,  including  those  risks  described  under  "Risk
Factors" below.

Products and Services

   Semiconductor Products

         The Company  distributes  a broad range of  semiconductor,  passive and
electromechanical products including memory, logic,  microprocessor,  peripheral
and  specialty  components.  The  products  distributed  primarily  are advanced
integrated  circuits,  critical to the  performance of the  customer's  products
utilizing these  components.  The Company's  customer base for its semiconductor
products   comprises   primarily   small  and   medium-sized   OEMs,   including
manufacturers of computer and office products,  industrial  equipment (including
machine tools, factory automation and robotic equipment), scientific and medical
instruments and  telecommunications  products. The Company's principal suppliers
of  semiconductor  products  in  1998  included  IBM  Microelectronics,  Cypress
Semiconductor,  Fujitsu  Microelectronics,  NEC Electronics,  Sony  Electronics,
Harris Semiconductor and OKI Semiconductor.

   Computer Products

         While a substantial portion of the Company's sales of computer products
in 1998 was  attributable to hard disk drives,  the Company's  computer  product
sales also  included  tape drives,  optical disk  drives,  networking  products,
monitors,   computers,   motherboards  and  value-added  services  and  solution
products.  Based on a comparison of its product lines with product lines offered
by other major industrial  electronics  distributors,  the Company believes that
its breadth of product offerings for mass storage computer products is among the
strongest in the industry.  The Company  distributes these products primarily to
industrial OEMs, hardware integrators, VARs and other resellers.


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         Disk,  Tape and Optical  Drives.  The Company  sells  floppy,  hard and
optical disk and tape drives to a wide range of customers,  including industrial
OEMs (some of which produce  computer,  office,  medical and  telecommunications
products),  as well as integrators and  manufacturers  of computers based on the
UNIX,  DOS/Windows  and  Macintosh  operating  systems  and  frequently  markets
subsystems to integrators and VARs. To serve these customers, Bell Microproducts
offers a full range of products  from the industry  leaders in mass storage such
as  IBM,  Maxtor  Corporation,  Quantum  Corporation,  Seagate  Technology,  Sun
Microelectronics (a division of Sun Microsystems Inc.), TEAC and Western Digital
Corporation.

         Networking  Products.  The Company sells  specialized  board-level mass
storage and memory  systems  products  including full "plug and play" (ready for
immediate  installation)  tape, optical (including  jukebox) and RAID (Redundant
Array of  Inexpensive  Disks)  solutions for OEMs,  VARs and  sophisticated  end
users.  These  solutions  are  configured  using  standard  components  from the
Company's inventory.

         Computers.  The Company delivers standard and custom  configurations of
motherboards,  computers and file servers to the VAR and OEM markets,  including
medical,  commercial and test system OEMs and vertical market  integrators.  The
principal motherboard supplier is Sun Microelectronics.

   Value-Added Services

         The Company provides the following value-added services:

         Contract  Manufacturing.  The Company produces board-level products for
customers on a turnkey basis. Contract manufacturing operations involve building
board-level  products  to  customer  specifications,  utilizing  franchised  and
non-franchised  products and  materials.  Under these  turnkey  agreements,  the
Company  procures  the  required  raw  materials,  manages the assembly and test
operations,  and supplies circuit boards to the customer's delivery schedule and
quality requirements.

         The  capabilities  of the Company's  manufacturing  division,  Quadrus,
include automated  advanced surface mount technology (SMT) and  pin-through-hole
(PTH) assembly  capabilities,  complete with advanced  in-circuit and functional
test capabilities and ISO 9002  certification.  By capitalizing on its strengths
as a distributor,  including its customer relationships,  expertise in materials
acquisition and inventory  management,  coupled with a complete in-house kitting
(as defined below) and turnkey manufacturing capability,  the Company offers its
customers high quality products and service as well as a single source for their
product, materials, assembly and test requirements.

         Systems Integration. Systems integration is a customer specific turnkey
solution provided by the Company which integrates such high technology  products
as motherboards,  disk, tape and optical drives with power supplies, enclosures,
interface electronics, cables and connectors to build a completed system.

         Subsystem  and  Device  Value-Added  Services.   The  Company  provides
value-added  services  to  board  and  mass  storage  products  to a  customer's
specification  delivering  subsystems  modified  to  meet  the  requirements  of
specific applications.

         Bellstor.  The  Company  offers its own  product  line of disk and tape
subsystems and RAID products to OEMs,  VARs, and  integrators for application in
standard  interface  computer  environments.  In 1998, the Company announced the
release of a new Bellstor  product  family,  Galaxy and  Discovery,  meeting the
needs of  customers  from a subsystem to a complete  RAID ready  (JBOD)  storage
solution.

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         Trademark.  With the acquisition of the Computer  Products  Division of
Almo Corporation in November 1998, the Company  increased its product  offerings
to include the manufacture of  private-labeled  personal computers that are sold
to value-add resellers, under the brand name Trademark.

         Kitting. Kitting of customer component product requirements is provided
to a select customer base.  Kitting is a service  whereby the Company  purchases
materials according to the customer's specifications and assembles them into kit
form, ready for the assembly process.

Distribution Operations

         The  majority  of  the  products  sold  by the  Company's  distribution
division are purchased  pursuant to  authorized  distributor  agreements.  These
agreements   generally   establish   marketing    relationships   with   product
manufacturers,  provide for joint sales and  marketing  programs  and  generally
provide the Company price  protection  and limited  inventory  rotation  rights.
These   agreements   are  typically  for  renewable   terms  of  one  year,  are
non-exclusive,  and  authorize  the Company to sell  through  most or all of its
sales and distribution centers all or a portion of the products produced by that
manufacturer.

         The  Company  manages the  quality  and  quantity  of its  distribution
inventory  through  its  asset  management   group,   which  seeks  to  maximize
responsiveness  to  customer  requirements  while  optimizing  inventory  turns.
Inventory  management  is critical to a  distributor's  business.  The Company's
strategy  is to focus  on a high  number  of  resales  or  "turns"  of  existing
inventory to reduce exposure to product obsolescence,  changing consumer demands
and declining average selling prices.  The Company's computer system facilitates
the  control  of  purchasing  and  inventory,  accounts  payable,  shipping  and
receiving,   and  invoicing  and  collection   information   for  the  Company's
distribution  business.  Each of the Company's  sales centers is  electronically
linked to the Company's  central computer system which provides fully integrated
on-line real-time data with respect to the Company's inventory levels. Inventory
turns are tracked by part number or device  type,  and the  Company's  inventory
management system provides information to assist in making future purchasing and
stock rotation decisions.  This system enables the Company to effectively manage
its inventory so as to respond quickly to customer requirements while minimizing
inventory  levels.  The asset  management  group also  monitors  supplier  stock
rotation programs,  inventory price protection opportunities,  rejected material
and other factors related to inventory quality and quantity.

Backlog

         The Company does not believe  that  information  concerning  backlog is
material to an understanding of its business,  as the Company's  objective is to
ship orders on the same day they are received  unless the customer has requested
a specific future delivery date on an order. Additionally, it is common industry
practice  for  customers,  in most cases,  to be able to  re-schedule  or cancel
orders with future delivery dates without penalties.

Marketing and Sales

         The semiconductor and computer products industries are characterized by
rapid technological  advances and a constant flow of new products. The resulting
shorter product life cycles have necessitated  compressed design and development
cycles, more rapid production build-up and quick response to major technological
shifts.  To react to these factors,  manufacturers  are focusing on and devoting
significant  resources to their core areas of 



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expertise  including  research  and  product  design  and  development,  and are
increasingly outsourcing their marketing and manufacturing requirements.

         Over the past two  decades the growth in the  electronics  distribution
industry  reflects a gradual trend among electronics  manufacturers  towards the
use of distributors, particularly for servicing medium and smaller size OEMs and
VARs.  As a result  of  these  trends,  distributors  such as the  Company  have
successfully  expanded  their  customer  lists and line  cards and  consequently
achieved increased revenues.

Strategy

         The  Company's  business  strategy is designed to benefit from industry
trends  toward   increasing  use  of   distributors   and  the   outsourcing  of
manufacturing  requirements.  The Company's  strategy includes the following key
elements:

         Focus on Select Product Offerings. The Company's product strategy is to
focus its line card on a select group of  semiconductor  and computer  products,
including a particularly strong line of mass storage products,  with the goal of
achieving a leadership  position in the major  markets for such  products.  This
approach allows the Company to provide more knowledgeable  service and technical
support to its customers than it could if it offered a more  extensive  array of
products.  The Company  also  believes  that this  approach  should  allow it to
develop close working relationships with suppliers and to strengthen its ability
to obtain favorable product allocations in times of shortage of supply.

         Expand  Operating  Profit.  The Company seeks to maximize its operating
profit  primarily  through  two  aspects of its  sales,  marketing  and  product
strategies:   (i)  increasing  distribution  of  relatively  high  gross  margin
products,  such as semiconductors and its value added products and capabilities,
and (ii)  selling  high volume  products,  thereby  enhancing  productivity  and
allowing  the Company to  increase  gross  profit  while  controlling  operating
expenses.


         Provide  National Major Market  Distribution.  The Company  focuses its
marketing  and sales  strategy  on the  largest  U.S.  markets  with the goal of
maximizing  productivity  per sales  office.  The  Company  increased  its sales
locations to 33 in 1998 primarily  through the November 1998 acquisitions of the
Computer Products Division of Philadelphia-based  Almo Corporation and the Tenex
Data Division of Axidata, Inc. in Canada. The Company addresses what it believes
constitutes many of the largest sectors of the national market for semiconductor
and computer products. The Company will continue to evaluate potential expansion
into additional markets.


         Realize Synergies Between Contract Manufacturing and Distribution.  The
Company seeks to take advantage of synergies and efficiencies arising out of the
combination of distribution and contract manufacturing in a single organization.
Through its distribution  arm, the Company  provides its contract  manufacturing
operation  access to preferred  component  purchasing,  as well as a substantial
sales force that would be difficult for a stand alone contract  manufacturer  of
comparable size to support.

Employees

         At December 31, 1998, the Company had a total of 880 employees. None of
the Company's  employees are  represented by a labor union.  The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.  The Company's  future  success will depend in part upon its continuing

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ability to attract and retain highly qualified  personnel.  Competition for such
employees  is intense and there can be no  assurance  that the  Company  will be
successful in attracting  and retaining such  personnel.  Failure to attract and
retain highly  qualified  personnel could have a material  adverse effect on the
Company's results of operations.

Risk Factors

Potential Fluctuations in Quarterly Operating Results

         The Company's quarterly operating results have in the past and could in
the future fluctuate  substantially.  The Company's expense levels are based, in
part, on expectations  of future sales. If sales in a particular  quarter do not
meet  expectations,  operating  results  could be  adversely  affected.  Factors
affecting  quarterly  operating  results  include the loss of key  suppliers  or
customers,  price  competition,  problems  incurred in managing  inventories  or
receivables,  the  timing  or  cancellation  of  orders  from  major  customers,
enforcing cancellation provisions of manufacturing  agreements,  a change in the
product mix sold by the Company, customer demand,  availability of products from
suppliers,   management  of  growth,   the  percent  of  revenue   derived  from
distribution  versus contract  manufacturing,  the Company's  ability to collect
accounts  receivable,  price decreases on inventory that is not price protected,
the timing or  cancellation  of  purchase  orders  with or from  suppliers,  the
ability of the Company to integrate recently acquired companies,  and the timing
of expenditures in anticipation of increased sales and customer product delivery
requirements.  Price competition in the industries in which the Company competes
is  intense  and could  result in gross  margin  declines,  which  could have an
adverse impact on the Company's  profitability.  Due in part to supplier  rebate
programs  and  increased  sales by the Company near the end of each  quarter,  a
significant  portion of the Company's gross profit has historically  been earned
by the Company in the third month of each quarter.  Failure to receive  products
from its suppliers in a timely manner or the  discontinuance  of rebate programs
and  marketing  development  funds could have a material  adverse  effect on the
Company's results of operations in a particular  quarter.  In various periods in
the past,  the  Company's  operating  results have been affected by all of these
factors.  In particular,  price fluctuations in the disk drive and semiconductor
industries  have affected the  Company's  gross  margins in recent  periods.  In
addition,  the Company's contract  manufacturing  division has experienced lower
than expected sales which,  when combined with the division's  relatively  fixed
overhead,  has  adversely  impacted  operating  results in recent  periods.  The
Company's cash requirements will depend on numerous factors,  including the rate
of growth of its sales. The Company believes that its working capital, including
its  existing  credit  facility,  will  be  sufficient  to  meet  the  Company's
short-term capital  requirements.  However, the Company may seek additional debt
or equity financing to fund continued growth.

Limited History of  Profitability in Contract  Manufacturing;  Dependence on Key
Customers

         The  Company's  contract  manufacturing  division  has  been  dependent
historically on a relatively limited customer base. Any significant rescheduling
or cancellation of orders from these customers,  or change of financial strength
of these  customers,  or loss of  customers  altogether  could  have a  material
adverse  effect on the  results  of  operations  of the  contract  manufacturing
division and on the  profitability  of the Company.  The Company's  revenues and
profitability from its contract manufacturing  operations may also depend on the
availability of necessary components,  from a single source or otherwise,  whose
lack  of  availability  could  delay  or  curtail  production  and  shipment  of
assemblies  utilizing  such  components.  There  can be no  assurance  that  the
Company's contract  manufacturing division will retain existing major customers,
attract new contract manufacturing  customers or otherwise increase sales levels
to  support  expanded  operations,  continue  to  maintain  supply of  necessary
components,  or that it will achieve profitability in future periods. Failure to
do so  would  have  an  adverse  effect  on  the  Company's  operating  results.



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Management of Growth

         The  Company's  growth in recent  years has placed,  and  continues  to
place,  a  strain  on  the  Company's  management,   financial  and  operational
resources. The Company intends to continue to pursue its growth strategy through
increasing sales of existing and new product offerings,  increasing geographical
sales  coverage,  and possibly  through  strategic  acquisitions.  In 1998,  the
Company  acquired  the Computer  Products  Division of  Philadelphia-based  Almo
Corporation  and  Toronto-based  Tenex  Data,  a division  of Axidata  Inc.  The
integration of the newly acquired  companies  will involve the  assimilation  of
operations  and  products,  which could divert the  attention  of the  Company's
management  team  and  may  have a  material  adverse  effect  on the  Company's
operating   results  in  future  quarters.   The  Company's   strategy  includes
consideration  of  possible   additional   acquisitions  in  the  future.   Such
acquisitions  entail  numerous  risks,  including  an  inability  to  assimilate
acquired   operations  and  products   diversion  of   management's   attention,
difficulties and uncertainties in transitioning the business  relationships from
the acquired entity to the Company,  difficulty in integrating new employees and
loss of key employees of acquired companies. In addition, future acquisitions by
the  Company  may  result  in  dilutive  issuances  of  equity  securities,  the
incurrence of additional indebtedness, large one-time expenses, and the creation
of  goodwill  or other  intangible  assets  that  could  result  in  significant
amortization  expense.   Continued  growth  may  require  additional  equipment,
increased  personnel,  expanded information systems and additional financial and
administrative  control  procedures.  There can be no assurance that the Company
will be able to  attract  and retain  qualified  personnel,  expand  information
systems,  or further  develop  accounting  and control  systems to  successfully
manage  expanding  operations,  including an  increasing  number of supplier and
customer  relationships and geographically  dispersed locations.  Further, there
can be no assurance  that the Company will be able to sustain its recent rate of
growth or continue its profitable operations.

Dependence on Suppliers

         Two suppliers  provided products which represented 43% of the Company's
sales in 1998, and 43% in 1997. The Company's distribution agreements with these
suppliers  are  cancelable  upon  90  days  notice.  In the  past,  distribution
arrangements with significant suppliers have been terminated and there can be no
assurance  that,  in the  future,  one or  more  of  the  Company's  significant
distributor relationships will not be terminated. Two vendors accounted for 49%,
57% and 53% of the Company's  distribution inventory purchases during 1998, 1997
and 1996, respectively. One of these vendors has obtained a second priority lien
against the Company's inventories to secure payment on the Company's purchase of
goods.  The loss of any  significant  supplier  or the  shortage  or loss of any
significant  product line could materially  adversely affect the Company. As the
Company  enters  into  distribution  arrangements  with  new  suppliers,   other
competitive  suppliers may terminate their  distribution  arrangements  with the
Company with minimal  notice.  To the extent that the Company is unable to enter
into or maintain distribution arrangements with leading suppliers of components,
the  Company's  sales  and  operating  results  could  be  materially  adversely
affected.


Competition


         The distribution industry is highly competitive. In the distribution of
semiconductor and computer  products,  the Company  generally  competes for both
supplier and customer  relationships with numerous local,  regional and national
authorized and  unauthorized  distributors and for customer  relationships  with
semiconductor  and computer  product  manufacturers,  including  some of its own
suppliers.  Many of the  Company's  distribution  competitors  are larger,  more
established  and have greater  name  recognition  and  financial  and  marketing
resources  than  the  Company.   The  Company   believes  that  competition  for
distribution  customers is based on product  lines,  customer  service,  product
availability,   competitive  pricing  and  technical  information,  as  well  as
value-added 


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services  including kitting and turnkey  assembly.  The Company believes that it
competes  favorably with respect to these  factors.  Recently with the increased
acceptance of companies  transacting business through the Internet,  competition
in the distribution of semiconductors, computer products and related value-added
products is expected to  increase.  There can be no  assurance  that the Company
will be able to compete  successfully with existing or new competitors.  Failure
to do so would  have a  material  adverse  effect on the  Company's  results  of
operations.

         Contract  manufacturing  and  other  value-added  services  are  highly
competitive  and are based  upon  technology,  quality,  service,  price and the
ability to deliver  finished  products on an expeditious and reliable basis. The
Company believes it competes favorably with respect to such factors. The Company
attempts to focus on markets where it has advantages in flexibility, service and
high component  content of the total price.  In this area, the Company  competes
with many contract  manufacturers  and other  distributors,  as well as with the
in-house  manufacturing  capabilities  of its existing and potential  customers.
Many of the Company's  competitors are larger, more established and have greater
name  recognition  and financial and marketing  resources than the Company.  The
Company also faces significant  offshore  competition in turnkey  manufacturing.
Although such competitors may offer lower bid prices,  the Company believes that
offshore  manufacturing is often less attractive due to the additional costs and
risks associated with utilizing offshore  services,  such as delays in shipping,
long lead times,  shipping and insurance  costs,  inflexibility  with respect to
production and engineering changes, high cancellation charges, uncertain product
quality and difficulty in communication.

         Both  distribution  and contract  manufacturing  businesses  are highly
competitive,  and there can be no  assurance  that the  Company  will be able to
compete  successfully  with existing or new  competitors  or continue to operate
both  businesses.  Failure to do so could have a material  adverse effect on the
Company's operating results.


Risks Associated with Limited Price and Inventory Protection Rights


         The  Company's  authorized  distributor  agreements  may be canceled by
either party on short notice and generally provide for a return of the inventory
to the manufacturer  upon  cancellation.  Such agreements also generally provide
the Company with limited price protection and inventory protection rights. There
can be no assurance  that such  agreements  will not be canceled,  or that price
protection and inventory  rotation policies will provide complete  protection or
will not be changed in the future.  If the Company were to purchase  significant
amounts of products on terms that do not include  effective price  protection or
inventory  rotation rights,  the Company would bear the risk of obsolescence and
price fluctuation for those products, which could have a material adverse effect
on the Company's results of operations.


Dependence on the Personal Computer Industry

         Many of the products the Company sells are used in the  manufacture  or
configuration of personal  computers.  These products are characterized by rapid
technological  change,  short  product life cycles and intense  competition  and
pricing  pressures.  The personal computer industry has experienced  significant
unit volume  growth over the past  several  years which has, in turn,  increased
demand  for  many of the  products  distributed  by the  Company.  However,  any
slowdown in the growth of the personal computer industry, or growth at less than
expected  rates;  or  significant  reductions  in gross  margins  earned  by the
Company,  could adversely  affect the Company's  ability to continue its revenue
growth and maintain or increase the Company's  profitability.  In addition, many
of the Company's  customers in the personal computer industry are subject to the
risks of  significant  shifts in demand  and  severe  price  pressures  to their
customers,  which  may  increase  the risk that the


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Company  may not be  able to  collect  accounts  receivable  owed by some of its
customers.  To the  extent  the  Company  is  unable  to  collect  its  accounts
receivable, the Company's results of operations would be adversely affected.

         The Company faces certain  industry-related  risks.  To the extent that
its suppliers do not maintain their product leadership,  the Company's operating
results could be materially adversely affected. Moreover, the increasingly short
product life cycles  experienced  in the  electronics  industry may increase the
Company's exposure to inventory obsolescence and the possibility of fluctuations
in operating  results.  Other factors  adversely  affecting the semiconductor or
computer  industries in general,  including  trade barriers which may affect the
Company's supply of products from its Japanese suppliers,  could have a material
adverse effect on the Company's operating results.

Cyclical Nature of the Semiconductor and Disk Drive Industries

         Semiconductors  and disk drives have represented a significant  portion
of the Company's  sales and the Company  believes they will continue to do so in
future  periods.  Both the  semiconductor  and the disk  drive  industries  have
historically  been  characterized  by  fluctuations in product supply and demand
and,  consequently,  severe fluctuations in price. In the event of excess supply
of disk drives or  semiconductors,  the Company's gross margins may be adversely
affected. In the event of a shortage of supply of disk drives or semiconductors,
the  Company's  results  of  operations  will  depend on the  amount of  product
allocated  to the  Company  by its  suppliers  and the  timely  receipt  of such
allocations. Additionally,  technological changes that affect the demand for and
prices of the  products  distributed  by the  Company  may  further  affect  the
Company's  gross margins.  Although the Company's  agreements with its suppliers
provide the Company with limited price  protection  and certain  rights of stock
rotation,  rapid  price  declines  or a  shortfall  in demand for disk drives or
semiconductor  products could have an adverse  effect on the Company's  sales or
gross margins.


Year 2000 Compliance


         The Year 2000 issue  relates to the way  computer  systems and programs
define  calendar  dates;  they  could  fail  or  make   miscalculations  due  to
interpreting a date including "00" to mean 1900, not 2000.  This could result in
system failures causing disruptions in operations, including among other things,
interruptions  in processing  business  transactions  and other normal  business
operations.  Also, many systems and equipment that are not typically  thought of
as  "computer-related"  (referred  to as non-IT)  contain  embedded  hardware or
software that may have a time element.

         The  Company's  plan to  address  the Year 2000  issue  includes  three
phases: identification of all systems and equipment, both information technology
("IT") and non-IT that may be affected  by the Year 2000 issue;  evaluation  and
development  of  strategies  to address  affected  systems  and  equipment;  and
remediation of affected systems and equipment.

         The  Company  has  completed  the  first  two  phases  in  that  it has
identified  all  affected  systems and  equipment,  both IT and non-IT,  and has
completed its Year 2000 compliance  evaluation.  The Company has determined that
the majority of its  affected  systems  (both  software  and  hardware)  require
upgrade  versus  replacement  in order to  become  Year  2000  compliant.  As of
December 31,  1998,  the Company has incurred  expenses  totaling  approximately
$50,000.    Estimated   costs   to   complete   the   implementation   including
installation/upgrade,  testing  and  training  is  approximately  $100,000.  The
Company has an objective for its systems and equipment to be Year 2000 compliant
in the second quarter of 1999. The Company has extended its


                                       8
<PAGE>

estimated completion of remediation from the first quarter of 1999 to the second
quarter of 1999 due to the  acquisitions  of the Computer  Products  Division of
Almo Corporation and Tenex Data Division of Axidata, Inc. in November 1998.

         The  Company has  identified  and  contacted  its  critical  suppliers,
service providers and contractors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remedy their
own Year 2000 issues.  To the extent that  responses to Year 2000  readiness are
unsatisfactory,  the Company intends to change suppliers,  service providers and
contractors  to those who have  demonstrated  Year 2000  readiness but cannot be
assured  that it will be  successful  in  finding  such  alternative  suppliers,
service  providers  and  contractors.  The Company does not  currently  have any
formal  information  concerning the Year 2000 compliance status of its customers
but has received indications that most of its customers are working on Year 2000
compliance.  In the event that any of the  Company's  significant  customers and
suppliers do not successfully  and timely achieve Year 2000 compliance,  and the
Company is unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected.  In the event Year
2000  issues  relating  to key  customers  and  suppliers  are not  successfully
resolved,  based on information  available to us at present, we believe that the
most likely  worst case  scenario is a temporary  disruption  in  infrastructure
service, particularly power and telecommunications, which could adversely impact
supplier deliveries or customer shipments.  If severe disruptions occur in these
areas and are not corrected in a timely  manner,  a revenue or profit  shortfall
may result in the year 2000. The Company has no  contingency  plan regarding the
most reasonably likely case scenario in the event it does not adequately address
the Year 2000 issue.  The Company's  plans to develop a contingency  plan before
April  1,1999 have been delayed  until the third  quarter of 1999 due to the two
acquisitions in November 1998.

Foreign Currency

         Substantially all of the Company's revenue and capital  expenditure was
transacted in US Dollars.  Transactions  in other  currencies and the associated
risks of  depreciation  of value  and  volatility  of cash  flows  have not been
material  to date.  The  Company is likely to be subject  to  increased  foreign
currency   transactions  and  associated  risks  following  the  acquisition  of
Toronto-based  Tenex Data in November  1998. To the extent the Company is unable
to manage these risks,  the Company's  results and financial  position  could be
materially adversely affected.




                                       9
<PAGE>

<TABLE>

ITEM 2:  Properties 
<CAPTION>

                                                                                 Square
        Location                     Type                Principal Use            Footage                 Ownership
--------------------------    -------------------    -----------------------     -----------    -------------------------------
<S>                           <C>                    <C>                            <C>         <C>
San Jose, CA                  Office, warehouse      Headquarters,                   34,000     Leased until July 2000.
                                                     distribution center
                                                     (Bldg. One)

San Jose, CA                  Office                 Headquarters,   (Bldg.          15,657     Leased  until  2002  with five
                                                     Two)                                       one-year options to extend.

San Jose, CA                  Warehouse              Distribution center             37,797     Leased until June 2002.


San Jose, CA                  Office, plant &        Contract Manufacturing         141,520     Leased until February 2006.
                              warehouse

Marlboro, MA                  Office,   plant &      Distribution center,            14,975     Leased until February 2000.
                              warehouse              Manufacturing

Champlin, MN                  Office, plant &        Distribution center,            26,330     Leased until April  2002.
                              warehouse              Manufacturing


Markham, Ontario              Office, warehouse      Distribution center             17,628     Leased  until  March 2004 with
                                                                                                option to extend five years.

Philadelphia, PA              Office, warehouse      Distribution center             24,500     Leased until December 2006.
</TABLE>

         The Company also leases sales  and/or  warehouse  locations in Phoenix,
Arizona;  Agoura  Hills,  Irvine and San Diego,  California;  Denver,  Colorado;
Altamonte  Springs,  Bonita  Springs and  Deerfield  Beach,  Florida;  Marietta,
Georgia;   Chicago,   Illinois;   Columbia   and  Hanover,   Maryland;   Woburn,
Massachusetts;  Eden Prairie,  Minnesota;  Clifton,  North  Plainfield  and Pine
Brook, New Jersey; Smithtown, New York; Beaverton, Oregon;  Strongsville,  Ohio;
Needmore,  Pennsylvania;  Austin,  Houston and Richardson,  Texas;  Centerville,
Utah; Herndon, Virginia; Bellevue, Washington;  Vancouver, British Columbia; and
Montreal, Quebec.

ITEM 3:  Legal Proceedings

         The  Company is subject to legal  proceedings  and claims that arise in
the normal course of business.  Management believes that the ultimate resolution
of such  matters  will not  have a  material  adverse  affect  on the  Company's
financial position or results of operations.



                                       10
<PAGE>
ITEM 4:  Submission of Matters to a Vote of Security Holders

         None.
                                     PART II

ITEM 5:  Market for Registrant's Common Equity and Related Stockholder Matters

         The  Company's  Common  Stock is traded on the Nasdaq  National  Market
under the  symbol  "BELM."  The  following  table  sets  forth  for the  periods
indicated  the high and low sale  prices  of the  Common  Stock as  reported  by
Nasdaq.

                                                           High           Low
                                                        ---------      ---------
Fiscal 1997
    First quarter.................................         $13.88        $ 8.63
    Second quarter ...............................          13.00          9.63
    Third quarter ................................          11.75          8.13
    Fourth quarter ...............................          12.00          6.75
Fiscal 1998
    First quarter.................................         $ 8.75     $    7.06
    Second quarter................................           8.75          6.63
    Third quarter.................................           9.25          5.25
    Fourth quarter ...............................          11.00          5.25
Fiscal 1999
    First quarter (through March 15, 1999)........        $ 10.44        $ 6.31


         On March 15, 1999,  the last sale price of the Common Stock as reported
by Nasdaq was $6.38 per share.

         As of March 15, 1999, there were approximately 267 holders of record of
the Common Stock (not including shares held in street name).

         To date,  the Company has paid no cash  dividends to its  shareholders.
The Company has no plans to pay cash dividends in the near future. The Company's
line of credit agreement  prohibits the Company's  payment of dividends or other
distributions  on any of its shares  except  dividends  payable in the Company's
capital stock.

                                       11
<PAGE>

<TABLE>
ITEM 6:  Selected Financial Data


         The  selected  financial  data of the Company set forth below should be
read in conjunction with the consolidated  financial  statements of the Company,
including the notes thereto, and Managements's  Discussion and Analysis included
elsewhere herein.


<CAPTION>
(in thousands, except earnings per share data)


Statement of Income Data:                                  1998(1)           1997           1996           1995           1994(2)
                                                          --------          --------       --------       --------       --------
<S>                                                       <C>               <C>            <C>            <C>            <C>     
Net sales .........................................       $661,428          $533,736       $483,316       $346,291       $250,753
Cost of sales .....................................        595,504           476,648        425,258        305,696        217,277
                                                          --------          --------       --------       --------       --------
Gross profit ......................................         65,924            57,088         58,058         40,595         33,476
Marketing, general and
  administrative expenses .........................         49,738            44,430         41,008         30,352         23,258
                                                          --------          --------       --------       --------       --------
  Income from operations ..........................         16,186            12,658         17,050         10,243         10,218
Interest expense ..................................          5,711             4,574          3,495          3,473          1,691
                                                          --------          --------       --------       --------       --------
  Income before income taxes ......................         10,475             8,084         13,555          6,770          8,527
Provision for income taxes ........................          4,400             3,395          5,693          2,768          3,471
                                                          --------          --------       --------       --------       --------
Net income ........................................       $  6,075          $  4,689       $  7,862       $  4,002       $  5,056
                                                          ========          ========       ========       ========       ========
Earnings per share (3)
   Basic ..........................................       $    .69          $    .55       $    .94       $    .49       $    .91
                                                          ========          ========       ========       ========       ========
   Diluted ........................................       $    .68          $    .53       $    .92       $    .48       $    .86
                                                          ========          ========       ========       ========       ========
Shares used in per share calculation (3)
   Basic ..........................................          8,792             8,562          8,359          8,173          5,571
                                                          ========          ========       ========       ========       ========
   Diluted ........................................          8,881             8,906          8,511          8,350          5,878
                                                          ========          ========       ========       ========       ========

                                                                                       As of December 31,
                                                          -------------------------------------------------------------------------
Balance Sheet Data:                                        1998(1)           1997           1996           1995           1994(2)
                                                          --------          --------       --------       --------       --------

Working capital ...................................       $167,109          $134,612       $105,958       $106,914       $ 52,230
Total assets ......................................        285,580           205,420        175,680        157,277        122,502
Total long-term debt ..............................        106,963            74,460         50,885         59,453          6,059
Total shareholders' equity ........................         86,476            77,667         71,127         62,462         56,465

<FN>
------------------------------
(1)  1998 Statement of Income Data and Balance Sheet Data include the results from the purchases of the Computer  Products  Division
     of Almo Corporation on November 13, 1998 and Tenex Data Division of Axidata Inc. on November 19, 1998. Statement of Income Data
     includes the result of  operations  of these  divisions  from their date of  acquisition.  See Note 3 of Notes to  Consolidated
     Financial Statements.

(2)  1994 Statement of Income Data and Balance Sheet Data include the results from the purchase of Vantage  Components,  Inc. on May
     26, 1994.

(3)  All per share amounts have been restated in accordance with Statement of Financial  Accounting  Standards No. 128 "Earnings Per
     Share". See Note 2 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>

                                                                 12
<PAGE>



ITEM 7: Management's  Discussion and Analysis of Financial Condition and Results
        of Operations


         For an  understanding  of the  significant  factors that influenced the
Company's  performance  during the past three years,  the  following  discussion
should be read in conjunction with the consolidated financial statements and the
other information appearing elsewhere in this report.

         When  used  in  this  report,   the  words  "expects,"   "anticipates,"
"estimates,"   "intends"  and  similar  expressions  are  intended  to  identify
forward-looking   statements  within  the  meaning  of  Section  27A  under  the
Securities  Act of 1933 and Section  21E under the  Securities  Exchange  Act of
1934.  Such statements  include but are not limited to statements  regarding the
ability to obtain favorable product  allocations,  the ability to increase gross
profit while  controlling  expenses,  the ability to realize  synergies  between
contract manufacturing and distribution,  and the costs of Year 2000 compliance.
These statements are subject to risks and uncertainties  that could cause actual
results to differ  materially,  including  those  risks  described  under  "Risk
Factors" in Item 1 hereof.


RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

         Net sales were  $661.4  million  for the year ended  December  31,1998,
which  represented an increase of $127.7 million or 24% over 1997.  Distribution
sales  increased by $114.8  million,  and sales through the  Company's  contract
manufacturing  division,  Quadrus,  increased by approximately $12.9 million. In
distribution,  computer  products sales increased from 1997 primarily due to the
growth of unit sales in existing  product  lines,  the addition of new lines and
expansion  of the  customer  base  related to the  acquisitions  of the Computer
Products  Division of Almo  Corporation  ("Almo CPD") and Tenex Data Division of
Axidata,  Inc.  ("Tenex  Data")  in  November  1998.  Almo  CPD and  Tenex  Data
contributed net sales of $16.3 million and $8.3 million respectively in the year
ended  December  31,  1998.  The  contribution  to net income was not  material.
Semiconductor  sales  decreased from 1997 primarily due to  industry-wide  price
declines.  Quadrus'  sales  increased as a result of increased  sales to new and
existing customers.

         The Company's  gross profit for 1998 was $65.9 million,  an increase of
$8.8 million, or 15% over 1997. The gross profit in distribution  increased $9.6
million  primarily due to increased sales volume.  This increase was offset by a
gross profit decrease of $0.8 million in  manufacturing as a result of increased
overhead costs, a change in customer mix and increased  inventory  reserves from
1997 to 1998. As a percentage of sales, overall gross margins were 10.0% in 1998
as  compared  to 10.7% in 1997.  The  decrease  was due to the  increase  in the
proportion of computer  product sales,  which typically have lower gross margins
than semiconductors.


         Marketing,  general and administrative  expenses increased 12% to $49.7
million in 1998 from $44.4  million in 1997,  but  decreased as a percentage  of
sales to 7.5% from 8.3%. The increase in expenses was  attributable to increased
sales  volume,  the  acquisitions  of Almo CPD and Tenex Data and the  Company's
continuing  effort to expand its sales and marketing  organization.  The Company
also increased its bad debt expenses due to increased sales volumes and changing
market conditions.


         Interest expense increased in 1998 to $5.7 million from $4.6 million in
1997.  The  increase in interest  expense was due to increased  bank  borrowings
during 1998 to fund the Company's  working capital needs and the acquisitions of
Almo CPD and Tenex Data.

                                       13
<PAGE>

         The Company's  effective  income tax rate remained  unchanged at 42% in
1998.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

         Net sales were $533.7  million for the year ended  December  31,  1997,
which  represented  an increase of $50.4 million or 10% over 1996.  Distribution
sales  increased by $69.3  million,  while sales  through  Quadrus  decreased by
approximately  $18.9  million from 1996.  Substantially  the entire  increase in
distribution  sales was attributable to computer  products with the expansion of
unit sales in existing  product  lines due to increased  demand for mass storage
products. Semiconductor sales decreased slightly in 1997 from 1996 primarily due
to   industry-wide   price  declines  in  memory   products.   The  decrease  in
manufacturing  sales in 1997 was primarily due to unfavorable timing between new
business engagements and the termination of a major customer contract.

         The Company's  gross profit for 1997 was $57.1  million,  a decrease of
$1.0 million or 2% from 1996. Of this total gross profit decrease,  $9.0 million
was attributable to the Company's  contract  manufacturing  division,  which was
offset  by an  increase  of  approximately  $8.0  million  in  the  distribution
division.  As a percentage of sales,  gross margin was 10.7% in 1997 as compared
to 12.0% in 1996.  The decrease in total  Company gross margin was primarily the
result of decreased gross margins in the contract manufacturing division to 3.9%
in 1997,  as  compared  to 12.9% in 1996.  This  decline in gross  margin in the
contract  manufacturing  division was primarily due to sales volume,  which fell
below  the  level  required  to  absorb  increased  overhead  expenses.  In  the
distribution division, the gross margin in 1997 remained flat at 11.8%.

         Marketing,  general and  administrative  expenses increased 8% to $44.4
million in 1997 from $41.0  million in 1996,  but  decreased as a percentage  of
sales to 8.3% from 8.5%. The increase in expenses was  attributable to increased
sales  volume  and the  Company's  continuing  effort  to  expand  its sales and
marketing organization and strengthen its financial and administrative support.

         Interest expense increased to $4.6 million in 1997 from $3.5 million in
1996. The increase was due to increased bank borrowings  during 1997 to fund the
Company's working capital needs.

         The Company's  effective income tax rate remained unchanged at 42.0% in
1997.

LIQUIDITY AND CAPITAL RESOURCES

         In  recent   years,   the  Company  has  funded  its  working   capital
requirements  principally through borrowings under bank lines of credit. Working
capital  requirements  have included the financing of increases in inventory and
accounts receivable resulting from sales growth.

         On  November  12,  1998 the Company  entered  into a Third  Amended and
Restated  Syndicated  Credit  Agreement  arranged by California Bank & Trust, as
Agent,  formerly  Sumitomo  Bank of  California.  The  amendment  increased  the
Company's $100 million revolving line of credit to $130 million and extended the
maturity date to May 31, 2000. At the Company's option, the borrowings under the
line of credit will bear interest at California Bank & Trust's prime rate or the
adjusted  LIBOR rate plus 1.85%.  At December 31, 1998,  the prime interest rate
was 7.75%.  The balance  outstanding on the revolving line of credit at December
31, 1998 was $102.4 million. Obligations of the Company under the revolving line
of  credit  are  secured  by  substantially  all of the  Company's  assets.  The
revolving line of credit  requires the Company to meet certain  financial  tests
and to comply with  certain  other  covenants  on a quarterly  basis,  including
restrictions  on  incurrence  of  debt  and  liens,   restrictions  on  mergers,
acquisitions,  asset  dispositions,  declaration  of dividends,  repurchases  of
stock, making


                                       14
<PAGE>

investments  and  profitability.  The  Company was in  compliance  with its bank
covenants  at December  31, 1998;  however,  there can be no assurance  that the
Company will be in  compliance  with its bank  covenants  in the future.  If the
Company  does not remain in  compliance  with the  covenants  in its Amended and
Restated  Syndicated  Credit  Agreement  and is  unable  to  obtain a waiver  of
noncompliance from its banks, the Company's  financial  condition and results of
operations  would be  materially  adversely  affected.  The  Company  intends to
utilize  its  revolving   line  of  credit  to  fund  future   working   capital
requirements. The Company evaluates potential acquisitions from time to time and
may utilize  its line of credit to acquire  complementary  businesses,  provided
consent from its banks is obtained.

         On November  13,  1998,  the Company  acquired  the  Computer  Products
Division of Almo Corporation for a total  consideration  of approximately  $21.7
million.  On November 19, 1998,  the Company  acquired Tenex Data, a division of
Axidata,  Inc. for a total  consideration  of approximately  $5.8 million.  Both
acquisitions were financed with cash and funded through the Company's  revolving
line of credit.

         The Company's  accounts  receivable and  inventories as of December 31,
1998  increased  to $120.2  million  and $129.4  million at  December  31,  1998
respectively, from $79.4 million and $98.4 million, respectively, as of December
31, 1997.  Days sales  outstanding  were at 51 days and inventory turns were 6.0
times per year.  These  increases  were  primarily  the result of the  Company's
increased  sales volume and the purchase of accounts  receivable  and  inventory
through the Company's two acquisitions in November 1998. The Company's  accounts
payable  increased  to $81.5  million in 1998 from $45.5  million in 1997 due to
increased  inventory  purchases and the addition of accounts payable through the
Company's two acquisitions in November 1998.

         The net amount of cash  provided by  financing  activities  in 1998 was
$32.1 million,  principally from utilization of the Company's  revolving line of
credit with its banks.  The net amount of cash used in operating  activities was
$5.5  million in 1998.  The net amount of cash used in investing  activities  in
1998 was $28.9  million,  for the  acquisition of property and equipment and the
acquisitions of businesses.


Year 2000 Compliance

         The Year 2000 issue  relates to the way  computer  systems and programs
define  calendar  dates;  they  could  fail  or  make   miscalculations  due  to
interpreting a date including "00" to mean 1900, not 2000.  This could result in
system failures causing disruptions in operations, including among other things,
interruptions  in processing  business  transactions  and other normal  business
operations.  Also, many systems and equipment that are not typically  thought of
as  "computer-related"  (referred  to as non-IT)  contain  embedded  hardware or
software that may have a time element.

         The  Company's  plan to  address  the Year 2000  issue  includes  three
phases: identification of all systems and equipment, both information technology
("IT") and non-IT that may be affected  by the Year 2000 issue;  evaluation  and
development  of  strategies  to address  affected  systems  and  equipment;  and
remediation of affected systems and equipment.


         The  Company  has  completed  the  first  two  phases  in  that  it has
identified  all  affected  systems and  equipment,  both IT and non-IT,  and has
completed its Year 2000 compliance  evaluation.  The Company has determined that
the majority of its  affected  systems  (both  software  and  hardware)  require
upgrade  versus  replacement  in order to  become  Year  2000  compliant.  As of
December 31,  1998,  the Company has incurred  expenses  totaling  approximately
$50,000.    Estimated   costs   to   complete   the   implementation   including

                                       15
<PAGE>

installation/upgrade,  testing  and  training  is  approximately  $100,000.  The
Company has an objective for its systems and equipment to be Year 2000 compliant
in the second quarter of 1999. The Company has extended its estimated completion
of remediation  from the first quarter of 1999 to the second quarter of 1999 due
to the acquisitions of Almo CPD and Tenex Data in November 1998.


         The  Company has  identified  and  contacted  its  critical  suppliers,
service providers and contractors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remedy their
own Year 2000 issues.  To the extent that  responses to Year 2000  readiness are
unsatisfactory,  the Company intends to change suppliers,  service providers and
contractors  to those who have  demonstrated  Year 2000  readiness but cannot be
assured  that it will be  successful  in  finding  such  alternative  suppliers,
service  providers  and  contractors.  The Company does not  currently  have any
formal  information  concerning the Year 2000 compliance status of its customers
but has received indications that most of its customers are working on Year 2000
compliance.  In the event that any of the  Company's  significant  customers and
suppliers do not successfully  and timely achieve Year 2000 compliance,  and the
Company is unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected.  In the event Year
2000  issues  relating  to key  customers  and  suppliers  are not  successfully
resolved,  based on information  available to us at present, we believe that the
most likely  worst case  scenario is a temporary  disruption  in  infrastructure
service, particularly power and telecommunications, which could adversely impact
supplier deliveries or customer shipments.  If severe disruptions occur in these
areas and are not corrected in a timely  manner,  a revenue or profit  shortfall
may result in the year 2000. The Company has no  contingency  plan regarding the
most reasonably likely case scenario in the event it does not adequately address
the Year 2000 issue.  The Company's  plans to develop a contingency  plan before
April 1, 1999 have been delayed  until the third  quarter of 1999 due to the two
acquisitions in November 1998.

ITEM 7A:  Quantitative and Qualitative Disclosures About Market Risk

         The  Company's  line of credit  has an  interest  rate that is based on
associated  rates such as LIBOR and the Prime Rate that may fluctuate  over time
based on changes in the economic environment. The Company is subject to interest
rate risk,  and could be  subjected  to  increased  interest  payments if market
interest  rates  fluctuate.  An  effective  increase  or decrease of 10% in such
interest  rate  percentages  would  not have a  material  adverse  effect on the
Company's results from operations.  The potential change noted above is based on
sensitivity analysis performed by the Company as of December 31, 1998.

         Substantially all of the Company's revenue and capital  expenditure are
transacted in US Dollars.  Transactions  in other  currencies and the associated
risks of  depreciation  of  value  and  volatility  of  cashflows  have not been
material  to date.  The  Company is likely to be subject  to  increased  foreign
currency   transactions  and  associated  risks  following  the  acquisition  of
Toronto-based  Tenex Data in November  1998. To the extent the Company is unable
to manage these risks,  the Company's  results and financial  position  could be
materially adversely affected.

ITEM 8:  Financial Statements and Supplementary Data

         The  financial   statements,   together  with  the  report  thereon  of
PricewaterhouseCoopers  LLP,  independent  accountants,  are included in Item 14
hereof.


                                       16
<PAGE>


ITEM  9:  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

         None.


                                    PART III


         Pursuant to Paragraph  G(3) of the General  Instructions  to Form 10-K,
portions of the information  required by Part III of Form 10-K are  incorporated
by reference from the Company's  Proxy Statement to be filed with the Commission
in  connection  with  the  1999  Annual  Meeting  of  Shareholders  (the  "Proxy
Statement").

ITEM 10:   Directors and Executive Officers of the Registrant


         (a)      Information concerning directors of the Company appears in the
                  Company's   Proxy   Statement,   under  Item  1  "Election  of
                  Directors."   This   portion   of  the  Proxy   Statement   is
                  incorporated herein by reference.

<TABLE>
         (b)      Executive Officers Of The Registrant

                  The following  table and  descriptions  identify and set forth
                  information regarding the Company's six executive officers:
<CAPTION>

                                    Name                   Age                           Position                      
                                    ----                   ---                           --------
<S>                                                        <C>   <C>
                  W. Donald Bell....................       61    President, Chief Executive Officer and
                                                                 Chairman of the Board

                  Remo E. Canessa...................       41    Vice President of Finance and Chief Financial Officer

                  Brian J. Clark....................       45    Senior Vice President of Industrial Sales

                  Bruce M. Jaffe....................       55    Senior Vice President of Finance & Operations and
                                                                 Secretary

                  Ronald H. Mabry...................       51    Senior Vice President of Semiconductor Marketing

                  Philip M. Roussey.................       56    Senior Vice President of Computer Products Marketing

                  Robert J. Sturgeon................       45    Vice President of Operations
</TABLE>

                           W. Donald Bell has been  President,  Chief  Executive
                  Officer and  Chairman  of the Board of the  Company  since its
                  inception  in  1987.   Mr.  Bell  has  over  thirty  years  of
                  experience in the electronics industry.  Mr. Bell was formerly
                  the  President of Ducommun Inc. and its  subsidiary,  Kierulff
                  Electronics  Inc.,  as well as  Electronic  Arrays Inc. He has
                  also held senior  management  positions  at Texas  Instruments
                  Incorporated,  American  Microsystems  and  other  electronics
                  companies. He is a member of the Board of Directors of Control
                  Data Systems Inc.


                                       17
<PAGE>

                           Remo E.  Canessa has been Vice  President  of Finance
                  and  Chief  Financial  Officer  since  November  of 1998.  Mr.
                  Canessa  was  formerly  Vice  President  of Finance  and Chief
                  Financial Officer of Infoseek  Corporation.  From 1993 to 1998
                  he was a part of Bell Microproducts'  management team, serving
                  first  as  Corporate  Controller,  then as Vice  President  of
                  Finance and as its Acting Chief Financial Officer. He has held
                  senior  management  positions  at  Ampex  Corporation,  Raster
                  Graphics Inc. and Geoworks Corporation.

                           Brian J.  Clark has been  Senior  Vice  President  of
                  Industrial  Sales since  September of 1997. Mr. Clark has over
                  twenty-three years in the electronic  business.  Mr. Clark was
                  formerly the Vice President of the Northern  California Region
                  of  Arrow  Electronics  and  prior  to  Arrow  he held  senior
                  management positions at Kierulff and Wyle Electronics.

                           Bruce M.  Jaffe has been  Senior  Vice  President  of
                  Finance and  Operations  since July 1997.  Mr.  Jaffe has over
                  thirty years of experience in the  electronics  industry.  Mr.
                  Jaffe was  President  of Bell  Industries,  a  distributor  of
                  electronic  components,  and  also  served  as that  Company's
                  Executive Vice President and Chief Financial  Officer for more
                  than 5 years.

                           Ronald H. Mabry has been  Senior  Vice  President  of
                  Semiconductor Marketing since October 1996. Mr. Mabry has over
                  thirty  years  experience  in  the  electronics   distribution
                  industry.  Before  joining Bell  Microproducts,  Mr. Mabry was
                  Chief  Executive  Officer and Chairman of the Board of Western
                  Micro  Technology,  and prior to that  time,  he held  various
                  senior management positions at Avnet, Inc.

                           Philip M.  Roussey has been Senior Vice  President of
                  Computer  Products  Marketing since March 1993.  Prior to that
                  time, he was the Company's Vice  President of Marketing  since
                  its  inception  in 1987.  Prior to joining  the  Company,  Mr.
                  Roussey was Corporate  Vice President of Marketing of Kierulff
                  Electronics  during 1987,  and from 1982 to 1986,  Mr. Roussey
                  held the position of Vice  President  of Computer  Products at
                  Kierulff Electronics.

                           Robert  J.  Sturgeon  has  been  Vice   President  of
                  Operations  since 1992. Mr. Sturgeon was formerly  Director of
                  Information  Services  for Disney Home Video from January 1991
                  to February 1992.  Prior to that time, Mr.  Sturgeon served as
                  Management Information Services ("MIS") Director for Paramount
                  Pictures,  Home Video  Division from June 1989 to January 1991
                  and as a  Marketing  Manager  for MTI  Systems,  a division of
                  Arrow  Electronics Inc., from January 1988 to June 1989. Other
                  positions Mr. Sturgeon has held include Executive  Director of
                  MIS for Ducommun where he was  responsible  for ten divisions,
                  including Kierulff Electronics.


         (c)      Information  concerning  Compliance  with Section 16(a) of the
                  Securities Exchange Act of 1934 appears in the Company's Proxy
                  Statement, under the heading "Compliance with Section 16(a) of
                  the  Securities  Exchange  Act of 1934,"  and is  incorporated
                  herein by reference.



                                       18
<PAGE>


ITEM 11:   Executive Compensation

         Information  concerning executive compensation appears in the Company's
Proxy Statement, under the caption "Executive Compensation," and is incorporated
herein by reference.

ITEM 12:   Security Ownership of Certain Beneficial Owners and Management

         Information  concerning  the security  ownership of certain  beneficial
owners and management  appears in the Company's  Proxy  Statement,  under Item 1
"Election of Directors," and is incorporated herein by reference.

ITEM 13:   Certain Relationships and Related Transactions

         Information  concerning certain  relationships and related transactions
appears in the Company's Proxy Statement,  under Item 1 "Election of Directors,"
and is incorporated herein by reference.


                                     PART IV

ITEM 14:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

<TABLE>
<CAPTION>

(a)      The following documents are filed as part of this Form 10-K:

<S>                                                                                       <C>
         (1)      Consolidated Financial Statements                                        Form 10-K

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

                  Report of Independent Accountants                                           F-1


                  Consolidated Balance Sheets at December 31, 1998
                    and 1997                                                                  F-2


                  Consolidated Statements of Income for the years
                    ended December 31, 1998, 1997 and 1996                                    F-3


                  Consolidated Statements of Shareholders' Equity for the years
                    ended December 31, 1998, 1997 and 1996                                    F-4

                  Consolidated Statements of Cash Flows for the years ended
                    December 31, 1998, 1997 and 1996                                          F-5


                  Notes to Consolidated Financial Statements                                  F-6

         (2)      Consolidated Financial Statement Schedule


                  II  -  Valuation and Qualifying Accounts and Reserves                       S-1

</TABLE>

         Schedules  not listed  above  have been  omitted  because  they are not
required or the information  required to be set forth therein is included in the
Consolidated Financial Statements or Notes to Consolidated Financial Statements.




                                       19
<PAGE>

<TABLE>

(3)      Exhibits

<CAPTION>
         Number    Description of Document
         ------    -----------------------
<S>               <C>                                                                    

         3.1      Amended and Restated Articles of Incorporation of Registrant (2)

         3.2      Amended and Restated Bylaws of Registrant (3)

         4.1      Specimen Common Stock Certificate of the Registrant (3)

         4.2      Amended and Restated  Registration  Rights Agreement dated June 11, 1992 between  Registrant and certain investors
                  named therein, as amended (1)

         4.3      Warrant issued to Almo Corporation (7)

         10.1     1998 Stock Plan (9)

         10.2     The form of Option Agreement used under the 1998 Stock Plan (9)

         10.3     Employee Stock Purchase Plan, as amended through May 21, 1998 (9)

         10.4     The form of Option Agreement used under the Employee Stock Purchase Plan (4)

         10.5     Registrant's 401(k) Plan (3)

         10.6     Lease dated March 17, 1992 for Registrant's  facilities at 1941 Ringwood Avenue,  Suite 100, San Jose,  California
                  (3)

         10.7     Lease dated April 15, 1993 for Registrant's facilities at 2350 Lundy Place, San Jose, California (1)

         10.8     Standard Distributor Agreement dated June 1, 1990 by and between Quantum Corporation and Registrant (3)

         10.9     Form of Indemnification Agreement (3)

         10.10    IBM Authorized Distributor Agreement dated May 17, 1993 between IBM Corporation and Registrant (3)

         10.11    Sublease dated November 12, 1996 for the Registrant's facilities at 2020 South Tenth Street, San Jose, California,
                  and related exhibits (8)

         10.12*   Employment  Agreement  dated as of December 10, 1996 between the Registrant  and W. Donald Bell, the  Registrant's
                  Chief Executive Officer (8)

         10.13    Form of  Management  Retention  Agreement  between the  Registrant  and the  following  executive  officers of the
                  Registrant: W. Donald Bell, Bruce M. Jaffe, Ronald H. Mabry, Philip M. Roussey and Robert J. Sturgeon (8)

         10.14    Third Amendment and Restated Credit Agreement dated as of November 12, 1998 by and among the Registrant, the Banks
                  named therein and California Bank & Trust, as Agent for the Banks (7)

                                                                 20
<PAGE>

         10.15    Asset  Purchase  Agreement  dated as of  November  5, 1998 by and  between the  Company,  Almo  Corporation,  Almo
                  Distributing  Pennsylvania,  Inc., Almo  Distributing  Maryland,  Inc., Almo  Distributing  Minnesota,  Inc., Almo
                  Distributing Wisconson, Inc. and Almo Distributing, Inc.

         21.1     Subsidiaries of the Registrant

         23.1     Consent of PricewaterhouseCoopers LLP, independent accountants

         24.1     Power of Attorney (contained on page 21)
<FN>
--------------------
         *    Confidential treatment has been granted for portions of this document.

         (1)      Incorporated  by reference to exhibit  filed with the  Registrant's  Report on Form 10-K for the fiscal year ended
                  December 31, 1993 filed on March 31, 1994.

         (2)      Incorporated  by reference to exhibit  filed with the  Registrant's  Registration  Statement on Form S-8 (File No.
                  33-66580) filed on July 29, 1993.

         (3)      Incorporated  by reference to exhibit  filed with the  Registrant's  Registration  Statement on Form S-1 (File No.
                  33-60954) filed on April 14, 1993 and which became effective on June 14, 1993.

         (4)      Incorporated  by reference to exhibit  filed with the  Registrant's  Registration  Statement on Form S-8 (File No.
                  33-83398) filed on August 29, 1994.

         (5)      Incorporated  by reference to exhibit  filed with the  Registrant's  Registration  Statement on Form S-8 (File No.
                  333-10837) filed on August 26, 1996.

         (6)      Incorporated by reference to exhibit filed with the Registrant's Report on Form 10Q for the quarter ended June 30,
                  1996.

         (7)      Incorporated by reference to exhibit filed with the Registrant's  Report on Form 8-K (File No. 000-21528) filed on
                  December 4, 1998.

         (8)      Incorporated  by reference to exhibit  filed with the  Registrant's  Report on Form 10-K for the fiscal year ended
                  December 31, 1996 filed on March 31, 1997.

         (9)      Incorporated by reference to exhibit filed with the Registrant's  Report on Form S-8 (File No. 333-58053) filed on
                  June 30, 1998.

</FN>
</TABLE>


(b)      Reports on Form 8-K. None filed.

(c)      Exhibits. See Item 14(a) above.

(d)      Financial Statements Schedules.  See Item 14(a) above.

                                                                 21
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 31, 1999.

                                 BELL MICROPRODUCTS INC.


                        By:    /s/ Remo E. Canessa                           
                            ----------------------------------------------------
                            Remo E. Canessa
                            Chief Financial Officer and Vice President of
                            Finance (Principal Financial and Accounting Officer)

                                POWER OF ATTORNEY

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

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Report on Form 10-K has been  signed  below by the  following  persons  on
behalf of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S>                                 <C>
            Signature                                     Title                                      Date
-------------------------------     -----------------------------------------------------        ----------------


    /s/ W. Donald Bell              Chairman of the Board, President and Chief Executive         March 31, 1999
-------------------------------     Officer (Principal Executive Officer)
(W. Donald Bell)               


    /s/ Remo E. Canessa             Vice President of Finance and Chief Financial Officer        March 31, 1999
-------------------------------     (Principal Financial and Accounting Officer)
(Remo E. Canessa)               


   /s/ Gordon A. Campbell           Director                                                     March 31, 1999
-------------------------------
(Gordon A. Campbell)


   /s/ Eugene Chaiken               Director                                                     March 31, 1999
-------------------------------
(Eugene Chaiken)


   /s/ Edward L. Gelbach            Director                                                     March 31, 1999
-------------------------------
(Edward L. Gelbach)


   /s/ James E. Ousley              Director                                                     March 31, 1999
-------------------------------
(James E. Ousley)


  /s/ Glenn E. Penisten             Director                                                     March 31, 1999
-------------------------------
 (Glenn E. Penisten)

</TABLE>

                                                                 22
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders and Board of Directors of
Bell Microproducts Inc.

         In our opinion,  the consolidated  financial  statements  listed in the
index appearing under Item 14 (a) (1) and (2) on page 19 present fairly,  in all
material respects, the financial position of Bell Microproducts Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended  December 31, 1998,  in  conformity  with
generally accepted  accounting  principles.  These financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
mistatement.  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 the opinion expressed above.



PricewaterhouseCoopers LLP
San Jose, California
February 18, 1999










                                      F-1
<PAGE>

<TABLE>

                                                BELL MICROPRODUCTS INC.
                                              CONSOLIDATED BALANCE SHEETS
                                         (in thousands, except per share data)
<CAPTION>


                                                                                                               December 31,
                                                                                                        ----------------------------
                                                                                                         1998                 1997
                                                                                                        --------            --------
<S>                                                                                                     <C>                 <C>     
ASSETS
Current assets:
     Cash                                                                                               $  4,082            $  6,235
     Accounts receivable, net of allowance for doubtful accounts of
         $3,486 and $1,331                                                                               120,227              79,389
     Inventories                                                                                         129,389              98,379
     Deferred income taxes, net                                                                            4,072               2,595
     Prepaid expenses                                                                                      1,730               1,217
                                                                                                        --------            --------
              Total current assets                                                                       259,500             187,905


Property and equipment, net                                                                               12,766              10,733
Goodwill, net of accumulated amortization of $1,518 and $1,112                                            12,362               6,372
Other assets                                                                                                 952                 410
                                                                                                        --------            --------
     Total assets                                                                                       $285,580            $205,420
                                                                                                        ========            ========

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
     Accounts payable                                                                                   $ 81,480            $ 45,540
     Other accrued liabilities                                                                             8,429               6,025
     Current portion of capitalized lease obligations                                                      2,232               1,728
                                                                                                        --------            --------
              Total current liabilities                                                                   92,141              53,293

Borrowings under the line of credit                                                                      102,400              70,000
Capitalized lease obligations, less current portion                                                        4,563               4,460
                                                                                                        --------            --------
     Total liabilities                                                                                   199,104             127,753
                                                                                                        --------            --------

Commitments and contingencies (Note 8)
Shareholders' equity:
     Preferred Stock, $0.01 par value, 10,000 shares authorized;
         none issued and outstanding                                                                        --                  --
     Common Stock, $0.01 par value, 20,000 shares authorized;
         8,914 and 8,696 shares issued and outstanding                                                    56,181              53,495
Comprehensive income:
     Retained earnings                                                                                    30,247              24,172
     Cumulative translation adjustment                                                                        48                --
                                                                                                        --------            --------
              Total shareholders' equity                                                                  86,476              77,667
                                                                                                        --------            --------
     Total liabilities and shareholders' equity                                                         $285,580            $205,420
                                                                                                        ========            ========

<FN>


                       The accompanying notes are an integral part of these consolidated financial statements.

</FN>
</TABLE>

                                                                F-2
<PAGE>

<TABLE>

                                                BELL MICROPRODUCTS INC.
                                           CONSOLIDATED STATEMENTS OF INCOME

                                         (in thousands, except per share data)

<CAPTION>


                                                                                                 Year Ended December 31,
                                                                                   ------------------------------------------------
                                                                                      1998                1997                1996
                                                                                    --------            --------            --------
<S>                                                                                 <C>                 <C>                 <C>     
Net sales                                                                           $661,428            $533,736            $483,316
Cost of sales                                                                        595,504             476,648             425,258
                                                                                    --------            --------            --------
Gross profit                                                                          65,924              57,088              58,058
Marketing, general and administrative expenses                                        49,738              44,430              41,008
                                                                                    --------            --------            --------
Income from operations                                                                16,186              12,658              17,050

Interest expense                                                                       5,711               4,574               3,495
                                                                                    --------            --------            --------
Income before income taxes                                                            10,475               8,084              13,555
Provision for income taxes                                                             4,400               3,395               5,693
                                                                                    --------            --------            --------
Net income                                                                             6,075               4,689               7,862
                                                                                    --------            --------            --------
Other comprehensive income, net of tax:
     Foreign currency translation adjustments                                             48                --                  --
                                                                                    --------            --------            --------
Comprehensive income                                                                $  6,123            $  4,689            $  7,862
                                                                                    ========            ========            ========

Earnings per share (Note 2)
     Basic                                                                          $   0.69            $   0.55            $   0.94
                                                                                    ========            ========            ========
     Diluted                                                                        $   0.68            $   0.53            $   0.92
                                                                                    ========            ========            ========
Shares used in per share calculation (Note 2)
     Basic                                                                             8,792               8,562               8,359
                                                                                    ========            ========            ========
     Diluted                                                                           8,881               8,906               8,511
                                                                                    ========            ========            ========


<FN>


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

                                                                F-3
<PAGE>



<TABLE>

                                                       BELL MICROPRODUCTS INC.
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                           (in thousands)


<CAPTION>

                                                                                                           Accumulated 
                                                                        Common Stock                          Other
                                                                 ----------------------        Retained    Comprehensive
                                                                  Shares        Amount         Earnings       Income          Total
                                                                 -------        -------        -------        -------        -------
<S>                                                                <C>          <C>            <C>            <C>            <C>    
Balance at December 31, 1995                                       8,323        $50,841        $11,621        $  --          $62,462

Exercise of stock options, including
    related tax benefit of $159                                       26            202           --             --              202
Issuance of Common Stock under
    Stock Purchase Plan                                               96            601           --             --              601
Net income                                                          --             --            7,862           --            7,862
                                                                 -------        -------        -------        -------        -------
Balance at December 31, 1996                                       8,445         51,644         19,483           --           71,127

Exercise of stock options, including
    related tax benefit of $225                                      147          1,117           --             --            1,117
Issuance of Common Stock under
    Stock Purchase Plan                                              104            734           --             --              734
Net income                                                          --             --            4,689           --            4,689
                                                                 -------        -------        -------        -------        -------
Balance at December 31, 1997                                       8,696         53,495         24,172           --           77,667

Comprehensive income:
Net income                                                          --             --            6,075           --            6,075
Foreign currency translation                                        --             --             --               48             48
                                                                 -------        -------        -------        -------        -------
Total comprehensive income                                          --             --            6,075             48          6,123

Exercise of stock options, including
    related tax benefit of $86                                       111            943           --             --              943
Issuance of Common Stock under

    Stock Purchase Plan                                              107            700           --             --              700
Issuance of stock warrant (Note 3)                                  --            1,043           --             --            1,043
                                                                 -------        -------        -------        -------        -------
Balance at December 31, 1998                                       8,914        $56,181        $30,247        $    48        $86,476
                                                                 =======        =======        =======        =======        =======

<FN>

                       The accompanying notes are an integral part of these consolidated financial statements.

</FN>
</TABLE>

                                                                F-4
<PAGE>

<TABLE>

                                                       BELL MICROPRODUCTS INC.
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             (Increase (decrease) in cash, in thousands)
<CAPTION>

                                                                                                 Year Ended December 31,
                                                                                       ---------------------------------------------
                                                                                         1998              1997              1996
                                                                                       --------          --------          --------
<S>                                                                                    <C>               <C>               <C>     
Cash flows from operating activities:
      Net income                                                                       $  6,075          $  4,689          $  7,862
      Adjustments to reconcile net income to
          net cash (used in)/provided by operating activities:
      Depreciation and amortization                                                       3,764             2,917             2,569
      Change in allowance for doubtful accounts                                           2,105            (2,897)              928
      Change in deferred and refundable income taxes                                     (1,477)            1,119              (296)
      Changes in assets and liabilities:
         Accounts receivable                                                            (22,053)           (5,806)           (6,348)
         Inventories                                                                    (22,282)          (19,720)           (8,397)
         Prepaid expenses                                                                  (513)             (332)              (44)
         Other assets                                                                      (542)              (47)             (210)
         Accounts payable                                                                28,160              (185)           14,129
         Other accrued liabilities                                                        1,289              (246)            3,566
                                                                                       --------          --------          --------
Net cash (used in)/provided by operating activities                                      (5,474)          (20,508)           13,759
                                                                                       --------          --------          --------
Cash flows from investing activities:

      Acquisition of property and equipment, net                                         (2,178)           (2,998)           (1,120)
      Acquisitions of businesses (Note 3)                                               (26,770)             --                --
                                                                                       --------          --------          --------

Net cash used in investing activities                                                   (28,948)           (2,998)           (1,120)


Cash flows from financing activities:
      Net borrowings/(repayments) under line of credit agreement                         32,400            24,100            (8,600)
      Net repayments on current portion of long-term liabilities                           --                (294)             --
      Proceeds from issuance of Common Stock                                              1,643             1,851               803
      Principal payments on long-term liabilities                                        (1,912)           (1,508)           (1,649)
                                                                                       --------          --------          --------
Net cash provided by (used in) financing activities                                      32,131            24,149            (9,446)
Effect of exchange rate changes on cash                                                      48              --                --
                                                                                       --------          --------          --------
Net (decrease)/increase in cash                                                          (2,243)              643             3,193

Cash at beginning of period                                                               6,325             5,682             2,489
                                                                                       --------          --------          --------
Cash at end of period                                                                  $  4,082          $  6,325          $  5,682
                                                                                       ========          ========          ========
Supplemental  disclosures of cash flow information:
Cash paid during the period for:
         Interest                                                                      $  5,555          $  4,641          $  3,355
         Income taxes                                                                  $  4,592          $  2,695          $  5,744
Supplemental non-cash financing activities:
      Obligations incurred under capital leases                                        $  2,519          $  1,333          $  2,292
      Stock warrant issued (Note 3)                                                    $  1,043             --                --

<FN>

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

                                                                F-5
<PAGE>




                             BELL MICROPRODUCTS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY:


         The Company  operates in two industry  segments:  as a  distributor  of
semiconductor and computer products to original equipment  manufacturers (OEMs),
value-added resellers (VARs) and dealers in the United States and Canada, and as
a  contract   manufacturer.   Semiconductor   products  include  memory,  logic,
microprocessor,  peripheral and specialty components.  Computer products include
disk, tape and optical drives and subsystems,  drive controllers,  computers and
board-level  products.  The Company also provides a variety of manufacturing and
value-added   services  to  its  customers,   including  the   manufacturing  of
board-level and systems products to customer specifications,  as well as certain
types of components and subsystem testing services, systems integration and disk
drive formatting and testing,  and the packaging of electronic component kits to
customer specifications.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


Principles of Consolidation and Basis of Preparation

         The  consolidated  financial  statements  include  the  accounts of the
Company  and its  majority  controlled  and  owned  subsidiaries.  All  material
intercompany transactions and balances have been eliminated in consolidation.

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


Revenue Recognition

         Revenues are  recognized  when  products are  shipped.  Provisions  for
estimated losses on returns and for expected  warranty costs are recorded at the
time of sale and are adjusted  periodically to reflect changes in experience and
expected obligations.


Concentration of Credit and Other Risks

         Financial   instruments  which  potentially   subject  the  Company  to
concentrations of credit risk consist  principally of accounts  receivable.  The
Company performs ongoing credit  evaluations of its customers and generally does
not require collateral.  The Company maintains reserves for estimated collection
losses.  No  customer  accounts  for more  than 10% of sales in any of the three
years ended December 31, 1998, 1997 and 1996, or accounts receivable at December
31, 1998 and 1997.

         Two  vendors   accounted   for  49%,  57%  and  53%  of  the  Company's
distribution inventory purchases during 1998, 1997 and 1996,  respectively.  One
such  vendor  has  obtained  a  second   priority  lien  against  the  Company's
inventories to secure payment on the Company's purchase of goods.


Inventories

         Distribution  inventories  are  stated at the lower of cost or  market,
cost being determined by the first-in,  first-out (FIFO) method. Market is based
on estimated net realizable value.

         Manufacturing  inventories  are  stated at the lower of  standard  cost
(which  approximates  actual  cost on a  first-in,  first-out  basis) or market.
Market is based on estimated net realizable value.



                                      F-6
<PAGE>
Property and Equipment

         Property  and  equipment  are  recorded  at  cost.   Depreciation   and
amortization is computed using the straight-line method based upon the estimated
useful lives of the assets which range from three to five years. Amortization of
leasehold  improvements  is  computed  using the  straight-line  method over the
shorter of the estimated life of the asset or the lease term.


Goodwill

         Assets  and   liabilities   acquired  in   connection   with   business
combinations  accounted  for under the  purchase  method are  recorded  at their
respective fair values.  The excess of the purchase price over the fair value of
the assets  acquired is recorded as goodwill and  amortized  on a  straight-line
basis over a fifteen year period for current year acquisitions and a twenty-five
year period for prior years'  business  combinations.  The Company  periodically
reviews the recoverability of goodwill.


Impairment of Long-Lived Assets

         The Company  continually  monitors its  long-lived  assets to determine
whether  any   impairment  of  these  assets  has   occurred.   In  making  such
determination,   the  Company   evaluates  the  performance  of  the  underlying
businesses,  products and products lines. The Company  recognizes  impairment of
long-lived  assets in the event the net book value of such  assets  exceeds  the
future  undiscounted  cash  flows  attributable  to  such  assets.  No  material
impairments have been experienced.


Income Taxes

         Deferred  income taxes are provided for temporary  differences  between
the  financial  reporting  basis and the tax basis of the  Company's  assets and
liabilities as part of the income tax provisions.


Earnings Per Share

         Basic EPS is  computed  by  dividing  net  income  available  to common
shareholders  (numerator)  by the  weighted  average  number  of  common  shares
outstanding  (denominator)  during the period.  Diluted EPS gives  effect to all
dilutive  potential common shares  outstanding during the period including stock
options, using the treasury stock method, and convertible preferred stock, using
the if-converted  method.  In computing Diluted EPS, the average stock price for
the period is used in  determining  the number of shares assumed to be purchased
from the exercise of stock options.

         Following is a reconciliation of the numerators and denominators of the
Basic  and  Diluted  EPS  computations  for  the  periods  presented  below  (in
thousands, except per share data):

                                                         Year Ended December 31,
                                                        ------------------------
                                                          1998     1997     1996
                                                        ------   ------   ------

Net income                                              $6,075   $4,689   $7,862
                                                        ======   ======   ======
Weighted average common shares outstanding (basic)       8,792    8,562    8,511

Effect of dilutive warrant and options                      89      344      152
                                                        ------   ------   ------
Weighted average common shares outstanding (diluted)     8,881    8,906    8,511
                                                        ======   ======   ======

Earnings Per Share:
Basic                                                   $ 0.69   $ 0.55   $ 0.94
                                                        ======   ======   ======
Diluted                                                 $ 0.68   $ 0.53   $ 0.92
                                                        ======   ======   ======



                                      F-7
<PAGE>

         Options and warrant to purchase  1,129,100  shares of common stock at a
weighted  average price of $9.97 per share were outstanding at December 31, 1998
but were not  included in the  computation  of Diluted EPS because the  exercise
prices were  greater  than the average  market  price of the common  shares.  At
December  31,  1997,  there were  478,200  options  and warrant  outstanding  to
purchase  common stock at a weighted  average price of $9.98 per share  excluded
from the Diluted EPS  computation  due to their  anti-dilution.  At December 31,
1996,  there were 363,450  options and warrant  outstanding  to purchase  common
stock at a weighted  average price of $8.76 per share  excluded from the Diluted
EPS computation due to their anti-dilution.


Foreign Currency Translation and Transactions

         The  financial  statements  of the  Company's  foreign  subsidiary  are
measured  using  the local  currency  as the  functional  currency.  Assets  and
liabilities  of this  subsidiary  are  translated at the rate of exchange at the
balance sheet date. Income and expense items are translated at average quarterly
rates  of  exchange  prevailing  during  the  year.  The  resulting  translation
adjustments are included in accumulated other comprehensive income as a separate
component  of  stockholders'  equity.  Gains and losses  from  foreign  currency
transactions are included in the statement of income.


Stock-Based Compensation

         The Company accounts for stock-based  compensation  using the intrinsic
value method  prescribed  in Accounting  Principles  Board Opinion (APB) No. 25,
"Accounting  for Stock Issued to  Employees."  The Company's  policy is to grant
options with an exercise price equal to the quoted market price of the Company's
stock on the  date of the  grant.  Accordingly,  no  compensation  cost has been
recognized  in  the  Company's   Statements  of  Income.  The  Company  provides
additional  proforma  disclosures  as  required  under  Statement  of  Financial
Accounting   Standards  No.  123  ("SFAS  123"),   "Accounting  for  Stock-Based
Compensation."


Comprehensive Income

         Comprehensive  income is  defined as the change in equity of a business
enterprise  during a period from transactions and other events and circumstances
from non-owner sources.  For the Company,  comprehensive  income consists of its
reported net income or loss and the change in the foreign  currency  translation
adjustment during a period.

Segment Reporting

         Financial  Accounting  Standards  Board Statement  No.131,  "Disclosure
about Segments of an Enterprise and Related  Information"  ("SFAS 131") requires
that companies report separately in the financial  statements  certain financial
and descriptive  information  about operating  segments profit or loss,  certain
specific revenue and expense items and segment assets.  Additionally,  companies
are  required  to report  information  about the  revenues  derived  from  their
products and service groups,  about  geographic areas in which the Company earns
revenues and holds assets, and about major customers (see Note 11).


Recently Issued Accounting Standards

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments  and Hedging  Activities"  ("SFAS 133").  SFAS 133 establishes a new
model for accounting for derivatives  and hedging  activities and supersedes and
amends a number of existing  accounting  standards.  SFAS 133 requires  that all
derivatives  be recognized in the balance sheet at their fair market value,  and
the corresponding derivative gains or losses be either reported in the statement
of  operations or a deferred  item  depending on the type of hedge  relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
are  not  expected  to  have  a  material  effect  on  the  Company's  financial
statements. The standard is effective for the Company in fiscal 2000.

NOTE 3 - ACQUISITIONS:

         On November 13, 1998, the Company  acquired  certain assets and assumed
certain  liabilities  of the  Computer  Products  Division of Almo  Corporation,
("Almo CPD") for a total  consideration of approximately $21.7 million including
acquisition  costs.  The Company  issued to Almo a warrant to  purchase  350,000
shares of the Company's



                                      F-8
<PAGE>

Common  Stock at $12.00  per  share,  in  consideration  for a  covenant  not to
compete.  The warrant may be  exercised  at any date for a period of five years.
The warrant was independently valued at $1,043,000; significant assumptions used
were a risk  free  rate of 4.89%,  fair  value of  Common  Stock of $5.88 and an
expected  life of five years.  The warrant was recorded as a component of equity
and as additional  goodwill.  The related charge will be amortized over a period
of five years.  The  acquisition,  which was  accounted  for as a purchase,  was
funded through borrowings under the Company's revolving line of credit.

         On November 19, 1998, the Company  acquired  certain assets and assumed
certain liabilities of Tenex Data Division of Axidata,  Inc. ("Tenex Data"), for
a purchase price of  approximately  $5.8 million in cash  including  acquisition
costs.  The  acquisition,  which was  accounted  for as a  purchase,  was funded
through  borrowings under the Company's  revolving line of credit.  The Almo CPD
and Tenex  Data  purchase  prices  were  allocated  to the  acquired  assets and
liabilities based upon  management's  estimate of their fair market values as of
the acquisition dates as follows (in thousands):

                                         Almo CPD      Tenex Data        Total
                                         --------       --------       --------
Accounts receivable                      $ 15,525       $  5,365       $ 20,890
Inventories                                 5,991          2,737          8,728
Equipment and other assets                    517            177            694
Goodwill                                    4,688          1,373          6,061
Accounts payable                           (4,135)        (3,645)        (7,780)
Other accrued liabilities                    (929)          (186)        (1,115)
                                         --------       --------       --------
Total consideration                      $ 21,657       $  5,821       $ 27,478
                                         ========       ========       ========

         The results of operations of Almo CPD and Tenex Data have been included
with those of the Company for periods  subsequent  to the dates of  acquisition.
Set forth below is the unaudited pro forma combined summary of operations of the
Company  for the  years  ended  December  31,  1998 and  1997,  as  though  both
acquisitions had been made on January 1, 1997.

                                                         Year Ended December 31,
                                                                (unaudited)
                                                             1998         1997
                                                           --------     --------
                                                                (in thousands)

         Net sales                                         $819,565     $720,138
         Net income                                        $  6,441     $  6,195


         Earnings per share
            Basic                                          $   0.73     $   0.72
            Diluted                                        $   0.73     $   0.70

         Shares used in per share calculation
            Basic                                             8,792        8,562
            Diluted                                           8,881        8,906


         The unaudited pro forma combined summary of operations  assumes: 1) the
amortization of goodwill over a fifteen year period,  2) the amortization of the
value of the warrant over the five year exercise  period,  and 3) the additional
interest  expense on debt incurred in connection  with the acquisition as if the
debt had been outstanding from January 1, 1997.

         The unaudited pro forma combined summary of operations does not purport
to be indicative of the results which  actually  would have been obtained if the
acquisitions  had been made at the  beginning of 1997 or of those  results which
may be obtained in the future.

         An  additional  consideration  of  $335,000  was  paid  to  the  former
shareholders of Vantage  Components Inc. during the year and adjustment has been
made to goodwill previously recorded.

                                      F-9
<PAGE>

NOTE 4 - BALANCE SHEET COMPONENTS:

                                                             December 31,
                                                      --------------------------
                                                        1998            1997
                                                      ---------       ---------
                                                             (in thousands)
          Inventories:
             Work-in-process                          $  12,052       $   8,646
             Purchased components and materials         117,337          89,733
                                                      ---------       ---------
                                                      $ 129,389       $  98,379
                                                      =========       =========
          Property and equipment:
             Manufacturing and test equipment         $  12,959       $   9,721
             Computer and other equipment                 4,945           4,041
             Furniture and fixtures                       2,455           1,950
             Leasehold improvement                        2,364           1,784
             Warehouse equipment                            623             459
                                                      ---------       ---------
                                                         23,346          17,955
             Less: accumulated depreciation             (10,580)         (7,222)
                                                      ---------       ---------
                                                      $  12,766       $  10,733
                                                      =========       =========
          
NOTE 5 - LINE OF CREDIT AND TERM LOAN:


         On November 12,  1998,  the Company  entered  into a Third  Amended and
Restated  Syndicated Credit  Agreement,  arranged by California Bank & Trust, as
Agent,  formerly  Sumitomo  Bank of  California.  The  amendment  increased  the
Company's $100 million revolving line of credit to $130 million and extended the
maturity date to May 31, 2000. At the Company's option, the borrowings under the
line of credit will bear interest at California Bank & Trust's prime rate or the
adjusted  LIBOR rate plus 1.85%.  At December 31, 1998,  the prime interest rate
was 7.75%.  The balance  outstanding on the revolving line of credit at December
31, 1998 was $102.4 million. Obligations of the Company under the revolving line
of  credit  are  secured  by  substantially  all of the  Company's  assets.  The
revolving line of credit  requires the Company to meet certain  financial  tests
and to comply with  certain  other  covenants  on a quarterly  basis,  including
restrictions  on  incurrence  of  debt  and  liens,   restrictions  on  mergers,
acquisitions,  asset  dispositions,  declaration  of dividends,  repurchases  of
stock, making investments and profitability.  The Company was in compliance with
its bank covenants at December 31, 1998; however, there can be no assurance that
the Company will be in compliance in the future.


NOTE 6 - STOCK-BASED COMPENSATION PLANS:

Stock Option Plans

         In May of 1998,  the Company  adopted the 1998 Stock Plan (the  "Plan")
which  replaced the 1988 Amended and  Restated  Incentive  Stock Plan (the "1988
Plan") and the 1993  Director  Stock  Option  Plan (the  "Director  Plan").  All
options granted after May 1998 are granted under the 1998 Stock Plan.

         The Plan  provides  for the grant of stock  options and stock  purchase
rights to employees, directors and consultants of the Company at prices not less
than  the fair  value of the  Company's  Common  Stock at the date of grant  for
incentive  stock  options  and prices not less than 85% of the fair value of the
Company's Common Stock for nonstatutory stock options and stock purchase rights.
Under the Plan,  the Company has reserved for issuance a total of 500,000 shares
of Common  Stock plus  181,672  shares of Common  Stock which were  reserved but
unissued  under the 1988 Plan and  35,000  shares of  Common  Stock  which  were
reserved but unissued under the Director Plan. The maximum  aggregate  number of
shares of Common  Stock which may be optioned and sold under the Plan is 716,672
shares,  plus an annual increase to be added on January 1 of each year beginning
in 1999,  equal to the lesser of (i) 400,000 shares,  (ii) 4% of the outstanding
shares  on such  date,  or  (iii) a lesser  amount  determined  by the  Board of
Directors,  subject to adjustment upon changes in capitalization of the Company.
Since inception,  the Company has reserved  3,169,104 shares of Common Stock for
issuance under the aggregate of all stock option plans.


                                      F-10
<PAGE>

         The  stock  options  become   exercisable  over  a  vesting  period  as
determined  by the Board of Directors  and expire over terms not  exceeding  ten
years  from the date of  grant.  If an  optionee  ceases to be  employed  by the
Company,  the optionee  may,  within one month (or such other period of time, as
determined by the Board of Directors,  but not exceeding three months)  exercise
options to the extent vested.

         As part of the 1988 Plan, in March 1993, the Board of Directors adopted
a Management  Incentive  Program (the  "Program") for key employees.  Under this
Program,  options for 40,500,  130,000 and 339,000  shares of Common  Stock were
granted in 1998, 1997 and 1996, respectively.  The Program provides for ten-year
option terms with vesting at the rate of one tenth per year,  with potential for
accelerated vesting based upon attainment of certain performance objectives. The
options lapse ten years after the date of grant or such shorter period as may be
provided for in the stock option agreement.

         On February 7, 1996,  the Board of  Directors  offered  employees  with
options under the 1988 Plan the opportunity to exchange existing options for new
options at an exercise  price of $6.50,  the fair market value of the  Company's
Common Stock on the date of the  exchange.  Any vesting in the canceled  options
was lost,  and the new  options  were  subject to the normal  four-year  vesting
schedule  under  the  1988  Plan.  Of  the  approximate  950,000  stock  options
outstanding eligible for exchange,  640,900 stock options were exchanged for new
options.

         Options  granted  under  the  Director  Plan  prior  to  May  1998  and
outstanding at December 31, 1998 total 90,000.  Under the Director Plan,  75,000
options were granted in 1993 at an exercise price of $8.00 per share, and 20,000
options  were  granted in 1996 at an  exercise  price of $7.00 per share.  These
options  vest  annually  at the rate of one third  per year and have a  ten-year
life. In 1997,  20,000  options were granted at an exercise  price of $12.63 per
share.  These  options  become  vested in one year and have a ten-year  life. In
1998, 15,000 options were granted at an exercise price of $7.50 per share. These
options  vest  annually  at the rate of one third  per year and have a  ten-year
life.  Outstanding  options will continue to be governed under the 1993 Director
Plan.
<TABLE>

         The following table presents activity under all Stock Plans:

<CAPTION>

                                                                                                         Options Outstanding
                                                                                                    --------------------------------
                                                                             Options                                     Weighted
                                                                          Available for                                  Average
                                                                              Grant                   Shares          Exercise Price
                                                                            ----------              ----------        --------------
<S>                                                                         <C>                      <C>                    <C>     
Balance at December 31, 1995                                                   243,743               1,029,630              $   9.40

Increase in options available for grant                                        300,000                    --                    --
Options canceled                                                               849,900                (849,900)             $   9.87
Options granted                                                             (1,146,800)              1,146,800              $   6.99
Options exercised                                                                 --                   (22,530)             $   1.94
                                                                            ----------              ----------              --------
Balance at December 31, 1996                                                   246,843               1,304,000              $   7.10

Increase in options available for grant                                        300,000                    --                    --
Options canceled                                                               280,729                (280,729)             $   7.11
Options granted                                                               (649,500)                649,500              $   9.64
Options exercised                                                                 --                  (147,312)             $   6.48
                                                                            ----------              ----------              --------
Balance at December 31, 1997                                                   178,072               1,525,459              $   8.24

Increase in options available for grant                                        500,000                    --                    --
Options canceled                                                               491,050                (491,050)             $   8.33
Options granted                                                               (770,800)                770,800              $   8.14
Options exercised                                                                 --                  (110,796)             $   7.14
                                                                            ----------              ----------              --------
Balance at December 31, 1998                                                   398,322               1,694,413              $   8.24
                                                                            ==========              ==========              ========
</TABLE>

         At December 31, 1998,  366,261  options  were  exercisable  under these
Plans.


                                      F-11
<PAGE>
<TABLE>

         The following table  summarizes  information  about fixed stock options
outstanding for all plans at December 31, 1998:
<CAPTION>

                                              OPTIONS OUTSTANDING                                 OPTIONS EXERCISABLE
                           ----------------------------------------------------------    ---------------------------------------
                             Number of
                              Options              Weighted                              
                            Outstanding            Average                               
                               As of              Remaining             Weighted           Number of Shares        Weighted
  Range of Exercise         December 31,       Contractual Life          Average          Exercisable As of        Average
        Prices                  1998               In Years          Exercise Price       December 31, 1998     Exercise Price
-----------------------    ---------------     -----------------     ----------------    -------------------    ----------------
<S>                             <C>                 <C>                   <C>                   <C>                  <C>  
$  6.50  -  $  6.50             321,963             4.81                  $6.50                 92,061               $6.50
$  6.75  -  $  7.50             305,300             4.92                   7.40                 61,250                7.30
$  7.63  -  $  8.13             261,000             4.52                   7.93                 69,000                7.96
$  8.63  -  $  8.75              86,750             2.99                   8.68                 32,750                8.66
$  8.81  -  $  8.81             330,500             4.44                   8.81                     --                  --
$  9.00  -  $  9.88             247,650             4.81                   9.32                 62,200                9.29
$10.00  -  $12.63               141,250             4.27                  11.08                 49,000               11.45
                           ===============     =================     ================    ===================    ================
                              1,694,413             4.58                  $8.24                366,261               $8.24
                           ===============     =================     ================    ===================    ================
</TABLE>

         For the fixed stock option  plans,  the fair value of each option grant
used for  calculating  pro forma net  income is  estimated  on the date of grant
using  the  Black-Scholes  multiple  option-pricing  model  with  the  following
weighted   average   assumptions  used  for  grants  in  1998,  1997  and  1996,
respectively;  expected volatility of 35%; risk free interest rate of 5.0%, 5.9%
and 6.0% and expected  lives of 3.79,  3.92 and 4.19 years.  The Company has not
paid dividends and assumed no dividend yield. The weighted average fair value of
those stock options granted in 1998,  1997 and 1996 was $2.64,  $3.35 and $2.00,
per option, respectively.

Employee Stock Purchase Plan

         The  Employee  Stock  Purchase  Plan  provides  for  automatic   annual
increases  in the number of shares  reserved  for  issuance on January 1 of each
year  beginning in 1999 by a number of shares equal to the lesser of (i) 150,000
shares,  (ii) 1.5% of the  outstanding  shares on such  date,  or (iii) a lesser
amount determined by the Board of Directors,  subject to adjustment upon changes
in capitalization of the Company.

         The Company has reserved 630,000 shares of Common Stock for issuance to
all  eligible  employees  under its Employee  Stock  Purchase  Plan.  Sales made
through  this plan  will be at the  lower of 85% of market  price at the date of
purchase or on the first day of each six-month  offering period in the prior two
years. A total of 436,079 shares have been issued under this plan as of December
31, 1998. The fair value of each purchase right is estimated on the beginning of
the  offering  period  using the  Black-Scholes  option-pricing  model  with the
following   weighted   average   assumptions   used  in  1998,  1997  and  1996,
respectively;  expected  volatility  of 35%;  risk free  interest rate of 4.91%,
5.56%  and 5.64% and  expected  lives of 0.5  years.  The  Company  has not paid
dividends  and assumed no dividend  yield.  The  weighted  average fair value of
those purchase rights granted in 1998, 1997 and 1996 as defined by SFAS 123, was
$1.97, $2.43 and $1.82 per right, respectively.


Fair Value Disclosures

         At December  31,  1998,  the Company had two  stock-based  compensation
plans as  described  above.  The  Company  applies  APB  Opinion 25 and  related
interpretations in accounting for its plans.  Accordingly,  no compensation cost
has  been  recognized  for  its  plans,  all  of  which  are  fixed  plans.  Had
compensation cost for the Company's two stock-based



                                      F-12
<PAGE>

compensation  plans been  determined  based on the fair value at the grant dates
for  awards  in 1998,  1997 and  1996  under  those  plans  consistent  with the
provisions  of  Financial   Accounting   Standards  No.  123,   "Accounting  for
Stock-Based Compensation", the Company's net income and earnings per share would
have been reduced as presented below (in thousands, except per share data):

                                         1998             1997            1996
                                       ---------       ---------       ---------
Net income:
     As reported                       $   6,075       $   4,689       $   7,862
     Pro forma                             5,499           4,015           7,206
Earnings per share                   
     As reported                     
       Basic                                0.69            0.55            0.94
       Diluted                              0.68            0.53            0.92
     Pro forma                       
       Basic                                0.63            0.47            0.86
       Diluted                              0.62            0.47            0.85
                                  
         Because additional stock options and stock purchase rights are expected
to be granted each year and this pro forma presentation includes only the effect
of  options  granted  subsequent  to  December  31,  1994,  the  above pro forma
disclosures are not  representative  of pro forma effects on reported  financial
results for future years.

NOTE 7 - INCOME TAXES:

         The  provision   for  income  taxes   consists  of  the  following  (in
thousands):

                                        1998             1997            1996
                                       -------          -------         -------
Current:
         Federal                       $ 5,070          $ 1,880         $ 5,893
         State                             790              396           1,495
         Foreign                            17             --              --
                                       -------          -------         -------
                                         5,877            2,276           7,388
Deferred:
         Federal                        (1,195)             968          (1,382)
         State                            (282)             151            (313)
                                       -------          -------         -------
                                       $ 4,400          $ 3,395         $ 5,693
                                       =======          =======         =======

         Deferred  tax   (liabilities)   assets   comprise  the   following  (in
thousands):

                                                    1998       1997       1996
                                                  -------    -------    -------
Basis differential in assets                      $   (89)   $   (98)   $  (110)
Depreciation                                         (843)      (678)      (621)
                                                  -------    -------    -------
     Gross deferred tax liabilities                  (932)      (776)      (731)
                                                  -------    -------    -------


Bad debt, sales and warranty reserves               1,598        637      1,922
Inventory reserves and basis differences            2,347      1,605      1,756
Compensation accruals and reserves                    261        254        128
State taxes, net of federal benefit                   198         70        391
Other                                                 600        805        248
                                                  -------    -------    -------
     Gross deferred tax assets                      5,004      3,371      4,445
                                                  -------    -------    -------

     Net deferred tax asset                       $ 4,072    $ 2,595    $ 3,714
                                                  =======    =======    =======

         The net deferred tax asset represents temporary  differences for future
tax deductions which can generally be realized by carryback to taxable income in
prior years.

                                      F-13
<PAGE>

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

                                                 1998        1997        1996
                                               --------    --------    --------
Federal statutory rate                             35.0%       34.0%       35.0%
State income taxes, net of Federal tax
    benefit and credits                             4.1%        4.2%        5.7%
Other                                               2.9%        3.8%        1.3%
                                               --------    --------    --------
                                                   42.0%       42.0%       42.0%
                                               ========    ========    ========

NOTE  8 - COMMITMENTS AND CONTINGENCIES:

         The Company leases its facilities  under  cancelable and  noncancelable
operating lease agreements.  The leases expire at various times through 2006 and
contain  renewal  options.  Certain of the  leases  require  the  Company to pay
property taxes, insurance, and maintenance costs.

         The Company leases certain equipment under capitalized leases with such
equipment  amounting to $12,561,000 less accumulated  depreciation of $6,036,000
at December 31, 1998 and $10,042,000 less accumulated depreciation of $3,512,000
at December  31, 1997.  Amortization  expense on assets  subject to  capitalized
leases was $2,524,000,  $1,177,000,  and $1,307,000 for the years ended December
31, 1998, 1997 and 1996,  respectively.  The capitalized  lease terms range from
three to five years.

         The following is a summary of commitments under leases:

                                              Capitalized             Operating
              Year Ending December 31,          Leases                  Leases
------------------------------------------   -------------           -----------
                                                        (in thousands)

1999                                            $ 2,689                $ 2,591
2000                                              2,459                  2,203
2001                                              1,268                  2,001
2002                                                789                  1,722
2003                                                536                  1,127
2004 and beyond                                      --                  2,428
                                                -------                -------
Total minimum lease payments                      7,741                $12,072
                                                                       =======
Less:  imputed interest                            (946)             
                                                -------                

Present value of minimum lease payments         $ 6,795              
                                                =======              

         Total operating lease expense was $2,920,000, $2,508,000 and $1,272,000
for the years ended December 31, 1998, 1997 and 1996, respectively.

         The  Company is subject to legal  proceedings  and claims that arise in
the normal course of business.  Management believes that the ultimate resolution
of such  matters  will not  have a  material  adverse  effect  on the  Company's
financial position or results of operations.


NOTE 9 - TRANSACTIONS WITH RELATED PARTIES:

         The Company has entered into a  manufacturing  agreement  with Pinnacle
Systems,  Inc.  ("Pinnacle")  providing  for the  performance  by the  Company's
manufacturing  division  of  value-added  turnkey  services  for  Pinnacle.  The
agreement




                                      F-14
<PAGE>

term is automatically  renewed for successive one-year periods unless terminated
by either party on 90 days' written  notice.  Company sales to Pinnacle  totaled
$9,590,000,  $2,840,000,  and $9,692,000, for the years ended December 31, 1998,
1997, and 1996, respectively.  The accounts receivable balance from Pinnacle was
$1,828,000  at December 31, 1998 and $132,000 at December 31, 1997.  The Company
has purchased approximately $2,169,000,  $1,532,000,  and $350,000, of inventory
from Pinnacle in 1998, 1997 and 1996, respectively. Inventory on hand, purchased
under  contract with Pinnacle,  totaled  $1,564,000 and $393,000 at December 31,
1998 and December 31, 1997,  respectively.  Glenn E. Penisten, a director of the
Company,  is a director of  Pinnacle.  The  agreement  was  entered  into in the
ordinary  course of business and the Company  believes that it has terms no less
favorable  than  reasonably  could be expected to be obtained from  unaffiliated
parties.

         In May 1994, the Company  entered into a  manufacturing  agreement with
Reply  Corporation  ("Reply")  providing  for the  performance  by the Company's
manufacturing  division of value-added  turnkey  services for Reply. The Company
terminated  the  agreement in 1997.  Sales to Reply  totaled  approximately  $0,
$262,000, and $2,594,000 during 1998, 1997, and 1996, respectively. The accounts
receivable  balance  from  Reply was $0 at  December  31,  1998 and  $54,000  at
December 31, 1997. The Company has purchased  approximately  $0,  $123,000,  and
$167,000 of inventory from Reply in 1998, 1997, and 1996, respectively. Glenn E.
Penisten and Gordon A.  Campbell,  directors of the  Company,  are  directors of
Reply. The agreement was entered into in the ordinary course of business and the
Company  believes that it has terms no less favorable than  reasonably  could be
expected to be obtained from unaffiliated parties.

         In May 1998, the Company  entered into a  manufacturing  agreement with
Network  Peripherals Inc. ("NPI") providing for the performance by the Company's
manufacturing  division of  value-added  turnkey  services for NPI. Sales to NPI
totaled  approximately  $8,241,000  for the year ended December 31, 1998 and the
accounts  receivable  balance from NPI was  $984,000 at December  31, 1998.  The
Company has purchased inventory totaling approximately $546,000 and inventory on
hand,  purchased under contract with NPI, totaled $737,000 at December 31, 1998.
Glen E. Penisten, a director of the Company, is a director of NPI. The agreement
was entered  into in the ordinary  course of business  and the Company  believes
that it has terms no less  favorable  than  reasonably  could be  expected to be
obtained from unaffiliated parties.

         The  Company's   distribution  division  has  purchased   approximately
$858,000  of  inventory  from  3DFX  Interactive,  Inc.  ("3DFX")  in 1998.  The
inventory on hand,  purchased from 3DFX,  totaled $139,000 at December 31, 1998.
Gordon A.  Campbell,  a director  of the  Company,  is a director  of 3DFX.  The
Company  believes that terms of these  transactions  were no less favorable than
reasonably could be expected to be obtained from unaffiliated parties.

         In 1998, the Company's  distribution  division sold  $1,528,000 to 3Com
Corporation ("3Com").  The accounts receivable balance from 3Com was $469,000 at
December 21, 1998. Gordon A. Campbell,  a director of the Company, is a director
of 3Com.  The Company  believes  that terms of these  transactions  were no less
favorable  than  reasonably  could be expected to be obtained from  unaffiliated
parties.

NOTE 10 - SALARY SAVINGS PLAN:

         The  Company  has a Section  401(k)  Plan  (the  Plan)  which  provides
participating  employees an opportunity  to accumulate  funds for retirement and
hardship.  Participants  may contribute up to 15% of their eligible  earnings to
the Plan.  The  Company  may  elect to make  matching  contributions  equal to a
discretionary  percentage  of  participants'  contributions  up to the statutory
maximum  of  participants'  eligible  earnings.  The  Company  has not  made any
contributions to the Plan.

NOTE 11 - BUSINESS SEGMENT INFORMATION:

         The  Company  adopted  SFAS  No.131,  Disclosure  about  Segments of an
Enterprise  and Related  Information,  in 1998 which changes the way the Company
reports information about its operating  segments.  The information for 1997 and
1996 has been restated from the prior year's presentation in order to conform to
the 1998 presentation.

         The Company  has two  operating  segments:  Distribution  and  Contract
Manufacturing.   Distribution   markets  and   distributes   a  broad  range  of
semiconductor  and computer  products  primarily to  industrial  OEMs,  hardware
integrators,  VARs and  other  resellers.  Contract  Manufacturing  manufactures
board-level and system products to customers'



                                      F-15
<PAGE>

specifications,  for customers in various  industries  including  networking and
telecommunications, video and graphics, computer workstations and industrial and
testing.  The Company earns  substantially  all of its revenues and income,  and
maintains substantially all of its assets in the United States.

         The accounting policies of each segment are described in the summary of
significant  accounting  policies.  Revenue  and  operating  profit by  business
segment include both sales to customers, as reported in the Company's Statements
of Income,  and intersegment  sales,  which are transferred at cost. The Company
evaluates  performances  based  on  profit  or loss  from  operations  including
interest  expense before income taxes excluding  non-recurring  gains and losses
and  foreign  exchange  gains and  losses.  Segment  operating  profit  includes
corporate expenses allocated to each segment based on percentages established by
management and approximate actual usage. Corporate interest expense is allocated
to the manufacturing segment based on its average intercompany payable balances.

<TABLE>
         Operating  results  and  other  financial  data are  presented  for the
principal  business  segments of the Company  for the years ended  December  31,
1998, 1997, and 1996 as follows (in thousands):

<CAPTION>
                                                                                    Contract
                                                              Distribution        Manufacturing        Eliminations     Consolidated
                                                              ------------        -------------        ------------     ------------
<S>                                                              <C>                <C>                 <C>                 <C>     
1998
Sales to customers                                               $575,330           $ 86,098            $   --              $661,428
Intersegment sales                                                  6,616               --                (6,616)               --
                                                                 --------           --------            --------            --------
Revenue                                                           581,946             86,098              (6,616)            661,428


Depreciation and amortization                                       1,132              2,632                --                 3,764
Segment profit/(loss)                                              15,177             (4,702)               --                10,475
Interest expense                                                    3,025              2,686                --                 5,711


Identifiable  assets                                              270,041             46,669             (32,130)            285,580
Capital asset additions                                             2,252              3,389                --                 5,641
                                                                 ========           ========            ========            ========

1997
Sales to customers                                               $460,516           $ 73,220            $   --              $533,736
Intersegment sales                                                  7,650                631              (8,281)               --
                                                                 --------           --------            --------            --------
Revenue                                                           468,166             73,851              (8,281)            533,736


Depreciation and amortization                                         779              2,138                --                 2,917
Segment profit/(loss)                                              12,312             (4,228)               --                 8,084
Interest expense                                                    2,451              2,123               4,574


Identifiable assets                                               190,934             36,245             (21,759)            205,420
Capital asset additions                                             1,490              2,841                --                 4,331
                                                                 ========           ========            ========            ========

1996
Sales to customers                                               $391,187           $ 92,129            $   --              $483,316
Intersegment sales                                                  4,855                282              (5,137)               --
                                                                 --------           --------            --------            --------
Revenue                                                           396,042             92,411              (5,137)            483,316


Depreciation and amortization                                         683              1,886                --                 2,569
Segment profit                                                      9,398              4,157                --                13,555
Interest expense                                                      859              2,636                --                 3,495


Identifiable  assets                                              172,755             39,326             (36,401)            175,680
Capital  asset  additions                                             487              2,925                --                 3,412
                                                                 ========           ========            ========            ========


</TABLE>



                                      F-16
<PAGE>

<TABLE>

NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<CAPTION>

                                            (in thousands, except per share amounts)

                                                                                Quarter Ended
                                       ---------------------------------------------------------------------------------------------
                                        Mar. 31,     June 30,    Sept. 30,   Dec. 31,    Mar. 31,   June 30,    Sept. 30,   Dec. 31,
                                          1997        1997        1997        1997        1998        1998        1998        1998
                                        --------    --------    --------    --------    --------    --------    --------    --------
<S>                                     <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>     
Net sales ..........................    $140,968    $115,136    $138,003    $139,629    $129,280    $144,718    $175,741    $211,689
Cost of sales ......................     124,820     101,511     124,375     125,942     115,778     129,487     158,139     192,100
                                        --------    --------    --------    --------    --------    --------    --------    --------
Gross profit .......................      16,148      13,625      13,628      13,687      13,502      15,231      17,602      19,589
Marketing, general
and administrative
expenses ...........................      11,151       9,569      11,587      12,123      11,845      11,699      12,403      13,791
                                        --------    --------    --------    --------    --------    --------    --------    --------
Income from operations .............       4,997       4,056       2,041       1,564       1,657       3,532       5,199       5,798
Interest expense ...................         892       1,178       1,122       1,382       1,321       1,191       1,447       1,752
                                        --------    --------    --------    --------    --------    --------    --------    --------
Income before income
 taxes .............................       4,105       2,878         919         182         336       2,341       3,752       4,046
Provision for income taxes .........       1,724       1,209         386          76         141         983       1,617       1,659
                                        --------    --------    --------    --------    --------    --------    --------    --------
Net income .........................    $  2,381    $  1,669    $    533    $    106    $    195    $  1,358    $  2,135       2,387
                                        ========    ========    ========    ========    ========    ========    ========    ========

Earnings per share
 Basic .............................    $   0.28    $   0.20    $   0.06    $   0.01    $   0.02    $   0.15    $   0.24    $   0.27
                                        ========    ========    ========    ========    ========    ========    ========    ========
 Diluted ...........................    $   0.27    $   0.19    $   0.06    $   0.01    $   0.02    $   0.15    $   0.24    $   0.27
                                        ========    ========    ========    ========    ========    ========    ========    ========
Shares used in per share
calculation
  Basic ............................       8,471       8,539       8,607       8,632       8,723       8,767       8,831       8,848
                                        ========    ========    ========    ========    ========    ========    ========    ========
  Diluted ..........................       8,935       8,539       8,886       8,825       8,795       8,855       8,874       8,998
                                        ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>

         During the fourth quarter of 1997,  the Company was adversely  affected
by the  bankruptcy  of one of its  suppliers.  The impact was a decrease  to net
income of approximately $421,000, or five cents per share.


                                      F-17
<PAGE>

<TABLE>


                                                                                                 SCHEDULE  II

                                                 BELL MICROPRODUCTS INC.

                                     VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                             ALLOWANCE FOR DOUBTFUL ACCOUNTS
                                                     (in thousands)
<CAPTION>

                                    Additions
                                      Balance at           Charged to
                                     Beginning of          Costs and         Deductions-Write-offs Balance at End
   Year Ended December 31,              Period              Expenses                                 of Period
-------------------------------    -----------------    -----------------    -----------------    -----------------
<S>                                  <C>                 <C>                  <C>                  <C>       
  1998                               $   1,331           $    4,630           $   (2,475)          $    3,486
  1997                                   4,228                1,763               (4,660)               1,331
  1996                                   3,300                5,035               (4,107)               4,228

</TABLE>

                                                     S-1
<PAGE>

<TABLE>


                                                     INDEX TO EXHIBITS
<CAPTION>

                                                                                                                        Sequential
         Number    Description of Document                                                                             Page Number
         ------    -----------------------                                                                             -----------
<S>                <C>

         3.1      Amended and Restated Articles of Incorporation of Registrant (2)

         3.2      Amended and Restated Bylaws of Registrant (3)

         4.1      Specimen Common Stock Certificate of the Registrant (3)

         4.2      Amended and Restated  Registration  Rights Agreement dated June 11, 1992 between  Registrant
                  and certain investors named therein, as amended (1)

         4.3      Warrant issued to Almo Corporation (7)

         10.1     1998 Stock Plan (9)

         10.2     The form of Option Agreement used under the 1998 Stock Plan (9)

         10.3     Employee Stock Purchase Plan, as amended through May 21, 1998 (9)

         10.4     The form of Option Agreement used under the Employee Stock Purchase Plan (4)

         10.5     Registrant's 401(k) Plan (3)

         10.6     Lease dated March 17, 1992 for Registrant's  facilities at 1941 Ringwood Avenue,  Suite 100,
                  San Jose, California (3)

         10.7     Lease  dated April 15,  1993 for  Registrant's  facilities  at 2350 Lundy  Place,  San Jose,
                  California (1)

         10.8     Standard  Distributor  Agreement dated June 1, 1990 by and between  Quantum  Corporation and
                  Registrant (3)

         10.9     Form of Indemnification Agreement (3)

         10.10    IBM  Authorized  Distributor  Agreement  dated May 17,  1993  between  IBM  Corporation  and
                  Registrant (3)

         10.11    Sublease dated November 12, 1996 for the Registrant's facilities at 2020 South Tenth Street,
                  San Jose, California, and related exhibits (8)

         10.12*   Employment  Agreement  dated as of December  10, 1996 between the  Registrant  and W. Donald
                  Bell, the Registrant's Chief Executive Officer (8)

         10.13    Form of Management  Retention  Agreement between the Registrant and the following  executive
                  officers of the  Registrant:  W. Donald  Bell,  Bruce M. Jaffe,  Ronald H. Mabry,  Philip M.
                  Roussey and Robert J. Sturgeon (8)

         10.14    Third Amendment and Restated Credit Agreement dated as of November 12, 1998 by and among the
                  Registrant, the Banks named therein and California Bank & Trust, as Agent for the Banks (7)



<PAGE>

         10.15    Asset  Purchase  Agreement  dated as of November 5, 1998 by and  between the  Company,  Almo
                  Corporation,  Almo Distributing  Pennsylvania,  Inc., Almo Distributing Maryland, Inc., Almo
                  Distributing Minnesota, Inc., Almo Distributing Wisconson, Inc. and Almo Distributing, Inc.

         21.1     Subsidiaries of the Registrant

         23.1     Consent of PricewaterhouseCoopers LLP, independent accountants

         24.1     Power of Attorney (contained on page 21)
<FN>
-------------------
         *        Confidential treatment has been granted for portions of this document.

         (1)      Incorporated by reference to exhibit filed with the Registrant's Report on Form 10-K for the
                  fiscal year ended December 31, 1993 filed on March 31, 1994.

         (2)      Incorporated by reference to exhibit filed with the Registrant's  Registration  Statement on
                  Form S-8 (File No. 33-66580) filed on July 29, 1993.

         (3)      Incorporated by reference to exhibit filed with the Registrant's  Registration  Statement on
                  Form S-1 (File No.  33-60954) filed on April 14, 1993 and which became effective on June 14,
                  1993.

         (4)      Incorporated by reference to exhibit filed with the Registrant's  Registration  Statement on
                  Form S-8 (File No. 33-83398) filed on August 29, 1994.

         (5)      Incorporated by reference to exhibit filed with the Registrant's  Registration  Statement on
                  Form S-8 (File No. 333-10837) filed on August 26, 1996.

         (6)      Incorporated by reference to exhibit filed with the Registrant's  Report on Form 10Q for the
                  quarter ended June 30, 1996.

         (7)      Incorporated  by reference to exhibit filed with the  Registrant's  Report on Form 8-K (File
                  No. 000-21528) filed on December 4, 1998.

         (8)      Incorporated by reference to exhibit filed with the Registrant's Report on Form 10-K for the
                  fiscal year ended December 31, 1996 filed on March 31, 1997.

         (9)      Incorporated  by reference to exhibit filed with the  Registrant's  Report on Form S-8 (File
                  No. 333-58053) filed on June 30, 1998.

</FN>
</TABLE>

(b)      Reports on Form 8-K.  None filed.

(c)      Exhibits. See Item 14(a) above.

(d)      Financial Statements Schedules.  See Item 14(a) above.