<PAGE>

================================================================================

                       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, 2005

                                       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)

<TABLE>
<S>                                                       <C>
            CALIFORNIA                                          94-3057566
   (State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                         Identification Number)
</TABLE>

              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 if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.

                                 Yes [ ] No [X]

     Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.

                                 Yes [ ] No [X]

     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. [ ]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

 Large Accelerated filer [ ]   Accelerated filer [X]   Non-Accelerated filer [ ]

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes [ ] No [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of June 30, 2005, was approximately $231,819,895 based upon
the last sale price reported for such date on the Nasdaq Global Market.

     The number of shares of Registrant's Common Stock outstanding as of March
10, 2006 was 30,210,984

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement for the Company's 2006 Annual Meeting
of Shareholders are incorporated by reference into Part III of this Form 10-K.

================================================================================

<PAGE>

                                     PART I

ITEM 1. BUSINESS

FORWARD-LOOKING DISCLOSURE

This Annual Report on Form 10-K ("Report") contains " forward-looking
statements" within the meaning of the Private Litigation Reform Act of 1995
regarding future events and the future results of Bell Microproducts Inc. that
are based on current expectations, estimates, forecasts, and projects as well as
the beliefs and assumptions of Bell Microproducts Inc. management. Words such as
"outlook", "believes", "expects", "appears", "may", "will", "should",
"anticipates" or the negative thereof or comparable terminology, are intended to
identify such forward looking statements. These forward-looking statements are
only predictions and are subject to risks, uncertainties and assumptions that
are difficult to predict. Therefore actual results may differ materially and
adversely from those expressed in any forward-looking statements. Factors that
might cause or contribute to such differences include, but are not limited to,
those discussed in this Report under the section entitled "Risk Factors" and
elsewhere, and in other reports Bell Microproducts Inc. files with the
Securities and Exchange Commission, specifically the most recent reports on Form
8-K and Form 10-Q. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this Annual Report on Form 10-K.
Bell Microproducts Inc. undertakes no obligation to revise or update publicly
any forward-looking statements for any reason.

GENERAL

     Founded in 1987, Bell Microproducts Inc. together with its subsidiaries, is
a leading value-added distributor of storage products and systems,
semiconductors and computer products and peripherals. We market and distribute
our products at various levels of integration, from raw components to fully
integrated, tested and certified systems. We carry over 140 brand name product
lines as well as our own proprietary Rorke Data storage products and Markvision
memory modules. Across our product lines, we emphasize our ability to combine
our extensive product portfolio with comprehensive value-added services.

     We offer components that include disk drives, semiconductors, flat panel
displays and related products, and other storage products and custom-configured
computer products. Our products also include value-added services such as system
design, integration, installation, maintenance and other consulting services
combined with a variety of storage and computer hardware and software products.
In addition, we offer network attached storage (NAS), storage area network (SAN)
and other storage systems, computer platforms, tape drives and libraries and
related software. Our selection of products and technologies, together with our
independence, allows us to offer the best available hardware, software and
service solutions for each customer. Customers can purchase our components as
stand-alone products or in combination with certain value-added services.

AVAILABLE INFORMATION

     All reports filed electronically by Bell with the Securities and Exchange
Commission ("SEC"), including its annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and proxy statements, and other
information and amendments to those reports filed (if applicable), are
accessible at no cost on the Company's web site at www.bellmicro.com, and they
are available by contacting our Investor Relations department at
ir@bellmicro.com or 408-451-9400. These filings are also accessible on the SEC's
web site at www.sec.gov. The public may read and copy at prescribed rates any
materials filed by the Company with the SEC at the SEC's Public Reference Room
at 100 F Street, NE, Washington, DC 20549. The public may obtain information for
the Public Reference Room by calling the SEC at 1-800-SEC-0330.


                                        2

<PAGE>

INDUSTRY

     The storage, semiconductor and computer industries have experienced
significant growth over the past decade, due to rapid growth in Internet usage
and e-commerce; enterprise applications such as enterprise resource planning and
data mining; server, desktop and laptop computers; and wireless communications
as well as a variety of emerging consumer products and applications.

     Traditionally, manufacturers have sold storage, semiconductor and computer
products directly to end users and through both direct and indirect distribution
channels. The use of distribution channels is growing rapidly as manufacturers
focus on core activities such as product design, development and marketing and
begin to divest or outsource other functions. The growth of the indirect channel
reflects the need for manufacturers to increasingly use distributors for
servicing OEMs, VARs, CEMs and system integrators. Customers are also driving
the trend toward indirect distribution due to the value-added services that
distributors often provide. The rapid growth of storage requirements and the
need for sophisticated networked storage systems, such as NAS and SAN, have also
increased enterprise customers' dependence on value-added service suppliers that
can design, integrate, service and support their storage needs.

     Network Attached Storage. NAS appliances are advanced storage systems that
attach directly to a local area network. A NAS appliance can be thought of as a
thin file server with built-in storage. Similar to general-purpose servers, NAS
appliances include a central processing unit, an operating system and internal
hard disk drive storage.

     Storage Area Networks. A SAN is an architecture that directly connects
multiple independent servers and storage subsystems through a network dedicated
to storage. A SAN consists of a variety of heterogeneous networking equipment
such as switches, hubs and routers; storage products such as disk subsystems,
tape libraries and optical drives; and storage management software. A SAN is
often connected using a protocol known as Fibre Channel.

     Both the NAS and SAN markets are projected to grow rapidly over the next
few years. The complexity of sophisticated data storage solutions such as NAS
and SAN combined with a shortage of qualified information technology personnel
often requires companies to outsource the research, design, implementation and
support of their networked storage solutions. Accordingly, significant growth in
SAN and NAS is expected to be through indirect distribution channels.

     In recent years, a growing number of manufacturers began to reduce the
number of distributors they use. Distributors themselves are also choosing to
consolidate because of the competitive advantages that arise from expanded
product offerings and economies of scale. The rapidly changing nature of the
storage, semiconductor and computer industries has required distributors to
significantly expand both their customer base and product and service offerings,
to compete effectively. To be successful within these areas, we believe
distributors must emphasize time-to-market and total cost reductions and focus
on markets in which they have advantages in service, flexibility and component
content. Distributors also need to distinguish themselves through a combination
of value-added services such as consulting, design, integration, implementation
and maintenance as well as more knowledgeable service and technical support.

OUR STRATEGY

     Our goal is to expand our position as a leading distributor of storage
solutions and systems and computer products and peripherals. We intend to
achieve this goal by leveraging our strengths and implementing the following
strategies:

     Continue to Focus on the Storage Market. We plan to continue to take
advantage of the market


                                        3

<PAGE>

opportunities in the storage industry by maintaining our strategic focus on
providing complete storage solutions. For example, we have devoted significant
resources to broadening our range of value-added services, expanding our
marketing efforts, deepening the expertise of our sales force and offering an
extensive range of technologically-advanced products. We believe that we are
well positioned to benefit from the strong growth and favorable market dynamics
of the storage industry.

     Expand our Storage and Complementary Product Lines. We believe that our
ability to offer customers an extensive line of leading storage products across
technologies and manufacturers will continue to be a strong competitive
advantage for us, particularly as it relates to SAN and NAS solutions. Our
selection of products and technologies, together with our independence, allows
us to reliably deliver the optimal package of appropriate hardware, software and
services for each project.

     Expand our International Presence. We intend to deepen our presence in the
United States, and expand our coverage in the major international markets we
serve, including Canada, Latin America and Europe, through internal growth and
strategic acquisitions. Increasingly, multinational companies, including our
manufacturers and customers, require products and solutions that are able to
address local operational and reporting requirements, but which are also
heterogeneous and interoperable among countries, regions and offices. As we
expand our global presence, we believe that we will be better able to address
the demands of multinational customers, gain more access to multinational
manufacturers and leverage our expertise.

     Deepen Relationships with Industry Leaders. We intend to leverage our
position as a leading distributor of storage solutions to broaden our existing
strategic relationships with industry leaders and to create new strategic
relationships. We believe that distribution channels will continue to
consolidate and leading manufacturers will align with those distributors that
are best able to offer value-added services and access new customers. We believe
being aligned with leading manufacturers will allow us to identify innovative
products, exchange critical information, gain access to new technologies and
create cross-marketing opportunities. We have developed strategic relationships
with a number of vendors, including AMD, Brocade, EMC, Emulex, Hitachi, HP, IBM,
Intel, Legato, LG Electronics, Maxtor, Microsoft, Network Associates, Qlogic,
Seagate, StorageTek, Symantec, Veritas and Western Digital.

     Continue Cost Structure and Profitability Improvements. We intend to
continue to improve our cost structure by maximizing the efficiency of personnel
and resources throughout our global organization. During the past few years, we
have undertaken various performance improvement initiatives such as realigning
and streamlining operations. We have also made significant progress in reducing
non-personnel related expenditures. We will continue to review our business and
take advantage of opportunities to improve cost efficiencies. We also intend to
continue to optimize our profitability by managing our assets and working
capital through actions such as maximizing early payment discounts and other
profit enhancement opportunities offered by vendors.

     Pursue Selective Acquisitions. We intend to pursue opportunities to acquire
businesses that help us achieve our various strategic goals including further
developing our solutions offerings, expanding key vertical product offerings and
broadening our geographic footprint.

PRODUCTS AND SERVICES

     We market and distribute more than 140 brand name product lines, as well as
our own Rorke Data storage products and Markvision memory modules. We offer the
following products as discrete components or as part of our solutions offering.


                                        4

<PAGE>

Storage Products and Related Software

     Our storage products include network attached storage, storage area network
products, fibre channel networking products and systems, tape libraries and disk
drives, as well as storage-related software products. We partner with the
best-in-class storage providers in the industry to provide the most
comprehensive cost effective solutions to enterprise customers worldwide. We
offer a comprehensive set of products and services, supported through a network
of worldwide integration and solution centers with more than 400 dedicated
storage professionals available to serve our customer's enterprise needs. Our
customer base includes leading Var2000 and vertical solution providers
worldwide.

Semiconductor and Other Components

     We distribute a variety of semiconductor components, including DRAM and
Flash memory components and modules, microprocessors, microcontrollers, fiber
optics, power management components, application-specific integrated circuits
(ASICs), graphics and video devices, communications and power supplies.

Computer Products and Software

     Our computer products include disk drives, a variety of standard and
custom-configured motherboards, flat panel displays and related components,
monitors, keyboards, chassis, scanners, servers, board level products and
network interface controller (NIC) cards. Our software offering includes
operating systems, middleware, database, replication, storage management and
systems management. Among the computer products we offer are our own proprietary
Markvision memory modules that complement the other products and technologies we
provide.

Value-Added Services

     We offer our customers a variety of value-added services as described
below. Many of our value-added services are product focused, while others
provide our customers assistance with a variety of product management
activities.

     Storage System Consulting Services. We work with customers to determine
data storage needs to make decisions regarding their storage strategies and to
design storage systems to address these needs. Our consulting services draw from
our core competencies in enterprise storage integration solutions. We perform
tasks such as storage audit or feasibility studies, supplement specialist
elements of a pre-defined project or provide full project management and
implementation.

     NAS and SAN Solutions. We offer a broad range of professional services
including design and consultation, installation, training and on-site service
programs relating to NAS and SAN solutions. We have established a dedicated
enterprise storage systems team that can address the challenges associated with
enterprise storage systems. Our service programs also offer customers fibre
channel interoperability testing and fully integrated turnkey storage solutions.
For example, we integrate SANs with fibre channel-based technology including
switches, bridges, archive libraries and network software.

     Storage Subsystems. We provide standard and custom subsystem products to
our customers. We integrate standard products for our Rorke Data brand storage
products. We also configure custom products to meet the needs of customers that
cannot be served by industry-standard product offerings.

     Component Product Services. We provide value-added services to a full range
of storage and computer products, including semiconductor device programming,
tape and reeling, special labeling for disk drives. We provide image
duplication, firmware modification, software downloading, special labeling and
other hardware modification services. For other computer product components we
provide kitting, testing and various configuration services.


                                        5

<PAGE>

     Flat Panel Integration. We offer a comprehensive portfolio of Flat Panel
Displays, technologies and integration services that include off-the-shelf
solutions for Kiosk, point-of-sale (POS), Digital Display Signage, Medical
Instrumentation, KVM (keyboard, video, mouse) and many other OEM applications.
We also offer fully custom designs to support applications such as full sunlight
readability and harsh environmental deployment.

     Board and Blade Level Building Blocks. We provide both standard and custom
configured Board and Blade offerings geared for applications to include
computers, servers, medical equipment, video/graphics, security, test and
measurement and networking products offered in a variety of industry standard
form factors including ATX, Micro-ATX, PCI and Compact PCI. We also provide
complete integration services, manufacturing assembly, interoperability testing
and application support.

     Application Support Services. Our application support services provide
design support and product recommendations, training programs, maintenance
options and testing, technical advice and prompt incident detection and
resolution.

     Supply Chain Management. We provide a variety of materials-management
solutions, including e-procurement services, Internet-enabled, real-time pricing
and delivery quotations, electronic data interface programs, just-in-time
inventory programs, bonded inventories, on-site consignment inventory and
kitting.

     Retail Packaging and Software Duplication. We provide a value-added service
to storage manufacturers, retailers and software/game customers, which combines
the strengths of our hard drive value capabilities with custom third-party
packaging. Our retail packaging programs deliver end consumer-ready storage
products. These products are produced in high volume and require high quality
software duplication, testing and drive assembly to meet demanding retail launch
and release dates. The core materials planning and logistics capabilities of our
distribution operations enable us to deliver retail-ready product to our
customers' distribution centers or directly to their retail outlets.

SALES AND MARKETING

     Our customer base primarily consists of OEMs, VARs, system integrators,
contract electronic manufacturers, storage solution customers and retailers. For
customers primarily seeking our solution offerings, our sales and marketing
efforts often involve proactive efforts of our sales people and field
application engineers. Sales and technical personnel focusing on these customers
tend to spend time at customers' facilities assessing the customers' needs,
developing and providing solutions as well as providing proof of concept
supported by our technical capabilities and experience. Our component offering
marketing efforts involve supply chain management programs, consignment and
bonded inventory programs and end-of-life programs. Sales of our component
offerings are principally driven by these factors, our design services, product
breadth and depth, pricing and on-time availability.

     We also believe that our relationships with manufacturers provide us with
significant opportunities to increase our sales and customer base. We work
closely with many manufacturers to develop strategies to penetrate both targeted
markets and customers. In many cases, our sales presentations to customers are a
joint effort with manufacturers' sales representatives.

     We believe our e-commerce program will enhance our sales and marketing
efforts by:

     -    providing our customers with detailed product information, including
          availability and pricing;

     -    providing customers additional channels to purchase our products;

     -    reducing time and expenditures involved in customers' product
          procurement activities; and

     -    providing our customers with resource planning tools to more
          accurately manage their product requirements.


                                        6

<PAGE>

COMPETITION

     In the distribution of storage, semiconductor components and computer
products, we generally compete for customer relationships with numerous local,
regional and national and international authorized and unauthorized
distributors. We also compete for customer relationships with manufacturers,
including some of our manufacturers and customers. Consistent with our sales and
marketing efforts, we tend to view our competition, whether arising from the
direct or indirect distribution channel, on a customer-category basis. We
believe that our most significant competition for customers seeking both
products and value-added services arises from Arrow Electronics, Avnet, and
European value-added distributors including IN Technology, Magirus and ECT
Best'Ware. We believe that our most significant competition for customers
seeking commodity products comes from Ingram Micro, Tech Data and Synnex.

     Another key competitive factor in the electronic component and computer
product distribution industry as a whole is the need to carry a sufficient
amount of inventory to meet rapid delivery requirements of customers. However,
to minimize our exposure related to valuation of inventory on hand, the majority
of our product lines are purchased pursuant to non-exclusive distributor
agreements which provide certain protections to us for product obsolescence and
price erosion in the form of rights of return and price protection. Furthermore,
these agreements are generally cancelable upon 30 to 180 days notice and, in
most cases, provide for inventory return privileges upon cancellation. In
addition, we enhance our competitive position by offering a variety of
value-added services which entail the performance of services and/or processes
tailored to individual customer specifications and business needs such as point
of use replenishment, testing, assembly, supply chain management and materials
management.

     We believe that competition for customers is based on product line breadth,
depth and availability, competitive pricing, customer service, technical
expertise, value-added services and e-commerce capabilities. We believe that we
compete favorably with respect to each of these factors. We directly compete
with numerous distributors, many of which possess superior brand recognition and
financial resources. In the area of storage products and solutions, however, we
believe that none of our competitors offers the full range of storage products
and solutions that we provide.

ACQUISITIONS

     In connection with our solution offerings, we have completed a number of
strategic acquisitions. Through these acquisitions, we gained expertise in
storage solutions and greater access to international markets.

     Our acquisition in December 2005 of MCE Computer Peripherie GmbH, MCE
Computer Vertreibs Products GmbH, MCE Computer Technology Inc and MCE Limited,
("MCE") based in Munich, Germany has enabled us to continue to expand our growth
in value added storage products and services in the key markets in Continental
Europe and the UK and also has provided additional experienced management, sales
and marketing resources. MCE is a European distributor of disk drives and
components, and also has a substantial IBM enterprise business in Germany. MCE's
customer base includes Enterprise VARs, system builders and industrial
customers.

     Our acquisition in July 2005 of Net Storage Computers, LTDA. ("Net
Storage"), a company headquartered in Sao Paulo, Brazil, with sales offices in
Belo Horizonte, Porto Alegre, Recife, Rio de Janeiro and Tambore, Brazil has
enabled us to further expand our presence in the Latin America marketplace and
provides the opportunity to strengthen our relationships with key suppliers and
expand overall products and services offerings. Net Storage is a distributor of
storage products and peripherals to VARs and system integrators in Brazil. Their
strategic partners include Intel, Seagate, LG, Western Digital and AMD.

     Our acquisition in June 2004 of OpenPSL Limited ("OpenPSL"), a company
headquartered in Manchester, England, with offices in Dublin, Ireland, Leeds,
Bracknell and Nottingham, has further enabled us to expand our


                                        7

<PAGE>

enterprise, storage solutions and service offerings in the United Kingdom and
Ireland. OpenPSL is a value-added distributor of a broad range of IT products
and technical services to VARs, system integrators and software companies,
including server, storage, networking, technical computing, thin client,
emulation, fax and security technologies. Their line card includes Hewlett
Packard, IBM, Oracle, Veritas, Allied Telesyn and Microsoft.

     Our acquisition in October 2003 of EBM Mayorista ("EBM"), a company
headquartered in Merida, Mexico with branch locations in Cancun, Monterrey,
Oaxaca, Villahermosa, Tampico, Veracruz, Tuxla, Torreon, Puebla and
Aguascaliente has enabled us to expand our presence in Latin America and
provided us the ability to gain additional market share in the rapidly growing
market in Mexico. EBM provides a diverse product line of computer hardware and
software to Mexican resellers, retail locations and system integrators,
including the Intel, Samsung, Epson and U.S. Robotics lines.

     Our 2001 acquisition of Total Tec, a company headquartered in Edison, NJ,
and with sales offices in the eastern and southern United States, has
significantly expanded our ability to address challenging SAN initiatives. Total
Tec is one of Hewlett-Packard's ("HP") enterprise distributors and one of the
nation's premier enterprise (computing and storage) solutions providers focused
on implementing comprehensive IT solutions to Fortune 1000 firms. Bell
Microproducts offers leading HP/Compaq enterprise products, services and
solutions to its large customer base of VARs, resellers, OEMs and system
integrators in the U.S.

     Our 2001 acquisition of Touch The Progress Group BV, a company based in the
Netherlands and with offices in Germany, Belgium and Austria, has added
enterprise storage solutions including storage management software products,
integrated storage technology, infrastructure, and support services to our
strategic effort. The company offers an extensive portfolio of storage solutions
from some of the world's leading manufacturers. This portfolio allows the
company and its business partners to provide a total storage management solution
for multiple heterogeneous computing platforms, including IBM, HPQ, Veritas and
other leading manufacturers.

     Our 2001 acquisition of Forefront Graphics, a company headquartered in
Toronto, Canada, and with offices in Ottawa, Montreal, Calgary and Vancouver,
has added high performance computer graphics, digital audio and video, storage
and multimedia products targeted at both the computer reseller marketplace and
the video production reseller marketplace.

EMPLOYEES

     At December 31, 2005, we had a total of 1,827 employees, including 888 in
sales and marketing functions, 744 in general administrative functions and 195
in technical and value-add integration functions. Of our total employees, 1,060
are located at our facilities outside of the United States, including 499 in the
United Kingdom. None of our employees are represented by a labor union. We have
not experienced any work stoppages and consider our relations with our employees
to be good. Many of our current key personnel have substantial experience in our
industry and would be difficult to replace. The labor market in which we operate
is highly competitive and, as a result, we may not be able to retain and recruit
key personnel. If we fail to recruit, retain or adequately train key personnel,
we will experience difficulty in implementing our strategy, which could
negatively affect our business, financial condition and stock price.

ITEM 1A. RISK FACTORS

     You should consider carefully the risks described below together with all
of the other information included in this Form 10-K. The risks and uncertainties
described below and elsewhere in this Form 10-K are not the only ones facing us.
If any of the following risks actually occur, our business, financial condition
or results of operations would likely suffer. In that case, the trading price of
our common stock could fall, and you may lose all or part of your investment.


                                        8

<PAGE>

OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR STOCK PRICE TO
FLUCTUATE.

     Our future revenues and operating results are likely to vary significantly
from quarter to quarter due to a number of factors, many of which are outside
our control. Accordingly, you should not rely on quarter-to-quarter comparisons
of our operating results as an indication of future performance. It is possible
that in some future periods our operating results will be below the expectations
of public market analysts and investors. In this event, the price of our stock
will likely decline. Factors that may cause our revenues, gross margins and
operating results to fluctuate include:

          -    the loss of key manufacturers or customers;

          -    changes in vendor rebate and incentive programs;

          -    heightened price competition;

          -    problems incurred in managing inventories;

          -    a change in the product mix sold by us;

          -    customer demand (including the timing of purchases from
               significant customers);

          -    changing global economic conditions;

          -    our ability to manage credit risk and collect accounts
               receivable;

          -    our ability to manage foreign currency exposure;

          -    availability of product and adequate credit lines from
               manufacturers; and

          -    the timing of expenditures in anticipation of increased sales.

     Due primarily to manufacturer rebate programs and increased sales volumes
near the end of each quarter, a larger portion of our gross profit has
historically been reflected in the third month of each quarter than in each of
the first two months of such quarter. If we do not receive products from
manufacturers or complete sales in a timely manner at the end of a quarter, or
if rebate programs and marketing development funds are changed or discontinued,
our operating results in a particular quarter could suffer.

     As a result of intense price competition, we have narrow gross profit
margins. These narrow margins magnify the impact of variations in sales and
operating costs on our operating results. Because our sales in any given quarter
depend substantially on sales booked in the third month of the quarter, a
decrease in such sales is likely to adversely and disproportionately affect our
quarterly operating results. This is because our expense levels are partially
based on our expectations of future sales, and we may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
Due to our narrow margins and our limited ability to quickly adjust costs, any
shortfall in sales in relation to our quarterly expectations will likely have an
adverse impact on our quarterly operating results.

WE RELY ON A RELATIVELY SMALL NUMBER OF KEY MANUFACTURERS FOR PRODUCTS THAT MAKE
UP A SIGNIFICANT PORTION OF OUR NET SALES AND THE LOSS OF A RELATIONSHIP WITH A
KEY MANUFACTURER COULD HAVE AN ADVERSE EFFECT ON OUR NET SALES.

     We receive a significant portion of our net sales from products we purchase
from a relatively small number of key manufacturers. In each of 2005 and 2004,
five key manufacturers provided products that represented 44% and 50%,
respectively, of our net sales. We believe that products from a relatively small
number of manufacturers will continue to account for a significant portion of
our net sales for the foreseeable future, and the portion of our net sales from
products purchased from such manufacturers could continue to increase in the
future. These key manufacturers have a variety of distributors to choose from
and therefore can make substantial demands on us. In addition, our standard
distribution agreement allows the manufacturer to terminate its relationship
with us on short notice. Our ability to maintain strong relationships with our
key


                                        9

<PAGE>

manufacturers, both domestically and internationally, is essential to our future
performance. The loss of a relationship with a key manufacturer could have an
adverse effect on our net sales.

     In addition, during the years 2001 through 2003, the downturn in the
economy in general, and in the technology sector of the economy in particular,
has led to increased consolidation among our manufacturers and may result in
some manufacturers exiting the industry. Further, manufacturers have been
consolidating the number of distributors they use. These events could negatively
impact our relationships with our key manufacturers and may have an adverse
effect on our net sales.

WE OPERATE IN AN INDUSTRY WITH CONTINUAL PRICING AND MARGIN PRESSURE.

     The nature of our industry and our business is highly price-competitive.
There are several distributors of products similar to ours in each of the
markets in which we operate. As a result, we face pricing and margin pressure on
a continual basis. Additionally, the mix of products we sell also affects
overall margins. If we increase revenue from products that are more widely
distributed, these products may carry lower gross margins that can reduce our
overall gross profit percentage. There can also be a negative impact on gross
margins from factors such as freight costs and foreign exchange exposure. These
factors, alone or in combination, can have a negative impact on our gross profit
percentage.

THE FAILURE OF OUR KEY SUPPLIERS TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES
IN OUR INDUSTRY AND TO SUCCESSFULLY DEVELOP NEW PRODUCTS COULD CAUSE OUR SALES
TO DECLINE AND OUR REVENUES TO DECREASE.

     Our ability to generate increased revenues depends significantly upon the
ability and willingness of suppliers to develop new products on a timely basis
in response to rapid technological changes in our industry. Our suppliers must
commit significant resources each time they develop a product. If they do not
invest in the development of new products, then sales of our products to our
customers may decline and our revenues may decrease. The ability and willingness
of our suppliers to develop new products is based upon a number of factors
beyond our control.

THE TECHNOLOGY PRODUCTS MARKETPLACE HAS BEEN MATURING WHICH MAY AFFECT DEMAND
FOR OUR PRODUCTS AND IMPACT OUR PRICING AND GROSS MARGINS.

     Over the past several years, the growth rate in spending on the types of
technology products we distribute has decreased from the growth rates
experienced prior to 2000. While there has been an increase recently in the rate
of spending as compared with 2001 through mid-2003, this increase may not be
sustainable at its current level and there may be declines in technology
spending in the future. A reduction in spending may result in a decline in our
net sales and gross margins due to decreased sales volumes and price
competition.

OUR INVENTORY MAY DECLINE IN VALUE DUE TO INVENTORY SURPLUS, PRICE REDUCTIONS OR
TECHNICAL OBSOLESCENCE THAT COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

     The value of our inventory may decline as a result of surplus inventory,
price reductions or technological obsolescence. Our distribution agreements
typically provide us with only limited price protection and inventory return
rights. In addition, we purchase significant amounts of inventory under
contracts that do not provide any inventory return rights or price protection.
Without price protection or inventory return rights for our inventory purchases,
we bear the sole risk of obsolescence and price reductions. Even when we have
price protection and inventory return rights, there can be no guarantee we will
be able to return the products to the manufacturer or to collect refunds for
those products in a timely manner, if at all.


                                       10
<PAGE>

SUPPLY SHORTAGES COULD ADVERSELY AFFECT OUR OPERATING RESULTS AND CASH FLOWS.

     We are dependent on the supply of products from our vendors. Our industry
is characterized by periods of product shortages due to vendors' difficulty in
projecting demand. When such shortages occur, we typically receive an allocation
of product from the vendor. There can be no assurance that vendors will be able
to maintain an adequate supply of products to fulfill all of our customers'
orders on a timely basis. If we are unable to enter into and maintain
satisfactory distribution arrangements with leading vendors and an adequate
supply of products, we may be late in shipping products, causing our customers
to purchase products from our competitors which could adversely affect our net
sales, operating results and customer relationships.

OUR FINANCIAL OBLIGATIONS MAY LIMIT OUR ABILITY TO OPERATE OUR BUSINESS.

     The agreements governing our revolving lines of credit and our 9% senior
subordinated notes contain various restrictive covenants that, among other
things, require us to comply with or maintain certain financial tests and ratios
that limit our ability to operate our business. If we do not comply with the
covenants contained in the agreements governing our revolving lines of credit
and our 9% senior subordinated notes, our lenders may demand immediate repayment
of amounts outstanding. Additionally, under the terms of our 3 3/4% Convertible
Subordinated Notes, Series B due 2024, holders have the right to convert their
notes upon the occurrence of certain events, including but not limited to the
closing price of our common stock exceeding a certain threshold for at least 20
of the last 30 days in preceding fiscal quarters and upon specified corporate
transactions, all as described in more detail in the prospectus filed in
connection with the exchange offer. Upon the occurrence of any such conversion
event, we have an obligation to deliver, at a minimum, cash in an amount equal
to the principal amount of each note tendered for conversion. Our ability to
comply with these debt obligations will depend upon our future operating
performance, which may be affected by prevailing economic conditions and
financial, business and other factors described herein and in our other SEC
filings, many of which are beyond our control. If we are unable to meet our debt
obligations, we may be forced to adopt one or more strategies such as reducing
or delaying capital expenditures or otherwise slowing our growth strategies,
selling assets, restructuring or refinancing our indebtedness or seeking
additional equity capital. We do not know whether any of these actions could be
effected on satisfactory terms, if at all. Additionally, any equity financing
may be on terms that are dilutive or potentially dilutive. If we are unable to
successfully manage our debt burden, and the potential short-term obligation
relating to our convertible notes, our financial condition would suffer
considerably. Changes in interest rates may also have a significant effect on
our operating results. Furthermore, we are dependent on credit from our
manufacturers to fund our inventory purchases. If our debt burden increases to
high levels, our manufacturers may restrict our credit. Our cash requirements
will depend on numerous factors, including the rate of growth of our sales, the
timing and levels of products purchased, payment terms and credit limits from
manufacturers, the timing and level of our accounts receivable collections and
our ability to manage our business profitably.

SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH
FLOW.

     Our revolving lines of credit and our 9% senior subordinated notes impose
significant debt service obligations on us and expose us to certain risks
associated with being a substantially leveraged company. Upon the occurrence of
certain events, our lenders may demand immediate repayment of amounts
outstanding under our existing lines of credit and our 9% senior subordinated
notes. In March 2004, we issued our 3 3/4% convertible subordinated notes (the
"Old Notes"), resulting in net proceeds of $106,300,000. We used all of the net
proceeds of the offering to repay a portion of amounts outstanding under our
revolving lines of credit and our 9% senior subordinated notes. In December
2004, we exchanged 99.6% of the Old Notes for our 3 3/4% Convertible
Subordinated Notes, Series B due 2024 (the "New Notes") pursuant to an exchange
offer with holders of the Old Notes. As a result of the issuance of the notes,
our leverage and debt service obligations may increase. Under the terms of the
New Notes, holders have the right to convert their notes upon the occurrence of
certain events, including but not limited to the closing price of our common
stock exceeding a certain threshold for at least 20 of the last 30 days in
preceding fiscal quarters and upon specified corporate transactions, as
described in more detail in the prospectus filed in connection with the exchange
offer. Upon the occurrence of any such conversion event,


                                       11

<PAGE>

we have an obligation to deliver to holders electing to convert their New Notes,
at a minimum, cash in an amount equal to the principal amount of each note
tendered for conversion. There is the possibility that we may be unable to
generate cash sufficient to pay the principal of, interest on and other amounts
due in respect of our indebtedness when due.

     Our substantial leverage could also have significant negative consequences,
including:

          -    increasing our vulnerability to general adverse economic and
               industry conditions;

          -    increasing our exposure to fluctuating interest rates;

          -    restricting our credit with our manufacturers which would limit
               our ability to purchase inventory;

          -    limiting our ability to obtain additional financing;

          -    requiring the dedication of a portion of our expected cash flow
               from operations to service our indebtedness, thereby reducing the
               amount of our expected cash flow available for other purposes,
               including capital expenditures;

          -    limiting our flexibility in planning for, or reacting to, changes
               in our business and the industry in which we compete; and

          -    placing us at a possible competitive disadvantage relative to
               less leveraged competitors and competitors that have better
               access to capital resources.

     We are not restricted under the indenture governing the notes from
incurring additional debt in the future. As a result of using the net proceeds
to pay down amounts outstanding on our revolving lines of credit, we may also
incur substantial additional debt under the facilities. If new debt is added to
our current levels, our leverage and debt service obligations would increase and
the related risks described above could intensify.

IF WE DO NOT CONTROL OUR OPERATING EXPENSES, WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY IN OUR INDUSTRY.

     Our strategy involves, to a substantial degree, increasing revenues while
at the same time controlling operating expenses. In furtherance of this
strategy, we have engaged in ongoing, company-wide efficiency activities
intended to increase productivity and reduce costs. These activities have
included significant personnel reductions, reduction or elimination of
non-personnel expenses and realigning and streamlining operations and
consolidating business lines. We cannot assure you that our efforts will result
in the increased profitability, cost savings or other benefits that we expect.
Moreover, our cost reduction efforts may adversely affect the effectiveness of
our financial and operational controls, our ability to distribute our products
in required volumes to meet customer demand and may result in disruptions that
affect our products and customer service.

OUR ABILITY TO OPERATE EFFECTIVELY COULD BE IMPAIRED IF WE WERE TO LOSE THE
SERVICES OF KEY PERSONNEL, OR IF WE ARE UNABLE TO RECRUIT QUALIFIED MANAGERS AND
KEY PERSONNEL IN THE FUTURE.

     Our success largely depends on the continued service of our management team
and key personnel. If one or more of these individuals, particularly W. Donald
Bell, our Chairman, Chief Executive Officer and President, were to resign or
otherwise terminate their employment with us, we could experience a loss of
sales and vendor relationships and diversion of management resources.
Competition for skilled employees is intense and there can be no assurance that
we will be able to recruit and retain such personnel. If we are unable to retain
our existing managers and employees or hire and integrate new management and
employees, we could suffer material adverse effects on our business, operating
results and financial condition.


                                       12

<PAGE>

OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS WHICH MAY HURT OUR
PROFITABILITY.

     Our international revenues represented 60% and 62% of our revenues in 2005
and 2004, respectively. We believe that international sales will represent a
potentially increasing portion of our net sales for the foreseeable future. Our
international operations are subject to a number of risks, including:

     -    Fluctuations in currency exchange rates;

     -    vendor programs, terms and conditions in multiple countries;

     -    political and economic instability;

     -    longer payment cycles and unpredictable sales cycles;

     -    difficulty in staffing and managing foreign operations;

     -    import and export license requirements, tariffs, taxes and other trade
          barriers;

     -    our ability to prevent inventory theft in certain foreign
          jurisdictions; and

     -    the burden of complying with a wide variety of foreign laws, treaties
          and technical standards and changes in those regulations.

     The majority of our revenues and expenditures in our foreign subsidiaries
are transacted in the local currency of the country where the subsidiary
operates. For each of our foreign subsidiaries, the local currency is also the
functional currency. Fluctuations in currency exchange rates could cause our
products to become relatively more expensive to customers in a particular
country, leading to a reduction in sales or profitability in that country. To
the extent our revenues and expenses are denominated in currencies other than
U.S. dollars, gains and losses on the conversion to U.S. dollars may contribute
to fluctuations in our operating results. In addition, we have experienced
foreign currency remeasurement gains and losses because a significant amount of
our foreign subsidiaries' remeasurable net assets and liabilities are
denominated in U.S. dollars rather than the subsidiaries' functional currency.
As we continue to expand globally and the amount of our foreign subsidiaries'
U.S. dollar or non-functional currency denominated, remeasurable net asset or
liability position increases, our potential for fluctuations in foreign currency
remeasurement gains and losses will increase. We have in the past, and expect in
the future, to enter into hedging arrangements and enter into local currency
borrowing facilities to reduce this exposure, but these arrangements may not be
adequate.

     Our inability to successfully complete the restructuring of our European
operations could negatively impact our results of operations.

     On November 23, 2005, we announced the commencement of certain
restructuring activities with respect to our European operations. In connection
with the restructuring, we closed an office in Sweden, reduced headcount and
consolidated certain back office support functions. We also realigned certain
product lines in response to market trends and streamlined our inventory
warehousing and European product distribution system. There can be no guarantee
that the assumptions underlying our decision to undertake the restructuring will
prove to be correct or that we will be able to effectively manage the loss of
certain personnel and other European distribution infrastructure or the
discontinuation of certain product lines. General economic factors and other
factors beyond our control could cause the actual results of the restructuring
to differ materially from those expected by management. If our assumptions prove
to be incorrect or we are unable to effectively manage the restructuring, our
operating income from our European operations and our consolidated results of
operations could be negatively impacted. Further, even if we are able to
successfully implement and manage the restructuring, there can be no guarantee
that the restructuring will improve our European results of operations.

OUR INABILITY TO EFFECTIVELY MANAGE OUR ACCOUNTS RECEIVABLE COULD HAVE A
SIGNIFICANT NEGATIVE IMPACT ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND LIQUIDITY.

     A significant portion of our working capital consists of accounts
receivable from customers. If customers responsible for a significant percentage
of our accounts receivable were to become insolvent or otherwise unable to pay
for products and services, or were to become unwilling or unable to make
payments in a


                                       13

<PAGE>

timely manner, our operating results and financial condition could be adversely
affected. If there is an economic downturn which has a significant negative
impact on our business, it could also have an adverse effect on the servicing of
our accounts receivable, which could result in longer payment cycles, increased
collection costs and defaults in excess of management's expectations. A
significant deterioration in our ability to collect on accounts receivable could
also impact the cost or availability of financing. Further, our revolving lines
of credit enable us to borrow funds for operations based on our levels of
accounts receivable and inventory and the agreement governing our senior
subordinated notes restricts the amount of additional debt we can incur based on
our levels of accounts receivable and inventory. If our accounts receivable and
inventories are not at adequate levels, we may face liquidity problems in
operating our business.

IF WE ARE UNABLE TO EFFECTIVELY COMPETE IN OUR INDUSTRY, OUR OPERATING RESULTS
MAY SUFFER.

     The markets in which we compete are intensely competitive. As a result, we
will face a variety of significant challenges, including rapid technological
advances, price erosion, changing customer preferences and evolving industry
standards. Our competitors continue to offer products with improved price and
performance characteristics, and we will have to do the same to remain
competitive. Increased competition could result in significant price
competition, reduced revenues, lower profit margins or loss of market share, any
of which would have a material adverse effect on our business. We cannot be
certain that we will be able to compete successfully in the future.

     We compete for customer relationships with numerous local, regional,
national and international distributors. We also compete for customer
relationships with manufacturers, including some of our manufacturers and
customers. We believe our most significant competition for customers seeking
both products and services arises from Arrow Electronics, Avnet and European
value-added distributors including IN Technology, Magirus and ECT Best'Ware. We
believe our most significant competition for customers seeking only products
arises from Ingram Micro, Tech Data and Synnex. We also compete with
regionalized distributors in North America, Europe and Latin America who use
their localized knowledge and expertise as a competitive advantage. Competition
for customers is based on product line breadth, depth and availability,
competitive pricing, customer service, technical expertise, value-added services
and e-commerce capabilities. While we believe we compete favorably with respect
to these factors, some of our competitors have superior brand recognition and
greater financial resources than we do. If we are unable to successfully
compete, our operating results may suffer.

     We also compete with other distributors for relationships with
manufacturers. In recent years, a growing number of manufacturers have begun
consolidating the number of distributors they use. This consolidation will
likely result in fewer manufacturers in our industry. As a result of this
consolidation we may lose existing relationships with manufacturers. In
addition, manufacturers have established and may continue to establish
cooperative relationships with other manufacturers and data storage solution
providers. These cooperative relationships may enable manufacturers to offer
comprehensive solutions that compete with those we offer and the manufacturers
may have greater resources to devote to internal sales and marketing efforts. If
we are unable to maintain our existing relationships with manufacturers and
establish new relationships, it could harm our competitive position and
adversely affect our operating results.

IF WE ARE UNABLE TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, OUR RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS MAY SUFFER.

     Many of the products we sell are used in the manufacture or configuration
of a wide variety of electronic products. These products are characterized by
rapid technological change, short product life cycles and intense competition
and pricing pressures. Our continued success depends upon our ability to
continue to identify new vendors and product lines that achieve market
acceptance, emerging technologies, develop technological


                                       14

<PAGE>

expertise in these technologies and continually develop and maintain
relationships with industry leaders. If we are unsuccessful in our efforts, our
results of operations and financial condition may suffer.

FAILURE TO IDENTIFY ACQUISITION OPPORTUNITIES AND INTEGRATE ACQUIRED BUSINESSES
INTO OUR OPERATIONS SUCCESSFULLY COULD REDUCE OUR REVENUES AND PROFITS AND MAY
LIMIT OUR GROWTH.

     An important part of our growth has been the acquisition of complementary
businesses. We may choose to continue this strategy in the future. Our
identification of suitable acquisition candidates involves risks inherent in
assessing the value, strengths, weaknesses, overall risks and profitability of
acquisition candidates. We may be unable to identify suitable acquisition
candidates. If we do not make suitable acquisitions, we may find it more
difficult to realize our growth objectives.

     The process of integrating new businesses into our operations, including
our recently completed acquisitions, poses numerous risks, including:

     -    an inability to assimilate acquired operations, information systems,
          and internal control systems and products;

     -    diversion of management's attention;

     -    difficulties and uncertainties in transitioning the business
          relationships from the acquired entity to us; and

     -    the loss of key employees of acquired companies.

     In addition, future acquisitions by us may be dilutive to our shareholders,
cause us to incur additional indebtedness and large one-time expenses or create
intangible assets that could result in significant amortization expense. If we
spend significant funds or incur additional debt, our ability to obtain
necessary financing may decline and we may be more vulnerable to economic
downturns and competitive pressures. We cannot guarantee that we will be able to
successfully complete any acquisitions, that we will be able to finance
acquisitions or that we will realize any anticipated benefits from acquisitions
that we complete.

IF WE CANNOT EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS MAY SUFFER.

     Our growth since our initial public offering in 1993 has placed, and
continues to place, a significant strain on our management, financial,
operational, technical, sales and administrative resources. We intend to
continue to grow by increasing our sales efforts and completing strategic
acquisitions. To effectively manage our growth, we must, among other things:

     -    engage, train and manage a larger sales force and additional service
          personnel;

     -    expand the geographic coverage of our sales force;

     -    expand our information systems;

     -    identify and successfully integrate acquired businesses into our
          operations; and

     -    enforce appropriate financial and administrative control procedures.

     Any failure to effectively manage our growth may cause our business to
suffer and our stock price to decline.

WHILE WE BELIEVE THAT WE CURRENTLY HAVE ADEQUATE INTERNAL CONTROL PROCEDURES IN
PLACE, WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM RECENT LEGISLATION REQUIRING
COMPANIES TO EVALUATE CONTROLS UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF
2002.

     As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the company's internal control


                                       15

<PAGE>

over financial reporting in their annual reports on Form 10-K that contains an
assessment by management of the effectiveness of the company's internal control
over financial reporting. In addition, the independent registered public
accounting firm auditing the company's financial statements must attest to and
report on management's assessment of the effectiveness of the company's internal
control over financial reporting. We have performed the system and process
evaluation and testing required in an effort to comply with the management
certification and auditor attestation requirements. While we intend to conduct a
rigorous review of our internal control over financial reporting in order to
assure compliance with the Section 404 requirements, if our independent
registered public accounting firm interprets the Section 404 requirements and
the related rules and regulations differently from us or if our independent
registered public accounting firm is not satisfied with our internal control
over financial reporting or with the level at which it is documented, operated
or reviewed, they may decline to attest to management's assessment or issue a
qualified report. Additionally, if we are not able to continue to meet the
requirements of Section 404 in a timely manner or with adequate compliance, we
might be subject to sanctions or investigation by regulatory authorities, such
as the SEC or the Nasdaq Global Market. Any such actions could result in an
adverse reaction in the financial markets due to a loss of confidence in the
reliability of our financial statements, which could cause the market price of
our common stock to decline.

SOME OF OUR OPERATIONS ARE LOCATED IN CALIFORNIA AND, AS A RESULT, ARE SUBJECT
TO NATURAL DISASTERS, WHICH COULD RESULT IN A BUSINESS STOPPAGE AND NEGATIVELY
AFFECT OUR OPERATING RESULTS.

     Our business operations depend on our ability to maintain and protect our
facilities, computer systems and personnel. Our corporate headquarters and a
significant portion of our business operations, computer systems and personnel
are located in the San Francisco Bay area which is in close proximity to known
earthquake fault zones. Our facilities and transportation for our employees are
susceptible to damage from earthquakes and other natural disasters such as
fires, floods and similar events. Should an earthquake or other catastrophes,
such as fires, floods, power loss, communication failure or similar events
disable our facilities, we have limited available alternative facilities from
which we could conduct our business, which stoppage could have a negative effect
on our operating results.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not Applicable.

ITEM 2. PROPERTIES

     In the Americas, we maintain 55 sales offices in a variety of locations,
including the U.S., Canada, Argentina, Brazil, Chile and Mexico. In Europe, we
maintain sales offices in Austria, Belgium, England, Ireland, France, Germany,
Italy and the Netherlands. In addition to our sales offices, we operate six
integration and service facilities and 18 warehouses. We currently operate five
significant management and distribution centers. Our corporate headquarters is
located in San Jose, California, where we currently lease office space and
distribution facilities with approximately 170,000 square feet of space. The
leases expire in 2007. In Chessington, England, we lease an office facility with
approximately 40,000 square feet that serves as our center for directing and
managing our operations in the United Kingdom and Europe. The lease expires in
2010. Our European distribution center is located in Birmingham, England where
we lease a warehouse facility with approximately 78,000 square feet of space.
This lease expires in 2019. In Manchester, England, we acquired a facility with
approximately 23,000 square feet that serves as our center for directing and
managing our value added and storage solutions services in the United Kingdom
and Ireland. In Miami, Florida, we currently lease a facility with approximately
65,000 square feet that serves as our center for directing and managing our
business in Latin America. The lease expires in 2010, with one 5-year option to
extend. In Munich, Germany, we acquired a leased facility with approximately
49,000 square feet of space that serves as a distribution center on the European
Continent. The lease expires in November


                                       16

<PAGE>

2007. In Montgomery, Alabama, we currently lease a facility with approximately
37,000 square feet that serves as our corporate technology and data center and
our primary customer call center. The lease on this facility expires in October
2007. We believe that our existing facilities are adequate for our current
operational needs.

ITEM 3. LEGAL PROCEEDINGS

     Bell and/or its subsidiaries are parties to various other legal proceedings
arising from time to time in the normal course of business. While litigation is
subject to inherent uncertainties, management currently believes that the
ultimate outcome of these proceedings, individually and in the aggregate, will
not have a material adverse effect on our financial position, cash flow or
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

     Our Common Stock is traded on the Nasdaq Global 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.

<TABLE>
<CAPTION>
                                                 HIGH     LOW
                                                ------   -----
<S>                                             <C>      <C>
2004
   First quarter ............................   $10.50   $6.45
   Second quarter ...........................     8.32    5.31
   Third quarter ............................     8.40    5.88
   Fourth quarter ...........................     9.80    7.67
2005
   First quarter ............................   $ 9.83   $7.46
   Second quarter ...........................    10.11    7.11
   Third quarter ............................    11.00    8.59
   Fourth quarter ...........................    10.55    6.62
2006
   First quarter (through March 11, 2006) ...   $ 7.90   $5.65
</TABLE>

     On March 11, 2006, the last sale price of the Common Stock as reported by
Nasdaq was $6.24 per share.

     As of March 11, 2006, there were approximately 310 holders of record of the
Common Stock (not including shares held in street name).

     To date, we have paid no cash dividends to our shareholders. We have no
plans to pay cash dividends in the near future. Our line of credit agreements
prohibit the payment of dividends or other distributions on any of our shares
except dividends payable in our capital stock.


                                       17
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The selected consolidated operations data for 2005, 2004 and 2003 and
consolidated balance sheet data as of December 31, 2005 and 2004 set forth below
have been derived from our consolidated financial statements and are qualified
by reference to the consolidated financial statements included herein audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm.
The selected consolidated operations data for 2002 and 2001 and the consolidated
balance sheet data as of December 31, 2003, 2002 and 2001 have been derived from
our audited consolidated financial statements not included herein. These
historical results are not necessarily indicative of the results of operations
to be expected for any future period.

<TABLE>
<CAPTION>
                                                       (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
                                               --------------------------------------------------------------
                                                 2005(1)      2004(2)      2003(3)       2002        2001(4)
                                               ----------   ----------   ----------   ----------   ----------
<S>                                            <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Net sales                                      $3,193,833   $2,827,777   $2,230,287   $2,104,922   $2,007,102
Cost of sales                                   2,962,615    2,606,369    2,062,194    1,926,366    1,854,294
                                               ----------   ----------   ----------   ----------   ----------
Gross profit                                      231,218      221,408      168,093      178,556      152,808
Selling, general and administrative expenses      190,585      185,240      155,710      165,624      157,910
Restructuring costs and special charges            16,515           --        1,383        5,688        8,894
                                               ----------   ----------   ----------   ----------   ----------
Total operating expenses                          207,100      185,240      157,093      171,312      166,804
Income (loss) from operations                      24,118       36,168       11,000        7,244      (13,996)
Interest expense and other income                  21,581       16,854       16,143       16,910       20,362
                                               ----------   ----------   ----------   ----------   ----------
Income (loss) from operations before taxes          2,537       19,314       (5,143)      (9,666)     (34,358)
Provision for (benefit from) income taxes           2,056        7,977         (669)      (2,612)     (12,251)
                                               ----------   ----------   ----------   ----------   ----------
Net income (loss)                              $      481   $   11,337   $   (4,474)  $   (7,054)  $  (22,107)
                                               ==========   ==========   ==========   ==========   ==========
Earnings (loss) per shares
   Basic                                       $     0.02   $     0.41   $    (0.20)  $    (0.37)  $    (1.34)
                                               ==========   ==========   ==========   ==========   ==========
   Diluted                                     $     0.02   $     0.40   $    (0.20)  $    (0.37)  $    (1.34)
                                               ==========   ==========   ==========   ==========   ==========
Shares used in per share calculation
   Basic                                           29,299       27,665       22,324       19,201       16,495
                                               ==========   ==========   ==========   ==========   ==========
   Diluted                                         30,056       28,409       22,324       19,201       16,495
                                               ==========   ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                              AS OF DECEMBER 31,
                             ----------------------------------------------------
                              2005(1)    2004(2)    2003(3)     2002      2001(4)
                             --------   --------   --------   --------   --------
<S>                          <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Working capital              $346,182   $276,487   $283,634   $206,786   $183,964
Total assets                  933,332    840,589    712,999    614,191    643,687
Total long-term debt          260,458    208,602    207,827    179,237    176,441
Total shareholders' equity    220,381    222,690    193,410    145,849    125,769
</TABLE>

(1)  2005 Statement of Operations data and Balance Sheet data include the
     results of operations of MCE Group since acquisition on December 1, 2005
     and Net Storage since acquisition on July 8, 2006. See Note 4 of Notes to
     Consolidated Financial Statements.


                                       18

<PAGE>

(2)  2004 Statement of Operations data and Balance Sheet data include the
     results of operations of OpenPSL Holdings Limited since acquisition on June
     22, 2004. See Note 4 of Notes to Consolidated Financial Statements.

(3)  2003 Statement of Operations data and Balance Sheet data include the
     results of operations of EBM Mayorista S.A. de C.V. since acquisition on
     October 15, 2003. See Note 4 of Notes to Consolidated Financial Statements.

(4)  2001 Statement of Operations data and Balance Sheet data include the
     results of operations of Touch The Progress Group BV since acquisition on
     May 22, 2001, Forefront Graphics on May 24, 2001 and Total Tec Systems,
     Inc. on November 13, 2001.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     For an understanding of the significant factors that influenced our
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.

     Due to the impact of weakened market conditions and competitive pressures
affecting our European distribution business, and in earlier years, the downturn
in the electronic component, computer product industry and in the global economy
as a whole, we have recorded charges that are discussed more fully in
"Restructuring Costs and Other Charges" in this MD&A. These charges have had a
significant impact on our results of operations for the years ended December 31,
2005 and 2003 presented in this Form 10-K as discussed further below.

     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 our ability to obtain
favorable product allocations, the annual employee expense and cost reductions
related to our European restructuring, the timing of when certain restructuring
and special charges liabilities will be extinguished, our plans related to the
payment of dividends, our future cash requirements and our ability to increase
gross profit while controlling expenses. 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. 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. Our estimates, judgments and assumptions are continually
evaluated based on available information and experience; however actual amounts
could differ from those estimates.

     The Securities and Exchange Commission defines critical accounting polices
as those that are, in management's view, most important to the portrayal of our
financial condition and results of operations and those that require significant
judgments and estimates. Management believes our most critical accounting
policies relate to the following areas:


                                       19

<PAGE>

Revenue recognition

     Bell's policy is to recognize revenue from sales to customers when the
rights and risks of ownership have passed to the customer, when persuasive
evidence of an arrangement exists, the price is fixed and determinable and
collection of the resulting receivable is reasonably assured. The provision for
estimated returns is recorded concurrently with the recognition of revenue based
on historical sales returns and analysis of credit memorandum data.

     We maintain an allowance for doubtful accounts for losses that we estimate
will arise from our customers' inability to make required payments. We make our
estimates of the collectibility of our accounts receivable by analyzing
historical bad debts, specific customer creditworthiness and current economic
trends. At December 31, 2005 the allowance for doubtful accounts was $21.9
million and at December 31, 2004 it was $13.6 million. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. In 2005,
our bad debt expense was $14.5 million compared to $9.0 million in 2004.

Vendor Programs

     We receive funds from vendors for price protection, product rebates,
marketing and promotions, infrastructure reimbursement and competitive pricing
programs. Amounts related to price protection and other incentive programs are
recorded as adjustments to inventories, cost of sales or selling, general and
administrative expenses, depending on the nature of the program. Vendor
receivables are generally collected through vendor authorized reductions to our
accounts payable. There is a time delay between the submission of a claim by us
and confirmation of agreement by our vendors. Historically, our estimated claims
have approximated amounts agreed to by our vendors.

Valuation of Inventory

     Inventories are recorded at the lower of cost (first in -- first out) or
estimated market value. Our inventories include high-technology components,
embedded systems and computing technologies sold into rapidly changing, cyclical
and competitive markets whereby such inventories may be subject to early
technological obsolescence. We write down our inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand, selling prices and market conditions. In the fourth quarter of 2005, we
recorded inventory charges of $1.7 million related to excess inventory on hand.
These additional write-downs resulted from our decision to exit certain
unprofitable business lines in Europe. These charges were included in the
Statement of Operations within the caption "Cost of Sales." We evaluate
inventories for excess, obsolescence or other factors that may render
inventories unmarketable at normal margins. Write-downs are recorded so that
inventories reflect the approximate net realizable value and take into account
our contractual provisions with our suppliers governing price protection, stock
rotation and return privileges relating to obsolescence. Because of the large
number of transactions and the complexity of managing the process around price
protections and stock rotations, estimates are made regarding adjustments to the
carrying amount of inventories. Additionally, assumptions about future demand,
market conditions and decisions to discontinue certain product lines can impact
the decision to write down inventories. If assumptions about future demand
change or actual market conditions are less favorable than those projected by
management, additional write-downs of inventories may be required. In any case,
actual amounts could be different from those estimated.

Special and Acquisition-Related Charges

     We have been subject to the financial impact of integrating acquired
businesses and charges related to business reorganizations. In connection with
such events, management is required to make estimates about the


                                       20

<PAGE>

financial impact of such matters that are inherently uncertain. Accrued
liabilities are established to cover the cost of severance, facility
consolidation and closure, lease termination fees, inventory adjustments based
upon acquisition-related termination of supplier agreements and/or the
evaluation of the acquired working capital assets (inventory and accounts
receivable), change-in-control expenses, and write-down of other acquired assets
including goodwill. Actual amounts incurred could be different from those
estimated.

Accounting for Income Taxes

     Management judgment is required in determining the provision for income
taxes, deferred tax assets and liabilities and the valuation allowance recorded
against net deferred tax assets. The carrying value of our net foreign operating
loss carry-forwards is dependent upon our ability to generate sufficient future
taxable income in certain tax jurisdictions. In addition, we consider historic
levels of income, expectations and risk associated with estimates of future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing a tax valuation allowance. Should we determine that we are not able to
realize all or part of our deferred tax assets in the future, a valuation
allowance is recorded against the deferred tax assets with a corresponding
charge to income in the period such determination is made. In 2006, we expect
our effective tax rate to be approximately 40%.

Valuation of Goodwill and Intangible Assets

     At December 31, 2005, goodwill amounted to $101.5 million and identifiable
intangible assets amounted to $8.5 million.

     We regularly evaluate whether events and circumstances have occurred that
indicate a possible impairment of goodwill. In determining whether there is an
impairment of goodwill, we calculate the estimated fair value of our company
based on the closing sales price of our common stock and projected discounted
cash flows as of the date we perform the impairment tests. We then compare the
resulting fair value to our respective net book value, including goodwill. If
the net book value of our company exceeds its fair value, we measure the amount
of the impairment loss by comparing the implied fair value of our goodwill with
the carrying amount of that goodwill. To the extent that the carrying amount of
our goodwill exceeds its implied fair value, we recognize a goodwill impairment
loss. We perform this impairment test annually and whenever facts and
circumstances indicate that there is a possible impairment of goodwill. We
completed the required annual impairment test, which resulted in no impairment
for fiscal year 2005. We believe the methodology we use in testing impairment of
goodwill provides us with a reasonable basis in determining whether an
impairment charge should be taken.

Hedge Accounting

     We generate a substantial portion of our revenues in international markets,
which subjects our operations and cash flows to the exposure of currency
exchange fluctuations. We seek to minimize the risk associated with currency
exchange fluctuations by entering into forward exchange contracts to hedge
certain foreign currency denominated assets or liabilities. These derivatives do
not qualify for SFAS 133 hedge accounting treatment. Accordingly, changes in the
fair value of these hedges are recorded immediately in earnings on line item
'Interest Expense and Other Income' to offset the changes in the fair value of
the assets or liabilities being hedged.

RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

     For both the year overall and the fourth quarter we achieved record
revenues. Revenues for the fourth quarter of 2005 reached a record $842 million,
increasing 4% compared to last year's fourth quarter revenues, and revenues for
the year reached a record $3.19 billion, increasing 13% over 2004. We had strong
performance in


                                       21

<PAGE>

sales and operating profit performance in North and Latin America as well as our
Enterprise business units, but performed below expectation in our European
distribution business. Although our overall European sales grew 5% in 2005 from
the prior year, the growth was primarily driven by our OpenPSL enterprise
business, which continues to be profitable, and the year-end benefit of our
recent acquisition of MCE.

     Our primary focus in our European distribution business during the fourth
quarter was to ensure that we drove substantial cost reduction actions and
repositioned these operations. We implemented a restructuring plan and made
significant progress in this area through reductions in personnel and other
expenses as further described below. We are currently implementing the next
phase of our European plan, which is to drive revenue and margin in the
Industrial market segments and we are confident that these actions will
contribute to improved results and a differentiated business model in Europe.

     We remain optimistic that the overall IT market will continue to grow and
believe Bell Microproducts is positioned to continue to gain market share in
strategic products segments and generate significant improvements in earnings as
we move forward.

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

     Net sales were $3,193.8 million for the year ended December 31, 2005, which
represented an increase of $366.1 million, or 13% over 2004. The sales increase
was driven by an increase of $202.2 million in sales of Components and
Peripherals as well as an increase of $163.9 million in Solutions sales. The
increase in sales of Components and Peripherals was due primarily to growth in
Components sales in North and South America. The Solutions sales increase was
due to the growth in the North American market for these products and the
acquisition of OpenPSL Limited ("OpenPSL") in June of 2004. OpenPSL contributed
approximately $239 million of our Solutions sales in 2005 and $120 million in
2004.

     Our gross profit for 2005 was $231.2 million, an increase of $9.8 million,
or 4% from 2004. The increase in gross profit was primarily due to an increase
in sales volume and the acquisition of OpenPSL in June 2004, partially offset by
a decline in gross margin percentage to 7.2% from 7.8% in 2004. The acquisition
of OpenPSL contributed approximately $26.1 million in 2005 and $19.3 million in
2004. The decrease in gross profit margin percentage was primarily due to the
reduction in certain vendor incentives and market pressures in our European
distribution operation. As part of our European restructuring plan, we also took
an inventory charge of $1.7 million related to the write-down of inventory and
the settlement of potential vendor claims from discontinued product lines, as
discussed below.

     Selling, general and administrative expenses increased to $190.6 million in
2005 from $185.2 million in 2004, an increase of $5.3 million, or 3%. The
increase in expenses was primarily attributable to our acquisitions of OpenPSL
and Net Storage S.A. ("Net Storage") and sales volume related expense increases
in the Americas. This increase in expenses was significantly offset by cost
reductions in our European distribution operation. Our acquisition of OpenPSL
added approximately $19.9 million to our consolidated expenses in 2005 and $10.2
million in 2004. Net Storage added approximately $1.9 million to our
consolidated expenses in 2005. As a percentage of sales, selling, general and
administrative expenses decreased to 6.0% compared to 6.6% in 2004.

     Interest expense and other income increased to $21.6 million from $16.9
million in 2004, an increase of approximately $4.7 million, or 28%. The increase
in interest expense and other income was primarily due to overall increased bank
borrowings during 2005 for worldwide working capital purposes and the
acquisition of Net Storage. The average interest rate in 2005 was 5.8% versus
5.5% in 2004.

     In 2005, we recorded an effective tax rate of 81% on income before taxes
compared to an effective tax rate of 41% in 2004. The change in the tax rate was
primarily related to the losses incurred in certain of our European
jurisdictions, primarily as a result of our restructuring plan, that we could
not offset against profits we earned in


                                       22
<PAGE>

North America and Latin America. Our restructuring plan is further discussed
below.

Restructuring Costs and Other Charges

     In the fourth quarter of 2005, we implemented a restructuring plan for our
European operations and as a result we incurred restructuring costs and special
charges of $9.0 million during the quarter. These costs consisted primarily of
$5.9 million related to future lease obligations for excess facilities; $1.7
million for inventory costs in excess of estimated net realizability, included
within the income statement line item "Cost of Goods Sold," $200,000 for
estimated vendor claims both related to discontinued product lines; severance
and benefits of $936,000 for involuntary employee terminations, and $338,000
related to closure of our in-country operation in Sweden. We terminated 58
employees in the UK and Europe, in sales, marketing and support functions as of
December 31, 2005. We expect annual employee expense reductions of approximately
$4.6 million and cost reductions related to excess facilities of approximately
$3.2 million.

     Also in the fourth quarter of 2005, we incurred a special charge due to a
terminated components supply program in North America and provided a specific
reserve for a partner account receivable balance that we believe may not be
collectable as a result of the program termination. This amount has been
classified as a special charge in the amount of $9.1 million, net of a $550,000
reversal of restructuring costs and special charges taken in prior years that
were adjusted to reflect actual charges.

     Outstanding restructuring liabilities related to the charges expected to be
paid in cash are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                          Balance at                   Restructuring              Exchange    Balance
                           Beginning                      Reserve        Cash       Rate       at End
Year Ended December 31,    of Period   Restructuring      Release      Payments   Changes    of Period
-----------------------   ----------   -------------   -------------   --------   --------   ---------
<S>                       <C>          <C>             <C>             <C>        <C>        <C>
2003
Severance costs             $  545         $1,327          $  --        $1,638        --       $  234
Lease costs                  2,079             56             --           808        --        1,327
                            ------         ------          -----        ------     -----       ------
Total                        2,624          1,383             --         2,446        --        1,561

2004
Severance costs                234             --             --           234        --           --
Lease costs                  1,327            300           (300)          618        --          709
                            ------         ------          -----        ------     -----       ------
Total                        1,561            300           (300)          852        --          709

2005
Severance costs                 --          1,275             --            --       (19)       1,256
Lease costs                    709          5,921            (82)          421       (81)       6,046
                            ------         ------          -----        ------     -----       ------
Total                       $  709         $7,196          $ (82)       $  421     $(100)      $7,302
                            ======         ======          =====        ======     =====       ======
</TABLE>

     Management expects to extinguish the restructuring and special charges
liabilities of $7.3 million by December 2007.

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

     Net sales were $2,827.8 million for the year ended December 31, 2004, which
represented an increase of $597.5 million, or 27% over 2003. The sales increase
was driven by an increase of $343.8 million in Solutions sales as well as an
increase of $253.7 million in sales of Components and Peripherals. The Solutions
sales increase was due to the growth of this market, a growth in market share
and the acquisition of OpenPSL Limited ("OpenPSL") in June of 2004. OpenPSL
contributed approximately $120 million of our Solutions sales in 2004. The
increase in sales of Components and Peripherals was due primarily to growth in
components sales in North America.


                                       23

<PAGE>

     Our gross profit for 2004 was $221.4 million, an increase of $53.3 million,
or 32% from 2003. The increase in gross profit was primarily due to an increase
in sales volume, product mix and the acquisition of OpenPSL in June 2004. The
acquisition of OpenPSL contributed approximately $19.3 million in 2004. Our
gross profit margin increased to 7.8% in 2004, compared to 7.5% in 2003.

     Selling, general and administrative expenses increased to $185.2 million in
2004 from $157.1 million in 2003, an increase of $28.1 million, or 18%. As a
percentage of sales, selling, general and administrative expenses decreased to
6.6% compared to 7.0% in 2003. The increase in expenses was primarily
attributable to the increase in sales volume. Additionally, our acquisition of
OpenPSL added approximately $10.2 million to our consolidated expenses and we
incurred approximately $3.5 million related to our profitability improvement
actions in Europe which included involuntary terminations, consolidation of
facilities and other non-personnel costs, and $1.3 million related to Sarbanes
Oxley compliance.

     Interest expense and other income increased to $16.9 million from $16.1
million in 2003, an increase of approximately $800,000, or 5%. The increase in
interest expense and other income was primarily due to overall increased bank
borrowings during 2004 for worldwide working capital purposes and the
acquisition of OpenPSL. The average interest rate in 2004 was 5.5% versus 6.8%
in 2003.

     In 2004, we recorded an effective tax rate of 41% on the income before
taxes compared to an effective tax benefit rate of 13% on losses before taxes
for 2003. The change in the tax rate was primarily related to the shift to
profitability in 2004 compared to a loss in 2003 and also related to the
jurisdictions in which the profits were earned. The tax benefit rate for the
2003 loss was primarily driven by deferred tax valuation allowances established
related to losses incurred in certain foreign jurisdictions.

Restructuring Costs and Special Charges

     In the second quarter of 2004, we were released from certain contractual
obligations related to excess facilities in the U.S. for which restructuring
charges had been recorded in 2002. Accordingly, we released approximately
$300,000 of our restructuring reserve related to that facility. Additionally, we
revised our estimates for future lease obligations for non-cancelable lease
payments for excess facilities in Europe and recorded an additional $300,000 of
restructuring charges.

     In the first quarter of 2003, we continued to implement profit improvement
and cost reduction measures, and recorded restructuring costs of $1.4 million.
These charges consisted of severance and benefits of $1.3 million related to
worldwide involuntary terminations and estimated lease costs of $56,300
pertaining to future lease obligations for non-cancelable lease payments for
excess facilities in the U.S. We terminated 127 employees worldwide, across a
wide range of functions including marketing, technical support, finance,
operations and sales, and expect annual savings of approximately $8 million.
Expected savings related to vacated facilities is not material. Future savings
expected from restructuring related cost reductions will be reflected as a
decrease in 'Selling, General and Administrative expenses' on the Statement of
Operations. We also recorded an inventory charge of approximately $1.5 million
related to significant changes to certain vendor relationships and the
discontinuance of other non-strategic product lines.


                                       24

<PAGE>

     Outstanding restructuring liabilities related to the charges expected to be
paid in cash are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                          Balance at                   Restructuring              Exchange    Balance
                           Beginning                      Reserve        Cash       Rate       at End
Year Ended December 31,    of Period   Restructuring      Release      Payments   Changes    of Period
-----------------------   ----------   -------------   -------------   --------   --------   ---------
<S>                       <C>          <C>             <C>             <C>        <C>        <C>
2003
Severance costs             $  545         $1,327          $  --        $1,638       --        $  234
Lease costs                  2,079             56             --           808       --         1,327
                            ------         ------          -----        ------      ---        ------
Total                        2,624          1,383             --         2,446       --         1,561

2004
Severance costs                234             --             --           234       --            --
Lease costs                  1,327            300           (300)          618       --           709
                            ------         ------          -----        ------      ---        ------
Total                        1,561            300           (300)          852       --           709
</TABLE>

     Management expects to extinguish the restructuring and special charges
liabilities of $709,000 by November 2007.

LIQUIDITY AND CAPITAL RESOURCES

     In recent years, we have funded our working capital requirements
principally through borrowings under subordinated term loans and bank lines of
credit, as well as proceeds from warrant and stock option exercises. Working
capital requirements have included the financing of increases in inventory and
accounts receivable resulting from sales growth, and the financing of certain
acquisitions. In March 2004, we completed a private offering of $110 million
convertible subordinated notes with proceeds of $106 million, net of expenses.
In August 2003, we completed a registered public offering of approximately 5.75
million shares of our common stock, with proceeds net of commissions, discounts
and expenses of $34.9 million.

     To date, we have paid no cash dividends to its shareholders. We have no
plans to pay cash dividends in the near future. Our line of credit agreements
prohibit the payment of dividends or other distributions on any of our shares
except dividends payable with our capital stock.

     Our future cash requirements will depend on numerous factors, including
potential acquisitions and the rate of growth of our sales and our effectiveness
at controlling and reducing costs.

     The net amount of cash used in operating activities in 2005 was $93.7
million. The net amount of cash provided by financing activities was $97.7
million which was primarily related to borrowings under our short-term borrowing
facilities and the change in the book overdraft position. The net amount of cash
provided in investing activities was $13.6 million in 2005, which was primarily
related to the sale of property and equipment.

     Our accounts receivable increased to $421.5 million at December 31, 2005,
from $376.0 million at December 31, 2004. Our inventories increased to $318.2
million at December 31, 2005, from $271.8 million at December 31, 2004. This
increase was primarily due to our need to support our sales growth and the
inventories acquired with the asset purchase of MCE Group ("MCE") in December
2005. Our accounts payable increased to $346.3 million in 2005 from $307.4
million in 2004 as a result of a change in the timing of inventory purchases and
receipts and our efforts to manage working capital and the liabilities acquired
with the asset purchase of MCE.

     The net amount of cash used in investing activities was $38.9 million in
2004, which was primarily related to the acquisitions of OpenPSL Limited and
other property and equipment. The net amount of cash provided by financing
activities was $26.5 million which was primarily related to the issuance of
convertible notes and net repayments under our short and long-term borrowing
facilities. The net amount of cash provided by operating activities in 2004 was
$19.4 million.

     Our accounts receivable increased to $376.0 million at December 31, 2004,
from $309.9 million at December 31, 2003. Increases to accounts receivable
resulting from increased sales were offset by our reduction in


                                       25
<PAGE>

days sales outstanding to 42 at December 31, 2004, from 44 days at December 31,
2003. Our inventories increased to $271.8 million at December 31, 2004, from
$257.0 million at December 31, 2003. This increase was primarily due to our need
to support sales growth. However, due to management of inventory, there was a
decrease in average days in inventory to 33 days at December 31, 2004 as
compared to 39 days at December 31, 2003. Our accounts payable increased to
$307.4 million in 2004 from $250.5 million in 2003 as a result of a change in
the timing of inventory purchases and receipts and our efforts to manage working
capital.

     On March 5, 2004, we completed a private offering of $110 million aggregate
principal amount of 3 3/4% convertible subordinated notes due 2024 (the "Old
Notes"). On December 20, 2004, we completed our offer to exchange newly issued 3
3/4% Convertible Subordinated Notes, Series B due 2024 (the "New Notes") for an
equal amount of our outstanding Old Notes. Approximately $109,600,000 aggregate
principal amount of the Old Notes, representing approximately 99.6 percent of
the total principal amount of Old Notes outstanding, were tendered in exchange
for an equal principal amount of New Notes. The New Notes mature on March 5,
2024 and bear interest at the rate of 3 3/4% per year on the principal amount,
payable semi-annually on March 5 and September 5, beginning on March 5, 2005.
Holders of the New Notes may convert the New Notes any time on or before the
maturity date if certain conversion conditions are satisfied. Upon conversion of
the New Notes, we will be required to deliver, in respect of each $1,000
principal of New Notes, cash in an amount equal to the lesser of (i) the
principal amount of each New Note to be converted and (ii) the conversion value,
which is equal to (a) the applicable conversion rate, multiplied by (b) the
applicable stock price. The initial conversion rate is 91.2596 shares of common
stock per New Note with a principal amount of $1,000 and is equivalent to an
initial conversion price of approximately $10.958 per share. The conversion rate
is subject to adjustment upon the occurrence of certain events. The applicable
stock price is the average of the closing sales prices of our common stock over
the five trading day period starting the third trading day following the date
the New Notes are tendered for conversion. If the conversion value is greater
than the principal amount of each New Note, we will be required to deliver to
holders upon conversion, at their option, (i) a number of shares of our common
stock, (ii) cash, or (iii) a combination of cash and shares of our common stock
in an amount calculated as described in the prospectus filed by us in connection
with the exchange offer. In lieu of paying cash and shares of our common stock
upon conversion, we may direct the conversion agent to surrender any New Notes
tendered for conversion to a financial institution designated by us for exchange
in lieu of conversion. The designated financial institution must agree to
deliver, in exchange for the New Notes, (i) a number of shares of our common
stock equal to the applicable conversion rate, plus cash for any fractional
shares, or (ii) cash or (iii) a combination of cash and shares of our common
stock. Any New Notes exchanged by the designated institution will remain
outstanding. We may redeem some or all of the New Notes for cash on or after
March 5, 2009 and before March 5, 2011 at a redemption price of 100% of the
principal amount of the New Notes, plus accrued and unpaid interest up to, but
excluding, the redemption date, but only if the closing price of our common
stock has exceeded 130% of the conversion price then in effect for at least 20
trading days within a 30 consecutive trading day period ending on the trading
day before the date the redemption notice is mailed. We may redeem some or all
of the New Notes for cash at any time on or after March 5, 2011 at a redemption
price equal to 100% of the principal amount of the New Notes, plus accrued and
unpaid interest up to, but excluding, the redemption date. We may be required to
purchase for cash all or a potion of the New Notes on March 5, 2011, March 5,
2014 or March 5, 2019, or upon a change of control, at a purchase price equal to
100% of the principal amount of the new notes being purchased, plus accrued and
unpaid interest up to, but excluding, the purchase date.

     On September 13, 2004, we entered into an amendment to our syndicated Loan
and Security Agreement with Congress Financial Corporation (Western)
("Congress"), an affiliate of Wachovia Bank, N.A. ("Wachovia"), as
administrative, collateral and syndication agent for the lenders of the
revolving line of credit (the "Congress Facility"). The amendment reduced the
Congress Facility from $160 million to $125 million, and extended the maturity
date to July 31, 2007. The syndicate includes Bank of America N.A. as co-agent
and other financial institutions as lenders. Borrowings under the Congress
Facility bear interest at Wachovia's prime rate plus a margin of 0.0% to 0.5%,
based on unused availability levels. At our option, all or any portion of the
outstanding borrowings may be converted to a Eurodollar rate loan, which bears
interest at the adjusted


                                       26

<PAGE>

Eurodollar rate plus a margin of 1.50% to 2.00%, based on unused availability
levels. We also pay an unused line fee equal to 0.375% per annum of the unused
portion of the facility, subject to certain adjustments. The average interest
rate on outstanding borrowings under the Congress Facility during the quarter
ended December 31, 2005 was 6.5%, and the balance outstanding at December 31,
2005 was $18.3 million. Our obligations under the Congress Facility are
collateralized by certain assets of our North and South American subsidiaries.
The Congress Facility requires us to meet certain financial tests and to comply
with certain other covenants, including restrictions on incurrence of debt and
liens, restrictions on mergers, acquisitions, asset dispositions, capital
contributions, payment of dividends, repurchases of stock and investments.

     On September 20, 2004, and as further amended in January 2005, Bell
Microproducts (the parent company only) ("Bell"), entered into a securitization
program with Wachovia Bank, National Association ("Wachovia") and Blue Ridge
Asset Funding Corporation ("Blue Ridge"), an affiliate of Wachovia, which
expires on September 20, 2007 ("Wachovia Facility"). On December 31, 2005, Bell
entered into an amendment to the Wachovia Facility with Wachovia and PNC Bank,
National Association ("PNC Bank"), as Lender Group Agents and Variable Funding
Capital Company LLC and Market Street Funding LLC as Lenders. Under the program,
Bell will sell or contribute all of its receivables to a newly created special
purpose bankruptcy remote entity named Bell Microproducts Funding Corporation
("Funding"), a wholly-owned subsidiary of Bell. Funding will obtain financing
from Lender Group Agents or Lenders and other liquidity banks collateralized by
the receivables to pay a portion of the purchase price for the receivables. The
balance of the purchase price will be paid by advances made by Bell to Funding
under a subordinated note of Funding payable to Bell and by capital
contributions from Bell to Funding. The maximum principal amount available for
Funding's credit facility is $120 million. The interest rate on advances made by
Lenders shall be the cost of Lenders' commercial paper. In addition, Funding
pays a program fee in the amount of 95 basis points per annum on the portion of
the advances funded by Lender's commercial paper. The interest rate on advances
made by Lender Group Agents and other liquidity banks shall be either an
alternate base rate (which is the higher of the "prime rate" as announced by
Wachovia, or 0.50% above the federal funds effective rate), or a rate based on
an adjusted LIBO rate plus 1.50%. Funding also pays an unused line fee ranging
from 0.20% to 0.25% per annum of the unused portion of the facility. Bell acts
as a servicer for Funding and will collect all amounts due under, and take all
action with respect to, the receivables for the benefit of Funding and its
lenders. In exchange for these services, Bell receives a servicing fee
determined on an arms-length basis. The cash flow from the collections of the
receivables will be used to purchase newly generated receivables, to pay amounts
to Funding's lenders, to pay down on the subordinated note issued to Bell and to
make dividend distributions to Bell (subject at all times to the required
capital amount being left in Funding). Including the program fee, the average
interest rate on outstanding borrowings under the securitization program for the
quarter ended December 31, 2005 was 5.0%, and the balance outstanding at
December 31, 2005 was $89.4 million. Obligations of Funding under the Wachovia
Facility are collateralized by all of Funding's assets. The Wachovia Facility
requires Funding (and in certain circumstances, Bell) to meet certain financial
tests and to comply with certain other covenants including restrictions on
changes in structure, incurrence of debt and liens, payment of dividends and
distributions, and material modifications to contracts and credit and
collections policy.

     On December 2, 2002, as further amended in December 2004, we entered into a
Syndicated Credit Agreement arranged by Bank of America, National Association
("Bank of America facility"), as principal agent, to provide a L75 million
revolving line of credit facility, or the U.S. dollar equivalent of
approximately $144 million at December 31, 2004. The Bank of America facility
was scheduled to mature on July 15, 2006. On October 20, 2005, the agreement was
amended to extend the maturity date for a further three years and reduce the
facility to L60 million, or the USD equivalent of approximately $103 million at
December 31, 2005, increasing to $138 million at our option. The syndicate
includes Bank of America as agent and security trustee and other banks and
financial institutions, as lenders. Borrowings under the line of credit bear
interest at Bank of America's base rate plus a margin of 1.5% to 2.5%, based on
certain financial measurements. At our option, all or any portion of the
outstanding borrowings may be converted to a LIBOR Revolving Loan, which bears
interest at the adjusted LIBOR rate plus a margin of 2.25% to 2.50%, based on
certain financial measurements. The average interest rate on the


                                       27

<PAGE>

outstanding borrowings under the revolving line of credit during the quarter
ended December 31, 2005 was 6.3%, and there was no balance outstanding at
December 31, 2005. Our obligations under the revolving line of credit are
collateralized by certain assets of our European subsidiaries. The revolving
line of credit requires us to meet certain financial tests and to comply with
certain other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, capital
contributions, payment of dividends, repurchases of stock, repatriation of cash
and investments.

     On July 6, 2000, and as amended on May 3, 2004, we entered into a
Securities Purchase Agreement with The Retirement Systems of Alabama and certain
of its affiliated funds (the "RSA facility"), under which we borrowed $180
million of subordinated debt financing. This subordinated debt financing was
comprised of $80 million bearing interest at 9.125%, repaid in May 2001; and
$100 million bearing interest at 9.0%, payable in semi-annual principal
installments of $3.5 million plus interest and in semi-annual principal
installments of $8.5 million commencing December 31, 2007, with a final maturity
date of June 30, 2010. On August 1, 2003, we entered into an interest rate swap
agreement with Wachovia Bank effectively securing a new interest rate on $40
million of the outstanding debt. The new rate is based on the six month U.S.
Libor rate plus a fixed margin of 4.99% and continues until termination of the
agreement on June 30, 2010. The notional amount is amortized ratably as the
underlying debt is repaid. The notional amount at December 31, 2005 was $34.7
million. We initially recorded the interest rate swap at fair value, and
subsequently recorded changes in fair value as an offset to the related
liability. At December 31, 2005, the fair value of the interest rate swap was
($1 million). The RSA facility is collateralized by a second lien on certain of
our North American and South American assets. We must meet certain financial
tests on a quarterly basis, and comply with certain other covenants, including
restrictions of incurrence of debt and liens, restrictions on asset
dispositions, payment of dividends, and repurchase of stock. We are also
required to be in compliance with the covenants of certain other borrowing
agreements. The balance outstanding at December 31, 2005 on this long-term debt
was $45.0 million, $10.5 million is payable in 2006, $16.5 million is payable in
2007 and 2008 and $18 million thereafter. Net of the fair value of the interest
rate swap, the balance outstanding on the RSA facility at December 31, 2005 was
$44.0 million.

     On May 9, 2003, we entered into a mortgage agreement with Bank of Scotland
for L6 million, or the U.S. dollar equivalent of approximately $10.3 million, as
converted at December 31, 2005. The mortgage agreement had a term of 10 years,
bearing interest at Bank of Scotland's rate plus 1.35%, and is payable in
quarterly installments of approximately L150,000, or $288,000 USD, plus
interest. On December 23, 2005, we sold the property for net proceeds of L13.4
million or $23.3 million USD. The proceeds of the sale were used to repay the
mortgage balance outstanding at that date of $8.3 million, and the remaining
proceeds were used to reduce the outstanding balance on our Bank of America
Facility.

     On June 22, 2004, in connection with the acquisition of OpenPSL, we assumed
a short-term financing agreement with GE Commercial Distribution Finance ("GE
Facility") for up to L17.5 million or the U.S. dollar equivalent of $31.7
million. The loan was collateralized by certain OpenPSL accounts receivable and
bore interest at Euribor plus 2.25%. This agreement was terminated on September
22, 2004 and the balance outstanding at that date was repaid in full.

     Our agreement with IFN Finance BV was amended in December 2004 to reduce
our $7.5 million in short-term financing to $4.7 million. The loan is
collateralized by certain European accounts receivable and inventories, bears
interest at 5.5%, and continues indefinitely until terminated by either party
upon 90 days notice. The balance outstanding at December 31, 2005 was $2.2
million.

     On December 1, 2005, in connection with the acquisition of MCE Group
("MCE"), we entered into a short-term financing agreement with Deutschland
Kreditbank GmbH ("IBM") for up to $25 million. The loan is collateralized by
certain assets and cross-company guarantees of our European subsidiaries and
bears interest at US Libor or Euribor plus 2.00%, depending on the currency of
the advance. The facility has no maturity date but continues indefinitely until
terminated by either party upon six weeks notice. The balance outstanding at


                                       28

<PAGE>

December 31, 2005 was $18.9 million. Also on December 1, 2005, we entered into
another short-term financing agreement with IBM for E6.5 million or the UDS
equivalent of $7.7 million at December 31, 2005. The loan is collateralized by
certain assets and cross-company guarantees of our European subsidiaries and
bears interest at Euribor plus 3.85%. The facility has no maturity date but
continues indefinitely until terminated by either party upon six weeks notice.
The balance outstanding at December 31, 2005 was $7.7 million.

     On December 1, 2005, we entered into a loan agreement with Mr. Klaus Reichl
for up to E4.0 million, or the USD equivalent of $4.7 million at December 31,
2005. The loan was used to finance the asset purchase of MCE. The loan is
unsecured, bears interest at the fixed rate of 5.25% and matures on December 5,
2008. The balance outstanding at December 31, 2005 was $3.3 million.

     On June 22, 2004, in connection with the acquisition of OpenPSL, we assumed
a mortgage with HSBC Bank plc ("HSBC") for an original amount of L670,000, or
the U.S. dollar equivalent of approximately $1.2 million. The mortgage has a
term of ten years, bears interest at HSBC's rate plus 1.25% and is payable in
monthly installments of approximately L7,600, or $13,100 U.S. dollars. The
balance on the mortgage was $692,000 at December 31, 2005.

     The following table describes our commitments to settle contractual
obligations in cash as of December 31, 2005 (in thousands):

<TABLE>
<CAPTION>
                                                  Payments Due By Period
                                     -------------------------------------------------
                                      Up to      2-3       4-5       After
Contractual Obligations               1 Year    Years     Years     5 Years     Total
-----------------------              -------   -------   -------   --------   --------
<S>                                  <C>       <C>       <C>       <C>        <C>
Notes Payable (1)                    $10,615   $20,096   $18,181   $110,115   $159,007
Capital leases                           838        --        --         --        838
                                     -------   -------   -------   --------   --------
Subtotal debt obligations             11,453    20,096    18,181    110,115    159,845
Operating leases                      11,693    16,883    10,687     11,430     50,693
                                     -------   -------   -------   --------   --------
Total contractual cash obligations   $23,146   $36,979   $28,868   $121,545   $210,538
                                     =======   =======   =======   ========   ========
</TABLE>

(1)  Notes payable primarily consist of the 3 3/4% convertible subordinated
     notes, the RSA facility, the mortgage with HSBC Bank and the note payable
     to Mr. Klaus Reichl.

     Other contractual obligations of ours include a $125 million revolving line
of credit with Wachovia Bank, N.A., scheduled to mature July 31, 2007, a $120
million securitization program with Wachovia Bank, N.A. scheduled to mature
September 20, 2007; and a $4.7 million borrowing facility with IFN Finance BV, a
$25 million borrowing facility and a $7.7 million loan with IBM all of which
continue until terminated by either party and a $103 million borrowing facility
with Bank of America, scheduled to mature in 2009. Amounts outstanding at
December 31, 2005 under these facilities were $18.3 million, $89.4 million, $2.2
million, $18.9 million, $7.7 million and 3.3 million, respectively. There was no
balance outstanding under the Bank of America facility.

     In 2005, our profitability was negatively impacted by restructuring costs
and special charges taken in the fourth quarter of 2005. These restructuring
costs and special charges include costs related to the termination of a supplier
components program in North America, future lease obligations for excess
facilities, discontinued product lines and potential vendor claims, severance
and benefits for involuntary employee terminations and the closure of our
in-country operation in Sweden. Our net loss incurred in 2003 was related to
declining product gross margins, certain restructuring initiatives including the
reduction of headcount and the discontinuation of certain product lines.


                                       29

<PAGE>

     We anticipate that our existing cash and our ability to borrow under our
lines of credit will be sufficient to meet our anticipated cash needs for
operations and capital requirements through December 31, 2006.

     Our expectations as to cash flows, and as to future cash balances, are
subject to a number of assumptions, including assumptions regarding anticipated
revenues, customer purchasing and payment patterns, and improvements in general
economic conditions, many of which are beyond our control. If revenues do not
match projections and if losses exceed our expectations, we will implement cost
saving initiatives. If we are unable to sustain our profitability, in order to
continue operations, we may need to obtain additional debt financing or sell
additional shares of our equity securities. There can be no assurance that we
will be able to obtain additional debt or equity financing on terms acceptable
to us or at all. Our failure to obtain sufficient funds on acceptable terms when
needed could have a material adverse effect on our ability to achieve our
intended business objectives.

RECENT ACCOUNTING PRONOUNCEMENTS

     In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
Amendment of ARB No. 43, Chapter 4." The amendments made by SFAS No.151 are
intended to improve financial reporting by clarifying that abnormal amounts of
idle facility expense, freight, handling costs, and wasted materials (spoilage)
should be recognized as current-period charges and by requiring the allocation
of fixed production overheads to inventory based on the normal capacity of the
production facilities. The guidance is effective for inventory costs incurred
after June 15, 2005. The adoption of SFAS No. 151 did not have a material impact
on our condensed consolidated financial statements.

     In December 2004, the FASB issued SFAS 123R (revised 2004), "Share Based
Payment." SFAS 123R is a revision of FASB 123 and supersedes APB No. 25. SFAS
123R establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services or incurs
liabilities in exchange for goods or services that are based on the fair market
value of the entity's equity instruments. SFAS 123R focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS 123R requires an entity to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair market value of the award over the
period during which an employee is required to provide service for the award.
The grant-date fair market value of employee share options and similar
instruments must be estimated using option-pricing models adjusted for the
unique characteristics of those instruments unless observable market prices for
the same or similar instruments are available. In addition, SFAS 123R requires a
public entity to measure the cost of employee services received in exchange for
an award of liability instruments based on its current fair market value and
that the fair market value of that award will be remeasured subsequently at each
reporting date through the settlement date. The effective date of SFAS 123R for
our Company is for the first annual period beginning after June 15, 2005, i.e.
fiscal year ended December 31, 2006. Adoption of this statement will have a
significant impact on our consolidated financial statements as we will be
required to expense the fair value of our stock option grants and stock
purchases under our employee stock purchase plan rather than disclose the impact
on our consolidated net income within our footnotes, as is our current practice
(See "Note 2 - Summary of Significant Accounting Policies" of the notes to the
condensed consolidated financial statements contained herein.)

     On March 29, 2005, the SEC issued Staff Accounting Bulletin (SAB) 107 which
expresses the views of the SEC regarding the interaction between SFAS No. 123R
and certain SEC rules and regulations and provides the SEC's views regarding the
valuation of share-based payment arrangements for public companies. In
particular, SAB 107 provides guidance related to share-based payment
transactions with nonemployees, the transition from nonpublic to public entity
status, valuation methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial instrument
issues under share-based payment arrangements, the classification of
compensation expenses, non-GAAP financial measures, first-time adoption of SFAS
No. 123R in an interim period, capitalization of compensation costs related to
share-based payment arrangements, the accounting for income tax effects of
share-based payments arrangements upon adoption of SFAS No. 123R, the
modification of employee share options prior to adoption of SFAS No. 123R,


                                       30

<PAGE>

and disclosures in Management's Discussion and Analysis of Financial Condition
and Results of Operations subsequent to adoption of SFAS No. 123R. We are
currently evaluating the impact that SAB 107 will have on our results of
operations and financial position when adopted in fiscal 2006.

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 replaces APB Opinion No. 20, "Accounting Changes,"
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements,"
and is effective for fiscal years beginning after December 15, 2005, i.e. fiscal
year ended March 31, 2007. SFAS No. 154 requires retrospective application to
prior periods' financial statements of changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. We do not expect the adoption of SFAS No. 154
to have a material impact on our condensed consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are subject to interest rate risk on our variable rate credit facilities
and could be subjected to increased interest payments if market interest rates
fluctuate. For the year ended December 31, 2005, average borrowings outstanding
on the variable rate credit facilities include $26.2 million with Congress
Financial, $85.6 million with Wachovia Bank, National Association and PNC Bank,
National Association, $44.8 million with Bank of America, N.A., $26.6 million
with IBM and $368,000 with the IFN. These facilities have interest rates that
are based on associated rates such as Eurodollar and base or prime rates that
may fluctuate over time based on changes in the economic environment. Based on
actual borrowings throughout the year under these borrowing facilities, an
increase of 1% in such interest rate percentages would increase the annual
interest expense by approximately $1.8 million.

     A substantial part of our revenue and capital expenditures are transacted
in U.S. dollars, but the functional currency for foreign subsidiaries is not the
U.S. dollar. We enter into foreign forward exchange contracts to hedge certain
balance sheet exposures against future movements in foreign exchange rates. The
gains and losses on the forward exchange contracts are largely offset by gains
or losses on the underlying transactions and, consequently, a sudden or
significant change in foreign exchange rates should not have a material impact
on future net income or cash flows. As a result of Bell or its subsidiaries
entering into transactions denominated in currencies other than their functional
currency, Bell recognized a foreign currency loss of $1.6 million during the
year ended December 31, 2005. To the extent we are unable to manage these risks,
our results, financial position and cash flows could be materially adversely
affected.

     In August 2003, we entered into an interest rate swap agreement in order to
gain access to the lower borrowing rates normally available on floating-rate
debt, while avoiding prepayment and other costs that would be associated with
refinancing long-term fixed-rate debt. The swap purchased has a notional amount
of $40 million, expiring in June 2010, with a six-month settlement period and
provides for variable interest at LIBOR plus a set rate spread. The notional
amount is amortized ratably as the underlying debt is repaid. The notional
amount at December 31, 2005 was $34.7 million. The notional amount does not
quantify risk or represent assets or liabilities, but rather, is used in the
determination of cash settlement under the swap agreement. As a result of
purchasing this swap, we will be exposed to credit losses from counter-party
non-performance; however, we do not anticipate any such losses from this
agreement, which is with a major financial institution. The agreement will also
expose us to interest rate risk should LIBOR rise during the term of the
agreement. This swap agreement is accounted for under Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). Under the provisions of SFAS 133, we initially
recorded the interest rate swap at fair value, and subsequently recorded any
changes in fair value as an offset to the related liability. Fair value is
determined based on quoted market prices, which reflect the difference between
estimated future variable-rate payments and future fixed-rate receipts. The fair
value of the interest rate swap was ($1 million) at December 31, 2005.


                                       31

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                      Form 10-K
                                                                     Page Number
                                                                     -----------
<S>                                                                  <C>
Report of Independent Registered Public Accounting Firm                   33

Consolidated Balance Sheets at December 31, 2005 and 2004                 35

Consolidated Statements of Operations and Comprehensive
   Income for the years ended December 31, 2005, 2004 and 2003            36

Consolidated Statements of Shareholders' Equity for the
   years ended December 31, 2005, 2004 and 2003                           37

Consolidated Statements of Cash Flows for the years ended
   December 31, 2005, 2004 and 2003                                       38

Notes to Consolidated Financial Statements                                39

Financial Statement Schedules:

Consolidated Financial Statement Schedule II
   - Valuation and Qualifying Accounts and Reserves                       66
</TABLE>

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.


                                       32
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
of Bell Microproducts Inc. and Subsidiaries:

We have completed integrated audits of Bell Microproducts Inc.'s 2005 and 2004
consolidated financial statements and of its internal control over financial
reporting as of December 31, 2005 and an audit of its 2003 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.

Consolidated Financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Bell
Microproducts Inc. and its subsidiaries at December 31, 2005 and 2004, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in "Management's Report
on Internal Control Over Financial Reporting" appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
December 31, 2005 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2005, based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and


                                       33

<PAGE>

procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

As described in "Management's Report on Internal Control Over Financial
Reporting", management has excluded MCE Germany and Net Storage from its
assessment of internal control over financial reporting as of December 31, 2005
because they were acquired by the Company in a purchase business combination
during 2005. We have also excluded MCE Germany and Net Storage from our audit of
internal control over financial reporting. MCE Germany and Net Storage are
wholly-owned subsidiaries whose total assets and total revenues represent 4% and
1%, respectively, of the related consolidated financial statement amounts as of
and for the year ended December 31, 2005.

PricewaterhouseCoopers LLP
San Jose, CA
March 16, 2006


                                       34

<PAGE>

                             BELL MICROPRODUCTS INC.
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                         December 31,
                                                     -------------------
                                                       2005       2004
                                                     --------   --------
<S>                                                  <C>        <C>
ASSETS
Current assets:
   Cash and cash equivalents                         $ 29,927   $ 13,294
   Accounts receivable, net                           421,535    376,017
   Inventories                                        318,174    271,797
   Prepaid expenses and other current assets           29,039     24,676
                                                     --------   --------
      Total current assets                            798,675    685,784
Property and equipment, net                            13,212     42,805
Goodwill                                              101,456     92,605
Intangibles, net                                        8,512      9,407
Deferred debt issuance costs and other assets          11,477      9,988
                                                     --------   --------
   Total assets                                      $933,332   $840,589
                                                     ========   ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                  $346,275   $307,373
   Borrowings under lines of credit                    28,747     17,577
   Short-term note payable and current portion of
      long-term notes payable                          10,639     12,183
   Other accrued liabilities                           66,832     72,164
                                                     --------   --------
      Total current liabilities                       452,493    409,297
Borrowings under lines of credit                      107,733     42,686
Long-term notes payable                               147,353    160,905
Other long-term liabilities                             5,372      5,011
                                                     --------   --------
   Total liabilities                                  712,951    617,899
                                                     --------   --------
Commitments and contingencies (Note 11)

Shareholders' equity:
   Preferred Stock, $0.01 par value, 10,000 shares
      authorized; none issued and outstanding              --         --
   Common Stock, $0.01 par value, 80,000 shares
      authorized; 30,062 and 28,672 shares issued
      and outstanding                                 178,872    167,705
   Retained earnings                                   32,655     32,174
   Accumulated other comprehensive income               8,854     22,811
                                                     --------   --------
      Total shareholders' equity                      220,381    222,690
                                                     --------   --------
   Total liabilities and shareholders' equity        $933,332   $840,589
                                                     ========   ========
</TABLE>

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


                                       35

<PAGE>

                             BELL MICROPRODUCTS INC.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                    ------------------------------------
                                                       2005         2004         2003
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
Net sales                                           $3,193,833   $2,827,777   $2,230,287
Cost of sales                                        2,962,615    2,606,369    2,062,194
                                                    ----------   ----------   ----------
Gross profit                                           231,218      221,408      168,093
Selling, general and administrative expenses           190,585      185,240      155,710
Restructuring costs and special charges                 16,515           --        1,383
                                                    ----------   ----------   ----------
Total operating expenses                               207,100      185,240      157,093
Operating income                                        24,118       36,168       11,000
Interest expense and other income                      (21,581)      16,854       16,143
                                                    ----------   ----------   ----------
Income (loss) from operations before income taxes        2,537       19,314       (5,143)
Provision for (benefit from) income taxes                2,056        7,977         (669)
                                                    ----------   ----------   ----------
Net income (loss)                                   $      481   $   11,337   $   (4,474)
                                                    ==========   ==========   ==========
Income (loss) per share
   Basic                                            $     0.02   $     0.41   $    (0.20)
                                                    ==========   ==========   ==========
   Diluted                                          $     0.02   $     0.40   $    (0.20)
                                                    ==========   ==========   ==========
Shares used in per share calculation
   Basic                                                29,299       27,665       22,324
                                                    ==========   ==========   ==========
   Diluted                                              30,056       28,409       22,324
                                                    ==========   ==========   ==========
</TABLE>

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


                                       36
<PAGE>

                             BELL MICROPRODUCTS INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        Common Stock                                    Other
                                                     ------------------     Deferred     Retained   Comprehensive
                                                      Shares    Amount    Compensation   Earnings       Income        Total
                                                     -------   --------   ------------   --------   -------------   --------
<S>                                                  <C>       <C>        <C>            <C>        <C>             <C>
Balance at December 31, 2002                          20,127   $117,122     $(1,234)     $25,311       $  4,650     $145,849
Foreign currency translation                              --         --          --           --         10,672       10,672
Net loss                                                  --         --          --       (4,474)            --       (4,474)
                                                                                                                    --------
Total comprehensive income                                                                                             6,198
Issuance of Common Stock in secondary public
   offering, net of issuance costs of $990             5,750     34,947                                               34,947
Exercise of stock options, including related tax
   benefit of $156                                       604      3,720          --           --             --        3,720
Issuance of Common Stock under Stock Purchase Plan       426      1,545          --           --             --        1,545
Issuance of restricted stock                              --      4,037      (4,037)          --             --           --
Cancellation of restricted stock                          --       (107)        107           --             --           --
Amortization of deferred compensation                     --         --       1,151           --             --        1,151
                                                     -------   --------     -------      -------       --------     --------
Balance at December 31, 2003                          26,907    161,264      (4,013)      20,837         15,322      193,410
Foreign currency translation                              --         --          --           --          7,489        7,489
Net income                                                --         --          --       11,337             --       11,337
                                                                                                                    --------
Total comprehensive income                                                                                            18,826
Exercise of stock options, including related tax
   benefit of $615                                       737      3,529          --           --             --        3,529
Issuance of Common Stock under Stock Purchase Plan       363      1,390          --           --                       1,390
Issuance of acquisition shares                           665      4,107          --           --             --        4,107
Issuance of restricted stock                              --      2,117      (2,117)          --             --           --
Cancellation of restricted stock                          --       (782)        782           --             --           --
Amortization of deferred compensation                     --         --       1,428           --             --        1,428
                                                     -------   --------     -------      -------       --------     --------
Balance at December 31, 2004                          28,672    171,625      (3,920)      32,174         22,811      222,690
Foreign currency translation                                                                            (13,957)     (13,957)
Net income                                                                                   481                         481
                                                                                                                    --------
Total comprehensive loss                                                                                             (13,476)
Exercise of stock options, including related tax
   benefit of $1,407                                     769      4,848          --           --             --        4,848
Issuance of Common Stock under Stock Purchase Plan       261      1,801          --           --             --        1,801
Issuance of acquisition shares                           360      3,013          --           --             --        3,013
Issuance of restricted stock                              --      1,365      (1,365)          --             --           --
Cancellation of restricted stock                          --       (555)        555           --             --           --
Amortization of deferred compensation                     --         --       1,505           --             --        1,505
                                                     -------   --------     -------      -------       --------     --------
Balance at December 31, 2005                          30,062   $182,097     $(3,225)     $32,655       $  8,854     $220,381
                                                     =======   ========     =======      =======       ========     ========
</TABLE>

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


                                       37

<PAGE>

                             BELL MICROPRODUCTS INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   (INCREASE (DECREASE) IN CASH, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                 ------------------------------
                                                                   2005       2004       2003
                                                                 --------   --------   --------
<S>                                                              <C>        <C>        <C>
Cash flows from operating activities:
   Net income (loss)                                             $    481   $ 11,337   $ (4,474)
   Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
   Depreciation and amortization                                   10,996     13,794     12,246
   Provision for doubtful accounts                                  6,003      8,970      7,569
   Loss (gain) on disposal of property, equipment and other           (40)        18        197
   Deferred income taxes                                           (6,454)      (393)    (1,111)
   Tax benefit from stock options                                   1,407        615        156
   Changes in assets and liabilities:
      Accounts receivable                                         (43,919)   (33,148)   (16,415)
      Inventories                                                 (28,775)    (3,873)   (56,218)
      Prepaid expenses                                             (1,544)       (60)     3,756
      Other assets                                                  2,748     (2,076)       478
      Accounts payable                                            (28,081)    10,856     10,891
      Other accrued liabilities                                    (6,507)    13,406    (12,605)
                                                                 --------   --------   --------
   Net cash (used in) provided by operating activities            (93,685)    19,446    (55,530)
Cash flows from investing activities:
   Acquisition of property, equipment and other                    (4,518)    (4,353)    (3,528)
   Proceeds from sale of property, equipment and other             23,162         54         53
   Acquisitions of businesses, net of cash (Note 4)                (5,083)   (33,742)    (5,867)
                                                                 --------   --------   --------
Net cash provided by (used in) investing activities                13,561    (38,041)    (9,342)
Cash flows from financing activities:
   Net borrowings (repayments) under line of credit agreements     60,173    (77,381)    14,896
   Change in book overdraft                                        54,672     18,235     13,595
   Repayments of long-term notes payable to RSA                    (7,000)   (27,000)    (7,000)
   Proceeds from issuance of convertible notes                         --    110,000         --
   Borrowings of notes and leases payable                             108        218     10,715
   Repayment of notes and leases payable                          (15,481)    (1,845)   (14,773)
   Proceeds from issuance of Common Stock and warrants              5,242      4,304     40,056
                                                                 --------   --------   --------
Net cash provided by financing activities                          97,714     26,531     57,489
Effect of exchange rate changes on cash                              (957)       454        262
                                                                 --------   --------   --------
Net increase (decrease) in cash                                    16,633      8,390     (7,121)
Cash at beginning of year                                          13,294      4,904     12,025
                                                                 --------   --------   --------
Cash at end of year                                              $ 29,927   $ 13,294   $  4,904
                                                                 ========   ========   ========
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
      Interest                                                   $ 21,133   $ 17,083   $ 16,789
      Income taxes                                               $ 15,252   $  4,560   $    715
Supplemental non-cash financing activities:
      Issuance of restricted stock                               $  1,363   $  2,117   $  4,037
      Common Stock issued for acquisition (Note 4)               $  3,013   $  4,107   $     --
      Change in fair value of interest rate swap                 $   (525)  $   (490)  $     --
</TABLE>

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


                                       38

<PAGE>

                             BELL MICROPRODUCTS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY:

     The Company operates in one business segment as a distributor of storage
products and systems as well as semiconductor and computer products and
peripherals to original equipment manufacturers (OEMs), value-added resellers
(VARs) and dealers in the United States, Canada, Europe and Latin America. The
Company is one of the world's largest storage-centric value-added distributors
and a specialist in storage products and solutions. The Company's concentration
on data storage systems and products allows it to provide greater technical
expertise to its customers, form strategic relationships with key manufacturers
and provide complete storage solutions to its customers at many levels of
integration. The Company offers a wide range of storage products as well as
semiconductors, computer platforms and software and peripherals. The Company's
storage products include:

     -    high-end computer and storage subsystems;

     -    Fibre Channel connectivity products;

     -    complete storage systems such as storage area networks (SAN), network
          attached storage (NAS) and direct attached storage (DAS);

     -    storage management software;

     -    disk, tape and optical drives; and

     -    a broad selection of value-added services.

     In addition, the Company has developed a proprietary LDI software licensing
system, which facilitates the sale and administration of software licenses.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION AND BASIS OF PREPARATION

     The consolidated financial statements include the accounts of the parent
company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.

     The preparation of financial statements in accordance with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the amounts reported in the Company's consolidated
financial statements and accompanying notes. Management bases its estimates on
historical experience and various other assumptions believed to be reasonable.
Although these estimates are based on management's best knowledge of current
events and actions that may impact the Company in the future, actual results may
be different from the estimates. The Company's critical accounting policies are
those that affect its financial statements materially and involve difficult,
subjective or complex judgments by management.

REVENUE RECOGNITION

     Revenue is recognized when title transfers to the customer and when the
rights and risks of ownership have passed to the customer, when persuasive
evidence of an arrangement exists, the price is fixed and determinable and
collection of the resulting receivable is reasonably assured. Transactions with
sale terms of FOB shipping point are recognized when the products are shipped
and transactions with sale terms of FOB destination are recognized upon arrival.
Shipping and handling costs charged to customers are included in net sales and
the associated expense is recorded in cost of sales for all periods presented.
Provisions for estimated returns and expected warranty costs are recorded at the
time of sale and are


                                       39

<PAGE>

adjusted periodically to reflect changes in experience and expected obligations.
The Company's warranty reserve relates primarily to its storage solutions and
value added businesses. Reserves for warranty items are included in other
accrued liabilities. A reconciliation of the changes in the product warranty
liability during 2005 and 2004 is as follows (in thousands):

<TABLE>
<CAPTION>
                                2005     2004
                               ------   -----
<S>                            <C>      <C>
Balance at January 1           $  668   $ 638
Additions to provisions           683     275
Foreign currency translation
                                  (11)      9
Warranty expenses incurred       (161)   (254)
                               ------   -----
Balance at December 31         $1,179   $ 668
                               ======   =====
</TABLE>

VENDOR PROGRAMS

     The Company receives funds from it's vendors for price protection, product
rebates, marketing and promotions, infrastructure reimbursement and competitive
pricing programs. Amounts related to price protection and other incentive
programs are recorded as adjustments to inventories, cost of sales or selling,
general and administrative expenses, depending on the nature of the program.
Vendor receivables are generally collected through vendor authorized reductions
to accounts payable. There is a time delay between the submission of a claim by
the Company and confirmation of agreement by its vendors. Historically, the
Company's claims have approximated amounts agreed to by its vendors.

CONCENTRATION OF CREDIT AND OTHER RISKS

     Financial instruments that 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 allowances for estimated
collection losses. No customer accounts for more than 10% of sales in any of the
three years ended December 31, 2005, 2004 and 2003, or accounts receivable at
December 31, 2005 and 2004.

     Five vendors accounted for 45% of the Company's inventory purchases during
2005 and four vendors accounted for 50% and 45% of the Company's inventory
purchases during 2004 and 2003, respectively.

     In the fourth quarter of 2005, the Company incurred a special charge due to
a terminated components supply program in North America and provided a specific
reserve for a partner account receivable balance that the Company believes may
not be collectable as a result of the program termination. This amount has been
classified as a special charge in the amount of $9.1 million, net of a $550,000
reversal of restructuring costs and special charges taken in prior years that
were adjusted to reflect actual charges.

INVENTORIES

     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. The Company assesses the valuation of its
inventory on a quarterly basis and periodically writes down the value for
estimated excess and obsolete inventory based on estimates about future demand,
actual usage and current market value.

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of computer and
other equipment, furniture and fixtures and warehouse equipment that 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

     In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
the Company is required to perform an annual impairment test for goodwill. SFAS
No. 142 requires the Company to compare the fair value of the Company to its
carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the Company is less than its carrying value, an
impairment loss is recorded to the extent that the fair value of the goodwill is
less than the


                                       40
<PAGE>

carrying value. The fair value for goodwill is determined based on discounted
cash flows. The Company performs this impairment test annually and whenever
facts and circumstances indicate that there is a possible impairment of
goodwill. The Company completed the required annual impairment test, which
resulted in no impairment for fiscal year 2005.

LONG-LIVED ASSETS

     Long-lived assets and certain identifiable intangible assets to be held and
used are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset and its eventual disposition.
Measurement of any impairment loss for long-lived assets and certain
identifiable intangible assets that management expects to hold and use is based
on the fair value of the asset. Other intangible assets are recorded at cost and
amortized over periods ranging from 2 to 40 years.

INCOME TAXES

     The Company accounts for income taxes in accordance with the liability
method of accounting for income taxes. Under the liability method, deferred
assets and liabilities are recognized based upon anticipated future tax
consequences attributable to differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases. The provision
for income taxes is comprised of the current tax liability and the change in
deferred tax assets and liabilities. The Company establishes a valuation
allowance to the extent that it is more likely than not that deferred tax assets
will not be recoverable against future taxable income.

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.

     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):

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                       ---------------------------
                                                         2005      2004      2003
                                                       -------   -------   -------
<S>                                                    <C>       <C>       <C>
Net income (loss)                                      $   481   $11,337   $(4,474)
                                                       =======   =======   =======
Weighted average common shares outstanding (basic)      29,299    27,665    22,324
Effect of dilutive options and grants                      757       744        --
                                                       -------   -------   -------
Weighted average common shares outstanding (diluted)    30,056    28,409    22,324
                                                       =======   =======   =======
Earnings (loss) per share:
Basic                                                  $  0.02   $  0.41   $ (0.20)
                                                       =======   =======   =======
Diluted                                                $  0.02   $  0.40   $ (0.20)
                                                       =======   =======   =======
</TABLE>

     Respectively, at December 31, 2005 and 2004, 1,137,599 and 888,430
restricted stock grants and options to purchase shares of common stock were
excluded from the calculation of diluted EPS because they were anti-dilutive. At
December 31, 2003, all outstanding restricted stock grants and options to
purchase 4,772,575 shares of common stock were excluded from the computation of
diluted net loss per share because they were anti-dilutive.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

     The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the rates of exchange at the balance sheet
date. Income and expense items are translated at average monthly 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 Statements of Operations, and have not been significant for any
of the periods presented.


                                       41

<PAGE>

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.

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 Operations. The Company provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation."

     The following table illustrates the effect on income from continuing
operations and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based compensation. The
estimated fair value of each option is calculated using the Black-Scholes
option-pricing model.

<TABLE>
<CAPTION>
                                                              (In thousands, except per
                                                                   share amounts):
                                                             ---------------------------
                                                               2005      2004      2003
                                                             -------   -------   -------
<S>                                                          <C>       <C>       <C>
Net income (loss) as reported:                               $   481   $11,337   $(4,474)
Add: Stock-based employee compensation expense included in
   reported earnings, net of tax                                 960       831     1,001
Deduct: Stock-based employee compensation expense
   determined under the fair value method, net of tax         (5,107)   (4,064)   (4,591)
                                                             -------   -------   -------
Pro forma net income (loss)                                  $(3,666)  $ 8,104   $(8,064)
                                                             =======   =======   =======
Income (loss) per share:
   As reported
      Basic                                                  $  0.02   $  0.41   $ (0.20)
      Diluted                                                $  0.02   $  0.40   $ (0.20)
   Pro forma
      Basic                                                  $ (0.13)  $  0.29   $ (0.36)
      Diluted                                                $ (0.13)  $  0.29   $ (0.36)
</TABLE>

     On November 16, 2005, the Compensation Committee (the "Committee") of the
board of directors of the Company approved the acceleration of vesting of
unvested and "out-of-the-money" stock options with exercise prices equal to or
greater than $7.74 per share previously awarded to its employees, including its
executive officers, and directors, under the Company's 1998 Stock Plan. The
acceleration of vesting was effective for stock options outstanding as of
December 30, 2005. The closing stock price on the Nasdaq Global Market at the
effective date of the acceleration was $7.65. Options to purchase approximately
724,875 shares of common stock, or approximately 33% of the Company's
outstanding unvested options, of which options to purchase approximately 76,250
shares are held by the Company's executive officers and directors, were subject
to the acceleration. The weighted-average exercise price of the options subject
to the acceleration was approximately $8.98.

     The purpose of the acceleration is to enable the Company to reduce
compensation expense associated with these options in future periods on its
consolidated statements of operations, upon adoption of FASB Statement No. 123R
-- Share-Based Payment in 2006. The pre-tax charges to be avoided amount to
approximately $2.4 million, which is included in the pro forma results of
operations above for 2005, over the course of the original vesting periods,
which on average is approximately three years from the effective date of the
acceleration. The Company also believes that because the options to be
accelerated have exercise prices substantially in excess of the current market
value of the Company's common stock,


                                       42
<PAGE>

the options have limited economic value and are not fully achieving their
original objective of incentive compensation and employee retention. The vesting
acceleration of these stock options did not result in a compensation charge to
fourth quarter results based on accounting principles generally accepted in the
United States.

     Weighted average basic and diluted shares outstanding are the same for the
periods in which net losses were incurred, in the accompanying consolidated
statement of operations.

     Because additional stock options and stock purchase rights are expected to
be granted each year, the above pro forma disclosures are not considered by
management to be representative of actual effects on reported financial results
for future years.

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 14).

DERIVATIVE FINANCIAL INSTRUMENTS

     Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS 137 and SFAS 138. SFAS 133
establishes new standards of accounting and reporting for derivative instruments
and hedging activities, and requires that all derivatives, including foreign
currency exchange contracts, be recognized on the balance sheet at fair value.
Changes in the fair value of derivatives that do not qualify for hedge
treatment, as well as the ineffective portion of any hedges, must be recognized
currently in earnings. All of the Company's derivative financial instruments are
recorded at their fair value in other current assets or accounts payable and
accrued expenses. The transition adjustment upon adoption of SFAS 133 was not
material.

     The Company generates a substantial portion of its revenues in
international markets, which subjects its operations and cash flows to the
exposure of currency exchange fluctuations. The Company seeks to minimize the
risk associated with currency exchange fluctuations by entering into forward
exchange contracts to hedge certain foreign currency denominated assets or
liabilities. These derivatives do not qualify for SFAS 133 hedge accounting
treatment. Accordingly, changes in the fair value of these hedges are recorded
immediately in earnings on line item 'Interest Expense and Other Income' to
offset the changes in the fair value of the assets or liabilities being hedged.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
Amendment of ARB No. 43, Chapter 4." The amendments made by SFAS No.151 are
intended to improve financial reporting by clarifying that abnormal amounts of
idle facility expense, freight, handling costs, and wasted materials (spoilage)
should be recognized as current-period charges and by requiring the allocation
of fixed production overheads to inventory based on the normal capacity of the
production facilities. The guidance is effective for inventory costs incurred
after June 15, 2005. The adoption of SFAS No. 151 did not have a material impact
on the Company's condensed consolidated financial statements.

     In December 2004, the FASB issued SFAS 123R (revised 2004), "Share Based
Payment." SFAS 123R is a revision of FASB 123 and supersedes APB No. 25. SFAS
123R establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services or incurs
liabilities in exchange for goods or services that are based on the fair market
value of the entity's equity instruments. SFAS 123R focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS 123R requires an entity to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair market value of the award over the
period during which an employee is required to provide service for the award.
The grant-date fair market value of employee share options and similar
instruments must be estimated using option-pricing models adjusted for the
unique characteristics of those instruments unless observable market prices for
the same or similar instruments are available. In addition, SFAS 123R requires a
public entity to measure the cost of employee services


                                       43

<PAGE>

received in exchange for an award of liability instruments based on its current
fair market value and that the fair market value of that award will be
remeasured subsequently at each reporting date through the settlement date. The
effective date of SFAS 123R for our Company is for the first annual period
beginning after June 15, 2005, i.e. fiscal year ended December 31, 2006.
Adoption of this statement will have a significant impact on our consolidated
financial statements as we will be required to expense the fair value of our
stock option grants and stock purchases under our employee stock purchase plan
rather than disclose the impact on our consolidated net income within our
footnotes, as is our current practice (See "Note 2 - Summary of Significant
Accounting Policies" of the notes to the condensed consolidated financial
statements contained herein.)

     On March 29, 2005, the SEC issued Staff Accounting Bulletin (SAB) 107 which
expresses the views of the SEC regarding the interaction between SFAS No. 123R
and certain SEC rules and regulations and provides the SEC's views regarding the
valuation of share-based payment arrangements for public companies. In
particular, SAB 107 provides guidance related to share-based payment
transactions with non-employees, the transition from nonpublic to public entity
status, valuation methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial instrument
issues under share-based payment arrangements, the classification of
compensation expenses, non-GAAP financial measures, first-time adoption of SFAS
No. 123R in an interim period, capitalization of compensation costs related to
share-based payment arrangements, the accounting for income tax effects of
share-based payments arrangements upon adoption of SFAS No. 123R, the
modification of employee share options prior to adoption of SFAS No. 123R, and
disclosures in Management's Discussion and Analysis of Financial Condition and
Results of Operations subsequent to adoption of SFAS No. 123R. The Company is
currently evaluating the impact that SAB 107 will have on its results of
operations and financial position when adopted in fiscal 2006.

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 replaces APB Opinion No. 20, "Accounting Changes,"
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements,"
and is effective for fiscal years beginning after December 15, 2005, i.e. fiscal
year ended March 31, 2007. SFAS No. 154 requires retrospective application to
prior periods' financial statements of changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. The Company does not expect the adoption of
SFAS No. 154 to have a material impact on its condensed consolidated financial
statements.

NOTE 3 - ACCOUNTING FOR GOODWILL AND CERTAIN OTHER INTANGIBLES:

     The Company performs an impairment test annually and whenever facts and
circumstances indicate that there is a possible impairment of goodwill. The
Company completed the required annual impairment test, which resulted in no
impairment for fiscal year 2005.

     The Company has acquired certain intangible assets through acquisitions
which include non-compete agreements, trademarks, trade names and customer and
supplier relationships. The carrying values and accumulated amortization of
these assets at December 31, 2005 and 2004 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  As of December 31, 2005
                                                          --------------------------------------
                                  Estimated Useful Life   Gross Carrying    Accumulated     Net
  Amortized Intangible Assets        for Amortization         Amount       Amortization   Amount
  ---------------------------     ---------------------   --------------   ------------   ------
<S>                               <C>                     <C>              <C>            <C>
Non-compete agreements                 3-6 years              $ 1,763        $(1,409)     $  354
Trademarks                             20-40 years              4,340           (568)      3,772
Trade names                            20 years                   400            (71)        329
Customer/supplier relationships        7-10 years               5,669         (1,612)      4,057
                                                              -------        -------      ------
Total                                                         $12,172        $(3,660)     $8,512
                                                              =======        =======      ======
</TABLE>


                                       44

<PAGE>

<TABLE>
<CAPTION>
                                                                  As of December 31, 2004
                                                          --------------------------------------
                                  Estimated Useful Life   Gross Carrying    Accumulated     Net
  Amortized Intangible Assets        for Amortization         Amount       Amortization   Amount
  ---------------------------     ---------------------   --------------   ------------   ------
<S>                               <C>                     <C>              <C>            <C>
Non-compete agreements                 2-6 years              $ 1,623        $(1,207)     $  416
Trademarks                             20-40 years              4,835           (449)      4,386
Trade names                            20 years                   400            (51)        349
Customer/supplier relationships        4-10 years               5,023           (767)      4,256
                                                              -------        -------      ------
Total                                                         $11,881        $(2,474)     $9,407
                                                              =======        =======      ======
</TABLE>

     The expected amortization of these balances over the next five fiscal years
are as follows (in thousands):

<TABLE>
<S>                                 <C>
Aggregate Amortization Expense
For year ended December 31, 2005    $1,182
Estimated Amortization Expense
For year ending December 31, 2006   $1,210
For year ending December 31, 2007   $1,140
For year ending December 31, 2008   $  953
For year ending December 31, 2009   $  758
For year ending December 31, 2010   $  654
Thereafter                          $3,797
</TABLE>

NOTE 4 - ACQUISITIONS:

     All acquisitions below have been accounted for using the purchase method.
Accordingly, the results of operations of the acquired businesses are included
in the consolidated financial statements from the dates of acquisition.

MCE Group Acquisition

     On December 1, 2005, the Company acquired certain assets and assumed
certain liabilities of MCE Computer Peripherie GmbH, MCE Computer Vertreibs
Products GmbH, MCE Computer Technology Inc and MCE Limited, ("MCE") based in
Munich, Germany. The acquisition of MCE allows the Company to continue to expand
its growth in value added storage products and services in the key markets in
Continental Europe and the UK and adds additional experienced management, sales
and marketing resources to the Company. MCE is a European distributor of disk
drives and components, and also has a substantial IBM enterprise business in
Germany. MCE's customer base includes Enterprise VARs, system builders and
industrial customers.

     The MCE assets acquired were primarily inventories and accounts receivable.
As consideration for the assets purchased, the Company paid $1.3 million
including acquisition costs, and assumed certain liabilities, primarily notes
payable and trade accounts payable. Management is currently finalizing the
valuation of assets acquired and liabilities assumed. Accordingly, the final
allocations could be different from the amounts reflected below. The preliminary
allocation of the purchase price to acquired assets and assumed liabilities
based upon management's estimates are as follows (in thousands):

<TABLE>
<S>                          <C>
Cash                         $    433
Accounts receivable            21,226
Inventories                    24,586
Equipment and other assets      1,420
Goodwill                        3,208
Intangibles                       360
Accounts payable              (22,837)
Other accrued liabilities      (1,472)
Notes payable                 (25,576)
                             --------
Total consideration          $  1,348
                             ========
</TABLE>

     Other intangibles include customer and supplier relationships and
non-compete agreements, with estimated useful lives for amortization of four
years, seven years and three years, respectively.


                                       45
<PAGE>

     Pro forma results of operations have not been presented because the effect
of the acquisition was not material to the results of prior periods presented.

Net Storage Computers, LTDA. Acquisition

     On July 8, 2005, the Company acquired all of the outstanding capital stock
of Net Storage Computers, LTDA. ("Net Storage"), a privately held company
headquartered in Sao Paulo, Brazil, with sales offices in Belo Horizonte, Porto
Alegre, Recife, Rio de Janeiro and Tambore, Brazil. The acquisition of Net
Storage increases the Company's presence in the Latin America marketplace and
provides the opportunity to strengthen relationships with key suppliers and
expand overall products and services offerings. Net Storage is a distributor of
storage products and peripherals to VARs and system integrators in Brazil. Their
strategic partners include Intel, Seagate, LG, Western Digital and AMD.

     Net Storage was acquired for a total purchase price of approximately $3.4
million in cash, including acquisition costs. The Company is obligated to pay up
to an additional $3.0 million based upon earnings achieved during each of the
subsequent four anniversary years. The Company has also entered into a four year
Management Service Agreement which obligates the Company to pay an additional
$1.1 million. Management is currently finalizing the valuation of assets
acquired and liabilities assumed. Accordingly, the final allocations could be
different from the amounts reflected below. The preliminary allocation of the
purchase price to acquired assets and assumed liabilities based upon
management's estimates are as follows (in thousands):

<TABLE>
<S>                          <C>
Cash                         $   267
Accounts receivable            2,123
Inventories                    1,789
Equipment and other assets       408
Goodwill                        3117
Intangibles                      421
Accounts payable              (2,943)
Other accrued liabilities     (1,792)
                             -------
Total consideration          $ 3,390
                             =======
</TABLE>

     Other intangibles include customer and supplier relationships and
non-compete agreements, with estimated useful lives for amortization of seven
years and six years, respectively.

     Pro forma results of operations have not been presented because the effect
of the acquisition was not material to the results of prior periods presented.

OpenPSL Holdings Limited Acquisition

     On June 22, 2004, the Company acquired all of the outstanding capital stock
of OpenPSL Holdings Limited ("OpenPSL"), a privately held Company headquartered
in Manchester, United Kingdom, with branch offices in Dublin, Ireland and Leeds,
Bracknell and Nottingham, United Kingdom. The acquisition of OpenPSL allows the
Company to broaden its product offerings in a strategic geography. OpenPSL is a
leading value added distributor of enterprise, storage and security products and
related professional services to VARs, system integrators and software companies
in the UK and Ireland. Their line card of franchised suppliers includes Hewlett
Packard, IBM, Oracle, Veritas, Allied Telesyn, Microsoft and others.

     OpenPSL was acquired for a total purchase price of approximately $42.0
million which included cash of approximately $34.8 million, the issuance of
1,025,029 shares of the Company's Common Stock including consideration for all
contingent incentive payments and acquisition costs. Total consideration paid in
cash and stock for contingent incentives during 2005 was $4.1 million. The final
allocation of the purchase price to acquired assets and assumed liabilities
based upon management estimates are as follows (in thousands):


                                       46

<PAGE>

<TABLE>
<S>                                       <C>
Accounts receivable                       $ 30,721
Inventories                                  4,743
Equipment and other assets                   2,419
Goodwill                                    36,104
Intangibles                                  3,671
Accounts payable                           (18,785)
Other accrued liabilities                   (9,203)
Notes payable and long-term liabilities     (7,704)
                                          --------
Total consideration                       $ 41,966
                                          ========
</TABLE>

     Other intangibles include customer and supplier relationships and
non-compete agreements with estimated useful lives of four years, seven years
and two years, respectively.

Pro forma disclosure (in thousands, except per share data):

     The following pro forma combined amounts give effect to the acquisition of
OpenPSL as if the acquisition had occurred on January 1, 2004. The pro forma
amounts do not purport to be indicative of what would have occurred had the
acquisition been made as of the beginning of the period or of results which may
occur in the future.

<TABLE>
<CAPTION>
                                                Year Ended
                                               December 31,
                                                   2004
                                               ------------
<S>                                            <C>
Revenue                                        $2,937,047
Net income                                     $   12,653
Net income per share - basic                   $     0.46
Shares used in per share calculation - basic       27,665
Net income per share - diluted                 $     0.45
Shares used in per share calculation               28,409
</TABLE>

EBM Mayorista, S.A. de C.V. Acquisition

     On October 15, 2003, the Company acquired certain assets and assumed
certain liabilities of EBM Mayorista, S.A. de C.V. ("EBM"), a privately held
company headquartered in Merida, Mexico, with branch locations in Cancun,
Monterrey, Oaxaca, Villahermosa, Tampico, Veracruz, Tuxtla, Torreon, Puebla and
Aguascaliente. EBM distributes a diverse product line of computer hardware and
software to Mexican resellers, retail locations and system integrators including
the Intel, Samsung, Epson and U.S. Robotics lines.

     EBM was acquired for a total purchase price of approximately $7.1 million
which included cash of approximately $6.2 million and acquisition costs. The
Company is obligated to pay 35% of EBM's earnings before taxes as a contingent
incentive payment based upon meeting minimum earnings targets during each of the
subsequent four anniversary years. EBM met its earnings target for the second
anniversary years and accordingly, the Company has paid additional cash and
recorded $761,000 as additional consideration at December 31, 2005. The purchase
price was allocated to the acquired assets and liabilities assumed, based upon
management's estimate of their fair market values as of the acquisition date, as
follows (in thousands):

<TABLE>
<S>                          <C>
Inventories                  $ 5,177
Equipment and other assets       305
Goodwill                       4,593
Other intangibles                850
Accounts payable              (3,778)
                             -------
Total consideration          $ 7,147
                             =======
</TABLE>

     Other intangibles include customer and supplier relationships, trade name,
and non-compete agreements, with estimated useful lives for amortization of 7
years, 20 years and 6 years, respectively.

     Pro forma results of operations have not been presented because the effect
of the acquisition was not material to the results of prior periods presented.


                                       47

<PAGE>

NOTE 5 - BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                             -------------------
                                                               2005       2004
                                                             --------   --------
                                                                (in thousands)
<S>                                                          <C>        <C>
Accounts receivable, net:
   Accounts receivable                                       $460,050   $398,105
   Less: allowance for doubtful accounts and sales returns    (38,515)   (22,088)
                                                             --------   --------
                                                             $421,535   $376,017
                                                             ========   ========
Property and equipment:
   Computer and other equipment                              $ 41,255   $ 40,235
   Land and buildings                                           1,664     27,055
   Furniture and fixtures                                       5,816     10,640
   Warehouse equipment                                          8,566      8,934
   Leasehold improvements                                       4,705      4,440
                                                             --------   --------
                                                               62,006     91,304
   Less: accumulated depreciation                             (48,794)   (48,499)
                                                             --------   --------
                                                             $ 13,212   $ 42,805
                                                             ========   ========
Goodwill and other intangibles, net:
   Goodwill                                                  $108,174   $ 99,312
   Other intangibles                                           12,172     11,881
   Less: accumulated amortization                             (10,378)    (9,181)
                                                             --------   --------
                                                             $109,968   $102,012
                                                             --------   --------
Accounts payable:
   Accounts payable - trade                                  $259,773   $275,543
   Cash overdraft                                              86,502     31,830
                                                             --------   --------
                                                             $346,275   $307,373
                                                             ========   ========
Accrued liabilities:
   Taxes payable                                             $ 16,974   $ 30,305
   Other accrued liabilities                                   49,858     41,859
                                                             --------   --------
                                                             $ 66,832   $ 72,164
                                                             ========   ========
</TABLE>

     Trade accounts receivable are recorded at the invoiced amount and do not
bear interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in its existing accounts
receivable. The Company determines the allowance based on historical write-off
experience by industry and regional economic data. The Company reviews its
allowance for doubtful accounts monthly. Past due balances over 90 days and over
a specified amount are reviewed individually for collectibility. All other
balances are reviewed on a pooled basis by type of receivable. Account balances
are charged off against the allowance when the Company's management believes it
is probable the receivable will not be recovered. The Company does not have any
off-balance-sheet credit exposure related to its customers.

     In the fourth quarter of 2005, the Company terminated a components supply
program in North America and provided a specific reserve for a partner balance
that the Company believes may not be collectable as a result of the program
termination. This amount has been included as a special charge in the amount of
$9.1 million, net of a $550,000 reversal of restructuring costs and special
charges taken in prior years that were adjusted to reflect actual charges.

     On December 23, 2005, the Company sold certain of its property located in
the United Kingdom for net proceeds of L13.4 million or $23.3 million USD.

     Total depreciation expense on the Company's property and equipment was $8.1
million in 2005, $11.1 million in 2004 and $10.3 million in 2003.


                                       48
<PAGE>

NOTE 6 - LINES OF CREDIT AND TERM LOANS:

LINES OF CREDIT

<TABLE>
<CAPTION>
                                                    December 31,
                                                -------------------
                                                  2005       2004
                                                --------   --------
<S>                                             <C>        <C>
Congress Facility                               $ 18,319   $    686
Wachovia Facility                                 89,414     42,000
IBM                                               26,558
Bank of America Facility                              --     17,577
IFN Financing BV                                   2,189         --
                                                --------   --------
                                                 136,480     60,263
Less: amounts included in current liabilities    (28,747)   (17,577)
                                                --------   --------
Amounts included in non-current liabilities     $107,733   $ 42,686
                                                ========   ========
</TABLE>

     On September 13, 2004, the Company entered into an amendment to its
syndicated Loan and Security Agreement with Congress Financial Corporation
(Western) ("Congress"), an affiliate of Wachovia Bank, N.A. ("Wachovia"), as
administrative, collateral and syndication agent for the lenders of the
revolving line of credit (the "Congress Facility"). The amendment reduced the
Congress Facility from $160 million to $125 million, and extended the maturity
date to July 31, 2007. The syndicate includes Bank of America N.A. as co-agent
and other financial institutions as lenders. Borrowings under the Congress
Facility bear interest at Wachovia's prime rate plus a margin of 0.0% to 0.5%,
based on unused availability levels. At the Company's option, all or any portion
of the outstanding borrowings may be converted to a Eurodollar rate loan, which
bears interest at the adjusted Eurodollar rate plus a margin of 1.50% to 2.00%,
based on unused availability levels. The Company also pays an unused line fee
equal to 0.375% per annum of the unused portion of the facility, subject to
certain adjustments. The average interest rate on outstanding borrowings under
the Congress Facility during the quarter ended December 31, 2005 was 6.5%, and
the balance outstanding at December 31, 2005 was $18.3 million. Obligations of
the Company under the Congress Facility are collateralized by certain assets of
the Company and its North and South American subsidiaries. The Congress Facility
requires the Company to meet certain financial tests and to comply with certain
other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, capital
contributions, payment of dividends, repurchases of stock and investments.

     On September 20, 2004, Bell Microproducts, (the parent company only)
("Bell") entered into a securitization program with Wachovia Bank, National
Association ("Wachovia") and Blue Ridge Asset Funding Corporation ("Blue
Ridge"), an affiliate of Wachovia, which expires on September 20, 2007
("Wachovia Facility"). On December 31, 2005, Bell entered into an amendment to
the Wachovia Facility with Wachovia and PNC Bank, National Association ("PNC
Bank"), as Lender Group Agents and Variable Funding Capital Company LLC and
Market Street Funding LLC as Lenders. Under the program, Bell will sell or
contribute all of its receivables to a newly created special purpose bankruptcy
remote entity named Bell Microproducts Funding Corporation ("Funding"), a
wholly-owned subsidiary of Bell. Funding will obtain financing from Lender Group
Agents or Lenders and other liquidity banks collateralized by the receivables to
pay a portion of the purchase price for the receivables. The balance of the
purchase price will be paid by advances made by Bell to Funding under a
subordinated note of Funding payable to Bell and by capital contributions from
Bell to Funding. The maximum principal amount available for Funding's credit
facility is $120 million. The interest rate on advances made by Lenders shall be
the cost of Lenders' commercial paper. In addition, Funding pays a program fee
in the amount of 95 basis points per annum on the portion of the advances funded
by Lenders' commercial paper. The interest rate on advances made by Lender Group
Agents and other liquidity banks shall be either an alternate base rate (which
is the higher of the "prime rate" as announced by Wachovia, or 0.50% above the
federal funds effective rate), or a rate based on an adjusted LIBO rate plus
1.50%. Funding also pays an unused line fee ranging from 0.20% to 0.25% per
annum of the unused portion of the facility. Bell acts as a servicer for Funding
and will collect all amounts due under, and take all action with respect to, the
receivables for the benefit of Funding and its lenders. In exchange for these
services, Bell receives a servicing fee determined on an arms-length basis. The
cash flow from the collections of the receivables will be used to purchase newly
generated receivables, to pay amounts to Funding's lenders, to pay down on the
subordinated note issued to Bell and to make dividend distributions to Bell
(subject at all times to the required capital amount being left in Funding).
Including the program fee, the average interest rate on outstanding borrowings
under the securitization program for the quarter ended December 31, 2005 was
5.0%, and the balance outstanding at December 31, 2005 was $89.4 million.
Obligations of


                                       49

<PAGE>

Funding under the Wachovia Facility are collateralized by all of Funding's
assets. The Wachovia Facility requires Funding (and in certain circumstances,
Bell) to meet certain financial tests and to comply with certain other covenants
including restrictions on changes in structure, incurrence of debt and liens,
payment of dividends and distributions, and material modifications to contracts
and credit and collections policy.

     On December 2, 2002, as further amended in December 2004, the Company
entered into a Syndicated Credit Agreement arranged by Bank of America, National
Association ("Bank of America facility"), as principal agent, to provide a L75
million revolving line of credit facility, or the U.S. dollar equivalent of
approximately $144 million at December 31, 2004. The Bank of America facility
was scheduled to mature on July 15, 2006. On October 20, 2005, the agreement was
amended to extend the maturity date for a further three years and reduce the
facility to L60 million, or the USD equivalent of approximately $103 million at
December 31, 2005, increasing to $138 million at the Company's option. The
syndicate includes Bank of America as agent and security trustee and other banks
and financial institutions, as lenders. Borrowings under the line of credit bear
interest at Bank of America's base rate plus a margin of 1.5% to 2.5%, based on
certain financial measurements. At the Company's option, all or any portion of
the outstanding borrowings may be converted to a LIBOR Revolving Loan, which
bears interest at the adjusted LIBOR rate plus a margin of 2.25% to 2.50%, based
on certain financial measurements. The average interest rate on the outstanding
borrowings under the revolving line of credit during the quarter ended December
31, 2005 was 6.3%, and there was no balance outstanding at December 31, 2005.
Obligations of the Company under the revolving line of credit are collateralized
by certain assets of the Company's European subsidiaries. The revolving line of
credit requires the Company to meet certain financial tests and to comply with
certain other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, capital
contributions, payment of dividends, repurchases of stock, repatriation of cash
and investments.

     On December 1, 2005, in connection with the acquisition of MCE Group
("MCE"), the Company entered into a short-term financing agreement with
Deutschland Kreditbank GmbH ("IBM") for up to $25 million. The loan is
collateralized by certain assets and cross-company guarantees of the Company's
European subsidiaries and bears interest at US Libor or Euribor plus 2.00%,
depending on the currency of the advance. The facility has no maturity date but
continues indefinitely until terminated by either party upon six weeks notice.
The balance outstanding at December 31, 2005 was $18.9 million. Also on December
1, 2005, the Company entered into another short-term financing agreement with
IBM for E6.5 million or the UDS equivalent of $7.7 million at December 31, 2005.
The loan is collateralized by certain assets and cross-company guarantees of the
Company's European subsidiaries and bears interest at Euribor plus 3.85%. The
facility has no maturity date but continues indefinitely until terminated by
either party upon six weeks notice. The balance outstanding at December 31, 2005
was $7.7 million.

     The Company's agreement with IFN Finance BV was amended in December 2004 to
reduce its $7.5 million in short-term financing to $4.7 million. The loan is
collateralized by certain European accounts receivable and inventories, bears
interest at 5.5%, and continues indefinitely until terminated by either party
upon 90 days notice. The balance outstanding at December 31, 2005 was $2.2
million.

TERM LOANS

<TABLE>
<CAPTION>
                                        December 31,
                                    -------------------
                                      2005       2004
                                    --------   --------
<S>                                 <C>        <C>
Convertible Notes                   $110,000   $110,000
Note payable to RSA, net              43,985     51,509
Bank of Scotland Mortgage                 --     10,150
HSBC Bank plc Mortgage                   692        897
Note payable - Klaus Reichl            3,315
                                    --------   --------
                                     157,992    172,556
Less: amounts due in current year     10,639     11,651
                                    --------   --------
Long-term debt due after one year   $147,353   $160,905
                                    ========   ========
</TABLE>


                                       50

<PAGE>

     On March 5, 2004, the Company completed a private offering of $110 million
aggregate principal amount of 3 3/4% convertible subordinated notes due 2024
(the "Old Notes"). On December 20, 2004, the Company completed its offer to
exchange its newly issued 3 3/4% Convertible Subordinated Notes, Series B due
2024 (the "New Notes") for an equal amount of its outstanding Old Notes.
Approximately $109,600,000 aggregate principal amount of the Old Notes,
representing approximately 99.6 percent of the total principal amount of Old
Notes outstanding, were tendered in exchange for an equal principal amount of
New Notes. The New Notes mature on March 5, 2024 and bear interest at the rate
of 3 3/4% per year on the principal amount, payable semi-annually on March 5 and
September 5, beginning on March 5, 2005. Holders of the New Notes may convert
the New Notes any time on or before the maturity date if certain conversion
conditions are satisfied. Upon conversion of the New Notes, the Company will be
required to deliver, in respect of each $1,000 principal of New Notes, cash in
an amount equal to the lesser of (i) the principal amount of each New Note to be
converted and (ii) the conversion value, which is equal to (a) the applicable
conversion rate, multiplied by (b) the applicable stock price. The initial
conversion rate is 91.2596 shares of common stock per New Note with a principal
amount of $1,000 and is equivalent to an initial conversion price of
approximately $10.958 per share. The conversion rate is subject to adjustment
upon the occurrence of certain events. The applicable stock price is the average
of the closing sales prices of the Company's common stock over the five trading
day period starting the third trading day following the date the New Notes are
tendered for conversion. If the conversion value is greater than the principal
amount of each New Note, the Company will be required to deliver to holders upon
conversion, at its option, (i) a number of shares of the Company's common stock,
(ii) cash, or (iii) a combination of cash and shares of the Company's common
stock in an amount calculated as described in the prospectus filed by the
Company in connection with the exchange offer. In lieu of paying cash and shares
of the Company's common stock upon conversion, the Company may direct its
conversion agent to surrender any New Notes tendered for conversion to a
financial institution designated by the Company for exchange in lieu of
conversion. The designated financial institution must agree to deliver, in
exchange for the New Notes, (i) a number of shares of the Company's common stock
equal to the applicable conversion rate, plus cash for any fractional shares, or
(ii) cash or (iii) a combination of cash and shares of the Company's common
stock. Any New Notes exchanged by the designated institution will remain
outstanding. The Company may redeem some or all of the New Notes for cash on or
after March 5, 2009 and before March 5, 2011 at a redemption price of 100% of
the principal amount of the New Notes, plus accrued and unpaid interest up to,
but excluding, the redemption date, but only if the closing price of the
Company's common stock has exceeded 130% of the conversion price then in effect
for at least 20 trading days within a 30 consecutive trading day period ending
on the trading day before the date the redemption notice is mailed. The Company
may redeem some or all of the New Notes for cash at any time on or after March
5, 2011 at a redemption price equal to 100% of the principal amount of the New
Notes, plus accrued and unpaid interest up to, but excluding, the redemption
date. The Company may be required to purchase for cash all or a potion of the
New Notes on March 5, 2011, March 5, 2014 or March 5, 2019, or upon a change of
control, at a purchase price equal to 100% of the principal amount of the new
notes being purchased, plus accrued and unpaid interest up to, but excluding,
the purchase date.

     On July 6, 2000, and as amended on May 3, 2004, the Company entered into a
Securities Purchase Agreement with The Retirement Systems of Alabama and certain
of its affiliated funds (the "RSA facility"), under which the Company borrowed
$180 million of subordinated debt financing. This subordinated debt financing
was comprised of $80 million bearing interest at 9.125%, repaid in May 2001; and
$100 million bearing interest at 9.0%, payable in semi-annual principal
installments of $3.5 million plus interest and in semi-annual principal
installments of $8.5 million commencing December 31, 2007, with a final maturity
date of June 30, 2010. On August 1, 2003, the Company entered into an interest
rate swap agreement with Wachovia Bank effectively securing a new interest rate
on $40 million of the outstanding debt. The new rate is based on the six month
U.S. Libor rate plus a fixed margin of 4.99% and continues until termination of
the agreement on June 30, 2010. The notional amount is amortized ratably as the
underlying debt is repaid. The notional amount at December 31, 2005 was $34.7
million. The Company initially recorded the interest rate swap at fair value,
and subsequently recorded changes in fair value as an offset to the related
liability. At December 31, 2005, the fair value of the interest rate swap was
($1 million). The RSA facility is collateralized by a second lien on certain of
the Company's and its subsidiaries' North American and South American assets.
The Company must meet certain financial tests on a quarterly basis, and comply
with certain other covenants, including restrictions of incurrence of debt and
liens, restrictions on asset dispositions, payment of dividends, and repurchase
of stock. The Company is also required to be in compliance with the covenants of
certain other borrowing agreements. The balance outstanding at December 31, 2005
on this long-term debt was $45.0 million, $10.5 million is payable in 2006,
$16.5 million is payable in 2007 and 2008 and $18 million thereafter. Net of the
fair value of the interest rate swap, the balance outstanding on the RSA
facility at December 31, 2005 was $44.0 million.

     On May 9, 2003, the Company entered into a mortgage agreement with Bank of
Scotland for L6 million, or the U.S. dollar equivalent of approximately $10.3
million, as converted at December 31, 2003. The Mortgage agreement had a term of
10 years, bears interest at Bank of Scotland's rate plus 1.35%, and was payable
in quarterly installments of approximately L150,000, or $288,000 USD, plus
interest. On December 23, 2005, the Company sold the property for net proceeds
of L13.4


                                       51

<PAGE>

million or $23.3 million USD. The proceeds of the sale were used to repay the
mortgage balance outstanding at that date of $8.3 million, and the remaining
proceeds were used to reduce the outstanding balance on our Bank of America
Facility.

     On June 22, 2004, in connection with the acquisition of OpenPSL, the
Company assumed a mortgage with HSBC Bank plc ("HSBC") for an original amount of
L670,000, or the U.S. dollar equivalent of approximately $1.2 million. The
mortgage has a term of ten years, bears interest at HSBC's rate plus 1.25% and
is payable in monthly installments of approximately L7,600, or $14,600 U.S.
dollars. The balance on the mortgage was $692,000 at December 31, 2005.

     On December 1, 2005, the Company entered into a loan agreement with Mr.
Klaus Reichl for up to E4.0 million, or the USD equivalent of $4.7 million at
December 31, 2005. The loan was used to finance the asset purchase of MCE. The
loan is unsecured, bears interest at the fixed rate of 5.25% and matures on
December 5, 2008. The balance outstanding at December 31, 2005 was $3.3 million.

NOTE 7 - COMMON STOCK:

     On August 27, 2003, the Company completed a secondary registered public
offering of 5,000,000 shares of Common Stock, at an offering price to the public
of $6.50 per share. In connection with the offering, the Company granted to the
underwriters an option to purchase up to 750,000 shares to cover over
allotments, and the option was exercised in full on September 18, 2003. The
Company received proceeds of $34.9 million, net of commissions, discounts and
expenses.

NOTE 8 - RESTRUCTURING COSTS, SPECIAL CHARGES AND OTHER PROVISIONS:

     In the fourth quarter of 2005, the Company implemented a restructuring plan
for its European operations and as a result the Company incurred restructuring
costs and special charges of $9.0 million during the quarter. These costs
consisted primarily of $5.9 million related to future lease obligations for
excess facilities; $1.7 million for inventory costs in excess of estimatd net
realizability, included within the income statement line item "Cost of Goods
Sold," $200,000 for estimated vendor claims both related to discontinued product
lines; severance and benefits of $936,000 for involuntary employee terminations
and $338,000 related to closure of the Company's in-country operation in Sweden.
The Company terminated 58 employees in the UK and Europe, in sales, marketing
and support functions as of December 31, 2005.

     In the fourth quarter of 2005, the Company incurred a special charge due to
a terminated components supply program in North America and provided a specific
reserve for a partner account receivable balance that the Company believes may
not be collectable as a result of the program termination. This amount has been
classified as a special charge in the amount of $9.1 million, net of a $550,000
reversal of restructuring costs and special charges taken in prior years that
were adjusted to reflect actual charges.

     In the second quarter of 2004, the Company was released from certain
contractual obligations related to excess facilities in the U.S. for which
restructuring charges had been recorded in 2002. Accordingly, the Company
released approximately $300,000 of its restructuring reserve related to that
facility. Additionally, the Company revised its estimates for future lease
obligations for non-cancelable lease payments for excess facilities in Europe
and recorded an additional $300,000 of restructuring charges.

     In the first quarter of 2003, the Company continued to implement profit
improvement and cost reduction measures, and recorded restructuring costs of
$1.4 million. These charges consisted of severance and benefits of $1.3 million
related to worldwide involuntary terminations and estimated lease costs of
$56,300 pertaining to future lease obligations for non-cancelable lease payments
for excess facilities in the U.S. The Company terminated 127 employees
worldwide, across a wide range of functions including marketing, technical
support, finance, operations and sales. Future savings expected from
restructuring related cost reductions will be reflected as a decrease in
'Selling, General and Administrative expenses' on the Statement of Operations.
The Company also recorded an inventory charge of approximately $1.5 million
related to significant changes to certain vendor relationships and the
discontinuance of other non-strategic product lines, recorded in 'Cost of
Sales'.

     In the second and third quarters of 2002, as part of the Company's plan to
reduce costs and improve operating efficiencies, the Company recorded special
charges of $5.7 million. These costs consisted primarily of estimated lease
costs of $2.3 million pertaining to future lease obligations for non-cancelable
lease payments for excess facilities in the U.S. and costs of $583,000 related
to the closure of the Rorke Data Europe facilities, whose operations were
consolidated into the


                                       52

<PAGE>

Company's TTP division in Almere, Netherlands. These special charges also
included provisions for certain Latin American receivables of $1.7 million, and
severance and benefits of $1.1 million related to worldwide involuntary
terminations. The Company terminated 78 employees, predominately in sales and
marketing functions and eliminated two executive management positions in the
U.S. Future expected costs reductions will be reflected in the Statement of
Operations line item 'Selling, General and Administrative expenses.'

     Outstanding restructuring liabilities related to the charges expected to be
paid in cash are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                          Balance at                   Restructuring              Exchange    Balance
                           Beginning                      Reserve        Cash       Rate       at End
Year Ended December 31,    of Period   Restructuring      Release      Payments    Changes   of Period
-----------------------   ----------   -------------   -------------   --------   --------   ---------
<S>                       <C>          <C>             <C>             <C>        <C>        <C>
2003
Severance costs             $  545         $1,327          $  --        $1,638        --       $  234
Lease costs                  2,079             56             --           808        --        1,327
                            ------         ------          -----        ------     -----       ------
Total                        2,624          1,383             --         2,446        --        1,561

2004
Severance costs                234             --             --           234        --           --
Lease costs                  1,327            300           (300)          618        --          709
                            ------         ------          -----        ------     -----       ------
Total                        1,561            300           (300)          852        --          709

2005
Severance costs                 --          1,275             --            --       (19)       1,256
Lease costs                    709          5,921            (82)          421       (81)       6,046
                            ------         ------          -----        ------     -----       ------
Total                       $  709         $7,196          $ (82)       $  421     $(100)      $7,302
                            ======         ======          =====        ======     =====       ======
</TABLE>

NOTE 9 - 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").

     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 6,039,327 shares of
Common Stock plus 272,508 shares of Common Stock which were reserved but
unissued under the 1988 Plan and 52,500 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
3,323,351 shares, plus an annual increase to be added on January 1 of each year,
equal to the lesser of (i) 600,000 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 9,717,975shares of Common Stock for issuance
under the aggregate of all stock option plans.

     All 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 Plan, the Board of Directors adopted a Management Incentive
Program (the "Program") for key employees. Under this Program, options for
193,500 shares of Common Stock were granted in 2000 and no options were


                                       53
<PAGE>

granted in years 2003, 2004 or 2005. 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.

     Options granted under the Director Plan prior to May 1998 and outstanding
at December 31, 2004 total 60,000. Under the Director Plan, 112,500 options were
granted in 1993 at an exercise price of $5.33 per share, and 30,000 options were
granted in 1996 at an exercise price of $4.67 per share. In 1997, 30,000 options
were granted at an exercise price of $8.42 per share. In 1998, 22,500 options
were granted at an exercise price of $5.00 per share. On August 5, 1999, the
Board of Directors approved the vesting in full of all options currently held by
the Directors and modified the Plan to immediately vest all future Board of
Directors options at the time they are granted.

     In 2003 and prior years beginning in 2000, the number of shares of Common
Stock reserved under the Plan were not sufficient to accommodate the Company's
growth through acquisitions and key employee retention efforts. To induce
certain key employees to accept employment with the Company, the Company issued
a total of 450,000, 898,000 and 520,000 nonqualified stock options outside the
provisions of the Plan in 2003, 2002 and 2001 respectively, and 380,000 of these
options were outstanding at December 31, 2005, net of cancellations, and are
included in the table below.

     The following table presents all stock option activity:

<TABLE>
<CAPTION>
                                                                              Options Outstanding
                                                                          ---------------------------
                                                             Options                      Weighted
                                                          Available for                    Average
                                                              Grant         Shares     Exercise Price
                                                          -------------   ----------   --------------
<S>                                                       <C>             <C>          <C>
Balance at December 31, 2002                                  494,410      5,367,246       $10.31
Increase in options available for grant                       600,000             --           --
Options tendered in exchange for restricted stock units     1,346,500     (2,234,250)      $15.43
Restricted stock rights granted in option exchange           (744,802)       744,802       $ 0.00
Options canceled                                              295,191       (297,191)      $ 7.78
Canceled options not available for grant                      (88,764)            --       $ 5.29
Options granted                                            (1,389,200)     1,839,200       $ 6.33
Options exercised                                                  --       (604,310)      $ 5.88
                                                           ----------     ----------
Balance at December 31, 2003                                  513,335      4,815,497       $10.31
Increase in options available for grant                       600,000             --           --
Options canceled                                              614,137       (614,137)      $ 5.42
Canceled options not available for grant                     (303,749)            --       $ 6.49
Options granted                                            (1,146,348)     1,146,348       $ 6.05
Options exercised                                                  --       (737,224)      $ 3.96
                                                           ----------     ----------
Balance at December 31, 2004                                  277,375      4,610,484       $ 5.92
Increase in options available for grant                       600,000             --           --
Options canceled                                              798,583       (798,583)      $ 6.29
Canceled options not available for grant                     (120,400)            --       $ 5.86
Options granted                                              (657,375)       657,375       $ 6.77
Options exercised                                                  --       (768,925)      $ 4.46
                                                           ----------     ----------
Balance at December 31, 2005                                  898,183      3,700,351       $ 6.04
                                                           ==========     ==========
</TABLE>

     At December 31, 2005, 2,257,588 options were exercisable under these Plans.
Upon the adoption of the 1998 Stock Plan, canceled options under the 1988 Plan
are not available for future grants.


                                       54

<PAGE>

     The following table summarizes information about stock options and
restricted stock outstanding for all plans at December 31, 2005:

<TABLE>
<CAPTION>
                                   OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                    ------------------------------------------------   -----------------------------
                      Number of                                          Number of
                       Options          Weighted                          Shares
                     Outstanding        Average                         Exercisable
                        As of          Remaining          Weighted         As of         Weighted
Range of Exercise   December 31,   Contractual Life       Average      December 31,       Average
      Prices            2005           In Years       Exercise Price       2005       Exercise Price
-----------------   ------------   ----------------   --------------   ------------   --------------
<S>                 <C>            <C>                <C>              <C>            <C>
$ 0.00 - $ 0.00         643,304          2.98             $ 0.00                --        $ 0.00
$ 3.90 - $ 4.42         530,600          2.02               4.12           374,750          4.12
$ 4.49 - $ 6.45         539,324          3.45               6.04           256,135          5.83
$ 6.55 - $ 7.23         621,574          3.20               7.12           294,154          7.14
$ 7.25 - $ 8.50         641,250          4.23               8.24           609,000          8.27
$ 8.65 - $10.28         570,799          3.23               9.56           570,799          9.56
$10.50 - $21.00         153,500          3.03              11.39           152,750         11.38
                      ---------                                          ---------
                      3,700,351          3.20               6.04         2,257,588          7.69
                      =========                                          =========
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

     The Employee Stock Purchase Plan ("ESPP"), as amended in 2004, provides for
automatic annual increases in the number of shares reserved for issuance on
January 1 of each year by a number of shares equal to the lesser of (i) 400,000
shares, (ii) 2.0% 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. Effective January 1, 2006, the Company
terminated the ESPP in order to reduce compensation expense associated with the
plan in future periods on its consolidated statements of operations, upon
adoption of FASB Statement No. 123R -- Share-Based Payment in 2006.

FAIR VALUE DISCLOSURES

     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. To determine the additional pro
forma disclosures required by SFAS 123 for the 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 option-pricing model. The
following weighted average assumptions were used for grants in 2005, 2004 and
2003 respectively, expected volatility of 72%, 74% and 76%; risk free interest
rate of 4.1%, 3.0% and 2.0% and expected lives of 3.61, 3.60 and 3.45 years. The
Company has not paid dividends and assumed no dividend yield. The weighted
average fair value of those stock options granted in 2005, 2004 and 2003 was
$4.74, $4.09 and $3.46 per option, respectively. The fair value of each ESPP
purchase right is estimated on the beginning of the offering period using the
Black-Scholes option-pricing model with substantially the same assumptions as
the option plans but expected lives of .5 years. The weighted average fair value
of those purchase rights granted in 2005, 2004 and 2003 was $3.31 $2.86 and
$3.62 per right, respectively. Had compensation cost for the Company's two
stock-based compensation plans been determined based on the fair value at the
grant dates for awards in 2005, 2004 and 2003 under those plans consistent with
the provisions of SFAS 123, the Company's net income and earnings per share
would have been reduced as presented in the disclosure in Note 2 Stock-Based
Compensation.

     SFAS No. 123 requires the use of option pricing models that were not
developed for use in valuing employee stock options. The Black-Scholes
option-pricing model was developed for use in estimating the fair value of
short-lived exchange traded options that have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including the option's expected life and the
price volatility of the underlying stock. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single measure of the fair value of
employee stock options.

OPTION EXCHANGE

     On November 25, 2002, the Company made an exchange offer (the "Exchange")
to current officers and employees of the Company to exchange stock options held
by these employees for rights to receive shares of the Company's Common


                                       55

<PAGE>

Stock ("Restricted Units"). The offer period ended December 31, 2002 and the
Restricted Units were issued on January 3, 2003 (the "Exchange Date"). Employee
stock options eligible for the Exchange had a per share exercise price of $11.75
or greater, whether or not vested ("Eligible Options"). The offer provided for
an exchange ratio of three option shares surrendered for each Restricted Unit to
be received subject to vesting terms.

     In order to be eligible to participate in the Exchange ("Eligible
Participant"), the employee may not receive stock options or other equity awards
in the six months following the Exchange Date. In order to participate in the
Exchange, an Eligible Participant could tender all Eligible Options held, or any
selected Eligible Options granted by different stock option agreements. If an
Eligible Participant chose to participate, all options granted on or after May
26, 2002 were tendered regardless of the exercise price of such options. The
Units of restricted stock will vest in one-fourth increments on each of the
first, second, third and fourth annual anniversary dates of the Exchange Date.
If the employment of an employee who participated in the Exchange terminates
prior to the vesting, the employee will forfeit the unvested shares of
Restricted Units. As a result of the Exchange, the Company issued 744,802 rights
to receive Restricted Units in return for 2,234,250 stock options. The total
non-cash deferred compensation charge over the vesting period of four years is
approximately $4 million computed based on the share price at the date of
approval of $5.42 per share. The deferred compensation charge is unaffected by
future changes in the price of the common stock.

NOTE 10 - INCOME TAXES:

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

<TABLE>
<CAPTION>
               2005     2004      2003
             -------   ------   -------
<S>          <C>       <C>      <C>
Current:
   Federal   $ 6,007   $3,723   $  (637)
   State         342      202      (122)
   Foreign     2,152    4,569       552
             -------   ------   -------
               8,501    8,494      (207)
Deferred:
   Federal    (2,462)    (464)   (1,793)
   State          78      525     1,946
   Foreign    (4,061)    (578)     (615)
             -------   ------   -------
              (6,445)    (517)     (462)
             -------   ------   -------
             $ 2,056   $7,977   $  (669)
             =======   ======   =======
</TABLE>

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

<TABLE>
<CAPTION>
                                           2005      2004
                                         -------   -------
<S>                                      <C>       <C>
Bad debt, sales and warranty reserves    $ 3,281   $ 3,850
Accruals, inventory and other reserves     5,694     6,265
Net operating losses                       9,031     7,477
Foreign tax credits                        1,987       321
Other                                      1,899       902
                                         -------   -------
   Gross deferred tax assets              21,892    18,815
                                         -------   -------
Depreciation and amortization             (1,316)   (4,018)
                                         -------   -------
   Gross deferred tax liabilities         (1,316)   (4,018)
                                         -------   -------
Valuation allowance                       (5,919)   (5,280)
                                         -------   -------
   Net deferred tax assets               $14,657   $ 9,517
                                         =======   =======
</TABLE>

     Valuation allowances reduce the deferred tax assets to the amount that,
based upon all available evidence, is more likely than not to be realized. The
deferred tax assets valuation allowance at December 31, 2005 and 2004 is
attributed to certain foreign net operating loss carryovers that do not meet the
more likely than not standard of realizability.


                                       56
<PAGE>

     As of December 31, 2005, the Company had state net operating loss
carryforwards of approximately $17,246,262 available to offset future state
taxable income. The state net operating loss carryforwards will expire in
varying amounts beginning 2006 through 2023.

     As of December 31, 2005, the Company also has foreign net operating loss
carryforwards for the United Kingdom of approximately $4,817,000, for the
Netherlands of approximately $6,476,000 and for Germany of approximately
$4,433,900. The foreign net operating loss carryforwards for these three
countries will not expire and can be carried forward indefinitely.

     As of December 31, 2005, the Company also has a foreign tax credit
carryover in the amount of $1,987,153. The foreign tax credit will begin to
expire in various amounts beginning in 2012 through 2016.

     The tax benefit associated with dispositions from employee stock plans for
2005 is approximately $1,406,730, which was recorded as an addition to paid-in
capital and a reduction to taxes payable.

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

<TABLE>
<CAPTION>
                                                   2005    2004     2003
                                                   ----    ----    -----
<S>                                                <C>     <C>     <C>
Federal statutory rate                             35.0%   35.0%   (35.0)%
State income taxes, net of Federal tax
   benefit and credits                             15.1%    3.0%     0.8%
Difference between US and Foreign tax rate         11.1%    3.7%    34.0%
Extraterritorial income exclusion                  (4.7)%  (0.9)%  (13.0)%
Meals and entertainment                             6.3%    0.8%     2.9%
Non-deductible officer's compensation              14.2%    0.0%     0.0%
Other                                               4.0%   (0.3)%   (2.7)%
                                                   ----    ----    -----
Effective tax rate                                 81.0%   41.3%   (13.0)%
                                                   ====    ====    =====
</TABLE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES:

     The Company leases its facilities under cancelable and non-cancelable
operating lease agreements. The leases expire at various times through 2019 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 capital leases with such
equipment amounting to $2,405,000 less accumulated depreciation of $1,068,000 at
December 31, 2005. Depreciation expense on assets subject to capital leases was
$422,000 for the year ended December 31, 2005. The capital lease terms range
from 24 months to 60 months.

     The following is a summary of commitments under non-cancelable leases:

<TABLE>
<CAPTION>
                                          CAPITAL   OPERATING
        YEAR ENDING DECEMBER 31,           LEASES     LEASES
        ------------------------          -------   ---------
                                             (in thousands)
<S>                                       <C>       <C>
2005                                       $ 838     $11,693
2006                                          --       9,978
2007                                          --       6,905
2008                                          --       5,982
2009                                          --       4,705
2010 and beyond                               --      11,430
                                           -----     -------
Total minimum lease payments                 838     $50,693
                                                     =======
Less: imputed interest                      (101)
                                           -----
Present value of minimum lease payments    $ 737
                                           =====
</TABLE>


                                       57

<PAGE>

     Total operating lease expense was $9,446,000, $9,068,000 and $8,343,000 for
the years ended December 31, 2005, 2004 and 2003, 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, results of operations or cash flows.

NOTE 12 - TRANSACTIONS WITH RELATED PARTIES:

     One director of the Company is a director of one of the Company's
customers, Company A. Another director of the Company is a director of one of
the Company's customers/vendors, Company B. A third director of the Company is a
director of one of the Company's customers, Company F. A fourth director of the
Company is the President of one of the Company's consulting providers, Company
D. A fifth director of the Company is the President of one of the Company's
customers/vendors, Company E. A former president of one of the Company's
subsidiaries was a co-owner of one of the Company's customers in 2003, Company
G. The Company also leased a facility from Company G. Sales to these parties and
purchases of inventory and other services from these parties for the three years
ended December 31, 2005 and accounts receivable at December 31, 2005 and 2004
are summarized below:

<TABLE>
<CAPTION>
                                      (In thousands)
                                   --------------------
                                    2005    2004   2003
                                   ------   ----   ----
<S>                    <C>         <C>      <C>    <C>
SALES:
                       Company A   $   68   $176   $647
                       Company B    1,940    288    562
                       Company E       --     25     29
                       Company F        2     12     --
                       Company G       --     --    918
ACCOUNTS RECEIVABLE:
                       Company A       (2)    12
                       Company B       45     34
INVENTORY PURCHASED:
                       Company E        1     --     --
CONSULTING             Company D       --     22     55
RENT                   Company G       --     --     78
</TABLE>

NOTE 13 - 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. Beginning in 2006, the Company will provide a matching contribution of
25% of the employee's contribution to the Plan up to $2,500 per year.

NOTE 14 - GEOGRAPHIC INFORMATION:

     The Company operates in one industry segment and markets its products
worldwide through its own direct sales force. The Company attributes revenues
from customers in different geographic areas based on the location of the
customer. Sales in the U.S. were 40%, 38% and 38% of total sales for the years
ended December 31, 2005, 2004 and 2003, respectively.

     Geographic information consists of the following:

<TABLE>
<CAPTION>
                                  (in thousands)
                       ------------------------------------
                          2005         2004         2003
                       ----------   ----------   ----------
<S>                    <C>          <C>          <C>
Net sales:
   North America (1)   $1,410,156   $1,181,643   $  946,317
   Latin America          409,059      339,546      249,893
   Europe (2)           1,374,618    1,306,588    1,034,077
                       ----------   ----------   ----------
      Total            $3,193,833   $2,827,777   $2,230,287
                       ==========   ==========   ==========
</TABLE>


                                       58
<PAGE>

(1)  North America sales include sales in the United States of America of
     $1,287,000, $1,075,000 and $848,000 for the years ended December 31, 2005,
     2004 and 2003, respectively.

(2)  Europe sales include sales in the United Kingdom of $866,000, $843,000, and
     $664,000 for the years ended December 31, 2005, 2004 and 2003,
     respectively.

     The following table presents long-lived assets located in the Company's
country of domicile and located in all foreign countries.

<TABLE>
<CAPTION>
                                December 31,
                             -----------------
                               2005      2004
                             -------   -------
<S>                          <C>       <C>
Long -lived assets:
   United States             $ 4,536   $ 5,878
   United Kingdom              6,436    35,276
   Other foreign countries     2,240     1,651
                             -------   -------
      Total                  $13,212   $42,805
                             =======   =======
</TABLE>

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                            Quarter Ended
                                       ---------------------------------------------------------------------------------------
                                       Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
                                         2005       2005        2005       2005       2004        2004       2004       2004
                                       --------   ---------   --------   --------   --------   ---------   --------   --------
<S>                                    <C>        <C>         <C>        <C>        <C>        <C>         <C>        <C>
Net sales ..........................   $842,358    $759,056   $788,471   $803,948   $808,427    $728,731   $630,288   $660,331
Cost of sales ......................    783,486     701,139    731,341    746,649    744,082     670,023    581,220    611,044
                                       --------    --------   --------   --------   --------    --------   --------   --------
Gross profit .......................     58,872      57,917     57,130     57,299     64,345      58,708     49,068     49,287
Operating expenses:
Selling, general and administrative
   expenses ........................     49,973      48,704     46,463     45,445     50,052      49,266     43,191     42,731
Restructuring costs and special
   charges .........................     16,515          --         --         --         --          --         --         --
                                       --------    --------   --------   --------   --------    --------   --------   --------
Total operating expenses ...........     66,488      48,704     46,463     45,445     50,052      49,266     43,191     42,731
Operating income (loss) ............     (7,616)      9,213     10,667     11,854     14,293       9,442      5,877      6,556
Interest expense and other income ..      5,877       5,324      5,562      4,818      4,693       4,493      3,830      3,838
                                       --------    --------   --------   --------   --------    --------   --------   --------
Income (loss) from operations before
   income taxes ....................    (13,493)      3,889      5,105      7,036      9,600       4,949      2,047      2,718
Provision for (benefit from) income
   taxes ...........................     (4,107)      1,573      1,930      2,660      3,800       2,175        996      1,006
                                       --------    --------   --------   --------   --------    --------   --------   --------
Net income (loss) ..................   $ (9,386)   $  2,316   $  3,175   $  4,376   $  5,800    $  2,774   $  1,051   $  1,712
                                       ========    ========   ========   ========   ========    ========   ========   ========

Earnings (loss) per share
   Basic ...........................   $  (0.31)   $   0.08   $   0.11   $   0.15   $   0.20    $   0.10   $   0.04   $   0.06
   Diluted .........................   $  (0.31)   $   0.08   $   0.11   $   0.15   $   0.20    $   0.10   $   0.04   $   0.06
                                       ========    ========   ========   ========   ========    ========   ========   ========

Shares used in per share calculation
   Basic ...........................     29,906      29,496     28,999     28,795     28,407      27,990     27,194     27,068
                                       ========    ========   ========   ========   ========    ========   ========   ========
   Diluted .........................     29,906      30,405     29,696     29,635     29,344      28,553     27,659     28,079
                                       ========    ========   ========   ========   ========    ========   ========   ========
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.


                                       59

<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     After evaluating the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934
("the Exchange Act") as of the end of the period covered by this annual report,
our Chief Executive Officer and Chief Financial Officer, with the participation
of our management, have concluded that our disclosure controls and procedures
are effective to ensure that information that is required to be disclosed by us
in reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules of the
Securities Exchange Commission.

Management's Report on Internal Control over Financial Reporting

     Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Our internal control system was designed to ensure that
material information regarding our consolidated operations is made available to
management and the board of directors to provide them reasonable assurance that
the published financial statements are fairly presented. There are limitations
inherent in any internal control. As a result, even effective internal controls
can provide only reasonable assurance with respect to financial statement
preparation but may not prevent or detect misstatements. And, as conditions
change over time so to may the effectiveness of internal controls.

     Under the supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control--Integrated Framework issued by the
Committee of the Sponsoring Organizations of the Treadway Commission. Based on
our evaluation under the framework in Internal Control--Integrated Framework,
our management concluded that our internal control over financial reporting was
effective as of December 31, 2005. Management has excluded MCE Germany and Net
Storage from its assessment of internal control over financial reporting as of
December 31, 2005 because they were acquired by the Company in purchase business
combinations during 2005.

     Our management's assessment of the effectiveness of internal control over
financial reporting as of December 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included herein.

Changes in Internal Controls

     There were no changes in our internal control over financial reporting that
occurred during the period covered by this annual report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

ITEM 9B. OTHER INFORMATION

     In the fourth quarter of 2005, the Board of Directors, acting on the advice
of the Company's Chief Executive Officer and Chief Financial Officer, concluded
that a material charge was required in connection with the termination of a
components supply program in North America. We incurred a charge of $9.1
million, net of a $550,000 reversal of restructuring costs and special charges
taken in prior years that were adjusted to reflect actual charges.

     The impairment will not result in any future material cash expenditures.


                                       60

<PAGE>

                                    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 2006 Annual Meeting of Shareholders (the "Proxy
Statement").

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a)  Information concerning directors of Bell Microproducts Inc. appears in
          our Proxy Statement, under the captions "Corporate Governance" and
          "Election of Directors." This portion of the Proxy Statement is
          incorporated herein by reference.

     (b)  EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
        Name           Age                 Position
        ----           ---                 --------
<S>                    <C>   <C>
W. Donald Bell......    68   President, Chief Executive Officer and
                             Chairman of the Board
James E. Illson.....    52   Chief Operating Office, President of the
                             Americas and Chief Financial Officer
Richard J. Jacquet..    66   Vice President of Human Resources
Philip M. Roussey...    63   Executive Vice President, Enterprise Marketing
Robert J. Sturgeon..    52   Vice President of Information Technology
Graeme Watt.........    44   President, Bell Microproducts Europe
</TABLE>

               W. Donald Bell has been President, Chief Executive Officer and
          Chairman of the Board of Bell Microproducts 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.

               James E. Illson has been our Chief Operating Officer and
          President of Americas since November 2005 and our Chief Financial
          Officer since September 2002. From March 2000 to April 2002, Mr.
          Illson was Chief Executive Officer and President of Wareforce Inc. a
          value added reseller. Mr. Illson was with Merisel Inc. from August
          1996 to January 2000, serving in the position of Chief Financial
          Officer until March 1998, when he became President/Chief Operating
          Officer. Mr. Illson holds a Bachelors degree in Business
          Administration and a Masters degree in Industrial Administration. Mr.
          Illson has over 25 years experience in financial and operational
          fields.

               Richard J. Jacquet has been our Vice President of Human Resources
          since May 2000. From 1988 to May 2000, Mr. Jacquet served as Vice
          President of Administration of Ampex Corporation, an electronics
          manufacturing company. Prior to 1988, Mr. Jacquet served in various
          senior human resource positions with Harris Corporation and FMC
          Corporation.


                                       61

<PAGE>

               Philip M. Roussey has been our Executive Vice President of our
          Enterprise Marketing since February 2002, prior to which he served as
          our Executive Vice President of Computer Products Marketing from April
          2000 until February 2002 and as our Senior Vice President of Marketing
          for Computer Products and Vice President of Marketing from the
          inception of our Company in 1987 until April 2000. Prior to joining
          Bell Microproducts in 1987, Mr. Roussey served in management positions
          with Kierulff Electronics, most recently as Corporate Vice President
          of Marketing.

               Robert J. Sturgeon has been our Vice President of Information
          Technology since July 2000, prior to which, he served as our Vice
          President of Operations since joining the Company in 1992. From
          January 1991 to February 1992, Mr. Sturgeon was Director of
          Information Services for Disney Home Video. 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.

               Graeme Watt has been our President of Bell Microproducts, Europe
          since April 2004. From 1988 through 2003 he held a number of positions
          in IT distribution with Frontline Distribution, Computer 2000 and Tech
          Data as the companies were acquired. His most recent roles were
          Managing Director, United Kingdom for Computer 2000, Northern Region
          Managing Director for Tech Data Europe, and European President for
          Tech Data from 2000 to 2003. Mr Watt holds a Bachelor of Sciences
          Degree in Biological Science from Edinburgh University and is a
          qualified Chartered Accountant.

     (c)  Information concerning our Code of Ethics appears in our Proxy
          Statement, under the caption "Corporate Governance." This portion of
          the Proxy Statement is incorporated herein by reference.

     (d)  Information concerning compliance with Section 16(a) of the Securities
          Exchange Act of 1934 appears in our Proxy Statement, under the heading
          "Section 16(a) Beneficial Ownership Reporting Compliance," and is
          incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     Information concerning executive compensation appears in our Proxy
Statement, under the captions "Corporate Governance," "Executive Compensation,"
"Additional Information Relating to Directors and Officers of the Company," and
"Stock Performance Graph" 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 Proxy Statement, under the caption "Security
Ownership of Certain Beneficial Owners and Management," and is incorporated
herein by reference.


                                       62

<PAGE>

     The following table provides information concerning our equity compensation
plans as of December 31, 2005:

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                                                                               Column (c)
                                   Column (a)                                        Number of securities remaining
                            Number of securities to            Column (b)            available for future issuance
                            be issued upon exercise    Weighted-average exercise    under equity compensation plans
                            of outstanding options,      price of outstanding       (excluding securities reflected
Plan Category                 warrants and rights     options warrants and rights            in column (a)
-------------               -----------------------   ---------------------------   -------------------------------
<S>                         <C>                       <C>                           <C>
Equity compensation plans
   approved by security
   holders                         2,677,047                   $7.53 (1)                      898,183 (2)

Equity compensation
   plans not approved by
   security holders (3)              380,000                   $5.77                              --
                                   ---------                   -----                          -------
Total                              3,057,047                   $6.59                          898,183
                                   =========                   =====                          =======
</TABLE>

(1)  Weighted-average exercise price excludes 643,304 shares for restricted
     stock units with zero exercise price.

(2)  Includes shares under our 1998 Stock Plan, which plan provides for the
     automatic increase of shares on January 1 of each year of a number of
     shares equal to the lesser of (i) 600,000 shares, (ii) 4% of the
     outstanding shares on such date, or (iii) a lesser amount determined by the
     Board, subject to adjustment upon changes in our capitalization.

(3)  Represents stock options that have been granted to employees outside of the
     Company's 1998 Stock Plan, which options are represented by agreements
     substantially the same as agreements with respect to options under the 1998
     Stock Plan and generally provide for a vesting period as determined by the
     Board of Directors and expire over terms not exceeding ten years from the
     date of grant.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information concerning certain relationships and related transactions
appears in our Proxy Statement, under the caption "Additional Information
Relating to Directors and Officers of the Company," and is incorporated herein
by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Information concerning principal accountant fees and services appears in
our Proxy Statement under the caption "Ratification of Appointment of
Independent Registered Public Accounting Firm" and is incorporated herein by
reference.


                                       63
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

     (1)  Consolidated Financial Statements

     The financial statements (including the notes thereto) listed in the Index
to Consolidated Financial Statements (set forth in Item 8 of this Form 10-K) are
filed as part of this Annual Report on Form 10-K.

     (2)  Consolidated Financial Statement Schedule
          II - Valuation and Qualifying Accounts and Reserves            page 66

     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.

     (3)  Exhibits - See Exhibit Index following signature page

(b)  Exhibits. See Item 15(a) above.

(c)  Financial Statements and Schedule. See Item 15(a) above.


                                       64

<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 16, 2006.

                                        BELL MICROPRODUCTS INC.


                                        By: /s/ James E. Illson
                                            ------------------------------------
                                            James E. Illson
                                            Chief Operating Officer, President
                                            of Americas and Chief Financial
                                            Officer

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints W. Donald Bell and James E. Illson 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>
       SIGNATURE                                  TITLE                               DATE
       ---------                                  -----                               ----
<S>                       <C>                                                    <C>


/s/ W. Donald Bell        Chairman of the Board, President and Chief Executive   March 16, 2006
-----------------------   Officer (Principal Executive Officer)
(W. Donald Bell)


/s/ James E. Illson       Chief Operating Officer, President of  Americas and    March 16, 2006
-----------------------   Chief Financial Officer (Principal Financial and
(James E Illson)          Accounting Officer)


/s/ Gordon A. Campbell    Director                                               March 16, 2006
-----------------------
(Gordon A. Campbell)


/s/ Eugene B. Chaiken     Director                                               March 16, 2006
-----------------------
(Eugene Chaiken)


/s/ David M. Ernsberger   Director                                               March 16, 2006
-----------------------
(David M. Ernsberger)


/s/ Edward L. Gelbach     Director                                               March 16, 2006
-----------------------
(Edward L. Gelbach)


/s/ James E. Ousley       Director                                               March 16, 2006
-----------------------
(James E. Ousley)


/s/ Glenn E. Penisten     Director                                               March 16, 2006
-----------------------
(Glenn E. Penisten)


/s/ Mark L. Sanders       Director                                               March 16, 2006
-----------------------
(Mark L. Sanders)


/s/ Roger V. Smith        Director                                               March 16, 2006
-----------------------
(Roger V. Smith)
</TABLE>


                                       65

<PAGE>

                                                                     SCHEDULE II

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         Additions
                                            Balance                       Charged                  Balance
                                               at                         to Costs                  at End
                                           Beginning   Other   Special      and      Deductions-      of
Year Ended December 31,                    of Period    (1)    Charges    Expenses    Write-offs    Period
-----------------------                    ---------   -----   -------   ---------   -----------   -------
<S>                                        <C>         <C>     <C>       <C>         <C>           <C>
2003
Allowance for doubtful accounts              19,340       --       --       7,569       (9,342)     17,567
Allowance for excess and obsolete
inventory                                     8,617    2,319       --       8,405       (9,815)      9,526
Allowance for sales returns and warranty
obligations                                   8,582       --       --      57,340      (57,024)      8,898
Allowance for tax valuations                    934       --       --       3,147         (439)      3,641

2004
Allowance for doubtful accounts              17,567      721       --       8,970      (13,661)     13,597
Allowance for excess and obsolete
inventory                                     9,526    1,774       --       5,923       (7,984)      9,239
Allowance for sales returns and warranty
obligations                                   8,898      319       --      63,433      (63,374)      9,276
Allowance for tax valuations                  3,641       --       --       2,443         (805)      5,279

2005
Allowance for doubtful accounts              13,597      678    9,133       6,003       (7,521)     21,890
Allowance for excess and obsolete
inventory                                     9,239    5,017      648       7,414       (6,513)     15,805
Allowance for sales returns and warranty
obligations                                   9,276    1,082       --      76,584      (68,999)     17,943
Allowance for tax valuations                  5,279     (290)      --       1,271         (341)      5,919
</TABLE>

(1)  Balance consists of allowance for doubtful accounts and inventory
     provisions related to the acquisitions of subsidiaries and the effects of
     cumulative translation adjustments.


                                       66
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
NUMBER   DESCRIPTION OF DOCUMENT
------   -----------------------
<S>      <C>
3.1      Amended and Restated Articles of Incorporation of Registrant -
         incorporated by reference to Exhibit 4.1 filed with the Registrant's
         Registration Statement on Form S-3 (File No. 333-117555).

3.2      Amended and Restated Bylaws of Registrant - incorporated by reference
         to Exhibit 4.2 filed with the Registrant's Registration Statement on
         Form S-3 (File No. 333-117555).

4.1      Specimen Common Stock Certificate of the Registrant - 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.

4.2      Form of Indenture between the Company and Wells Fargo Bank, National
         Association, as Trustee, with respect to the Series B 3 3/4%
         Subordinated Convertible Notes due 2024 - incorporated by reference to
         Exhibit 4.1 to Registrant's Registration Statement on Form S-4 (File
         No. 333-120527).

4.3      Indenture dated as of April 30, 2004 between the Company and Wells
         Fargo Bank, National Association as Trustee, with respect to the 3 3/4%
         Subordinated Convertible Notes due 2024 - incorporated by reference to
         Exhibit 4.1 to Registrant's Registration Statement on Form S-3 (File
         No. 333-116130).

4.4      Form of Series B 3 3/4% Subordinated Convertible Notes due 2024
         (contained in Exhibit 4.2).

4.5      Form of 3 3/4% Subordinated Convertible Notes due 2024 (contained in
         Exhibit 4.3).

4.6      Registration Rights Agreement dated March 5, 2004 by and among the
         Registrant, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
         Raymond James & Associates, Inc. - incorporated by reference to Exhibit
         4.2 to Registrant's Registration Statement on Form S-3 (File No.
         333-116130).

10.1*    Registrant's 401(k) Plan - incorporated by reference to exhibit filed
         with the Registrant's Registration Statement on Form S-1 (File No
         33-60954).

10.2     Lease dated March 17, 1992 for Registrant's facilities at 1941 Ringwood
         Avenue; Suite 100, San Jose, California - incorporated by reference to
         exhibit filed with the Registrant's Registration Statement on Form S-1
         (File No. 33-60954)

10.3     Form of Indemnification Agreement - incorporated by reference to
         exhibit filed with the Registrant's Registration Statement on Form S-1
         (File No. 33-60954).

10.4     Lease dated February 17, 1999 for Registrant's facilities at 4048
         Castle Avenue, New Castle Delaware - incorporated by reference to
         Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
         ended March 31, 1999.

10.5     Lease dated August 1, 1999 for Registrant's facilities at 1941 Ringwood
         Avenue, Suite 200, San Jose, California - incorporated by reference to
         Exhibit 10.18 to the Registrant's Report on Form 10-K for the fiscal
         year ended December 31, 1999.

10.6*    Employment Agreement dated as of July 1, 1999 between the Registrant
         and W. Donald Bell, the Registrant's Chief Executive Officer -
         incorporated by reference to exhibit filed with the Registrant's Report
         on Form 8-K filed on January 13, 2000.

10.7     Office and warehouse lease, dated March 21, 1991, as amended by
         Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4 and
         Amendment No. 5 relating to Rorke Data facilities in Eden Prairie,
         Minnesota - incorporated by reference to Exhibit 10.1 to the
         Registrant's Report on Form 10-Q for the quarter ended June 30, 2000.

10.8     Lease, dated June 16, 2000, relating to Bell Microproducts - Future
         Tech facilities in Miami, Florida - incorporated by reference to
         Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter
         ended June 30, 2000.

10.9     Securities Purchase Agreement dated July 6, 2000 between the Registrant
         and The Retirement Systems of Alabama - incorporated by reference to
         exhibit filed with the Registrant's Report on Form 10-Q for the quarter
         ended September 30, 2000.

10.10*   Management Retention Agreements between the Registrant and the
         following executive officers of the Registrant: Philip M. Roussey and
         Robert J. Sturgeon - incorporated by reference to Exhibit 10.32 to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2000.

10.11*   1998 Stock Plan, as amended and restated through April 30, 2002, and
         form of option agreement - incorporated by reference to Exhibit 10.3
         to the Registrant's Annual Report on Form 10-K for the years ended
         December 31, 2004.

10.12*   Form of restricted stock unit agreement currently used under the 1998
         Stock Plan - incorporated by reference to Exhibit 99(D)(3) to Schedule
         TO (File No. 005-44304) filed November 26, 2002.
</TABLE>


                                       67

<PAGE>

<TABLE>
<CAPTION>
NUMBER   DESCRIPTION OF DOCUMENT
------   -----------------------
<S>      <C>
10.13*   Amendment to Employment Agreement dated as of July 1, 1999 between the
         Registrant and W. Donald Bell date as of April 30, 2002 - incorporated
         by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
         Form 10-Q for the quarter ended September 30, 2002.

10.14*   Executive Employment and Non-Compete Agreement dated as of August 13,
         2002 between the Registrant and James E. Illson - incorporated by
         reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
         10-Q for the quarter ended September 30, 2002.

10.15    Syndicated Credit Agreement effective as of December 2, 2002, as
         amended and restated through August 16, 2005 by and among Ideal
         Hardware Limited, Bell Microproducts Europe Export Limited, BM Europe
         Partners C.V., Bell Microproducts Europe BV, Bank of America, N.A. and
         certain banks and financial institutions.

10.16    Syndicated Composite Guarantee and Debenture effective as of December
         2, 2002 by and among Ideal Hardware Limited, certain other companies
         listed and Bank of America, N.A. - incorporated by reference to Exhibit
         10.40 to the Registrant's Annual Report on Form 10-K for the year ended
         December 31, 2002.

10.17    Priority Agreement effective as of December 2, 2002 by and among Bell
         Microproducts Limited, National Westminster Bank PLC and Bank of
         America, N.A. - incorporated by reference to Exhibit 10.41 to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2002.

10.18    First Union National Bank Loan and Security Agreement dated May 14,
         2001 - incorporated by reference to Exhibit 10.1 to the Registrant's
         Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 -
         incorporated by reference to Exhibit 10.42 to the Registrant's Annual
         Report on Form 10-K for the year ended December 31, 2002.

10.19    First Amendment to Loan and Security Agreement dated as of December 31,
         2002 by and among the Registrant, certain subsidiaries of the
         Registrant, certain financial institutions and Congress Financial
         Corporation - incorporated by reference to Exhibit 10.43 to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2002.

10.20    Supplemental Agreement Re Syndicated Credit Agreement dated November 6,
         2003 by and among Ideal Hardware Limited, Bell Microproducts Europe
         Export Limited, BM Europe Partners C.V., Bell Microproducts Europe BV,
         Bank of America, N.A. and certain banks and financial institutions -
         incorporated by reference to Exhibit 10.44 to the Registrant's Annual
         Report on Form 10-K for the year ended December 31, 2003.

10.21    Second Amendment to Loan and Security Agreement and Waiver dated
         October 9, 2003 with Congress Financial Corporation - incorporated by
         reference to Exhibit 10.45 to the Registrant's Annual Report on Form
         10K for the year ended December 31, 2003.

10.22*   Amendment to Employment Agreement dated October 19, 2000 between the
         Company and W. Donald Bell - incorporated by reference to Exhibit 10.1
         to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
         March 31, 2001.

10.23    First Amendment to Securities Purchase Agreement dated May 3, 2004
         between the Registrant and the Retirement Systems of Alabama -
         incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 2004.

10.24    Third Amendment to Loan and Security Agreement dated September 13, 2004
         between the Registrant and Congress Financial Corporation -
         incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 2004.

10.25    Credit and Security Agreement dated September 20, 2004 by and among
         Bell Microproducts Funding Corporation, the Registrant, Blue Ridge
         Asset Funding Corporation, certain Liquidity Banks and Wachovia Bank -
         incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 2004.

10.26    Receivables Sales Agreement dated September 20, 2004 between the
         Registrant and Bell Microproducts Funding Corporation - incorporated by
         reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form
         10-Q for the quarter ended September 30, 2004.

10.27    Supplemental Agreement to Syndicated Credit Agreement dated September
         22, 2004 by and among Ideal Hardware Limited, Bell Microproducts Europe
         Export Limited, BM Europe Partners C.V., Bell Microproducts Europe
         B.V., Bank of America, N.A. and certain banks and financial
         institutions - incorporated by reference to Exhibit 10.5 to the
         Registrant's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 2004.

10.28    Amendment No. 1 to Credit and Security Agreement dated January 31, 2005
         by and among the Registrants Blue Ridge Asset Funding Corporation,
         certain liquidity Banks and Wachovia Bank -  incorporated by reference
         to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the
         year ended December 31, 2004.

10.29*   Director Compensation as of August 3, 2005 - incorporated by reference
         to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on
         August 9, 2005.
</TABLE>


                                       68

<PAGE>

<TABLE>
<CAPTION>
NUMBER   DESCRIPTION OF DOCUMENT
------   -----------------------
<S>      <C>
10.30*   Stock Ownership Guidelines for Executive Officers and Directors as of
         August 3, 2005 - incorporated by reference to Exhibit 10.2 to the
         Registrant's Current Report on Form 8-K filed on August 9, 2005

10.31*   Form of Management Retention Agreement between the Company and certain
         officers of the Company - incorporated by reference to Exhibit 10.1 to
         the Registrant's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 2005.

10.32*   Supplemental Retirement Plan Benefit as of August 3, 2005 for W. Donald
         Bell - incorporated by reference to Exhibit 10.2 to the Registrant's
         Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.

10.33    Amended and Restated Credit and Security Agreement dated December
         28,2005 by and among Bell Microproducts Funding Corporation, the
         Registrant, Variable Funding Capital Company LLC, certain liquidity
         banks and Wachovia Bank - incorporated by reference to Exhibit 10.1 to
         the Registrant's Current Report on Form 8-K filed on January 4, 2006.

10.34*   2005 Annual Incentive Program

21.1     Subsidiaries of the Registrant

23.1     Consent of PricewaterhouseCoopers LLP, independent registered
         accounting firm

24.1     Power of Attorney (Contained on Signature page of this Form 10-K).

31.1     Certification of Chief Executive Officer Pursuant to Section 302 of
         Sarbanes-Oxley Act of 2002.

31.2     Certification of Chief Financial Officer Pursuant to Section 302 of
         Sarbanes-Oxley Act of 2002.

32.1     Certification of Chief Executive Officer Pursuant to Section 906 of
         Sarbanes-Oxley Act of 2002.

32.2     Certification of Chief Financial Officer Pursuant to Section 906 of
         Sarbanes-Oxley Act of 2002.
</TABLE>

*    Management contract or compensatory plan, contract or arrangement required
     to be filed as an exhibit to this Form 10-K.


                                       69