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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
             [x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1997
                                       OR
             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from ____________ to ____________.

                         Commission file number: 0-21528

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

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

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

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

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

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

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

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

  The aggregate market value of the voting stock held by  non-affiliates  of the
registrant,  as of February 28, 1998, was  approximately  $52,901,368 based upon
the last sale price reported for such date on the Nasdaq  National  Market.  For
purposes  of this  disclosure,  shares  of Common  Stock  held by  officers  and
directors  of the  Registrant  have been  excluded  because  such persons may be
deemed to be affiliates. This determination is not necessarily conclusive.

         The number of shares of  Registrant's  Common Stock  outstanding  as of
February 28, 1998 was 8,726,778.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive  Proxy Statement for the Company's  Annual Meeting of
Shareholders to be held on May 21, 1998 are  incorporated by reference into Part
III of this Form 10-K

         Index of Exhibits appears on Pages 39, 40 and 41

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<PAGE>


                                     PART I

ITEM 1:  Business

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

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

Products and Services

   Semiconductor Products

         The Company  distributes  a broad range of  semiconductor,  passive and
electromechanical products including memory, logic,  microprocessor,  peripheral
and  specialty  components.  The  products  distributed  primarily  are advanced
integrated  circuits,  critical to the  performance of the  customer's  products
utilizing  these  components.  The  Company's  customer  base for its  component
products   comprises   primarily   small  and   medium-sized   OEMs,   including
manufacturers of computer and office products,  industrial  equipment (including
machine tools, factory automation and robotic equipment), scientific and medical
instruments and  telecommunications  products. The Company's principal suppliers
of  semiconductor  products  in  1997  included  IBM  Microelectronics,  Cypress
Semiconductor,  Fujitsu  Microelectronics,  NEC Electronics,  Sony  Electronics,
Harris  Semiconductor and OKI Semiconductor.  In addition,  in 1997, the Company
became a  national  distributor  of IBM Flat  Panel and Flash  memory  products,
Simple Technology  memory/communication  products,  Cal-Chip passive components,
AND displays and Interfan high performance cooling fans.

   Computer Products

         While a substantial portion of the Company's sales of computer products
in 1997 was  attributable to hard disk drives,  the Company's  computer  product
sales also  included  tape drives,  optical disk  drives,  networking  products,
computers, motherboards and value-added services and solution products. Based on
a  comparison  of its product  lines with product  lines  offered by other major
industrial  electronics  distributors,  the Company believes that its breadth of
product  offerings for mass storage computer  products is among the strongest in
the industry.  The Company  distributes  these products  primarily to industrial
OEMs, hardware integrators, VARs and other resellers.

         Disk,  Tape and Optical  Drives.  The Company  sells  floppy,  hard and
optical disk and tape drives to a wide range of customers,  including industrial
OEMs (some of which produce  computer,  office,  medical and


                                      -1-
<PAGE>

telecommunications  products),  as  well as  integrators  and  manufacturers  of
computers  based on the UNIX,  DOS/Windows and Macintosh  operating  systems and
frequently markets subsystems to integrators and VARs. To serve these customers,
Bell Microproducts  offers a full range of products from the industry leaders in
mass storage such as Adaptec Inc., Exabyte Corporation, IBM, Maxtor Corporation,
Quantum Corporation, Seagate Technology, Sun Microelectronics, a division of Sun
Microsystems Inc., TEAC and Western Digital Corporation.

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

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

   Value-Added Services

         The Company provides the following value-added services:

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

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

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

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

         Bellstor.  The  Company  offers its own  product  line of disk and tape
subsystems and RAID products to OEM's, VAR's, and integrators for application in
standard interface computer environments.

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

                                      -2-
<PAGE>
Distribution Operations


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

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

Backlog

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

Marketing and Sales

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

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


                                      -3-
<PAGE>


Strategy

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

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

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

         Provide  National Major Market  Distribution.  The Company  focuses its
marketing  and sales  strategy  on the  largest  U.S.  markets  with the goal of
maximizing  productivity  per sales  office.  With its 20 sales  locations,  the
Company  addresses what it believes  constitutes  many of the largest sectors of
the  national  market for  semiconductor  and  computer  products.  The  Company
continues to evaluate potential expansion into additional markets.

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

Employees

         At December 31, 1997, the Company had a total of 652 employees. None of
the Company's  employees are  represented by a labor union.  The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.  The Company's  future  success will depend in part upon its continuing
ability to attract and retain highly qualified  personnel.  Competition for such
employees  is intense and there can be no  assurance  that the  Company  will be
successful in attracting  and retaining such  personnel.  Failure to attract and
retain highly  qualified  personnel could have a material  adverse effect on the
Company's results of operations.

Risk Factors

Potential Fluctuations in Quarterly Operating Results

         The Company's quarterly operating results have in the past and could in
the future fluctuate  substantially.  The Company's expense levels are based, in
part, on expectations  of future sales. If sales in a particular  quarter do not
meet  expectations,  operating  results  could be  adversely  affected.  Factors
affecting  quarterly  operating  results  include the loss of key  suppliers  or
customers,  price  competition,  problems  incurred in managing  inventories  or
receivables, the timing or cancellation of orders from major customers, a change
in the  product  mix  sold by the


                                      -4-
<PAGE>

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

Year 2000 Compliance

         Many currently  installed computer systems experience problems handling
dates beyond the year 1999. Therefore,  some computer hardware and software will
need to be modified  prior to the year 2000 in order to remain  functional.  The
Company is  currently  assessing  both the  internal  readiness  of its computer
systems and that of its significant suppliers.  The Company expects to implement
successfully the systems and programming  changes necessary to address year 2000
issues,  and does not believe that the cost of such actions will have a material
effect on the Company's results of operations or financial condition.  There can
be no assurance,  however,  that there will not be a delay,  or increased  costs
associated with, the implementation of such changes, and the Company's inability
to implement  such  changes  could have an adverse  effect on future  results of
operations.

         The  Company's  reliance  on  suppliers,  and  therefore  on the proper
functioning of their information systems and software, means that the failure to
address,  by both the Company and its  suppliers,  year 2000 issues could have a
material impact on the Company's  operations and financial results,  however the
potential impact and related costs are not known at this time.

Dependence on Suppliers

         A select  number of suppliers  represent a  significant  portion of the
Company's sales.  One supplier  provided  products which  represented 43% of the
Company's sales in 1997, and 37% in 1996. The Company's  distribution  agreement
with this supplier is cancelable upon 90 days notice. In the past,  distribution
arrangements with significant suppliers have been terminated and there can be no
assurance  that,  in the  future,  one or  more  of  the  Company's  significant
distributor  relationships  will not be terminated.  The loss of any significant
supplier  or  the  shortage  or  loss  of any  significant  product  line  could
materially  adversely  affect the Company.  For example,  in 1997 the  Company's
operating  results were  materially and adversely  affected by the bankruptcy of
one  of  the  Company's  disk  drive  suppliers.  As  the  Company  enters  into
distribution  arrangements with new suppliers,  other competitive  suppliers may
terminate their distribution  arrangements with the Company with minimal notice.
To the extent that the Company is unable to enter into or maintain  distribution
arrangements  with leading  suppliers of  components,  the  Company's  sales and
operating results could be materially adversely affected.


                                      -5-
<PAGE>


Risks Associated with Limited Price and Inventory Protection Rights

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

Dependence on the Personal Computer Industry

         Many of the products the Company sells are used in the  manufacture  or
configuration of personal  computers.  These products are characterized by rapid
technological  change,  short product life cycles and intense  competition.  The
personal computer  industry has experienced  significant unit volume growth over
the past  three  years  which  has,  in turn,  increased  demand for many of the
products distributed by the Company.  However, any slowdown in the growth of the
personal  computer  industry,  or  growth  at less than  expected  rates,  could
adversely  affect the  Company's  ability to  continue  its revenue  growth.  In
addition,  many of the Company's customers in the personal computer industry are
subject to the risks of significant shifts in demand and severe price pressures,
which may increase the risk that the Company may not be able to collect accounts
receivable owed by some of its customers. To the extent the Company is unable to
collect its accounts  receivable,  the Company's  results of operations would be
adversely affected.

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

Cyclical Nature of the Semiconductor and Disk Drive Industries

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


                                      -6-
<PAGE>

Competition

         The distribution industry is highly competitive. In the distribution of
semiconductor and computer  products,  the Company  generally  competes for both
supplier and customer  relationships with numerous local,  regional and national
authorized and  unauthorized  distributors and for customer  relationships  with
semiconductor  and computer  product  manufacturers,  including  some of its own
suppliers.  Many of the  Company's  distribution  competitors  are larger,  more
established  and have greater  name  recognition  and  financial  and  marketing
resources  than  the  Company.   The  Company   believes  that  competition  for
distribution  customers is based on product  lines,  customer  service,  product
availability,   competitive  pricing  and  technical  information,  as  well  as
value-added  services  including  kitting  and  turnkey  assembly.  The  Company
believes that it competes favorably with respect to these factors.  There can be
no assurance that the Company will be able to compete successfully with existing
or new competitors. Failure to do so would have a material adverse effect on the
Company's results of operations.

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

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

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

         The Company's revenues from its contract  manufacturing  operations are
likely to depend on the  availability  of  necessary  components,  from a single
source  or  otherwise,  whose  lack  of  availability  could  delay  or  curtail
production and shipment of assemblies  utilizing such components.  The Company's
contract  manufacturing division has been dependent historically on a relatively
limited  customer base. Any  significant  rescheduling or cancellation of orders
from these customers,  or the lack of financial strength of these customers,  or
loss of customers altogether could have a material adverse effect on the results
of operations of the contract manufacturing division and on the profitability of
the  Company.   In  1997,  certain  key  customers  of  the  Company's  contract
manufacturing  division  significantly  reduced their orders,  which,  given the
relatively  fixed costs  associated  with the Company's  contract  manufacturing
operation,  materially and adversely affected the Company's operating results in
1997.  There  can be no  assurance  that the  Company's  contract  manufacturing
division   will  retain   existing   major   customers,   attract  new  contract
manufacturing  customers or otherwise  increase sales levels to support expanded
operations or that it will achieve  profitability in future periods.  Failure to
do so would have an adverse effect on the Company's operating results.


                                      -7-
<PAGE>


Management of Growth

         The  Company's  growth in recent  years has placed,  and  continues  to
place,  a  strain  on  the  Company's  management,   financial  and  operational
resources. The Company intends to continue to pursue its growth strategy through
increasing sales of existing and new product offerings,  increasing geographical
sales  coverage,  and possibly  through  strategic  acquisitions.  In 1997,  the
Company expanded its corporate  offices into a second building and relocated its
contract  manufacturing  division to expand its facilities and enable  increased
manufacturing  capacity.  Continued  growth may  require  additional  equipment,
increased  personnel,  expanded information systems and additional financial and
administrative  control  procedures.  There can be no assurance that the Company
will be able to  attract  and retain  qualified  personnel  or  further  develop
accounting and control systems and  successfully  manage  expanding  operations,
including  an  increasing  number of supplier  and  customer  relationships  and
geographically dispersed locations.  Further, there can be no assurance that the
Company  will be able to  sustain  its  recent  rate of growth or  continue  its
profitable operations.

ITEM 2:  Properties
<TABLE>
<CAPTION>
                                                                            Square
    Location                  Type                  Principal Use           Footage                 Ownership
------------------    ---------------------    ------------------------    -----------   ---------------------------------
<S>                   <C>                      <C>                         <C>           <C>
San Jose, CA          Office, warehouse        Headquarters,               34,000        Leased  until  1999 with  option
                                               distribution center                       to extend one year.
                                               (Bldg. One)

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

San Jose, CA          Warehouse                Distribution Center         37,797        Leased  until  July 1997 to June
                                                                                         2002.

San Jose, CA          Office, plant &          Contract Manufacturing      141,520       Leased   until   March  1997  to
                      warehouse                                                          February 2006.
</TABLE>

         The Company also leases sales  and/or  warehouse  locations in Phoenix,
Arizona; Agoura Hills, Irvine, San Diego, California; Denver, Colorado; Alamonte
Springs and Deerfield Beach,  Florida;  Marietta,  Georgia;  Chicago,  Illinois;
Columbia, Maryland; Woburn, Massachusetts;  Eden Prairie, Minnesota; Pine Brook,
New Jersey; Smithtown, New York; Portland, Oregon; Richardson and Austin, Texas;
Centerville, Utah; Herndon, Virginia and Redmond, Washington.

ITEM 3:  Legal Proceedings

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

ITEM 4:  Submission of Matters to a Vote of Security Holders

         None.

                                      -8-
<PAGE>


                                     PART II

ITEM 5:  Market for Registrant's Common Equity and Related Stockholder Matters
<TABLE>
         The  Company's  Common  Stock is traded on the Nasdaq  National  Market
under the  symbol  "BELM."  The  following  table  sets  forth  for the  periods
indicated  the high and low sale  prices  of the  Common  Stock as  reported  by
Nasdaq.
<CAPTION>
                                                                                         High          Low
                                                                                    ------------  ------------
<S>                                                                                 <C>           <C>
Fiscal 1996
    First Quarter............................................................       $    8.25     $    5.88
    Second Quarter...........................................................            9.88          6.63
    Third Quarter............................................................            8.13          5.75
    Fourth Quarter ..........................................................            8.88          6.75
Fiscal 1997
    First Quarter............................................................        $  13.88     $    8.63
    Second Quarter ..........................................................           13.00          9.63
    Third Quarter ...........................................................           11.75          8.13
    Fourth Quarter ..........................................................           12.00          6.75
Fiscal 1998
    First Quarter (through February 28, 1998)................................       $    8.75     $    7.06

</TABLE>
         On  February  28,  1998,  the last sale  price of the  Common  Stock as
reported by Nasdaq was $8.00 per share.

         As of February 28, 1998 there were  approximately 300 holders of record
of the Common Stock (not including shares held in street name).

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


                                      -9-
<PAGE>


ITEM 6:  Selected Financial Data
<TABLE>
         The  selected  financial  data of the Company set forth below should be
read in conjunction with the financial statements of the Company,  including the
notes thereto,  and  Managements's  Discussion and Analysis  included  elsewhere
herein.

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

Statement of Operations Data:                  1997        1996         1995        1994(1)      1993(2)
                                           ---------    ---------    ---------    ---------    ---------
<S>                                        <C>          <C>          <C>          <C>          <C>
Sales ..................................   $ 533,736    $ 483,316    $ 346,291    $ 250,753    $ 125,303
Cost  of sales .........................     476,648      425,258      305,696      217,277      107,999
                                           ---------    ---------    ---------    ---------    ---------
  Gross profit .........................      57,088       58,058       40,595       33,476       17,304
Marketing, general and
  administrative expenses ..............      44,430       41,008       30,352       23,258       13,200
                                           ---------    ---------    ---------    ---------    ---------
  Income from operations ...............      12,658       17,050       10,243       10,218        4,104
Interest expense .......................      (4,574)      (3,495)      (3,473)      (1,691)        (501)
                                           ---------    ---------    ---------    ---------    ---------
  Income before income taxes ...........       8,084       13,555        6,770        8,527        3,603
Provision for income taxes .............       3,395        5,693        2,768        3,471        1,549
                                           ---------    ---------    ---------    ---------    ---------
Net income .............................   $   4,689    $   7,862    $   4,002    $   5,056    $   2,054
                                           =========    =========    =========    =========    =========

Earnings per share (3)
   Basic ...............................   $     .55    $     .94    $     .49    $     .91    $     .63
                                           =========    =========    =========    =========    =========
   Diluted .............................   $     .53    $     .92    $     .48    $     .86    $     .45
                                           =========    =========    =========    =========    =========
Shares used in per share calculation (3)
   Basic ...............................       8,562        8,359        8,173        5,571        3,258
                                           =========    =========    =========    =========    =========
   Diluted .............................       8,906        8,511        8,350        5,878        4,515
                                           =========    =========    =========    =========    =========

                                                                As of December 31,
                                           ---------------------------------------------------------------
Balance Sheet Data:                             1997         1996         1995       1994(1)      1993(2)
                                           ----------    ---------     ---------    --------     ---------

Working capital ........................     $134,612     $105,958     $106,914     $ 52,230     $ 17,400
Total assets ...........................      205,420      175,680      157,277      122,502       51,253
Total long-term debt ...................       74,460       50,885       59,453        6,059        1,130
Total shareholders' equity .............       77,667       71,127       62,462       56,465       18,351
<FN>
(1)  1994  Statement  of  Operations  Data and Balance  Sheet Data reflect the effects of the purchase of
     Vantage Components, Inc. on May 26, 1994.

(2)  1993  Statement of  Operations  Data and Balance  Sheet Data reflect  theeffects  of the purchase of
     certain assets of Adlar Turnkey Manufacturing Corporation ("ATMC") on April 7, 1993.

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


                                                  -10-
<PAGE>


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

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

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

Results of Operations
<TABLE>
         The following  table sets forth certain  financial data as a percentage
of total Company sales for the periods indicated:
<CAPTION>
                                                          Year Ended December 31,
                                                   ---------------------------------------
                                                        1997          1996         1995
                                                   -----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
Sales
     Distribution ............................          86.3%         80.9%         85.7%
     Manufacturing ...........................          13.7%         19.1%         14.3%
                                                   -----------    ----------    ----------
          Total Company.......................         100.0%        100.0%        100.0%

                                                   -----------    ----------    ----------
Cost of sales
     Distribution ............................          76.1%         71.4%         75.6%
     Manufacturing ...........................          13.2%         16.6%         12.7%
                                                   -----------    ----------    ----------
          Total Company ......................          89.3%         88.0%         88.3%
                                                   -----------    ----------    ----------
                Gross profit .................          10.7%         12.0%         11.7%
Marketing, general and administrative expenses           8.3%          8.5%          8.8%
                                                   -----------    ----------    ----------
Income  from operations ......................           2.4%          3.5%          2.9%
Interest expense .............................          (0.9%)        (0.7%)        (1.0%)
                                                   -----------    ----------    ----------
Income before income taxes ...................           1.5%          2.8%          1.9%
Provision for income taxes ...................           0.6%          1.2%          0.8%
                                                   -----------    ----------    ----------
Net income ...................................           0.9%          1.6%          1.1%
                                                   ===========    ==========    ==========
</TABLE>


YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

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


                                      -11-
<PAGE>

primarily due to  unfavorable  timing between new business  engagements  and the
termination of a major customer contract.

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

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

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

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

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

         Net sales were $483.3  million for the year ended  December  31,  1996,
which  represented an increase of $137.0 million or 40% over 1995.  Distribution
sales  increased by $94.6  million,  while sales through the Company's  contract
manufacturing  division increased by $42.4 million over 1995.  Substantially the
entire increase in distribution sales was attributable to computer products with
the expansion of unit sales in existing  product  lines due to increased  demand
for mass storage  products,  a larger  proportion of  value-added  and subsystem
sales and the  expansion of the  customer  base due to the addition of sales and
marketing  resources.  Semiconductor  sales decreased slightly in 1996 from 1995
primarily  due to decreased  DRAM unit sales,  industry-wide  price  declines in
memory products and the  discontinuation  of the  distribution  agreement with a
supplier. Manufacturing sales growth in 1996 was primarily a result of increased
sales to  existing  customers,  enabled  by  increased  manufacturing  equipment
capacity.

         The Company's gross profit for 1996 was $58.1 million,  which was $17.5
million,  or 43% higher than 1995.  Of the total gross  profit  increase,  $11.4
million was  attributable  to the  distribution  division,  and $6.1 million was
generated through the Company's contract manufacturing division. As a percentage
of sales,  gross  margin  was 12.0% in 1996 as  compared  to 11.7% in 1995.  The
increase in total Company gross margin was primarily a result of increased gross
margin in the contract  manufacturing  division to 13.0% in 1996, as compared to
11.8% in 1995. The increase in contract manufacturing gross margin was primarily
attributable  to  decreased   material  costs,  most  significantly  for  memory
products. In the distribution  division,  margins in 1996 were 11.8% compared to
11.7% in 1995.

         Marketing,  general  and  administrative  expenses  increased  to $41.0
million in 1996 from $30.4  million in 1995,  an increase of $10.6  million,  or
35%, but  decreased as a percentage  of sales to 8.5% from 8.8%.  The decline in
marketing,  general and  administrative  expenses as a  percentage  of sales was
primarily  attributable  to the  Company's  successful  efforts to control costs
while  increasing  sales,  and a higher  proportion  of sales from large


                                      -12-
<PAGE>

volume  orders,  particularly  for hard disk  drives and  certain  semiconductor
devices,  both of which resulted in lower operating  expenses as a percentage of
sales. The increase in expenses was attributable to increased sales volume,  the
Company's continuing effort to expand its sales and marketing organization,  the
addition of operating  expenses related to the contract  manufacturing  division
and increases to bad debt  expenses due to increased  sales volumes and changing
market conditions.

         Interest  expense  remained  unchanged  at $3.5  million in 1996 versus
1995, despite record sales growth over the same period. This was attributable to
the Company's  efforts to manage  working  capital by decreasing  its days sales
outstanding  in  accounts   receivable,   increasing  its  inventory  turns  and
negotiating more favorable payment terms with certain suppliers.

         The  Company's  effective  income tax rate  increased  to 42.0% in 1996
compared to 40.9% in 1995,  primarily  due to the increased  Federal  income tax
rate.

LIQUIDITY AND CAPITAL RESOURCES

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

         On June 17,  1997,  and as further  amended in March 1998,  the Company
entered  into  an  amendment  to the  Amended  and  Restated  Syndicated  Credit
Agreement  arranged by Sumitomo Bank of California  ("Sumitomo  Bank") as Agent.
The amendment  increased the Company's $80 million  revolving  line of credit to
$100 million.  At the Company's option,  the borrowings under the line of credit
will bear interest at Sumitomo Bank's prime rate or the adjusted LIBOR rate plus
1.4%. At December 31, 1997, the prime interest rate was 8.5%. The revolving line
of credit has a final payment due date of May 31, 1999.  The  revolving  line of
credit  requires the Company to meet certain  financial tests and to comply with
certain  other  covenants  on  a  quarterly  basis,  including  restrictions  on
incurrence  of debt and liens,  restrictions  on  mergers,  acquisitions,  asset
dispositions, declaration of dividends, repurchases of stock, making investments
and profitability. Obligations of the Company under the revolving line of credit
are  secured  by  substantially  all  of  the  Company's  assets.   The  balance
outstanding  on the  revolving  line of credit at  December  31,  1997 was $70.0
million.  The Company  intends to utilize its  revolving  line of credit to fund
future working capital requirements. The Company was in compliance with its bank
covenants  at December  31, 1997;  however,  there can be no assurance  that the
Company will be in  compliance  with its bank  covenants  in the future.  If the
Company  does not remain in  compliance  with the  covenants  in its Amended and
Restated  Syndicated  Credit  Agreement  and is  unable  to  obtain a waiver  of
noncompliance from its banks, the Company's  financial  condition and results of
operations  would  be  materially  adversely  affected.  The  Company  evaluates
potential  acquisitions  from time to time and may utilize its line of credit to
acquire complementary businesses, provided consent from its banks is obtained.

         The Company's  accounts  receivable and  inventories as of December 31,
1997 have increased to $79.4 million and $98.4 million, respectively, from $70.7
million and $78.7 million,  respectively, as of December 31, 1996 primarily as a
result of the Company's increased sales. The Company's accounts payable remained
unchanged at $45.5 million in 1997 compared to $45.7 million in 1996.

         The net amount of cash  provided by  financing  activities  in 1997 was
$24.1 million,  principally from the utilization of the Company's revolving line
of credit with its banks. The net amount of cash used in operating



                                      -13-
<PAGE>

activities in 1997 was $20.5  million.  The net amount of cash used in investing
activities  in 1997  was $3.0  million,  for the  acquisition  of  property  and
equipment.

         The Company's  results of operations for any  particular  period may be
adversely  affected by numerous  factors,  such as the loss of key  suppliers or
customers,  price  competition,  problems  incurred in managing  inventories  or
receivables, the timing or cancellation of orders from major customers, a change
in the  product  mix  sold by the  Company,  customer  demand,  availability  of
products from  suppliers,  management of growth,  the percent of revenue derived
from  distribution  versus  contract  manufacturing,  the  Company's  ability to
collect  accounts  receivable,  price  decreases on inventory  that is not price
protected, the timing or cancellation of purchase orders with or from suppliers,
the timing of  expenditures  in  anticipation  of  increased  sales and customer
product  delivery  requirements  and the future  profitability  of the  contract
manufacturing division. Price competition in the industries in which the Company
competes is intense and could result in gross margin declines,  which could have
an adverse  impact on the  Company's  profitability.  In various  periods in the
past,  the  Company's  operating  results  have  been  affected  by all of these
factors.  For example,  in 1997 the Company's  operating results were materially
and adversely  affected by the  bankruptcy  of one of the  Company's  disk drive
suppliers.  Additionally, price fluctuations in the disk drive and semiconductor
industries  have affected the Company's  gross  margins in recent  periods.  The
Company's  contract  manufacturing  division has experienced lower than expected
sales which,  when combined with the division's  relatively fixed overhead,  has
adversely impacted operating results in recent periods. The Company has recently
experienced  rapid sales  growth and there can be no  assurance  that such sales
growth will  continue or that such sales and profit  levels will be  maintained.
The Company's cash requirements  will depend on numerous factors,  including the
rate of growth of its sales.  The Company  believes  that its  working  capital,
including its existing credit facility, will be sufficient to meet the Company's
short-term capital  requirements.  However, the Company may seek additional debt
or equity financing to fund continued growth.

ITEM 8:  Financial Statements and Supplementary Data

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

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

         None.


                                      -14-
<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  1998  Annual  Meeting  of  Shareholders  (the  "Proxy
Statement").

ITEM 10:   Directors and Executive Officers of the Registrant


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

         (b)      Executive Officers Of The Registrant
<TABLE>
                  The following  table and  descriptions  identify and set forth
information regarding the Company's five executive officers:
<CAPTION>
                  Name                  Age                            Position
                  ----                  ---                            --------
<S>                                      <C>   <C>
   W. Donald Bell....................    60    President, Chief Executive Officer and
                                               Chairman of the Board
   Bruce M. Jaffe....................    54    Chief Financial Officer, Senior Vice President of
                                               Finance & Operations and Secretary
   Ronald H. Mabry...................    50    Senior Vice President of Semiconductor Marketing
   Philip M. Roussey.................    55    Senior Vice President of Computer Products Marketing
   Robert J. Sturgeon................    44    Vice President of Operations
</TABLE>

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

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


                                      -15-
<PAGE>



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

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

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


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


ITEM 11:   Executive Compensation

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


ITEM 12:   Security Ownership of Certain Beneficial Owners and Management

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


ITEM 13:   Certain Relationships and Related Transactions

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


                                      -16-
<PAGE>

                                     PART IV

ITEM 14:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<TABLE>
(a)      The following documents are filed as part of this Form 10-K:
<CAPTION>

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

                  Report of Independent Accountants                                          F-1

                  Balance Sheets at December 31, 1997
                    and 1996                                                                 F-2

                  Statements of Income for the years
                    ended December 31, 1997, 1996 and 1995                                   F-3

                  Statements of Shareholders' Equity for the years
                    ended December 31, 1997, 1996 and 1995                                   F-4

                  Statements of Cash Flows for the years ended
                    December 31, 1997, 1996 and 1995                                         F-5

                  Notes to Financial Statements                                              F-6

         (2)      Financial Statement Schedule

                  II  -  Valuation and Qualifying Accounts and Reserves                      S-1
</TABLE>

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

         (3)    Exhibits

         Number Description of Document

         2.1    Agreement and Plan of Reorganization  dated as of February 2,
                1994  between  Registrant,   Bell  Microproducts  Acquisition
                Corporation,   a  New  York   corporation  and   wholly-owned
                subsidiary  of  Registrant,  Vantage  Components  Inc., a New
                Jersey  corporation,  Vantage  Components,  Inc.,  a New York
                corporation, Vantage Components of Maryland, Inc., a Maryland
                corporation   and  Vantage   Components   of  MA,   Inc.,   a
                Massachusetts corporation (1)

         2.2    Amendment No. 1 to Agreement and Plan of Reorganization dated
                as of February 2, 1994 between Registrant, Bell Microproducts
                Acquisition   Corporation,   a  New  York   corporation   and
                wholly-owned  subsidiary of Registrant,  Vantage  Components,
                Inc., a New Jersey  corporation,  Vantage  Components Inc., a
                New York corporation, Vantage Components of Maryland, Inc., a
                Maryland  corporation  and Vantage  Components of MA, Inc., a
                Massachusetts corporation (2)

         3.1    Amended and Restated Articles of Incorporation of Registrant (3)


                                      -17-

<PAGE>


        (3)     Exhibits Continued

      Number    Description of Document

        3.2     Amended and Restated Bylaws of Registrant (4)

        4.1     Specimen Common Stock Certificate of the Registrant (4)

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

        4.3     Warrant issued to Sutro & Co. Incorporated (2)

        10.1    1988 Incentive Stock Plan, as amended through May 21, 1997 (11)

        10.2    The form of Option Agreement used under the 1988 Incentive Stock
                Plan (5)

        10.3    Employee Stock  Purchase  Plan, as amended  through May 21, 1997
                (11)

        10.4    The form of  Option  Agreement  used  under the  Employee  Stock
                Purchase Plan (5)

        10.5    1993 Director Stock Option Plan, as amended through May 24, 1995
                (5)

        10.6    The form of Option  Agreement used under the 1993 Director Stock
                Option Plan (5)

        10.7    Registrant's 401(k) Plan (4)

        10.8    Lease dated March 17, 1992 for  Registrant's  facilities at 1941
                Ringwood Avenue, Suite 100, San Jose, California (4)

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

       10.10    Amended and Restated Asset Purchase Agreement dated February 26,
                1993 by and  between  Registrant,  Barclay  Financial  Group and
                Adlar Turnkey Manufacturing Company, as amended (4)

       10.11    Form of  Convertible  Note  issued  by  Registrant  in  favor of
                Barclay Financial Group (4)

        10.12   Amended and Restated  Credit  Agreement dated as of May 23, 1995
                by and  among  the  Registrant,  the  Banks  named  therein  and
                Sumitomo Bank of California,  as Agent for the Banks, as amended
                (2)

       10.13    First Amendment to Second Amended and Restated Credit  Agreement
                dated as of June 25, 1996 by and among the Registrant, the Banks
                named therein and Sumitomo Bank of California,  as Agent for the
                Banks (7)

       10.14    Second Amendment to Second Amended and Restated Credit Agreement
                dated as of September 30, 1996 by and among the Registrant,  the
                Banks named  therein and Sumitomo Bank of  California,  as Agent
                for the Banks (8)

       10.15    Third Amendment to Second Amended and Restated Credit  Agreement
                dated as of June 17, 1997 by and among the Registrant, the Banks
                named therein and Sumitomo Bank of California,  as Agent for the
                Banks (9)


                                      -18-
<PAGE>


         (3)     Exhibits Continued

       Number   Description of Document

       10.16    Fourth Amendment to Second Amended and Restated Credit Agreement
                dated as of September 1, 1997 by and among the  Registrant,  the
                Banks named  therein and Sumitomo Bank of  California,  as Agent
                for the Banks (10)

       10.17    Fifth Amendment to Second Amended and Restated Credit  Agreement
                dated as of  November 7, 1997 by and among the  Registrant,  the
                Banks named  therein and Sumitomo Bank of  California,  as Agent
                for the Banks

       10.18    Standard Distributor Agreement dated June 1, 1990 by and between
                Quantum Corporation and Registrant (4)

       10.19    Form of Indemnification Agreement (4)

       10.20    IBM Authorized  Distributor Agreement dated May 17, 1993 between
                IBM Corporation and Registrant (4)

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

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

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

       21.1     Subsidiaries of the Registrant

       23.1     Consent of Price Waterhouse LLP, independent accountants

       24.1     Power of Attorney (contained on page 21)

----------------------
       *        Confidential  treatment  has been  granted for  portions of this
                document.

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

       (2)      Incorporated by reference to exhibit filed with the Registrant's
                Registration  Statement  on Form S-1 (File No.  33-79692) in the
                form declared effective on November 1, 1994.

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

       (4)      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.

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


                                      -19-
<PAGE>


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

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

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

       (9)      Incorporated by reference to exhibit filed with the Registrant's
                Report on Form 10Q for the quarter ended June 30, 1997.

       (10)     Incorporated by reference to exhibit filed with the Registrant's
                Report on Form 10Q for the quarter ended September 30, 1997.

       (11)     Incorporated by reference to exhibit filed with the Registrant's
                Registration Statement on Form S-8 (File No. 333-41179) filed on
                November 26, 1997.

       (b)      No reports on Form 8-K were filed during the last quarter of the
                fiscal year ended December 31, 1997.

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

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


                                      -20-
<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 30, 1998.


                        BELL MICROPRODUCTS INC.


               By:    /s/ Bruce M. Jaffe
                  ----------------------------------
                          Bruce M. Jaffe
                    Chief Financial Officer, Senior Vice President of Finance &
                    Operations and Secretary (Principal Financial and Accounting
                    Officer)


                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears  below  constitutes  and  appoints W. Donald Bell and Bruce M. Jaffe 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 30, 1998
-------------------------------
(W. Donald Bell)                    Officer (Principal Executive Officer)


    /s/ Bruce M. Jaffe              Chief Financial Officer, Senior Vice President of Finance    March 30, 1998
-------------------------------
(Bruce M. Jaffe)                    & Operations and Secretary  (Principal Financial and
                                    Accounting Officer)


    /s/ James E. Ousley             Director                                                     March 30, 1998
-------------------------------
(James E. Ousley)


    /s/ Glenn E. Penisten           Director                                                     March 30, 1998
-------------------------------
(Glenn E. Penisten)


    /s/ Gordon A. Campbell          Director                                                     March 30, 1998
-------------------------------
(Gordon A. Campbell)


    /s/ Edward L. Gelbach           Director                                                     March 30, 1998
-------------------------------
(Edward L. Gelbach)
</TABLE>


                                                           -21-
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


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

         In our opinion,  the financial statements listed in the index appearing
under  Item  14 (a) (1) and (2) on  page  17  present  fairly,  in all  material
respects, the financial position of Bell Microproducts Inc. at December 31, 1997
and 1996,  and the results of its  operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity  with generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
mistatement.  An audit includes examining,  on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



PRICE WATERHOUSE  LLP
San Jose, California
February 4, 1998


                                      F-1

<PAGE>




                              BELL MICROPRODUCTS INC.
                                 BALANCE SHEETS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                          ------------------------
                                                                             1997          1996
                                                                          --------       --------
<S>                                                                       <C>            <C>
ASSETS
Current assets:
     Cash                                                                 $  6,325       $  5,682
     Accounts receivable, net of allowance for doubtful accounts of
         $1,331 and $4,228                                                  79,389         70,686
     Inventories                                                            98,379         78,659
     Deferred income taxes                                                   2,595          3,714
     Prepaid expenses                                                        1,217            885
                                                                          --------       --------
            Total current assets                                           187,905        159,626

Property and equipment, net                                                 10,733          9,006
Goodwill, net of accumulated amortization of $1,112 and $799                 6,372          6,685
Other assets                                                                   410            363
                                                                          --------       --------
     Total assets                                                         $205,420       $175,680
                                                                          ========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
     Notes payable, current portion                                       $   --         $    294

     Accounts payable                                                       45,540         45,725
     Other accrued liabilities                                               6,025          6,271
     Current portion of capitalized lease obligations                        1,728          1,378
                                                                          --------       --------
            Total current liabilities                                       53,293         53,668

Line of credit                                                              70,000         45,900
Capitalized lease obligations, less current portion                          4,460          4,985
                                                                          --------       --------
     Total liabilities                                                     127,753        104,553
                                                                          --------       --------

Commitments and contingencies (Note 7)
Shareholders' equity:
     Preferred Stock, $0.01 par value, 10,000 shares authorized;
         none issued and outstanding                                          --             --
     Common Stock, $0.01 par value, 20,000 shares authorized;
         8,696 and 8,445 shares issued and outstanding                      53,495         51,644
     Retained earnings                                                      24,172         19,483
                                                                          --------       --------
            Total shareholders' equity                                      77,667         71,127
                                                                          --------       --------
     Total liabilities and shareholders' equity                           $205,420       $175,680
                                                                          ========       ========

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


                                              F-2
<PAGE>




                             BELL MICROPRODUCTS INC.
                              STATEMENTS OF INCOME
                      (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                     -------------------------------------------
                                                       1997             1996              1995
                                                     ---------        ---------        ---------
<S>                                                  <C>              <C>              <C>
Sales                                                $ 533,736        $ 483,316        $ 346,291
Cost of sales                                          476,648          425,258          305,696
                                                     ---------        ---------        ---------
     Gross profit                                       57,088           58,058           40,595
Marketing, general and administrative expenses          44,430           41,008           30,352
                                                     ---------        ---------        ---------
Income from operations                                  12,658           17,050           10,243

Interest expense                                        (4,574)          (3,495)          (3,473)
                                                     ---------        ---------        ---------
Income before income taxes                               8,084           13,555            6,770
Provision for income taxes                               3,395            5,693            2,768
                                                     ---------        ---------        ---------
Net income                                           $   4,689        $   7,862        $   4,002
                                                     =========        =========        =========
Earnings per share (Note 2)
     Basic                                           $    0.55        $    0.94        $    0.49
                                                     =========        =========        =========
     Diluted                                         $    0.53        $    0.92        $    0.48
                                                     =========        =========        =========
Shares used in per share calculation (Note 2)
     Basic                                               8,562            8,359            8,173
                                                     =========        =========        =========
     Diluted                                             8,906            8,511            8,350
                                                     =========        =========        =========

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


                                                 F-3
<PAGE>


                             BELL MICROPRODUCTS INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        Common Stock
                                                                  ---------------------      Retained
                                                                   Shares       Amount       Earnings        Total
                                                                  -------       -------       -------       -------
<S>                                                               <C>           <C>          <C>           <C>
Balance at December 31, 1994                                        8,047      $ 48,846      $  7,619      $ 56,465
Exercise of Stock options, including related tax benefit of
 $181                                                                 103           749          --             749
Issuance of Common Stock under Stock Purchase Plan                     66           473          --             473
Conversion of note payable to Common Stock                            107           773          --             773
Net Income                                                           --            --           4,002         4,002
                                                                  -------       -------       -------       -------
Balance at December 31, 1995                                        8,323        50,841        11,621        62,462
Exercise of stock options, including related tax benefit of
$159                                                                   26           202          --             202
Issuance of Common Stock under Stock Purchase Plan                     96           601          --             601
Net Income                                                           --            --           7,862         7,862
                                                                  -------       -------       -------       -------

Balance at December 31, 1996                                        8,445        51,644        19,483        71,127
Exercise of stock options, including related tax benefit of
$225                                                                  147         1,117          --           1,117
Issuance of Common Stock under Stock Purchase Plan                    104           734          --             734
Net Income                                                           --            --           4,689         4,689
                                                                  -------       -------       -------       -------

Balance at December 31, 1997                                        8,696       $53,495       $24,172       $77,667
                                                                  =======       =======       =======       =======

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


                                                 F-4
<PAGE>

                             BELL MICROPRODUCTS INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                      ----------------------------------------------
                                                                         1997               1996               1995
                                                                      ---------          ---------          --------
<S>                                                                   <C>               <C>                  <C>
Cash flows from operating activities:
  Net income                                                          $  4,689           $  7,862             $4,002
  Adjustments to reconcile net income to
    net cash provided by (used in) operating activities:
  Depreciation and amortization                                          2,917              2,569              1,659
  Change in allowance for doubtful accounts                             (2,897)               928              1,220
  Change in deferred and refundable income taxes                         1,119               (296)            (2,020)
  Changes in assets and liabilities:
    Accounts Receivable                                                 (5,806)            (6,348)           (14,651)
    Inventories                                                        (19,720)            (8,397)           (13,236)
    Prepaid Expenses                                                      (332)               (44)              (294)
    Other assets                                                           (47)              (210)                49
    Accounts payable                                                      (185)            14,129             (3,483)
    Other accrued liabilities                                             (246)             3,566                795
                                                                      ---------          ---------          --------
Net cash provided by (used in) operating activities                    (20,508)            13,759            (25,959)
                                                                      ---------          ---------          --------
Cash flows from investing activities:
  Acquisition of property and equipment, net                            (2,998)            (1,120)            (1,160)
                                                                      ---------          ---------          --------
Cash flows from financing activities:
  Net borrowings/(repayments) under line of credit
   agreement                                                            24,100              8,600             33,000
  Net repayments on current portion of long-term liabilities              (294)              --               (5,000)
  Proceeds from issuance of Common Stock                                 1,851                803              1,222
  Principal payments on long-term liabilities                           (1,508)            (1,649)            (1,016)
                                                                      ---------          ---------          --------
Net cash provided by (used in) financing activities                     24,149             (9,446)            28,206
                                                                      ---------          ---------          --------
Net increase in cash                                                       643              3,193              1,087
Cash at beginning of period                                              5,682              2,489              1,402
                                                                      ---------          ---------          --------
Cash at end of period                                                 $  6,325           $  5,682           $  2,489
                                                                      =========          =========          ========
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest                                                          $  4,641           $  3,355           $  3,380
    Income taxes                                                      $  2,695           $  5,744           $  4,282
Supplemental non-cash financing activities:
  Obligations incurred under capital leases                           $  1,333           $  2,392           $  5,254
  Conversion of note payable to Common Stock                              --             $   --             $    773

<FN>
 The accompanying notes are integral part of these financial statement
</FN>
</TABLE>


                                      F-5
<PAGE>


                             BELL MICROPRODUCTS INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - THE COMPANY:

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

         Revenues are  recognized  when  products are  shipped.  Provisions  for
estimated losses on returns and for expected  warranty costs are recorded at the
time of sale.

Concentration of Credit and Other Risks

         Financial   instruments  which  potentially   subject  the  Company  to
concentrations of credit risk consist  principally of accounts  receivable.  The
Company performs ongoing credit  evaluations of its customers and generally does
not require collateral.
The Company maintains reserves for estimated collection losses.

         Two  vendors   accounted   for  57%,  53%  and  40%  of  the  Company's
distribution inventory purchases during 1997, 1996 and 1995,  respectively.  One
such  vendor  has  obtained  a  second   priority  lien  against  the  Company's
inventories to secure payment on the Company's purchase of goods.

Inventories

         Inventories  are  stated at the  lower of cost or  market,  cost  being
determined by the first-in, first-out (FIFO) method.

Property and Equipment

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

Goodwill

         Assets  and   liabilities   acquired  in   connection   with   business
combinations  accounted  for under the  purchase  method are  recorded  at their
respective fair values.  The excess of the purchase price over the fair value of
the assets  acquired is amortized on a  straight-line  basis over a  twenty-five
year period.  The Company  periodically  reviews the  recoverability of goodwill
based on estimated future cash flows.


                                      F-6
<PAGE>


Income Taxes

         The Company accounts for income taxes in accordance with the provisions
of Statement  of Financial  Accounting  Standards  No. 109 (SFAS 109).  SFAS 109
requires,  among other  things,  that  deferred  income  taxes be  provided  for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities as part of the income tax provisions.

Disclosures About Fair Value of Financial Instruments

         Financial  instruments  that  are  subject  to  fair  value  disclosure
requirements are carried in the financial statements at amounts that approximate
fair value.

Earnings Per Share

         The Company  adopted  Statement of Financial  Accounting  Standards No.
128,  "Earnings Per Share" ("SFAS 128") during the fourth quarter of 1997.  This
statement  simplifies  the  standards  for  computing  earnings  per share (EPS)
previously  defined in Accounting  Principles Board Opinion No. 15 "Earnings Per
Share". All prior-period earnings per share data has been restated in accordance
with SFAS 128. SFAS 128 requires  presentation of both Basic EPS and Diluted EPS
on the face of the  Statement  of Income.  Basic EPS is computed by dividing net
income  available to common  shareholders  (numerator)  by the weighted  average
number of common shares outstanding (denominator) during the period. Diluted EPS
gives effect to all dilutive  potential  common  shares  outstanding  during the
period including stock options, using the treasury stock method, and convertible
preferred stock,  using the if-converted  method.  In computing Diluted EPS, the
average stock price for the period is used in  determining  the number of shares
assumed to be purchased from the exercise of stock options.
<TABLE>
         Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below:
<CAPTION>

                                                                Year Ended December 31,
                                                           --------------------------------
                                                             1997         1996         1995
                                                           ------       ------       ------
<S>                                                        <C>          <C>          <C>
Net income                                                 $4,689       $7,862       $4,002
                                                           ======       ======       ======
Weighted average common shares outstanding (basic)          8,562        8,359        8,173

Effect of dilutive warrants and options                       344          152          177
                                                           ------       ------       ------
Weighted average common shares outstanding (diluted)        8,906        8,511        8,350
                                                           ======       ======       ======

Earnings Per Share:
Basic                                                      $ 0.55       $ 0.94       $ 0.49
                                                           ======       ======       ======
Diluted                                                    $ 0.53       $ 0.92       $ 0.48
                                                           ======       ======       ======
</TABLE>

         Options and  warrants to purchase  478,200  shares of common stock at a
weighted  average price of $9.98 per share were outstanding at December 31, 1997
but were not  included in the  computation  of Diluted EPS because the  options'
exercise  price was greater than the average  market price of the common shares.
At December 31, 1996,  there were 363,450  options and warrants  outstanding  to
purchase  common stock at a weighted  average price of $8.76 per share  excluded
from the Diluted EPS  computation  due to their  anti-dilution.  At December 31,
1995,  there were 405,450  options and warrants  outstanding to purchase  common
stock at a weighted  average price of $11.03 per share excluded from the Diluted
EPS computation due to their anti-dilution.


                                      F-7
<PAGE>


Stock-Based Compensation

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

Recently Issued Accounting Standards

         In June 1997, the Financial  Accounting  Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS").  SFAS No. 130, "Reporting
Comprehensive  Income,"  establishes  standards  for  reporting  and  display of
comprehensive income within a financial  statement.  This Statement requires the
Company to report additional  information on comprehensive  income to supplement
the  reporting of income.  SFAS No. 130 is effective for both interim and annual
periods  beginning  after December 15, 1997.  Comparative  financial  statements
provided  for  earlier   periods  are  required  to  be   reclassified  so  that
comprehensive  income is  displayed  in a  comparative  format  for all  periods
presented.  SFAS No.  131,  "Disclosures  about  Segments of an  Enterprise  and
Related  Information,"  establishes  standards  for  related  disclosures  about
products and services,  geographic  areas and major  customers.  SFAS No. 131 is
effective for financial  statements  for periods  beginning  after  December 15,
1997. The Company will adopt SFAS No. 130 for the first quarter of 1998 and does
not  expect  its  provisions  to  have a  significant  effect  on the  Company's
presentation of its financial statements. The Company will adopt SFAS No. 131 as
of the year ending December 31, 1998 and is currently studying its provisions.

Management Estimates

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

NOTE 3 - BALANCE SHEET COMPONENTS:

                                                                December 31,
                                                       ------------------------
                                                          1997           1996
                                                       --------        --------
                                                            (in thousands)
Inventories:
   Work-in-process                                     $  8,646        $  9,146
   Purchased components and materials                    89,733          69,513
                                                       --------        --------
                                                       $ 98,379        $ 78,659
                                                       ========        ========
Property and equipment:
   Manufacturing and test equipment                    $  9,721        $  9,070
   Computer and other equipment                           4,041           3,212
   Furniture and fixtures                                 1,950           1,147
   Leasehold improvement                                  1,784            --
   Warehouse equipment                                      459             195
                                                       --------        --------
                                                         17,955          13,624
   Less: accumulated depreciation and amortization       (7,222)         (4,618)
                                                       ========        ========
                                                       $ 10,733        $  9,006
                                                       ========        ========


                                      F-8
<PAGE>


NOTE 4 - LINE OF CREDIT AND TERM LOAN:

         On June 17,  1997 and as further  amended in March  1998,  the  Company
entered  into  an  amendment  to the  Amended  and  Restated  Syndicated  Credit
Agreement,  arranged by Sumitomo Bank of California  ("Sumitomo Bank") as Agent.
The amendment  increased the Company's $80 million  revolving  line of credit to
$100 million and extended the maturity  date to May 31, 1999.  At the  Company's
option,  the borrowings  under the line of credit will bear interest at Sumitomo
Bank's  prime rate or the adjusted  LIBOR rate plus 1.40%.  At December 31, 1997
the prime  interest rate was 8.50%.  The revolving  line of credit  requires the
Company  to meet  certain  financial  tests and to  comply  with  certain  other
covenants on a quarterly basis, including restrictions on incurrence of debt and
liens, restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends,  repurchases of stock,  making  investments  and  profitability.  The
Company was in compliance with its bank covenants at December 31, 1997; however,
there can be no assurance  that the Company will be in compliance in the future.
Obligations  of the Company  under the  revolving  line of credit are secured by
substantially all of the Company's assets.

NOTE 5 - STOCK-BASED COMPENSATION PLANS:

Stock Option Plans

         The Company  has two fixed stock  option  plans;  the 1988  Amended and
Restated Incentive Stock Plan (the 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.
Since inception,  the Company has reserved  2,524,104 shares of Common Stock for
issuance under the Plan.

         The options  lapse five years  after the date of grant or such  shorter
period as may be provided for in the stock option agreement. All options granted
vest over four years. 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,  in March 1993,  the Board of Directors  adopted a
Management  Incentive  Program (the  "Program")  for key  employees.  Under this
Program,  options for 130,000,  339,000 and 224,000  shares of Common Stock were
granted in 1997, 1996 and 1995, respectively.  The Program provides for ten-year
option terms with  vesting at the rate of 1/10th per year,  with  potential  for
accelerated vesting based upon attainment of certain performance objectives. The
options lapse ten years after the date of grant or such shorter period as may be
provided for in the stock option agreement.

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


                                      F-9
<PAGE>

<TABLE>
         The following table presents activity under the Plan:
<CAPTION>
                                                                     Options outstanding
                                                                -----------------------------
                                                Options                            Weighted
                                              available for                        average
                                                 grant             Shares       exercise price
                                              ----------        ----------        ----------
<S>                                           <C>                <C>               <C>
Balance at December 31, 1994                     109,283           729,888        $    8.36

Increase in options available for grant          435,000              --            --

Options granted                                 (516,800)          516,800        $   10.19
Options exercised                                   --            (105,798)       $    5.44
Options canceled                                 181,260          (181,260)       $    9.21
                                              ----------        ----------        ----------
Balance at December 31, 1995                     208,743           959,630        $    9.50

Increase in options available for grant          300,000              --            --
Options granted                               (1,126,800)        1,126,800        $    6.99
Options exercised                                   --             (22,530)       $    1.94
Options canceled                                 842,900          (842,900)       $    9.88
                                              ----------        ----------        ----------
Balance at December 31, 1996                     224,843         1,221,000        $    7.06

Increase in options available for grant          300,000              --            --
Options granted                                 (629,500)          629,500        $    9.54
Options exercised                                   --            (147,312)       $    6.48
Options canceled                                 277,729          (277,729)       $    7.08
                                              ----------        ----------        ----------
Balance at December 31, 1997                     173,072         1,425,459        $    8.21
                                              ==========        ==========        ==========
</TABLE>

         At December 31, 1997, 204,708 options were exercisable under this Plan.
<TABLE>
         The following table  summarizes  information  about fixed stock options
outstanding for all plans at December 31, 1997.
<CAPTION>
                                            OPTIONS OUTSTANDING                                 OPTIONS EXERCISABLE
                          --------------------------------------------------------    -----------------------------------------
                            Number of
                              Shares         Weighted Average                           Number of Shares
                           Outstanding           Remaining                               Exercisable As
                              As of          Contractual Life          Weighted          of December 31,          Weighted
 Range of Exercise         December 31,                                Average                1997                 Average
       Prices                  1997                                 Exercise Price                             Exercise Price
---------------------     ---------------    ------------------    -----------------    ------------------     ----------------
<S>                          <C>                   <C>                 <C>              <C>                       <C>
$  6.50  -  $  6.50            450,513             5.27 years          $  6.50                55,487              $  6.50
$  7.00  -  $  7.88            259,021             4.53                   7.53               124,446                 7.42
$  8.00  -  $  8.75            304,325             4.94                   8.55                85,075                 8.14
$  9.00  -  $  9.50            261,900             5.74                   9.23                10,350                 9.06
$  9.63  -  $12.63             245,700             5.17                  10.66                 6,350                11.14
 $12.75  -  $12.75               4,000             1.82                  12.75                 3,000                12.75
                          ---------------    ------------------    -----------------    ------------------     ----------------
$  6.50  -  $12.75           1,525,459             5.13                $  8.24               284,708              $  7.66
                          ===============    ==================    =================    ==================     ================
</TABLE>
         The  Company's  Director Plan provides for the grant of an aggregate of
145,000 options for the purchase of the Company's  Common Stock.  75,000 options
were granted in 1993 at an exercise price of $8.00 per share, and 20,000 options
were granted in 1996 at an exercise price of $7.00.  These options vest annually
at the rate of 1/3 and


                                      F-10
<PAGE>


have a ten-year life. In 1997,  20,000 options were granted at an exercise price
of $12.63.  These options become vested in one year and have a ten-year life. At
December 31, 1997, 100,000 options were outstanding.

         For the fixed stock option  plans,  the fair value of each option grant
used for  calculating  pro forma net  income is  estimated  on the date of grant
using  the  Black-Scholes  multiple  option-pricing  model  with  the  following
weighted   average   assumptions  used  for  grants  in  1997,  1996  and  1995,
respectively;  expected volatility of 35%; risk free interest rate of 5.9%, 6.0%
and 6.0% and expected  lives of 3.92,  4.19 and 4.70 years.  The Company has not
paid dividends and assumed no dividend yield. The weighted average fair value of
those  stock  options  granted  in 1997,  1996 and 1995 was  $3.35 and $2.00 and
$3.87, per option, respectively.

Employee Stock Purchase Plan

         The Company has reserved 380,000 shares of Common Stock for issuance to
all  eligible  employees  under its Employee  Stock  Purchase  Plan.  Sales made
through  this plan  will be at the  lower of 85% of market  price at the date of
purchase or on the first day of each six-month  offering period.  329,114 shares
have been issued under this plan as of December 31, 1997. The fair value of each
purchase  right is estimated on the  beginning of the offering  period using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions used in 1997, 1996 and 1995,  respectively;  expected  volatility of
35%; risk free interest rate of 5.56%, 5.64% and 5.48% and expected lives of 0.5
years.  The Company has not paid  dividends and assumed no dividend  yield.  The
weighted  average fair value of those purchase  rights granted in 1997, 1996 and
1995 was $2.43, $1.82 and $2.59 per right, respectively.

Fair Value Disclosures

         At December 31, 1997,  the Company had three  stock-based  compensation
plans as  described  above.  The  Company  applies  APB  Opinion 25 and  related
interpretations in accounting for its plans.  Accordingly,  no compensation cost
has  been  recognized  for  its  plans,  all  of  which  are  fixed  plans.  Had
compensation  cost for the Company's three stock-based  compensation  plans been
determined  based on the fair value at the grant dates for awards in 1997,  1996
and  1995  under  those  plans  consistent  with  the  provisions  of  Financial
Accounting  Standards No. 123,  "Accounting for Stock-Based  Compensation",  the
Company's net income and earnings per share would have been reduced as presented
below:

                                 1997           1996            1995
                              ---------      ---------       ----------
Net income:
     As reported            $   4,689       $   7,862       $   4,002
     Pro forma                  4,015           7,206           3,696
Earnings per share
     As reported
       Basic                     0.55            0.94            0.49
       Diluted                   0.53            0.92            0.48
     Pro forma
       Basic                     0.47            0.86            0.45
       Diluted                   0.47            0.85            0.44

         Because additional stock options and stock purchase rights are expected
to be granted each year and this proforma  presentation includes only the effect
of  options  granted  subsequent  to  December  31,  1994,  the  above pro forma
disclosures are not  representative  of pro forma effects on reported  financial
results for future years.


                                      F-11
<PAGE>


NOTE 6 - INCOME TAXES:

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

                               1997          1996          1995
                             -------       -------        -------
Current:
       Federal               $ 1,880       $ 5,893        $ 2,716
       State                     396         1,495            424
                             -------       -------        -------
                               2,276         7,388          3,140
Deferred:
       Federal                   968        (1,382)          (284)
       State                     151          (313)           (88)
                             =======       =======        =======
                             $ 3,395       $ 5,693        $ 2,768
                             =======       =======        =======

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

                                                1997         1996         1995
                                             -------      -------      -------

Basis differential in assets                 $   (98)     $  (110)     $  (118)
Depreciation                                    (678)        (621)        (201)
                                             -------      -------      -------
     Gross deferred tax liabilities             (776)        (731)        (319)
                                             -------      -------      -------

Bad debt, sales and warranty reserves            637        1,922        1,351
Inventory reserves and basis differences       1,605        1,756          495
Compensation accruals and reserves               254          128          110
State taxes, net of federal benefit               70          391           67
Other                                            805          248           66
                                             -------      -------      -------
     Gross deferred tax assets                 3,371        4,445        2,089
                                             -------      -------      -------

     Net deferred tax asset                  $ 2,595      $ 3,714      $ 1,770
                                             =======      =======      =======

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

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

                                 1997        1996        1995
                               ---------   ---------   --------

Federal statutory rate             34.0%       35.0%       34.0%
State income taxes, net of
Federal tax                         4.2%        5.7%        3.3%
    benefit and credits
Other                               3.8%        1.3%        3.6%
                               ---------   ---------   --------

                                   42.0%       42.0%       40.9%
                               =========   =========   ========

NOTE  7 - COMMITMENTS AND CONTINGENCIES:

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


                                      F-12
<PAGE>


         The Company leases certain equipment under capitalized leases with such
equipment  amounting to $10,042,000 less accumulated  depreciation of $3,512,000
at December 31, 1997 and $8,698,000 less accumulated  depreciation of $2,335,000
at December  31, 1996.  Amortization  expense on assets  subject to  capitalized
leases was $1,177,000, $1,307,000, and $696,000 for the years ended December 31,
1997, 1996 and 1995, respectively.  The capitalized lease terms range from three
to five years.

         The following is a summary of commitments under leases:

                                                 Capitalized   Operating
               Year ending December 31,           leases       leases
-----------------------------------------         -------      -------
                                                     (in thousands)

1998                                              $ 2,179      $ 2,392
1999                                                2,132        2,040
2000                                                1,907        1,746
2001                                                  692        1,632
2002                                                  216        1,629
2003 and beyond                                       --         3,549
                                                  -------      -------
Total minimum lease payments                        7,126      $12,988
                                                               =======
Less:  imputed interest                              (938)
                                                  -------
Present value of minimum lease payments           $ 6,188
                                                  =======

         Total operating lease expense was $2,508,000, $1,272,000 and $1,167,000
for the years ended December 31, 1997, 1996 and 1995, 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  affect  on the  Company's
financial position or results of operations.

NOTE 8 - TRANSACTIONS WITH RELATED PARTIES:

         The Company has entered into a  manufacturing  agreement  with Pinnacle
Systems,  Inc.  ("Pinnacle")  providing  for the  performance  by the  Company's
manufacturing  division  of  value-added  turnkey  services  for  Pinnacle.  The
agreement term is automatically  renewed for successive  one-year periods unless
terminated by either party on 90 days' written notice. Company sales to Pinnacle
totaled $2,840,000,  $9,692,000,  and $13,461,000,  for the years ended December
31, 1997, 1996, and 1995,  respectively.  The accounts  receivable  balance from
Pinnacle  was  $132,000 at December  31, 1997 and $202,000 at December 31, 1996.
The Company has purchased approximately  $1,532,000,  $350,000, and $576,000, of
inventory from Pinnacle in 1997, 1996 and 1995, respectively. Inventory on hand,
purchased  under  contract  with  Pinnacle,  totaled  $393,000  and  $914,000 at
December  31, 1997 and December 31, 1996,  respectively.  Glenn E.  Penisten,  a
director of the Company,  is a director of Pinnacle.  The  agreement was entered
into in the  ordinary  course of business and the Company  believes  that it has
terms no less  favorable than  reasonably  could be expected to be obtained from
unaffiliated parties.

         In May 1994, the Company  entered into a  manufacturing  agreement with
Reply  Corporation  ("Reply")  providing  for the  performance  by the Company's
manufacturing  division of value-added  turnkey  services for Reply. The Company
terminated the agreement in 1997. Sales to Reply totaled approximately $262,000,
$2,594,000  and  $3,144,000  during  1997,  1996,  and 1995,  respectively.  The
accounts  receivable  balance  from Reply was $54,000


                                      F-13
<PAGE>

at  December  31,  1997 and  $413,000  at  December  31,  1996.  The Company has
purchased approximately  $123,000,  $167,000 and $66,000 of inventory from Reply
in 1997, 1996, and 1995, respectively. Glenn E. Penisten and Gordon A. Campbell,
directors of the Company, are directors of Reply. The agreement was entered into
in the ordinary course of business and the Company believes that it has terms no
less  favorable  than   reasonably   could  be  expected  to  be  obtained  from
unaffiliated parties.

NOTE 9 - SALARY SAVINGS PLAN:

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

NOTE 10 - BUSINESS SEGMENT INFORMATION:
<TABLE>
         Operating  results  and  other  financial  data are  presented  for the
principal  business  segments of the Company  for the years ended  December  31,
1997, 1996 and 1995 as follows:
<CAPTION>
                                   Distribution    Manufacturing    Eliminations     Consolidated
                                   ------------    -------- ----    ------------     ------------
<S>                                  <C>             <C>              <C>              <C>
1997
Sales to customers                   $460,516        $ 73,220         $   --           $533,736
Intersegment sales                      7,650             631           (8,281)            --
                                     --------        --------         --------         --------
Revenue                               468,166          73,851           (8,281)         533,736
Operating profit (loss)                13,240            (582)            --             12,658
Identifiable assets                   206,203          36,245          (37,028)         205,420
Depreciation and amortization             779           2,138             --              2,917
Capital asset additions                 1,490           2,841             --              4,331

1996
Sales to customers                   $391,187        $ 92,129         $   --           $483,316
Intersegment sales                      4,855             282           (5,137)            --
                                     --------        --------         --------         --------
Revenue                               396,042          92,411           (5,137)         483,316
Operating  profit                      11,556           5,494             --             17,050
Identifiable assets                   172,755          39,326          (36,401)         175,680
Depreciation and amortization             683           1,886             --              2,569
Capital asset additions                   487           2,925             --              3,412

1995
Sales to customers                   $296,633        $ 49,658         $   --           $346,291
Intersegmentsales                       7,090             495           (7,585)            --
                                     --------        --------         --------         --------
Revenue                               303,723          50,153           (7,585)         346,291
Operating profit                        7,559           2,684           10,243
Identifiable assets                   152,584          39,316          (34,623)         157,277
Depreciation and amortization             605           1,054             --              1,659
Capital asset additions                   402           6,012             --              6,414
</TABLE>

         Revenue and operating profit by business segment includes both sales to
customers,  as reported in the Company's  Statements of Income, and intersegment
sales, which are transferred at cost.


                                      F-14
<PAGE>

<TABLE>
                                      NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

                                              (in thousands, except per share amounts)
<CAPTION>
                                                                   Quarter Ended
                            --------------------------------------------------------------------------------------------
                            Mar. 31,    June 30,    Sept. 30,   Dec. 31,   Mar. 31,    June 30,    Sept. 30,   Dec. 31,
                              1996        1996        1996        1996       1997        1997        1997        1997
                            ----------  ----------  ----------  ---------  ----------  ----------  ----------  ---------
<S>                        <C>          <C>         <C>         <C>         <C>         <C>         <C>         <C>
Sales ....................  $ 115,431   $ 113,644   $ 118,018   $ 136,222   $ 140,968   $ 115,136   $ 138,003   $ 139,629
Cost of sales ............    101,809      99,020     103,855     120,574     124,820     101,511     124,375     125,942
                            ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
Gross profit .............     13,622      14,624      14,163      15,648      16,148      13,625      13,628      13,687
Marketing, general and
administrative expenses ..      9,759      10,518       9,896      10,835      11,151       9,569      11,587      12,123
                            ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
Income from operations ...      3,863       4,106       4,267       4,813       4,997       4,056       2,041       1,564
Interest expense .........       (995)       (909)       (767)       (822)       (892)     (1,178)     (1,122)     (1,382
                            ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
Income before income
Taxes ....................      2,868       3,197       3,500       3,991       4,105       2,878         919         182
Provision for income taxes      1,205       1,343       1,470       1,676       1,724       1,209         386          76
                            ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
Net income ...............  $   1,663   $   1,854   $   2,030   $   2,315   $   2,381   $   1,669   $     533   $     106
                            =========   =========   =========   =========   =========   =========   =========   =========
Earnings per share
 Basic ...................  $    0.20   $    0.22   $    0.24   $    0.28   $    0.28   $    0.20   $    0.06   $    0.01
                            =========   =========   =========   =========   =========   =========   =========   =========
Diluted ..................  $    0.20   $    0.22   $    0.24   $    0.27   $    0.27   $    0.19   $    0.06   $    0.01
                            =========   =========   =========   =========   =========   =========   =========   =========
Shares used in per share
calculation
  Basic ..................      8,324       8,331       8,387       8,394       8,471       8,539       8,607       8,632
                            =========   =========   =========   =========   =========   =========   =========   =========
  Diluted ................      8,423       8,539       8,531       8,552       8,935       8,978       8,886       8,825
                            =========   =========   =========   =========   =========   =========   =========   =========
</TABLE>

         During  the fourth  quarter of 1996,  the  Company  began  capitalizing
certain labor overhead costs related to its manufacturing activities. The impact
was an increase to net income in the fourth  quarter of 1996,  of  approximately
$217,000.  During the fourth quarter of 1997, the Company was adversely affected
by the  bankruptcy  of one of its  suppliers.  The impact was a decrease  to net
income of approximately $421,000, or five cents per share.


                                      F-15
<PAGE>


                                                                     SCHEDULE II

                             BELL MICROPRODUCTS INC.

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

<TABLE>
<CAPTION>
                                      Additions
                                      Balance at            Charged to
                                     Beginning of            Costs and          Deductions-         Balance at
    Year Ended December 31,             Period               Expenses           Write-offs         End of Period
 ------------------------------    -----------------    ----------------     ----------------    -----------------
<S>                                  <C>                 <C>                  <C>                  <C>
   1997                              $   4,228           $    1,763           $   (4,660)          $    1,331
   1996                                  3,300                5,035               (4,107)               4,228
   1995                                  1,550                2,427                 (677)               3,300

</TABLE>

                                                  S-1
<PAGE>



                                INDEX TO EXHIBITS

         Number    Description of Document                           Sequential
                                                                     Page Number

         2.1    Agreement  and Plan of  Reorganization  dated as of  February 2,
                1994  between   Registrant,   Bell   Microproducts   Acquisition
                Corporation,  a New York corporation and wholly-owned subsidiary
                of   Registrant,   Vantage   Components   Inc.,   a  New  Jersey
                corporation,  Vantage Components,  Inc., a New York corporation,
                Vantage Components of Maryland, Inc., a Maryland corporation and
                Vantage Components of MA, Inc., a Massachusetts corporation (1)

         2.2    Amendment No. 1 to Agreement and Plan of Reorganization dated as
                of  February  2, 1994  between  Registrant,  Bell  Microproducts
                Acquisition Corporation, a New York corporation and wholly-owned
                subsidiary of Registrant, Vantage Components, Inc., a New Jersey
                corporation,  Vantage  Components Inc., a New York  corporation,
                Vantage Components of Maryland, Inc., a Maryland corporation and
                Vantage Components of MA, Inc., a Massachusetts corporation (2)

         3.1    Amended and Restated Articles of Incorporation of Registrant (3)

         3.2    Amended and Restated Bylaws of Registrant (4)

         4.1    Specimen Common Stock Certificate of the Registrant (4)

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

         4.3    Warrant issued to Sutro & Co. Incorporated (2)

         10.1   1988 Incentive Stock Plan, as amended through May 23, 1996 (6)

         10.2   The form of Option Agreement used under the 1988 Incentive Stock
                Plan (5)

         10.3   Employee Stock  Purchase  Plan, as amended  through May 21, 1997
                (11)

         10.4   The form of  Option  Agreement  used  under the  Employee  Stock
                Purchase Plan (5)

         10.5   1993 Director Stock Option Plan, as amended through May 24, 1995
                (5)

         10.6   The form of Option  Agreement used under the 1993 Director Stock
                Option Plan (5)

         10.7   Registrant's 401(k) Plan (4)

         10.8   Lease dated March 17, 1992 for  Registrant's  facilities at 1941
                Ringwood Avenue, Suite 100, San Jose, California (4)

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

         10.10  Amended and Restated Asset Purchase Agreement dated February 26,
                1993 by and  between  Registrant,  Barclay  Financial  Group and
                Adlar Turnkey Manufacturing Company, as amended (4)

         10.11  Form of  Convertible  Note  issued  by  Registrant  in  favor of
                Barclay Financial Group (4)



<PAGE>



         Number    Description of Document                           Sequential
                                                                     Page Number

         10.12  Amended and Restated  Credit  Agreement dated as of May 23, 1995
                by and  among  the  Registrant,  the  Banks  named  therein  and
                Sumitomo Bank of California,  as Agent for the Banks, as amended
                (2)

         10.13  First Amendment to Second Amended and Restated Credit  Agreement
                dated as of June 25, 1996 by and among the Registrant, the Banks
                named therein and Sumitomo Bank of California,  as Agent for the
                Banks (7)

         10.14  Second Amendment to Second Amended and Restated Credit Agreement
                dated as of September 30, 1996 by and among the Registrant,  the
                Banks named  therein and Sumitomo Bank of  California,  as Agent
                for the Banks (8)

         10.15  Third Amendment to Second Amended and Restated Credit  Agreement
                dated as of June 17, 1997 by and among the Registrant, the Banks
                named therein and Sumitomo Bank of California,  as Agent for the
                Banks (9)

         10.16  Fourth Amendment to Second Amended and Restated Credit Agreement
                dated as of September 1, 1997 by and among the  Registrant,  the
                Banks named  therein and Sumitomo Bank of  California,  as Agent
                for the Banks (10)

         10.17  Fifth Amendment to Second Amended and Restated Credit  Agreement
                dated as of  November 7, 1997 by and among the  Registrant,  the
                Banks named  therein and Sumitomo Bank of  California,  as Agent
                for the Banks

         10.18  Standard Distributor Agreement dated June 1, 1990 by and between
                Quantum Corporation and Registrant (4)

         10.19  Form of Indemnification Agreement (4)

         10.20  IBM Authorized  Distributor Agreement dated May 17, 1993 between
                IBM Corporation and Registrant (4)

         10.21  Sublease dated November 12, 1996 for the Registrant's facilities
                at 2020 South Tenth Street,  San Jose,  California,  and related
                exhibits.

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

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

         21.1   Subsidiaries of the Registrant

         23.1   Consent of Price Waterhouse LLP, independent accountants

         24.1   Power of Attorney (contained on page 21)
----------------------------

         *      Confidential  treatment  has been  granted for  portions of this
                document.

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


<PAGE>


         (2)    Incorporated by reference to exhibit filed with the Registrant's
                Registration  Statement  on Form S-1 (File No.  33-79692) in the
                form declared effective on November 1, 1994.

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

         (4)    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.

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

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

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

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

         (9)    Incorporated by reference to exhibit filed with the Registrant's
                Report on Form 10Q for the quarter ended June 30, 1997.

         (10)   Incorporated by reference to exhibit filed with the Registrant's
                Report on Form 10Q for the quarter ended September 30, 1997.

         (11)   Incorporated by reference to exhibit filed with the Registrant's
                Registration Statement on Form S-8 (File No. 333-41179) filed on
                November 26, 1997.