##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
  Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) 
    OF THE SECURITIES EXCHANGE ACT OF 1934For 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
    of
    incorporation or organization)

(I.R.S. Employer
    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.
 (Name of Each Exchange on which
    Registered)
  Securities registered pursuant to Section 12(g) of the
    Act:
  Common
    Stock, $.01 par value (Title
    of Class)
  o þ
  o þ
  o þ
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 





BELL
    MICROPRODUCTS INC.
  INDEX TO
    FORM 10-K
   
 Explanatory Note


3PART I


5Item 1.


Business


5Item 1A.


Risk Factors


11Item 1B.


Unresolved Staff Comments


22Item 2.


Properties


22Item 3.


Legal Proceedings


23Item 4.


Submission of Matters to a Vote of Security
    Holders


24PART II


24Item 5.


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


24Item 6.


Selected Financial Data


26Item 7.


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


38Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


76Item 8.


Financial Statements and Supplementary Data


78Item 9.


Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


152Item 9A.


Controls and Procedures


152Item 9B.


Other Information


157PART III


157Item 10.


Directors, Executive Officers and Corporate
    Governance


157Item 11.


Executive Compensation


160Item 12.


Security Ownership of Certain Beneficial Owners
    and Management


178Item 13.


Certain Relationships and Related Transactions
    and Director Independence


180Item 14.


Principal Accountant Fees and Services


181PART IV


181Item 15.


Exhibits and Financial Statement Schedules


181Signatures


182Index to Exhibits


184EX-10.22EX-10.23EX-10.24EX-10.25EX-10.26EX-14.1EX-21.1EX-31.1EX-31.2EX-32.1EX-32.2   2




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##### Table of Contents



Form 10-K,
 Explanatory
    Note  Form 10-K, Selected Financial Data
  Restatement of
    Previously-Issued Financial Statements Part II 
    Item 8  Financial Statements and Supplementary
    Data Part II  Item 6  Selected
    Financial Data Part II  Item 7 
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations  Investigations and
    Restatement Part II 
    Item 8  Financial Statements and Supplementary
    Data Part II 
    Item 9A  Controls and Procedures
  Prior Reports. Form 10-K Form 10-Q Form 10-K, Form 10-Q, Form 8-K Form 10-K, Form 8-K Form 10-Q
 3




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##### Table of Contents



FORWARD-LOOKING
    STATEMENTS
    Risk
    Factors
 4




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##### Table of Contents



PART I  Item 1.
    Business  General
  ® ®
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, (408) 451-9400. (800) 732-0330.
  Industry
     5




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Segment and Geographic Information
  Our
    Strategy
    Products
    and Technologies
  Continue to Focus on the Storage Market.
  Expand our Storage and Complementary Product
    Lines.
  Enter Complimentary Growth Markets.
 6




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##### Table of Contents



Strengthen Relationships with Industry
    Leaders.
    Market
    Expansion
    Capture New Market Opportunities.
  Expand our Domestic and International
    Presence.
  Pursue Selective Acquisitions.
  Products
    and Services
  ® ®
 7




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##### Table of Contents



Storage,
    Server, Networking, and Related Software Infrastructure
    Products
    Disk
    and Tape Drives; Motherboards; Processors; and Other Computer
    Components
    Computer
    Peripherals; Monitor and Display Systems; Software and Other
    Computer Products
    Value-Added
    Services
    Storage Server Solutions.
  Data Storage and Server Subsystems. ® ®
  Solutions Configuration, Test, Installation, and
    Support. on-site
  Component Product Services. e-procurement
 8




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just-in-time on-site
  Board and Blade Level Building Blocks.
  Retail Packaging.
  Flat Panel Integration.
  Sales and
    Marketing
          Electronic
    Commerce
   9




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##### Table of Contents



Competition
        Business
    Segments
  Disclosures about Segments of an
    Enterprise and Related Information Goodwill and Other Intangible Assets Segment and Geographic Information
  Acquisitions
   10




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##### Table of Contents



Employees
    Item 1A.
    Risk
    Factors    Risks
    Related to Our Internal Control Over Financial Reporting and the
    Restatement of Our
    Previously-Issued
    Financial Statements
  We
    have identified various material weaknesses in our internal
    control over financial reporting that resulted in material
    misstatements in our previously-issued financial statements.
    These weaknesses could continue to adversely affect our ability
    to report our results of operations and financial condition
    accurately and in a timely manner.
  Form 10-K. Controls and Procedures
   11




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##### Table of Contents



The
    investigations by our Board of Directors into some of our
    historical accounting practices and the determination of the
    various other accounting adjustments, which resulted in the
    restatement of our previously-issued financial statements, have
    been time consuming and expensive and have had a material
    adverse effect on our financial condition, results of operations
    and cash flows.
  Explanatory Note Form 10-K,
  We are
    the subject of an ongoing SEC non-public fact-finding inquiry
    relating to our historical accounting practices. This inquiry
    could result in penalties that could have a material adverse
    effect on our financial condition and results of
    operations.
    We
    believe the delisting of our common stock from the NASDAQ Global
    Market has had an adverse effect on the liquidity and market
    price of our common stock. We cannot assure you when we will be
    able to relist our common stock on a national securities
    exchange.
     12




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We may
    be the subject of litigation relating to the restatement of our
    consolidated financial statements, which could adversely affect
    our business and results of operations.
      Our
    failure to comply with SEC reporting obligations may have an
    adverse effect on our business.
  Form S-3 Form S-8. Form S-1
  Risks
    Related to Our Business
  We
    rely on a small number of suppliers for products that represent
    a significant portion of our inventory purchases. Any change in
    our relationships with these suppliers could have an adverse
    effect on our results of operations.
        A
    reduction in the vendor allowances we collect from the
    manufacturers of the products we sell could adversely affect our
    results of operations.
   13




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We
    operate in an industry with significant pricing and margin
    pressure.
    Our
    international operations trade in local currencies which subject
    us to risks related to the fluctuation of foreign currencies
    against the US dollar.
    The
    products we sell may not satisfy shifting customer demand or
    compete successfully with our competitors
    products.
    The
    value of our inventory may decline, which could have an adverse
    effect on our financial condition and results of
    operations.
   14




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Supply
    shortages could adversely affect our operating results and cash
    flows.
    If we
    do not control our operating expenses, we may not be able to
    successfully implement our strategy.
    Our
    ability to operate effectively could be impaired if we fail to
    attract and retain key personnel and qualified
    managers.
      Our
    international operations subject us to additional risks which
    may adversely affect our results of operations.
    
    accounts receivable collection risks, longer payment cycles and
    unpredictable sales cycles;
    costs and difficulty in staffing and managing foreign operations;
    import and export license requirements, tariffs, taxes, and
    other trade barriers; 15




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
    potentially adverse tax consequences, including restrictions on
    repatriating earnings and the potential for double
    taxation;
    the burden of complying with a wide variety of foreign laws,
    treaties, and technical standards, and changes in those
    regulations; and
    local political and economic instability.  We are
    subject to a proposed tax assessment in France, which could have
    a material adverse effect on our results of
    operations.
    Our
    inability to adequately assess and monitor credit risks of our
    customers could have a material adverse effect on our financial
    condition, results of operations and liquidity.
            If we
    are unable to effectively compete in our industry, our operating
    results may suffer.
   16




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Our
    lack of long-term agreements with our customers could have a
    material adverse effect on our business.
  order-by-order
  Failure
    to identify acquisition opportunities or to successfully
    integrate acquired businesses into our operations could reduce
    our revenues and profits, and limit our growth.
      
    an inability to integrate acquired operations, accounting
    systems and processes, information systems and internal control
    systems; 17




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##### Table of Contents




    exposure to unanticipated contingent liabilities of acquired
    companies;
    use of substantial portions of our available cash to consummate
    an acquisition
    and/or to
    operate the acquired business;
    diversion of managements attention;
    difficulties and uncertainties in transitioning the business
    relationships from the acquired entity to us;
    the loss of key supplier relationships upon a change of
    ownership of the acquired business; and
    the loss of key employees of acquired companies, which could
    lead to a loss of customers or supplier relationships.    Our
    reliance on legacy information systems that are supported by a
    few individuals as well as a lack of a fully-integrated
    information system could materially adversely affect our
    business.
    If we
    cannot effectively manage our growth, our business may
    suffer.
    
    engage, train, and manage a larger sales and marketing force,
    and additional service personnel;
    expand the geographic coverage of our sales force;
    expand our information systems;
    identify and successfully integrate acquired businesses into our
    operations;
    successfully develop and deploy competitive
    e-commerce
    and web-based technologies; and
    enforce appropriate financial and administrative control
    procedures.    The
    current economic environment has adversely affected business
    spending patterns, which may have an adverse effect on our
    business.
   18




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Some
    of our operations are located in areas that are subject to
    natural disasters, which could result in a business stoppage and
    adversely affect our results of operations.
    Our
    business model requires us to hold inventory in a number of
    different locations, both internationally and domestically, and
    is subject to inventory theft.
    Risks
    Related to Our Financial Condition
  Our
    consolidated financial statements are presented on a going
    concern basis. Given our existing financial condition and
    current conditions in the global credit markets, if we are
    unable to comply with one or more of the financial covenants in
    our credits agreements, there would likely be uncertainties
    regarding our ability to continue as a going
    concern.
     19




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##### Table of Contents



Restrictions
    in our debt agreements limit our operating and strategic
    flexibility.
    
    incur additional debt;
    create liens;
    redeem and prepay certain debt;
    pay cash dividends, make other distributions or repurchase stock;
    make investments;
    engage in asset sales outside the ordinary course of business;
    enter into certain transactions with affiliates;
    engage in certain mergers and acquisitions; and
    make certain capital expenditures.    Our
    substantial leverage and related debt service obligations could
    adversely affect our cash flows and business. In addition, we
    have not consistently generated historical net income or
    positive cash flows from operations. Our failure to generate
    positive cash flows from operations in the future would
    materially adversely affect our ability to meet our debt service
    obligations.
    
    limit the availability of our cash flow to fund working capital,
    capital expenditures, acquisitions, investments and other
    general corporate purposes;
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate;
    limit our ability to obtain additional financing for working
    capital, capital expenditures, strategic acquisitions,
    investments and other general corporate purposes;
    limit our ability to refinance our indebtedness on terms
    acceptable to us or at all;
    increase our exposure to fluctuating interest rates;
    restrict our credit with suppliers, limiting our ability to
    purchase inventory; and 20




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
    make us more vulnerable to economic downturns, increased
    competition and adverse industry conditions, which places us at
    a disadvantage compared to our competitors that have less
    indebtedness.    As a
    result of our failure to comply with SEC reporting obligations,
    we were required to obtain waivers in connection with the
    delivery of financial statements and related matters under our
    debt agreements. We may need to obtain additional waivers in the
    future. The failure to obtain the necessary waivers could have a
    material adverse effect on our business, liquidity and financial
    condition.
  U.S.-based
      We may
    need additional funding to support our operations following the
    completion of our restatement of consolidated financial
    statements; sufficient funding is subject to conditions and may
    not be available to us, and the unavailability of funding could
    adversely affect our business.
    If the
    global credit market crisis continues, it may impact our ability
    to obtain debt financing for our operations and the
    unavailability of funding could adversely affect our
    business.
  and/or
 21




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Our
    primary revolving credit facilities are subject to borrowing
    base limitations, which could adversely affect our liquidity and
    business.
    The
    goodwill on our balance sheet may not be recoverable and may be
    impaired in future periods, reducing the carrying value of
    goodwill as an asset.
  Form 10-K, and/or
  Risks
    Related to Our Common Stock
  The
    price of our common stock has been and may continue to be
    volatile in the future, which could cause the value of an
    investment in our common stock to decline.
    
    potential further restatements of our financial statements;
    fluctuations in our quarterly operating results or the operating
    results of our competitors;
    continued operating losses or the inability to generate positive
    cash flows;
    changes in general conditions in the economy, the financial
    markets or our industry;
    the ability to timely file future financial statements;
    the ability to remediate identified material weaknesses;
    announcements of significant acquisitions, strategic alliances
    or joint ventures by our customers or our competitors; and
    other developments affecting us, our industry, suppliers,
    customers or competitors.    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  North America.
 22




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##### Table of Contents



Latin America.
  Europe.
    Item 3.
    Legal
    Proceedings  Accounting for
    Contingencies
  Direction
    Générale des Finances Publiques
  Inquiries
    and Related Litigation
  Part II  Item 7 
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations  Investigations and
    Restatement Part II 
    Item 8  Financial Statements and Supplementary
    Data
 23




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##### Table of Contents



Part II  Item 9A  Controls
    and Procedures
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


Low2005First quarter

$
9.83


$
7.46Second quarter


10.11



7.11Third quarter


11.00



8.59Fourth quarter


10.55



6.622006First quarter

$
7.90


$
5.65Second quarter


6.93



4.83Third quarter


5.42



4.21Fourth quarter


7.50



5.06   Managements Discussion and Analysis of Financial
    Condition and Results of Operations  NASDAQ
 24




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##### Table of Contents



5-year
  COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Bell Microproducts Inc., The S&P 500 Index
    And The NYSE Arca Tech 100 Index
  
  *
    $100 invested on 12/31/01 in stock or index-including
    reinvestment of dividends. Fiscal year ending December 31.  ©
  12/01


12/02


12/03


12/04


12/05


12/06Bell Microproducts Inc.



100.00




43.90




71.79




76.23




60.62




55.86S&P 500



100.00




77.90




100.24




111.15




116.61




135.03NYSE Arca Tech 100



100.00




66.56




93.89




98.24




103.64




109.32          25




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Explanatory Note Form 10-K, Managements Discussion and Analysis of
    Financial Condition and Results of Operations 
    Restatement of Previously-Issued Financial Statements Form 10-K Restatement of Previously-Issued
    Financial Statements Consolidated Financial Statements and Supplementary Data Form 10-K. Managements Discussion and Analysis of Financial
    Condition and Results of Operations Consolidated Financial Statements and Supplementary Data Form 10-K.
  Form 10-K.
  Form 10-K Form 10-Q Form 10-K, Restatement of Previously-Issued Financial Statements
 26




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##### Table of Contents



Five-Year
    Selected Financial Highlights:
  Years Ended December 312006(1)(2)(3)(4)


2005(2)(3)(4)(5)


2004(3)(4)(5)


2003(4)(5)


2002(5)(Restated)


(Restated)


(Restated)


(Restated)(In thousands, except per share data)Consolidated Statements of Operations Data:Net sales

$
3,372,876


$
3,139,250


$
2,796,447


$
2,216,988


$
2,091,714Cost of sales


3,098,135



2,923,476



2,582,915



2,052,839



1,912,351Gross profit


274,741



215,774



213,532



164,149



179,363Selling, general and administrative expense


238,166



198,023



189,506



159,711



170,946Investigation and restatement-related costs


1,649















Impairment of goodwill and other intangibles


3,477



7,296











3,066Restructuring costs






1,275







999



3,932Total operating expenses


243,292



206,594



189,506



160,710



177,944Operating income


31,449



9,180



24,026



3,439



1,419Interest expense


29,456



22,190



17,144



16,639



17,721Other expense (income), net


(2,848
)


1,373



(251
)


(564
)


267Income (loss) before income taxes


4,841



(14,383
)


7,133



(12,636
)


(16,569
)Provision for (benefit from) income taxes


27,948



1,265



4,298



(1,099
)


(8,265
)Income (loss) before cumulative effect of change in accounting
    principle


(23,107
)


(15,648
)


2,835



(11,537
)


(8,304
)Cumulative effect of accounting change, net (6)


















(28,547
)Net income (loss)

$
(23,107
)

$
(15,648
)

$
2,835


$
(11,537
)

$
(36,851
)Net income (loss) per share:Basic

$
(0.75
)

$
(0.53
)

$
0.10


$
(0.52
)

$
(1.92
)Diluted

$
(0.75
)

$
(0.53
)

$
0.10


$
(0.52
)

$
(1.92
)Shares used in per share calculation:Basic


30,772



29,299



27,678



22,323



19,201Diluted


30,772



29,299



28,522



22,323



19,201     (1)
    
    Includes the results of operations of ProSys Information Systems
    since the acquisition of substantially all of its assets on
    October 2, 2006. See Note 4, Goodwill and Other
    Intangible Assetsand Note 5, Acquisitions to
    the consolidated financial statements.(2)
    
    Includes the results of operations of MCE Group since
    acquisition on December 1, 2005 and Net Storage since
    acquisition on July 8, 2005. See Note 5,
    Acquisitionsto the consolidated financial statements.(3)
    
    Includes the results of operations of OpenPSL Holdings Limited
    since acquisition on June 22, 2004. See Note 5,
    Acquisitionsto the consolidated financial statements. 27




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##### Table of Contents



(4)
    
    Includes the results of operations of EBM Mayorista S.A. de C.V.
    since acquisition on October 15, 2003. See Note 5,
    Acquisitionsto the consolidated financial statements.(5)
    
    For more information regarding the investigation and findings
    relating to stock-based compensation practices and the
    restatement of stock based compensation and other items through
    June 30, 2006, see Item 7, Managements
    Discussion and Analysis of Financial Condition and Results of
    Operationsand Note 3, Restatement of
    Previously-Issued Financial Statementsto the consolidated
    financial statements.(6)
    
    Includes charge pertaining to the adoption of
    SFAS No. 142, Goodwill and Other Intangible
    Assets, in 2002.  As of December 312006


2005


2004


2003


2002(Restated)


(Restated)


(Restated)


(Restated)(In thousands)Consolidated Balance Sheet DataWorking capital

$
220,701


$
216,941


$
214,505


$
142,391


$
97,579Goodwill


69,161



51,931



53,254



23,264



19,898Total assets


1,044,815



890,753



807,950



678,256



582,831Long-term debt


169,660



146,699



159,131



73,692



70,529Shareholders equity


162,110



155,327



172,048



149,116



109,654  28




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##### Table of Contents



Year Ended December 31, 2003


Year Ended December 31, 2002Previously





As


Previously





AsReported


Adjustments


Restated


Reported


Adjustments


Restated(In thousands, except for per share data)Net sales

$
2,230,287


$
(13,299
)

$
2,216,988


$
2,104,922


$
(13,208
)

$
2,091,714Cost of sales


2,062,194



(9,355
)


2,052,839



1,926,366



(14,015
)


1,912,351Gross profit


168,093



(3,944
)


164,149



178,556



807



179,363Selling, general and administrative expense


155,710



4,001



159,711



165,624



5,322



170,946Impairment of goodwill and other intangibles


















3,066



3,066Restructuring costs


1,383



(384
)


999



5,688



(1,756
)


3,932Total operating expenses


157,093



3,617



160,710



171,312



6,632



177,944Operating income (loss)


11,000



(7,561
)


3,439



7,244



(5,825
)


1,419Interest expense


16,257



382



16,639



17,571



150



17,721Other expense (income), net


(114
)


(450
)


(564
)


(661
)


928



267Loss before income taxes


(5,143
)


(7,493
)


(12,636
)


(9,666
)


(6,903
)


(16,569
)Benefit from income taxes


(669
)


(430
)


(1,099
)


(2,612
)


(5,653
)


(8,265
)Loss before cumulative effect of change in accounting principle


(4,474
)


(7,063
)


(11,537
)


(7,054
)


(1,250
)


(8,304
)Cumulative effect of accounting change, net


















(28,547
)


(28,547
)Net loss

$
(4,474
)

$
(7,063
)

$
(11,537
)

$
(7,054
)

$
(29,797
)

$
(36,851
)Net loss per share:Basic

$
(0.20
)

$
(0.32
)

$
(0.52
)

$
(0.37
)

$
(1.55
)

$
(1.92
)Diluted

$
(0.20
)

$
(0.32
)

$
(0.52
)

$
(0.37
)

$
(1.55
)

$
(1.92
)Shares used in per share calculation:Basic


22,324







22,324



19,201







19,201Diluted


22,324







22,324



19,201







19,201  29




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##### Table of Contents




    Net sales includes adjustments for gross vs. net revenue
    recognition and timing of revenue recognition.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, inventory valuation
    and various accrued liabilities.
    Selling, general and administrative expense includes adjustments
    for accounts receivable credit reversals, additional stock-based
    compensation expense, SERP, accounts receivable reserves, sales
    tax reserves and various accrued liabilities.
    Interest expense includes adjustments in connection with
    derivative instruments and debt discount.
    Other expense (income), net includes adjustments for various
    accrued liabilities and foreign currency gains and losses.
    Benefit from income taxes includes adjustments to deferred tax
    assets, changes to transfer pricing reserves and income tax
    effects of other restatement adjustments. 30




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##### Table of Contents



As of December 31, 2004PreviouslyReported


Adjustments


As RestatedASSETSCurrent assets:Cash and cash equivalents

$
13,294


$



$
13,294Accounts receivable, net


376,017



(4,623
)


371,394Inventories


271,797



3,008



274,805Prepaid expenses and other current assets


24,676



1,538



26,214Total current assets


685,784



(77
)


685,707Property and equipment, net


42,805



761



43,566Goodwill


92,605



(39,351
)


53,254Other intangibles, net


9,407



(3,677
)


5,730Other long term assets


9,988



9,705



19,693TOTAL ASSETS

$
840,589


$
(32,639
)

$
807,950LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft

$
31,380


$



$
31,380Accounts payable


275,993



3,944



279,937Borrowings under the line of credit


17,577



42,686



60,263Current portion of long-term debt


12,183



(470
)


11,713Other accrued liabilities


72,164



15,745



87,909Total current liabilities


409,297



61,905



471,202Borrowings under lines of credit


42,686



(42,686
)


Long-term debt, net of current portion


160,905



(1,774
)


159,131Other long-term liabilities


5,011



558



5,569TOTAL LIABILITIES


617,899



18,003



635,902Shareholders equity:Common stock


171,625



7,889



179,514Deferred compensation


(3,920
)


(1,088
)


(5,008
)Retained earnings (accumulated deficit)


32,174



(53,924
)


(21,750
)Accumulated other comprehensive income


22,811



(3,519
)


19,292TOTAL SHAREHOLDERS EQUITY


222,690



(50,642
)


172,048TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
840,589


$
(32,639
)

$
807,950     
    Accounts receivable, net includes adjustments for timing of
    revenue recognition, accounts receivable reserves, and reserves
    for sales returns and allowances.
    Inventory includes adjustments for reversal of cost of sales for
    timing of revenue recognition, errors in purchase price
    allocations, and acquisition reserves.
    Prepaid expenses and other current assets include adjustments
    for errors in purchase price allocations and to reclassify
    various accrued liabilities to current assets. 31




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##### Table of Contents




    Property and equipment, net includes adjustments for errors in
    purchase price allocations and asset retirement obligations.
    Goodwill includes adjustments for OpenPSL acquisition earnout,
    errors in purchase price allocations, acquisition reserves,
    goodwill impairment and goodwill translation.
    Other intangibles, net include adjustments for intangible
    translation.
    Other long term assets include adjustments for debt discount and
    SERP.
    Accounts payable includes adjustments for vendor receivable
    reserves, reversal of payables associated with certain sales
    transactions repurchased, and recognition of co-operative
    marketing expenses.
    Short-term notes payable and current portion of long-term notes
    payable includes adjustments for reclassification to other
    accrued liabilities.
    Other accrued liabilities includes adjustments for accounts
    receivable credits previously written off, vendor receivable
    reserves, OpenPSL acquisition earnout, and various accrued
    liabilities.
    Long-term notes payable includes adjustments for debt discount
    and derivative instruments.
    Other long-term liabilities include adjustments for SERP and
    asset retirement obligations.
    Common stock includes adjustments to record additional
    stock-based compensation expense.
    Deferred compensation includes adjustments to record additional
    stock-based compensation expense.
    Accumulated other comprehensive income includes adjustments for
    foreign currency translation.  32




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##### Table of Contents



As of December 31, 2003PreviouslyReported


Adjustments


As RestatedASSETSCurrent assets:Cash and cash equivalents

$
4,904


$



$
4,904Accounts receivable, net


309,905



(6,087
)


303,818Inventories


256,992



5,707



262,699Prepaid expenses and other current assets


23,595



(702
)


22,893Total current assets


595,396



(1,082
)


594,314Property and equipment, net


43,545



633



44,178Goodwill


60,236



(36,972
)


23,264Other intangibles, net


6,544



(3,680
)


2,864Other long term assets


7,278



6,358



13,636TOTAL ASSETS

$
712,999


$
(34,743
)

$
678,256LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft.

$
13,595


$



$
13,595Accounts payable


236,899



(1,699
)


235,200Borrowings under the line of credit


3,009



127,416



130,425Current portion of long-term debt


11,848



(213
)


11,635Other accrued liabilities


46,411



14,657



61,068Total current liabilities


439,178



140,161



451,923Borrowings under lines of credit


127,416



(127,416
)


Long-term debt, net of current portion


77,608



(3,916
)


73,692Other long-term liabilities


2,803



722



3,525TOTAL LIABILITIES


519,589



9,551



529,140Shareholders equity:Common stock


161,264



8,720



169,984Deferred compensation


(4,013
)


(3,430
)


(7,443
)Retained earnings (accumulated deficit)


20,837



(45,422
)


24,585Accumulated other comprehensive income


15,322



(4,162
)


11,160TOTAL SHAREHOLDERS EQUITY


193,410



(44,294
)


149,116TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
712,999


$
(34,743
)

$
678,256  33




---



##### Table of Contents




    Accounts receivable, net includes adjustments for timing of
    revenue recognition, accounts receivable reserves, and reserves
    for sales returns and allowances.
    Inventory includes adjustments for reversal of cost of sales for
    timing of revenue recognition and errors in purchase price
    allocations.
    Prepaid expenses and other current assets include adjustments
    for errors in purchase price allocations and to reclassify
    various accrued liabilities to current assets.
    Property and equipment, net includes adjustments for errors in
    purchase price allocations and asset retirement obligations.
    Goodwill includes adjustments for OpenPSL acquisition earnout,
    errors in purchase price allocations, goodwill impairment and
    goodwill translation.
    Other intangibles, net include adjustments for intangible
    translation and impairment.
    Other long term assets include adjustments for debt discount.
    Accounts payable includes adjustments for vendor receivable
    reserves, reversal of payables associated with certain sales
    transactions repurchased, and recognition of co-operative
    marketing expenses.
    Short-term notes payable and current portion of long-term notes
    payable includes adjustments for reclassification to other
    accrued liabilities.
    Other accrued liabilities includes adjustments for accounts
    receivable credits previously written off, vendor receivable
    reserves, and various accrued liabilities.
    Long-term notes payable includes adjustments for debt discount.
    Other long-term liabilities include adjustments for SERP and
    asset retirement obligations.
    Common stock includes adjustments to record additional
    stock-based compensation expense.
    Deferred compensation includes adjustments to record additional
    stock-based compensation expense.
    Accumulated other comprehensive income includes adjustments for
    foreign currency translation.  34




---



##### Table of Contents



As of December 31, 2002PreviouslyReported


Adjustments


As RestatedASSETSCurrent assets:Cash and cash equivalents

$
12,025


$



$
12,025Accounts receivable, net


277,305



(3,269
)


274,036Inventories


182,775



3,977



186,752Prepaid expenses and other current assets


23,786



141



23,927Total current assets


495,891



849



496,740Property and equipment, net


50,761



712



51,473Goodwill


53,803



(33,905
)


19,898Other intangibles, net


6,006



(3,340
)


2,666Other long term assets


7,730



4,324



12,054TOTAL ASSETS

$
614,191


$
(31,360
)

$
582,831LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
211,881


$
1,049


$
212,930Borrowings under the line of credit


7,919



100,555



108,474Current portion of long-term debt


23,458



(3,142
)


20,316Other accrued liabilities


45,847



11,594



57,441Total current liabilities


289,105



110,056



399,161Borrowings under lines of credit


100,555



(100,555
)


100,555Long-term debt


75,500



(4,971
)


70,529Other long-term liabilities


3,182



305



3,487TOTAL LIABILITIES


468,342



4,835



473,177Shareholders equity:Common stock


117,122



7,051



124,173Deferred compensation


(1,234
)


(2,758
)


(3,992
)Retained earnings (accumulated deficit)


25,311



(38,359
)


(13,048
)Accumulated other comprehensive income


4,650



(2,129
)


2,521TOTAL SHAREHOLDERS EQUITY


145,849



(36,195
)


109,654TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
614,191


$
(31,360
)

$
582,831  35




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##### Table of Contents




    Accounts receivable, net includes adjustments for accounts
    receivable reserves and reserves for sales returns and
    allowances.
    Inventory includes adjustments for inventory valuation and
    reserves for sales returns and allowances.
    Prepaid expenses and other current assets includes adjustments
    to reclassify various accrued liabilities to current assets.
    Property and equipment, net includes adjustments for asset
    retirement obligations.
    Goodwill includes adjustments for goodwill impairment and
    goodwill translation.
    Other intangibles, net include adjustments for intangible
    impairment and translation.
    Other long term assets include adjustments for debt discount.
    Accounts payable includes adjustments for vendor receivable
    reserves.
    Short-term notes payable and current portion of long-term notes
    payable includes adjustments for reclassification to other
    accrued liabilities.
    Other accrued liabilities include adjustments for accounts
    receivable credits previously written off and vendor receivable
    reserves.
    Long-term notes payable includes adjustments for debt discount.
    Other long-term liabilities include adjustments for SERP and
    asset retirement obligations.
    Common stock includes adjustments to record additional
    stock-based compensation expense.
    Deferred compensation includes adjustments to record additional
    stock-based compensation expense.
    Accumulated other comprehensive income includes adjustments for
    foreign currency translation. 36




---



##### Table of Contents



Pro Forma
    Information under SFAS No. 123 for Years Prior to
    Fiscal 2004 (Unaudited)
  Accounting for Stock-Based Compensation Share-Based Payment
  Years Ended December 312003


2002


2001


2000


1999


1998


1997


1996(Restated)


(Restated)


(Restated)


(Restated)


(Restated)


(Restated)


(Restated)


(Restated)Net income (loss), as restated

$
(11,537
)

$
(36,851
)

$
(25,678
)

$
14,436


$
6,282


$
5,212


$
3,857


$
7,854Stock-based compensation expense included in reported net income
    (loss), net of tax


2,335



1,046



809



1,193



113



23



24



8Stock-based compensation expense determined under the fair value
    method, net of tax


(5,532
)


(5,598
)


(6,873
)


(3,350
)


(1,000
)


(628
)


(755
)


(699
)Pro forma net income (loss)

$
(14,734
)

$
(41,403
)

$
(31,742
)

$
12,279


$
5,395


$
4,607


$
3,126


$
7,163Basic income (loss) per share:As reported

$
(0.52
)

$
(1.92
)

$
(1.56
)

$
0.98


$
0.46


$
0.40


$
0.30


$
0.63Pro forma


(0.66
)


(2.16
)


(1.92
)


0.84



0.40



0.35



0.24



0.57Diluted income (loss) per share:As reported


(0.52
)


(1.92
)


(1.56
)


0.91



0.46



0.39



0.29



0.62Pro forma


(0.66
)


(2.16
)


(1.92
)


0.78



0.40



0.35



0.24



0.57   Stock-Based Compensation Plans
 37




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  SPECIAL NOTE: This section, Managements Discussion and
    Analysis of Financial Condition and Results of Operations,
    contains forward-looking statements that are based on our
    current expectations. Actual results in future periods may
    differ materially from those expressed or implied by those
    forward-looking statements because of a number of risks and
    uncertainties. For a discussion of risk factors affecting our
    business and prospects, see Part 1
     Item 1A  Risk Factors.
  Credit
    Agreement Covenants and Financial Statement
    Presentation
  and/or
  12-month
     38




---



##### Table of Contents



Liquidity and Capital Resources
  Investigations
    and Restatement
  Restatement
    Related to Various Accounting Adjustments
  Investigation and Restatement Related to
    Stock-Based Compensation
  Investigation and Restatement Related to Certain Reserves,
    Accruals and Other Accounting Estimates
  Investigation and Restatement Related to Vendor
    Allowances,
 39




---



##### Table of Contents



RetainedEarningsNet Income (Loss)


(Deficit)Years Ended December 31


As of Jan. 12005


2004


2004As previously reported

$
481


$
11,337


$
20,837Adjustments:Stock-Based Compensation


(1,115
)


(1,532
)


(6,245
)Certain Reserves, Accruals and Other Accounting Estimates:Vendor receivable reserves


(4,212
)


484



(780
)Other adjustments


(1,528
)


(920
)


(3,444
)Vendor Allowances


(838
)


(3,951
)


(3,444
)Various Accounting Adjustments:Goodwill impairment


(7,296
)






(31,613
)Customer credits


(704
)


(604
)


(10,763
)Acquisition earnout


(2,886
)


(3,312
)


Restructuring charges


5,933







Income taxes(1)


789



3,679



11,965Other adjustments


(4,272
)


(2,346
)


(1,098
)Total adjustments


(16,129
)


(8,502
)


(45,422
)As adjusted

$
(15,648
)

$
2,835


$
(24,585
)     (1)
    
    Includes the tax effect of restatement adjustments.  Investigation
    and Restatement Related to Stock-Based Compensation
  Background
    back-up
    
    Executive Officer and Non-Officer Employee Grants In general, stock option and restricted stock
    unit (RSU) grants were made to executive officers
    and non-officer employees for new hire, retention or promotion
    purposes. These grants were authorized by either the Board of
    Directors or its Compensation Committee, or in some cases both,
    pursuant to the terms of the 1988 Stock Plan or the 1998 Stock
    Option Plan. With respect to several grants, it was determined
    that there was partial or undocumented approval by 40




---



##### Table of Contents



either the Board of Directors or its Compensation Committee. The
    properly documented grants were evidenced by resolutions
    authorizing the grants and generally setting forth the names of
    the recipients and the number of options or RSUs granted to each
    individual.  
    Directors Our 1993 Director Plan and
    1998 Stock Plan include provisions under which non-employee
    members of our Board of Directors were entitled to receive
    automatic stock option grants. The 1993 Director Plan
    authorized an initial grant to all current non-employee members
    of the Board of Directors to be issued on the effective date of
    the plan, March 15, 1993, and newly-appointed non-employee
    directors thereafter were entitled to receive an automatic grant
    on the date of appointment. Further, the 1993 Director Plan
    provided that, beginning in 1996, each then current non-employee
    member of the Board of Directors would receive an automatic
    annual grant on March 15, the annual anniversary of the
    adoption of the Plan. The 1998 Stock Plan amended the annual
    grant date to be the date of our annual meeting of shareholders.
    Both plans specified that new director grants would occur
    automatically upon the initial appointment of a member of the
    Board of Directors.  Summary
    of Findings
    Accounting for Stock Issued to Employees Sample Letter Sent in
    Response to Inquiries Related to Filing Restated Financial
    Statements for Errors in Accounting for Stock Option Grants
      Option
    Grants
  
    Grants with insufficient contemporaneous
    documentation.  For certain stock option grants
    made primarily to executive officers or non-officer employees,
    we determined that there was insufficient contemporaneous 41




---



##### Table of Contents



documentation of the stated grant date. Included in this
    category were 47 executive officer grants (options to purchase
    approximately 2.1 million shares), 552 non-officer employee
    grants (options to purchase approximately 3.0 million
    shares), one initial grant and thirteen annual grants to
    non-employee directors (options to purchase approximately
    100,000 shares). Although the applicable option plans
    provided that the grants to non-employee directors were to be
    automatic as described above, the Board of Directors or the
    Compensation Committee typically approved the grants.  
    Grants approved to be issued at any time during a
    pre-determined period.  On eight occasions between
    1997 and 2003, the Board of Directors or its Compensation
    Committee approved grants of stock options (options to purchase
    approximately 2.1 million shares) to be issued at any time
    during a pre-determined time period. Stock options were granted
    to employees (172 grants for approximately 1.4 million
    shares), executive officers (nine grants for approximately
    600,000 shares) and newly elected members of the Board of
    Directors (two grants for 45,000 shares) under these
    arrangements. The selection of the specific grant date was
    delegated to the Chief Executive Officer. In each instance, the
    window commenced on the date of a Board meeting, the date of an
    acquisition or a new hire start date. We refer to these grants
    as window grants. Because we were unable to locate
    adequate documentary evidence of when the grant date was chosen,
    we revised the measurement dates for 177 grants (approximately
    2.0 million shares) included in seven of the eight option
    granting actions to the last day of the window (which in each of
    the seven cases was a higher price). On one window granting
    action date, it was determined that the recorded grant date was
    appropriate.
    Option grants requiring variable
    accounting.  For nine grants to executive officers
    (options to purchase approximately 300,000 shares), we
    determined that the grants had been effectively cancelled and
    repriced, and therefore these grants should have been accounted
    for using variable accounting under the provisions of APB 25.  Modifications
    and Other Matters
  
    Options requiring accounting adjustment for modifications
    including accelerated vesting and extended terms beyond the
    original vesting terms for exercise.  We should
    have recorded stock-based compensation expense upon the
    acceleration of certain options and upon the extension of
    vesting of other options. In accordance with APB 25 and FASB
    Interpretation 44, Accounting for Certain Transactions
    Involving Stock Compensation, an interpretation of APB 25,
    stock-based compensation was recorded based upon the terms of
    such acceleration or extension.
    Performance-based RSU grants that were accounted for
    incorrectly.  For certain performance-based RSU
    grants, we determined that the Recorded Grant Date was
    incorrect. The grant date should have generally been the date it
    was known that all performance criteria were met, but we had
    incorrectly recorded certain grant dates based upon the approval
    date by the Board of Directors or its Compensation Committee.
    Included in these grants were four executive officer grants
    (255,000 shares) and 17 non-officer employee grants
    (162,000 shares).
    RSU grants were determined to have insufficient documentation
    of the Recorded Grant Date.  For one RSU grant
    made to an executive officer (25,000 shares), we determined
    that there was insufficient documentation of the Recorded Grant
    Date.
    Timing issues related to the recognition of compensation for
    RSU grants.  For certain RSU grants, we determined
    that errors were made in the timing of the recorded compensation
    expense. 42




---



##### Table of Contents



TotalMeasurement


Variable


Affected


% AffectedOptions


RSUs


Total


Date Changes


Accounting


Grants


GrantsGrants to:Officers


124



25



149



61



9



70



47.0
%Non-Officer Employees


1,202



228



1,430



735







735



51.4
%Directors


61



7



68



16







16



23.5
%Total Grants


1,387



260



1,647



812



9



821



49.8
%     Non-OfficerOfficers


Employees


Directors


TotalStock option and RSU grants:Measurement date changes:Insufficient documentation of the grant date exists

$
2,777


$
2,467


$
147


$
5,391Grants approved to be issued at any time during a pre-determined
    period (window grants)


64



889



4



957Variable accounting


511



2







513Total stock option grants


3,352



3,358



151



6,861Modifications and RSU grants


1,339



440



13



1,792Total

$
4,691


$
3,798


$
164


$
8,653   Stock








Adjustment toCompensation


Pre-Tax


Tax


Net IncomeFiscal Year

as Reported


Adjustments


Benefit


(Loss)1996

$



$
14


$
(6
)

$
81997






40



(16
)


241998






36



(13
)


231999






182



(69
)


1132000






1,915



(722
)


1,1932001






1,282



(474
)


8082002


91



1,572



(617
)


9552003


1,151



1,204



(19
)


1,185Cumulative effect at December 31, 2003


1,242



6,245



(1,936
)


4,3092004


1,428



1,532



(1,184
)


3482005


1,505



1,115



(1,048
)


672006 (through June 30, 2006)


1,618



(239
)


96



(143
)Total

$
5,793


$
8,653


$
(4,072
)

$
4,581   Adjustments
    Identified
   43




---



##### Table of Contents



Payroll
    Taxes, Interest and Penalties
    Investigation
    and Restatement Related to Certain Reserves, Accruals and Other
    Accounting Estimates
  Background
      Summary
    of Findings
   44




---



##### Table of Contents



and/or
    Adjustments
    Identified
    
    Vendor receivable reserves We receive
    funds from vendors for price protection, product rebates,
    marketing, promotions, infrastructure reimbursement and
    competitive pricing programs. These amounts are recorded as a
    vendor receivable with a corresponding reduction to inventories,
    cost of sales, or selling, general and administrative expense,
    depending on the nature of the program. Vendor receivables are
    generally collected through vendor authorized reductions to our
    accounts payable, and reserves are established for vendor
    receivables that are determined to be uncollectible. For certain
    vendor receivable reserves recorded in prior periods, we
    determined that insufficient contemporaneous documentation of
    the recorded reserves existed.
    Other adjustments We recorded additional
    correcting adjustments through June 30, 2006 pertaining to
    errors in reserves and accruals, including:
    (i) calculations that did not agree with the recorded
    balances, (ii) amounts for which we determined that
    insufficient documentation existed, and (iii) amounts that
    were recorded based upon inconsistent or improper judgments
    determined not to be in compliance with GAAP. These adjustments
    were made to various accounts, including accounts receivable
    reserves, reserves for sales returns and allowances, inventory
    valuation, reserves recorded in acquisition, and various accrued
    liabilities.  Investigation
    and Restatement Related to Vendor Allowances
  Background
   45




---



##### Table of Contents



Summary
    of Findings
      Restatement
    Related to Various Accounting Adjustments
  Background
    Adjustments
    Identified
    
    Goodwill impairment  Historically, we
    prepared our consolidated financial statements based upon a
    determination that we had one reportable segment under the
    provisions of SFAS 131, and one reporting unit under the
    provisions of Statement of Financial Accounting Standards
    No. 142, Goodwill and Other Intangible Assets
    (SFAS 142). We have subsequently concluded that
    we incorrectly applied the provisions of SFAS 142 related
    to the identification of reporting units when it first became
    effective in 2002. We concluded that as of January 1, 2002,
    we had eleven operating segments under SFAS 131 and eleven
    reporting units under SFAS 142. We have recorded correcting
    adjustments to recognize goodwill impairment based upon eleven
    reporting units since the inception of SFAS 142 through
    June 30, 2006.
    Customer credits  We determined that
    certain customer credits (amounts recorded as owed to customers)
    had been incorrectly recognized as income in prior periods. To
    correct this error, we recorded adjustments to increase accrued
    liabilities and increase operating expenses.
    Acquisition earnout  We previously
    recorded earnout payments made to the OpenPSL shareholders after
    the acquisition as additional goodwill related to the
    acquisition. We subsequently determined that such payments
    should have been recorded as compensation expense. Accordingly,
    we have recorded correcting adjustments to reflect the
    contingent consideration as compensation expense.
    Restructuring charges  We previously
    recorded a restructuring charge for prospective lease payments
    and property taxes associated with excess warehouse space in the
    United Kingdom. We subsequently determined that the
    restructuring charge did not meet the requirements to record
    such a charge pursuant to the provisions of Statement of
    Financial Accounting Standards No. 146, Accounting for
    Costs Associated with Exit or Dispose Activities(SFAS 146). The Company has recorded an
    adjustment to correct the restructuring charge taken and the
    related restructuring liability and to record the expense in the
    periods incurred.
    Income taxes  We determined that several
    correcting entries were required to adjust the income tax
    provision recorded in prior periods. These included adjustments:
    (i) to record deferred tax assets related to 46




---



##### Table of Contents



certain foreign based subsidiaries; (ii) to reflect changes
    to previously-recorded deferred tax assets which were calculated
    using improper tax rates; (iii) to record a valuation
    allowance on deferred tax assets at December 31, 2005 in
    order to reduce the estimated future tax benefit related to
    certain foreign tax credits that management does not believe is
    more likely than not to be realized; (iv) transfer pricing
    reserves; and (v) to record the income tax effects of other
    restatement entries.  
    Other adjustments  We also recorded a
    number of other correcting adjustments, including correcting
    adjustments pertaining to the timing of revenue recognition, the
    reversal of sales transactions pursuant to which products were
    repurchased, the recognition of co-operative marketing expenses,
    the recognition of extended warranty revenue and related costs,
    social employment taxes in Brazil, purchase price allocations,
    warranty reserves, certain foreign currency gains and losses,
    Supplemental Executive Retirement Plan, debt discount, asset
    retirement obligations, derivative instruments and certain
    accruals.    Pre-Tax AdjustmentsReserves,Accruals





VariousStock-Based


and Other


Vendor


Accounting


Total Pre-Tax


Provision for


TotalFiscal Year

Compensation


Estimates


Allowances


Adjustments


Adjustments


Income Taxes


Adjustments1996

$
(14
)

$



$



$



$
(14
)

$
6


$
(8
)1997


(40
)


(27
)






(1,338
)


(1,405
)


573



(832
)1998


(36
)


(12
)






(1,406
)


(1,454
)


591



(863
)1999


(182
)


6







(1,039
)


(1,215
)


459



(756
)2000


(1,915
)


(363
)






(1,775
)


(4,053
)


1,251



(2,802
)2001


(1,282
)


(1,946
)






(3,276
)


(6,504
)


3,203



(3,301
)2002


(1,572
)


636



(106
)


(34,409
)


(35,451
)


5,654



(29,797
)2003


(1,204
)


(2,518
)


(3,339
)


(230
)


(7,291
)


228



(7,063
)Cumulative effect at December 31, 2003


(6,245
)


(4,224
)


(3,444
)


(43,474
)


(57,387
)


11,965



(45,422
)2004


(1,532
)


(436
)


(3,951
)


(6,262
)


(12,181
)


3,679



(8,502
)2005


(1,115
)


(5,740
)


(838
)


(9,225
)


(16,918
)


789



(16,129
)Total

$
(8,892
)

$
(10,400
)

$
(8,233
)

$
(58,961
)

$
(86,486
)

$
16,433


$
(70,053
)   NASDAQ
    Delisting
  Background
  Form 10-Q
   47




---



##### Table of Contents



Delisting
    Cost of
    Investigation and Restatement Activities
    Form S-8 Form S-8 30-day
  Critical
    Accounting Policies and Estimates
  Summary of Significant Accounting
    Policies Form 10-K
  Revenue
    Recognition
    No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent (EITF 99-19),
 48




---



##### Table of Contents




    The delivered item(s) has value to the client on a stand-alone
    basis;
    There is objective and reliable evidence of the fair value of
    the undelivered item(s); and
    If the arrangement includes a general right of return relative
    to the delivered item(s), delivery or performance of the
    undelivered item(s) is considered probable and substantially in
    the control of the company.      Accounts
    Receivable and Allowance for Doubtful Accounts
      Inventories
  first-in,
  Stock-Based
    Compensation
   49




---



##### Table of Contents



Accounting
    for Income Taxes
               50




---



##### Table of Contents



Goodwill
      Long-Lived
    Assets and Other Intangible Assets
      Acquisitions
  Business
    Combinations
   51




---



##### Table of Contents



Restructuring
    and Related Impairment Costs
  Employers Accounting for Post-employment Benefits
    Loss
    Contingencies
    Vendor
    Programs
   52




---



##### Table of Contents



RESULTS
    OF OPERATIONS
    Years Ended December 312006


2005


2004(Restated)


(Restated)Net sales


100.0
%


100.0
%


100.0
%Cost of sales


91.9



93.1



92.3Gross profit


8.1



6.9



7.7Operating expenses:Selling, general and administrative


7.0



6.4



6.8Investigation and restatement-related costs


0.1







Impairment of goodwill and other intangibles


0.1



0.2



Restructuring costs










Total operating expenses


7.2



6.6



6.8Operating income


0.9



0.3



0.9Interest expense


0.9



0.7



0.6Other expense (income), net


(0.1
)


0.1



Income (loss) before income taxes


0.1



(0.5
)


0.3Provision for income taxes


0.8







0.2Net income (loss)


(0.7
)%


(0.5
)%


0.1
%   Major
    Customers
          
 53




---



##### Table of Contents



Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Net
    Sales
    ChangeYears Ended December 31





% of NetNet Sales by Segment

2006


2005


$


Sales(Restated)US Distribution

$
1,043,188



30.9
%

$
1,160,567



37.0
%

$
(117,379
)


(10.1
)%Europe Distribution


1,206,270



35.8



1,120,283



35.7



85,987



7.7Europe Enterprise


276,748



8.2



230,800



7.3



45,948



19.9Latin America Export


325,082



9.6



266,090



8.5



58,992



22.2Other


521,588



15.5



361,510



11.5



160,078



44.3Total

$
3,372,876



100.0
%

$
3,139,250



100.0
%

$
233,626



7.4
%   ChangeYears Ended December 31





% of NetNet Sales by Region

2006


2005


$


Sales(Restated)North America

$
1,483,593



44.0
%

$
1,468,712



46.8
%

$
14,881



1.0
%Europe


1,483,018



44.0



1,351,083



43.0



131,935



9.8Latin America(1)


406,265



12.0



319,455



10.2



86,810



27.2Total

$
3,372,876



100.0
%

$
3,139,250



100.0
%

$
233,626



7.4
%     (1)
    
    Latin America net sales includes sales from Latin America Export
    to countries in Latin America, primarily Brazil, Mexico,
    Argentina and Chile. The geographic net sales for Latin America
    does not represent the net sales for reportable segment Latin
    America Export.   54




---



##### Table of Contents



Gross
    Profit
    Years Ended


ChangeGross Profit by Segment

2006


2005


$


%(Restated)US Distribution

$
89,472



32.6
%

$
78,998



36.6
%

$
10,474



13.3
%Europe Distribution


70,660



25.7



54,165



25.1



16,495



30.5Europe Enterprise


31,598



11.5



26,005



12.1



5,593



21.5Latin America Export


16,444



6.0



14,068



6.5



2,376



16.9Other


66,567



24.2



42,538



19.7



24,029



56.5Total

$
274,741



100.0
%

$
215,774



100.0
%

$
58,967



27.3
%     Selling,
    General and Administrative (SG&A) Expense
    Years Ended


Change2006


2005


$


%(Restated)SG&A Expense

$
238,166


$
198,023


$
40,143



20.3
%Percentage of Net Sales


7.0
%


6.3
%






     Investigation
    and Restatement-Related Costs
    Impairment
    of Goodwill and Other Intangibles
       55




---



##### Table of Contents



Restructuring
    Costs
    Interest
    Expense
    Years Ended


Change2006


2005


$


%(Restated)Interest Expense

$
29,456


$
22,190


$
7,266



32.7
%Percentage of Net Sales


0.9
%


0.7
%






     Other
    Expense (Income), Net
    Years Ended


Change2006


2005


$


%(Restated)Other Expense (Income), Net

$
(2,848
)

$
1,373


$
(4,221
)


(307.4
)%Percentage of Net Sales


(0.1
)%










     Income
    Taxes
    Years Ended2006


2005(Restated)Provision for Income Taxes

$
27,948


$
1,265Effective Tax Provision Rate


577.3
%


(8.8
)%      56




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Net
    Sales
    Years Ended


ChangeNet Sales by Segment

2005


2004


$


%(Restated)


(Restated)US Distribution

$
1,160,567



37.0
%

$
974,886



34.9
%

$
185,681



19.0
%Europe Distribution


1,120,283



35.7



1,174,733



42.0



(54,450
)


(4.6
)Europe Enterprise


230,800



7.3



126,601



4.5



104,199



82.3Latin America Export


266,090



8.5



248,631



8.9



17,459



7.0Other


361,510



11.5



271,596



9.7



89,914



33.1Total

$
3,139,250



100.0
%

$
2,796,447



100.0
%

$
342,803



12.3
%    57




---



##### Table of Contents



Gross
    Profit
    Years Ended


ChangeGross Profit (Loss) by Segment

2005


2004


$


%(Restated)


(Restated)US Distribution

$
78,998



36.6
%

$
74,683



35.0
%

$
4,315



5.8
%Europe Distribution


54,165



25.1



72,930



34.2



(18,765
)


(25.7
)Europe Enterprise


26,005



12.1



18,645



8.7



7,360



39.5Latin America Export


14,068



6.5



12,266



5.7



1,802



14.7Other


42,538



19.7



35,008



16.4



7,530



21.5Total

$
215,774



100.0
%

$
213,532



100.0
%

$
2,242



1.0
%     Selling,
    General and Administrative (SG&A) Expense
    Years Ended


Change2005


2004


$


%(Restated)


(Restated)SG&A Expense

$
198,023


$
189,506


$
8,517



4.5
%Percentage of Net Sales


6.3
%


6.8
%






     Impairment
    of Goodwill and Other Intangibles
      Restructuring
    Costs
   58




---



##### Table of Contents



Interest
    Expense
    Years Ended


Change2005


2004


$


%(Restated)


(Restated)Interest Expense

$
22,190


$
17,144


$
5,046



29.4
%Percentage of Net Sales


0.7
%


0.6
%






     Other
    Expense (Income), Net
    Years Ended


Change2005


2004


$


%(Restated)


(Restated)Other Expense (Income), Net

$
1,373


$
(251
)

$
1,634



650.0
%Percentage of Net Sales



%



%






     Income
    Taxes
    Years Ended2005


2004(Restated)


(Restated)Provision for Income Taxes

$
1,265


$
4,298Effective Tax Provision Rate


(8.8
)%


60.3
%        59




---



##### Table of Contents



LIQUIDITY
    AND CAPITAL RESOURCES
  and/or
          12-month 12-month 12-month
 60




---



##### Table of Contents



12-month
        MaximumFacility


Amount


InterestAmount


Outstanding


Rate(g)


MaturityLines of credit:Western Facility(a)

$
204,000


$
137,279



4.50
%

September 2010BOA Facility(a)

£
76,000


$
41,552



4.41
%

October 2011GE Facility(a)

$
80,000


$
36,642
(b)


<1.00
%

(c)IBM Facility GbmH

$
30,000


$
28,729



5.09
%

(d)IBM Facility Europe


8,000



8,000



6.94
%

December 2008(e)Intel Facility

$
2,508


$
2,508



0.00
%

March 2009Notes:Convertible Notes





$
110,859
(f)


3.75
%

March 20242008 Notes  RSA





$
53,150
(f)


9.00
%

December 20132006 Notes  RSA





$
32,371
(b)(f)


9.00
%

August 2013     (a)
    
    The maximum borrowings under these lines of credit are limited
    to a percentage of the value of eligible accounts receivable and
    inventory (for the GE Facility, only eligible inventory). At
    December 15, 2008, our available borrowings under these
    lines of credit were $25.4 million in the United States and
    $24.9 million in Europe. Funds cannot be transferred
    between geographies.(b)
    
    Relates to the acquisition, or outstanding obligations, of
    ProSys, which was acquired in October 2006. 61




---



##### Table of Contents



(c)
    
    Facility may be terminated by either party upon 30 days
    notice. If the facility is terminated, all amounts outstanding
    would be due at the end of the
    30-day
    notice period.(d)
    
    Facility may be terminated by either party upon six weeks
    notice. If the facility is terminated, all amounts outstanding
    would be due at the end of the six-week notice period.(e)
    
    Repayment of $5.5 million (at an exchange rate of
    1.00/$1.37 as of December 15, 2008) is due
    December 31, 2008 and the remainder is due no later than
    February 28, 2009. See IBM Facilitiesbelow for
    further discussion.(f)
    
    Includes accrued interest.(g)
    
    Interest rates under the lines of credit represent the average
    interest rates for November 2008.  Western
    Facility
         62




---



##### Table of Contents



Wachovia
    Facility
    IBM
    Facilities
     63




---



##### Table of Contents



Bank
    of America Facility
    GE
    Commercial Distribution Finance Facility
  12-month 12-month 12-month
  Intel
    Corporation Facility
   64




---



##### Table of Contents



IFN
    Financing BV
    Convertible
    Notes
           65




---



##### Table of Contents



30-day
  Form 10-Q
  9%
    Senior Subordinated Notes Payable to RSA issued in
    2000
    9%
    Senior Subordinated Notes Payable to RSA issued in
    2006
   66




---



##### Table of Contents



9%
    Senior Subordinated Notes Payable to RSA issued in
    2007
    9%
    Senior Subordinated Notes Payable to RSA issued in
    2008
      5.25% Note
    Payable 
    Klaus
    Reichl   67




---



##### Table of Contents



HSBC
    Bank plc Mortgage
    Maturities
    Debt,
    Other Contractual Obligations and Off Balance Sheet
    Arrangements
    Payments Due by PeriodLess Than


1-2


3-5


More Than1 Year


Years


Years


5 Years


TotalLong-term debt

$
12,655


$
22,678


$
14,741


$
132,241


$
182,315Interest expense on long-term debt


11,376



17,739



13,532



53,282



95,929Lines of credit


91,549



92,562



43,000







227,111Capital leases


681



447











1,128Operating leases


12,339



16,774



9,516



18,263



56,892Total

$
128,600


$
150,200


$
80,789


$
203,786


$
563,375   Long-Term
    Debt and Related Interest Expense
    Lines
    of Credit
    Capital
    Leases
    Operating
    Leases
    Off-Balance
    Sheet Arrangements
   68




---



##### Table of Contents



Cash
    Flows from Operating Activities
    Years Ended December 312006


2005


2004(Restated)


(Restated)Cash flows from operating activities:Net income (loss)

$
(23,107
)

$
(15,648
)

$
2,835Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


7,924



9,225



12,128Amortization of debt issuance costs


867



1,038



631Stock-based compensation expense


2,385



2,620



2,960Acquisition earnout






3,395



1,510Provision for bad debts


8,506



4,297



8,050(Gain) loss on property and equipment


334



(39
)


761Unrealized loss on currency remeasurement


1,536



4,075



2,997Impairment of goodwill and other intangibles


3,477



7,296



Deferred taxes


20,204



(9,278
)


(3,977
)Tax benefit from stock options






544



694Cash provided by (used in) working capital


(67,697
)


(48,978
)


16,486Net cash provided by (used in) operating activities

$
(45,571
)

$
41,453


$
45,075       Cash
    Flows from Investing Activities
   69




---



##### Table of Contents



Cash
    Flows from Financing Activities
    Transactions
    with Related Parties
        Years Ended December 312006


2005


2004(Restated)


(Restated)Sales:Datalink Corporation


783



2,529



288Megaware


23,808



5,086



Import Mayoreo SA DE CV










5,307Trofel Computacion SA DE CV






25,497



13,870Verbatrade SA DE CV


20,452







Accounts receivable:Datalink Corporation


79



45



34Megaware


4,844



2,296



Trofel Computacion SA DE CV






5,748



2,975Verbatrade SA DE CV


6,489







Purchases:Megaware


16,114



7,324



Trofel Computacion SA DE CV










2,045Verbatrade SA DE CV










1,021Importadora Nacional Peninsular


21,851



27,445



9,856Outsourcing Distribution SA DE CV










2,456Accounts payable:Megaware


2,191



942



Importadora Nacional Peninsular


6,288



6,084



   RECENT
    ACCOUNTING PRONOUNCEMENTS
  Accounting for
    Servicing of Financial Assets Accounting for Transfers
    and Servicing of Financial Assets and Extinguishments of
    Liabilities
 70




---



##### Table of Contents



No. 06-03, How Sales Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement (That Is, Gross Versus Net Presentation) (EITF 06-03), EITF 06-03
  No. 06-05, Purchases of Life Insurance (EITF 06-05), Bulletin 85-4, Accounting for Purchases of Life Insurance EITF 06-05 85-4. EITF 06-05 individual-by-individual Interest on Receivables
    or Payables EITF 06-05 EITF 06-05
  Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109
  Fair
    Value Measurements SFAS No. 157-1, Application of FASB Statement No. 157 to FASB Statement
    No. 13 and Other Accounting Pronouncements That Address
    Fair Value Measurements for Purposes of Lease Classification or
    Measurement Under Statement 13 SFAS 157-1). SFAS 157-1, Accounting for Leases SFAS No. 157-2, SFAS 157-2. SFAS 157-2 SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active SFAS 157-3). SFAS 157-3
 71




---



##### Table of Contents



The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115 instrument-by-instrument
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an Amendment of ARB No. 51
  Disclosures about Derivative Instruments and Hedging
    Activities (an Amendment of FASB Statement 133)
  No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 FSP 142-3
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1). 14-1 14-1 14-1
 72




---



##### Table of Contents



The
    Hierarchy of Generally Accepted Accounting Principles The Meaning of Present
    Fairly in Conformity with Generally Accepted Accounting
    Principles
  No. 06-10, Accounting for Deferred Compensation and Postretirement
    Benefit Aspects of Collateral Assignment Split-Dollar Life
    Insurance Arrangements (EITF 06-10), EITF 06-10 EITF 06-10
  Quarterly
    Results of Operations
  Net
    Sales
  Quarterly Change2006 from 20052006*


2005


$


%(Restated)(Dollars in thousands)First Quarter

$
849,807


$
797,469


$
52,338



6.6
%Second Quarter


764,168



774,595



(10,427
)


(1.3
)%Third Quarter


774,907



751,373



23,534



3.1
%Fourth Quarter


983,994



815,813



168,181



20.6
%     *
    
    First and Second Quarters in 2006 are restated.  Three
    Months Ended March 31, 2006 (Restated) Compared to Three
    Months Ended March 31, 2005 (Restated)
    Three
    Months Ended June 30, 2006 (Restated) Compared to Three
    Months Ended June 30, 2005 (Restated)
   73




---



##### Table of Contents



Three
    Months Ended September 30, 2006 Compared to Three Months
    Ended September 30, 2005 (Restated)
    Three
    Months Ended December 31, 2006 Compared to Three Months
    Ended December 31, 2005 (Restated)
    Gross
    Profit
  Quarterly Change2006 from 20052006*


2005


$


%(Restated)(Dollars in thousands)First Quarter

$
64,041


$
54,334


$
9,707



17.9
%Second Quarter


63,991



48,803



15,188



31.1
%Third Quarter


60,968



55,006



5,962



10.8
%Fourth Quarter


85,741



57,631



28,110



48.8
%Gross Profit MarginFirst Quarter


7.5
%


6.8
%Second Quarter


8.4
%


6.3
%Third Quarter


7.9
%


7.3
%Fourth Quarter


8.7
%


7.1
%     *
    
    First and Second Quarters in 2006 are restated.  Three
    Months Ended March 31, 2006 (Restated) Compared to Three
    Months Ended March 31, 2005 (Restated)
    Three
    Months Ended June 30, 2006 (Restated) Compared to Three
    Months Ended June 30, 2005 (Restated)
   74




---



##### Table of Contents



Three
    Months Ended September 30, 2006 Compared to Three Months
    Ended September 30, 2005 (Restated)
    Three
    Months Ended December 31, 2006 Compared to Three Months
    Ended December 31, 2005 (Restated)
    Selling,
    General & Administrative (SG&A)
    Expense
  Quarterly Change2006 from 20052006*


2005


$


%(Restated)(Dollars in thousands)First Quarter

$
56,433


$
47,373


$
9,060



19.1
%Second Quarter


53,343



49,001



4,342



8.9
%Third Quarter


57,423



49,640



7,783



15.7
%Fourth Quarter


70,967



52,009



18,958



36.5
%SG&A as % of Net RevenueFirst Quarter


6.6
%


5.9
%Second Quarter


7.0
%


6.3
%Third Quarter


7.4
%


6.6
%Fourth Quarter


7.2
%


6.4
%     *
    
    First and Second Quarters in 2006 are restated.  Three
    Months Ended March 31, 2006 (Restated) Compared to
    March 31, 2005 (Restated)
    Three
    Months Ended June 30, 2006 (Restated) Compared to
    June 30, 2005 (Restated)
    Three
    Months Ended September 30, 2006 Compared to
    September 30, 2005 (Restated)
   75




---



##### Table of Contents



Three
    Months Ended December 31, 2006 Compared to
    December 31, 2005 (Restated)
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk      non-United
     76




---



##### Table of Contents



Restatement of Previously-Issued Financial Statements,
 77




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  PageIndex to Consolidated Financial Statements:Report of Independent Registered Public
    Accounting Firm


79Consolidated Balance Sheets at December 31,
    2006 and 2005


82Consolidated Statements of Operations for the
    Years Ended December 31, 2006, 2005 and 2004


83Consolidated Statements of Shareholders
    Equity and Comprehensive Income (Loss) for the Years Ended
    December 31, 2006, 2005 and 2004


84Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2006, 2005 and 2004


85Notes to the Consolidated Financial Statements


86Financial Statement Schedule:Consolidated Financial Statement
    Schedule II  Valuation and Qualifying
    Accounts


183    78




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      Consolidated
    financial statements and financial statement
    schedule
          Internal
    control over financial reporting
  Form 10-K Internal Control  Integrated
    Framework
   79




---



##### Table of Contents



Control Environment.
       80




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##### Table of Contents



Revenue.
  Income Taxes.
  Business Combinations, Goodwill Impairment and
    Segment Reporting.
  Financing-Related Accounts.
  Post-Retirement Benefits.
      Internal
    Control  Integrated Framework Internal Control  Integrated Framework
      81




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 312006


2005(Restated)(In thousands, exceptper share data)ASSETSCurrent assets:Cash and cash equivalents

$
26,594


$
30,180Accounts receivable, net


505,375



420,379Inventories


373,996



315,279Prepaid expenses and other current assets


20,575



34,167Total current assets


926,540



800,005Property and equipment, net


18,775



15,240Goodwill


69,161



51,931Other intangibles, net


16,530



4,073Other long-term assets


13,809



19,504Total assets

$
1,044,815


$
890,753LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft

$
54,637


$
86,755Accounts payable


300,986



263,787Borrowings under lines of credit


227,111



136,480Current portion of long-term debt


12,655



10,752Other accrued liabilities


110,450



85,290Total current liabilities


705,839



583,064Long-term debt, net of current portion


169,660



146,699Other long-term liabilities


7,206



5,663Total liabilities


882,705



735,426Commitments and contingencies (Note 11)Shareholders equity:Preferred stock, $0.01 par value, 10,000 shares
    authorized; none issued and outstanding






Common stock, $0.01 par value, 80,000 shares
    authorized; 32,162 and 30,062 shares issued and outstanding


198,854



189,949Deferred compensation






(3,289
)Accumulated deficit


(60,505
)


(37,398
)Accumulated other comprehensive income


23,761



6,065Total shareholders equity


162,110



155,327Total liabilities and shareholders equity

$
1,044,815


$
890,753    82




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 312006


2005


2004(Restated)


(Restated)(In thousands, except per share data)Net sales

$
3,372,876


$
3,139,250


$
2,796,447Cost of sales


3,098,135



2,923,476



2,582,915Gross profit


274,741



215,774



213,532Selling, general and administrative expense


238,166



198,023



189,506Investigation and restatement-related costs


1,649







Impairment of goodwill and other intangibles


3,477



7,296



Restructuring costs






1,275



Total operating expenses


243,292



206,594



189,506Operating income


31,449



9,180



24,026Interest expense


29,456



22,190



17,144Other expense (income), net


(2,848
)


1,373



(251
)Income (loss) before income taxes


4,841



(14,383
)


7,133Provision for income taxes


27,948



1,265



4,298Net income (loss)

$
(23,107
)

$
(15,648
)

$
2,835Net income (loss) per share:Basic

$
(0.75
)

$
(0.53
)

$
0.10Diluted

$
(0.75
)

$
(0.53
)

$
0.10Shares used in per share calculation:Basic


30,772



29,299



27,678Diluted


30,772



29,299



28,522    83




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
 AND
    COMPREHENSIVE INCOME (LOSS)
  AccumulatedOther


TotalCommon Stock


Deferred


Accumulated


Comprehensive


Shareholders


ComprehensiveShares


Amount


Compensation


Deficit


Income


Equity


Income (Loss)Balance at December 31, 2003 (As reported)


26,907


$
161,264


$
(4,013
)

$
20,837


$
15,322


$
193,410Adjustments to opening shareholders equity, net of tax






8,720



(3,430
)


(45,422
)


(4,162
)


(44,294
)Balance at December 31, 2003 (Restated)


26,907



169,984



(7,443
)


(24,585
)


11,160



149,116Currency translation adjustment


















8,132



8,132


$
8,132Net income














2,835







2,835



2,835Total comprehensive income






















10,967



10,967Exercise of stock options and vesting of restricted stock units


738



2,876















2,876Tax benefit from stock option exercises






694















694Issuance of stock under stock purchase plan


363



1,390















1,390Issuance of shares related to acquisition


449



2,535















2,535Grant of restricted stock units and stock options, net of
    forfeitures






525



(525
)










Amortization of deferred compensation










2,960











2,960Acquisition earnout


216



1,510















1,510Balance at December 31, 2004 (Restated)


28,673



179,514



(5,008
)


(21,750
)


19,292



172,048Currency translation adjustment


















(13,170
)


(13,170
)


(13,170
)Net unrealized loss on available-for-sale security, net of tax


















(57
)


(57
)


(57
)Net loss














(15,648
)






(15,648
)


(15,648
)Total comprehensive loss






















(28,875
)


(28,875
)Exercise of stock options and vesting of restricted stock units


768



3,441















3,441Tax benefit from stock option exercises






544















544Issuance of stock under stock purchase plan


261



1,801















1,801Issuance of shares related to acquisition


34



353















353Grant of restricted stock units, net of forfeitures






901



(901
)










Amortization of deferred compensation










2,620











2,620Acquisition earnout


326



3,395















3,395Balance at December 31, 2005 (Restated)


30,062



189,949



(3,289
)


(37,398
)


6,065



155,327Currency translation adjustment


















17,372



17,372



17,372Net unrealized gain on available-for-sale security, net of tax


















37



37



37Changes in unrealized gain on derivative instruments, net of tax


















287



287



287Net loss














(23,107
)






(23,107
)


(23,107
)Total comprehensive loss






















(5,411
)

$
(5,411
)Exercise of stock options and vesting of restricted stock units


375



597















597Issuance of shares related to acquisition


1,725



8,830















8,830Issuance of warrants to RSA






382















382Adoption of FAS 123R






(3,289
)


3,289











Stock-based compensation






2,385















2,385Balance at December 31, 2006


32,162


$
198,854


$



$
(60,505
)

$
23,761


$
162,110    84




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 312006


2005


2004(Restated)


(Restated)(In thousands)Cash flows from operating activities:Net income (loss)

$
(23,107
)

$
(15,648
)

$
2,835Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


7,924



9,225



12,128Amortization of debt issuance costs


867



1,038



631Stock-based compensation expense


2,385



2,620



2,960Acquisition earnout






3,395



1,510Provision for bad debts


8,506



4,297



8,050Loss on property and equipment


334



(39
)


761Unrealized loss on currency remeasurement


1,536



4,075



2,997Impairment of goodwill and other intangibles


3,477



7,296



Deferred taxes


20,204



(9,278
)


(3,977
)Tax benefit from stock options






544



694Changes in assets and liabilities:Accounts receivable


(11,480
)


(45,618
)


(32,369
)Inventories


(41,930
)


(19,172
)


570Prepaid expenses


(2,294
)


(1,357
)


(1,938
)Other assets


(525
)


2,534



1,536Accounts payable and cash overdraft.


(30,059
)


21,036



31,008Other accrued liabilities


18,591



(6,401
)


17,679Net cash provided by (used in) operating activities


(45,571
)


(41,453
)


45,075Cash flows from investing activities:Proceeds from sale of property and equipment


109



24,496



53Purchases of property and equipment


(6,357
)


(5,449
)


(6,446
)Acquisitions of businesses, net of cash acquired


(27,882
)


(4,446
)


(34,570
)Net cash provided by (used in) investing activities


(34,130
)


14,601



(40,963
)Cash flows from financing activities:Net borrowings (repayments) under lines of credit


48,714



54,950



(78,378
)Debt issue costs


(697
)


(535
)


(4,656
)Borrowings under long-term notes payable


35,000







110,000Payments under long-term notes payable


(8,766
)


(14,960
)


(25,898
)Proceeds from issuance of common stock


597



5,242



4,266Net cash provided by financing activities


74,848



44,697



5,334Effect of exchange rate changes on cash


1,267



(959
)


(1,056
)Increase (decrease) in cash and cash equivalents


(3,586
)


16,886



8,390Cash and cash equivalents, beginning of year


30,180



13,294



4,904Cash and cash equivalents, end of year

$
26,594


$
30,180


$
13,294Cash payments during the year:Interest

$
26,643


$
20,951


$
16,666Income taxes

$
7,321


$
14,865


$
4,560Supplemental non-cash investing activities:Issuance of common stock for acquisitions

$
8,830


$
353


$
2,535Accrual of earnout payments for acquisitions


1,509



1,473



532Supplemental non-cash financing activities:Issuance of restricted stock

$



$
1,049


$
1,040Warrants issued in connection with debt issuances


382







    85




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes
    to the Consolidated Financial Statements
  NOTE 1 
    ORGANIZATION,
    BUSINESS OF COMPANY AND CREDIT AGREEMENT COVENANTS  Description
    of Operations
    Credit
    Agreement Covenants and Financial Statement
    Presentation
  and/or
  12-month 12-month 12-month 12-month
   86




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      NOTE 2 
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Principles
    of Consolidation and Basis of Preparation
      Revenue
    Recognition
      No. 99-19 Reporting Revenue Gross as a Principal Versus Net as an Agent
 87




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      
    The delivered item(s) has value to the client on a stand-alone
    basis;
    There is objective and reliable evidence of the fair value of
    the undelivered item(s); and
    If the arrangement includes a general right of return relative
    to the delivered item(s), delivery or performance of the
    undelivered item(s) is considered probable and substantially in
    the control of the company.      Cash
    and Cash Equivalents and Cash Overdraft
    Accounts
    Receivable and Allowance for Doubtful Accounts
      Vendor
    Programs
   88




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Financial
    Instruments, Concentration of Credit and Other
    Risks
  Lines of Credit and Term Loans
      Inventories
  first-in,
  Property
    and Equipment
    Goodwill
  Goodwill and Other Intangible Assets
   89




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Long-Lived
    Assets and Other Intangible Assets
      Income
    Taxes
           90




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      Net
    Income (Loss) Per Share
    Foreign
    Currency Translation and Transactions
  Foreign Currency Translation
  Comprehensive
    Income (Loss)
      Stock-Based
    Compensation
  Accounting
    for Stock Issued to Employees
 91




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Accounting for Stock-Based
    Compensation Share-Based Payment
           92




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Business
    Segments
  Disclosure about Segments of an Enterprise and Related
    Information Goodwill and
    Other Intangible Assets Segment
    and Geographic Information
  Derivative
    Financial Instruments
  Accounting for
    Derivatives Instruments and Hedging Activities Accounting for Certain Derivative Instruments and Certain
    Hedging Activities-an amendment of FASB Statement 133 Amendment of Statement 133 on Derivative Instruments and
    Hedging Activities
  Acquisitions
  Business
    Combinations
    Restructuring
    Costs and Other Charges
    Employers Accounting for Post-Employment
    Benefits  An Amendment of SFAS Nos. 5 and 43
 93




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Accounting for Costs Associated with Exit or Dispose
    Activities
        Advertising
    Recently
    Issued Accounting Standards
  Accounting for
    Servicing of Financial Assets Accounting for Transfers
    and Servicing of Financial Assets and Extinguishments of
    Liabilities
  No. 06-03, How Sales Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement (That Is, Gross Versus Net Presentation) (EITF 06-03), EITF 06-03
 94




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    No. 06-05, Purchases of Life Insurance (EITF 06-05), Bulletin 85-4, Accounting for Purchases of Life Insurance 85-4). EITF 06-05 85-4. EITF 06-05 individual-by-individual Interest on Receivables
    or Payables EITF 06-05 EITF 06-05
  Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
  Fair
    Value Measurements SFAS No. 157-1, Application of FASB Statement No. 157 to FASB Statement
    No. 13 and Other Accounting Pronouncements That Address
    Fair Value Measurements for Purposes of Lease Classification or
    Measurement Under Statement 13 SFAS 157-1). SFAS 157-1 Accounting for Leases SFAS No. 157-2, SFAS 157-2). SFAS 157-2 SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active SFAS 157-3). SFAS 157-3
 95




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115 instrument-by-instrument
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an Amendment of ARB No. 51
  Disclosures about Derivative Instruments and Hedging
    Activities (an Amendment of FASB Statement 133)
  No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 FSP 142-3
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1). 14-1 14-1 14-1
 96




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  The
    Hierarchy of Generally Accepted Accounting Principles The Meaning of Present
    Fairly in Conformity with Generally Accepted Accounting
    Principles
  No. 06-10, Accounting for Deferred Compensation and Postretirement
    Benefit Aspects of Collateral Assignment Split-Dollar Life
    Insurance Arrangements (EITF 06-10), EITF 06-10 EITF 06-10
  NOTE 3 
    RESTATEMENT
    OF PREVIOUSLY-ISSUED FINANCIAL STATEMENTS  Restatement
    Related to Various Accounting Adjustments
  Investigation and
    Restatement Related to Stock-Based Compensation
  Investigation and Restatement Related to
    Certain Reserves, Accruals and Other Accounting Estimates
   97




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Investigation and Restatement Related to
    Vendor Allowances
    RetainedEarningsNet Income (Loss)


(Deficit)Years Ended December 31


As of Jan. 12005


2004


2004As previously reported

$
481


$
11,337


$
20,837Adjustments:Stock-Based Compensation


(1,115
)


(1,532
)


(6,245
)Certain Reserves, Accruals and Other Accounting Estimates:Vendor receivable reserves


(4,212
)


484



(780
)Other adjustments


(1,528
)


(920
)


(3,444
)Vendor Allowances


(838
)


(3,951
)


(3,444
)Various Accounting Adjustments:Goodwill impairment


(7,296
)






(31,613
)Customer credits


(704
)


(604
)


(10,763
)Acquisition earnout


(2,886
)


(3,312
)


Restructuring charges


5,933







Income taxes(1)


789



3,679



11,965Other adjustments


(4,272
)


(2,346
)


(1,098
)Total adjustments


(16,129
)


(8,502
)


(45,422
)As adjusted

$
(15,648
)

$
2,835


$
(24,585
)     (1)
    
    Includes the tax effect of restatement adjustments.  Investigation
    and Restatement Related to Stock-Based
    Compensation
  Background
    back-up
 98




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      
    Executive Officer and Non-Officer Employee Grants In general, stock option and restricted stock
    unit (RSU) grants were made to executive officers
    and non-officer employees for new hire, retention or promotion
    purposes. These grants were authorized by either the Board of
    Directors or its Compensation Committee, or in some cases both,
    pursuant to the terms of the 1988 Stock Plan or the 1998 Stock
    Option Plan. With respect to several grants, it was determined
    that there was partial or undocumented approval by either the
    Board of Directors or its Compensation Committee. The properly
    documented grants were evidenced by resolutions authorizing the
    grants and generally setting forth the names of the recipients
    and the number of options or RSUs granted to each individual.
    Directors The Companys
    1993 Director Plan and 1998 Stock Plan include provisions
    under which non-employee members of the Companys Board of
    Directors were entitled to receive automatic stock option
    grants. The 1993 Director Plan authorized an initial grant
    to all current non-employee members of the Board of Directors to
    be issued on the effective date of the plan, March 15,
    1993, and newly-appointed
    non-employee
    directors thereafter were entitled to receive an automatic grant
    on the date of appointment. Further, the 1993 Director Plan
    provided that, beginning in 1996, each then current non-employee
    member of the Board of Directors would receive an automatic
    annual grant on March 15, the annual anniversary of the
    adoption of the Plan. The 1998 Stock Plan amended the annual
    grant date to be the date of its annual meeting of shareholders.
    Both plans specified that new director grants would occur
    automatically upon the initial appointment of a member of the
    Board of Directors.  Summary
    of Findings
  on-going
  Accounting for Stock Issued to Employees Share-Based Payment Sample Letter Sent in
    Response to Inquiries Related to Filing Restated Financial
    Statements for Errors in Accounting for Stock Option Grants
 99




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
        Option
    Grants
  
    Grants with insufficient contemporaneous
    documentation.  For certain stock option grants
    made primarily to executive officers or non-officer employees,
    the Company determined that there was insufficient
    contemporaneous documentation of the stated grant date. Included
    in this category were 47 executive officer grants (options to
    purchase approximately 2.1 million shares), 552 non-officer
    employee grants (options to purchase approximately
    3.0 million shares), one initial grant and thirteen annual
    grants to non-employee directors (options to purchase
    approximately 100,000 shares). Although the applicable
    option plans provided that the grants to non-employee directors
    were to be automatic as described above, the Board of Directors
    or the Compensation Committee typically approved the grants.
    Grants approved to be issued at any time during a
    pre-determined period.  On eight occasions between
    1997 and 2003, the Board of Directors or its Compensation
    Committee approved grants of stock options (options to purchase
    approximately 2.1 million shares) to be issued at any time
    during a pre-determined time period. Stock options were granted
    to employees (172 grants for approximately 1.4 million
    shares), executive officers (nine grants for approximately
    600,000 shares) and newly elected members of the Board of
    Directors (two grants for 45,000 shares) under these
    arrangements. The selection of the specific grant date was
    delegated to the Chief Executive Officer. In each instance, the
    window commenced on the date of a Board meeting, the date of an
    acquisition or a new hire start date. The Company refers to
    these grants as window grants. Because the Company
    was unable to locate adequate documentary evidence of when the
    grant date was chosen, the Company revised the measurement dates
    for 177 grants (approximately 2.0 million shares) included
    in seven of the eight option granting actions to the last day of
    the window (which in each of the seven cases was a higher
    price). On one window granting action date, it was determined
    that the recorded grant date was appropriate.
    Option grants requiring variable
    accounting.  For nine grants to executive officers
    (options to purchase approximately 300,000 shares), the
    Company determined that the grants had been effectively
    cancelled and repriced, and therefore these grants should have
    been accounted for using variable accounting under the
    provisions of APB 25.  Modifications
    and Other Matters
  
    Options requiring accounting adjustment for modifications
    including accelerated vesting and extended terms beyond the
    original vesting terms for exercise.  The Company
    should have recorded stock based compensation expense upon the
    acceleration of certain options and upon the extension of
    vesting of other options. In accordance with APB 25 and FASB
    Interpretation 44, Accounting for Certain Transactions 100




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Involving Stock Compensation, an interpretation of APB
    25, stock-based compensation was recorded based upon the terms
    of such acceleration or extension.  
    Performance-based RSU grants that were accounted for
    incorrectly.  For certain performance-based RSU
    grants, the measurement date and grant date were incorrect. The
    initial measurement date should generally have been the date it
    was probable that all performance criteria would  be met, but
    the Company had incorrectly recorded certain measurement and
    grant dates based upon the approval date by the Board of
    Directors or its Compensation Committee. Included in these
    grants were four executive officer grants (255,000 shares)
    and 17 non-officer employee grants (162,000 shares).
    RSU grants were determined to have insufficient documentation
    of the Recorded Grant Date.  For one RSU grant
    made to an executive officer (25,000 shares), the Company
    determined that there was insufficient documentation of the
    Recorded Grant Date.
    Timing issues related to the recognition of compensation for
    RSU grants.  For certain RSU grants, the Company
    determined that errors were made in the timing of the recorded
    compensation expense.    TotalMeasurement


Variable


Affected


% AffectedOptions


RSUs


Total


Date Changes


Accounting


Grants


GrantsGrants to:Officers


124



25



149



61



9



70



47.0
%Non-Officer Employees


1,202



228



1,430



735







735



51.4
%Directors


61



7



68



16







16



23.5
%Total Grants


1,387



260



1,647



812



9



821



49.8
%     Non-OfficerOfficers


Employees


Directors


TotalStock option and RSU grants:Measurement date change:Insufficient documentation of the grant date exists

$
2,776


$
2,467


$
163


$
5,406Grants approved to be issued at any time during a pre-determined
    period (window grants)


64



889



4



957Variable accounting


511



2







513Total stock option grants


3,351



3,358



167



6,876Modifications and RSU grants


1,428



575



12



2,015Total

$
4,779


$
3,933


$
179


$
8,891   101




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Stock








Adjustment toCompensation


Pre-Tax


Tax


Net IncomeFiscal Year

As Reported


Adjustments


Effect


(Loss)(In thousands)1996

$



$
14


$
(6
)

$
81997






40



(16
)


241998






36



(13
)


231999






182



(69
)


1132000






1,915



(722
)


1,1932001






1,282



(474
)


8082002


91



1,572



(617
)


9552003


1,151



1,204



(19
)


1,185Cumulative effect at December 31, 2003


1,242



6,245



(1,936
)


4,3092004


1,428



1,532



(1,184
)


3482005


1,505



1,115



(1,048
)


67Total

$
4,175


$
8,892


$
(4,168
)


4,724   Adjustments
    Identified
    Payroll
    Taxes, Interest and Penalties
   102




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Investigation
    and Restatement Related to Certain Reserves, Accruals and Other
    Accounting Estimates
  Background
      Summary
    of Findings
  and/or
   103




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Adjustments
    Identified
    
    Vendor receivable reserves  The Company
    receives funds from vendors for price protection, product
    rebates, marketing, promotions, infrastructure reimbursement and
    competitive pricing programs. These amounts are recorded as a
    vendor receivable with a corresponding reduction to inventories,
    cost of sales, or selling, general and administrative expense,
    depending on the nature of the program. Vendor receivables are
    generally collected through vendor authorized reductions to the
    Companys accounts payable, and reserves are established
    for vendor receivables that are determined to be uncollectible.
    For certain vendor receivable reserves recorded in prior
    periods, the Company determined that insufficient
    contemporaneous documentation of the recorded reserves existed.
    Other adjustments  The Company recorded
    additional correcting adjustments through June 30, 2006
    pertaining to errors in reserves and accruals, including:
    (i) calculations that did not agree with the recorded
    balances, (ii) amounts for which the Company determined
    that insufficient documentation existed, and (iii) amounts
    that were recorded based upon inconsistent or improper judgments
    determined not to be in compliance with GAAP. These adjustments
    were made to various accounts, including accounts receivable
    reserves, reserves for sales returns and allowances, inventory
    valuation, reserves recorded in acquisition, and various accrued
    liabilities.  Investigation
    and Restatement Related to Vendor Allowances
  Background
    Summary
    of Findings
     104




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Restatement
    Related to Various Accounting Adjustments
  Background
    Adjustments
    Identified
    
    Goodwill impairment  Historically, the
    Company prepared its consolidated financial statements based
    upon a determination that the Company had one reportable segment
    under the provisions of SFAS 131, and one reporting unit under
    the provisions of SFAS 142. The Company has subsequently
    concluded that it incorrectly applied the provisions of
    SFAS 142 related to the identification of reporting units
    when it first became effective in 2002. The Company concluded
    that as of January 1, 2002, it had eleven operating
    segments under SFAS 131 and eleven reporting units under
    SFAS 142. The Company has recorded correcting adjustments
    to recognize goodwill impairment based upon eleven reporting
    units since the inception of SFAS 142 through
    December 31, 2005.
    Customer credits  The Company determined
    that certain customer credits (amounts recorded as owed to
    customers) had been incorrectly recognized as income in prior
    periods. To correct this error, the Company recorded adjustments
    to increase accrued liabilities and increase operating expenses.
    Acquisition earnout  The Company
    previously recorded earnout payments made to the OpenPSL
    shareholders after the acquisition as additional goodwill
    related to the acquisition. The Company subsequently determined
    that such payments should have been recorded as compensation
    expense. Accordingly, the Company has recorded correcting
    adjustments to reflect the contingent consideration as
    compensation expense.
    Restructuring charges The Company
    previously recorded a restructuring charge for prospective lease
    payments and property taxes associated with excess warehouse
    space in the United Kingdom. The Company subsequently determined
    that the restructuring charge did not meet the requirements to
    record such a charge pursuant to the provisions of
    SFAS 146. The Company has recorded an adjustment to correct
    the restructuring charge taken and the related restructuring
    liability and to record the expense in the periods incurred.
    Income taxes  The Company determined that
    several correcting entries were required to adjust the income
    tax provision recorded in prior periods. These included
    adjustments: (i) to record deferred tax assets related to
    certain foreign based subsidiaries; (ii) to reflect changes
    to previously-recorded deferred tax assets which were calculated
    using improper tax rates; (iii) to record a valuation
    allowance on deferred tax assets at December 31, 2005 in
    order to reduce the estimated future tax benefit related to
    certain foreign tax credits that management does not believe is
    more likely than not to be realized; (iv) transfer pricing
    reserves and (v) to record the income tax effects of other
    restatement entries. 105




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
   
    Other adjustments  The Company also
    recorded a number of other correcting adjustments, including
    correcting adjustments pertaining to the timing of revenue
    recognition, the reversal of sales transactions pursuant to
    which products were repurchased, the recognition of co-operative
    marketing expenses, the recognition of extended warranty revenue
    and related costs, social employment taxes in Brazil, purchase
    price allocations, warranty reserves, certain foreign currency
    gains and losses, Supplemental Executive Retirement Plan, debt
    discount, asset retirement obligations, derivative instruments
    and certain accruals.    Pre-Tax Accounting AdjustmentsReserves,





Various


Total Pre-Tax





TotalStock-based


Accruals and


Vendor


Accounting


Accounting


Benefit from


AccountingFiscal Year

Compensation


Other Estimates


Allowances


Adjustments


Adjustments


Income Taxes


AdjustmentsCumulative effect at December 31, 2003

$
(6,245
)

$
(4,224
)

$
(3,444
)

$
(43,474
)

$
(57,387
)

$
11,965


$
(45,422
)2004


(1,532
)


(436
)


(3,951
)


(6,262
)


(12,181
)


3,679



(8,502
)2005


(1,115
)


(5,740
)


(838
)


(9,225
)


(16,918
)


789



(16,129
)Total

$
(8,892
)

$
(10,400
)

$
(8,233
)

$
(58,961
)

$
(86,486
)

$
16,433


$
(70,053
)   Restatement
    of Financial Statements
    Year Ended December 31, 2005PreviouslyReported


Adjustments


As Restated(In thousands, except per share data)Net sales

$
3,193,833


$
(54,583
)

$
3,139,250Cost of sales


2,962,615



(39,139
)


2,923,476Gross profit


231,218



(15,444
)


215,774Selling, general and administrative expense


190,585



7,438



198,023Impairment of goodwill and other intangibles






7,296



7,296Restructuring costs and other expenses


16,515



(15,240
)


1,275Total operating expenses


207,100



(506
)


206,594Operating income (loss)


24,118



(14,938
)


9,180Interest expense


21,720



470



22,190Other expense (income), net


(139
)


1,512



1,373Income (loss) before income taxes


2,537



(16,920
)


(14,383
)Provision for (benefit from) income taxes


2,056



(791
)


1,265Net income (loss)

$
481


$
(16,129
)

$
(15,648
)Net income (loss) per share:Basic

$
0.02


$
(0.55
)

$
(0.53
)Diluted

$
0.02


$
(0.55
)

$
(0.53
)Shares used in per share calculation:Basic


29,299







29,299Diluted


30,056



(757
)


29,299  106




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    
    Net sales includes adjustments for gross vs. net revenue
    recognition, correction of certain revenue recognition errors,
    and reserves for sales return and allowances.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, correction of cost of sales associated with certain
    revenue recognition errors, and reserves for sales returns and
    allowances.
    Selling, general and administrative expense includes adjustments
    for customer credits, OpenPSL acquisition earnout, stock based
    compensation expense, co-operative marketing expenses, accounts
    receivable reserves, and various accrued liabilities.
    Interest expense includes adjustments for derivative instruments
    and debt discount.
    Other expense (income), net includes foreign currency gains and
    losses.
    Provision for (benefit from) income taxes includes adjustments
    to deferred tax assets, changes to transfer pricing reserves and
    income tax effects of other restatement adjustments.  Year Ended December 31, 2004PreviouslyReported


Adjustments


As Restated(In thousands, except per share data)Net sales

$
2,827,777


$
(31,330
)

$
2,796,447Cost of sales


2,606,369



(23,454
)


2,582,915Gross profit


221,408



(7,876
)


213,532Selling, general and administrative expense


185,240



4,266



189,506Total operating expenses


185,240



4,266



189,506Operating income (loss)


36,168



(12,142
)


24,026Interest expense


17,170



(26
)


17,144Other expense (income), net


(316
)


65



(251
)Income (loss) before income taxes


19,314



(12,181
)


7,133Provision for (benefit from) income taxes


7,977



(3,679
)


4,298Net income (loss)

$
11,337


$
(8,502
)

$
2,835Net income (loss) per share:Basic

$
0.41


$
(0.31
)

$
0.10Diluted

$
0.40


$
(0.30
)

$
0.10Shares used in per share calculation:Basic


27,665



13



27,678Diluted


28,409



113



28,522     
    Net sales includes adjustments for gross vs. net revenue
    recognition, correction of certain revenue recognition errors,
    and reserves for sales return and allowances.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, correction of cost of sales associated with certain
    revenue recognition errors, and reserves for sales returns and
    allowances. 107




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
   
    Selling, general and administrative expense includes adjustments
    for customer credits, OpenPSL acquisition earnout, stock based
    compensation expense, co-operative marketing expenses, and
    various accrued liabilities.
    Interest expense includes adjustments for derivative instruments
    and debt discount.
    Other expense (income), net includes adjustments for debt
    discount and foreign currency gains and losses.
    Provision for (benefit from) income taxes includes adjustments
    to deferred tax assets, changes to transfer pricing reserves and
    income tax effects of other restatement adjustments. 108




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
     As of December 31, 2005As PreviouslyReported


Adjustments


As Restated(In thousands)ASSETSCurrent assetsCash and cash equivalents

$
29,927


$
253


$
30,180Accounts receivable, net


421,535



(1,156
)


420,379Inventories


318,174



(2,895
)


315,279Prepaid expenses and other current assets


29,039



5,128



34,167Total current assets


798,675



1,330



800,005Property and equipment, net


13,212



2,028



15,240Goodwill


101,456



(49,525
)


51,931Other intangibles


8,512



(4,439
)


4,073Other long term assets


11,477



8,027



19,504TOTAL ASSETS

$
933,332


$
(42,579
)

$
890,753LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft

$
86,502


$
253


$
86,755Accounts payable


259,773



4,014



263,787Borrowings under lines of credit


28,747



107,733



136,480Current portion of long-term debt


10,639



113



10,752Other accrued liabilities


66,832



18,458



85,290Total current liabilities


452,493



130,571



583,064Borrowings under lines of credit


107,733



(107,733
)


Long-term debt, net of current portion


147,353



(654
)


146,699Other long term liabilities


5,372



291



5,663TOTAL LIABILITIES


712,951



22,475



735,426Shareholders equity:Common stock


182,097



7,852



189,949Deferred compensation


(3,225
)


(64
)


(3,289
)Retained earnings (deficit)


32,655



(70,053
)


(37,398
)Accumulated other comprehensive income


8,854



(2,789
)


6,065TOTAL SHAREHOLDERS EQUITY


220,381



(65,054
)


155,327TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
933,332


$
(42,579
)

$
890,753  109




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    
    Cash includes adjustments to reclassify cash overdraft to
    liabilities.
    Accounts receivable, net includes adjustments for the correction
    of certain revenue recognition errors, and reserves for sales
    returns and allowances.
    Inventory includes adjustments for the correction of cost of
    sales associated with certain revenue recognition errors,
    purchase price allocations, inventory valuation, and reserves
    for sales returns and allowances.
    Prepaid expenses and other current assets include adjustments
    for certain reserves accounts.
    Property and equipment, net includes adjustments for asset
    retirement obligations.
    Goodwill includes adjustments for purchase accounting errors,
    goodwill impairment and goodwill translation.
    Other intangibles, net include adjustments for intangible
    impairment and intangible translation.
    Other long term assets include adjustments for debt discount.
    Accounts payable includes adjustments for co-operative marketing
    expenses, and various accrued liabilities.
    Short-term notes payable and current portion of long-term notes
    payable includes adjustments for reclassification to other
    accrued liabilities.
    Other accrued liabilities includes adjustments for restructuring
    charges, various accrued liabilities and reserve accounts.
    Long-term notes payable includes adjustments for debt discount
    and derivative instruments.
    Other long-term liabilities include adjustments for Supplemental
    Executive Retirement Plan (SERP) and asset
    retirement obligations.
    Common stock includes adjustments to record stock-based
    compensation expense.
    Deferred compensation includes adjustments to record stock-based
    compensation expense.
    Accumulated other comprehensive income includes adjustments for
    foreign currency translation. 110




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
     Years Ended December 312005


2004As








AsPreviously





As


Previously





AsReported


Adjustments


Restated


Reported


Adjustments


Restated(In thousands)Cash flows from operating activities:Net income (loss)

$
481


$
(16,129
)

$
(15,648
)

$
11,337


$
(8,502
)

$
2,835Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


10,996



(1,771
)


9,225



13,794



(1,666
)


12,128Amortization of debt issuance costs






1,038



1,038







631



631Share-based compensation






2,620



2,620







2,960



2,960Acquisition earnout






3,395



3,395







1,510



1,510Provision for bad debts


6,003



(1,706
)


4,297



8,970



(920
)


8,050Loss on property and equipment


(40
)


1



(39
)


18



743



761Unrealized loss on currency remeasurement






4,075



4,075







2,997



2,997Impairment of goodwill and other intangibles






7,296



7,296











Deferred taxes


(6,454
)


(2,824
)


(9,278
)


(393
)


(3,584
)


(3,977
)Tax benefit from stock options


1,407



(863
)


544



615



79



694Changes in assets and liabilities:Accounts receivable


(43,919
)


(1,699
)


(45,618
)


(33,148
)


779



(32,369
)Inventories


(28,775
)


9,603



(19,172
)


(3,873
)


4,443



570Prepaid expenses


(1,544
)


187



(1,357
)


(60
)


(1,878
)


(1,938
)Other assets


2,748



(214
)


2,534



(2,076
)


3,612



1,536Accounts payable and cash overdraft


(28,081
)


49,117



21,036



10,856



20,152



31,008Other accrued liabilities


(6,507
)


106



(6,401
)


13,406



4,273



17,679Net cash provided by (used in) operating activities


(93,685
)


52,232



(41,453
)


19,446



25,629



45,075Cash flows from investing activities:Proceeds from sale of property, and equipment


23,162



1,334



24,496



54



(1
)


53Purchases of property and equipment


(4,518
)


(931
)


(5,449
)


(4,353
)


(2,093
)


(6,446
)Acquisitions of businesses, net of cash acquired


(5,083
)


637



(4,446
)


(33,742
)


(828
)


(34,570
)Net cash provided by (used in) investing activities


13,561



1,040



14,601



(38,041
)


(2,922
)


(40,963
)Cash flows from financing activities:Net borrowings (repayments) under lines of credit


60,173



(5,223
)


54,950



(77,381
)


(997
)


(78,378
)Debt issue costs






(535
)


(535
)






(4,656
)


(4,656
)Change in book overdraft


54,672



(54,672
)






18,235



(18,235
)


Borrowing under long-term notes payable


108



(108
)






218



109,782



110,000Payments under long-term notes payable


(22,481
)


7,521



(14,960
)


(28,845
)


2,947



(25,898
)Proceeds from issuance of convertible notes














110,000



(110,000
)


Proceeds from issuance of common stock


5,242







5,242



4,304



(38
)


4,266Net cash provided by financing activities


97,714



(53,017
)


44,697



26,531



(21,197
)


5,334Effect of exchange rate changes on cash


(957
)


(2
)


(959
)


454



(1,510
)


(1,056
)Increase (decrease) in cash and cash equivalents


16,633



253



16,886



8,390







8,390Cash and cash equivalents at beginning of year


13,294







13,294



4,904







4,904Cash and cash equivalents at end of year

$
29,927


$
253


$
30,180


$
13,294


$



$
13,294  111




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  NOTE 4
    
    GOODWILL AND OTHER INTANGIBLE ASSETS    US Distribution

Rorke Data U.S.

Chile IQQ

Europe DistributionCanada

Latin America Export

Mexico

Europe EnterpriseTotal Tec

Chile

Net Storage Brazil         LatinUS


Europe


Europe


AmericaDistribution


Distribution


Enterprise


Export


Other


TotalBalance at December 31, 2004 (Restated)

$
8,241


$



$
29,308


$



$
15,705


$
53,254Acquisition of Net Storage and MCE


106



1,877











3,728



5,711Contingent purchase price adjustment










523







1,359



1,882Impairment






(1,870
)










(4,324
)


(6,194
)Currency translation adjustment






(7
)


(2,990
)






275



(2,722
)Balance at December 31, 2005 (Restated)


8,347







26,841







16,743



51,931Acquisition of ProSys


















14,873



14,873Contingent purchase price adjustment


















1,597



1,597Impairment


















(3,477
)


(3,477
)Currency translation adjustment










3,705







532



4,237Balance at December 31, 2006

$
8,347


$



$
30,546


$



$
30,268


$
69,161    112




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
          Estimated

As of December 31, 2006Useful Life for

Gross


Accumulated


NetIntangible Assets

Amortization

Amount


Amortization


AmountNon-compete agreements

2-6 years

$
3,210


$
1,519


$
1,691Trade names

20 years


2,500



105



2,395Customer/supplier relationships

4-10 years


14,928



3,054



11,874Internally-developed software

5 years


600



30



570Total



$
21,238


$
4,708


$
16,530     Estimated

As of December 31, 2005 (Restated)Useful Life for

Gross


Accumulated


NetIntangible Assets

Amortization

Amount


Amortization


AmountNon-compete agreements

2-6 years

$
1,513


$
1,311


$
202Trade names

20 years


300



62



238Customer/supplier relationships

4-10 years


5,117



1,484



3,633Total



$
6,930


$
2,857


$
4,073  113




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    AmountYears Ending December 31,2007

$
3,6292008


3,4022009


3,2252010


2,9192011


1,461   NOTE 5  ACQUISITIONS
    2006
  ProSys
    Information Systems Acquisition
       114




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Accounts receivable

$
57,880Inventories


10,121Equipment and other assets


2,979Goodwill


14,873Intangibles


13,750Short-term note payable


(33,989
)Accounts payable


(21,900
)Other accrued liabilities


(8,563
)Total consideration

$
35,151       2005
  MCE Group
    Acquisition
     115




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Accounts receivable

$
23,256Inventories


24,166Equipment and other assets


1,587Goodwill


1,983Intangibles


425Accounts payable


(22,774
)Other accrued liabilities


(2,153
)Notes payable


(25,829
)Total consideration

$
661     Net
    Storage Computers, Ltda Acquisition
     116




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Accounts receivable

$
2,123Inventories


2,312Equipment and other assets


717Goodwill


3,728Intangibles


421Accounts payable


(2,943
)Other accrued liabilities


(3,234
)Total consideration

$
3,124     2004
  OpenPSL
    Holdings Limited Acquisition
       117




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Accounts receivable

$
30,721Inventories


6,024Equipment and other assets


2,626Goodwill


27,797Intangibles


3,670Accounts payable


(18,785
)Other accrued liabilities


(7,530
)Notes payable and long-term liabilities


(7,704
)Total consideration

$
36,819   NOTE 6 
    BALANCE
    SHEET COMPONENTS  As of December 31,2006


2005(Restated)(In thousands)Accounts receivable, net:Accounts receivable

$
516,962


$
429,319Less: allowance for doubtful accounts


(11,587
)


(8,940
)$
505,375


$
420,379Property and equipment:Computer and other equipment

$
57,667


$
50,895Land and buildings


4,177



3,322Furniture and fixtures


7,934



7,682Warehouse equipment


4,651



4,445Leasehold improvements


11,168



9,16385,597



75,507Less: accumulated depreciation and amortization


(66,822
)


(60,267
)$
18,775


$
15,240    118




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  NOTE 7 
    LINES
    OF CREDIT AND TERM LOANS  Lines
    of Credit
  As of December 312006


2005(In thousands)Western Facility

$
43,000


$
18,319Wachovia Facility


92,562



89,414IBM Facilities


30,838



26,558Bank of America Facility


31,521



GE Facility


26,190



Intel Facility


3,000



IFN Financing BV






2,189Amounts included in current liabilities

$
227,111


$
136,480   Western
    Facility
       119




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      Wachovia
    Facility
    IBM
    Facilities
   120




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Bank of
    America Facility
    GE
    Commercial Distribution Finance Facility
   121




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  12-month 12-month 12-month
  Intel
    Corporation Facility
    IFN
    Financing BV
    Term
    Loans
  As of December 312006


2005(In millions)Convertible notes, face value of $110.0, fair value of $107.8 as
    of December 31, 2006 and $102.9 as of December 31,
    2005, due 2024

$
110.0


$
110.09.0% senior subordinated notes issued in 2000, face value
    of $38.0 as of December 31, 2006 and $45.0 as of
    December 31, 2005, fair value of $38.4 as of
    December 31, 2006 and $45.6 as of December 31, 2005,
    due 2010


36.8



43.49.0% senior subordinated notes issued in 2006, face value of
    $35.0, fair value of $36.3 as of December 31, 2006, due 2013


35.0



5.25% loan agreement, face value of $3.3 as of December 31,
    2005, fair value of $3.3 as of December 31, 2005, repaid in
    2006






3.3Other, fair values approximate carrying value


0.6



0.7Total debt


182.4



157.4Less: current portion


(12.7
)


(10.7
)Total long-term debt

$
169.7


$
146.7  122




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Convertible
    Notes
          30-day
 123




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Form 10-Q
  9% Senior
    Subordinated Notes Payable to RSA issued in 2000
    9% Senior
    Subordinated Notes Payable to RSA issued in 2006
   124




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    9% Senior
    Subordinated Notes Payable to RSA issued in 2007
    9% Senior
    Subordinated Notes Payable to RSA issued in 2008
      5.25% Note
    Payable 
    Klaus
    Reichl   125




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    HSBC Bank
    plc Mortgage
  $1.96/£1.00).
  Maturities
    NOTE 8 
    RESTRUCTURING
    COSTS  Restructuring
    Costs
    EmployeeTermination


Facility-Costs


Related Costs


TotalRestructuring obligations at December 31, 2003 (Restated)

$
234


$
887


$
1,121Cash payments


(234
)


(312
)


(546
)Restructuring obligations at December 31, 2004 (Restated)






575



575Restructuring charges


1,275







1,275Cash payments






(224
)


(224
)Exchange rate changes


(19
)






(19
)Restructuring obligations at December 31, 2005 (Restated)


1,256



351



1,607Cash payments


(1,256
)


(210
)


(1,466
)Restructuring obligations at December 31, 2006

$



$
141


$
141   NOTE 9 
    STOCK-BASED
    COMPENSATION PLANS  Share-Based Payment
 126




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      No. FAS 123R-3 Transition Election Related to Accounting for the Tax Effects
    of Share-Based Payment Awards
     127




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    For the Years Ended December 31,2005


2004Previously





As


Previously





AsReported


Adjustment


Restated


Reported


Adjustment


RestatedNet income (loss), as reported

$
481


$
(16,129
)

$
(15,648
)

$
11,337


$
(8,502
)

$
2,835Stock-based compensation expense included in reported net income
    (loss), net of tax of $0.9 million and $1.2 million in
    2005 and 2004, respectively, as restated


960



790



1,750



831



912



1,743Stock-based compensation expense determined under the fair value
    method, net of tax of $2.5 million and $2.6 million in
    2005 and 2004, respectively, as restated


(5,107
)


1,501



(3,606
)


(4,064
)


330



(3,734
)Pro forma net income (loss)

$
(3,666
)

$
(13,838
)

$
(17,504
)

$
8,104


$
(7,260
)

$
844Basic income (loss) per share:As reported

$
0.02






$
(0.53
)

$
0.41






$
0.10Pro forma

$
(0.13
)





$
(0.60
)

$
0.29






$
0.03Diluted income (loss) per share:As reported

$
0.02






$
(0.53
)

$
0.40






$
0.10Pro forma

$
(0.13
)





$
(0.60
)

$
0.28






$
0.03   Stock
    Option Plans
      Stock
    Options and Restricted Stock Units
   128




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
        Years Ended December 312006


2005


2004Expected volatility


51.8
%


71.8
%


68.7
%Dividend yield


None



None



NoneExpected life in years


3.39



3.61



3.30Risk-free rate


4.6
%


4.1
%


2.7
%    129




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Restricted Stock UnitsOptions Outstanding


OutstandingWeighted





WeightedOptions





Average





AverageAvailable for





Exercise





IntrinsicGrant


Shares


Price


Shares


ValueBalance at December 31, 2003


517,835



3,848,950


$
6.92



963,048


$
6.00Increase in options available for grant


600,000















Options and awards forfeited


608,763



(464,762
)

$
7.14



(144,001
)

$
5.49Canceled options not available for grant


(304,750
)














Options and awards granted


(1,146,348
)


907,500


$
7.64



238,848


$
6.67Options and awards exercised/vested






(495,004
)

$
5.90



(242,720
)

$
8.42Balance at December 31, 2004


275,500



3,796,684


$
7.20



815,175


$
6.28Increase in options available for grant


600,000















Options and awards forfeited


795,583



(708,630
)

$
8.37



(86,953
)

$
6.40Canceled options not available for grant


(120,400
)














Options and awards granted


(702,500
)


500,500


$
8.87



202,000


$
8.28Options and awards exercised/vested






(528,507
)

$
6.50



(239,918
)

$
9.25Balance at December 31, 2005


848,183



3,060,047


$
7.32



690,304


$
7.08Increase in options available for grant


600,000















Options and awards forfeited


547,908



(494,099
)

$
8.96



(53,809
)

$
9.51Canceled options not available for grant


(120,000
)














Options and awards granted


(895,000
)


777,500


$
6.14



117,500


$
6.10Options and awards exercised/vested






(132,961
)

$
4.46



(241,671
)

$
7.07Balance at December 31, 2006


981,091



3,210,487


$
6.90



512,324


$
6.84   Stock
    Options
     130




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      Options Outstanding


Options ExercisableWeighted-


Weighted-








Weighted-Average


Average








AverageRemaining


Exercise


Aggregate





Exercise


AggregateNumber


Contractual


Price per


Intrinsic


Number


Price per


IntrinsicRange of Exercise Price

Outstanding


Life (in Years)


Share


Value


Exercisable


Share


Value$ 3.90 - $ 5.21


606



2.2


$
4.39







439


$
4.16$ 5.25 - $ 6.45


757



3.3



6.25







334



6.16$ 6.53 - $ 7.23


862



3.1



6.92







412



7.13$ 7.25 - $ 8.50


575



3.2



8.23







553



8.25$ 8.65 - $11.80


386



3.3



9.78







383



9.79$11.82 - $11.82


24



4.5



11.82







24



11.82$ 3.90 - $11.82


3,210



3.1


$
6.90


$
2,399



2,145


$
7.19


$
1,599         Restricted
    Stock Units
      Employee
    Stock Purchase Plan
   131




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    NOTE 10 
    INCOME
    TAXES    Years Ended December 312006


2005


2004(Restated)


(Restated)Current:Federal

$
5,314


$
6,253


$
4,016State


896



485



350Foreign


2,616



2,498



5,1678,826



9,236



9,533Deferred:Federal

$
16,698


$
(4,226
)

$
(3,456
)State


4,682



(264
)


2Foreign


(2,258
)


(3,481
)


(1,781
)19,122



(7,971
)


(5,235
)Provision for Income Taxes

$
27,948


$
1,265


$
4,298  132




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Years Ended December 312006


2005


2004(Restated)


(Restated)United States

$
3,331


$
2,667


$
(966
)International


1,510



(17,050
)


8,099Income (loss) before income taxes

$
4,841


$
(14,383
)

$
7,133Provision for (benefit from) income taxes at statutory rate

$
1,696


$
(5,037
)

$
2,496State income taxes, net of U.S. Federal tax benefit and credits


318



(22
)


233Difference between U.S. and foreign tax rate


(173
)


3,013



757Extraterritorial income exclusion


(61
)


(118
)


(167
)Meals and entertainment


180



160



148Non-deductible compensation


70



649



268Foreign permanent items










1,553Intercompany allocation


816



775



836Income on entity conversion


1,806







Non-deductible intangible amortization






(44
)


Reserves


50



190



(206
)Foreign tax credits










571Valuation allowance


23,065



1,517



(1,966
)Other


181



182



(225
)Provision for income tax

$
27,948


$
1,265


$
4,298          133




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    As of December 312006


2005(Restated)Bad debt, sales and warranty reserves

$
3,159


$
6,822Accruals, inventory and other reserves


23,240



16,349Net operating losses


12,026



8,359Foreign tax credits


1,987



1,987Stock based compensation


1,261



1,261Depreciation and amortization


4,996



3,772Other


1,767



6,648Gross deferred tax assets


48,436



45,198Depreciation and amortization


(565
)


(3,759
)Other reserves


(678
)


(170
)Gross deferred tax liabilities


(1,243
)


(3,929
)Valuation allowance


(32,330
)


(8,041
)Net deferred tax assets

$
14,863


$
33,228     As of December 312006


2005(Restated)Current deferred tax assets

$
6,302


$
21,375Current deferred tax liabilities


(388
)


(2,426
)Noncurrent deferred tax assets


9,804



15,782Noncurrent deferred tax liabilities


(855
)


(1,503
)Total deferred tax assets, net of deferred tax liabilities

$
14,863


$
33,228   long-term
       134




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
        NOTE 11 
    COMMITMENTS
    AND CONTINGENCIES    Accounting for Leases: Sale-Leaseback Transactions Involving
    Real Estate; Sales Type Leases of Real Estate; Definition of the
    Lease Term; Initial Direct Costs of Direct Financing Leases
   135




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Capital


OperatingLeases


LeasesYears Ending December 312007

$
681


$
12,3392008


447



9,0502009






7,7242010






6,3022011






3,2142012 and beyond






18,263Total minimum lease payments


1,128


$
56,892Less: amounts representing interest


(231
)Present value of minimum lease payments

$
897     Direction
    Générale des Finances Publiques
       136




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  and/or
    NOTE 12 
    TRANSACTIONS
    WITH RELATED PARTIES          Years Ended December 312006


2005


2004(Restated)


(Restated)Sales:Datalink Corporation

$
783


$
2,529


$
288Megaware


23,808



5,086



Import Mayoreo SA DE CV










5,307Trofel Computacion SA DE CV






25,497



13,870Verbatrade SA DE CV


20,452







Accounts receivable:Datalink Corporation


79



45



34Megaware


4,844



2,296



Trofel Computacion SA DE CV






5,748



2,975Verbatrade SA DE CV


6,489







Purchases:Megaware


16,114



7,324



Trofel Computacion SA DE CV










2,045Verbatrade SA DE CV










1,021Importadora Naciónal Peninsular


21,851



27,445



9,856Outsourcing Distribution SA DE CV










2,456Accounts payable:Megaware


2,191



942



Importadora Naciónal Peninsular


6,288



6,084



  137




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  NOTE 13 
    SALARY
    SAVINGS PLAN AND RETIREMENT PLAN        NOTE 14 
    SEGMENT
    AND GEOGRAPHIC INFORMATION             138




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Years Ended December 312006


2005


2004Amount


%


Amount


%


Amount


%(Restated)





(Restated)Net sales:US Distribution

$
1,043,188



30.9
%

$
1,160,567



37.0
%

$
974,886



34.9
%Europe Distribution


1,206,270



35.8



1,120,283



35.7



1,174,733



42.0Europe Enterprise


276,748



8.2



230,800



7.3



126,601



4.5Latin America Export


325,082



9.6



266,090



8.5



248,631



8.9Other


521,588



15.5



361,510



11.5



271,596



9.7Total net sales

$
3,372,876



100.0
%

$
3,139,250



100.0
%

$
2,796,447



100.0
%Income (loss) from operations:US Distribution

$
17,677



56.2
%

$
14,832



161.6
%

$
10,993



45.8
%Europe Distribution


(2,712
)


(8.6
)


(13,696
)


(149.2
)


744



3.1Europe Enterprise


8,541



27.2



5,389



58.7



7,787



32.4Latin America Export


3,462



11.0



2,955



32.2



1,105



4.6Other


4,481



14.2



(300
)


(3.3
)


3,397



14.1Total income from operations

$
31,449



100.0
%

$
9,180



100.0
%

$
24,026



100.0
%   Year Ended December 312006


2005


2004(Restated)


(Restated)Capital expenditures:US Distribution

$
2,262


$
1,232


$
1,479Europe Distribution


2,144



2,663



3,998Europe Enterprise


324



121



129Latin America Export


186



397



315Other


1,441



1,034



525Total

$
6,357


$
5,447


$
6,446Depreciation and amortization:US Distribution

$
1,663


$
2,428


$
2,840Europe Distribution


2,881



3,977



6,721Europe Enterprise


980



1,157



716Latin America Export


468



537



536Other


1,931



1,126



1,316Total

$
7,923


$
9,225


$
12,129Interest expense (income):US Distribution

$
15,354


$
13,917


$
11,534Europe Distribution


13,596



7,943



5,373Europe Enterprise


275



84



(34
)Latin America Export


(43
)


6



7Other


262



240



264Total

$
29,444


$
22,190


$
17,144   139




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  As of December 312006


2005(Restated)Total assets:US Distribution

$
335,988


$
367,566Europe Distribution


317,672



257,761Europe Enterprise


88,917



75,806Latin America Export


74,061



60,577Other


228,177



129,043Total

$
1,044,815


$
890,753Long lived assets:US Distribution

$
4,542


$
4,044Europe Distribution


5,800



5,765Europe Enterprise


2,083



1,798Latin America Export


640



921Other


5,710



2,712Total

$
18,775


$
15,240    Years Ended December 312006


2005


2004Amount


%


Amount


%


Amount


%(Restated)


(Restated)North America(1)

$
1,483,593



44.0
%

$
1,468,712



46.8
%

$
1,241,658



44.4
%Europe(2)


1,483,018



44.0



1,351,083



43.0



1,301,333



46.5Latin America(3)


406,265



12.0



319,455



10.2



253,456



9.1Total

$
3,372,876



100.0
%

$
3,139,250



100.0
%

$
2,796,447



100.0
%     (1)
    
    North America sales include sales in the United States of
    approximately $1,336,259, $1,345,411 and $1,142,160 for the
    years ended December 31, 2006, 2005 and 2004, respectively.(2)
    
    Europe sales include sales in the United Kingdom of
    approximately $1,260,716, $1,261,844 and $1,226,339 for the
    years ended December 31, 2006, 2005 and 2004, respectively.(3)
    
    Latin America net sales includes sales from Latin America Export
    to customers located in Latin America. The geographic net sales
    for Latin America does not include certain Latin America Export
    sales made to customers located outside of Latin America.    As of December 312006


2005(Restated)North America

$
9,607


$
6,453Europe


7,882



7,564Latin America


1,286



1,223Total

$
18,775


$
15,240  140




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  NOTE 15 
    DERIVATIVE
    INSTRUMENTS    Foreign
    Currency Risk Management
      Interest
    Rate Risk Management
  Restatement of Previously-Issued Financial
    Statements
  3-month 3-month
 141




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      NOTE 16 
    SHAREHOLDERS
    EQUITY  Earnings
    (Loss) Per Share
      Years Ended December 312006


2005


2004(Restated)


(Restated)Basic earnings per share:Net income (loss)

$
(23,107
)

$
(15,648
)

$
2,835Shares used in computation:Weighted average ordinary shares outstanding


30,772



29,299



27,678Basic earnings (loss) per share

$
(0.75
)

$
(0.53
)

$
0.10Diluted earnings per share:Net income (loss)

$
(23,107
)

$
(15,648
)

$
2,835Shares used in computation:Weighted average ordinary shares outstanding


30,772



29,299



27,678Employee stock options










434Restricted stock units










411Weighted average number of shares


30,772



29,299



28,523Diluted earnings (loss) per share

$
(0.75
)

$
(0.53
)

$
0.10   anti-dilutive.
 142




---



##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Warrants
          NOTE 17 
    SUBSEQUENT
    EVENTS  Notice
    of Non-Compliance with NASDAQ Listing Requirements and
    Delisting
  Form 10-Q Form 10-K Restatement of
    Previously-Issued Financial Statements
  ProSys
    Acquisition
   143




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      120-day
  Stock
    Option Extensions
  Form S-8 Form S-8 30-day
 144




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  NOTE 18 
    SELECTED
    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)    Form 10-Q Form 10-K, Form 10-K Form 10-Q Form 10-K,
  Year Ended December 31, 2006First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)


(Restated)(In thousands, except per share data)Net sales

$
849,807


$
764,168


$
774,907


$
983,994Cost of sales


785,766



700,177



713,939



898,253Gross profit


64,041



63,991



60,968



85,741Selling, general and administrative expense


56,433



53,343



57,423



70,967Investigation and restatement-related costs














1,649Impairment of goodwill and other intangibles






3,232







245Total operating expenses


56,433



56,575



57,423



72,861Operating income


7,608



7,416



3,545



12,880Interest expense


6,447



7,490



6,876



8,643Other expense (income), net


30



(2,424
)


1,220



(1,674
)Income (loss) before income taxes


1,131



2,350



(4,551
)


5,911Provision for (benefit from) income taxes


2,759



1,982



(4,849
)


28,056Net income (loss)

$
(1,628
)

$
368


$
298


$
(22,145
)Net income (loss) per share:Basic

$
(0.05
)

$
0.01


$
0.01


$
(0.69
)Diluted

$
(0.05
)

$
0.01


$
0.01


$
(0.69
)Shares used in per share calculation:Basic


30,192



30,388



30,417



32,138Diluted


30,192



30,872



30,860



32,138   145




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2006


2006(In thousands, except per share data)Net sales

$
774,907


$
2,388,882Cost of sales


713,939



2,199,882Gross profit


60,968



189,000Selling, general and administrative expense


57,423



167,199Impairment of goodwill and other intangibles






3,232Total operating expenses


57,423



170,431Operating income


3,545



18,569Interest expense


6,876



20,813Other expense (income), net


1,220



(1,174
)Loss before income taxes


(4,551
)


(1,070
)Benefit from income taxes


(4,849
)


(108
)Net income (loss)

$
298


$
(962
)Net income (loss) per share:Basic

$
0.01


$
(0.03
)Diluted

$
0.01


$
(0.03
)Shares used in per share calculation:Basic


30,417



30,316Diluted


30,860



30,316   Year Ended December 31, 2005First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)


(Restated)


(Restated)


(Restated)(In thousands, except per share data)Net sales

$
797,469


$
774,595


$
751,373


$
815,813Cost of sales


743,135



725,792



696,367



758,182Gross profit


54,334



48,803



55,006



57,631Selling, general and administrative expense


47,373



49,001



49,640



52,009Impairment of goodwill and other intangibles














7,296Restructuring costs














1,275Total operating expenses


47,373



49,001



49,640



60,580Operating income (loss)


6,961



(198
)


5,366



(2,949
)Interest expense


5,127



5,391



5,594



6,078Other expense (income), net


1,045



1,442



(1,812
)


698Income (loss) before income taxes


789



(7,031
)


1,584



(9,725
)Provision for (benefit from) income taxes


103



(917
)


(130
)


2,209Net income (loss)

$
686


$
(6,114
)

$
1,714


$
(11,934
)Net income (loss) per share:Basic

$
0.02


$
(0.21
)

$
0.06


$
(0.40
)Diluted

$
0.02


$
(0.21
)

$
0.06


$
(0.40
)Shares used in per share calculation:Basic


28,795



28,999



29,096



29,906Diluted


29,738



28,999



30,009



29,906  146




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Three Months Ended March 31, 2006


Three Months Ended June 30, 2006Previously








PreviouslyReported


Adjustments


As Restated


Reported


Adjustments


As Restated(In thousands, except per share data)Net sales

$
866,515


$
(16,708
)

$
849,807


$
777,163


$
(12,995
)

$
764,168Cost of sales


803,240



(17,474
)


785,766



715,551



(15,374
)


700,177Gross profit


63,275



766



64,041



61,612



2,379



63,991Selling, general and administrative expense


53,534



2,899



56,433



51,913



1,430



53,343Impairment of goodwill and other intangibles














8,846



(5,614
)


3,232Total operating expenses


53,534



2,899



56,433



60,759



(4,184
)


56,575Operating income (loss)


9,741



(2,133
)


7,608



853



6,563



7,416Interest expense


6,209



238



6,447



7,416



74



7,490Other expense (income), net


(223
)


253



30



(149
)


(2,275
)


(2,424
)Income (loss) before income taxes


3,755



(2,624
)


1,131



(6,414
)


8,764



2,350Provision for (benefit from) income taxes


1,295



1,464



2,759



289



1,693



1,982Net income (loss)

$
2,460


$
(4,088
)

$
(1,628
)

$
(6,703
)

$
7,071


$
368Net income (loss) per share:Basic

$
0.08


$
(0.13
)

$
(0.05
)

$
(0.22
)

$
0.23


$
0.01Diluted

$
0.08


$
(0.13
)

$
(0.05
)

$
(0.22
)

$
0.23


$
0.01Shares used in per share calculation:Basic


30,192







30,192



30,338







30,388Diluted


30,547



(355
)


30,192



30,338



534



30,872     
    Net sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition and reserves for
    sales return and allowances.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, timing of
    recognition of certain vendor credits, inventory valuation,
    recognition of co-operative marketing expenses, and reserves for
    sales returns and allowances.
    Selling, general and administrative expense includes adjustments
    for customer credits, OpenPSL acquisition earnout, additional
    stock based compensation expense, utility accrual, recognition
    of co-operative marketing expenses, sales tax accrual, SERP, and
    bad debt expense associated with uncollectible customer
    receivable.
    Interest expense includes adjustments for derivative
    instruments, asset retirement obligations, and debt discount.
    Other expense (income), net includes foreign currency gains and
    losses.
    Provision for (benefit from) income taxes includes adjustments
    to deferred tax assets, changes to transfer pricing reserves and
    income tax effects of other restatement adjustments.  147




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Six Months Ended June 30, 2006PreviouslyReported


Adjustments


As Restated(In thousands, except per share data)Net sales

$
1,643,678


$
(29,703
)

$
1,613,975Cost of sales


1,518,791



(32,848
)


1,485,943Gross profit


124,887



3,145



128,032Selling, general and administrative expense


105,447



4,329



109,776Impairment of goodwill and other intangibles


8,846



(5,614
)


3,232Total operating expenses


114,293



(1,285
)


113,008Operating income


10,594



4,430



15,024Interest expense


13,625



312



13,937Other expense (income), net


(372
)


(2,022
)


(2,394
)Income (loss) before income taxes


(2,659
)


6,140



3,481Provision for income taxes


1,584



3,157



4,741Net income (loss)

$
(4,243
)

$
2,983


$
(1,260
)Net income (loss) per share:Basic

$
(0.14
)

$
0.10


$
(0.04
)Diluted

$
(0.14
)

$
0.10


$
(0.04
)Shares used in per share calculation:Basic


30,265







30,265Diluted


30,265







30,265     
    Net sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition and reserves for
    sales return and allowances.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, timing of
    recognition of certain vendor credits, inventory valuation,
    recognition of co-operative marketing expenses, and reserves for
    sales returns and allowances.
    Selling, general and administrative expense includes adjustments
    for customer credits, OpenPSL acquisition earnout, additional
    stock based compensation expense, utility accrual, recognition
    of co-operative marketing expenses, sales tax accrual, SERP, and
    bad debt expense associated with uncollectible customer
    receivable.
    Interest expense includes adjustments for derivative
    instruments, asset retirement obligations, and debt discount.
    Other expense (income), net includes foreign currency gains and
    losses.
    Provision for income taxes includes adjustments to deferred tax
    assets, changes to transfer pricing reserves and income tax
    effects of other restatement adjustments.  148




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Three Months Ended March 31, 2005


Three Months Ended June 30, 2005Previously








PreviouslyReported


Adjustments


As Restated


Reported


Adjustments


As Restated(In thousands, except per share data)Net sales

$
803,948


$
(6,479
)

$
797,469


$
788,471


$
(13,876
)

$
774,595Cost of sales


746,649



(3,514
)


743,135



731,341



(5,549
)


725,792Gross profit


57,299



(2,965
)


54,334



57,130



(8,327
)


48,803Selling, general and administrative expense


45,445



1,928



47,373



46,463



2,538



49,001Total operating expenses


45,445



1,928



47,373



46,463



2,538



49,001Operating income (loss)


11,854



(4,893
)


6,961



10,667



(10,865
)


(198
)Interest expense


4,859



268



5,127



5,575



(184
)


5,391Other expense (income), net


(41
)


1,086



1,045



(13
)


1,455



1,442Income (loss) before income taxes


7,036



(6,247
)


789



5,105



(12,136
)


(7,031
)Provision for (benefit from) income taxes


2,660



(2,557
)


103



1,930



(2,847
)


(917
)Net income (loss)

$
4,376


$
(3,690
)

$
686


$
3,175


$
(9,289
)

$
(6,114
)Net income (loss) per share:Basic

$
0.15


$
(0.13
)

$
0.02


$
0.11


$
(0.32
)

$
(0.21
)Diluted

$
0.15


$
(0.13
)

$
0.02


$
0.11


$
(0.32
)

$
(0.21
)Shares used in per share calculation:Basic


28,795







28,795



28,999







28,999Diluted


29,635



103



29,738



29,696







28,999     
    Net sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition reversal of revenue
    associated with uncollectible customer receivable, reversal of
    revenue associated with certain sale transactions repurchased,
    and reserves for sales return and allowances.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, timing of
    recognition of certain vendor credits, inventory valuation,
    recognition of co-operative marketing expenses, reversal of cost
    of sales associated with certain sale transactions repurchased
    and reserves for sales returns and allowances.
    Selling, general and administrative expense includes adjustments
    for customer credits, OpenPSL acquisition earnout, additional
    stock based compensation expense, recognition of co-operative
    marketing expenses, sales tax accrual, SERP, and bad debt
    expense associated with uncollectible customer receivable.
    Interest expense includes adjustments for derivative
    instruments, asset retirement obligations, and debt discount.
    Other expense (income), net includes adjustments for foreign
    currency gains and losses.
    Provision for (benefit from) income taxes includes adjustments
    to deferred tax assets, changes to transfer pricing reserves and
    income tax effects of other restatement adjustments.  149




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Three Months Ended September 30, 2005


Three Months Ended December 31, 2005Previously








PreviouslyReported


Adjustments


As Restated


Reported


Adjustments


As Restated(In thousands, except per share data)Net sales

$
759,056


$
(7,683
)

$
751,373


$
842,358


$
(26,545
)

$
815,813Cost of sales


701,139



(4,772
)


696,367



783,486



(25,304
)


758,182Gross profit


57,917



(2,911
)


55,006



58,872



(1,241
)


57,631Selling, general and administrative expense


48,704



936



49,640



49,973



2,036



52,009Impairment of goodwill and other intangibles


















7,296



7,296Restructuring costs














16,515



(15,240
)


1,275Total operating expenses


48,704



936



49,640



66,488



(5,908
)


60,580Operating income (loss)


9,213



(3,847
)


5,366



(7,616
)


4,667



(2,949
)Interest expense


5,332



262



5,594



5,953



125



6,078Other expense (income), net


(8
)


(1,804
)


(1,812
)


(76
)


774



698Income (loss) before income taxes


3,889



(2,305
)


1,584



(13,493
)


3,768



(9,725
)Provision for (benefit from) income taxes


1,573



(1,703
)


(130
)


(4,107
)


6,316



2,209Net income (loss)

$
2,316


$
(602
)

$
1,714


$
(9,386
)

$
(2,548
)

$
(11,934
)Net income (loss) per share:Basic

$
0.08


$
(0.02
)

$
0.06


$
(0.31
)

$
(0.09
)

$
(0.40
)Diluted

$
0.08


$
(0.02
)

$
0.06


$
(0.31
)

$
(0.09
)

$
(0.40
)Shares used in per share calculation:Basic


29,496



(400
)


29,096



29,906







29,906Diluted


30,405



(396
)


30,009



29,906







29,906     
    Net sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, reversal of revenue
    associated with uncollectible customer receivable, and reserves
    for sales return and allowances.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, inventory valuation,
    recognition of co-operative marketing expenses and reserves for
    sales returns and allowances.
    Selling, general and administrative expense includes adjustments
    for OpenPSL acquisition earnout, additional stock based
    compensation expense, recognition of co-operative marketing
    expenses, accounts receivable reserves, various accrued
    liabilities, and bad debt expense associated with uncollectible
    customer receivable.
    Interest expense includes adjustments in connection with a
    derivative instrument, asset retirement obligations, and debt
    discount.
    Other expense (income), net includes adjustments for foreign
    currency gains and losses.
    Provision for (benefit from) income taxes includes adjustments
    to deferred tax assets, changes to transfer pricing reserves and
    income tax effects of other restatement adjustments.  150




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##### Table of Contents



BELL
    MICROPRODUCTS INC.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Six Months Ended June 30, 2005


Nine Months Ended September 30, 2005Previously








PreviouslyReported


Adjustments


As Restated


Reported


Adjustments


As Restated(In thousands, except per share data)Net sales

$
1,592,419


$
(20,355
)

$
1,572,064


$
2,351,475


$
(28,038
)

$
2,323,437Cost of sales


1,477,990



(9,063
)


1,468,927



2,179,129



(13,835
)


2,165,294Gross profit


114,429



(11,292
)


103,137



172,346



(14,203
)


158,143Selling, general and administrative expense


91,908



4,466



96,374



140,612



5,402



146,014Total operating expenses


91,908



4,466



96,374



140,612



5,402



146,014Operating income (loss)


22,521



(15,758
)


6,763



31,734



(19,605
)


12,129Interest expense


10,434



84



10,518



15,766



346



16,112Other expense (income), net


(54
)


2,541



2,487



(62
)


737



675Income (loss) before income taxes


12,141



(18,383
)


(6,242
)


16,030



(20,688
)


(4,658
)Provision for (benefit from) income taxes


4,590



(5,404
)


(814
)


6,163



(7,107
)


(944
)Net income (loss)

$
7,551


$
(12,979
)

$
(5,428
)

$
9,867


$
(13,581
)

$
(3,714
)Net income (loss) per share:Basic

$
0.26


$
(0.45
)

$
(0.19
)

$
0.34


$
(0.46
)

$
(0.13
)Diluted

$
0.25


$
(0.45
)

$
(0.19
)

$
0.33


$
(0.45
)

$
(0.13
)Shares used in per share calculation:Basic


28,897



2



28,899



29,096







29,096Diluted


29,665



(766
)


28,899



29,912



(816
)


29,096     
    Net sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, reversal of revenue
    associated with certain sale transactions repurchased, reversal
    of revenue associated with uncollectible customer receivable,
    and reserves for sales return and allowances.
    Cost of sales includes adjustments for gross vs. net revenue
    recognition, timing of revenue recognition, inventory valuation,
    recognition of co-operative marketing expenses, reversal of cost
    of sales associated with certain sale transactions repurchased,
    and reserves for sales returns and allowances.
    Selling, general and administrative expense includes adjustments
    for adjustments for customer credits, OpenPSL acquisition
    earnout, additional stock based compensation expense,
    recognition of co-operative marketing expenses, accounts
    receivable reserves, various accrued liabilities, utility
    accrual, sales tax accrual, and bad debt expense associated with
    uncollectible customer receivable.
    Interest expense includes adjustments in connection with a
    derivative instrument, asset retirement obligations, and debt
    discount.
    Other expense (income), net includes adjustments for foreign
    currency remeasurement gains and losses.
    Provision for (benefit from) income taxes includes adjustments
    to deferred tax assets, changes to transfer pricing reserves and
    income tax effects of other restatement adjustments. 151




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##### Table of Contents



Item 9.
    Changes
    In and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Form 8-K Form 10-K,
  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e)
  Form 10-K, Managements
    Report on Internal Control over Financial Reporting
  Form 10-K Form 10-K
  Managements
    Report on Internal Control over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
   152




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##### Table of Contents



Internal Control  Integrated Framework
  Control Environment
         153




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##### Table of Contents



Revenue
  Income Taxes
  Business Combinations, Goodwill Impairment and
    Segment Reporting
  Financing-Related Accounts
  Post-Retirement Benefits
    Internal Control 
    Integrated Framework
    Completed
    and Planned Remediation Actions to Address the Internal Control
    Weaknesses
   154




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##### Table of Contents



Control Environment
  
    Personnel Matters.  As part of the initiative
    to improve its control environment and in response to the issues
    identified in the investigation, the Company has made certain
    personnel and structural changes in the accounting and financial
    reporting area, including the hiring of a new Executive Vice
    President and Chief Financial Officer in August 2007, and the
    hiring of a new employee in the position of Chief Accounting
    Officer and Corporate Controller in March 2008, which replaced
    the position of Vice President of Finance and Corporate
    Controller. In addition, the Company has hired, and is
    continuing to hire, additional qualified personnel and is
    increasing the number of supervisory accounting personnel.
    Specifically:  
    Since the beginning of 2007, the Company has created a Legal
    Department and has significantly increased the Finance
    Department headcount, creating a number of new positions,
    including the following:  
    In July 2007, the Company hired an employee in the newly-created
    position of Vice President, General Counsel and Corporate
    Secretary. The Company also hired additional personnel in the
    Legal Department. The General Counsel has been delegated
    responsibility for managing and administering the Companys
    equity award granting process.
    In October 2007, the Company hired an employee in the
    newly-created position of Director of GAAP and SEC Reporting,
    and a manager of external reporting.
    The Company has added four professionals to its Internal Audit
    Department and is in the process of adding one additional
    professional.  
    The Company retained and intends to continue to retain the
    services of outside consultants with relevant accounting
    experience, skills and knowledge, working under the supervision
    and direction of the Companys management, to supplement
    the Companys existing accounting personnel.  
    Employee Training.  The Company is establishing
    company-wide training to enhance awareness and understanding of
    standards and principles for accounting and financial reporting.
    This training will include:  
    Comprehensive training programs for all finance personnel at the
    manager level and above covering fundamental accounting and
    financial reporting matters, including GAAP accounting
    principles, revenue recognition, reserve and accrual accounting
    and purchase accounting.
    Quarterly training programs for key finance personnel (led by
    the Chief Financial Officer, Chief Accounting Officer or
    Director of GAAP and SEC Reporting) covering accounting issues
    requiring substantial judgment, documentation requirements and
    accounting policies and procedures.
    A financial leadership training program (led by the Chief
    Financial Officer) covering worldwide financial management
    issues, debriefings on all restatement items, financial issues
    requiring substantial judgment and new accounting policies and
    procedures.    
    Policies and Procedures.  The Company is
    implementing
    and/or
    enhancing a number of key accounting and finance-related
    policies and procedures, including with respect to
    foreign-currency translations, revenue recognition, reserve and
    accrual analysis, consignment inventory, accounts receivable,
    vendor allowances 155




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##### Table of Contents



and the preparation of the statement of cash flows. The Company
    expects that these policies and procedures will be implemented
    during 2009.  
    Stock-Based Compensation Program.  In 2007, the
    Board of Directors (a) amended the Charter of the
    Compensation Committee to clarify its duties and
    responsibilities; and (b) adopted, and the Company
    implemented, a new equity award policy defining the
    responsibilities of the Compensation Committee in its oversight
    of the Companys stock option grant practices and
    clarifying the administration of equity awards. Key features of
    the equity award policy include:  
    All awards to employees will be granted by the Compensation
    Committee or recommended by the Compensation Committee to the
    Board of Directors.
    All awards to directors (other than automatic awards under
    Company equity plans) will be granted by the Board of Directors.
    Awards will normally be considered at regularly scheduled
    Committee or Board meetings, but may also be considered at
    special meetings or as action taken by unanimous written consent
    of the Compensation Committee or Board of Directors.
    The exercise price of all stock options shall be equal to or
    greater than the closing price of the Companys common
    stock on the grant date.
    Minutes will be prepared and circulated promptly following all
    meetings of the Board and its Committees.  
    Journal Entries and Account
    Reconciliations.  The Company is improving its
    existing internal control policies and implementing procedures
    to ensure that all required account balances are appropriately
    reconciled in a timely manner and that journal entries are
    properly prepared and approved. The Company expects that these
    improvements and procedures will be substantially implemented by
    December 31, 2009.  Revenue
  Income Taxes
  Business Combinations, Goodwill Impairment and
    Segment Reporting
  Financing-Related Accounts
  Post-Retirement Benefits
    Changes
    in Internal Control over Financial Reporting
   156




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##### Table of Contents



Item 9B.  Other
    Information
   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Executive
    Officers and Directors
    Name

Age


PositionW. Donald Bell


71


President, Chief Executive Officer and Chairman of the BoardAndrew S. Hughes


43


Vice President, General Counsel and Corporate SecretaryRichard J. Jacquet


68


Senior Vice President of Human ResourcesWilliam E. Meyer


46


Executive Vice President and Chief Financial OfficerRobert J. Sturgeon


54


Vice President of Operations and Chief Information OfficerGraeme Watt


47


President, Worldwide DistributionGordon A. Campbell


64


DirectorEugene B. Chaiken


67


DirectorDavid M. Ernsberger


63


DirectorEdward L. Gelbach


77


DirectorPeter G. Hanelt


63


DirectorJames E. Ousley


62


DirectorGlenn E. Penisten


76


DirectorMark L. Sanders


65


Director   W. Donald Bell
  Andrew S. Hughes
  Richard J. Jacquet
  William E. Meyer
 157




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##### Table of Contents



Robert J. Sturgeon
  Graeme Watt
  Gordon A. Campbell start-up
  Eugene B. Chaiken
  David M. Ernsberger
  Edward L. Gelbach
  Peter G. Hanelt
  James E. Ousley
 158




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##### Table of Contents



Glenn E. Penisten
  Mark L. Sanders
  James E. Illson
  Audit
    Committee
  Regulation S-K
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Rule 16a-3(e) Regulation S-K
  Code of
    Ethics and Code of Conduct/Proper Business Practices
  Code of Ethics.
 159




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##### Table of Contents



95131-1721. Regulation S-K.
  Code of Conduct/Proper Business Practices.
  Ethics Hot Line.
  Shareholder
    Nominations of Directors
    Item 11.
    Executive
    Compensation  Compensation
    Discussion & Analysis
    Compensation
    Philosophy and Guiding Principles and Objectives for Executive
    Compensation
   160




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##### Table of Contents



We strive to directly and substantially link
    short-term rewards to measurable corporate and individual
    performance
  We seek to provide long-term rewards based on
    creating shareholder value
  We strive to provide competitive compensation to
    attract, motivate, and retain top talent
   161




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##### Table of Contents



Oversight
    and Authority over Executive Compensation
      Peer
    Group and Benchmarking
    IT Distributors and Contract Manufacturers

Broad-Based High-Tech SuppliersAgilysys, Inc.

Advanced Micro Devices, Inc.Arrow Electronics, Inc.

Gateway, Inc.Avnet, Inc.

LSI Logic CorporationBenchmark Electronics, Inc.

Maxtor CorporationCDW Corporation

Network Appliance Inc.Insight Enterprises, Inc.

SanDisk CorporationJabil Circuit, Inc.

Seagate TechnologyPlexus Corp.

Storage Technology CorporationSYNNEX Corporation

View Sonic Corporation
    Western Digital Corporation      162




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##### Table of Contents



Elements
    of Executive Compensation Program
    Base
    Salary
      Annual
    Cash Variable Compensation
    Management
    Incentive Plan
     163




---



##### Table of Contents



Percentage of Financial Metric Achieved

Percentage of Incentive Earned(1)Less than 80%

0%80%

25%90%

50%100%

100%Greater than 100%

Same percentage as the overachievement     (1)
    
    Use straight-line interpolation between metrics for calculations
    below 100% achievement. 164




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##### Table of Contents



TotalTargetEPS


BU Profit


ROE


ROWC


MBOs


AwardW. Donald Bell

$
379,500


$



$
63,250


$
63,250


$
126,500


$
632,500James E. Illson


162,000







27,000



27,000



54,000



270,000Richard J. Jacquet


22,200















88,800



111,000Philip M. Roussey






90,000







30,000



30,000



150,000Graeme Watt(1)






157,320







52,440



52,440



262,200     (1)
    
    All amounts for Mr. Watt have been converted from British
    pounds to U.S. dollars using an exchange rate of $1.84/£1,
    which was the average British pound to U.S. dollar exchange rate
    during 2006.            
    Mr. Bell received a payment for achieving his EPS, ROE and
    ROWC goals for the second quarter of 2006. No other awards were
    earned for achievement of EPS, ROE and ROWC goals during the
    year ended December 31, 2006. Mr. Bell received an MBO
    award in 2006. 165




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##### Table of Contents




    Mr. Illson received a payment for achieving his EPS, ROE
    and ROWC goals for the second quarter of 2006. No other awards
    were earned for achievement of EPS, ROE and ROWC goals during
    the year ended December 31, 2006. Mr. Illson received
    an MBO award in 2006.
    Mr. Jacquet received a payment for achieving his EPS goal
    for the second quarter of 2006. No other awards were earned for
    achievement of EPS goals during the year ended December 31,
    2006. Mr. Jacquet received an MBO award in 2006.
    Mr. Roussey had BU Profit goals for two business units. He
    received a payment for achieving his BU Profit goals for one
    business unit, but did not achieve his BU Profit goals for the
    other business unit. No awards were earned for achievement of
    ROWC goals during the year ended December 31, 2006.
    Mr. Roussey received an MBO award in 2006.
    Mr. Watt received a payment for achieving his BU Profit and
    ROWC goals for the first quarter of 2006. No other awards were
    earned for achievement of BU Profit or ROWC goals during the
    year ended December 31, 2006. Mr. Watt received an MBO
    award in 2006.    Total


% ofEPS


BU Profit


ROE


ROWC


MBO


Earned


TargetW. Donald Bell(1)

$
75,900


$



$
12,650


$
12,650


$
52,181


$
153,381



24.2
%James E. Illson


32,400







5,400



5,400



30,857



74,057



27.4
%Richard J. Jacquet(2)


4,440















70,485



74,925



67.5
%Philip M. Roussey






51,701







0



25,469



77,170



51.4
%Graeme Watt(3)






1,967







655



39,330



41,952



16.0
%     (1)
    
    Mr. Bell was paid $419,381 (including interest of $21,973)
    towards the Companys financial performance goals under the
    2006 Management Incentive Plan. After considering the effects of
    the restatement, the Compensation Committee determined that
    Mr. Bell actually earned $101,200 towards these goals. As
    discussed above, the Compensation Committee determined that the
    difference will be taken into consideration when awarding
    incentive or other compensation in future periods.(2)
    
    Mr. Jacquet was paid $19,693 (including interest of $1,031)
    towards the Companys financial performance goals under the
    2006 Management Incentive Plan. After considering the effects of
    the restatement, the Compensation Committee determined that
    Mr. Jacquet actually earned $4,440 towards these goals. As
    discussed above, the Compensation Committee determined that the
    difference will be taken into consideration when awarding
    incentive or other compensation in future periods.(3)
    
    All amounts for Mr. Watt have been converted from British
    pounds to U.S. dollars using an exchange rate of $1.84/£1,
    which was the average British pound to U.S. dollar exchange rate
    during 2006.  Strategic
    Initiatives Plan
     166




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Discretionary
    Bonuses
    Long-Term
    Equity Incentives
   167




---



##### Table of Contents



Stock
    Options
      Restricted
    Stock Units
      Other
    Elements
  Deferred
    Compensation
   168




---



##### Table of Contents



Personal
    Benefits and Perquisites
  U.S.-based U.S.-based U.S.-based
      Tax
    Treatment
   169




---



##### Table of Contents



Retention
    Agreements
      12-month
  Stock
    Ownership Guidelines
     170




---



##### Table of Contents



Compensation
    Committee Report
  Form 10-K
        Compensation
    Committee Interlocks and Insider Participation
    Executive
    Compensation Tables
  Summary
    Compensation Table
    NonqualifiedNon-Equity


DeferredStock


Option


Incentive Plan


Compensation


All OtherSalary


Bonus


Awards


Awards


Compensation


Earnings


Compensation


TotalName and Principal Position

Year


($)


($)


($)


($)


($)(1)


($)


($)


($)W. Donald Bell,
    President, Chief Executive
    Officer and Chairman of
    the Board


2006


$
632,500


$
110,000
(2)

$
346,753


$
39,561


$
434,631


$
149,913
(3)

$
124,703
(4)

$
1,838,061James E. Illson,
    Chief Operating Officer,
    President of the Americas
    and Chief Financial Officer


2006


$
450,000






$
166,936


$
114,650


$
221,057






$
103,517
(5)

$
1,056,160Richard J. Jacquet,
    Senior Vice President
    of Human Resources


2006


$
224,000






$
56,363


$
24,563


$
133,250






$
21,408
(6)

$
459,584Philip M. Roussey,
    Executive Vice President,
    Enterprise(7)


2006


$
250,000






$
34,384


$
15,487


$
77,170






$
22,758
(8)

$
399,799Graeme Watt,
    President of Bell
    Microproducts Europe(9)


2006


$
524,400


$
64,410
(10)

$
99,682


$
173,524


$
41,952






$
75,955
(11)

$
979,923     (1)
    
    Represent amounts paid to each of our named executive officers
    under our Management Incentive Plan, and for Messrs. Bell,
    Illson, and Jacquet, amounts also paid under our Strategic
    Initiatives Plan.(2)
    
    Mr. Bell received this bonus for hardships, temporary
    relocation, and his work in improving operations and profits in
    our European Distribution segment.(3)
    
    Represents premium payments for Company-owned life insurance
    that will fund the Companys obligations under the
    Supplemental Executive Retirement Plan. 171




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##### Table of Contents



(4)
    
    Represents an automobile allowance of $3,600, financial
    planning/tax preparation of $3,500, spousal travel of $115,603
    primarily associated with Mr. Bells temporary
    relocation to the United Kingdom, and Company 401(k) match of
    $2,000.(5)
    
    Represents an automobile allowance of $3,600, financial
    planning/tax preparation of $1,840, spousal travel of $2,042,
    housing and travel of $23,353, Company 401(k) match of $2,000,
    tax gross up of $60,000 for housing and travel expenses for the
    period of 2004 through 2006, and the applicable portion of the
    premium paid by us for life insurance on Mr. Illson of
    $10,682, of which we are the owner and beneficiary; provided,
    however, that we have agreed to use part of the proceeds to fund
    a death benefit for Mr. Illson.(6)
    
    Represents financial planning/tax preparation of $1,500, spousal
    travel of $1,973, Company 401(k) match of $2,000, and the
    applicable portion of the premium paid by us for life insurance
    on Mr. Jacquet of $15,935, of which we are the owner and
    beneficiary; provided, however, that we have agreed to use part
    of the proceeds to fund a death benefit for Mr. Jacquet.(7)
    
    Effective January 1, 2007, Mr. Roussey changed his
    employment status to a part-time employee and resigned his
    position as an executive officer of the Company. In his new
    part-time position as Executive Vice President, Corporate
    Marketing, he is no longer eligible to receive a bonus.(8)
    
    Represents an automobile allowance of $3,600, spousal travel of
    $2,617, Company 401(k) match of $2,000, and the applicable
    portion of the premium paid by us for life insurance on
    Mr. Roussey of $14,541, of which we are the owner and
    beneficiary; provided, however, that we have agreed to use part
    of the proceeds to fund a death benefit for Mr. Roussey.(9)
    
    All payments to Mr. Watt were made in British pounds and
    reflect a conversion rate of $1.84/£1, which was the
    average exchange rate during 2006, except as stated below in
    footnote(10).(10)
    
    Mr. Watt received a bonus in February 2007 of £30,000
    ($58,800 using an exchange rate of $1.96/£1 at
    February 21, 2007) in recognition of his leadership
    role with respect to our accomplishments in Europe in the second
    half of 2006, and a bonus in May 2006 of £3,000 ($5,610
    using an exchange rate of $1.87/£1 at May 31,
    2006) for achievement of stretch financial goals for the
    first quarter in 2006.(11)
    
    Represents an automobile allowance of $11,040, a benefit
    allowance of $42,835, and a pension contribution of $22,080.      Stock-Based Compensation Plans Form 10-K.
 172




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##### Table of Contents



Grants of
    Plan-Based Awards for Fiscal Year Ended December 31,
    2006
    All OtherOptionAwards:


Exercise or


Grant DateEstimated Future Payouts under Non-


Number of


Base Price


Fair ValueEquity Incentive Plan Awards


Securities


of Option


of StockThreshold








Underlying


Awards


and OptionName

Grant Date


($)


Target ($)


Maximum ($)


Options (#)


($/Sh)


Awards(1)W. Donald Bell









$
632,500
(2)



(3)


















300,000
(4)

$
300,000
(4)










3/21/2006















75,000


$
6.32


$
39,561James E. Illson(5)










270,000
(2)



(3)


















200,000
(4)


200,000
(4)










3/21/2006















25,000



6.32



13,187Richard J. Jacquet










111,000
(2)



(3)


















150,000
(4)


150,000
(4)










3/21/2006















20,000



6.32



10,549Philip M. Roussey(6)











(5)














3/21/2006















10,000



6.32



6,667Graeme Watt










262,200
(7)



(3)










     (1)
    
    These amounts reflect the dollar amount of expense recognized
    for financial statement reporting purposes for 2006 in
    accordance with SFAS 123(R), with the exception that estimated
    forfeitures related to service-based vesting were disregarded in
    these amounts. Assumptions used in the calculation of this
    amount for purposes of our financial statements are included in
    Note 9, Stock-Based Compensation Plansto the
    consolidated financial statements.(2)
    
    Represents target bonus award payments under our Management
    Incentive Plan for 2006 based on 100% achievement of goals.(3)
    
    Under the Companys Management Incentive Plan, the named
    officers can earn more than their target incentive based on a
    linear payment for exceeding financial-related goals above 100%
    of target, with no cap on that amount.(4)
    
    Represents potential awards to be made under our Strategic
    Initiatives Plan for 2006 based on 100% achievement of goals.
    Payments under our Strategic Initiatives Plan are generally made
    following the close of the calendar year.(5)
    
    Mr. Illson resigned from his position as an executive
    officer of the Company effective in June 2008, although he
    remained employed by the Company through August 2008.(6)
    
    Effective January 1, 2007, Mr. Roussey changed his
    employment status to a part-time employee and resigned his
    position as an executive officer of the Company. In his
    part-time position as Executive Vice President, Corporate
    Marketing, he is no longer eligible to receive a bonus.(7)
    
    Mr. Watts annual incentive target under the
    Companys Management Incentive Plan for 2006 was
    £142,500 ($262,200 using an average exchange rate of
    $1.84/£1 during 2006).   173




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##### Table of Contents



Outstanding
    Equity Awards
    Option Awards


Stock AwardsNumber of


Number of








Number of


Market ValueSecurities


Securities








Shares or


of Shares orUnderlying


Underlying








Units of Stock


Units of StockUnexercised


Unexercised


Option


Option


That Have Not


That Have NotOptions (#)


Options (#)


Exercise Price


Expiration


Vested


VestedName

Exercisable


Unexercisable


($)


Date


(#)


($)W. Donald Bell


100,000



0


$
7.23



8/27/2008
(1)0



75,000



6.32



3/21/2011100,000


$
705,000James E. Illson


37,500



12,500



4.12



5/22/2008
(1)232,000



0



3.90



8/13/2007
(2)25,000



0



10.00



2/19/200930,000



30,000



6.73



8/09/200916,000



0



10.28



8/03/20100



25,000



6.32



3/21/201157,500



405,375Richard J. Jacquet


37,500



12,500



4.37



7/07/2008
(1)6,000



0



10.28



8/03/20100



20,000



6.32



3/21/201115,000



0



10.00



5/22/2010
(3)10,625



74,906Philip M. Roussey


10,000



5,000



7.23



8/27/20088,000



0



10.28



8/3/20100



10,000



6.32



3/21/201112,917



91,065Graeme Watt


125,000



125,000



6.45



4/21/200937,500



264,375     (1)
    
    The expiration dates of the options scheduled to expire in 2007
    and 2008 were extended by the Compensation Committee to expire
    30 days after the Company is current in its SEC filings.(2)
    
    To mitigate the impact of Section 409A of the Internal
    Revenue Code, Mr. Illsons options that were scheduled
    to expire on August 13, 2007 were extended by the
    Compensation Committee as follows: the expiration date of
    125,000 options was extended until the date it is no longer a
    violation of Federal securities law for Mr. Illson to
    exercise his options, and the expiration date of 107,000 options
    was extended until 30 days thereafter.(3)
    
    These stock options were granted under the 1998 Stock Plan.
    However, they have a term of ten years and vest at a rate of
    10 percent per year, with an option to accelerate to 25%
    per year based on meeting or exceeding annual operating plan
    goals. 174




---



##### Table of Contents



Option
    Exercises and Stock Vested for Fiscal Year Ended
    December 31, 2006
    Option Awards


Stock AwardsNumber of





Number ofShares Acquired


Value Realized


Shares Acquired


Value RealizedName

on Exercise (#)


on Exercise ($)


on Vesting (#)


on Vesting ($)W. Donald Bell


75,000


$
142,944



62,500


$
379,250James E. Illson










22,500



117,850Richard J. Jacquet










10,625



60,962Philip M. Roussey










7,917



41,485Graeme Watt










12,500



73,750   Non-Qualified
    Deferred Compensation Table
    Executive


Registrant


Aggregate


Aggregate


AggregateContributions in


Contributions in


Earnings in Last


Withdrawals/


Balance at LastName

Last FY ($)


Last FY ($)


FY ($)


Distributions ($)


FYE ($)W. Donald Bell





$
149,913


$
368,570
(1)





$
925,772
(2)James E. Illson


















Richard J. Jacquet


















Philip M. Roussey


















Graeme Watt


















     (1)
    
    Represents the difference between the cash value of the
    Company-owned life insurance on December 31, 2005 and
    December 31, 2006.(2)
    
    Represents the cash value of the Company-owned life insurance as
    of December 31, 2006.  Payments
    upon Termination or Change in Control
  change-in-control Executive Compensation 
    Compensation Discussion and Analysis  Retention
    Agreements
   175




---



##### Table of Contents



InvoluntaryTerminationWithout CauseTermination of


Within 12 MonthsEmployment


after a Change ofName

Benefit

Without Cause(3)


Control(1)(2)W. Donald Bell

Severance

$
0


$
632,500Accrued Vacation


48,642



48,642Stock Option Acceleration


0



54,750Restricted Stock Unit Acceleration


0



705,000Continued Employee Benefits


0



11,429Total Value


48,642



1,452,321James E. Illson

Severance


450,000



450,000Accrued Vacation


17,317



17,317Stock Option Acceleration


0



64,475Restricted Stock Unit Acceleration


0



405,375Continued Employee Benefits


0



15,447Total Value


467,317



952,614Richard J. Jacquet

Severance


112,000



224,000Accrued Vacation


12,993



12,923Stock Option Acceleration


0



48,100Restricted Stock Unit Acceleration


0



74,906Continued Employee Benefits


0



11,429Total Value


124,993



371,358Philip M. Roussey

Severance


125,000



250,000Accrued Vacation


37,490



37,490Stock Option Acceleration


0



42,550Restricted Stock Unit Acceleration(4)


0



55,815Continued Employee Benefits


0



11,429Total Value


162,490



397,284Graeme Watt

Severance


524,400
(4)


524,400
(4)Accrued Vacation


0



0Stock Option Acceleration


0



75,000Restricted Stock Unit Acceleration


0



264,375Continued Employee Benefits


0



3,713Total Value


524,400



867,488     (1)
    
    An Involuntary Termination event is (i) without
    the officers express written consent, the significant
    reduction of his duties, authority, or responsibilities relative
    to his duties, authority, or responsibilities in effect
    immediately prior to such reduction, or the assignment to the
    officer of such reduced duties, authority, or responsibilities;
    (ii) without the officers express written consent, a
    substantial reduction, without good business reasons, of the
    facilities and perquisites (including office space and location)
    available to him immediately prior to such reduction;
    (iii) a reduction by in the officers base salary;
    (iv) a material reduction in the kind or level of employee
    benefits, including bonuses, to which the officer is entitled
    with the result that the officers overall benefits package
    is significantly reduced; (v) the relocation of the officer
    to a facility or a location more than 35 miles from the
    officers then present location, without the officers
    express written consent; (vi) any purported termination of
    the officers employment other than for disability or for
    cause, or any purported termination for which the grounds relied
    upon are not valid; (vii) the failure of Bell Micro to
    obtain the assumption of the officers retention agreement
    by any successor; or (viii) any act or set of facts or
    circumstances which would, under California law, constitute a
    constructive termination of the officer.(2)
    
    The severance payment set forth in this column is the equivalent
    of 12 months base salary. 176




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##### Table of Contents



(3)
    
    For Messrs. Jacquet and Roussey, the severance payment
    under this column is the equivalent of six months base salary.
    For Messrs. Illson and Watt, the severance payment under
    this column is the equivalent of twelve months base salary.(4)
    
    Mr. Watts severance payment is the equivalent of
    twelve months base salary and was calculated using an average
    exchange rate of $1.84/£1 during 2006.  Director
    Compensation
        OptionFees Earned or


AwardsName

Paid in Cash ($)


($)(1)


Total ($)Gordon A. Campbell

$
68,000


$
19,801


$
87,801Eugene B. Chaiken


97,000



19,801



116,801David M. Ernsberger


84,000



19,801



103,801Edward L. Gelbach


94,000



19,801



113,801Michael J. Grainger(2)


35,500



46,964



82,464Peter G. Hanelt(3)


0



0



0James E. Ousley


58,000



19,801



77,801Glenn E. Penisten


113,000



19,801



132,801Mark L. Sanders


72,000



19,801



91,801Roger V. Smith(4)


44,500



19,801



64,301     (1)
    
    These amounts reflect the dollar amount of expense recognized
    for financial statement reporting purposes for 2006 in
    accordance with SFAS 123(R), with the exception that estimated
    forfeitures related to service-based vesting were disregarded in
    these amounts. Assumptions used in the calculation of this
    amount for purposes of our financial statements are included in
    Note 9 to the consolidated financial statements.(2)
    
    Mr. Grainger was appointed to our Board of Directors on
    September 19, 2006. He resigned from the Board on
    March 8, 2008.(3)
    
    Mr. Hanelt was appointed to our Board of Directors on
    October 29, 2008.(4)
    
    Mr. Smith resigned from our Board of Directors on
    September 18, 2006. 177




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management    
    each of our directors;
    each of the executive officers listed in the Summary
    Compensation Table contained under the caption Executive
    Compensationabove;
    by all current directors and executive officers as a
    group; and
    persons beneficially owning more than 5% of our common stock.    Shares Beneficially OwnedName of Beneficial Owner(1)

Number


Percent(2)Greater than 5% StockholdersFMR LLC(3)


4,561,108



14.2State of Wisconsin Investment Board(4)


3,043,389



9.5Wells Fargo & Company(5)


2,801,692



8.7Dimensional Fund Advisors L.P.(6)


2,584,112



8.1Paradigm Capital Management, Inc.(7)


2,475,671



7.7Citigroup Global Markets, Inc.(8)


1,775,910



5.5AQR Capital Management LLC(9)


1,733,932



5.5AQR Capital Management LLC; AQR AbsoluteReturn Master Account L.P.(10)


1,733,932



5.5Nationwide Fund Advisors(11)


1,687,817



5.3DirectorsW. Donald Bell(12)


1,155,485



3.6Gordon A. Campbell(13)


20,500



*Eugene B. Chaiken(14)


34,264



*David M. Ernsberger(15)


52,039



*Edward L. Gelbach(16)


166,422



*Peter G. Hanelt






*James E. Ousley(17)


60,848



*Glenn E. Penisten(18)


88,409



*Mark L. Sanders(19)


16,264



*Named Executive OfficersJames E. Illson(20)


74,345



*Richard J. Jacquet(21)


118,241



*Philip M. Roussey(22)


127,390



*Graeme Watt(23)


277,500



*All directors and executive officers as a group
    (14 persons)(24)


2,212,006



6.9  178




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##### Table of Contents



*
    
    Less than 1% of our outstanding common stock.(1)
    
    Unless otherwise indicated, the address of each of the named
    individuals is
    c/o Bell
    Microproducts, 1941 Ringwood Avenue, San Jose, CA 95131.(2)
    
    Percentage of beneficial ownership is based on
    32,078,415 shares of common stock outstanding as of
    November 30, 2008.(3)
    
    As reported in Schedule 13G filed February 14, 2008,
    with the SEC by FMR LLC (FMR) on behalf of itself
    and Edward C. Johnson 3d. The address for FMR is 82 Devonshire
    Street, Boston, MA 02109. FMR, a parent holding company, has
    sole voting power over 2,417 shares and sole dispositive
    power over all the shares.(4)
    
    As reported in Schedule 13G filed November 7, 2008,
    with the SEC by the State of Wisconsin Investment Board
    (Wisconsin Investment). The address for Wisconsin
    Investment is P.O. Box 7842, Madison, WI 53707.
    Wisconsin Investment has sole voting power and sole dispositive
    power over all the shares.(5)
    
    As reported in Schedule 13G filed January 23, 2008,
    with the SEC by Wells Fargo & Company (Wells
    Fargo). The address for Wells Fargo is 420 Montgomery
    Street, San Francisco, CA 94104. Wells Fargo has sole
    voting power over 2,533,348 shares and sole dispositive
    power over 2,718,392 shares.(6)
    
    As reported in Schedule 13G/A filed February 6, 2008,
    with the SEC by Dimensional Fund Advisors L.P.
    (Dimensional Fund). The address for Dimensional Fund
    is 1299 Ocean Avenue, Santa Monica, CA 90401. Dimensional Fund
    has sole voting and dispositive power over all the shares.(7)
    
    As reported in Schedule 13G/A filed February 14, 2008,
    by Paradigm Management, Inc (Paradigm). The address
    for Paradigm is Nine Elk Street, Albany, NY 12207. Paradigm has
    sole voting power and sole dispositive power over all the shares.(8)
    
    As reported in Schedule 13G/A filed January 30, 2008,
    with the SEC by Citigroup Financial Products Inc.
    (Citigroup). The address for Citigroup is 399 Park
    Avenue, New York, NY 10043. Citigroup has shared voting power
    and shared dispositive power over all the shares.(9)
    
    As reported in Schedule 13G filed February 15, 2008,
    with the SEC by AQR Capital Management, LLC (AQR).
    The address for AQR is Two Greenwich Plaza, 3rd Floor,
    Greenwich, CT 06830. AQR has shared voting powers to over all
    the shares and shares power to dispose or to direct the
    disposition of debt securities that are convertible into
    1,733,932 shares of common stock.(10)
    
    As reported in Schedule 13G filed February 21, 2008,
    with the SEC by AQR Capital Management, LLC (AQR),
    and AQR Absolute Return Master Account L.P. (AQR Absolute
    Return). The address for AQR and AQR Absolute Return is
    Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. AQR and AQR
    Absolute Return have shared voting powers to over all the shares
    and shares power to dispose or to direct the disposition of debt
    securities that are convertible into 1,733,932 shares of
    common stock.(11)
    
    As reported in Schedule 13G filed February 15, 2008,
    with the SEC by Nationwide Fund Advisors
    (Nationwide). The address for Nationwide is 1200
    River Road, Suite 1000, Conshohocken, PA 19428. Nationwide
    has shared voting power and shared dispositive power over all
    the shares.(12)
    
    Includes options held by Mr. Bell to purchase
    137,500 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(13)
    
    Includes options held by Mr. Campbell to purchase
    7,500 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(14)
    
    Includes options held by Mr. Chaiken to purchase
    30,000 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(15)
    
    Includes options held by Mr. Ernsberger to purchase
    45,000 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(16)
    
    Includes options held by Mr. Gelbach to purchase
    45,000 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(17)
    
    Includes options held by Mr. Ousley to purchase
    26,250 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(18)
    
    Includes options held by Mr. Penisten to purchase
    37,500 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009. 179




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##### Table of Contents



(19)
    
    Includes options held by Mr. Sanders to purchase
    15,000 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(20)
    
    Mr. Illson is no longer employed with the Company.(21)
    
    Includes options held by Mr. Jacquet to purchase
    81,000 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(22)
    
    Includes options held by Mr. Roussey to purchase
    28,000 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(23)
    
    Includes options held by Mr. Watt to purchase
    265,000 shares, which are currently exercisable or will
    become exercisable on or before February 28, 2009.(24)
    
    Includes options to purchase an aggregate of 837,439 shares
    of the Company held by seven executive officers and seven
    outside directors, which are currently exercisable or will
    become exercisable on or before February 28, 2009. This
    figure does not include data with respect to Mr. Illson and
    Mr. Roussey.    Equity Compensation Plan InformationNumber of SecuritiesRemaining Available forNumber of Securities


Weighted-Average


Future Issuance Underto be Issued


Exercise Price of


Equity CompensationUpon Exercise of


Outstanding


Plans (ExcludingOutstanding Options,


Options Warrants


Securities Reflected inPlan Category

Warrants and Rights


and Rights


Column (a))Equity compensation plans approved by security holders


2,975,487


$
7.13
(1)


981,091
(2)Equity compensation plans not approved by security holders(3)


235,000


$
4.00



Total


3,210,487


$
6.90



981,091     (1)
    
    Weighted-average exercise price excludes 512,324 shares for
    restricted stock units with zero exercise price.(2)
    
    Includes shares under our 1998 Stock Plan, which plan provides
    for the automatic increase of shares on January 1 of each year
    of a number of shares equal to the lesser of
    (i) 600,000 shares, (ii) 4% of the outstanding
    shares on such date, or (iii) a lesser amount determined by
    the Board, subject to adjustment upon changes in our
    capitalization.(3)
    
    Represents stock options that have been granted to employees
    outside of the Companys 1998 Stock Plan, which options are
    represented by agreements substantially the same as agreements
    with respect to options under the 1998 Stock Plan and generally
    provide for a vesting period as determined by the Board of
    Directors and expire over terms not exceeding ten years from the
    date of grant.  Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence  Transaction
    with Related Persons
    Director
    Independence
   180




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##### Table of Contents



Item 14.
    Principal
    Accountant Fees and Services  Principal
    Accountant Fees
    Fiscal Year 2006


Fiscal Year 2005Audit Fees

$
28,579


$
2,017Audit-Related Fees






Tax Fees


131



189All Other Fees


18



2Total

$
28,728


$
2,208   Form 10-Q
            Pre-Approval
    Policy
    PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K:
    Form 10-K) Form 10-K.
           181




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##### Table of Contents



Signatures      By:
    /s/  William
    E. Meyer      Form 10-K
  Signature

Title

Date/s/  W.
    Donald Bell(W.
    Donald Bell)

Chairman of the Board, President
    and Chief Executive Officer
    (Principal Executive Officer)

December 29, 2008/s/  William
    E. Meyer(William
    E. Meyer)

Executive Vice President and
    Chief Financial Officer
    (Principal Financial Officer and
    Principal Accounting Officer)

December 29, 2008/s/  Gordon
    A. Campbell(Gordon
    A. Campbell)

Director

December 29, 2008/s/  Eugene
    B. Chaiken(Eugene
    B. Chaiken)

Director

December 29, 2008/s/  David
    M. Ernsberger(David
    M. Ernsberger)

Director

December 29, 2008/s/  Edward
    L. Gelbach(Edward
    L. Gelbach)

Director

December 29, 2008/s/  Peter
    G. Hanelt(Peter
    G. Hanelt)

Director

December 29, 2008/s/  James
    E. Ousley(James
    E. Ousley)

Director

December 29, 2008/s/  Glenn
    E. Penisten(Glenn
    E. Penisten)

Director

December 29, 2008/s/  Mark
    L. Sanders(Mark
    L. Sanders)

Director

December 29, 2008  182




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##### Table of Contents



SCHEDULE II
    Valuation and Qualifying Accounts AdditionsBalance at


Charged (Credited)


ChargedBeginning of


to Costs and


to Other


Deductions-


Balance atYear Ended December 31,

Period


Expenses


Accounts(1)


Write-Offs


End of Period(In thousands)2004 (Restated)Allowance for doubtful accounts

$
17,159


$
8,050


$




(13,986
)


11,223Allowance for deferred taxes


6,313



(1,966
)


2,162







6,5092005 (Restated)Allowance for doubtful accounts


11,223



4,297







(6,580
)


8,940Allowance for deferred taxes


6,509



1,517



16







8,0412006Allowance for doubtful accounts


8,940



8,506







(5,859
)


11,587Allowance for deferred taxes


8,041



23,065



1,223







32,330     (1)
    
    Amounts charged to deferred tax assets/liabilities. 183




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##### Table of Contents



Index to
    Exhibits  Number

Description of Document2
.1

Asset Purchase Agreement, dated October 2, 2006, among the
    Company, New ProSys Corp., ProSys Information Systems, Inc.,
    Michelle Clery and Bruce Keenan. Incorporated by reference to
    Exhibit 2.1 filed with the Companys Current Report on
    Form 8-K
    filed with the SEC on October 4, 2006.2
.2

Stock Purchase Agreement, dated October 2, 2006, by and
    between New ProSys Corp. and Bruce Keenan. Incorporated by
    reference to Exhibit 2.2 filed with the Companys
    Current Report on
    Form 8-K
    filed with the SEC on October 4, 2006.3
.1

Amended and Restated Articles of Incorporation of the Company.
    Incorporated by reference to Exhibit 4.1 filed with the
    Companys Registration Statement on
    Form S-3
    (File
    No. 333-117555)
    on July 21, 2004.3
.2

Amended and Restated Bylaws of the Company. Incorporated by
    reference to Exhibit 3.2 filed with the Registrants
    Current Report on
    Form 8-K
    on November 15, 2007.4
.1

Form of Indenture between the Company and Wells Fargo Bank,
    National Association, as Trustee, with respect to the
    Series B
    33/4% Subordinated
    Convertible Notes due 2024. Incorporated by reference to
    Exhibit 4.1 filed with the Companys Registration
    Statement on
    Form S-4
    (File
    No. 333-120527)
    on November 16, 2004.4
.2

Indenture dated as of March 5, 2004 between the Company and
    Wells Fargo Bank, National Association as Trustee, with respect
    to the
    33/4% Subordinated
    Convertible Notes due 2024. Incorporated by reference to
    Exhibit 4.1 filed with the Registrants Registration
    Statement on
    Form S-3
    (File
    No. 333-116130)
    on June 3, 2004.4
.3

Form of Series B 3.75% Subordinated Convertible Notes
    due 2024 (contained in Exhibit 4.1).4
.4

Form of 3.75% Subordinated Convertible Notes due 2024
    (contained in Exhibit 4.2).4
.5

Registration Rights Agreement dated March 5, 2004 by and
    among the Company, Merrill Lynch, Pierce, Fenner &
    Smith Incorporated and Raymond James & Associates,
    Inc. Incorporated by reference to Exhibit 4.2 filed with
    the Companys Registration Statement on
    Form S-3
    (File
    No. 333-116130)
    on June 3, 2004.4
.6

First Supplemental Indenture dated as of December 20, 2006
    between the Company and Wells Fargo Bank, N.A. Incorporated by
    reference to Exhibit 4.1 filed with the Companys
    Current Report on
    Form 8-K
    on December 21, 2006.4
.7

9% Senior Subordinated Note in the Amount of $23,000,000
    dated as of October 2, 2006 in connection with the
    Securities Purchase Agreement dated as of October 2, 2006
    among the Company, The Teachers Retirement System of
    Alabama and the Employees Retirement System of Alabama.
    Incorporated by reference to Exhibit 10.2 filed with the
    Companys Current Report on
    Form 8-K
    on October 4, 2006.4
.8

9% Senior Subordinated Note in the Amount of $12,000,000
    dated as of October 2, 2006 in connection with the
    Securities Purchase Agreement dated as of October 2, 2006
    among the Company, The Teachers Retirement System of
    Alabama and the Employees Retirement System of Alabama.
    Incorporated by reference to Exhibit 10.3 filed with the
    Companys Current Report on
    Form 8-K
    on October 4, 2006.4
.9

Warrant to Purchase 125,000 Shares of Bell Microproducts
    Inc. dated as of October 2, 2006. Incorporated by reference
    to Exhibit 10.4 filed with the Companys Current
    Report on
    Form 8-K
    on October 4, 2006.10
.1

Employment Agreement dated as of July 1, 1999 between the
    Company and W. Donald Bell. Incorporated by reference to
    Exhibit 10.1 filed with the Companys Quarterly Report
    on
    Form 10-Q/A
    (File
    No. 000-21528)
    for the quarter ended September 30, 1999, on
    January 10, 2000.*10
.2

Amendment to Employment Agreement between the Company and W.
    Donald Bell dated as of October 19, 2000. Incorporated by
    reference to Exhibit 10.1 filed with the Companys
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-21528)
    for the quarter ended March 31, 2001.*10
.3

Amendment No. 2 to Employment Agreement between the Company
    and W. Donald Bell dated as of April 30, 2002. Incorporated
    by reference to Exhibit 10.1 filed with the Companys
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-21528)
    for the quarter ended September 30, 2002.*10
.4

Executive Employment and Non-Compete Agreement dated as of
    August 13, 2002 between the Company and James E. Illson.
    Incorporated by reference to Exhibit 10.2 filed with the
    Companys Quarterly Report on
    Form 10-Q
    (File
    No. 000-21528)
    for the quarter ended September 30, 2002.* 184




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##### Table of Contents



Number

Description of Document10
.5

Syndicated Composite Guarantee and Debenture effective as of
    December 2, 2002 by and among Bell Microproducts Limited,
    certain other companies listed and Bank of America, N.A.
    Incorporated by reference to Exhibit 10.40 filed with the
    Companys Annual Report on
    Form 10-K
    (File
    No. 000-21528)
    for the year ended December 31, 2002.10
.6

Priority Agreement dated December 2, 2002, by and among
    Bell Microproducts Limited, National Westminster Bank PLC, and
    Bank of America, N.A. Incorporated by reference to
    Exhibit 10.41 filed with the Companys Annual Report
    on
    Form 10-K
    (File
    No. 000-21528)
    for the year ended December 31, 2002.10
.7

Form of Management Retention Agreement between the Company and
    executive officers of the Company. Incorporated by reference to
    Exhibit 10.1 filed with the Companys Quarterly Report
    on
    Form 10-Q
    for the quarter ended September 30, 2005.*10
.8

Securities Purchase Agreement dated October 2, 2006 among
    the Company, The Teachers Retirement System of Alabama and
    The Employees Retirement System of Alabama. Incorporated
    by reference to Exhibit 10.1 filed with the Companys
    Current Report on
    Form 8-K
    on October 4, 2006.10
.9

Bell Microproducts Inc. Supplemental Executive Retirement
    Program, effective July 1, 2002 and amended on
    November 13, 2007. Incorporated by reference to
    Exhibit 99.2 filed with the Companys Current Report
    on
    Form 8-K
    on November 15, 2007.*10
.10

Bell Microproducts Inc. 2008 Management Incentive Plan.
    Incorporated by reference to Exhibit 10.1 filed with the
    Companys Current Report on
    Form 8-K
    on January 25, 2008.*10
.11

Ninth Supplemental Agreement dated May 21, 2008 in relation
    to a Syndicated Credit Agreement dated December 2, 2002,
    among Bell Microproducts Limited, Bell Microproducts Europe
    Export Limited, Bell Microproducts Europe (Holdings) B.V., BM
    Europe Partners C.V., Bell Microproducts Europe B.V., and Bank
    of America, National Association. Incorporated by reference to
    Exhibit 10.1 filed with the Companys Current Report
    on
    Form 8-K
    on May 28, 2008.10
.12

Separation Agreement dated May 12, 2008, by and between the
    Company and James E. Illson. Incorporated by reference to
    Exhibit 10.1 filed with the Companys Current Report
    on
    Form 8-K
    on June 10, 2008.10
.13

Consultant Agreement dated as of May 12, 2008, by and
    between the Company and James E. Illson. Incorporated by
    reference to Exhibit 10.2 filed with the Companys
    Current Report on
    Form 8-K
    on June 10, 2008.10
.14

Amended and Restated Credit Agreement effective as of
    June 30, 2008 and executed on August 5, 2008, among
    the Company, the Teachers Retirement System of Alabama,
    the Employees Retirement System of Alabama, the Judicial
    Retirement Fund, the PEIRAF-Deferred Compensation Plan, and the
    Public Employee Individual Retirement Account Fund. Incorporated
    by reference to Exhibit 10.1 filed with the Companys
    Current Report on
    Form 8-K
    on August 6, 2008.10
.15

Letter to Bell Microproducts Inc. dated August 4, 2008,
    from The Teachers Retirement System of Alabama and the
    Employees Retirement System of Alabama, amending the
    Securities Purchase Agreement dated October 2, 2006.
    Incorporated by reference to Exhibit 10.2 filed with the
    Companys Current Report on
    Form 8-K
    on August 6, 2008.10
.16

Letter Agreement executed August 6, 2008, between Bell
    Microproducts Limited and Bank of America, N.A. as Agent for the
    Syndicated Credit Agreement dated December 2, 2002, as
    amended and restated effective May 21, 2008. Incorporated
    by reference to Exhibit 10.1 filed with the Companys
    Current Report on
    Form 8-K
    on August 11, 2008.10
.17

Amended and Restated Loan and Security Agreement dated
    September 29, 2008, among Bell Microproducts Inc., Bell
    Microproducts  Future Tech, Inc., Rorke Data, Inc.,
    Bell Microproducts Canada  Tenex Data ULC, Total Tec
    Systems, Inc., Forefront Graphics US Inc. as Borrowers, Bell
    Microproducts Canada Inc. and Bell Microproducts Mexico
    Shareholder, LLC, as Guarantors and Wachovia Capital Finance
    Corporation (Western) (Wachovia) in its capacity as
    administrative agent for the financial institutions, Wachovia,
    Bank of America, N.A., The CIT Group/Business Credit, Inc., and
    Wells Fargo Foothill, LLC (the Lenders),
    Incorporated by reference to Exhibit 10.1 filed with the
    Companys Current Report on
    Form 8-K
    on September 30, 2008. 185




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##### Table of Contents



Number

Description of Document10
.18

Letter Agreement, dated September 29, 2008, terminating the
    Second Amended and Restated Credit and Security Agreement dated
    as of May 14, 2007, as amended, by and between the Company,
    Bell Microproducts Funding Corporation, Variable Funding Capital
    Company LLC, Wachovia Bank, National Association, and General
    Electric Capital Corporation. Incorporated by reference to
    Exhibit 10.2 filed with the Companys Current Report
    on
    Form 8-K
    on September 30, 2008.10
.19

Bell Microproducts Inc. form of Executive Officer
    Indemnification Agreement. Incorporated by reference to
    Exhibit 10.1 filed with the Companys Current Report
    on
    Form 8-K
    on November 5, 2008.*10
.20

Bell Microproducts Inc. form of Director Indemnification
    Agreement. Incorporated by reference to Exhibit 10.2 filed
    with the Companys Current Report on
    Form 8-K
    on November 5, 2008.*10
.21

Bell Microproducts Inc. form of Amended and Restated Director
    Indemnification Agreement. Incorporated by reference to
    Exhibit 10.3 filed with the Companys Current Report
    on
    Form 8-K
    on November 5, 2008.*10
.22

1998 Stock Plan, as amended through August 1, 2007, and
    form of option agreement.*10
.23

1998 Stock Plan Form of Restricted Stock Unit Agreement.*10
.24

2006 Management Incentive Plan Description.*10
.25

2007 Management Incentive Plan Description, revised effective
    July 1, 2007.*10
.26

Executive Employment Agreement dated August 6, 2007,
    between the Company and William E. Meyer.*14
.1

Code of Ethics for Principal Executive and Senior Financial
    Officers of the Company.21
.1

Subsidiaries of the Company.31
.1

Certification of Chief Executive Officer Pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer Pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive Officer Pursuant to
    Section 906 of Sarbanes-Oxley Act of 2002.**32
.2

Certification of Chief Financial Officer Pursuant to
    Section 906 of Sarbanes-Oxley Act of 2002.**     *
    
    Denotes management contract or compensatory plan or arrangement.**
    
    Furnished, not filed. 186