10-K

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 1934.
	For the year ended December 31, 2005
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from           to

Commission file number 1-11471

BELL INDUSTRIES, INC.

(Exact Name of Registrant as Specified in its Charter)

California	95-2039211
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1960 E. Grand Ave Suite 560 El Segundo, California (Address of principal executive offices)	90245 (Zip Code)

Registrant’s telephone number, including area code:

(310) 563-2355

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common stock	American Stock Exchange Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None.

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

Yes o          No þ

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

Yes o          No þ

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ          No o

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

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer o          Accelerated filer o          Non-accelerated filer þ

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

Yes o          No þ

      As of June 30, 2005 the aggregate market value of the voting stock held by non-affiliates of the Registrant was: $18,396,399.

      As of March 31, 2006 the number of shares outstanding of the Registrant’s class of common stock was: 8,563,224.

DOCUMENTS INCORPORATED BY REFERENCE

      Part III of this Form 10-K incorporates by reference information from the Registrant’s Proxy Statement for the 2006 Annual Meeting of Shareholders to be held on May 23, 2006.

TABLE OF CONTENTS

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	7
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Submission of Matters to a Vote of Security Holders	8
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Shareholders Matters and Issuer Purchases of Equity Securities	8
Item 6.	Selected Consolidated Financial Data	9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 8.	Financial Statements and Supplementary Data	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	38
Item 9B.	Other Information	39
PART III
Item 10.	Directors and Executive Officers of the Registrant	39
Item 11.	Executive Compensation	39
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	40
Item 13.	Certain Relationships and Related Transactions	40
Item 14.	Principal Accountant Fees and Services	40
PART IV
Item 15.	Exhibits and Financial Statement Schedule	40
SIGNATURES		43
EXHIBIT INDEX		44
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

      This Annual Report includes forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Many of the forward-looking statements contained in this Annual Report may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “will,” “may,” and “estimated,” among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Annual Report are set forth in this Annual Report, including the matters under the section “Item 1A. Risk Factors,” and in other reports or documents that we file from time to time with the United States Securities and Exchange Commission (the “SEC”).

      All forward looking statements attributable to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement. We are under no obligation to update any of the forward-looking statements after the date of this Annual Report to conform these statements to actual results or to changes in our expectations.

      As used herein, “we,” “us,” “our,” “Bell,” and the “Company” refer to Bell Industries, Inc.

PART I

Item 1. Business

      Bell Industries, Inc.’s operations include technology product sales and managed technology lifecycle services; sales of aftermarket products for recreational vehicles, motorcycles and ATVs, snowmobiles, and powerboats; and manufacturing and sales of specialty electronic components. Bell employed approximately 850 people at December 31, 2005.

Technology Solutions

      The Tech.logix Group (“BTL” or “Technology Solutions”), (2005 net revenues of $76.7 million) is a provider of integrated technology solutions for organizations in the Midwestern and Eastern United States. BTL is headquartered in Indianapolis, Indiana, and has offices and service facilities in the Midwest and Atlantic regions. BTL offers a comprehensive portfolio of technology products and managed lifecycle services, including planning, product sourcing, deployment and disposal, and support services.

      BTL’s planning services provide a comprehensive approach for achieving, sustaining and maximizing business success. BTL utilizes a project management process that is driven by an understanding of the client’s need, disciplined use of facts, data, and statistical analysis, and attention to managing, improving and implementing business processes. Planning services are typically provided as part of a more comprehensive delivery of a technology solution.

      BTL’s product sourcing services include the use of TechlogixSource, a branded web procurement system that provides state-of-the-art, integrated electronic sourcing for technology products. Product sales at BTL include desktop and laptop computers, access devices, servers, storage equipment, printers, network products, memory, monitors, consumables, and software. BTL sells technology products from several hundred manufacturers, including, Hewlett-Packard, IBM, Lenovo, Panasonic, Apple, Lexmark, Sun Microsystems, Cisco, Veritas, Microsoft, Symantec, and Adobe Systems. BTL purchases technology products for resale both directly from manufacturers and through distributors, all of which are considered to be BTL’s vendors. BTL’s primary distributor supplier is Ingram Micro Inc. Revenue from product sales is recognized when title and risk of loss are passed to the customer, which is considered to be at the time of shipment. An order or a signed agreement is required for each transaction.

      BTL’s deployment and disposal services include logistics support, software installation, system configuration, and disposal at the end of the technology lifecycle. Revenues for deployment and disposal services are recognized upon the completion of BTL’s contractual obligation, which is typically after the service has been rendered.

      BTL’s support services include help desk support, desk side support, technical maintenance services, and depot services. These services are delivered both on-site at client locations and from BTL’s leased facilities. BTL’s support services are typically rendered separate from product sales. Revenues from support services are primarily derived from recurring engagements. These services are typically under contract and are billed periodically, usually monthly, based on fixed fee arrangements, per incident or per resource charges, or on a cost plus basis. Revenue recognition from support services does not require significant management estimates.

      Two clients (two Fortune 500 companies) accounted for approximately 33% of BTL revenues for fiscal 2005. One of these clients, Philip Morris USA, accounted for approximately 10% of the Company’s consolidated net revenues.

      There are a number of competitors in BTL’s market. BTL competes with national and multi-regional companies such as CompuCom Systems, Pomeroy Computer Resources, and Sarcom, as well as a number of local and regional firms providing technology products and deployment and disposal services. In technology support services, BTL may compete with large multi-national organizations such as IBM Global Services and Electronic Data Systems, as well as a number of small to mid-sized firms providing specialized services for certain market sectors. Many of BTL’s competitors have greater financial and marketing resources.

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Recreational Products

      The Recreational Products Group (“RPG” or “Recreational Products”) (2005 net revenues of $45.9 million) sells replacement parts and accessories for recreational and other leisure-time vehicles. RPG supplies these products in the upper Midwestern United States to dealerships and retail stores selling recreational vehicles, snowmobiles, motorcycles and ATVs, and marine products. RPG also supplies these products to independent repair facilities. For all product groups, RPG operates distribution, sales and administration facilities in Eagan, Minnesota; Germantown, Wisconsin; and Grand Rapids, Michigan.

      RPG has significant market share in the distribution of recreational and other leisure-time vehicle replacement parts and accessories in the upper Midwestern United States. RPG supplies approximately 8,000 recreational vehicle-related products, 11,000 marine items, 9,000 motorcycle and ATV items, and 5,000 snowmobile items. Major product lines distributed by RPG include Dunlop tires (motorcycle tires), Carefree of Colorado (awnings for RV’s and campers), Reese Products (trailer hitches for all types of vehicles), and Johnson Fishing, Inc. (marine motors). RPG has over 5,000 customers, with no single customer accounting for over 5% of its annual sales.

      RPG faces significant competition from national and regional distributors of aftermarket products for recreational vehicles, motorcycles and ATVs, snowmobiles, and marine products. Significant competitors include Coast Distribution System and Stag-Parkway (recreational vehicles), Parts Unlimited and Tucker Rocky Distributing (motorcycles, ATVs and snowmobiles), and Coast Distribution System and Land N’ Sea Distribution (marine).

Electronic Components

      The J. W. Miller Division (“JWM” or “Electronic Components”) of the Company, located in Gardena, California (2005 net revenues of $8.4 million), manufactures and sells over 6,000 standard and custom magnetic products. JWM’s magnetic products include inductors, coils, chokes, and transformers, among others. These products are used extensively in all types of circuitry found in electronic applications including computer, medical, lighting, and telecommunications equipment.

      JWM’s products are sold to regional, national and international electronic distributors, and to original equipment manufacturers and contract manufacturers. JWM utilizes outside manufacturer’s representatives located in North America, Europe and Asia to sell its products. JWM’s six largest customers represent approximately 66% of its total 2005 sales. The majority of sales are derived from customers located in North America.

      JWM faces significant competition from national and international manufacturers including Vishay, Sumida, Coilcraft, and Delevan.

Company Information

      The Company is incorporated under the laws of the State of California. The Company’s principal executive offices are located at 1960 E. Grand Avenue, Suite 560, El Segundo, California, 90245. The Company’s telephone number is (310) 563-2355 and its fax number is (310) 648-7280.

Availability of Reports and Other Information

      The Company’s website address is www.bellind.com. The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports available free of charge on its website (via a link to the SEC website) as soon as reasonably practicable after it files these reports with the SEC. In addition, the SEC’s website address is www.sec.gov. The SEC makes available on this website, free of charge, reports, proxy and other information regarding issuers, such as us, that file electronically with the SEC. In addition, the Company posts the following information on its website:

•  its corporate Code of Ethics for Directors, Officers and Employees, which qualifies as a “code of ethics” as defined by Item 406 of Regulation S-K of the Securities and Exchange Act of 1934;

•  charters for its Audit Committee, Nominating Committee and Compensation Committee.

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      All of the above information is also available in print upon request to the Company’s secretary at the address listed under the heading “Company Information” above.

Item 1A.  Risk Factors

      In addition to other information contained in this report, we are subject to the following risks, which could materially adversely affect our business, financial condition and/or results of operations in the future.

We have a history of operating losses.

      We have incurred net losses in each of the past five fiscal years. As of December 31, 2005 we had an accumulated deficit of approximately $12.5 million. If our future revenues in each of our business units do not meet our expectations, or if operating expenses exceed what we anticipate, our business, financial condition and results of operations could be materially and adversely affected.

We face certain significant risks related to the currently pending Williams litigation and from other potential litigation that could materially adversely affect our financial condition and results of operations.

      We have been engaged in ongoing litigation in connection with our 1997 purchase of Milgray Electronics, Inc., a publicly traded New York corporation, which was named as a defendant by the plaintiff, Williams Electronics Games, Inc. (“Williams”), in an action alleging common law fraud and other infractions related to Williams’ purchase of electronic components at allegedly inflated prices from 1991 to 1996. Although the outcome of this litigation cannot be predicted, an adverse verdict could have a materially adverse effect on us. The defense of this lawsuit has required a significant amount of our management’s time and attention and, even if we prevail in defending this lawsuit, we will incur additional legal and related expenses. The disruptive effect and expense of this litigation could adversely affect our business, financial condition, results of operations and/or cash flows. We also may become subject to other litigation in the future.

Our previously owned businesses subject us to potential environmental liabilities, which could adversely affect our results of operations.

      We are subject to various federal, state and local environmental statutes, ordinances and regulations relating to disposal of certain toxic, volatile or otherwise hazardous substances and wastes used or generated in connection with previously owned businesses. Such laws may impose liability without regard to whether we knew of, or caused, the release of such hazardous substances. Although we establish reserves for specifically identified potential environmental liabilities, which reserves we believe to be adequate, there may be potential undisclosed environmental liabilities or liability in excess of the amounts reserved. Compliance with these environmental laws could require us to incur substantial expenses.

We rely on a limited number of hardware and software vendors to supply us with products in our technology solutions business and the loss of our ability to rely upon any of those vendors, or to obtain their products in the future would adversely affect our results of operations.

      Our technology solutions business is heavily dependent on our relationships with leading hardware and software vendors and on our status as an authorized service provider. Although we are currently authorized to service the products of many industry-leading hardware and software vendors, we may not be able to maintain our relationships, or attract new relationships, with the computer hardware and software vendors that may be necessary for our technology solutions business. Since we rely upon our vendor relationships as a marketing tool, any change in these relationships could adversely affect our results of operations while we seek to establish alternative relationships with other vendors. In general, our authorization agreements with vendors include termination provisions, some of which are immediate, and we cannot predict whether vendors will continue to authorize us as an approved service provider. In addition, we cannot predict whether those vendors will authorize us as an approved service provider for new products, which they may introduce. Any impairment of these vendor relationships, or the loss of authorization as an approved service provider, could adversely affect our ability to provide the products and services which our technology solutions business requires and harm our competitive position. In addition, significant product supply shortages have resulted from time to time because manufacturers have been unable to produce sufficient quantities of certain products to meet

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demand. We expect to experience difficulty from time to time in obtaining an adequate supply of products from our major vendors, which may result in delays in completing sales.

We may not be able to compete effectively with other companies in our business segments, which will cause our net sales and market share to decline and adversely affect our business, financial condition and results of operations.

      Our businesses are highly competitive and we face strong competition from competitors that are substantially larger and have considerably greater financial, technical and marketing resources than us. We believe that our prices and delivery terms are competitive; however, our competitors may offer more aggressive pricing than we do. We have experienced and expect to continue to experience intense competitive pricing pressures in our businesses, which could require us to reduce prices, with a corresponding adverse impact on our operating results. Additionally, as competition in the technology industry has intensified, certain of our key technology suppliers have heightened their direct marketing initiatives. These initiatives have resulted in some of our clients electing to purchase technology products directly from the manufacturer, rather than through us. While we expect these initiatives to continue, there could be a material adverse impact on our business if the shift of clients to purchase directly from manufacturers occurs more quickly than anticipated.

Our technology solutions and electronic components businesses are dependent on a limited number of major customers and clients and the loss of any of these major customers and clients would materially and adversely affect our business, financial condition and results of operations.

      Sales of our products and services in our technology solutions and electronic components businesses have been and will continue to be concentrated in a small number of clients and customers. Two of our clients accounted for approximately 33% of our total revenues for 2005 in our technology solutions business, with one client, Philip Morris USA, accounting for approximately 10% of our total consolidated net revenues for the year. Similarly, six customers accounted for approximately 66% of our total sales of electronic components in 2005. In the event that any of these major customers or clients should cease to purchase products or services from us, or purchase significantly fewer products and services in the future, we could experience materially adverse effects on our business, financial condition and results of operations.

      During July 2005, Philip Morris USA indicated its intention to transition certain outsourcing services and product sales provided by the Company to a new vendor on or before the contract termination date of April 2006. For the year ended December 31, 2005, services revenue from this portion of the engagement totaled approximately $7.5 million and product revenue amounted to approximately $3.7 million. During September 2005, written notification was received that terminates the enterprise service desk services portion of the engagement, effective April 1, 2006. Extensions through August 2006 have been finalized on the other contractual portions of the engagement with an April 2006 termination date. We anticipate a decrease in services revenue and product revenue totaling approximately $4.0 million and $2.0 million, respectively, during 2006 as compared to 2005 on these contractual portions of the engagement. We are currently discussing other service and product opportunities with Philip Morris USA, but there is no guarantee that these new opportunities will offset any of the decreases in revenues in 2006 or in future years.

Our recreational products business is seasonal and is subject to fluctuations, based upon various economic and climatic conditions that could harm us.

      Sales of our recreational products are affected directly by the usage levels and purchases of recreational vehicles, snowmobiles, motorcycles and ATVs, and marine products. The purchase and, in particular, the usage of these types of vehicles, are affected by weather conditions. As a result, sales of our recreational products business are highly susceptible to unpredictable events, and ordinarily decline in the winter months resulting in losses during these periods of the year. Additionally, unusual weather conditions in a particular season, such as unusually cold weather in the spring or summer months, can cause period-to-period fluctuations in our sales of recreational products. The usage and purchases of recreational vehicles, snowmobiles, motorcycles and ATVs, and marine products are also affected by consumers’ level of discretionary income and their confidence about economic conditions and changes in interest rates and in the

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availability and cost of gasoline. As a result, sales of our recreational products can fluctuate based upon unpredictable circumstances that are outside of our control.

Our recreational products business relies heavily upon vendors with which we have no long-term relationships.

      We do not have long term supply contracts with our recreational products suppliers, which may adversely affect the terms on which we purchase products for resale or result in our inability to purchase products from one or more of such vendors in the future. These vendors may choose to distribute their products directly to aftermarket dealers or establish exclusive supply relationships with other distributors. Additionally, manufacturers of new recreational vehicles, snowmobiles, motorcycles and ATVs, and marine products may choose to incorporate optional equipment as standard equipment on their vehicles at the time of manufacture that are similar to products available for sale to dealers by distributors such as us. In addition to decreased sales, we would encounter increased competition in our markets, or may be unable to offer certain products to our customers, upon any such changes in our relationships with our recreational products vendors.

If we are unable to recruit and retain key personnel necessary to operate our businesses, our ability to compete successfully will be adversely affected.

      We are heavily dependent on our current executive officers, management and technical personnel. The loss of any key employee or the inability to attract and retain qualified personnel could adversely affect our ability to execute our current business plans and successfully develop commercially viable products and services. Competition for qualified personnel is intense, and we might not be able to retain our existing key employees or attract and retain any additional personnel. In addition, our recent financial operating results may make it more difficult for us to attract and retain qualified personnel.

If we are unable to develop innovative products and services in our technology solutions and electronic components businesses, demand for our products and services may decrease.

      Our future operating results in our technology solutions and electronic components businesses are dependent on our ability to continually develop, introduce and market new and innovative products, to modify existing products, to respond to technological change and to customize certain products to meet customer requirements. There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands. If this occurs, we could lose customers and experience adverse effects on our financial condition and results of operations.

Our electronic components business is cyclical and demand may decline in the future, which could adversely affect us.

      Sales at our electronic components business have historically fluctuated with the performance of the electronic and semiconductor component industry. A decrease in demand within this industry could adversely affect our results of operations.

Our technology solutions business could be adversely impacted by conditions affecting the information technology market.

      The demand for our technology products and services depends substantially upon the general demand for business-related computer hardware and software, which fluctuates based on numerous factors, including capital spending levels, the spending levels and growth of our current and prospective customers and general economic conditions. Fluctuations in the demand for our products and services could have a material adverse effect on our business, results of operations and financial condition. In the past, adverse economic conditions decreased demand for our products and negatively impacted our financial results. Future economic projections for the information technology sector are uncertain. If an uncertain information technology spending environment persists, it could negatively impact our business, results of operations and financial condition.

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If we fail to maintain effective internal controls over financial reporting and disclosure controls and procedures in the future, we may not be able to accurately report our financial results or prevent fraud, which would have an adverse affect on our business.

      Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial information and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, it could have an adverse affect on our business. We have in the past discovered and may in the future discover areas of our internal control over financial reporting that need improvement. During 2005 we had a material error relating to our 2004 and 2003 annual consolidated financial statements, the interim consolidated condensed financial statements for all interim periods in 2004, and the first three interim periods in 2005 which required a restatement of our financial statements for those periods. Although we have implemented controls to properly prepare and review our financial statements, we cannot be certain that these measures will ensure that we will maintain adequate controls over our financial reporting process in the future.

      In light of this error, we evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that we had a material weakness in the controls over the preparation, review, presentation and disclosure of amounts included within our Consolidated Balance Sheet and Consolidated Statement of Cash Flows. Specifically, cash flows from the our floor plan arrangements were not appropriately classified as cash flows from financing activities in the Consolidated Statement of Cash flows in accordance with generally accepted accounting principles. Further, these floor plan liabilities were not properly segregated from accounts payable in the Consolidated Balance Sheet as required under generally accepted accounting principles.

      A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

      We are in the process of beginning a review and analysis of our internal control over financial reporting for Sarbanes-Oxley compliance. As part of that process we may discover additional control deficiencies in our internal control over financial reporting or our disclosure controls and procedures that we believe require remediation. If we discover additional deficiencies, we will make efforts to remediate these deficiencies; however, there is no assurance that we will be successful either in identifying deficiencies or in their remediation. Any failure to successfully remediate the material weakness in internal control over financial discussed above or to maintain effective controls in the future could adversely affect our business or cause us to fail to meet our reporting obligations.

We may need to implement additional finance and accounting systems, procedures and controls to satisfy new reporting requirements.

      As a public reporting company, we are required to comply with the Sarbanes-Oxley Act in 2007. Compliance with Section 404 of the Sarbanes-Oxley Act and other requirements may significantly increase our costs and require additional management time and resources.

Changes in stock option accounting rules may adversely impact our reported operating results.

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004) “Share-Based Payment.” SFAS No. 123 (revised 2004) revises SFAS No. 123 and APB No. 25 and related interpretations. Effective January 1, 2006, SFAS No. 123 (revised 2004) requires compensation cost relating to all share-based payments to employees to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. Based on the outstanding stock options not vested as of December 31, 2005, the adoption of SFAS No. 123 (revised 2004) is not expected to have a material impact on the Company’s consolidated financial position or results of operations. Although the adoption of this statement is not expected to have a material impact, the impact in future periods may be significant based on the number of stock options granted as we will be required to expense the fair value of our stock options rather than disclosing the impact on our consolidated results of operations within our footnotes.

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Future changes in financial accounting standards or practices affect our reported results of operations.

      A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations or accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.

Item 1B. Unresolved Staff Comments

      Not applicable.

Item 2. Properties

      At December 31, 2005, the Company leased 15 facilities, containing approximately 296,000 square feet and owned one facility, containing approximately 20,000 square feet. The following table sets forth the facilities utilized by each of the Company’s business segments:

	Area in square feet
	(number of locations)
	Owned			Leased
Technology Solutions					109,000	(11)
Recreational Products					184,000	(3)
Electronic Components		20,000	(1)
Corporate					3,000	(1)
		20,000	(1)		296,000	(15)

      These properties are considered in good condition and suitable for their present use. Generally, the Company’s facilities are fully utilized although excess capacity exists from time to time.

Item 3. Legal Proceedings

      Williams Electronics Games litigation: In May 1997, Williams Electronics Games, Inc. (“Williams”) filed a complaint in the United States District Court for the Northern District of Illinois (“US District Court”) against a former Williams employee and several other defendants alleging common law fraud and several other infractions related to Williams’ purchase of electronic components at purportedly inflated prices from various electronics distributors under purported kickback arrangements during the period from 1991 to 1996. In May 1998, Williams filed an amended complaint adding several new defendants, including Milgray Electronics, Inc., a publicly traded New York corporation (“Milgray”), which was acquired by Bell in a stock purchase completed in January 1997. The complaint sought an accounting and restitution representing alleged damages as a result of the infractions. Bell has not been named in any complaint and was not a party to the alleged infractions. Bell, as the successor company to Milgray, has vigorously defended the case on several grounds and continues to assert that Milgray did not defraud Williams, and that Williams suffered no damages as electronic components were purchased by Williams at prevailing market prices.

      The case proceeded to trial, which commenced and ended in March 2002, with a jury verdict resulting in Milgray having no liability to Williams. In July 2002, Williams appealed the jury verdict and, in April 2004, the United States Court of Appeals for the 7th Circuit (“US Appellate Court”) rendered its decision. The US Appellate Court concluded that jury instructions issued by the US District Court were in error and the case was ordered for retrial of Williams’ fraud and restitution claims. The case was remanded to the US District Court and a new judge was assigned. In September 2005, the US District Court entered its order declining to exercise supplemental jurisdiction over Williams’ claims and dismissing Williams’ case without prejudice. The US District Court noted in its order that Williams could pursue its claims in Illinois State Courts. In October 2005, Williams filed a Notice of Appeal to the US Appellate Court from the judgment of dismissal entered by the US District Court. Williams’ claim for compensatory damages is approximately $8.7 million, not including

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an additional claim for pre-judgment interest. While the Company cannot predict the outcome of this litigation, a final judgment favorable to Williams could have a material adverse effect on the Company’s results of operations, cash flows or financial position. Management intends to continue a vigorous defense.

      Other litigation: The Company is involved in other litigation, which is incidental to its current and discontinued businesses. The resolution of the other litigation is not expected to have a material adverse effect on the Company’s results of operations, cash flows or financial position.

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security holders during the fourth quarter of 2005.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

      The Company’s common stock is listed on the American Stock Exchange and the Pacific Stock Exchange under the symbol “BI.” The following table shows the high, low and closing market prices for the Company’s common stock during the eight most recent quarters.

		Quarter ended
		Mar. 31		Jun. 30		Sep. 30		Dec. 31
Year ended December 31, 2005
	High	$	3.35	$	2.95	$	2.75	$	2.75
	Low		2.65		2.00		1.98		2.42
	Close		2.89		2.29		2.67		2.61
Year ended December 31, 2004
	High	$	3.29	$	3.20	$	3.06	$	3.70
	Low		2.36		2.80		2.45		2.70
	Close		3.05		3.00		2.85		3.26

      As of March 15, 2006 there were approximately 920 record holders of common stock. The Company has not paid dividends on its outstanding shares of common stock in the last two fiscal years.

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Item 6. Selected Consolidated Financial Data

	Year ended December 31
	2005			2004			2003			2002			2001
	(Dollars in thousands, except per share data)
Operating Results
Net revenues	$	130,936		$	143,954		$	141,905		$	140,797		$	183,621
Operating loss (1)	$	(1,001	)	$	(1,039	)	$	(2,744	)	$	(3,560	)	$	(2,181	)
Loss before cumulative effective of accounting change (1)	$	(799	)	$	(953	)	$	(3,787	)	$	(2,033	)	$	(1,041	)
Cumulative effect of accounting change (2)										$	(1,280	)
Net loss	$	(799	)	$	(953	)	$	(3,787	)	$	(3,313	)	$	(1,041	)
Financial Position
Working capital	$	18,571		$	19,085		$	17,826		$	19,609		$	21,314
Total assets	$	44,353		$	45,189		$	46,633		$	49,390		$	57,652
Long-term liabilities	$	4,518		$	5,025		$	2,520		$	2,496		$	2,810
Shareholders’ equity	$	20,304		$	20,816		$	21,597		$	25,546		$	29,678
Share and Per Share Data
BASIC
Loss before cumulative effect of accounting change (1)	$	(.09	)	$	(.11	)	$	(.45	)	$	(.24	)	$	(.12	)
Cumulative effect of accounting change (2)										$	(.14	)
Net loss	$	(.09	)	$	(.11	)	$	(.45	)	$	(.38	)	$	(.12	)
Weighted average common shares (000’s)		8,466			8,385			8,367			8,743			8,854
DILUTED
Loss before cumulative effect of accounting change (1)	$	(.09	)	$	(.11	)	$	(.45	)	$	(.24	)	$	(.12	)
Cumulative effect of accounting change (2)										$	(.14	)
Net loss	$	(.09	)	$	(.11	)	$	(.45	)	$	(.38	)	$	(.12	)
Weighted average common shares (000’s)		8,466			8,385			8,367			8,743			8,854
OTHER PER SHARE DATA
Shareholders’ equity	$	2.37		$	2.47		$	2.58		$	3.05		$	3.34
Market price — high	$	3.35		$	3.70		$	2.94		$	2.59		$	3.40
Market price — low	$	1.98		$	2.36		$	1.47		$	1.33		$	1.65
Financial Ratios
Current ratio		2.0			2.0			1.8			1.9			1.8
Long-term liabilities to total capitalization		18.2	%		19.4	%		10.4	%		8.9	%		8.6	%

(1)	Includes a before-tax charge in connection with a severance agreement for a former executive ($325) in 2005, a before-tax charge in connection with an employment agreement for another former executive ($700) in 2004, and before-tax charges for staff separation and facilities consolidation ($845) and for settlement costs associated with an executive change-in-control contract ($650) in 2001.
(2)	Represents a goodwill impairment loss of $2.1 million, $1.3 million after tax, recorded upon the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      In addition to historical information, the following discussion and analysis of management contains forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.

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      The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. The Company bases its estimates on historical experience and on other relevant assumptions that are believed to be reasonable under the circumstances. The Company’s actual results may differ materially from these estimates.

      The Company has restated certain amounts in the Consolidated Balance Sheet at December 31, 2004 and the Consolidated Statement of Cash Flows for the years ended December 31, 2004 and 2003 to correct an error in the classification of the Company’s floor plan arrangements with third party finance companies. Previously, the Company reported borrowings and repayments of floor plan financings with third party finance companies in the Consolidated Statement of Cash Flows as operating activities. The Consolidated Statement of Cash Flows has been restated to include these amounts in cash flows from financing activities. For the year ended December 31, 2004, this change had the effect of increasing net cash provided by operating activities and increasing net cash used in financing activities. For the year ended December 31, 2003, this change had the effect of decreasing net cash provided by operating activities and increasing net cash provided by financing activities. Additionally, floor plan payables are being presented as a separate line item in the Consolidated Balance Sheet instead of the previous presentation within accounts payable.

Critical Accounting Policies and Estimates

      The Summary of Accounting Policies within the Notes to the Consolidated Financial Statements includes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. The following is a discussion of each of the Company’s critical accounting policies and estimates:

Revenue Recognition

      Revenues are recognized when persuasive evidence of an arrangement exists, shipment of products has occurred or services have been rendered, the sales price charged is fixed or determinable, and the collection of the resulting receivable is reasonably assured. Revenue recognition on product sales is not subject to significant estimates as the Company has not experienced significant product returns. The Company’s revenue recognition practices are not considered to involve complex estimates and judgments.

      Revenue is recognized in accordance with Emerging Issues Task Force Issue No. 00-21 for arrangements that include multiple deliverables, primarily product sales that include deployment services. The delivered items are accounted for separately, provided that the delivered item has value to the customer on a stand-alone basis and there is objective and reliable evidence of the fair value of the undelivered items. If we make different judgments about these arrangements, material differences in the amount of recognized product sales and services revenues could result.

      In accordance with Emerging Issues Task Force Issue No. 99-19, the Company records revenue either based on the gross amount billed to a customer or the net amount retained. The Company records revenue on a gross basis when it acts as a principal in the transaction, is the primary obligor in the arrangement, establishes prices, determines the supplier, and has credit risk. The Company records revenue on a net basis when the supplier is the primary obligor in the arrangement, when the amount earned is a percentage of the total transaction value and is usually received directly from the supplier, and when the supplier has credit risk. Product sales to most customers are recorded on a gross basis as the Company is responsible for fulfilling the order, establishes the selling price to the customer, has the responsibility to pay suppliers for all products ordered, regardless of when, or if, it collects from the customer, and determines the credit worthiness of its customers. Arrangements with each customer are evaluated to determine if gross or net recording is appropriate. If we make different judgments about these arrangements, material differences in the amount of revenue recognized could result.

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Valuation of Receivables

      The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company performs ongoing credit evaluations of its customers. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Changes in the credit worthiness of customers, general economic conditions and other factors may impact the level of future write-offs.

Valuation of Inventory

      The Company periodically reviews inventory items and overall stocking levels to ensure that adequate reserves exist for inventory deemed obsolete or excessive. In making this determination, the Company considers historical stocking levels, recent sales of similar items and forecasted demand for these items. Changes in factors such as customer demand, technology and other matters could affect the level of inventory obsolescence in the future.

Income Taxes

      Provision is made for the tax effects of temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. In estimating deferred tax balances, the Company considers all expected future events other than enactments of changes in the tax law or rates. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized.

Accrued Liabilities

      The Company accrues for liabilities associated with disposed businesses, including amounts related to legal, environmental and contractual matters. In connection with these matters, the recorded liabilities include an estimate of legal fees to be incurred. These legal fees are charged against the recorded liability when incurred.

Environmental Matters

      The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Costs of future expenditures for environmental remediation obligations and expected recoveries from other parties are not discounted to their present value.

Recent Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 123 (revised 2004) “Share-Based Payment.” SFAS No. 123 (revised 2004) revises SFAS No. 123 and APB No. 25 and related interpretations. SFAS No. 123 (revised 2004) requires compensation cost relating to all share-based payments to employees to be recognized in the financial statements based on their fair values in the first interim or annual reporting period beginning after June 15, 2005 either on a retroactive or a prospective basis. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. In April 2005, the SEC adopted a rule that delayed the effective date of SFAS No. 123 (revised 2004) to the first annual reporting period beginning after June 15, 2005. The Company is required to adopt SFAS No. 123 (revised 2004) on January 1, 2006. Based on the outstanding stock options not vested as of December 31, 2005, the adoption of SFAS No. 123 (revised 2004) is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

      In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143.” FIN 47 clarifies that liabilities associated with asset-retirement obligations whose timing or method of settlement is conditional upon future events should be recorded at fair value as soon as fair value can be reasonably estimated and

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provides guidance on whether fair value is considered reasonably estimable. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005 (December 31, 2005 for calendar-year companies). The adoption of the provisions of FIN 47 did not have a material impact on the Company’s consolidated financial position or results of operations.

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The statement provides guidance for determining whether retrospective application of a change in accounting principle is impracticable. The statement also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

Results of Operations

      Results of operations by business segment were as follows (in thousands):

			2005			2004			2003
Net revenues
	Technology Solutions
		Products	$	46,035		$	60,149		$	55,826
		Services		30,670			30,122			34,949
				76,705			90,271			90,775
	Recreational Products			45,858			45,907			44,804
	Electronic Components			8,373			7,776			6,326
			$	130,936		$	143,954		$	141,905
Operating income (loss)
	Technology Solutions		$	(1,532	)	$	(780	)	$	(2,135	)
	Recreational Products			1,408			1,319			1,321
	Electronic Components			1,923			1,526			939
	Special items			(325	)		(700	)
	Corporate costs			(2,475	)		(2,404	)		(2,869	)
				(1,001	)		(1,039	)		(2,744	)
Interest, net				275			161			166
Income tax provision				(73	)		(75	)		(1,209	)
Net loss			$	(799	)	$	(953	)	$	(3,787	)

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      The following summarizes comparative operating results data as a percentage of net revenues:

		2005			2004			2003
Net revenues
	Products		76.6	%		79.1	%		75.4	%
	Services		23.4			20.9			24.6
			100.0			100.0			100.0
Cost of products sold			(60.4	)		(64.5	)		(61.4	)
Cost of services provided			(19.2	)		(16.8	)		(20.0	)
Selling and administrative costs and expenses			(19.9	)		(17.7	)		(19.0	)
Depreciation			(1.0	)		(1.2	)		(1.5	)
Special item			(.2	)		(.5	)
Interest, net			.2			.1			.1
Loss before income taxes			(.5	)		(.6	)		(1.8	)
Income tax provision			(.1	)		(.1	)		(.9	)
Net loss			(.6	)%		(.7	)%		(2.7	)%

      The following summarizes other comparative operating results data:

Cost of products sold as a percentage of products revenues	78.9	%	81.6	%	81.5	%
Cost of services provided as a percentage of services revenues	82.1	%	80.4	%	81.4	%

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Net revenues

      Net revenues for the year ended December 31, 2005 decreased 9.0% to $130.9 million from $144.0 million in 2004. Net revenues are further discussed below under the headings “Technology Solutions,” “Recreational Products,” and “Electronic Components.”

Operating income (loss)

      Operating loss was approximately $1.0 million for each of the years ended December 31, 2005 and 2004. Operating results are further discussed below under the headings “Technology Solutions,” “Recreational Products,” and “Electronic Components.”

Corporate costs

      Corporate costs for the year ended December 31, 2005 increased 3.0% to $2.5 million from $2.4 million in 2004. The increase is attributable to approximately $200,000 in executive relocation and recruiting costs incurred during the fourth quarter of 2005 and approximately $150,000 in investment banking fees related to the review of strategic alternatives for the Company. These increases were offset by approximately $400,000 in reduced corporate insurance costs related to retrospective insurance adjustments on policies in place during the late 1980s and 1990s. These adjustments were based on a reserve analysis performed by our previous insurance carrier during the fourth quarter of 2005. Additionally, during 2004 approximately $165,000 was collected on a fully reserved note receivable related to a previously sold business. This note was paid in full as of the end of 2004.

Special item

      During 2005, the Company recorded a special pre-tax charge totaling $325,000 in connection with a severance agreement for a former executive. During 2004, the Company recorded a special pre-tax charge totaling $700,000 in connection with an employment agreement for another former executive.

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Interest, net

      Net interest income for the year ended December 31, 2005 increased 70.8% to $275,000 from $161,000 in 2004. The increase is attributable to an increase in interest rates and higher average cash balances.

Technology Solutions

      Technology Solutions revenues for the year ended December 31, 2005 decreased 15.0% to $76.7 million from $90.3 million in 2004. Product revenues for the year ended December 31, 2005 decreased 23.5% to $46.0 million from $60.1 million in 2004. The decrease in product revenues is attributable to a $6.9 million product deployment project for Philip Morris USA during 2004 that was not repeated in 2005, approximately $4.8 million related to the loss of two large product accounts during 2005, and the continued market pressure due to direct sales models, intense price competition and extended purchasing cycles. Increased margins were realized on product sales for the year ended December 31, 2005 as compared to 2004 due to stronger margins from education accounts and lower overall margins on the large product sourcing engagement and the two large product accounts. Through realigning our resources and increased focus on product sales, we expect to realize revenue growth in this area during 2006. Services revenues for the year ended December 31, 2005 increased 1.8% to $30.7 million from $30.1 million in 2004. The higher services revenues is attributable to an increase of approximately $4.5 million in reverse logistics and depot repair business from new and existing engagements offset by approximately $2.5 million related to the ending of a help desk engagement and an outsourcing engagement during 2004 and other net decreases in services revenues. The operating loss for the year ended December 31, 2005 increased 96.4% to $1.5 million from $780,000 in 2004. The increase in operating loss is primarily attributable to approximately $850,000 in higher-than-usual start up and related costs associated with a new depot services contract with a large printer manufacturer and approximately $350,000 in staff separation and reorganization charges during the fourth quarter of 2005. These higher start up and related costs on this new contract continued to be incurred during the first quarter of 2006. The increases in costs totaling $1.2 million in 2005 were offset by cost containment efforts and related reductions in administrative expenses totaling approximately $400,000.

      During July 2005, Philip Morris USA indicated its intention to transition certain outsourcing services and product sales provided by the Company to a new vendor on or before the contract termination date of April 2006. For the years ended December 31, 2005 and 2004, services revenue from this portion of the engagement totaled approximately $7.5 million and $8.0 million, respectively, and product revenue totaled approximately $3.7 million and $10.0 million, of which $6.9 million related to the large product deployment project, respectively. During September 2005, written notification was received that terminates the enterprise desk services portion of the engagement, effective April 1, 2006. Extensions through August 2006 have been finalized on the other contractual portions of the engagement with an April 2006 termination date. Decreases in services revenue and product revenue totaling approximately $4.0 million and $2.0 million, respectively, during 2006 as compared to 2005 are anticipated on these contractual portions of the engagement.

Recreational Products

      Recreational Products revenues was approximately $45.9 million for each of the years ended December 31, 2005 and 2004, and operating income increased 6.7% to $1.4 million in 2005 from $1.3 million in 2004. Decreases in sales of recreational vehicle and ATV products were offset by increases in sales of marine, snow and cycle products. The increase in operating income is primarily attributable to reductions in payroll and other administrative costs as gross margins were relatively consistent in both years.

Electronic Components

      Electronic Components revenues for the year ended December 31, 2005 increased 7.7% to $8.4 million from $7.8 million in 2004, and operating income increased 26.0% to $1.9 million from $1.5 million. Improved performance of the electronics industry and an increase in demand for magnetic components from certain large customers contributed to the overall increase in sales. Sales of specialty custom products with higher margins increased in 2005 as compared to the prior year. These custom products include custom coils and

14

inductors used in medical test equipment, lighting fixtures, and specialty magnetic switches for use in military aircraft worldwide. The increased sales and slightly higher margins contributed to an approximately $400,000 increase in gross margin in 2005 from the prior year.

Cost of products sold

      As a percentage of product revenues, cost of products sold for the year ended December 31, 2005 decreased to 78.9% from 81.6% in 2004 due to stronger margins from education accounts and lower overall margins on the large product sourcing engagement during 2004 and the loss of the two large product accounts in 2005 at the Technology Solutions business and slightly higher margins at the Electronic Components business unit.

Cost of services provided

      As a percentage of services revenues, cost of services provided for the year ended December 31, 2005 increased to 82.1% from 80.4% in 2004 primarily due to the high start up and related costs associated with the new depot services contract at the Technology Solutions business unit in the fourth quarter of 2005.

Selling and administrative expenses

      As a percentage of sales, selling and administrative expenses for the year ended December 31, 2005 increased to 19.9% from 17.7% in 2004. This increase is primarily attributable to the $14.1 million decrease during 2005 in product revenues and the $350,000 in staff separation and reorganization charges recorded in the fourth quarter of 2005 at the Technology Solutions business unit.

Income tax

      For the year ended December 31, 2005, the Company’s effective income tax rate was a provision of approximately 10.1% compared to a provision of approximately 8.6% in 2004. The tax provision for the years ended December 31, 2005 and 2004 totaling $73,000 and $75,000, respectively, primarily relates to state taxes. Based on continued operating losses during 2005 and other relevant factors, the Company recorded an increase of approximately $278,000 in the valuation allowance against net deferred tax asset balances.

Net loss

      Net loss totaled $799,000 for the year ended December 31, 2005, a decrease of $154,000 from the net loss in the prior year. The decrease in net loss resulted from the factors described above.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net revenues

      Net revenues for the year ended December 31, 2004 increased 1.4% to $144.0 million from $141.9 million in 2003. Net revenues are further discussed below under the headings “Technology Solutions,” “Recreational Products,” and “Electronic Components.”

Operating income (loss)

      Operating loss for the year ended December 31, 2004 decreased 62.1% to $1.0 million from $2.7 million in 2003. Operating results are further discussed below under the headings “Technology Solutions,” “Recreational Products,” and “Electronic Components.”

Corporate costs

      Corporate costs for the year ended December 31, 2004 decreased 16.2% to $2.4 million from $2.9 million in 2004. The decrease is attributable to approximately $310,000 in reduced corporate payroll and approxi-

15

mately $165,000 collected on a fully reserved note receivable related to a previously sold business. This note was collected in full as of the end of 2004.

Special item

      During 2004, the Company recorded a special pre-tax charge totaling $700,000 in connection with an employment agreement for a former executive.

Interest, net

      Net interest income for the year ended December 31, 2004 decreased 3.0% to $161,000 from $166,000 in 2003.

Technology Solutions

      Technology Solutions revenues for the year ended December 31, 2004 decreased slightly to $90.3 million from $90.7 million in 2003. Product revenues for the year ended December 31, 2004 increased 7.7% to $60.2 million from $55.8 million in 2003. Approximately $6.9 million of this increase is attributable to a large product sourcing engagement for a major account. Offsetting this increase is approximately $2.6 million in net decreases in product revenues for all other accounts. Decreased margins were realized on product sales for the year ended December 31, 2004 as compared to 2003 due to increased competition in the technology hardware environment and lower overall margins on the large product sourcing engagement. Services revenues for the year ended December 31, 2004 decreased 13.8% to $30.1 million from $34.9 million in 2003. This decrease is attributable to the ending of a large outsourcing engagement in early 2004 totaling approximately $4.6 million and a significant deployment project in early 2003 totaling approximately $1.4 million. Approximately $1.2 million in additional net revenues from new and existing clients offset these decreases. The operating loss for the year ended December 31, 2004 decreased 63.5% to $780,000 from $2.1 million in 2003. The improvement in operating results is primarily attributable to cost containment efforts and related reductions in administrative expenses. Operations payroll, accounting payroll, human resources payroll, information technology payroll, and administrative expenses decreased approximately $2.4 million in 2004. These decreases were offset by approximately $400,000 in additional business development and marketing payroll costs related to the hiring of new employees and approximately $600,000 in reduced contribution attributable to decreased services revenues.

Recreational Products

      Recreational Products revenues for the year ended December 31, 2004 increased 2.5% to $45.9 million from $44.8 million in 2003, and operating income was $1.3 million for both years. The increase in revenues is attributable to increased sales of recreational vehicles, marine and snow products during the first half of 2004 as compared to 2003. The increased sales and slightly higher margins contributed to an approximately $550,000 increase in gross margin in 2004 from the prior year. Increases during 2004 in payroll costs totaling approximately $200,000, fuel costs totaling approximately $150,000 and other net increases in administrative expenses totaling approximately $200,000 offset this $550,000 increase in gross margin.

Electronic Components

      Electronic Components revenues for the year ended December 31, 2004 increased 22.9% to $7.8 million from $6.3 million in 2003, and operating income increased 62.5% to $1.5 million from $939,000. The improved performance of the electronics industry contributed to increased product demand. This increase in product demand and new product development contributed to the revenue growth in 2004. Sales of specialty custom products with higher margins increased in 2004 as compared to the prior year. These custom products include custom coils and inductors used in medical test equipment, lighting fixtures, and specialty magnetic switches for use in military aircraft worldwide. The increased sales and slightly higher margins contributed to an approximately $750,000 increase in gross margin in 2004 from the prior year.

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Cost of products sold

      As a percentage of product revenues, cost of products sold for the year ended December 31, 2004 increased slightly to 81.6% from 81.5% in 2003 due to increased competition in the technology hardware environment and lower overall margins on the large product sourcing engagement at the Technology Solutions business unit offset by slightly higher margins at both the Recreational Products and Electronic Components business units.

Cost of services provided

      As a percentage of services revenues, cost of services provided for the year ended December 31, 2004 decreased to 80.4% from 81.4% in 2003 primarily due to the ending of the large outsourcing engagement in early 2004. The overall contribution margin from this engagement during 2003 was lower than services margins generated during 2004, as this engagement required a higher cost delivery model.

Selling and administrative expenses

      As a percentage of sales, selling and administrative expenses for the year ended December 31, 2004 decreased to 17.7% from 19.0% in 2003. This decrease is primarily attributable to reduced payroll costs and operating expenses at the Technology Solutions business unit offset slightly by increases in fuel costs, payroll and other administrative expenses at the Recreational Products business unit.

Income tax

      For the year ended December 31, 2004, the Company’s effective income tax rate was a provision of approximately 8.6% compared to a provision of approximately 46.9% in 2003. The $75,000 provision for the year ended December 31, 2004 primarily relates to state taxes. Based on continued operating losses during 2004 and other relevant factors, the Company recorded an increase of approximately $1.6 million in the valuation allowance against net deferred tax asset balances. During 2003, after consideration of relevant factors, including recent operating results and the prior utilization of all previously available tax benefit carryback opportunities, the Company recorded a full valuation allowance against net deferred tax asset balances. The establishment of the valuation allowance, net of reversals of tax accruals no longer required, resulted in an income tax provision of $1.2 million for the year ended December 31, 2003. These tax accruals existed for the potential disallowance of transaction costs in connection with the purchase of a business in 1997 and for a goodwill deduction taken in connection with the sale of the Company’s Electronics Distribution Group in January 1999. The statute of limitation for these matters expired in 2003.

Net loss

      Net loss totaled $953,000 for the year ended December 31, 2004, a decrease of $2.8 million from the net loss in the prior year. The decrease in net loss resulted from the factors described above.

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Changes in Financial Condition

Liquidity and Capital Resources

      Selected financial data is set forth in the following table (dollars in thousands, except per share amounts):

	December 31,
	2005			2004
Cash and cash equivalents	$	7,331		$	10,801
Working capital	$	18,571		$	19,085
Current ratio		2.0:1			2.0:1
Long-term liabilities to total capitalization		18.2	%		19.4	%
Shareholders’ equity per share	$	2.37		$	2.47
Days’ sales in receivables		50			44
Days’ sales in inventories		52			55

      The Company has restated certain amounts in the Consolidated Balance Sheet at December 31, 2004 and the Consolidated Statement of Cash Flows for the years ended December 31, 2004 and 2003 to correct an error in the classification of the Company’s floor plan arrangements with third party finance companies. Previously, the Company reported borrowings and repayments of floor plan financings with third party finance companies in the Consolidated Statement of Cash Flows as operating activities. The Consolidated Statement of Cash Flows has been restated to include these amounts in cash flows from financing activities. For the year ended December 31, 2004, this change had the effect of increasing net cash provided by operating activities and increasing net cash used in financing activities. For the year ended December 31, 2003, this change had the effect of decreasing net cash provided by operating activities and increasing net cash provided by financing activities. Additionally, floor plan payables are being presented as a separate line item in the Consolidated Balance Sheet instead of the previous presentation within accounts payable.

      Net cash used in operating activities was $407,000 for the year ended December 31, 2005, compared to net cash provided by operating activities of $804,000 in 2004. The cash used in operating activities in 2005 reflects an increase in accounts receivable partially offset by a decrease in inventories and an increase in accounts payable. The increase in accounts receivable is primarily attributable to the timing of collections. The decrease in inventories is attributable to reductions in purchases during the last quarter of 2005 as compared to the corresponding period in 2004 at the Recreational Products business unit. The increase in accounts payable is primarily attributable to utilizing open payment terms offered by distributor suppliers for inventory purchases in late 2005 at the Technology Solutions business unit and less financing through the use of floor plan arrangements. The cash provided by operating activities in 2004 reflects a decrease in accounts receivable, offset by an increase in inventories and decreases in accrued liabilities and accrued payroll. The decrease in accounts receivable relates primarily to strong collections of outstanding balances during the last quarter of 2004. The increase in inventories relates to the increased purchases at the Recreational Products business unit. The decreases in accrued liabilities and payroll relate primarily to the timing of payroll and other payments.

      Net cash used in investing activities totaled $897,000 for the year ended December 31, 2005 compared to $439,000 in 2004. Purchases of technology related and other fixed assets totaled $897,000 and $605,000 for the years ended December 31, 2005 and 2004, respectively. Proceeds on a note receivable from a business sold in 1999 totaled $166,000 for the year ended December 31, 2004. This note receivable was fully paid prior to the end of 2004.

      Net cash used in financing activities totaled $2.2 million for the year ended December 31, 2005, compared to $1.8 million in 2004. The cash used in financing activities in 2005 represents net payments of $2.1 million on floor plan arrangements and $349,000 in payments on capital lease obligations partially offset by the proceeds from the exercise of employee stock options. The net payments of $2.1 million on floor plan arrangements reflects the change in 2005 to utilize open payment terms offered by distributor suppliers for inventory purchases at the Technology Solutions business unit. The cash used in financing activities in 2004 represents net payments of $1.9 on floor plan arrangements partially offset by the proceeds from the exercise of employee stock options. The net payments of $1.9 million on floor plan arrangements primarily reflect the

18

decrease of $2.5 million in December 2004 product sales at the Technology Solutions business unit as compared to December 2003. The reduced product sales level resulted in a lower amount of inventory purchased through the floor plan arrangements.

      The following summarizes contractual obligations and commercial commitments as of December 31, 2005 (in thousands):

		Payments due by period
				Less Than		1-3		4-5		Over
		Total		1 Year		Years		Years		5 Years
Contractual obligations
	Operating leases	$	4,386	$	1,813	$	1,793		$756		$24
	Capital leases		487		393		94
	Deferred compensation, environmental matters and other (1)		4,518				4,518
		$	9,391	$	2,206	$	6,405		$756		$24

(1)  Amounts are estimated to be paid in one to three years from December 31, 2005.

      The Company believes that sufficient cash resources exist for the foreseeable future to support requirements for its operations and commitments through available cash and cash generated by operations, however, management is evaluating its options in regard to obtaining financing, as additional cash resources may be needed to support future growth.

Off-Balance Sheet Arrangements

      The Company does not have any material off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      The Company has no investments in market risk-sensitive investments for either trading purposes or purposes other than trading purposes.

19

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Financial Statements:
	Report of Independent Registered Public Accounting Firm	21
	Consolidated Statement of Operations for the three years ended December 31, 2005	22
	Consolidated Balance Sheet at December 31, 2005 and 2004 (as restated)	23
	Consolidated Statement of Shareholders’ Equity for the three years ended December 31, 2005	24
	Consolidated Statement of Cash Flows for the years ended December 31, 2005, 2004 (as restated) and 2003 (as restated)	25
	Notes to Consolidated Financial Statements	26
	Supplementary Data	37
Financial Statement Schedule:
	Schedule II — Valuation and Qualifying Accounts	38

      The financial data included in the financial statement schedule should be read in conjunction with the consolidated financial statements. All other schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

20

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of Bell Industries, Inc.

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

      As discussed in the notes to the consolidated financial statements, the Company has restated its 2004 and 2003 consolidated financial statements.

PricewaterhouseCoopers LLP

Los Angeles, California

April 7, 2006

21

BELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share data)

		Year ended December 31,
		2005			2004			2003
Net revenues
	Products	$	100,266		$	113,832		$	106,956
	Services		30,670			30,122			34,949
			130,936			143,954			141,905
Costs and expenses
	Cost of products sold		79,097			92,879			87,181
	Cost of services provided		25,184			24,227			28,449
	Selling and administrative		26,024			25,477			26,914
	Depreciation and amortization		1,307			1,710			2,105
	Interest, net		(275	)		(161	)		(166	)
	Special items		325			700
			131,662			144,832			144,483
Loss before income taxes			(726	)		(878	)		(2,578	)
Income tax provision			73			75			1,209
Net loss		$	(799	)	$	(953	)	$	(3,787	)
Share and per share data
Basic and diluted
	Net loss	$	(.09	)	$	(.11	)	$	(.45	)
	Weighted average common shares		8,466			8,385			8,367

See Accompanying Notes to Consolidated Financial Statements.

22

BELL INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

				December 31,
				2005			2004
							(As Restated)
ASSETS
Current assets
	Cash and cash equivalents			$	7,331		$	10,801
	Accounts receivable, less allowance for doubtful accounts of $811 and $727				15,306			11,455
	Inventories				12,764			14,364
	Prepaid expenses and other				2,701			1,813
			Total current assets		38,102			38,433
Fixed assets, at cost
	Land, buildings and improvements				565			565
	Leasehold improvements				938			902
	Computer equipment and software				10,123			8,710
	Furniture, fixtures and other				4,667			4,457
					16,293			14,634
	Less accumulated depreciation and amortization				(13,150	)		(11,495	)
			Total fixed assets		3,143			3,139
Other assets					3,108			3,617
				$	44,353		$	45,189
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
	Floor plan payables			$	68		$	2,172
	Accounts payable				11,023			8,998
	Accrued payroll				1,885			1,827
	Accrued liabilities				6,555			6,351
			Total current liabilities		19,531			19,348
Deferred compensation, environmental matters and other					4,518			5,025
Commitments and contingencies
Shareholders’ equity
	Preferred stock
		Authorized — 1,000,000 shares, outstanding — none
	Common stock
		Authorized — 35,000,000 shares, outstanding — 8,559,224 and 8,437,724 shares			32,832			32,545
	Accumulated deficit				(12,528	)		(11,729	)
			Total shareholders’ equity		20,304			20,816
				$	44,353		$	45,189

See Accompanying Notes to Consolidated Financial Statements.

23

BELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

		Common stock
							Accumulated
		Shares		Amount			deficit
Balance at December 31, 2002			8,366,724	$	32,535		$	(6,989	)
	Other stock transactions				(162	)
	Net loss							(3,787	)
Balance at December 31, 2003			8,366,724		32,373			(10,776	)
	Employee stock plans		71,000		172
	Net loss							(953	)
Balance at December 31, 2004			8,437,724		32,545			(11,729	)
	Employee stock plans		121,500		287
	Net loss							(799	)
Balance at December 31, 2005			8,559,224	$	32,832		$	(12,528	)

See Accompanying Notes to Consolidated Financial Statements.

24

BELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

			Year ended December 31,
			2005			2004			2003
						(As Restated)			(As Restated)
Cash flows from operating activities:
	Net loss		$	(799	)	$	(953	)	$	(3,787	)
	Depreciation and amortization			1,654			1,710			2,105
	Provision for losses on accounts receivable			181			114			207
	Changes in assets and liabilities			(1,443	)		(67	)		3,353
		Net cash provided by (used in) operating activities		(407	)		804			1,878
Cash flows from investing activities:
	Purchases of fixed assets			(897	)		(605	)		(1,000	)
	Proceeds on note from sale of business						166			211
		Net cash used in investing activities		(897	)		(439	)		(789	)
Cash flows from financing activities:
	Net proceeds (payments) of floor plan payables			(2,104	)		(1,939	)		1,035
	Employee stock plans and other			287			172
	Principal payments on capital leases			(349	)
		Net cash provided by (used in) financing activities		(2,166	)		(1,767	)		1,035
Net increase (decrease) in cash and cash equivalents				(3,470	)		(1,402	)		2,124
Cash and cash equivalents at beginning of year				10,801			12,203			10,079
Cash and cash equivalents at end of year			$	7,331		$	10,801		$	12,203
Changes in assets and liabilities:
	Accounts receivable		$	(3,935	)	$	4,918		$	(3,273	)
	Income tax receivable									2,400
	Inventories			1,600			(3,078	)		1,063
	Accounts payable			2,025			227			1,160
	Accrued liabilities and other			(1,133	)		(2,134	)		2,003
		Net change	$	(1,443	)	$	(67	)	$	3,353
Supplemental cash flow information:
	Interest paid		$	—		$	—		$	—
	Income taxes paid		$	85		$	95		$	36
	Capital lease obligations incurred		$	805		$	—		$	—

See Accompanying Notes to Consolidated Financial Statements.

25

BELL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Accounting Policies

      Principles of consolidation — The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions have been eliminated.

      Restatement — The Company has restated certain amounts in the Consolidated Balance Sheet at December 31, 2004 and the Consolidated Statement of Cash Flows for the years ended December 31, 2004 and 2003 to correct an error in the classification of the Company’s floor plan arrangements with third party finance companies. Previously, the Company reported borrowings and repayments of floor plan financings with third party finance companies in the Consolidated Statement of Cash Flows as operating activities. The Consolidated Statement of Cash Flows has been restated to include these amounts in cash flows from financing activities. For the year ended December 31, 2004, this change had the effect of increasing net cash provided by operating activities and increasing net cash used in financing activities. For the year ended December 31, 2003 this change had the effect of decreasing net cash provided by operating activities and increasing net cash provided by financing activities. Additionally, floor plan payables are being presented as a separate line item in the Consolidated Balance Sheet instead of the previous presentation within accounts payable.

      A summary of the effects of the restatement follows:

	Years ended
	December 31
	2004			2003
Consolidated Statement of Cash Flows
Net cash provided by (used in) operating activities as previously reported	$	(1,135	)	$	2,913
Restatement of floor plan payables		1,939			(1,035	)
Restated net cash provided by (used in) operating activities	$	804		$	1,878
Net cash provided by financing activities as previously reported	$	172		$	—
Restatement of floor plan payables		(1,939	)		1,035
Restated net cash provided by (used in) financing activities	$	(1,767	)	$	1,035

	December 31
	2004
Consolidated Balance Sheet
Floor plan payables previously reported	$	—
Restatement of floor plan payables		2,172
Restated floor plan payables	$	2,172
Accounts payable previously reported	$	11,170
Restatement of floor plan payables		(2,172	)
Restated accounts payable	$	8,998

      Cash and cash equivalents — The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents.

      Included in cash and cash equivalents are repurchase agreements which are transactions involving the purchase of a security and the simultaneous commitment to return the security to the seller at an agreed upon price on an agreed upon date. These agreements mature the following day and the Company is paid principal plus interest. The U.S. Government Agency securities committed in these agreements are segregated by a

26

third party custodian under the Company’s name and serve as collateral under such agreement. As of December 31, 2005 and 2004, these transactions amounted to approximately $7.3 million and $10.3 million, respectively. Based on the maturity date of the resell agreements, the Company considers that the amounts presented in the financial statements are reasonable estimates of fair value.

      Revenue recognition and receivables — The Company’s operations include sales of technology products and managed lifecycle services (“Technology Solutions” or “BTL”); sales of aftermarket products for recreational vehicles, motorcycles and ATVs, snowmobiles and powerboats (“Recreational Products” or “RPG”); and manufacturing and sales of specialty electronic components (“Electronic Components” or “JWM”). Revenues are recognized when persuasive evidence of an arrangement exists, shipment of products has occurred or services have been rendered, the sales price charged is fixed or determinable, and the collection of the resulting receivable is reasonably assured. The following summarizes the underlying terms of sales arrangements at each of the Company’s reporting segments:

Technology Solutions

BTL’s product sales terms provide that title and risk of loss are passed to the customer at the time of shipment. These sales terms have been enforced with BTL’s customers. An order or a signed agreement is required for each transaction. Products are typically shipped directly to customers from BTL’s suppliers. In some instances, products are shipped to customers out of BTL facilities located in Indianapolis, Indiana and Richmond, Virginia. BTL’s services revenues are primarily derived through support services from recurring engagements. BTL’s support services are typically rendered separate from product sales. Revenues from these services are typically under contract and are billed periodically, usually monthly, based on fixed fee arrangements, per incident or per resource charges, or on a cost plus basis. Revenue recognition from support services does not require significant management estimates. Revenue is recognized in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21 for arrangements that include multiple deliverables, primarily product sales that include deployment services. The delivered items are accounted for separately, provided that the delivered item has value to the customer on a stand-alone basis and there is objective and reliable evidence of the fair value of the undelivered items. For such arrangements, product sales and deployment services are accounted for separately in accordance with EITF Issue No. 00-21.

In accordance with EITF Issue No. 99-19, the Company records revenue either based on the gross amount billed to a customer or the net amount retained. The Company records revenue on a gross basis when it acts as a principal in the transaction, is the primary obligor in the arrangement, establishes prices, determines the supplier, and has credit risk. The Company records revenue on a net basis when the supplier is the primary obligor in the arrangement, when the amount earned is a percentage of the total transaction value and is usually received directly from the supplier, and when the supplier has credit risk. Product sales to most customers are recorded on a gross basis as the Company is responsible for fulfilling the order, establishes the selling price to the customer, has the responsibility to pay suppliers for all products ordered, regardless of when, or if, it collects from the customer, and determines the credit worthiness of its customers.

Recreational Products Group

RPG’s sales terms provide that title and risk of loss are passed to the customer at time of shipment. These sales terms have been enforced with RPG’s customers. Sales terms are communicated in each of RPG’s product catalogues, which are widely distributed to customers. An order is required for each transaction. Products are shipped to customers based on their proximity to each of RPG’s distribution facilities in Minnesota, Wisconsin and Michigan. Over 95% of products are shipped out of one of these three distribution facilities. Delivery is fulfilled through either common carriers, local shipping companies or in the case of same day deliveries to local customers, through Company-owned vehicles. For over 90% of sales transactions, delivery occurs within one day of shipment.

27

Electronic Components

JWM’s sales terms provide that title and risk of loss are passed to the customer at the time of shipment. These sales terms have been enforced with JWM’s customers. An order is required for each transaction. Over 90% of the products are shipped to customers out of a facility in Gardena, California. Shipments are fulfilled through the carrier selected by the customer.

      Concentrations of credit risk with respect to trade receivables are generally limited due to the large number and general dispersion of trade accounts, which constitute the Company’s customer base. During 2005, 2004 and 2003, the Company had one Technology Solutions customer, Philip Morris USA, that accounted for approximately 10%, 14% and 10% of consolidated net revenues, respectively. At December 31, 2005 and 2004, this customer accounted for approximately 17% and 13% of accounts receivable, respectively. Another technology solutions customer totaled approximately 13% and 6% of accounts receivable at December 31, 2005 and 2004, respectively. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company estimates reserves for potential credit losses and such losses have been within these estimates.

      Inventories — Inventories, consisting primarily of finished goods, are stated at the lower of cost (determined using weighted average and first-in, first-out methods) or market (net realizable value).

      Shipping and handling costs — Shipping and handling costs, consisting primarily of freight paid to carriers, Company-owned delivery vehicle expenses and payroll related costs incurred in connection with storing, moving, preparing, and delivering products totaled approximately $3.5 million in 2005, $3.7 million in 2004 and $3.4 million in 2003. These costs are included within selling and administrative expenses in the Consolidated Statement of Operations.

      Deferred catalog and advertising costs — The Company capitalizes the direct cost of producing its RPG product catalogs. Upon completion of each catalog, the production costs are amortized over the expected net sales period of one year. Deferred catalog costs totaled approximately $70,000 at December 31, 2005 and 2004. Total consolidated advertising costs, which are expensed as incurred, and amortized catalog production costs, totaled approximately $300,000 in 2005, $250,000 in 2004 and $250,000 in 2003.

      Vendor rebates — The Company receives rebates from certain vendors. Rebates are deemed earned based on meeting volume purchasing or other criteria established by the vendor. These amounts are recorded at the time the requirements are considered met or at the time that the credit is received from the vendor if collectibility risks or other issues exist.

      Fixed assets, depreciation and amortization — All fixed assets are recorded at cost and depreciated using the straight-line method based upon estimated useful lives of 10 years for building improvements, 3 to 5 years for computer equipment and software and 3 to 7 years for furniture, fixtures and other. Leasehold improvements are amortized over the shorter of their estimated service lives or the term of the lease.

      Long-lived assets — In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” the Company assesses potential impairments to its long-lived assets when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If required, an impairment loss is recognized as the difference between the carrying value and the fair value of the assets.

      Income taxes — Provision is made for the tax effects of temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. In estimating deferred tax balances, the Company considers all expected future events other than enactments of changes in the tax law or rates. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized.

      Accrued liabilities — The Company accrues for liabilities associated with disposed businesses, including amounts related to legal, environmental and contractual matters. In connection with these matters, the recorded liabilities include an estimate of legal fees to be incurred. These legal fees are charged against the

28

recorded liability when incurred. Accrued liabilities include approximately $4.2 million and $4.3 million of amounts attributable to disposed businesses at December 31, 2005 and 2004, respectively.

      Environmental matters — The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Costs of future expenditures for environmental remediation obligations and expected recoveries from other parties are not discounted to their present value.

      Retiree medical program — The Company accounts for its postretirement medical obligations in accordance with SFAS No. 106, “Employers Accounting for Postretirement Benefits Other Than Pensions.” The Company contributes a defined amount towards medical coverage to qualifying employees who were employed prior to January 1, 1998.

      Comprehensive income (loss) — Comprehensive loss is the same as net loss for all periods presented.

      Stock-based compensation — The Company grants stock options for a fixed number of shares to certain employees and directors with an exercise price equal to or greater than the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations, and, accordingly, recognizes no compensation expense for the stock option grants. The following table illustrates the effect on net loss and net loss per share, for each of the years ended December 31, 2005, 2004 and 2003, if the Company had applied the fair value method as prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” (dollars in thousands):

		2005			2004			2003
Net loss, as reported		$	(799	)	$	(953	)	$	(3,787	)
Compensation expense as determined under SFAS No. 123			(90	)		(150	)		(180	)
Pro forma net loss		$	(889	)	$	(1,103	)	$	(3,967	)
Net loss per share
	Basic and diluted — as reported	$	(.09	)	$	(.11	)	$	(.45	)
	Basic and diluted — pro forma	$	(.10	)	$	(.13	)	$	(.47	)

      See Stock Plans note for the assumptions used to compute the pro forma amounts.

      Per share data — Basic earnings per share data are based upon the weighted average number of common shares outstanding. Diluted earnings per share data are based upon the weighted average number of common shares outstanding plus the weighted average number of common shares potentially issuable for dilutive securities such as stock options and warrants. The weighted average number of common shares outstanding for each of the years ended December 31, 2005, 2004, and 2003 is set forth in the following table (in thousands):

	2005			2004			2003
Basic weighted average shares outstanding		8,466			8,385			8,367
Potentially dilutive stock options		39			89			13
Anti-dilutive stock options due to net loss during year		(39	)		(89	)		(13	)
Diluted weighted average shares outstanding		8,466			8,385			8,367

      Use of estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates relate to the realizable value of accounts receivable, the realizable value of inventories and reserves associated with disposed businesses. Actual results could differ from those estimates.

29

      New pronouncements — In December 2004, the FASB issued SFAS No. 123 (revised 2004) “Share-Based Payment.” SFAS No. 123 (revised 2004) revises SFAS No. 123 and APB No. 25 and related interpretations. SFAS No. 123 (revised 2004) requires compensation cost relating to all share-based payments to employees to be recognized in the financial statements based on their fair values in the first interim or annual reporting period beginning after June 15, 2005 either on a retroactive or a prospective basis. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. In April 2005, the SEC adopted a rule that delayed the effective date of SFAS No. 123 (revised 2004) to the first annual reporting period beginning after June 15, 2005. The Company is required to adopt SFAS No. 123 (revised 2004) on January 1, 2006. Based on the outstanding stock options not vested as of December 31, 2005, the adoption of SFAS No. 123 (revised 2004) is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

      In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143.” FIN 47 clarifies that liabilities associated with asset-retirement obligations whose timing or method of settlement is conditional upon future events should be recorded at fair value as soon as fair value can be reasonably estimated and provides guidance on whether fair value is considered reasonably estimable. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005 (December 31, 2005 for calendar-year companies). The adoption of the provisions of FIN 47 did not have a material impact on the Company’s consolidated financial position or results of operations.

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The statement provides guidance for determining whether retrospective application of a change in accounting principle is impracticable. The statement also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

Special Items

      During 2005, the Company recorded a special pre-tax charge totaling $325,000 in connection with a severance agreement for a former executive. Substantially all costs related to this charge were paid in 2005. During 2004, the Company recorded a special pre-tax charge totaling $700,000 in connection with an employment agreement for another former executive. Substantially all costs related to this charge were paid in 2004.

Floor Plan Arrangements

      The Company finances certain inventory purchases in its Technology Solutions business unit through floor plan arrangements with two finance companies. The amount of aggregate outstanding floor plan obligations ranged between $68,000 and $2.1 million during 2005 and between $1.5 million and $5.1 million during 2004, and were collateralized by certain of the Company’s inventory and accounts receivable. The outstanding amounts are payable in 15 to 45 days. The arrangements are generally subsidized by computer products manufacturers and are interest free if amounts are paid within the specified terms. The Company paid minimal interest under floor plan arrangements for the periods presented.

Stock Repurchase Program

      In July 2001, the Board of Directors authorized a stock repurchase program of up to 1,000,000 shares of the Company’s outstanding common stock. The common stock can be repurchased in the open market at varying prices depending on market conditions and other factors. No shares were repurchased by the Company during the years ended December 31, 2005, 2004 and 2003.

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Stock Plans

      The Company maintains certain stock option plans which provide for the issuance of common stock to be available for purchase by employees and by non-employee directors of the Company. Under the stock option plans, both incentive and nonqualified stock options, stock appreciation rights and restricted stock may be granted. Options outstanding under the plans have terms of five or ten years, vest over a period of up to four years and were issued at market value on the date of grant.

      The following summarizes activity under the plans:

								Weighted
								average		Fair
		Available			Shares			exercise		value of
		for future			under			price per		option
		grant			option			share		per share
Outstanding at December 31, 2002			887,960			1,082,229		$	3.55
	Granted		(45,000	)		45,000			1.79	$	0.89
	Canceled		89,500			(89,500	)		2.81
Outstanding at December 31, 2003			932,460			1,037,729			3.54
	Granted		(20,000	)		20,000			3.00	$	1.50
	Exercised					(71,000	)		2.42
	Canceled		455,229			(455,229	)		4.52
	Expired		(803,689	)
Outstanding at December 31, 2004			564,000			531,500			2.83
	Granted		(40,000	)		40,000			2.35	$	1.16
	Exercised					(121,500	)		2.36
	Canceled		182,000			(182,000	)		3.09
	Expired		(147,000	)
Outstanding at December 31, 2005			559,000			268,000		$	2.78

      The following summarizes stock options outstanding as of December 31, 2005:

Remaining					Weighted
option life	Options		Options		average
in years	outstanding		exercisable		exercise price
1		30,000		30,000	$	2.59
2		78,000		58,000		2.00
3		15,000		15,000		1.79
4		90,000		90,000		3.94
5 or more		55,000		55,000		2.37
		268,000		248,000	$	2.84

      At December 31, 2004 and 2003, 455,500 and 861,562 options were exercisable at weighted average exercise prices of $2.96 and $3.84, respectively.

      Under the Bell Industries Employees’ Stock Purchase Plan (the “ESPP”) 750,000 shares were authorized for issuance to Bell employees. Eligible employees may purchase Bell stock at 85% of market value through the ESPP at various offering times during the year. During the third quarter of 2002, the Company suspended the ESPP. At December 31, 2005, 419,450 shares were available for future issuance under the ESPP.

      The Black-Scholes model was utilized for estimating the fair value of stock-based grants using an assumed volatility of approximately 60% for all years presented and an expected four year life for stock options. The assumed risk free interest rate was approximately 4.0% for all years presented.

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Income Taxes

      The income tax provision (benefit) charged (credited) was as follows (in thousands):

		2005		2004		2003
Current
	Federal	$	—	$	—	$	(1,290	)
	State		73		75		70
Deferred
	Federal						2,349
	State						80
		$	73	$	75	$	1,209

      The following is a reconciliation of the federal statutory tax rate to the effective tax rate:

	2005			2004			2003
Federal statutory tax rate		(34.0	)%		(34.0	)%		(34.0	)%
State taxes, net of federal benefit		6.6			5.6			1.8
Reversal of previously recorded tax accruals								(50.8	)
Valuation allowance against net deferred tax assets		30.7			31.9			130.1
Nondeductible items and other, net		6.8			5.1			(.2	)
Effective tax rate		10.1	%		8.6	%		46.9	%

      Deferred tax balances were composed of the following (in thousands):

		December 31,
		2005			2004
Deferred tax assets:
	Discontinued operations	$	1,287		$	1,442
	Net operating loss carryforwards		3,273			2,725
	Employee benefit accruals		343			471
	Goodwill		256			333
	Receivables allowance		297			265
	Inventory reserves		89			100
			5,545			5,336
Deferred tax liabilities:
	Prepaid items		(106	)		(101	)
	Depreciation		(75	)		(148	)
	Other		(183	)		(184	)
Net deferred tax balance before valuation allowance			5,181			4,903
Valuation allowance			(5,181	)		(4,903	)
Net deferred tax balance after valuation allowance		$	—		$	—

      After consideration of relevant factors, including recent operating results and the prior utilization of all previously available tax carryback opportunities, the Company recorded a full valuation allowance against net deferred tax asset balances in the fourth quarter of 2003. Based on continued operating losses and other relevant factors, the Company recorded an increase in the valuation allowance of approximately $278,000 and $1.6 million during the years ended December 31, 2005 and 2004, respectively.

      In the fourth quarter of 2003, the Company reversed previously recorded tax accruals in the amount of $1.3 million that were no longer required. These accruals existed for the potential disallowance of transaction

32

costs in connection with the purchase of a business in 1997 and for a goodwill deduction taken in connection with the sale of the Company’s Electronics Distribution Group in January 1999. The statute of limitations for these matters expired in 2003.

      As of December 31, 2005, the Company has Federal net operating loss carryforwards of $6.4 million that expire in years 2023 through 2025. The use of the net operating loss carryforwards could be subject to certain statutory limitations upon a change in control.

Employee Benefit and Deferred Compensation Plans

      The Company has a qualified, trusteed, savings and profit sharing plan for eligible employees. The Company’s matching contributions and discretionary contributions to the plan, as determined by the Board of Directors, were $75,000 in 2005, $87,000 in 2004 and $59,000 in 2003.

      The Company has deferred compensation plans available for certain officers and other key employees. Expense associated with the deferred compensation element of these plans was $108,000 in 2005, $149,000 in 2004 and $207,000 in 2003.

Retiree Medical Program

      The Company provides postretirement medical coverage for qualifying employees who were employed prior to January 1, 1998. The employee must meet age and years of service requirements and must also be participating in a Bell medical plan at the time of retirement to be eligible. Any future increases in health premiums can be passed on 100% to retirees. The estimated liability for postretirement medical benefits, included in deferred compensation, environmental matters and other long term liabilities, totaled $773,000 and $822,000 at December 31, 2005 and 2004, respectively. Annual costs for active and potentially eligible employees were not significant during any of the years presented.

Environmental Matters

      The reserve for environmental matters primarily relates to the cost of monitoring and remediation efforts, which commenced in 1998, of a former leased facility site of Bell’s electronics circuit board manufacturer (“ESD”). The ESD business was closed in the early 1990s. The project involves a water table contamination clean up process, including monitoring and extraction wells. The Company has fully cooperated with the California Regional Water Quality Control Board (“CRWQCB”) to proactively resolve and address the remediation of the site. There are no administrative orders or sanctions against the Company. The Company obtained a cost cap insurance policy, expiring in November 2008, to cover remediation costs. The policy is in the amount of $4.0 million. Before coverage under the policy commences, the Company must spend $1.9 million of its own funds. This $1.9 million is the self insured retention.

      In late 2003, the CRWQCB required testing for several “emergent chemicals,” which are compounds that have only recently been identified as potential groundwater contaminants. During testing in 2004, one of these emergent chemicals, “1-4 Dioxane,” was found at the site. This substance was used as a stabilizing agent in the solvents that were used at the former ESD site. A detailed groundwater investigation was performed in 2004 to determine the extent of this contaminant and the plume in general. This investigation revealed that the existing groundwater plume was significantly larger than previously estimated. Additional remediation, including the installation of three new groundwater extraction wells, took place during 2005. In late 2005, total future remediation and related costs were reassessed and are estimated to be approximately $3.7 million. At December 31, 2005, approximately $1.6 million (estimated current portion) is included in accrued liabilities and $2.1 million (estimated non-current portion) is included in deferred compensation, environmental matters and other in the Consolidated Balance Sheet. At December 31, 2004, estimated future remediation costs totaled approximately $3.3 million ($1.0 million current and $2.3 million non-current).

      Payments under the cost cap insurance policy commenced during 2004 after the Company exceeded the $1.9 million self insured retention limit, and approximately $1.1 million has been collected as of December 31, 2005 from the insurance carrier. The estimated future amounts to be recovered from insurance, during the policy period ending November 2008, total $2.9 million. At December 31, 2005, approximately $1.9 million

33

(estimated current portion) is included in prepaid expenses and other, and $1.0 million (estimated non-current portion) is included in other assets in the Consolidated Balance Sheet. At December 31, 2004, estimated future amounts to be recovered from insurance totaled $2.6 million ($1.1 million current and $1.5 million non-current).

      Given the nature of environmental remediation, it is possible that the estimated liability for future remediation and related costs and the estimated future amounts to be recovered from insurance will be subject to revision from time to time.

Litigation

      Williams Electronic Games litigation: In May 1997, Williams Electronics Games, Inc. (“Williams”) filed a complaint in the United States District Court for the Northern District of Illinois (“US District Court”) against a former Williams employee and several other defendants alleging common law fraud and several other infractions related to Williams’ purchase of electronic components at purportedly inflated prices from various electronics distributors under purported kickback arrangements during the period from 1991 to 1996. In May 1998, Williams filed an amended complaint adding several new defendants, including Milgray Electronics, Inc., a publicly traded New York corporation (“Milgray”), which was acquired by Bell in a stock purchase completed in January 1997. The complaint sought an accounting and restitution representing alleged damages as a result of the infractions. Bell has not been named in any complaint and was not a party to the alleged infractions. Bell, as the successor company to Milgray, has vigorously defended the case on several grounds and continues to assert that Milgray did not defraud Williams, and that Williams suffered no damages as electronic components were purchased by Williams at prevailing market prices.

      The case proceeded to trial, which commenced and ended in March 2002, with a jury verdict resulting in Milgray having no liability to Williams. In July 2002, Williams appealed the jury verdict and, in April 2004, the United States Court of Appeals for the 7th Circuit (“US Appellate Court”) rendered its decision. The US Appellate Court concluded that jury instructions issued by the US District Court were in error and the case was ordered for retrial of Williams’ fraud and restitution claims. The case was remanded to the US District Court and a new judge was assigned. In September 2005, the US District Court entered its order declining to exercise supplemental jurisdiction over Williams’ claims and dismissing Williams’ case without prejudice. The US District Court noted in its order that Williams could pursue its claims in Illinois State Courts. In October 2005, Williams filed a Notice of Appeal to the US Appellate Court from the judgment of dismissal entered by the US District Court. Williams’ claim for compensatory damages is approximately $8.7 million, not including an additional claim for pre-judgment interest. While the Company cannot predict the outcome of this litigation, a final judgment favorable to Williams could have a material adverse effect on the Company’s results of operations, cash flows or financial position. Management intends to continue a vigorous defense.

      Other litigation: The Company is involved in other litigation, which is incidental to its current and discontinued businesses. The resolution of the other litigation is not expected to have a material adverse effect on the Company’s results of operations, cash flows or financial position.

Commitments and Contingencies

      At December 31, 2005, the Company had operating leases on certain of its facilities and equipment expiring in various years through 2011. Under certain operating leases, the Company is required to pay property taxes and insurance. Rent expense under operating leases was $2.2 million during each of the years ended December 31, 2005, 2004 and 2003.

      At December 31, 2005 the Company had capital leases related to certain hardware and software in connection with a technology solutions engagement that commenced in 2005. Depreciation expense during 2005 relating to these leases totaling $347,000 is included in cost of products sold.

34

      Minimum annual rentals on operating and capital leases for the five years subsequent to 2005 are as follows (in thousands):

	Operating		Capital
	leases		leases
2006	$	1,813	$	393
2007		1,099		94
2008		695
2009		614
2010 and thereafter		165
	$	4,386		487
Less amount representing interest				(31	)
Total capital lease obligations				456
Less current portion				(365	)
Capital lease obligations due after one year			$	91

Business Segment and Related Information

      The Company has three reportable business segments: Technology Solutions, a provider of integrated technology solutions; Recreational Products, a distributor of replacement parts and accessories for recreational and other leisure-time vehicles; and Electronic Components, a specialty manufacturer and distributor of standard and custom magnetic products. Each operating segment offers unique products and services and has separate management. The accounting policies of the segments are the same as described in the Summary of Accounting Policies.

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      The following is summarized financial information for the Company’s reportable segments (in thousands):

			Year ended December 31,
			2005			2004			2003
Net revenues
	Technology Solutions
		Products	$	46,035		$	60,149		$	55,826
		Services		30,670			30,122			34,949
				76,705			90,271			90,775
	Recreational Products			45,858			45,907			44,804
	Electronic Components			8,373			7,776			6,326
			$	130,936		$	143,954		$	141,905
Operating income (loss)
	Technology Solutions		$	(1,532	)	$	(780	)	$	(2,135	)
	Recreational Products			1,408			1,319			1,321
	Electronic Components			1,923			1,526			939
	Special items			(325	)		(700	)
	Corporate costs			(2,475	)		(2,404	)		(2,869	)
				(1,001	)		(1,039	)		(2,744	)
	Interest, net			275			161			166
	Loss before income taxes		$	(726	)	$	(878	)	$	(2,578	)
Depreciation
	Technology Solutions		$	850		$	577		$	841
	Recreational Products			382			365			259
	Electronic Components			24			23			31
	Corporate			398			745			974
			$	1,654		$	1,710		$	2,105
Total assets
	Technology Solutions		$	11,582		$	8,543		$	12,829
	Recreational Products			16,374			17,099			14,087
	Electronic Components			2,424			2,121			2,110
	Corporate			13,973			17,426			17,607
			$	44,353		$	45,189		$	46,633
Capital expenditures
	Technology Solutions		$	705		$	94		$	336
	Recreational Products			93			405			266
	Electronic Components			12			16			8
	Corporate			87			90			390
			$	897		$	605		$	1,000

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Supplementary Data

QUARTERLY RESULTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

		Quarter ended
		Mar. 31			Jun. 30			Sep. 30			Dec. 31
Year ended December 31, 2005
Net revenues
	Products	$	21,484		$	29,896		$	31,424		$	17,462
	Services		7,204			7,462			7,772			8,232
			28,688			37,358			39,196			25,694
Costs and expenses
	Cost of products sold		16,874			23,374			25,436			13,413
	Cost of services provided		6,012			5,835			6,185			7,152
	Selling and administrative		6,189			6,886			6,577			6,372
	Depreciation		327			321			328			331
	Interest, net		(52	)		(36	)		(93	)		(94	)
	Special item(1)								325
			29,350			36,380			38,758			27,174
Income (loss) before income taxes			(662	)		978			438			(1,480	)
Income tax provision			15			30			15			13
Net income (loss)		$	(677	)	$	948		$	423		$	(1,493	)
Share and Per Share Data
Basic
	Net income (loss)	$	(.08	)	$	.11		$	.05		$	(.18	)
	Weighted average common shares		8,454			8,460			8,460			8,490
Diluted
	Net income (loss)	$	(.08	)	$	.11		$	.05		$	(.18	)
	Weighted average common shares		8,454			8,493			8,479			8,490
Year ended December 31, 2004
Net revenues
	Products	$	26,095		$	36,250		$	32,300		$	19,187
	Services		8,333			7,568			7,190			7,031
			34,428			43,818			39,490			26,218
Costs and expenses
	Cost of products sold		21,415			29,973			26,445			15,046
	Cost of services provided		6,732			6,000			5,687			5,808
	Selling and administrative		6,563			6,557			6,574			5,783
	Depreciation		447			455			406			402
	Interest, net		(30	)		(38	)		(39	)		(54	)
	Special item(2)								700
			35,127			42,947			39,773			26,985
Income (loss) before income taxes			(699	)		871			(283	)		(767	)
Income tax provision						44			31
Net income (loss)		$	(699	)	$	827		$	(314	)	$	(767	)
Share and Per Share Data
Basic
	Net income (loss)	$	(.08	)	$	.10		$	(.04	)	$	(.09	)
	Weighted average common shares		8,371			8,375			8,378			8,418
Diluted
	Net income (loss)	$	(.08	)	$	.10		$	(.04	)	$	(.09	)
	Weighted average common shares		8,371			8,475			8,378			8,418

(1)	Includes a before-tax charge in connection with a severance agreement for a former executive.
(2)	Includes a before-tax charge in connection with an employment agreement for another former executive.

37

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

		Balance at		Charge to				Balance
		beginning		costs and				at end of
Description		of period		expenses		Deductions		Period
Year ended December 31, 2005:
	Allowance for doubtful accounts	$	727	$	181	$	97	$	811
	Inventory reserves		929		127		191		865
	Deferred tax valuation allowance		4,903		278				5,181
		$	6,559	$	586	$	288	$	6,857
Year ended December 31, 2004:
	Allowance for doubtful accounts	$	936	$	114	$	323	$	727
	Inventory reserves		871		229		171		929
	Deferred tax valuation allowance		3,353		1,550				4,903
		$	5,160	$	1,893	$	494	$	6,559
Year ended December 31, 2003:
	Allowance for doubtful accounts	$	749	$	207	$	20	$	936
	Inventory reserves		756		281		166		871
	Deferred tax valuation allowance				3,353				3,353
		$	1,505	$	3,841	$	186	$	5,160

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

      Our management with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2005. Based upon this evaluation, and because of the material weakness described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2005. The Company’s management nevertheless has concluded that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

      As described at the note to Consolidated Financial Statements under the heading titled “Restatement,” included at Part I of this report, the Company has restated its 2004 and 2003 annual consolidated financial statements to correct an error in the presentation of the Company’s floor plan arrangements.

Material Weakness in Internal Control over Financial Reporting

      A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

      Management has concluded that as of December 31, 2005, the Company did not maintain effective controls over the preparation, review, presentation and disclosure of amounts included in our Consolidated

38

Balance Sheet and Consolidated Statement of Cash Flows. Specifically, cash flows from the Company’s floor plan arrangements were not appropriately classified as cash flows from financing activities in the Consolidated Statement of Cash flows in accordance with generally accepted accounting principles. Further, these floor plan liabilities were not properly segregated from accounts payable in the Consolidated Balance Sheet as required under generally accepted accounting principles. This control deficiency resulted in the restatement of the Company’s 2004 and 2003 annual consolidated financial statements, the interim consolidated condensed financial statements for all interim periods in 2004, the first three interim periods in 2005 and audit adjustments to the 2005 year-end financial statements. Additionally, this control deficiency could result in a misstatement of the Company’s accounts that would result in a material misstatement to the Company’s presentation and disclosure of floor plan arrangements that would not be prevented or detected. Accordingly, management has concluded that this control deficiency constitutes a material weakness.

Remediation Plan

      Subsequent to December 31, 2005, the Company has implemented enhanced procedures which include improved training and review processes to ensure proper preparation, review, presentation, and disclosure of amounts included in its balance sheet and statement of cash flows. Accordingly, management believes it has improved the design and effectiveness of its internal control over financial reporting; however, not all of the newly designed controls have operated for a sufficient period of time to demonstrate operating effectiveness. Therefore, management will continue to monitor and assess these control procedures to ascertain if the material weakness discussed above has been remediated.

Changes in Internal Control over Financial Reporting

      There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2005 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information

      None.

PART III

Item 10. Directors and Executive Officers of the Registrant

      (a) Directors: The information required by Item 10 with respect to Directors will appear in the Proxy Statement for the 2006 Annual Meeting of Shareholders and is hereby incorporated by reference.

      (b) Executive Officers: The information required by Item 10 with respect to Executive Officers will appear in the Proxy Statement for the 2006 Annual Meeting of Shareholders and is hereby incorporated by reference.

      (c) Code of Ethics: Our code of Ethics, as required by Item 406 of Regulation S-K under the Securities Act of 1933, as amended, is available, without charge, upon written request sent to Bell Industries, Inc., Attention Secretary, at the address set forth on the cover page of this Annual Report on Form 10-K.

Item 11. Executive Compensation

      The information required by Item 11 will appear in the Proxy Statement for the 2006 Annual Meeting of Shareholders and is hereby incorporated by reference.

39

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

      The information required by Item 12 will appear in the Proxy Statement for the 2006 Annual Meeting of Shareholders and is hereby incorporated by reference.

Item 13. Certain Relationships and Related Transactions

      The information required by Item 13 will appear in the Proxy Statement for the 2006 Annual Meeting of Shareholders and is hereby incorporated by reference.

Item 14. Principal Accountant Fees and Services

      The information required by Item 14 will appear in the Proxy Statement for the 2006 Annual Meeting of Shareholders and is hereby incorporated by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedule

      (a)1.     Financial Statements:

      The Consolidated Financial Statements and Report of Independent Accountants dated March 24, 2006 are included under Item 8 of this Annual Report on Form 10-K.

      2.     Financial Statement Schedule:

      The Financial Statement Schedule listed in the Index to Financial Statements included under Item 8 is filed as part of this Annual Report on Form 10-K.

      3.     Exhibits:

Number			Exhibit Title
	2	.	Agreement and Plan of Merger, dated as of November 26, 1996 among Registrant, ME Acquisitions, Inc., and Milgray Electronics, Inc. is incorporated by reference to Exhibit 2.1 of the Form 8-K dated January 7, 1997.
	3	.	The Restated Articles of Incorporation and Restated By-laws are incorporated by reference to Exhibits 3.1 and 3.2, respectively, to Registrant’s Form 8-B dated March 22, 1995, as amended.
	4	.	The Specimen of Registrant’s Common Stock certificates is incorporated by reference to Exhibit 5 to Amendment number 1 to Registrant’s Form 8-B filed January 15, 1980.
	10	.a.	The 1990 Stock Option and Incentive Plan is incorporated by reference to Exhibit A of Registrant’s definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held October 29, 1990.
	b	.	The 1993 Employees’ Stock Purchase Plan is incorporated by reference to Exhibit A of Registrant’s definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held November 2, 1993.
	c	.	The 1994 Stock Option Plan is incorporated by reference to Exhibit A of the Registrant’s definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held on November 1, 1994.
	d	.	Form of Indemnity Agreement between the Registrant and its executive officers and directors is incorporated by reference to Exhibit 10.10 to Registrant’s Form 8-B dated March 22, 1995, as amended.
	e	.	Non-Employee Directors’ Stock Option Plan, as revised is, incorporated by reference to Exhibit 10.1 to Registrant’s Form 10-K dated December 31, 1995.
	f	.	Form of Stock Option Agreement between the Registrant and Non-employee Directors is incorporated by reference to Exhibit 10.m to Registrant’s Form 10-K dated December 31, 1995.

40

Number			Exhibit Title
	g	.	Amendment to the 1994 Stock Option Plan dated August 8, 1997 is incorporated by reference to Exhibit 99 to Registrant’s Form 10-Q dated June 30, 1997.
	h	.	Post-effective Amendment No. 1 to the 1994 Stock Option Plan dated August 12, 1997 is incorporated by reference to Exhibit 4.1.1 to Registrant’s Form S-8 dated August 12, 1997.
	i	.	1997 Deferred Compensation Plan dated August 27, 1997 is incorporated by reference to Exhibit 4.1 to Registrant’s Form S-8 dated August 28, 1997.
	j	.	The Employment Agreement between the Registrant and Tracy A. Edwards, dated February 1, 1999 is incorporated by reference to Exhibit 10.s of the Registrants Annual Report on Form 10-K dated December 31, 1998.
	k	.	The Agreement of Purchase and Sale dated October 1, 1998 between Bell Industries, Inc. and Arrow Electronics, Inc. is incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K, event date October 1, 1998.
	l	.	Credit Agreement dated as of April 14, 1999 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.x of the Registrant’s Annual Report on Form 10-K dated December 31, 2000.
	m	.	First Amendment to Credit Agreement dated as of April 26, 2000 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.y of the Registrant’s. Annual Report on Form 10-K dated December 31, 2000.
	n	.	Agreement for Wholesale Financing dated as of May 11, 2001 between the Registrant and Deutsche Financial Services Corporation is incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2001.
	o	.	Agreement for Wholesale Financing dated as of June 27, 2001 between the Registrant and IBM Credit Corporation is incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2001.
	p	.	The Bell Industries, Inc. 2001 Stock Option Plan is incorporated by reference to Exhibit 99. of the Registrant’s Quarterly Report on Form 10-Q dated September 30, 2001.
	q	.	Second Amendment to Credit Agreement dated as of March 27, 2002 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.w of the Registrant’s Annual Report on Form 10-K dated December 31, 2001.
	r	.	Amended and Restated Agreement for Wholesale Financing dated as of July 18, 2002 between the Registrant and IBM Credit Corporation is incorporated by reference to Exhibit 10.r of the Registrant’s Annual Report on Form 10-K dated December 31, 2004.
	s	.	Third Amendment to Credit Agreement dated as of May 12, 2003 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.x of the Registrant’s Annual Report on Form 10-K dated December 31, 2003.
	t	.	Letter Agreement dated as of August 12, 2003 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.y of the Registrant’s Annual Report on Form 10-K dated December 31, 2003.
	u	.	The Severance Agreement between the Registrant and Russell A. Doll dated as of December 1, 2003 is incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q dated September 30, 2004.
	v	.	Amendment to Agreement for Wholesale financing dated as of December 12, 2003 between the Registrant and GE Commercial Distribution Finance Corporation (formerly known as Deutsche Financial Corporation) is incorporated by reference to Exhibit 10.v of the Registrant’s Annual Report on Form 10-K dated December 31, 2004.
	w	.	Letter Agreement dated as of May 11, 2004 between the Registrant and IBM Credit LLC (formerly IBM Credit Corporation) is incorporated by reference to Exhibit 10.w of the Registrant’s Annual Report on Form 10-K dated December 31, 2004.
	x	.	The Severance Agreement between the Registrant and Mitchell I. Rosen dated as of January 13, 2005 is incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K dated January 19, 2005.

41

Number			Exhibit Title
	y	.	The Employment Agreement between the Registrant and John A. Fellows dated as of September 30, 2005 is incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K dated October 4, 2005.
	21	.1	Subsidiaries of the Registrant.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	31	.1	Certification of John A. Fellows, Chief Executive Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Mitchell I. Rosen, Chief Financial Officer of Registrant, pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certification of John A. Fellows, Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2	Certification of Mitchell I. Rosen, Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

42

SIGNATURES

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

Bell Industries, Inc.

By:  /s/ John A. Fellows

John A. Fellows

President and Chief Executive Officer

Date: April 17, 2006

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on April 17, 2006 by the following persons on behalf of the Registrant and in the capacities indicated.

Signature	Title
/s/ Mark E. Schwarz Mark E. Schwarz	Director and Chairman of the Board
/s/ John A. Fellows John A. Fellows	President and Chief Executive Officer (Principal Executive Officer) Director
/s/ Mitchell I. Rosen Mitchell I. Rosen	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ L. James Lawson L. James Lawson	Director
/s/ Michael R. Parks Michael R. Parks	Director

43

EXHIBIT INDEX

Exhibit
Number		Description
	2.	Agreement and Plan of Merger, dated as of November 26, 1996 among Registrant, ME Acquisitions, Inc., and Milgray Electronics, Inc. is incorporated by reference to Exhibit 2.1 of the Form 8-K dated January 7, 1997.(*)
	3.	The Restated Articles of Incorporation and Restated By-laws are incorporated by reference to Exhibits 3.1 and 3.2, respectively, to Registrant’s Form 8-B dated March 22, 1995, as amended.(*)
	4.	The Specimen of Registrant’s Common Stock certificates is incorporated by reference to Exhibit 5 to Amendment number 1 to Registrant’s Form 8-B filed January 15, 1980.(*)
	10.a.	The 1990 Stock Option and Incentive Plan is incorporated by reference to Exhibit A of Registrant’s definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held October 29, 1990.(*)
	b.	The 1993 Employees’ Stock Purchase Plan is incorporated by reference to Exhibit A of Registrant’s definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held November 2, 1993.(*)
	c.	The 1994 Stock Option Plan is incorporated by reference to Exhibit A of the Registrant’s definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held on November 1, 1994.(*)
	d.	Form of Indemnity Agreement between the Registrant and its executive officers and directors is incorporated by reference to Exhibit 10.10 to Registrant’s Form 8-B dated March 22, 1995, as amended.(*)
	e.	Non-Employee Directors’ Stock Option Plan, as revised is, incorporated by reference to Exhibit 10.1 to Registrant’s Form 10-K dated December 31, 1995.(*)
	f.	Form of Stock Option Agreement between the Registrant and Non-employee Directors is incorporated by reference to Exhibit 10.m to Registrant’s Form 10-K dated December 31, 1995.(*)
	g.	Amendment to the 1994 Stock Option Plan dated August 8, 1997 is incorporated by reference to Exhibit 99 to Registrant’s Form 10-Q dated June 30, 1997.(*)
	h.	Post-effective Amendment No. 1 to the 1994 Stock Option Plan dated August 12, 1997 is incorporated by reference to Exhibit 4.1.1 to Registrant’s Form S-8 dated August 12, 1997.(*)
	i.	1997 Deferred Compensation Plan dated August 27, 1997 is incorporated by reference to Exhibit 4.1 to Registrant’s Form S-8 dated August 28, 1997.(*)
	j.	The Employment Agreement between the Registrant and Tracy A. Edwards, dated February 1, 1999 is incorporated by reference to Exhibit 10.s of the Registrants Annual Report on Form 10-K dated December 31, 1998.(*)
	k.	The Agreement of Purchase and Sale dated October 1, 1998 between Bell Industries, Inc. and Arrow Electronics, Inc. is incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K, event date October 1, 1998.(*)
	l.	Credit Agreement dated as of April 14, 1999 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.x of the Registrant’s Annual Report on Form 10-K dated December 31, 2000.(*)
	m.	First Amendment to Credit Agreement dated as of April 26, 2000 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.y of the Registrant’s. Annual Report on Form 10-K dated December 31, 2000.(*)
	n.	Agreement for Wholesale Financing dated as of May 11, 2001 between the Registrant and Deutsche Financial Services Corporation is incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2001.(*)
	o.	Agreement for Wholesale Financing dated as of June 27, 2001 between the Registrant and IBM Credit Corporation is incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2001.(*)
	p.	The Bell Industries, Inc. 2001 Stock Option Plan is incorporated by reference to Exhibit 99. of the Registrant’s Quarterly Report on Form 10-Q dated September 30, 2001.(*)

44

Exhibit
Number		Description
	q.	Second Amendment to Credit Agreement dated as of March 27, 2002 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.w of the Registrant’s Annual Report on Form 10-K dated December 31, 2001.(*)
	r.	Amended and Restated Agreement for Wholesale Financing dated as of July 18, 2002 between the Registrant and IBM Credit Corporation is incorporated by reference to Exhibit 10.r of the Registrant’s Annual Report on Form 10-K dated December 31, 2004.(*)
	s.	Third Amendment to Credit Agreement dated as of May 12, 2003 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.x of the Registrant’s Annual Report on Form 10-K dated December 31, 2003.(*)
	t.	Letter Agreement dated as of August 12, 2003 between the Registrant and Union Bank of California, N.A. is incorporated by reference to Exhibit 10.y of the Registrant’s Annual Report on Form 10-K dated December 31, 2003.(*)
	u.	The Severance Agreement between the Registrant and Russell A. Doll dated as of December 1, 2003 is incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q dated September 30, 2004.(*)
	v.	Amendment to Agreement for Wholesale financing dated as of December 12, 2003 between the Registrant and GE Commercial Distribution Finance Corporation (formerly known as Deutsche Financial Corporation) is incorporated by reference to Exhibit 10.v of the Registrant’s Annual Report on Form 10-K dated December 31, 2004. (*)
	w.	Letter Agreement dated as of May 11, 2004 between the Registrant and IBM Credit LLC (formerly IBM Credit Corporation) is incorporated by reference to Exhibit 10.w of the Registrant’s Annual Report on Form 10-K dated December 31, 2004. (*)
	x.	The Severance Agreement between the Registrant and Mitchell I. Rosen dated as of January 13, 2005 is incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K dated January 19, 2005.(*)
	y.	The Employment Agreement between the Registrant and John A. Fellows dated as of September 30, 2005 is incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K dated October 4, 2005. (*)
	21.1	Subsidiaries of the Registrant.
	23.1	Consent of Independent Registered Public Accounting Firm.
	31.1	Certification of John A. Fellows, Chief Executive Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Mitchell I. Rosen, Chief Financial Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of John A. Fellows, Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Mitchell I. Rosen, Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(*) Incorporated by reference.

45 EX-21.1 2 a19054exv21w1.htm EXHIBIT 21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Bell Industries, Inc. (Minnesota)
J. W. Miller Company (California) (1)
Bell Tech.logix, Inc. (1)
Milgray Ltd. (1)

All companies listed are wholly owned by the Registrant (Bell Industries, Inc. of California) and are included in the consolidated financial statements.

(1) Inactive

EX-21.1

exv21w1

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8, (No. 33-38737, No. 33-73044, No. 33-58037, No. 333-33433, and No. 333-34549) and in the Registration Statement on Form S-4 (No. 33-65229) of Bell Industries, Inc. of our report dated April 7, 2006 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Los Angeles, California
April 17, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, John A. Fellows, certify that:

      1. I have reviewed this annual report on Form 10-K of Bell Industries, Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ John A. Fellows

John A. Fellows

Chief Executive Officer

Dated the 17th day of April, 2006

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Mitchell I. Rosen, certify that:

      1. I have reviewed this annual report on Form 10-K of Bell Industries, Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Mitchell I. Rosen

Mitchell I. Rosen

Chief Financial Officer

Dated the 17th day of April, 2006

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Bell Industries, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John A. Fellows, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

•  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John A. Fellows

John A. Fellows

Chief Executive Officer

Dated the 17th day of April, 2006

      A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Bell Industries, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mitchell I. Rosen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

•  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mitchell I. Rosen

Mitchell I. Rosen

Chief Financial Officer

Dated the 17th day of April, 2006

      A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.