10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2007

or

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.)
8888 Keystone Crossing, Suite 1700, Indianapolis, Indiana	46240
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (317) 704-6000

     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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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 the close of business on August 13, 2007, there were 8,650,224 outstanding shares of the Registrant’s Common Stock.

BELL INDUSTRIES, INC.
INDEX

	Page
Part I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2007 and 2006 (unaudited)		3
Consolidated Condensed Balance Sheets as of June 30, 2007 (unaudited) and December 31, 2006		4
Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (unaudited)		5
Notes to Consolidated Condensed Financial Statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		23
Item 4. Controls and Procedures		23
PART II OTHER INFORMATION
Item 1. Legal Proceedings		23
Item 1A. Risk Factors		23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 3. Defaults Upon Senior Securities		24
Item 4. Submission of Matters to a Vote of Security Holders		24
Item 5. Other Information		24
Item 6. Exhibits		24
SIGNATURES		25
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

2

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

BELL INDUSTRIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

	Three months ended						Six months ended
	June 30,						June 30,
	2007			2006			2007			2006
Net revenues:
Products	$	23,708		$	24,302		$	43,064		$	41,395
Services		32,242			6,859			59,083			14,729
Total net revenues		55,950			31,161			102,147			56,124
Costs and expenses:
Cost of products sold		19,261			19,466			35,589			33,156
Cost of services provided		21,569			5,220			39,406			11,877
Selling, general and administrative expenses		19,316			7,481			34,438			14,015
Interest expense (income), net		624			(134	)		994			(209	)
Gain on sale of assets								(1,976	)
Total costs and expenses		60,770			32,033			108,451			58,839
Loss from continuing operations before income taxes		(4,820	)		(872	)		(6,304	)		(2,715	)
Income tax expense (benefit)		8			(892	)		31			(877	)
Income (loss) from continuing operations		(4,828	)		20			(6,335	)		(1,838	)
Discontinued Operations:
Income from discontinued operations, net of tax					39						577
Gain on sale of discontinued operations, net of tax					5,153						5,153
Discontinued operations, net of tax					5,192						5,730
Net income (loss)	$	(4,828	)	$	5,212		$	(6,335	)	$	3,892
Share and per share data:
Basic Income (loss) from continuing operations	$	(0.56	)	$	0.00		$	(0.74	)	$	(0.22	)
Discontinued operations					0.61						0.67
Net income (loss)	$	(0.56	)	$	0.61		$	(0.74	)	$	0.45
Weighted average common shares outstanding		8,629			8,565			8,615			8,564
Share and per share data:
Diluted
Income (loss) from continuing operations	$	(0.56	)	$	0.00		$	(0.74	)	$	(0.22	)
Discontinued operations					0.61						0.67
Net income (loss)	$	(0.56	)	$	0.61		$	(0.74	)	$	0.45
Weighted average common shares outstanding		8,629			8,593			8,615			8,590

See Accompanying Notes to Consolidated Condensed Financial Statements.

3

BELL INDUSTRIES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

	June 30			December 31
	2007			2006
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	1,374		$	3,637
Accounts receivable, less allowance for doubtful accounts of $3,594 and $547		27,069			16,835
Inventories		10,479			9,548
Assets held for sale		12,526
Prepaid expenses and other		6,925			2,761
Total current assets		58,373			32,781
Fixed assets, net of accumulated depreciation of $14,634 and $14,113		17,144			3,553
Intangible assets, net of accumulated amortization of $274		2,977
Other assets		2,765			1,641
Acquisition deposit					3,450
Acquisition related costs					1,689
Total assets	$	81,259		$	43,114
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Floor plan payables	$	287		$	213
Revolving credit facility		12,912
Accounts payable		19,991			12,419
Deferred revenue		6,928
Accrued payroll		3,042			1,922
Accrued other liabilities		8,612			6,684
Total current liabilities		51,772			21,238
Convertible note		8,554
Other long-term liabilities		7,399			3,622
Total liabilities		67,725			24,860
Commitments and contingencies
Shareholders’ equity:
Preferred stock
Authorized 1,000,000 shares, outstanding none
Common stock
Authorized 35,000,000 shares, outstanding 8,650,224 and 8,593,224 shares		34,875			33,400
Accumulated deficit		(21,616	)		(15,421	)
Accumulated other comprehensive income		275			275
Total shareholders’ equity		13,534			18,254
Total liabilities and shareholders’ equity	$	81,259		$	43,114

See Accompanying Notes to Consolidated Condensed Financial Statements.

4

BELL INDUSTRIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Six months ended
	June 30
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	(6,335	)	$	3,892
Net income from discontinued operations					(577	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Gain on sale of assets		(1,976	)		(5,153	)
Depreciation, amortization and accretion		3,075			1,040
Stock-based compensation		202			169
Non-cash interest expense		398
Provision for losses on accounts receivable, net		2,339			51
Changes in assets and liabilities, net of acquisitions and disposals:
Accounts receivable		1,986			(1,273	)
Inventories		736			1,477
Accounts payable		7,017			1,139
Accrued payroll		191			(134	)
Accrued liabilities and other		289			(217	)
Net cash provided by operating activities for continuing operations		7,922			414
Net cash used in operating activities for discontinued operations					(695	)
Net cash provided by (used in) operating activities		7,922			(281	)
Cash flows from investing activities:
Purchases of fixed assets and other		(2,615	)		(296	)
Purchase of business, and related costs		(31,805	)
Proceeds from sale of assets		2,016			7,945
Net cash used in investing activities for continuing operations		(32,404	)		(296	)
Net cash provided by investing activities for discontinued operations					7,945
Net cash provided by (used in) investing activities		(32,404	)		7,649
Cash flows from financing activities:
Net borrowings under revolving credit facility		12,912
Proceeds from issuance of convertible note		10,000
Debt acquisition costs		(804	)
Net proceeds (payments) of floor plan payables		74			(11	)
Employee stock plans		98			14
Principal payments on capital leases		(61	)		(247	)
Net cash provided by (used in) financing activities		22,219			(244	)
Net increase (decrease) in cash and cash equivalents		(2,263	)		7,124
Cash and cash equivalents at beginning of period		3,637			7,331
Cash and cash equivalents at end of period	$	1,374		$	14,455

See Accompanying Notes to Consolidated Condensed Financial Statements.

5

BELL INDUSTRIES, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 — Accounting Principles

     The accompanying consolidated condensed financial statements of Bell Industries, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These financial statements have not been audited by an independent registered public accounting firm, but include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial condition, results of operations and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full year. The accompanying consolidated condensed balance sheet as of December 31, 2006 has been derived from audited financial statements, but does not include all disclosures required by GAAP.

     Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to guidelines of the Securities and Exchange Commission (the “SEC”). Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate for a fair presentation, but the disclosures contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Note 2 — Recent Accounting Pronouncements

     In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which permits an entity to measure certain financial assets and financial liabilities at fair value. The objective of SFAS No. 159 is to improve financial reporting by allowing entities to mitigate volatility in reported earnings caused by the measurement of related assets and liabilities using different attributes, without having to apply complex hedge accounting provisions. Under SFAS No. 159, entities that elect the fair value option (by instrument) will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes presentation and disclosure requirements to help financial statement users understand the effect of the entity’s election on its earnings, but does not eliminate disclosure requirements of other accounting standards. Assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. This statement is effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect, if any, the adoption of this statement will have on the Company’s consolidated financial position or results of operations.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect, if any, the adoption of this statement will have on the Company’s consolidated financial position or results of operations.

     In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN No. 48”), which establishes that the financial statement effects of a tax position taken or expected to be taken in a tax return are to be recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The impact of adoption of FIN No. 48 is disclosed in Note 16 to these financial statements.

6

Note 3 — SkyTel Acquisition

     On January 31, 2007, the Company completed the acquisition of substantially all of the assets and the assumption of certain liabilities of SkyTel Corp. (“SkyTel”), an indirect subsidiary of Verizon Communications Inc. (“Verizon”), for a total purchase price of $23.0 million, plus a $7.4 million post closing adjustments paid to Verizon in April 2007 and approximately $4.3 million in deal costs. SkyTel, based in Clinton, Mississippi, is a provider of wireless data and messaging services including email, interactive two-way messaging, wireless telemetry services and traditional text and numeric paging to Fortune 1000 and government customers throughout the United States.

     The following table summarizes the aggregate estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Accounts receivable, net	$	14,400
Inventory		1,666
Prepaid expenses		3,202
Asset held for sale		13,468
Fixed assets		13,848
Intangible assets		3,251
Accrued exit costs		(3,479	)
Accrued tower termination costs		(3,071	)
Deferred revenue		(7,444	)
Other		(1,150	)
Net assets acquired	$	34,691

     The amounts allocated to intangible assets are as follows (in thousands):

Trademarks	$	1,132
Patents		888
Licenses		843
Customer relationships		388
Total intangible assets		3,251

     The Company is continuing to evaluate the initial purchase price allocation and will adjust the allocations as additional information relative to the estimated integration costs of SkyTel and the fair market values of the assets and liabilities of the business become known. On June 15, 2007, the Company entered into a definitive agreement to sell certain assets purchased in the SkyTel acquisition (see Note 5.) These assets have been valued at the sum of their anticipated net proceeds and are recorded in the Consolidated Balance Sheet and in the table above as Assets held for sale. The assets held for sale were recorded as part of the purchase accounting for the SkyTel acquisition resulted in a reduction in the fixed assets and intangibles on a pro-rata basis due to the net assets acquired being greater than the purchase price. The resulting negative goodwill is allocated to the long lived assets on a pro-rata basis.

     In connection with the acquisition, the Company assessed and formulated a plan related to the future integration of SkyTel. The Company accrued estimates for certain costs, related primarily to personnel reductions, tower lease reductions and facility closures, anticipated at the date of acquisition, in accordance with Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” Adjustments to these estimates are made up to one year from the acquisition date as plans are finalized. To the extent these accruals are not utilized for the intended purpose, the excess is recorded as a reduction of the purchase price. Costs incurred in excess of the recorded accruals are expensed as incurred. The Company is still finalizing its integration plans with respect to its acquisition. Accrued liabilities associated with these integration activities are included in other accrued liabilities in the Consolidated Condensed Balance Sheet.

7

     The unaudited pro forma information for the periods set forth below gives effect to the SkyTel acquisition as if it had occurred on January 1, 2006. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have occurred had the acquisition been consummated at that time or of results in the future (in thousands, except per share amounts):

	Three months ended June 30					Six months ended June 30
	2007			2006		2007			2006
Net revenues	$	55,950		$	61,455	$	110,409		$	118,817
Loss from continuing operations		(4,828	)		2,146		(6,054	)		834
Basic earnings per share from continuing operations		(0.56	)		0.25		(0.70	)		0.10
Diluted earnings per share from continuing operations		(0.56	)		0.25		(0.70	)		0.10

Note 4- Summary of Accounting Policies

     Note 1 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2006 includes a summary of the accounting policies for the Company’s Technology Solutions and Recreational Products business segments. The accounting policies for each of those two segments have not changed from what was previously disclosed. A summary of the distinct accounting policies for SkyTel follows:

Accounts Receivable

     The Company extends trade credit to its customers for wireless services. Service to customers is generally suspended if payment has not been received within approximately 60 days of billing. Once service is suspended, accounts are subject to internal collection activities. Service to customers is generally disconnected if payment has not been received within approximately 90 days of billing. Once service is disconnected, accounts are subject to external collection activities. The Company records two allowances against its gross accounts receivable balance; an allowance for doubtful accounts; and an allowance for service credits. Provisions for these allowances are recorded on a monthly basis and are included as a component of selling and administrative expense and a reduction of revenue, respectively. Estimates are used in determining the allowance for doubtful accounts and are based on historical collection experience, current and forecasted trends and a percentage of the accounts receivable aging categories. The allowance for service credits and related provisions is based on historical credit percentages, current credit and aging trends and actual credit experience.

Inventory

     Inventory is carried at the lower of cost or fair market value based on a weighted average cost basis.

Property and Equipment

     Property and equipment are stated at cost and are depreciated using the straight-line method over the following estimated useful lives:

Paging network equipment	7 years
Furniture, fixtures and other	5 years

     The Company calculates depreciation on messaging devices deployed as rental units using the straight-line group life method over a period of one year.

Intangible Assets

     Intangible assets are carried at cost and amortized over their estimated useful lives. All of the Company’s intangible assets are subject to amortization.

     Licenses — SkyTel owns rights to domestic wireless licenses that provide its wireless operations with the exclusive right to utilize designated radio frequency spectrum to provide wireless communication services. Licenses are issued for a fixed time period, generally ten years, and are subject to renewal by the Federal Communications Commission (“FCC”). The licenses are amortized on a straight-line basis over a period of five years.

8

     Trademarks — The Company utilizes trademarks for SkyTel, SkyGuard and FleetHAWK. The trademarks are amortized on a straight line basis over a period of ten years.

     Patents — The Company owns the rights to patents on certain technology used in the provisioning of its wireless services. The patents are amortized on a straight line basis over a period of six to fourteen years depending on the lives of the underlying patents.

     Customer Relationships — Customer relationships are amortized over a period of five years on a straight line basis.

Revenue Recognition

     Revenue consists primarily of monthly service and device rental fees charged to customers on a monthly, quarterly, semi-annual or annual basis. Revenue also includes the sale of devices directly to customers and other companies that resell the Company’s services. The Company recognizes service revenue over the period the service is performed and revenue from product sales is recognized at the time of shipment. The Company has a variety of billing arrangements with its customers resulting in deferred revenue for advance billing and accounts receivable for in-arrears arrangements.

     SkyTel’s customers may subscribe to services for a monthly service fee which is generally based upon the type of service provided, the geographic area covered, the number of devices provided to the customer and the period of commitment. Equipment loss and maintenance protection may be added to services for an additional monthly fee. Equipment loss protection allows subscribers who rent devices to limit their cost of replacement upon loss or destruction of a messaging device. Maintenance services are offered to subscribers who own their devices.

Sales and Use Taxes

     Sales and use taxes imposed on the ultimate consumer are excluded from revenue where the Company is required by law or regulation to act as collection agent for the taxing jurisdiction.

Universal Service Fund

     The FCC also has a body of rules implementing the universal service provisions of the Telecommunications Act of 1996, including rules governing support to rural and non-rural high-cost areas, support for low income subscribers, and support for schools, libraries and rural health care. The Company passes through the cost to subscribers with the amount collected from customers recorded in revenue and the amount remitted recorded as expense.

Note 5 — Assets Held for Sale

     On June 15, 2007, the Company entered into two stock purchase agreements (the “Purchase Agreements”) with Sprint Nextel Corporation (“Sprint”). Pursuant to the Purchase Agreements, the Company agreed to sell the shares of stock (the “Shares”) held by the Company in two corporations that hold certain FCC licenses for the operation of Broadband Radio Service channels. The aggregate consideration payable to the Company for the Shares is approximately $13.5 million in cash. On the closing of the sale of the Shares, approximately, $940,000 of the cash consideration payable to the Company will be withheld by Sprint for eighteen months to fund certain reserves to secure the indemnification obligations. The sale of the Shares pursuant to the Purchase Agreements is subject to review and approval by the FCC, the closing of certain other related transactions in which the Company is not a party and certain other closing conditions.

Note 6 — Sale of J.W. Miller Division

     On April 28, 2006, the Company completed the sale of substantially all of the assets of the Company’s J. W. Miller division to Bourns, Inc. pursuant to an Asset Purchase Agreement (the “JWM Agreement”). Pursuant to the JWM Agreement, the Company received $8.5 million in cash at the closing in April 2006 and approximately $0.2 million in July 2006 attributable to post closing adjustments. The sale resulted in a gain of approximately $6.1 million ($4.0 million net of tax). The results of the J. W. Miller division have been classified as discontinued operations in the accompanying financial statements. For the six months ended June 30, 2006, the J.W. Miller division had sales of approximately $3.0 million.

9

Note 7 — Sale of Asset

     During February 2007, the Company completed the sale of a building. The carrying value of this property was not material as of December 31, 2006. The net proceeds from this sale totaled approximately $2.0 million, and the gain on disposition is included in gain on sale of assets in the Consolidated Condensed Statements of Operations.

Note 8 — 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.

Note 9 — 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 $1.5 million and $1.1 million during the three months ended June 30, 2007 and 2006, respectively and $2.4 million and $1.8 million during the six months ended June 30, 2007 and 2006, respectively. These costs are included within selling and administrative expenses in the Consolidated Condensed Statements of Operations.

Note 10 — Floor Plan Arrangements

     The Company finances certain inventory purchases through floor plan arrangements with two finance companies. At June 30, 2007 and December 31, 2006, the Company had outstanding floor plan obligations of $287,000 and $213,000, respectively.

Note 11 — 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. Accrued liabilities include approximately $4.0 million and $4.2 million of amounts attributable to disposed businesses at June 30, 2007 and December 31, 2006, respectively.

Note 12 — Asset Retirement Obligations

     The Company adopted the provisions of SFAS No. 143, "Accounting for Asset Retirement Obligations” (“SFAS No. 143”) as a result of the SkyTel acquisition. SFAS No. 143 requires the recognition of liabilities and corresponding assets for future obligations associated with the retirement of assets. The Company has network assets, principally transmitters and receivers that are located on leased locations. The underlying leases generally require the removal of equipment at the end of the lease term; therefore, a future obligation exists. The Company recognized long-term cumulative asset retirement obligations of $3.1 million as of January 31, 2007, which were recorded as a liability assumed in purchase accounting. The related tower assets were recorded at their appraised value as described in the SkyTel acquisition footnote (Note 3).

     The long-term cost associated with the original assessment is discounted at a credit adjusted risk free interest rate of 10% to calculate the present value of the asset retirement obligation. The Company believes that the $3.1 million and 10% interest rate used are reasonable at the present time and have been established based on an estimate of the removal and repair costs and assumptions regarding the number of tower leases to be terminated in future periods.

     The components of the changes in the asset retirement obligation balances since the SkyTel acquisition are as follows (in thousands):

Balance at January 31, 2007	$	3,071
Accretion		114
Balance at June 30, 2007	$	3,185

10

     The asset retirement obligation is recorded as a component of other long term liabilities on the consolidated condensed balance sheet.

Note 13 — Debt and Liquidity

     On January 31, 2007, the Company secured financing to complete the SkyTel acquisition by entering into (i) a credit agreement (the “Credit Agreement”) with Wells Fargo Foothill, Inc. (“WFF”), as administrative agent, pursuant to which WFF provided the Company with a revolving line of credit with a maximum credit amount of $30 million (the “Revolving Credit Facility”); and (ii) a purchase agreement with Newcastle Partners, L.P. (“Newcastle”) pursuant to which the Company issued and sold in a private placement to Newcastle a convertible subordinated pay-in-kind promissory note (the “Convertible Note”) in the principal amount of $10 million.

Revolving Credit Facility

     Pursuant to the Credit Agreement, the Company borrowed approximately $10.3 million in the form of an initial advance under a the Revolving Credit Facility (the “Initial Advance”). The proceeds of the Initial Advance, together with existing cash on hand and the funds received pursuant to the sale of the Convertible Note, were used to finance the acquisition of SkyTel as well as related fees and expenses. Additional advances under the Revolving Credit Facility (collectively, the “Advances”) will be available to the Company, up to the aggregate $30 million credit limit, subject to restrictions based on the Borrowing Base (as such term is defined in the Credit Agreement). The Advances may be used to finance ongoing working capital, capital expenditures and general corporate needs of the Company. Advances made under the Credit Agreement bear interest, in the case of base rate loans, at a rate equal to the “base rate,” which is the rate of interest per annum announced from time to time by WFF as its prime rate in effect at it principal office in San Francisco, California, plus a 0.75% margin. In the case of LIBOR rate loans, amounts borrowed bear interest at a rate equal to the LIBOR Rate (as defined in the Credit Agreement) plus a 2.25% margin. The Advances made under the Credit Agreement are repayable in full on January 31, 2012. The Company may prepay the Advances (unless in connection with the prepayment in full of all of the outstanding Advances) at any time without premium or penalty. If the Company prepays all of the outstanding Advances and terminates all commitments under the Credit Agreement, the Company is obligated to pay a prepayment premium as set forth in the Credit Agreement. In connection with the Credit Agreement, on January 31, 2007, the Company entered into a security agreement with WFF, pursuant to which the Company granted WFF a security interest in and a lien against certain assets of the Company. As of June 30, 2007, $12.9 million ($10.0 million in LIBOR rate loans at an annual interest rate of 7.57% and $2.9 million in base rate loans at an annual interest rate of 9.0%) was outstanding under the Revolving Credit Facility.

     On August 13, 2007, the Company and its subsidiary entered into Amendment Number Two to Credit Agreement, Consent and Waiver (the “Second Amendment”), with WFF. The Second Amendment amends the Company’s Credit Agreement and provides the Company with an incremental $2 million of availability through October 31, 2007. Also pursuant to the Second Amendment, the lenders provided their consent to complete the sales of Shares held by the Company in two corporations that hold certain FCC licenses for the operation of Broadband Radio Service channels to Sprint and waived the Company’s default of its compliance with a covenant in the Credit Facility requiring a certain level of profitability for the six month period ended June 30, 2007. The Second Amendment also amends the profitability covenants for the nine month period ended September 30, 2007 and the twelve month period ended December 31, 2007 and reduces the amount of the Credit Facility available for borrowing upon completion of the sales of Shares to Sprint. The Company anticipates that the proceeds from the sales of Shares to Sprint will pay down a significant majority of the indebtedness outstanding under the Credit Facility. As a result of the Second Amendment and the use of the proceeds from the sale of assets at the Springfield facility described in Note 22 to pay down the Credit Facility, the entire balance outstanding at June 30, 2007 has been classified as a current liability.

Liquidity

     In addition to the sale of the Shares to Sprint and the Second Amendment described above, the Company continues to evaluate cost reduction opportunities and additional financing opportunities to ensure that it has adequate cash flow to meet its liquidity needs.

Convertible Note

     The outstanding principal balance and/or accrued but unpaid interest on the Convertible Note is convertible at any time by Newcastle into shares of common stock of the Company at a conversion price of $3.81 per share, subject to adjustment (the “Conversion Price”). The Convertible Note accrues interest at 8%, subject to adjustment in certain circumstances, which interest accretes as principal on the Convertible Note as of each quarterly interest payment date beginning March 31, 2007. The Company also has the option (subject to the consent of WFF) to pay interest on the outstanding principal balance of the Convertible Note in cash at a higher interest rate following the first anniversary if the weighted average market price of the Company’s common stock is greater than 200% of the Conversion Price ($7.62 per share). The Convertible Note matures on January 31, 2017. The Company has the right to force conversion of the Convertible Note at an amount equal to 105% of outstanding principal following the third anniversary of the issuance of the convertible Note so long as a weighted average market price of the Company’s common stock is greater than 150% of the Conversion Price ($5.72 per share). In connection with the purchase of the Convertible Note, the Company and Newcastle also entered into a registration rights agreement pursuant to which Newcastle was granted demand and piggyback registration rights in respect of shares of common stock that may be issued under the Convertible Note. In March 2007, the Company granted Newcastle a second priority lien in certain assets of the Company in order to secure the obligations under the Convertible Note.

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     As this debt is convertible at the option of Newcastle at a beneficial conversion rate of $3.81 per share (closing market price of the Company’s common stock as of January 31, 2007 was $4.49 per share), the embedded beneficial conversion feature is recorded as a debt discount with the credit charged to shareholders equity net of tax and amortized using the effective interest method over the life of the debt in accordance with Emerging Issue Task Force No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments.” A summary of the initial recording of the debt and debt discount and activity through June 30, 2007 follows (in thousands):

Convertible note at January 31, 2007	$	10,000
Beneficial conversion feature		(1,844	)
Accretion of beneficial conversion feature		69
Accrued interest		329
Convertible note at June 30, 2007	$	8,554

Interest expense recorded on the Convertible Note, including amortization of beneficial conversion feature, totaled $241,000 and $398,000 during the three and six month periods ended June 30, 2007.

Note 14 — Stock-Based Compensation

     In May 2007 the Company’s shareholders approved the 2007 Stock Option Plan (“2007 Plan”) which amends and succeeds the 2001 Stock Option Plan (“2001 Plan”). The 2007 plan provides for the issuance of common stock to be available for purchase by employees, consultants and by non-employee directors of the Company. Under the 2007 Plan, incentive and nonqualified stock options, stock appreciation rights and restricted stock may be granted. Options outstanding have terms of between five and ten years, vest over a period of up to four years and may be issued at a price equal to or greater than fair value of the shares on the date of grant.

     On June 15, 2007, the Company entered into a consulting agreement with an outside firm that assisted the Company in completing the SkyTel acquisition to provide ongoing services through December 31, 2008 (the “Consulting Agreement.”) As part of the Consulting Agreement, the Company granted a principal of the outside firm an option to purchase up to 150,000 shares of Company common stock from the 2007 Plan. The options have a per share exercise price equal to the Company’s market share price on the date of grant. The options vest over the period of the Consulting Agreement.

     Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) using the modified prospective transition method and, as a result did not retroactively adjust results from prior periods. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock options granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and expense related to all stock options granted on or subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123 (revised 2004). Stock-based compensation expense totaled $84,000 and $5,000 for the three months ended June 30, 2007 and 2006, respectively.

     The Company utilizes the Black-Scholes valuation model in determining the fair value of stock-based grants. The resulting compensation expense is recognized over the requisite service period, which is generally the option vesting term of up to four years. The weighted average fair value at the grant date for options issued during the three months ended June 30, 2007 was $1.37 per option. The fair value of options at the date of grant was estimated using the following assumptions during the three months ended June 30, 2007: (a) no dividend yield on the Company’s stock, (b) expected stock price volatility of approximately 45%, (c) a risk-free interest rate of approximately 4.95%, and (d) an expected option term of 2.87 years.

     The expected term of the options granted in 2007 is calculated using the simplified method as prescribed by Staff Accounting Bulletin No. 107. The expected term for each option grant represents the vesting term plus the original contract term divided by two. For 2007, expected stock price volatility represent the three year historical annualized volatility calculated using weekly closing market prices for the Company’s common stock. The risk-free interest rate is based on the five year U.S. Treasury yield at the date of grant. The Company has not paid dividends in the past and does not currently anticipate paying any dividends in the near future.

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     The following summarizes stock option activity during the six months ended June 30, 2007:

						Weighted
				Weighted		average
				average		remaining
				exercise		contractual term		Aggregate
	Shares			price		(in years)		intrinsic value
Outstanding at December 31, 2006		1,933,000		$	4.29
Granted		275,000			4.50
Exercised		(57,000	)		2.12
Canceled or expired		(8,000	)		2.58
Outstanding at June 30, 2007		2,143,000		$	4.38		7.64	$	2,349,000
Exercisable at June 30, 2007		812,100		$	4.36		7.08	$	962,100

     The following summarizes non-vested stock options as of December 31, 2006 and changes for the three months ended June 30, 2007:

				Weighted
				average
				grant date
	Shares			fair value
Non vested at December 31, 2006		1,152,400		$	0.90
Granted		275,000			1.40
Vested		(88,500	)		1.16
Canceled		(8,000	)		1.03
Non vested at June 30, 2007		1,330,900		$	0.98

     The aggregate intrinsic value in the table above represents the intrinsic value (the difference between the Company closing stock price on June 30, 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2007. The total intrinsic value of options exercised during the three and six month periods ended June 30, 2007 was approximately $74,000 and $140,000. The total fair value of shares vesting during the three month and six month periods ended June 30, 2007 was approximately $113,000 and $533,000. As of June 30, 2007, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $1.3 million, which is expected to be recognized over a weighted average period of approximately 4.4 years. As of June 30, 2007, there were 1 million shares of common stock available for issuance of future stock option grants under the 2001 Plan.

     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 June 30, 2007, 419,450 shares were available for future issuance under the ESPP.

Note 15 — 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 number of common shares potentially issuable for dilutive securities such as stock options and convertible debt. The weighted average number of common shares outstanding for each of the three and six month periods ended June 30, 2007 and 2006 is set forth in the following table (in thousands):

	Three Months ended					Six Months ended
	June 30,					June 30,
	2007			2006		2007			2006
Basic weighted average shares outstanding		8,629			8,565		8,615			8,564
Potentially dilutive stock options and convertible debt		3,011			28		2,994			26
Anti-dilutive due to net loss in period		(3,011	)		0		(2,994	)		0
Diluted weighted average shares outstanding		8,629			8,593		8,615			8,590

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     For the three and six month periods ended June 30, 2007, the number of stock option shares not included in the table above, because the impact would have been anti-dilutive based on the exercise price, totaled 610,000.

Note 16 — Income Taxes

     The Company adopted the provisions of FIN No. 48 on January 1, 2007. As a result of implementation, the Company recognized a $132,000 decrease in the liability for unrecognized tax benefits, which has been accounted for as a reduction in accumulated deficit. As of June 30, 2007 and January 1, 2007, the Company had $376,000 and $358,000 of unrecognized tax benefits, respectively, all of which would affect the Company’s effective tax rate if recognized. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Accrued interest related to uncertain tax positions as of June 30, 2007 and January 1, 2007 was $107,000 and $89,000, respectively. Tax years 2002 through 2006 remain open to examination by major taxing jurisdictions to which the Company is subject.

Note 17 — Shareholders’ Equity

     The changes to shareholders’ equity during the six months ended June 30, 2007 are as follows (in thousands):

Shareholders equity at December 31, 2006	$	18,254
Net loss		(6,335	)
Cumulative effect of FIN No. 48 adoption		132
Stock option exercises		120
Stock based compensation		254
Beneficial conversion feature, net of tax		1,109
Shareholders equity at June 30, 2007	$	13,534

Note 18 — Environmental Matters

     Reserves for environmental matters primarily relate to the cost of monitoring and remediation efforts, which commenced in 1998, at the site of a former leased facility of the Company’s electronics circuit board manufacturing business (“ESD”). The ESD business was closed in the early 1990s. At June 30, 2007 and December 31, 2006, estimated future remediation and related costs for this matter totaled approximately $2.6 million and $2.9 million, respectively. At June 30, 2007, approximately $1.6 million (estimated current portion) is included in accrued liabilities and $1.0 million (estimated non-current portion) is included in other long term liabilities in the Consolidated Condensed Balance Sheets. At June 30, 2007 and December 31, 2006, the estimated future amounts to be recovered from insurance totaled $1.9 million and $2.2 million, respectively. At June 30, 2007, approximately $1.9 million (estimated current portion) is included in prepaid expenses and other.

Note 19 — 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.

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     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 Court. 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. In March 2007, the US Appellate Court affirmed the judgment of the US District Court. Accordingly, the Company anticipates that the action will now proceed in Illinois State 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.

Note 20 — Business Segment Information

     The Company operates in three reportable business segments: Technology Solutions, a provider of integrated technology solutions, Recreational Products, a wholesale distributor of aftermarket parts and accessories for the recreational vehicles and other leisure-related vehicle market (including marine, snowmobile, cycle and ATV) and, as of January 31, 2007, SkyTel, a nationwide provider of wireless data and messaging services, including email, interactive two-way messaging, wireless telemetry services and traditional text and numeric paging.

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

	Three months ended						Six months ended
	June 30						June 30
	2007			2006			2007			2006
Net revenues:
Technology Solutions
Products	$	9,744		$	9,803		$	18,989		$	16,239
Services		8,799			6,859			18,427			14,729
		18,543			16,662			37,416			30,968
SkyTel		23,442						40,094
Recreational Products		13,965			14,499			24,637			25,156
Total net revenues	$	55,950		$	31,161		$	102,147		$	56,124
Operating income (loss):
Technology Solutions	$	(2,791	)	$	(458	)	$	(3,839	)	$	(1,325	)
SkyTel		9						714
Recreational Products		593			958			214			1,216
Corporate costs		(2,007	)		(1,506	)		(4,375	)		(2,815	)
Total operating loss		(4,196	)		(1,006	)		(7,286	)		(2,924	)
Gain on sale of assets								(1,976	)
Interest expense (income), net		624			(134	)		994			(209	)
Income tax expense (benefit)		8			(892	)		31			(877	)
Loss from continuing operations	$	(4,828	)	$	20		$	(6,335	)	$	(1,838	)

     Certain reclassifications within the segments have been made to prior year to conform to current year presentation.

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Note 21 — Related Party Transactions

     Newcastle is a private investment firm and one of the Company’s largest shareholders. Mr. Mark E. Schwarz, the Chairman of the Company’s Board of Directors, serves as the General Partner of Newcastle, through an entity controlled by him. Under the supervision of our Board of Directors (other than Mr. Schwarz), members of management, with the assistance of counsel, negotiated the terms of Newcastle’s purchase of the Convertible Note directly with representatives of Newcastle. After final negotiations concluded, the Company’s Board of Directors, excluding Mr. Schwarz, approved the Newcastle transaction. Mr. Schwarz did not participate in any of the Board of Directors’ discussions regarding the Newcastle transaction or the vote of the Board of Directors to approve the same.

     As disclosed in Note 22, Clinton J. Coleman also a Vice President of Newcastle was appointed Interim Chief Executive Officer.

Note 22 — Subsequent Events

     On July 13, 2007, John A. Fellows submitted his written notice of resignation as a director and President and Chief Executive Officer of the Company to the Company’s Board of Directors, effective immediately and the Company has no further severance or other obligations. The Company’s Board of Directors appointed Clinton J. Coleman as Interim Chief Executive Officer of the Company.

     On July 17, 2007 the Company announced that it was closing its Springfield, Missouri call center after receiving notification that the Company’s sole customer in the call center, SunRocket, an internet phone services provider, was ceasing most of its operations and no longer sending customer calls to the facility. As a result, the Company recorded $2.3 million in bad debt expense for the three months ended June 30, 2007 to fully reserve for the balance owed by SunRocket as of June 30, 2007. The Company billed SunRocket $350,000 in July for services provided through July 17, 2007 and will record a bad debt expense to fully reserve for this amount in the third quarter of 2007. Additionally, the Company eliminated 246 jobs and will record $128,000 in severance expense in connection with closing the call center. Effective August 1, 2007 the Company reached an agreement with a third party to assume the lease on the Springfield call center facility and to purchase certain assets at the call center facility for $900,000 in cash. The call center facility assets sold had a book value of approximately $500,000 and there were additional assets at the call center facility with a book value of approximately $500,000 that management is currently evaluating for other uses within the Company.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion of financial condition and results of operations of the Company should be read in conjunction with, and is qualified in its entirety by, the consolidated condensed financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q, the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, and within other filings with the SEC. This discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, regarding, among other things, our plans, strategies and prospects, both business and financial. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward looking statements contained in this Quarterly 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 that we make in this Quarterly Report are set forth below, are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and are set forth in other reports or documents that we file from time to time with the SEC. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Critical Accounting Policies

     In the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, the critical accounting policies were identified which affect the more significant estimates and assumptions used in preparing the consolidated financial statements. These policies have not changed from those previously disclosed other than the following new policy associated with the amortization of intangible assets.

     Intangible assets resulting from the SkyTel acquisition were estimated by management based on the fair value of assets received and appraisals received from a third party. These include licenses, trademarks, patents and customer relationships. Intangible assets are amortized over the estimated useful ranging from five to fourteen years on a straight-line basis.

Recent Accounting Pronouncements

     In February 2007, the FASB issued SFAS No. 159, which permits an entity to measure certain financial assets and financial liabilities at fair value. The objective of SFAS No. 159 is to improve financial reporting by allowing entities to mitigate volatility in reported earnings caused by the measurement of related assets and liabilities using different attributes, without having to apply complex hedge accounting provisions. Under SFAS No. 159, entities that elect the fair value option (by instrument) will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes presentation and disclosure requirements to help financial statement users understand the effect of the entity’s election on its earnings, but does not eliminate disclosure requirements of other accounting standards. Assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. This statement is effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect, if any, the adoption of this statement will have on the Company’s consolidated financial position or results of operations.

     In September 2006, the FASB issued SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with

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any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect, if any, the adoption of this statement will have on the Company’s consolidated financial position or results of operations.

     In June 2006, the FASB issued FIN No. 48, which establishes that the financial statement effects of a tax position taken or expected to be taken in a tax return are to be recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of FIN No. 48 on January 1, 2007. As a result of implementation, the Company recognized a $132,000 decrease in the liability for unrecognized tax benefits, which has been accounted for as a reduction to accumulated deficit.

Results of Operations

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

     The Company has provided a summary of its consolidated operating results for the three months ended June 30, 2007 compared to the three months ended June 30, 2006 followed by an overview of its business segment performance below:

Net revenues

     Net revenues were $56.0 million for the second quarter of 2007 as compared to $31.2 million in the second quarter of 2006, representing an increase of $24.8 million or 79.6%. The increase is primarily the result of the acquisition of SkyTel on January 31, 2007, which had revenue of $23.4 million for the second quarter of 2007 and an increase in revenues in the Technology Solutions segment of $1.9 million during the second quarter of 2007.

Gross profit

     Gross profit was $15.1 million, or 27.0% of net revenues, in the second quarter of 2007, compared to $6.5 million, or 20.8% of net revenues, in the second quarter of 2006. The increases are primarily the result of the acquisition of SkyTel on January 31, 2007, which had gross profit of $7.8 million, or 33.1% of net revenues for the second quarter of 2007 and an increase in gross profit in the Technology Solutions segment of $1.2 million during the second quarter of 2007, partially offset by declines in gross profit dollars and as a percentage of net revenues in the Recreational Products segment in the second quarter of 2007.

Selling, general and administrative expenses

     Selling, general and administrative expenses (“SG&A”) were $19.3 million, or 34.5% of net revenues, in the second quarter of 2007, compared to $7.5 million, or 24.0% of net revenues, in the second quarter of 2006. The increases are primarily the result of the acquisition of SkyTel on January 31, 2007, which had SG&A of $6.7 million, or 28.6% of net revenues in the second quarter of 2007, and increases in SG&A of $3.4 million in the Technology Solutions segment, including bad debt expense of $2.3 million related to recording a full reserve on the receivable from its Springfield call center customer, SunRocket, which ceased operations in July 2007.

Interest and other, net

     Net interest expense was $624,000 in the second quarter of 2007 compared to net interest income of $134,000 in the second quarter of 2006. The increase in net interest expense is the result of the outstanding balances under the revolving credit facility and convertible note. The debt was issued to provide the majority of the funding for the acquisition of SkyTel on January 31, 2007. The interest income earned in 2006 was attributable to earnings on cash and cash equivalents held during the period.

Income taxes

     Income tax expense was $8,000 in the second quarter of 2007 compared to an income tax benefit of $892,000 in second quarter of 2006. The income tax expense in the second quarter of 2007 primarily relates to state income taxes. The income tax benefit in the second quarter of 2006 includes a benefit totaling $923,000 related to the discontinued operations of the J.W. Miller division, partially offset by a provision for state income taxes of $31,000. As of June 30, 2007, the Company continues to record a full valuation allowance against net deferred tax asset balances.

Discontinued operations

     In April 2006, the Company sold its J.W. Miller division. Accordingly, the results of the J. W. Miller division have been classified as discontinued operations in the accompanying financial statements. In the second quarter of 2006, the Company recorded a gain on the sale of discontinued operations, net of tax, of $5.2 million and had income from discontinued operations, net of taxes, of $39,000.

Business Segment Results

     The Company operates in three reportable business segments: Technology Solutions, a provider of integrated technology solutions, Recreational Products, a wholesale distributor of aftermarket parts and accessories for the recreational vehicles and other leisure-

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related vehicle market (including marine, snowmobile, cycle and ATV) and, as of January 31, 2007, SkyTel, a nationwide provider of wireless data and messaging services, including email, interactive two-way messaging, wireless telemetry services and traditional text and numeric paging. The company also separately records expenses related to corporate overhead which supports the business lines. Note 20 to Consolidated Condensed Financial Statements includes a tabular summary of results of operations by business segment for the three and six month periods ended June 30, 2007 and 2006.

Technology Solutions: Technology Solutions revenues of $18.5 million for the three months ended June 30, 2007 represented an 11.3% increase from the $16.7 million in the second quarter of 2006. Product revenues of $9.7 million for the three months ended June 30, 2007 were relatively flat with the $9.8 million in the second quarter of 2006. Service revenues of $8.8 million for the three months ended June 30, 2007 represented a 28.3% increase from the $6.9 million in the second quarter of 2006. The service revenue increase in the second quarter of 2007 is primarily attributable to $2.3 million in revenue related to a customer relationship management engagement at the Company’s Springfield call center that commenced in the summer of 2006, partially offset by the loss of revenues related to the termination of an unprofitable repair depot project at the end of 2006.

     Technology Solutions segment operating loss totaled $2.8 million for the three months ended June 30, 2007 compared to an operating loss of $458,000 in the second quarter of 2006. The increase in operating losses in the second quarter of 2007 is primarily the result of bad debt expense of $2.3 million related to recording a full reserve on a receivable from a Springfield call center customer, SunRocket, which ceased operations in July 2007.

SkyTel: SkyTel’s revenues for the three months ended June 30, 2007 totaled $23.4 million. SkyTel’s segment operating income for the three period ended June 30, 2007 was $9,000. Depreciation, amortization, and accretion expense for the three months ended June 30, 2007 totaled $966,000.

Recreational Products: Recreational Products revenues of $14.0 million for the three months ended June 30, 2007 represented a 3.6% decrease from the $14.5 million in the second quarter of 2006.

     Recreational Products segment operating income totaled $592,000 for the three months ended June 30, 2007 compared to $958,000 in the second quarter of 2006. The decrease in operating income is primarily attributable to a decrease in gross margin from 25.4% in the second quarter of 2006 to 23.7% in the second quarter of 2007 and a $490,000 increase in selling, general and administrative expenses in the second quarter of 2007. The decline in gross margin is primarily the result of unfavorable market conditions due to high fuel prices and unfavorable product mix with a higher volume of revenues from low margin marine electronics products. The increase in selling, general and administrative expenses is the result of costs associated with increased selling and administrative staff and increased freight costs.

Corporate: Corporate overhead costs totaled $2.6 million for the three month period ended June 30, 2007 versus $1.4 million in the second quarter of 2006. The increase is the result of several factors including increased interest costs on the credit facility and convertible note, costs associated with the move of the corporate headquarters from Los Angeles to Indianapolis, additional corporate staff to support the larger organization after the completion of the SkyTel acquisition and stock-based compensation expense recorded based on the adoption of SFAS No. 123 (revised 2004.)

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

The Company has provided a summary of its consolidated operating results for the six months ended June 30, 2007 compared to the six months ended June 30, 2006 followed by an overview of its business segment performance below:

Net revenues

     Net revenues were $102.1 million for the six months ended June 30, 2007 compared to $56.1 million for the six months ended June 30, 2006, representing an increase of $46.0 million or 82.0%. The increase is primarily the result of the acquisition of SkyTel on January 31, 2007, which had revenues of $40.1 million for the five months SkyTel was included in the Company’s 2007 results and an increase in revenues in the Technology Solutions segment of $6.4 million during the six months ended June 30, 2007.

Gross profit

     Gross profit was $27.2 million, or 26.6% of net revenues, for the six months ended June 30, 2007, compared to $11.1 million, or 19.8% of net revenues, for the six months ended June 30, 2006. The increases are primarily the result of the acquisition of SkyTel on January 31, 2007, which had gross profit of $13.8 million or 34.5% of net revenues for the five months SkyTel was included in the Company’s 2007 results, and an increase in gross profit in the Technology Solutions segment of $2.8 million during the six month period ended June 30, 2007, partially offset by declines in gross profit dollars and as a percentage of net revenues in the Recreational Products segment during the six month period ended June 30, 2007.

Selling, general and administrative expenses

     Selling, general and administrative expenses (“SG&A”) were $34.4 million, or 33.7% of net revenues, for the six months ended June 30, 2007, compared to $14.0 million, or 25.0% of net revenues, for the six months ended June 30, 2006. The increases are primarily the result of the acquisition of SkyTel on January 31, 2007, which had SG&A of $11.1 million, or 27.7% of net revenues, for the five months SkyTel was included in the Company’s 2007 results, and increases in SG&A of $5.2 million in the Technology

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Solutions segment, $1.5 million in the Corporate segment and $490,000 in the Recreational Products segment for the six months ended June 30, 2007.

Interest and other, net

     Net interest expense was $994,000 for the six months ended June 30, 2007 compared to net interest income of $209,000 for the six months ended June 30, 2006. The increase in net interest expense is the result of the outstanding balances under the revolving credit facility and convertible note. This debt was issued to provide the majority of the funding for the acquisition of SkyTel on January 31, 2007. The interest income earned in 2006 was attributable to earnings on cash and cash equivalents held during the period. The gain on sale of assets of $2.0 million for the six months ended June 30, 2007 related to the sale of a company owned facility in the first quarter of 2007.

Income taxes

     Income tax expense was $31,000 for the six months ended June 30, 2007 compared to an income tax benefit of $877,000 for the six months ended June 30, 2006. The income tax expense in 2007 primarily relates to state income taxes. The income tax benefit for the six months ended June 30, 2006 includes a benefit totaling $923,000 related to the discontinued operations of the J.W. Miller division, partially offset by a provision for state income taxes of $31,000. As of June 30, 2007, the Company continues to record a full valuation allowance against net deferred tax asset balances.

Discontinued operations

     In April 2006, the Company sold its J. W. Miller division. Accordingly, the results of the J. W. Miller division have been classified as discontinued operations in the accompanying financial statements. For the six months ended June 30, 2006, the Company recorded a gain on the sale of discontinued operations, net of tax, of $5.2 million and had income from discontinued operations, net of taxes, of $577,000.

Business Segment Results

Technology Solutions: Technology Solutions revenues of $37.4 million for the six months ended June 30, 2007 represented a 20.8% increase from the $31.0 million for the six months ended June 30, 2006. Product revenues of $19.0 million for the six months ended June 30, 2007 represented a 16.9% increase from the $16.2 million for the six months ended June 30, 2006, which is primarily the result of several high dollar, low gross profit product sales during the first quarter of 2007. Service revenues of $18.4 million for the six months ended June 30, 2007 represented a 25.1% increase from the $14.7 million for the six months ended June 30, 2006. The service revenue increase is primarily attributable to $5.4 million in revenue for the six month period ended June 30, 2007 related to a customer relationship management engagement at the Company’s Springfield call center that commenced in the summer of 2006, partially offset by the loss of revenues related to the termination of an unprofitable repair depot project at the end of 2006.

     Technology Solutions segment operating loss totaled $3.8 million compared to $1.3 million in 2006. The increase in operating losses in the second quarter of 2007 is primarily the result of bad debt expense of $2.3 million related to recording a full reserve on a receivable from a Springfield call center customer, SunRocket, which ceased operations in July 2007.

SkyTel: SkyTel’s results are included in the Company’s results from January 31, 2007, the date the acquisition was completed. SkyTel’s revenues for the five months ended June 30, 2007 totaled $40.1 million. SkyTel’s segment operating income for the five months ended June 30, 2007 was $714,000. Depreciation, amortization, and accretion expense for the six months ended June 30, 2007 totaled $2.0 million.

Recreational Products: Recreational Products revenues of $24.6 million for the six months ended June 30, 2007 represented a 2.1% decrease from the $25.2 million for the six months ended June 30, 2006.

     Recreational Products segment operating income totaled $214,000 for the six months ended June 30, 2007 compared to $1.2 million for the six months ended June 30, 2006. The decrease in operating income is primarily attributable to the decrease in revenue, a decrease in gross margin from 25.4% for the six months ended June 30, 2006 to 23.7% for the six months ended June 30, 2007 and a $490,000 increase in SG&A expenses. The decline in gross margin is primarily the result of unfavorable market conditions due to high fuel prices, unfavorable product mix with a higher volume of low margin marine electronics product sales and a lower volume of high margin snowmobile and recreational vehicle product sales. The increase in selling, general and administrative expenses is the result of costs associated with increased selling and administrative staff, increased freight costs and costs associated with the move to a new distribution facility in Milwaukee, Wisconsin.

Corporate: Corporate overhead costs of $3.4 million for the six month period ending June 30, 2007 represented a 27.5% increase from $2.7 million in 2006. The increase is the result of several factors including increased interest costs on the credit facility and convertible note, costs associated with the move of the corporate headquarters from Los Angeles to Indianapolis, additional corporate staff to support the larger organization after the completion of the SkyTel acquisition and stock-based compensation expense recorded based on the adoption of SFAS No. 123 (revised 2004.) Increase is offset slightly due to the gain on sale of assets of $2.0 million related to the sale of a company owned facility in the first quarter of 2007.

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Changes in Financial Condition

Liquidity and Capital Resources

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

	June 30			December 31
	2007			2006
Cash and cash equivalents	$	1,374		$	3,637
Working capital	$	6,601		$	11,543
Current ratio		1.13			1.54
Debt to total capitalization		61.33	%		0	%
Shareholders equity per share	$	1.56		$	2.13
Days sales in receivables		52			58

     On January 31, 2007, the Company secured financing to complete the SkyTel acquisition by entering into (i) a credit agreement with Wells Fargo Foothill, Inc. (“WFF”), as administrative agent, pursuant to which WFF provided the Company with a revolving credit facility with a maximum credit amount of $30 million (the “Revolving Credit Facility”); and (ii) a purchase agreement with Newcastle Partners, L.P. (“Newcastle”) pursuant to which the Company issued and sold in a private placement to Newcastle a convertible subordinated payment-in-kind note (the “Convertible Note”) in the principal amount of $10 million.

     During the six months ended June 30, 2007, net cash provided by operating activities was $7.9 million, primarily the result of an increase in accounts payable of $7.0 million, primarily at SkyTel as very little accounts payable was assumed as part of the SkyTel acquisition on January 31, 2007 and a decrease in accounts receivable of $2.0 million, driven by focused collection efforts and timing of payments. Net cash used in investing activities was $32.4 million, primarily the result of the acquisition of SkyTel and purchase of fixed assets, partially offset by the sale of a building during the first quarter of 2007. Net cash provided by financing activities totaled $22.2 million, primarily the result of the proceeds received from the Revolving Credit Facility and the Convertible Note in conjunction with the acquisition of SkyTel.

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     During the six months ended June 30, 2006, net cash provided by operating activities totaled $414,000 which is primarily the result of a decrease in inventory and an increase in accounts payable partially offset by an increase in accounts receivable. Net cash provided by investing activities of $7.6 million is primarily the result of the proceeds received from the sale of the J.W. Miller business partially offset by purchases of fixed assets.

     As of June 30, 2007, the total debt outstanding was $23.2 million, consisting of $12.9 million outstanding under the Revolving Credit Facility and $10.3 million outstanding on the Convertible Note, prior to the accounting for the beneficial conversion feature and the Company had $5.1 million available for future borrowings under the Revolving Credit Facility.

     On June 15, 2007, the Company entered into two stock purchase agreements (the “Purchase Agreements”) with Sprint Nextel Corporation (“Sprint”). Pursuant to the Purchase Agreements, the Company agreed to sell the shares of stock (the “Shares”) held by the Company in two corporations that hold certain FCC licenses for the operation of Broadband Radio Service channels. The aggregate consideration payable to the Company for the Shares is approximately $13.5 million in cash. On the closing of the sale of the Shares, approximately, $940,000 of the cash consideration payable to the Company will be withheld by Sprint for eighteen months to fund certain reserves to secure the indemnification obligations. The sale of the Shares pursuant to the Purchase Agreements is subject to review and approval by the FCC, the closing of certain other related transactions in which the Company is not a party and certain other closing conditions.

     The Company’s ability to maintain an adequate amount of borrowing availability under its Revolving Credit Facility depends upon its ability to comply with the terms and conditions of the loan agreement and its ability to generate cash flows from operations. The Company is subject to certain financial covenants as a part of the Revolving Credit Facility including (i) achieving certain levels of earnings before taxes, interest, depreciation and amortization (“EBITDA”), as defined by the loan agreement with WFF; and (ii) complying with limitations on capital expenditures.

     On August 13, 2007, the Company and its subsidiary entered into Amendment Number Two to Credit Agreement, Consent and Waiver (the “Second Amendment”), with WFF. The Second Amendment amends the Company’s Credit Agreement dated January 31, 2007 (the “Credit Facility”) and provides the Company with an incremental $2 million of availability through October 31, 2007. Also pursuant to the Second Amendment, the lenders provided their consent to complete the sales of Shares held by the Company in two corporations that hold certain FCC licenses for the operation of Broadband Radio Service channels to Sprint and waived the Company’s default of its compliance with a covenant in the Credit Facility requiring a certain level of profitability for the six month period ended June 30, 2007. The Second Amendment also amends the profitability covenants for the nine month period ended September 30, 2007 and the twelve month period ended December 31, 2007 and reduces the amount of the Credit Facility available for borrowing upon completion of the sales of Shares to Sprint. The Company anticipates that the proceeds from the sales of Shares to Sprint will pay down a significant majority of the indebtedness outstanding under the Credit Facility.

     The Company believes that sufficient cash resources exist for the foreseeable future to support its operations and commitments through cash generated from operations, proceeds from the sale of the Shares to Sprint and advances under the Revolving Credit Facility. Management continues to evaluate its options in regard to obtaining additional financing to support future growth.

Consolidated Balance Sheet

     The increase in certain accounts on the consolidated balance sheet is driven by the SkyTel acquisition described in Note 3 to the consolidated financial statements.

Off-Balance Sheet Arrangements

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

Contractual Obligations and Commercial Commitments

     Approximately $15 million in lease commitments were assumed in connection with the SkyTel acquisition. SkyTel has operating leases related to locations on radio towers and building rooftops for placing network equipment in service. The leases have terms ranging from one month to six years. During 2007, the Company entered into a five year facility lease with an aggregate commitment of $2.5 million related to the SkyTel operations. On August 2, 2007, the Company reached an agreement with a third party to assume a lease in Springfield, Missouri that had a remaining lease term of 29 months and a commitment of approximately $3.0 million. Other than these new SkyTel leases, there have been no material changes to the Company’s contractual obligations and commercial commitments as previously disclosed in the Company’s Annual Report on From 10-K for the year ended December 31, 2006.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company is exposed to market risk from changes in interest rates on variable rate debt. Under the Credit Agreement with WFF, advances bear interest based on WFF’s prime rate plus a margin or at LIBOR Rate plus a margin. Based on the Company’s average outstanding variable rate debt during the quarter ended June 30, 2007, a 1% increase in the variable rate would increase annual interest expense by approximately $100,000.

Item 4. Controls and Procedures

     Our management, with the participation of our Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2007. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2007, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

     No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     Note — 18 to Consolidated Condensed Financial Statements, included in Part I of this report, is incorporated herein by reference.

Item 1A. Risk Factors

     There have been no material changes in the risk factors disclosed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the Company’s Annual Report on Form 10-K, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating. You should carefully consider the risks described in Company’s Annual Report on Form 10-K before deciding to invest in the Company’s common stock. In assessing these risks, you should also refer to the other information in this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, including the Company’s financial statements and the related notes. Various statements in this Quarterly Report on Form 10-Q constitute forward-looking statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)	None
(b)	None
(c)	None
(d)	None

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Item 3. Defaults Upon Senior Securities

     None

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

     The Annual Meeting of Shareholders was held on May 23, 2007 to vote on the election of five directors to hold office until the next Annual Meeting of Shareholders. All of management’s nominees for director as listed in the proxy statement were elected with the following vote:

Director	Votes for	Votes against	Votes withheld
Clinton J. Coleman	7,349,407	—	124,394
John A. Fellows	7,378,440	—	95,361
L. James Lawson	7,353,076	—	120,725
Michael R. Parks	7,348,704	—	125,097
Mark E. Schwarz	7,314,666	—	159,135

     The Bell Industries, Inc 2007 Stock Incentive Plan was approved with the vote of 1,936,062 for, 791,244 against, 26,445 abstained and 4,720,050 non-votes.

     The potential issuance of shares of common stock under a Convertible Promissory Note issued in a private placement was approved with 2,523,705 for, 183,714 against, 46,332 abstained and 4,720,050 non-votes.

     The vote to ratify the appointment of BKD LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2007 was approved by a vote of 7,434,741 for, 22,958 against, and 16,102 abstained.

Item 5. Other Information

     None

Item 6. Exhibits

10.1	Agreement dated June 5, 2007 between Vehicle Manufacturers Services, Inc and Bell Industries.*
31.1	Certification of Clinton J. Coleman, Interim 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 Kevin J. Thimjon, 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 Clinton J. Coleman, Interim 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 Kevin J. Thimjon, 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.
*	Confidential treatment requested for portions of this exhibit.

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SIGNATURES

     Pursuant to the requirements 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.
Dated: August 14, 2007	By:	/s/ Clinton J Coleman
		Clinton J. Coleman
		Interim Chief Executive Officer (authorized officer of registrant)
Dated: August 14, 2007	By:	/s/ Kevin J. Thimjon
		Kevin J. Thimjon
		Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

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EX-10.1

Exhibit 10.1

[*] Indicates confidential portion has been omitted pursuant to a request for confidential treatment and has been filed separately with the commission.

AGREEMENT

     THIS AGREEMENT (“Agreement”) is made and entered into as of this 5th day of June, 2007 (the “Effective Date”), by and between Vehicle Manufacturers Services Inc. (“VMS”), located at 801 Motor Parkway, Hauppauge, New York 11788 and SkyTel, a division of Bell Industries, Inc., a California corporation (“SkyTel”), located at 500 Clinton Center Drive, Building Two, Clinton Mississippi 39056.

RECITALS

     A. The parties hereto are desirous of entering into a relationship aimed at selling and marketing the SkyGuard Products (as defined below) and the SkyGuard Service Agreement (as defined below) in the Automobile Industry (as defined below) in the Territory (as defined below) during the Term (as defined below).

     B. VMS is desirous of being appointed as SkyTel’s sole U.S. sales representative, with the exclusive right to market and sell the SkyGuard Products, and solicit subscriptions for and sell the SkyGuard Service Agreement, to third parties within the Automotive Industry, which include but are not limited to, all automotive manufacturers (OEM’s), automotive wholesalers, automotive retailers, automotive port facilities, automotive mass retailers (e.g., Pep Boys and Circuit City), and automotive consumers (end users), as well as recreational vehicles (e.g., ATVs, motorcycles, and RVs).

     C. SkyTel is desirous of making such an appointment and securing the services of VMS to market and sell its SkyGuard Products, and solicit subscriptions for and sell the SkyGuard Service Agreement, through VMS’s network of distribution in the Territory.

     NOW THEREFORE, based upon the foregoing and the mutual promises of the parties set forth herein, the parties hereto agree as follows:

ARTICLE I DEFINITIONS

     “Action” means any action, complaint, petition, investigation, suit or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental Entity.

     “Ancillary Products” means future warranty agreements and related ancillary products derived from the Subscriber base of SkyGuard.

     “Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by”, and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person through the ownership of voting securities, by contract or otherwise.

     “Automotive Industry” means, without limitation, automobile manufacturers (OEMs), automotive wholesalers, automotive retailers, automotive port facilities, automotive mass retailers (e.g., Pep Boys and Circuit City), and automotive consumers (end users), as well as recreational vehicles (e.g., ATVs, motorcycles, and RVs).

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     “Confidential Information” shall have the meaning set forth in Exhibit D, Section 3.2.

     “Dealer” means retail automotive dealers.

     “Dealerships” means retail automotive dealerships.

     “Device” means any wireless telemetry radio, along with required accessories, that SkyTel deems acceptable for use in connection with the Services.

     “Disclosing Party” shall have the meaning set forth in Exhibit D, Section 3.1.

     “Distributor” means (i) retail stores exclusively selling automotive parts, and (ii) automotive distributors that sell wholesale automotive-related products to Dealers, all of which shall be located within the United States.

     “Exclusivity Conditions” means those conditions set forth in Exhibit A hereto.

     “Fleethawk” means the SkyTel product and service sold under the trade name and/or trademark “Fleethawk” or some successor trade name and/or trademark, which is used, among other things, for tracking railroad cars, and airport and other vehicles.

     “GAAP” means generally accepted accounting principles in the United States, as in effect from time to time.

     “Governing Board” shall have the meaning set forth in Section 6.01.

     “Governmental Entity” means any United States federal, state or local or any foreign government, governmental authority, regulatory or administrative agency, governmental commission, court or tribunal (or any department, bureau or division thereof).

     “GPRS Network” means the network selected by SkyTel to transport data produced by the Device, or received by the Device. SkyTel at its sole discretion may choose which network most effectively transports the data. SkyTel retains sole control and authority over the content, format, frequency and use of information from any network selected into, or from, the Devices.

     “Person” means any individual, corporation, firm, partnership, joint venture, association or other entity, in each case whether or not having a separate legal identity.

     “Products” shall mean collectively the Devices and accessories related to the Devices as described in the SkyGuard Service Agreement offered for sale by SkyTel.

     “Receiving Party” shall have the meaning set forth in Exhibit D, Section 3.1.

     “Services” means the wireless automated motor vehicle and related service offerings provided by or through SkyTel in the United States over the SkyTel Network and wireless networks owned and operated by third parties pursuant to the SkyGuard Service Agreement, or substantially similar document between SkyTel and the Subscriber, but specifically not including any other wireless messaging services, devices or related products available through SkyTel.

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     “SkyGuard” means a business unit of Bell Industries which is a subdivision of SkyTel.

     “SkyGuard Accounting Ledger” shall have the meaning set forth in Section 8.01.

     “SkyGuard Service Agreement” means the agreement that each Subscriber shall be required to execute with SkyTel, whether directly via SkyTel, or through any agent, subagent or authorized third-party of SkyTel, which will establish the terms and conditions under which the parties shall conduct business, and which at a minimum shall provide for a twelve (12) month service commitment associated with each Device activated, with corresponding penalties associated with any early termination or deactivation.

     “SkyTel Mark(s)” means the trade names, trademarks, logos and service marks owned by or licensed to SkyTel and provided to VMS by SkyTel from time to time, as initially set forth on Exhibit C attached hereto.

     “SkyTel Network” means, for purposes of this Agreement only, the two-way wireless messaging systems operated by SkyTel in the United States.

     “Subscriber” shall have the meaning set forth in Section 2.03 and means any Person who has subscribed to the Services and is the actual user of the Services offered hereunder.

     “Term” shall have the meaning set forth in Section 2.02.

     “Territory” shall mean the geographic area(s) throughout the United States, including Alaska, Hawaii and its territories, where either the SkyTel Network or through a contractual arrangement between SkyTel and a third party a GPRS Network, is available and operational and as either may be modified from time to time by either SkyTel or the third party.

     “VMS Fee” means the results of the accounting formula set forth in Exhibit E hereto.

ARTICLE II GENERAL PROVISIONS

     2.01 Business Purpose; Appointment. The business purpose of this Agreement is to set forth the agreement by and between the parties pursuant to how each party hereto shall diligently and in good faith, develop and promote the SkyGuard Products and SkyGuard Service Agreement and the Ancillary Products within the Automotive Industry throughout the Territory during the Term. Subject to the ongoing satisfaction of the Exclusivity Conditions set forth on Exhibit A, SkyTel appoints VMS as SkyTel’s exclusive sales representative in the Automotive Industry in the Territory, to promote, market and sell the SkyGuard Products, and solicit subscriptions for and sell the SkyGuard Service Agreement, in accordance with the terms and conditions set forth herein, and VMS accepts such appointment. Notwithstanding anything to the contrary herein, (i) except as expressly provided herein, this Agreement does not grant VMS an exclusive right or privilege to assist SkyTel in the solicitation of other SkyTel products; (ii) VMS shall have no claim to financial distribution or other compensation on account of any other SkyTel business secured by or through persons other than VMS; (iii) VMS requests and warrants

3

that it will not undertake any efforts, directly or indirectly, with a goal of selling any products reasonably believed to be competitive to any SkyTel product in the Automotive Industry in the Territory, and (iv) SkyTel expressly reserves the right to promote, solicit, market and sell other SkyTel products, including without limitation its Fleethawk product and related services, as well as other wireless messaging.

     2.02 Term of the Agreement. This Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Agreement, shall continue in existence for an initial term of [*] years, which term shall automatically renew for subsequent [*] year renewal terms unless either party delivers to the other party written notice of its intent not to renew at least twelve (12) months prior to the expiration of the then-current term.

     2.03 Subscriber Status. The parties acknowledge that all end-users secured through this relationship (“Subscribers”) shall be SkyTel Subscribers. SkyTel shall at all times have access to the Subscriber base and all related Subscriber information created in accordance with this Agreement. VMS shall similarly have access to the Subscriber base and all related Subscriber information. Upon activation of the Service for the Subscriber and execution by Subscriber of the SkyGuard Service Agreement, a vendor/customer relationship shall be established between SkyTel and such Subscriber. Access to the Subscriber base notwithstanding, and independent of whether or not VMS chooses to characterize Subscribers as customers, any Subscriber acquired under this Agreement shall be a SkyTel customer. VMS shall not take any action to cause a Subscriber to transfer its then active service account or business from SkyTel to any other competitive service or system. Such prohibited actions include, but are not limited to, providing such Persons with any name, address, telephone number or other identifying information concerning or relating to any one or more Subscribers.

     2.04 New Business. The parties further agree that as other business opportunities arise within the pool of Subscribers attained through the efforts of the parties, then the parties will present the opportunity to the Governing Board for its recommendations to attempt to ensure that no independent action taken by either party inadvertently results in a detriment or disruption to the work undertaken hereunder. Decisions made by the Governing Board shall be in accordance with the following general guidelines:

          (a) With respect to SkyTel and VMS separately, all pre-existing revenue streams and losses attributed to customers in place at the time of the Effective Date of this Agreement shall remain outside the reach of this Agreement.

          (b) The SkyGuard Accounting Ledger will be managed by the internal financial department of Bell Industries, Inc. with VMS having full audit rights as outlined in this Agreement. SkyTel shall pay VMS the VMS Fee on Bell Industries, Inc. checks.

          (c) All profits and losses incurred by either party as a result of activities undertaken outside this Agreement, and without the use of any Subscriber or other data created by the parties and their activities under this Agreement, shall not be run through the SkyGuard Accounting Ledger and shall be solely attributable to the party undertaking such outside activity.

4

          (d) All profits and losses incurred by either party as a result of activities undertaken outside this Agreement but which are undertaken through the use of any Subscriber and other data created by the parties and their activities under this Agreement, including but not limited to Subscriber lists, shall be governed by this Agreement; provided, however, the parties agree such outside activity shall be presented to the Governing Board for review and recommendation of appropriate fees and offsets to be paid or not paid by SkyTel and VMS.

     2.05 Trademarks and Logos. SkyTel hereby grants to VMS a non-exclusive, non-transferable license, during the term of this Agreement, to use the SkyTel Marks identified in Exhibit C, as amended from time to time, solely in connection with the marketing, advertisement and promotion of the Products and the SkyGuard Service Agreement as contemplated herein. VMS’s use of the SkyTel Marks and any marketing materials prepared outside this Agreement regarding the SkyGuard Product and/or Services shall at all times be subject to the prior written approval of SkyTel. VMS shall comply with all guidelines provided by SkyTel with respect to the graphic reproduction and use of the SkyTel Marks. This license may not be sub-licensed, assigned or otherwise transferred by VMS to any third Person without the express prior written consent of SkyTel, and shall terminate upon a change of control of VMS without the prior written consent of SkyTel. The license granted by SkyTel to VMS hereunder shall automatically and immediately terminate upon any termination of this Agreement. The license granted to VMS herein is subject to the reservation in SkyTel of all right, title and interest in and to the SkyTel Marks. The SkyTel Marks are the valid and exclusive property of SkyTel, and VMS’s right to use the SkyTel Marks is limited to and arises only out of the license granted hereunder. VMS shall not assert the invalidity, unenforceability, or contest the ownership by SkyTel of the SkyTel Marks in any action or proceeding of whatever kind or nature, and shall not take any action that may prejudice SkyTel’s rights in the SkyTel Marks, render the same generic, or otherwise weaken their validity or diminish their associated goodwill.

     2.06 Other Instruments. The parties hereto covenant and agree that they will execute each such other and further instruments and documents as are or may become reasonably necessary or convenient to effectuate and carry out the purposes of this Agreement.

ARTICLE III [PURPOSELY DELETED]

ARTICLE IV OBLIGATIONS OF THE PARTIES

     4.01 With regard to the start-up of the activities contemplated by this Agreement, the parties recognize that each has incurred various historical expenses in the course of bringing their respective contributions to this Agreement. By way of example, but not limitation, SkyTel has incurred expenses in the development of the current version of SkyGuard Product and Services, and VMS has incurred expenses in the establishment of its distribution network. Going forward, the parties agree that their respective responsibilities are as set forth in Exhibit B hereto, and the following guiding principals shall be adhered to as additional investment and expenses are incurred in the furtherance of this Agreement:

5

          (a) With regard to the establishment of sufficient on-going Device inventory levels, the parties shall work in good faith with one another to make decisions on when, with whom or which and at what volumes Devices should be procured. SkyTel shall then issue the appropriate purchase orders, and VMS shall perform its obligations hereunder to ensure collection of the fees associated with the sale of the Devices by the various Distributors within ninety (90) days of the date the Distributor is invoiced. Within one hundred (100) days of such invoice, funds attributed to the efforts of the parties hereunder shall be provided to SkyTel and credited in the SkyGuard Accounting Ledger. From the SkyGuard Accounting Ledger, SkyTel shall be reimbursed for all appropriate expenses, documented in accordance with standard accounting practices, including by way of example, reimbursement for the initial costs associated with the purchase of the Devices, ensuring that SkyTel is made whole for its upfront investment in the Device inventory.

          (b) Notwithstanding the process outlined in (a) above for on-going Device inventory levels, specifically regarding the task of establishing the initial inventory of ten thousand (10,000) Devices, SkyTel shall issue the purchase order for the Devices and VMS shall undertake its normal responsibilities at collecting the fees associated with the sale of the Devices; provided, however, if for any reason the Device launch is not successful and the entire inventory of ten thousand (10,000) Devices is not timely sold during the one year period from the Effective Date, and SkyTel is not reimbursed for its out-of-pocket expenses within the aforementioned time frames, then VMS agrees that it will become financially responsible for one-half of the Device units that are not sold and for which no fees are collected, up to a maximum of five thousand (5,000) Devices.

          (c) All other financial responsibilities from the activities of the parties hereunder will be the responsibility of SkyTel, and SkyTel will pay VMS the VMS Fee from its SkyGuard operations. To this end, the parties agree to act in good faith to present extraordinary expenses to the Governing Board for review and discussion prior to incurring any such expenses. Examples of extraordinary expenses might include, but not be limited to, initial marketing expenses associated with initial development and preparation of Product and Service mailers, print layouts for magazine and trade journals, kiosks and other materials to be made available to the Distributors.

     4.02 The parties shall divide responsibilities generally as set forth below, and more specifically as set forth in Exhibit B attached hereto.

          (a) VMS shall be responsible for investigating and pursuing alternate Product manufacturing and Product sourcing vendors, creating and/or maintaining the operating infrastructure to support the billing and collection process as well as administering the integrity of the processes, as mutually agreed to by the parties. VMS will also use good faith efforts to establish and maintain a network of distribution to effectuate the sales of the SkyGuard Products and SkyGuard Service Agreement within the Automobile Industry.

          (b) SkyTel will undertake to have basic advertising and marketing support to launch the SkyGuard Product, and will further undertake all commercially reasonable research and development activities to support and maintain SkyGuard’s competitive edge within the Product space.

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ARTICLE V BOOKS AND DISCLOSURES

     5.01 Disclosure. VMS and SkyTel agree that in an effort to establish the true and actual revenue/profit opportunities, they will make full disclosure to each other on all internal and external costs of all Products and Services comprising the SkyGuard Product offering, including without limitation all sales, marketing and distribution costs and expenses with respect hereto. SkyTel will pay VMS the VMS Fee for all ancillary Product offerings directly related to the basic SkyGuard Product. Accordingly, commencing on the Effective Date and ending on the effective termination of this Agreement, all profits, losses and other allocations hereunder shall be the responsibility of and accrue to SkyTel, and SkyTel will pay VMS the VMS Fee.

     5.02 Books. The parties shall each keep adequate books and records at their primary places of business, setting forth a true and accurate account of all business transactions arising out of and in connection with their conduct hereunder. The parties agree that no less frequently than once a monthly basis, within thirty (30) days of the end of each calendar month, it shall have its financial advisors perform an analysis of the accounts to determine the profitability of the activities undertaken. Notwithstanding the foregoing, unless otherwise agreed by three (3) or more members of the Governing Board, the VMS Fee shall be paid to VMS calendar quarterly from the Effective Date until June 30, 2008, and on the last day of each calendar month thereafter.

ARTICLE VI GOVERNING BOARD

     6.01 Business of the Venture.

     General management of the activities hereunder shall be conducted by a Governing Board (the “Governing Board”) which shall consist of two (2) representatives from each entity. The initial members of such Governing Board shall be:

VMS:	1	)	George Wafer	SkyTel:	1	)	Kevin Thimjon
	2	)	Angelo Addesso		2	)	Jim Myers

     The Governing Board shall meet as frequently as necessary and prudent to faithfully make recommendations with respect to the operations of the parties hereunder, but no less frequently than monthly on a recurring date mutually agreed to by the parties during the first year following the Effective Date, and quarterly on a recurring date mutually agreed to by the parties thereafter. Notwithstanding the authority of the Governing Board, the parties recognize that certain parties need to be authorized to exercise authority over certain decisions and areas of the business operations without first receiving advice from the Governing Board. To facilitate the need for such management efficiencies, the Governing Board may recommend periodic delegations of authority to one of the parties which are limited in scope and duration, consistent with the particular task to be undertaken. Notwithstanding any such recommended delegation, whether or not adopted by the parties, each party shall still owe a duty to the other party and the purpose of this Agreement to act in good faith and to make prudent business decisions, and to return to the Governing Board to discuss any issue reasonably believed to be beyond the scope of the recommended delegation.

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ARTICLE VII AGREEMENTS WITH THIRD PARTIES AND WITH AFFILIATES

     7.01 Validity of Transactions. Affiliates of the parties to this Agreement may be engaged to perform services in connection with the activities pursued under this Agreement. The validity of any transaction, agreement or payment involving any such Affiliate of a party to this Agreement otherwise permitted by the terms of this Agreement shall not be affected by reason of the relationship between them and such Affiliates or the approval of said transactions, agreement or payment.

     7.02 Other Business of the Parties to this Agreement. The parties to this Agreement and their respective Affiliates may have interests in businesses other than the business to be conducted under this Agreement and reference is made to Section 2.04 hereunder regarding any claim to profits or losses derived from such other business interests.

ARTICLE VIII DEPOSITS, EXPENSES & DISTRIBUTIONS

     8.01 As a part of the establishment of the relationship between the parties contemplated hereunder, SkyTel will establish a stand-alone general ledger (“SkyGuard Accounting Ledger”), which will be maintained on an accrual basis in accordance with GAAP. All payments to VMS of the VMS Fee will be paid through the SkyGuard Accounting Ledger. In connection with the activities to be undertaken hereunder, SkyTel will be responsible for providing the Products and SkyGuard Service Agreement which VMS will introduce to Distributors. Those Distributors will sell the Products and provide the SkyGuard Service Agreement to Dealerships, which Products and SkyGuard Service Agreement those Dealerships will ultimately offer and sell to Subscribers. The Subscriber will pay the Dealership, which will pay the Distributor, which will forward the funds to SkyTel, which will record such payments in the SkyGuard Accounting Ledger.

ARTICLE IX INDEMNIFICATION OF THE PARTIES

     9.01 The parties to this Agreement shall have no liability to the other for any loss suffered which arises out of any action or inaction if, in good faith, it is determined that such course of conduct was in the best interests of the relationship between the parties and such course of conduct did not constitute negligence or misconduct. Each party shall defend, indemnify and hold the other harmless from any and all actions, causes of action, claims, demands, costs (including reasonable attorneys’ fees), liabilities, expenses and damages arising out of or in connection with (i) any bodily injury or damage to property occasioned by the acts or omissions of the indemnifying party or its employees or agents, and (ii) the violation by the indemnifying party of any federal, state or local law, rule or regulation, all in connection with the activities to be pursued hereunder.

     9.02 Third Party Claims.

     Promptly after the receipt by any party seeking indemnification of notice of the commencement of any Action against such party by a third party, such party seeking indemnification (the “Indemnified Party”) shall, if a claim with respect thereto is or may be made against any indemnifying party pursuant to this Article IX, give such indemnifying party written notice thereof. The failure to give such notice shall not relieve any Indemnifying Party

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from any obligation hereunder except where, and then solely to the extent that, such failure actually prejudices the rights of such Indemnifying Party. Such Indemnifying Party shall have the absolute right after the receipt of notice to defend against, negotiate, settle or otherwise deal with such Action, at such Indemnifying Party’s expense and with counsel of its choice, provided that the Indemnifying Party so notifies the Indemnified Party that it will defend such Action within fifteen (15) days after receipt of such notice and commences the defense of such Action; provided, however, Indemnified Party may participate in any such proceeding with counsel of its choice and at its sole cost and expense and the Indemnifying Party shall not settle any such Action unless Indemnified Party is fully released without any admission of liability, and the Indemnified Party is not otherwise obligated to undertake any action, or restricted in taking any action by the terms of such settlement. If the Indemnifying Party does not elect to assume the defense of such Action in accordance with the terms of this Section 9.02, the Indemnified Party shall have the right to defend such Action with counsel of its choice and the Indemnifying Party will reimburse the Indemnified Party for the costs thereof, including reasonable attorneys’ fees and expenses incurred. The Indemnifying Party will not be liable for any judgment or settlement with respect to such Action effected without its prior written consent. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such indemnity claim.

     9.03 Direct Claims.

     Any claim by an Indemnified Party for indemnification other than indemnification against a third party pursuant to Section 9.02 above (a “Direct Claim”), claims for enforcement of violations for which the enforcement provisions of the Confidentiality Agreement shall apply) and claims for violation of any provision of Exhibit A (which shall be enforced pursuant to the terms of the Exclusivity Conditions), will be asserted by giving the Indemnifying Party written notice thereof, and the Indemnifying Party will have a period of thirty (30) calendar days (the “Response Period”) within which to respond in writing to such Direct Claim. If the Indemnifying Party does not respond (or does so respond but does not agree to pay such Direct Claim in full) within the Response Period, the Indemnifying Party will be deemed to have rejected such claim, and the Indemnifying Party or the Indemnified Party may refer such dispute to arbitration by written notice to the other party within ten (10) days after the expiration of the Response Period (the “Arbitration Referral Period”). Subject to the last sentence hereof, if the matter is referred to arbitration within the Arbitration Referral Period, arbitration of such matter shall be mandatory in accordance with this Section 9.03 and each party shall select an arbitrator and the two so selected shall agree on a third arbitrator from a panel of arbitrators selected by the American Arbitration Association. In default of a party’s selection of an arbitrator as required, the American Arbitration Association may select the arbitrator of the non-selecting party. The arbitration shall be pursuant to the Rules of the American Arbitration Association and shall be conducted in Los Angeles, California. Judgment upon any resulting arbitration award may be entered in any court of competent jurisdiction. As part of such award, the arbitrators shall establish their fees and expenses in connection therewith and allocate such fees and expenses between the parties, who shall promptly pay their allocable shares. Any award shall be a conclusive determination of the matter, and may be confirmed or enforced by either party in any court of competent jurisdiction by the filing of an appropriate action, and each party shall be deemed to have conclusively waived any and all defenses against enforcement. If neither party properly refers the matter to arbitration prior to the expiration of the Arbitration Referral Period,

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or to the extent a party hereto seeks equitable remedies or an injunction, then the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party at law or in equity.

ARTICLE X DISSOLUTION

     10.01 Events of Default. Upon the occurrence of an event of default, the party not in default shall have the right to immediately terminate this Agreement upon the failure of the defaulting party to cure such default within thirty (30) days following receipt of written notice of such default from the party not in default. As used herein, the term “event of default” shall mean (i) the failure by a party to observe or perform in any material respect any of the covenants or agreements contained in this Agreement; or (ii) a party’s insolvency, assignment for the benefit of creditors, appointment or sufferance of appointment of a trustee, receiver or similar officer, or any voluntary or involuntary proceeding seeking reorganization, rehabilitation, liquidation or similar relief under bankruptcy, insolvency or similar debtor relief statutes. In the event of any default arising from an incident of fraud, related either as to Product marketing or representation, activations of Subscribers, accounting or other services provided by either party or its designees in connection with the activities contemplated by this Agreement, then the party not in default shall have the right to immediately terminate this Agreement upon the failure of the defaulting party to cure such default within fifteen (15) days following receipt of written notice of such default from the party not in default. Any termination of this Agreement shall include but not be limited to the termination of the license to use the SkyTel Marks as well as any right to any future profits.

     10.02 Notice of Non-Renewal. Either party may deliver written notice to the other party of its intent not to renew the Agreement at least twelve (12) months prior to the expiration of the then-current term.

     10.03 [Purposely Deleted]

     10.04 For Cause. Either party may deliver written notice to the other party of its intent to terminate this Agreement with “cause”. The term “cause” shall mean (i) the material breach of this Agreement by the other party which is not cured (if curable) within thirty (30) days of the other party’s receipt of notice from the party describing in detail the nature of such material breach. If a party terminates this Agreement with cause, the terminating party shall have no further financial obligation to the other party except for outstanding obligations to pay the VMS Fees that accrued prior to the effective date of termination of this Agreement.

     10.05 Buy-Out. At any time following the end of the seventh (7^th) anniversary of the Effective Date, SkyTel shall be entitled to terminate this Agreement upon written notice to VMS, in consideration of a lump sum payment calculated as follows:

     a) If the termination right is exercised between May 31, [*] and May 31, [*], the termination fee that SkyTel shall pay to VMS shall be [*] times the trailing twelve (12) month VMS Fee.

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     b) If the termination right is exercised at any time after May 31, [*], the termination fee that SkyTel shall pay to VMS shall be [*] times the trailing twelve (12) month VMS Fee.

     10.06 Ongoing Obligations. Upon any termination of this Agreement, SkyTel and VMS shall be released from all obligations and liabilities to the other occurring or arising after the effective date of such termination or the transactions contemplated hereby, except with respect to those obligations which by their nature are designed to survive termination; provided, however, that no such termination will relieve either party from any amount due and owing hereunder or any liability arising from any breach of this Agreement. Termination of this Agreement shall not affect or diminish either party’s obligation to make payment to the other party pursuant to the terms herein, and such obligation shall survive termination of this Agreement. Upon any termination of this Agreement all rights and licenses granted by SkyTel to VMS hereunder shall immediately and automatically terminate, and VMS shall within ten (10) days return to SkyTel all Confidential Information, and all copies thereof, in its possession, custody and control and shall cease all use of the SkyTel Marks.

ARTICLE XI TERMS AND CONDITIONS

     11.01 The Terms and Conditions attached hereto as Exhibit D (the “Terms and Conditions”) are hereby incorporated by reference hereto in its entirety and, as used herein and in the Terms and Conditions, the term “Agreement” shall mean collectively this Agreement and the Terms and Conditions. Terms defined in the Terms and Conditions are used herein as therein defined, unless otherwise indicated.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

SKYTEL,
A DIVISION OF BELL INDUSTRIES, INC.		VEHICILE MANUFACTURERS SERVICES, INC.
By:	/s/ Kevin J. Thimjon	By:	/s/ George Wafer
	Kevin J. Thimjon, CFO		George Wafer, CEO
	[Print Name and Title]		[Print Name and Title]

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EXHIBIT “A”
EXCLUSIVITY CONDITIONS

     VMS, for the Term of this Agreement, provided it is not in default or breach of this Agreement, shall be granted exclusivity to market and sell, directly or indirectly, the Devices and the SkyGuard Service Agreement and the Ancillary Products to Dealers and Distributors that supply those Dealerships with aftermarket products, and related items.

     Subject to the provisions of this Agreement, VMS warrants that for the Term of this Agreement and one-year thereafter, VMS shall not directly offer, develop, support, or indirectly offer, develop, support products, services, product extensions, upgrades or similar as defined by this Agreement, nor shall it, and/or its Affiliates offer, cause to be offered, develop, or otherwise support, any products, services, or related, that may be deemed to compete or serve as an alternative to the Products and/or Services defined or developed under the auspices of this Agreement, and VMS and/or its Affiliates will not sell and/or market products or services similar to the SkyGuard Products and/or Services in the Automotive Industry, nor will it directly or indirectly cause or encourage others to offer a product or service that would reasonably be considered to be competing with the SkyGuard Product or Services.

     SkyTel shall be entitled to obtain equitable relief to protect its interests herein, including without limitation injunctive relief, as well as monetary damages, without the need to prove actual damages or for the posting of a bond.

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EXHIBIT “B”
RESPONSIBILITIES OF THE PARTIES

Responsibilities of VMS:

     Program Management: VMS shall be responsible for developing the Device and Service distribution network, and Ancillary Products, providing assistance in developing the supply chain for the Devices, which includes but is not limited to, providing input on the selection of appropriate manufacturers, training for those manufacturers, and assisting in the ongoing device and cost engineering of the Devices to ensure they remain market competitive.

     Distribution Support: VMS shall be the primary point of contact and facilitator for introduction to, process development for, measurement of, and management of the alliance partners. These activities shall consist of, but not be limited to, developing a distributor network for the Devices and Services, identifying and securing OEM partners to ultimately secure installation of the Device during the vehicle manufacturing process, developing appropriate insurance products and obtaining all legal, regulatory, and other certifications, clearances, permits, and related permissions to offer any products or services that could be defined as insurance products or services; similarly, VMS shall also be responsible for all clearances, permits, regulatory approvals, and related governmental permissions to offer security products. Finally, VMS shall be responsible for directing, managing and assuring efficient cost of operations and quality of Product for all manufacturers selected to support this Agreement.

     Distributor Training: VMS and its agents and subagents shall be responsible for all training of Dealers and as appropriate, Distributors, to include but not be limited to sales training, operational training, Truth-in-Lending and other legal disclosure training, technical training, features training, and other such activities as necessary to ensure Dealers and Distributors are prepared to meeting their responsibilities to support the product prior to, during, and post installation and activation. SkyTel retains the right to review any such training materials to ensure accurate representation of the features and functionality of the SkyGuard Product. VMS accepts sole responsibility for training Dealers, agents, subagents, related parties as appropriate, and Distributors on any and all relevant Federal, State, Local and other jurisdictions laws, regulations and other requirements. SkyTel undertakes no obligations in this area.

     Dealer Integrity: VMS acknowledges that it is fully responsible for the acceptance of applications from Distributors found by VMS to be qualified to perform the obligations called for by this Agreement. The parties agree and acknowledge that SkyTel shall at all times maintain the absolute discretion to refuse to conduct business with a Distributor it finds unacceptable and to refuse to conduct business with any Subscriber and/or to disconnect previously activated Service to any Subscriber if it is determined that the SkyGuard Service Agreement was entered into under allegations of fraud or misconduct on the part of the Distributor or the Subscriber, including but not limited to any modification to the SkyGuard Service Agreement without the prior written consent and approval of SkyTel. By way of example but not limitation, a Distributor shall be unacceptable if it is found not to be creditworthy, has a poor D&B or similar business rating, or has any claims or convictions involving allegations of fraud, lying or dishonesty.

B-1

Responsibilities of SkyTel:

     General. SkyTel shall, at all times, have the sole and exclusive control and authority over the design, construction, development, management, operation and maintenance of the SkyTel Network and the contractual relationships deemed by it to be necessary to enable adequate GPRS Network coverage, as well as the Products. SkyTel shall provide Subscribers access to the appropriate network(s) and the Products, all in accordance with the terms and conditions of the SkyGuard Service Agreement to be executed by the Subscribers. SkyTel shall also have sole and exclusive control and ownership of the Products and any modifications, upgrades, and or changes made to the Products. SkyTel shall ensure that the Services provided to Subscribers shall be of at least the grade and quality of like services provided by SkyTel to its other customers.

     Compliance with Laws. SkyTel warrants that the Products, as sold to VMS, will be in full compliance with applicable laws, standards, codes and regulations, duly marked and labeled, and suitable for distribution by VMS.

     Financial Management. SkyTel warrants that it shall be responsible for performing all accounting related to the SkyGuard Accounting Ledger, including without limitation tracking accounts receivable and accounts payable, preparing monthly and/or quarterly statements for the Board of Advisors, as applicable, within thirty (30) days of the end of each calendar month or calendar quarter, as applicable.

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EXHIBIT “C”
SKYTEL MARKS

U.S. Registered Trademark

SkyTel^®

SkyTel logo^®

SkyGuard^SM

SkyGuard logo^SM

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EXHIBIT “D”
TERMS AND CONDITIONS

     1. Representations and Warranties; Disclaimer of Warranties and Limitation of Liabilities.

          1.1 Representations and Warranties. Each party represents and warrants to the other that (a) it is duly organized, validly existing and in good standing under the laws of the state of its organization; (b) it has all requisite power and authority to enter into this Agreement and to perform its obligations under the terms of this Agreement; (c) this Agreement has been duly authorized, executed and delivered and constitutes a valid and binding obligation of such party enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, moratorium and other laws of general application affecting the enforcement of creditors’ rights; and (d) the execution, delivery and performance of and compliance with this Agreement does not and will not conflict with, constitute a default under, nor result in any violation of (i) its certificate of incorporation, bylaws or other such governing documents, (ii) any term or provision of any mortgage, indenture, contract, agreement, instrument, judgment or decree, or (iii) any order, statute, rule or regulation applicable to such party, which violation would have a material adverse effect on its business or properties.

          1.2 Disclaimer of Warranties and Limitation of Liabilities.

               (a) VMS ASSUMES RESPONSIBILITY FOR THE SELECTION OF THE PRODUCT TO ACHIEVE ANY INTENDED RESULTS, AND FOR THE PROPER INSTALLATION, USE, AND RESULTS OBTAINED BY THE PRODUCTS AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, SKYTEL MAKES NO WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE PRODUCTS, ANY SOFTWARE EMBEDDED IN OR INTEGRAL TO THE PRODUCTS, OR THE WIRELESS MESSAGING NETWORKS, AND HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY, DURABILITY, PERFORMANCE AND QUALITY, AND ANY WARRANTY OF FITNESS FOR A PARTICULAR USE OR PURPOSE.

               (b) NEITHER PARTY SHALL BE LIABLE TO THE OTHER OR TO ANY OTHER PERSON FOR ANY INDIRECT, CONSEQUENTIAL, EXEMPLARY, SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF USE OR LOST BUSINESS, REVENUE, PROFITS, GOODWILL OR ANY OTHER PECUNIARY LOSS, ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE PRODUCTS, ANY SOFTWARE AND/OR THE INTENDED USE THEREOF, OR THAT RESULT FROM OR ARISE OUT OF ANY MISTAKES, ERRORS, OMISSIONS, INTERRUPTIONS, DEFECTS, DELAYS IN OPERATION, OR TRANSMISSION, OR ANY FAILURE OF PERFORMANCE, UNDER ANY THEORY OF TORT, CONTRACT, WARRANTY, STRICT LIABILITY OR NEGLIGENCE, EVEN IF SUCH PARTY HAS BEEN ADVISED, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBLITY OF SUCH DAMAGES.

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               (c) WITHOUT LIMITING SUBSECTION (b) ABOVE, THE TOTAL LIABILITY OF EITHER PARTY TO THE OTHER IN CONNECTION WITH THIS AGREEMENT SHALL BE LIMITED TO THE HIGHER OF ONE MILLION DOLLARS ($1,000,000) AND THE TRAILING TWELVE (12) MONTH REVENUES OF SKYGUARD. THE FOREGOING LIMITATION SHALL APPLY TO ALL CAUSES OF ACTION AND CLAIMS, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION AND OTHER TORTS. THE PARTIES ACKNOWLEDGE THE REASONABLENESS OF THE FOREGOING DISCLAIMERS AND LIMITATIONS OF LIABILITY.

     2. Insurance. Each party shall maintain in full force and effect during the term of this Agreement general commercial liability insurance coverage in an amount of at least One Million dollars ($1,000,000.00) and in a form that is standard for the type of business operations contemplated by this Agreement. Immediately following the execution of this Agreement by the parties and upon request thereafter, each party will provide the other with one (1) certificate of insurance which names such other party as an additional insured.

     3. Confidentiality.

          3.1 Obligation. Except as herein provided, each party who receives (the “Receiving Party”) Confidential Information from the other party (the “Disclosing Party”) agrees that all such Confidential Information is and shall remain the Confidential Information and sole property of the Disclosing Party. Except as may be required by law or by court order or as may be reasonably required by any governmental agency or authority, the Receiving Party agrees: (a) to keep confidential all such Confidential Information, and to use the same only for the purposes of this Agreement, (b) that it will not disclose or permit dissemination of, and will take all necessary action to prevent the duplication, dissemination or disclosure of, Confidential Information to any third parties, including, without limitation, customers, consultants, financial lending institutions or business advisors, without the prior written consent of the Disclosing Party, and (c) that any dissemination of Confidential Information to its officers, directors, employees or agents shall be subject to the provisions of this Agreement, made only to carry out the purposes of this Agreement and limited to the maximum extent possible consistent with carrying out such purposes. Upon termination of this Agreement or earlier request of the Disclosing Party, all such Confidential Information and any copies thereof in any medium in the possession of the Receiving Party shall be returned to the Disclosing Party or destroyed in a manner satisfactory to the Disclosing Party.

          3.2 Definition. “Confidential Information” shall include any business, marketing, sales, financial or technical information, including, without limitation, any information relating to present or future business affairs, operations, methods, techniques, operations or financial condition, and all other information of any kind which may reasonably be considered confidential or proprietary, disclosed by one party (the “Disclosing Party”) to the other (the “Receiving Party”), whether such information is written or oral, because of legends or other markings which is designated or identified as “confidential”, “proprietary” or in some other manner to indicate its confidential nature. In addition, such Confidential Information may be disclosed in written or other tangible form (including on magnetic media) or by oral, visual or other means. Confidential Information shall not include any information which: (a) is known to

D-2

the Receiving Party prior to disclosure by the Disclosing Party; (b) is or becomes known to any persons not under an obligation of confidentiality to the Disclosing Party, other than by the Receiving Party’s breach of this Agreement; (c) is developed independently by the Receiving Party; or (d) is disclosed to the Receiving Party by a third party whose disclosure, to the knowledge of the Receiving Party, would not violate any confidentiality obligation of such third party to the Disclosing Party.

     4. SkyTel and Subscriber Privacy. VMS will respect the privacy of SkyTel and the Subscribers. VMS will employ commercially accepted security procedures and other reasonable means to ensure privacy of SkyTel’s and Subscribers’ data, system transactions and business practices, and will not use this information nor make the information available to others without written consent from SkyTel and the affected Subscriber as applicable. Such information shall be deemed to be SkyTel’s “Confidential Information” (as such term is defined above). Without limiting the generality of the foregoing, VMS shall not use or disclose personal information of Subscribers collected or obtained through the Subscriber account activation process, including without limitation Subscriber account information or any information protected by privacy laws, without the prior written approval of the affected Subscriber, nor in a manner that violates any privacy or other legal rights of such Subscriber. VMS shall comply with the privacy policy adopted by SkyTel and posted on SkyTel’s web site at www.skytel.com, as such privacy policy may be modified from time to time. VMS shall also ensure that its Affiliates, and its and their Subagents, agents, distributors and resellers, adhere to the restrictions on use and disclosure of information contained herein.

     5. Notice. Any notice or other communication herein required or permitted to be given shall be in writing and may be personally served or sent by a recognized overnight courier or United States mail, and shall be deemed to have been received when (a) delivered in person, (b) one (1) business day after delivery to the office of such overnight courier service, or (c) three (3) business days after depositing the notice in the United States mail with postage prepaid and properly addressed to the other party, at the following respective addresses:

     To SkyTel: To the attention of the Director of Strategic Relations, with a copy to the Legal Department at:

If by United States mail:	SkyTel
	Post Office Box 2469
	Jackson, Mississippi 39225-2469
	And
	Bell Industries, Inc.
	8888 Keystone Crossing, Suite 1700
	Indianapolis, IN 46240
If by overnight courier:	SkyTel
	500 Clinton Center Drive
	3rd Floor, Building # 2
	Clinton, Mississippi 39056

D-3

To VMS:           The address on file with SkyTel for VMS as follows:
	Vehicle Manufacturer’s Inc.
	801 Motor Parkway, Suite 200
	Hauppauge, New York 11788
	Telephone: (631) 851-1700
	Attention: George Wafer, Chairman and CEO

or to such other address or addresses as either party may from time to time designate as to itself by like notice.

     6. Arbitration. Except as otherwise provided in Section 9.03 of this Agreement, any dispute arising out of or related to this Agreement, inclusive of decisions by the Governing Board or in the event of any impasse which cannot be resolved by negotiation, will be settled by binding arbitration in accordance with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures, as amended by this Agreement. The parties will share the costs of the arbitration proceedings, including the fees and expenses of the arbitrator, equally unless the arbitration award provides otherwise. Each party will bear the cost of preparing and presenting its case. All arbitration proceedings will be held at the location in the United States designated by the party seeking the arbitration. The parties agree that this provision and the Arbitrator’s authority to grant relief will be subject to the United States Arbitration Act, 9 U.S.C. 1 16 et seq. (“USAA”), the provisions of this Agreement, and the ABA AAA Code of Ethics for Arbitrators in Commercial Disputes. The parties agree that the arbitrator has no power or authority to make awards or issue orders of any kind except as expressly permitted by this Agreement, and in no event will the arbitrator have the authority to make any award that provides for punitive or exemplary damages. The Arbitrator’s decision will follow the plain meaning of the relevant documents, and is final and binding. The award may be confirmed and enforced in any court of competent jurisdiction. All post award proceedings are governed by the USAA. This provision will not be construed to prohibit either party from seeking preliminary or permanent injunctive relief in any court of competent jurisdiction to protect their respective intellectual property rights.

     7. Records and Audits. Both SkyTel and VMS shall maintain, in accordance with U.S. generally accepted accounting principles consistently applied, such books and records as shall be necessary in order to disclose readily the basis for any charges, payments and credits, ordinary or extraordinary, billed or due, to or from the other party under this Agreement. Each party, at its own expense, shall retain all such records for a period of not less than five (5) years after receipt of final payment for the applicable Products under this Agreement. Upon reasonable notice of not less than fifteen (15) business days, either party may inspect and audit, during regular business hours at the office of the party being inspected, all of such party’s property, books, and records that directly or indirectly relate to such party’s performance and obligations under this Agreement. At the auditing party’s option, the audit may be performed by such party’s internal auditors and/or independent auditors selected by the party. Each party agrees it shall provide such access to personnel, property, and records as is reasonably necessary

D-4

to effectuate any such audit hereunder. Auditors may copy any documents that may be properly audited hereunder. All of the records subject to audit hereunder, and any copies made thereof, shall be deemed the Confidential Information of the party being audited. The party conducting such audit shall be responsible for the cost of conducting its audit, but shall not be responsible for any costs incurred by the party being audited in the fulfillment of its obligations hereunder. Notwithstanding the preceding, the auditing party shall reimburse the audited party for all of the cost of conducting the audit if the audit reveals that the audited party has been underpaid by the auditing party or has overpaid the auditing party by more than $25,000. VMS agrees that SkyTel shall be granted identical audit rights in any agency contracts entered into by VMS with Subagents pursuant to this Agreement, and shall cause the inclusion of this Section in all such agency contracts.

     8. Miscellaneous Provisions.

          8.1 Laws, Rules, Regulations, Applicable Law and Attorneys Fees. This Agreement is subject to all laws, rules, regulations, and ordinances relative to, among other things, the provision of wireless messaging services, including, without limitation, the Communications Act of 1934 and the Telecommunications Act of 1996, as amended, and all rules and regulations promulgated thereunder. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflict of laws. If any action shall be brought on account of any breach of or to enforce or interpret any of the terms, covenants or conditions of this Agreement, the prevailing party shall be entitled to recover from the other, as part of the prevailing party’s costs, a reasonable attorneys’ fee.

          8.2 Independent Parties. Notwithstanding anything to the contrary herein, it is acknowledged, confirmed, and agreed that VMS shall be, and shall be deemed to be, an independent contractor for all intents and purposes, including, without limitation, federal taxation. As an independent contractor, VMS shall be responsible for, among other things, any self-employment tax and shall not be eligible for various employee benefits of SkyTel, including, but not limited to, workers’ and unemployment compensation, nor shall VMS be eligible to participate in any retirement plan maintained or to be maintained by SkyTel. VMS shall pay all expenses in connection with performing its obligations hereunder and shall not incur any indebtedness on behalf of SkyTel in connection with such expenses. Neither party shall have or hold itself out as having any right, authority or agency to act on behalf of the other party in any capacity or in any manner, except as may be specifically authorized in this Agreement.

          8.3 Complete Agreement, Severability, and Force Majeure. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or contemporaneous understandings or agreements, written or oral, between the parties regarding such subject matter. No amendment to or modification of this Agreement will be binding unless in writing and signed by a duly authorized representative of both parties. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such provision will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Neither party will be liable for any nonperformance under this Agreement due to causes beyond its reasonable control that could not

D-5

have been reasonably anticipated by the non-performing party as of the Effective Date and that cannot be reasonably avoided or overcome; provided that the non-performing party gives the other party prompt written notice of such cause, and in any event within fifteen (15) calendar days of discovery thereof.

          8.4 Binding Agreement and Remedies. This Agreement shall be binding upon and inure to the benefit of the parties, their respective legal representatives, successors and assigns. The rights and remedies of the parties hereunder shall not be mutually exclusive, i.e., the exercise of one (1) or more of the provisions hereof shall not preclude the exercise of any other provision hereof. The parties acknowledge, confirm and agree that damages may be inadequate for a breach or a threatened breach of this Agreement and, in the event of a breach or threatened breach of any provision hereof, the respective rights and obligations hereunder shall be enforceable by specific performance, injunction or other equitable remedy. Nothing contained in this Agreement shall limit or affect any rights at law or by statute or otherwise for a breach or threatened breach of any provision hereof, it being the intent of this provision to clarify that the respective rights and obligations of the parties shall be enforceable in equity as well as at law or otherwise.

          8.5 Counterparts, Headings, Construction and No Waiver. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but which collectively will constitute one and the same instrument. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. This Agreement has been negotiated by the parties and their respective counsel. This Agreement will be interpreted fairly in accordance with its terms and without any strict construction in favor of or against either party based on draftsmanship of the Agreement or otherwise. No delay or failure by either party in exercising any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right. Failure by either party to enforce any right under this Agreement will not be deemed a waiver of future enforcement of that or any other right.

          8.6 Assignment and No Rights in Third Parties. Neither party may assign or delegate its rights or obligations under this Agreement, either in whole or in part, without the prior written consent of the other; provided, however, notwithstanding the foregoing, SkyTel may assign this Agreement, without the prior consent of VMS, to any Affiliate of SkyTel or to any Person acquiring all or substantially all of the assets of SkyGuard, or a controlling interest in the voting stock of Bell Industries, Inc., or any controlling Affiliate of SkyTel. Any attempted assignment in violation of this provision shall be void. This Agreement is made for the benefit of SkyTel and VMS and their respective Affiliates, if any, and not for the benefit of any third parties.

          8.7 Publicity. Neither party will make or cause to be made, whether orally or in writing or otherwise, any public announcement or statement to the news media or the investment or business communities with respect to the transactions contemplated by this Agreement or any of the provisions hereof without the prior review and written approval of the other party as to the form, content and timing of such announcement or disclosure.

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EXHIBIT “E”
DEFINITION OF “VMS FEE”

     For the purpose of this Agreement, “VMS Fee” shall mean [*] percent of the SkyGuard Net Profits. For the purposes of this Agreement, “SkyGuard Net Profits” are defined as SkyGuard EBITDA calculated on a GAAP basis as determined on the SkyGuard Accounting Ledger.

     Payment Terms for the VMS Fee. The VMS Fee plus an advance of [*] percent of the unrecognized revenue from the SkyGuard Service Agreement fees, which SkyGuard will amortize over the life of the service period, less [*] percent of the capital expenditures.

E-1

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Clinton J. Coleman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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 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.

Dated: August 14, 2007	/s/ Clinton J. Coleman
	Clinton J. Coleman
	Interim Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Kevin J. Thimjon, certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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 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.

Dated: August 14, 2007	/s/ Kevin J. Thimjon
	Kevin J. Thimjon
	Chief Financial Officer

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 Quarterly Report of Bell Industries, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2007, 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.

Dated: August 14, 2007	/s/ Clinton J. Coleman
	Clinton J. Coleman
	Interim Chief Executive Officer

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 Quarterly Report of Bell Industries, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin J. Thimjon, 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.

Dated: August 14, 2007	/s/ Kevin J. Thimjon
	Kevin J. Thimjon
	Chief Financial Officer