UNITED STATES
                                  -------------
                       SECURITIES AND EXCHANGE COMMISSION
                       ----------------------------------
                             Washington, D.C.  20549

                                    FORM 10-K
                                    ---------
 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
                                      1934


           DATE OF REPORT: FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001


                                    SBE, INC.
                                    ---------
             (Exact name of Registrant as specified in its charter)

            Delaware                                          94-1517641
            --------                                          ----------
(State or other jurisdiction of                     (IRS Employer Identification
 incorporation or organization)                                Number)

                           Commission File No. 0-8419

            2305 Camino Ramon, Suite 200, San Ramon, California 94583
            ---------------------------------------------------------
              (Address of principal executive offices and Zip Code)

                                 (925) 355-2000
                                 --------------
              (Registrant's Telephone Number, including Area Code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
           Securities registered pursuant to Section 12(g) of the Act:
                                  Common Stock
                                (Title of Class)

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 and (2) has been subject to such filing requirements for
the  past  90  days.  Yes  X      No
                          ---        ---

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

The  approximate  aggregate  market  value of the Common Stock of the Registrant
held  by  non-affiliates  of  the Registrant, based on the closing price for the
Registrant's  Common  Stock  on  December  31,  2001  as  reported on the Nasdaq
National  Market, was $1,650,199.  Shares of Common Stock held by each executive
officer, director and stockholder whose ownership exceeds five percent of Common
Stock  outstanding  have  been excluded because such persons may be deemed to be
affiliates  of  the  Registrant.  This  determination  of  affiliate  status for
purposes  of  the  foregoing  calculation  is  not  necessarily  a  conclusive
determination  of  affiliate  status  for  other  purposes.

The number of shares of the Registrant's Common Stock outstanding as of December
31,  2001  was  3,546,141.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------
Portions  of  the  Registrant's  definitive Proxy statement for the Registrant's
Annual  Meeting  of  Stockholders  scheduled  for  March  19,  2002  have  been
incorporated  by  reference  into  Part  III of this Annual Report on Form 10-K.

Exhibit  Index  on  Page  23
Total  Pages  47


                                      -1-
<PAGE>
                                    SBE, INC.

                                    FORM 10-K
                                    ---------

                                TABLE OF CONTENTS

PART  I

     Item  1     Business                                                      3
     Item  2     Properties                                                   13
     Item  3     Legal  Proceedings                                           13
     Item  4     Submission  of  Matters  to  a Vote of Security Holders      13


PART  II

     Item  5     Market  for  The  Registrant's  Common  Equity
                    and  Related  Stockholder  Matters                        14
     Item  6     Selected  Financial  Data                                    14
     Item  7     Management's  Discussion  and  Analysis  of
                    Financial Condition and Results  of  Operations           15
     Item  7A    Quantitative and Qualitative Disclosures about Market Risk   19
     Item  8     Financial  Statements  and  Supplementary  Data              20
     Item  9     Changes  in  and  Disagreements  with  Accountants
                    on Accounting and Financial  Disclosure                   20

PART  III

     Item  10     Directors  and  Executive  Officers  of  the Registrant     21
     Item  11     Executive  Compensation                                     22
     Item  12     Security  Ownership  of  Certain  Beneficial  Owners
                     and Management                                           22
     Item  13     Certain  Relationships  and  Related  Transactions          23

PART  IV

     Item  14     Exhibits,  Financial  Statement  Schedules
                  and  Reports  on  Form  8-K                                 23

SIGNATURES                                                                    26


                                      -2-
<PAGE>
                                     PART I

                   SPECIAL NOTE ON FORWARD LOOKING STATEMENTS

Certain  statements  set  forth  in  or incorporated by reference in this Annual
Report  on  Form 10-K constitute "forward-looking statements" within the meaning
of  Section  27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange  Act  of  1934.  These  statements  include,  without  limitation,  the
Company's  expectations  regarding  its sales to Compaq Computer in fiscal 2002,
the belief that the market for client server networking products is growing, the
adequacy  of  anticipated  sources  of  cash,  planned capital expenditures, the
effect  of  interest  rate  increases,  and trends or expectations regarding the
Company's  operations.  In  addition,  words  such as "believes," "anticipates,"
"expects,"  "intends,"  "estimates"  and  similar  expressions  are  intended to
identify  forward-looking  statements,  but  are  not  the  exclusive  means  of
identifying  such  statements.  Such statements are based on currently available
operating,  financial  and  competitive  information  and are subject to various
risks  and  uncertainties.  Readers  are  cautioned  that  the  forward-looking
statements  reflect  management's  analysis  only as of the date hereof, and the
Company  assumes  no  obligation  to  update  these  statements.  Actual  future
results,  events  and  trends  may  differ materially from those expressed in or
implied by such statements depending on a variety of factors, including, but not
limited to those set forth under "Risk Factors" and elsewhere in this Form 10-K.
See  "Business  --  Risk  Factors"  and  "Item  7  --Management's Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations."

ITEM  1.     BUSINESS

OVERVIEW

SBE,  Inc.  (the  "Company")  designs,  markets,  sells  and supports innovative
communication  controller  solutions  for the global communications marketplace.
The  Company's  solutions  enable  both  traditional  carriers  and new emerging
carriers  to  rapidly  deliver  advanced communications products and services in
order  to  compete  effectively  in  today's fast-evolving public communications
network environment.  The Company's products are distributed worldwide through a
direct sales force, distributors, independent manufacturers' representatives and
value-added  resellers.

On  July  14, 2000, the Company acquired LAN Media Corporation, a privately held
wide area networking adapter company headquartered in Sunnyvale, California.  In
the  acquisition, we issued approximately 316,000 shares of our common stock for
all  of LAN Media's outstanding common stock.  The acquisition was accounted for
as  a  pooling  of  interests  under Accounting Principles Board Opinion No. 16.

Founded  in 1961 as Linear Systems, Inc., the Company evolved from a supplier of
radio  communications  equipment  to  a  provider  of  comprehensive  network
communications  solutions  for  original  equipment manufacturers and end users.
Over  the  last two years, the Company expanded its product lines to include its
Highwire(TM)  family  of  high  performance telecommunications controllers.  The
Highwire  family  provides  high  bandwidth  intelligent connectivity to servers
designed  to  act  as  gateways  and  signaling  points within telecommunication
networks.  The  Highwire  coprocessing  controllers enable operators of wireline
and  wireless  networks  to  deliver  Intelligent  Network  ("IN")  and Advanced
Intelligent  Network  ("AIN")  services  such  as  Caller  ID,  voice messaging,
personal  number  calling,  Service  Provider  Local  Number  Portability  and
customized  routing  and  billing,  as well as digital wireless services such as
Personal  Communications  Systems  ("PCS")  and  Global  System  for  Mobile
Telecommunications  ("GSM").  The Highwire products are designed for integration
with  standard  server  platforms  that will enable traditional carriers and new
telecom  entrants  to  pursue  cost-reduced  and  performance-enhanced  network


                                      -3-
<PAGE>
architectures  based  on  Internet  Protocol  ("IP"), Asynchronous Transfer Mode
("ATM")  or  other  "packet"  technologies.  The Company is focusing substantial
resources  on  the continued development, marketing and sales activities for the
Highwire  products.

The  Company  markets,  sells  and supports four lines of high-speed intelligent
communications  controller  products:  Highwire,  Wan Adapter, WanXL and VMEbus.
All  of  these  products  are sold primarily to original equipment manufacturers
("OEMs").  These  products  are  often  customized  for  a  specific  customer's
application, and they support applications in a broad spectrum of industrial and
commercial  markets.  Markets  and  application  areas  that  our products serve
include  cellular  network data communication, data networking, process control,
medical  imaging,  CAE/automated  test  equipment,  military defense systems and
telecommunications  networks.

The  Company's  Highwire  communications controllers leverage the Company's core
technology  strength  into  the  telecommunications  applications  market.  The
Company's  Wan  Adapter  products  are focused on the need for wide area network
connectivity  in  customer premise equipment ("CPE") such as routers, firewalls,
virtual  private  network  ("VPN")  servers  and network switches. The Company's
WanXL  products  are designed for applications that require high-performance and
high-speed  communications capability such as transmission of financial data and
real  time  video  data.  The  Company's  VMEbus  products are designed for high
reliability industrial applications and are used in many wireline, wireless, and
satellite  based communications networks.  All of these products, except the Wan
Adapter  products,  are  "intelligent," containing their own microprocessors and
memory.  This  architecture  allows  these communications controllers to offload
many  of  the lower-level communications tasks that would typically be performed
by  the  host  platform,  improving  overall system performance. The Wan Adapter
products  are designed to be low cost and high performance connectivity products
that provide developers of CPE equipment with an easy to integrate WAN interface
for  their  systems.  All  four  product  lines  are supported by communications
software  developed  by  both the Company and a variety of third party partners.

RISK  FACTORS

In  addition  to  the  other  information  in  this  Annual Report on Form 10-K,
stockholders  or  prospective  investors should carefully consider the following
risk  factors:

NASDAQ  NATIONAL  MARKET  LISTING;  RISKS  ASSOCIATED  WITH  DELISTING.
-----------------------------------------------------------------------

The  Company's  Common  Stock is currently listed on the Nasdaq National Market.
Nasdaq  has  requirements  that a company must meet in order to remain listed on
the Nasdaq National Market. These requirements include maintaining a minimum bid
price  of  $1.00 and a minimum market value of its public float of $5.0 million.
The  minimum  bid price for our Common Stock has been below $1.00 since November
6,  2001.  Nasdaq issued a press release on September 27, 2001, stating that, in
response  to  market  conditions  following  the  September  11,  2001 terrorist
attacks,  it  was  implementing an across-the-board moratorium, until January 2,
2002,  on  the  minimum bid requirements for continued listing.  On December 12,
2001, the Nasdaq issued a press release stating that it would be reinstating the
minimum bid requirements for continued listing effective January 2, 2002. If the
minimum bid price of our Common Stock continues to trade below $1.00, our Common
Stock  could  be  delisted from the Nasdaq National Market. In addition, even if
our  minimum  bid  price  exceeds  $1.00,  because we have only have 3.5 million


                                      -4-
<PAGE>
shares of public float, we may still fail to comply with the $5.0 million market
value  of  public  float requirement and thus, could be delisted from the Nasdaq
National  Market.

If  the  Company  fails  to maintain the standards necessary to be quoted on the
Nasdaq  National  Market  or  alternatively, the Nasdaq SmallCap Market, and our
Common  Stock is delisted, trading in our Common Stock could be conducted on the
OTC  Bulletin  Board  or  in  the  over-the-counter  market  in what is commonly
referred to as the "pink sheets."  Such alternatives are generally considered to
be  less efficient markets, and our stock price, as well as the liquidity of our
Common  Stock,  may  be  adversely  impacted  as  a  result.

DEPENDENCE  ON  A  LIMITED NUMBER OF OEM CUSTOMERS.  In fiscal 2001, most of the
--------------------------------------------------
Company's  sales were derived from a limited number of OEM customers.  In fiscal
2001,  sales  to  Compaq  Computer accounted for 34% of the Company's net sales.
The  Company  expects  that  sales  to  Compaq  Computer  will also constitute a
substantial  portion  of  the Company's net sales in fiscal 2002.  Orders by the
Company's  OEM  customers  are  affected  by  factors  such  as  new  product
introductions,  product  life  cycles, inventory levels, manufacturing strategy,
contract  awards,  competitive  conditions and general economic conditions.  The
Company's  sales  to  any  single  OEM  customer are also subject to significant
variability  from  quarter  to  quarter.  Such  fluctuations may have a material
adverse  effect  on the Company's operating results.  A significant reduction in
orders from any of the Company's OEM customers, particularly Compaq Computer and
Lockheed Martin, would have a material adverse effect on the Company's operating
results  and  financial  condition.  In addition, there can be no assurance that
the  Company will become a qualified supplier with new OEM customers or that the
Company  will  remain  a  qualified  supplier  with  existing  OEM  customers.

FUTURE SUCCESS DEPENDENT ON NEW PRODUCT LINES.  Since late 1998, the Company has
---------------------------------------------
focused  a  significant  portion  of its research and development, marketing and
sales  efforts on Highwire products.  The success of these products is dependent
on  several  factors,  including  timely  completion  of  new  product  designs,
achievement  of  acceptable  manufacturing  quality  and yields, introduction of
competitive  products  by other companies and market acceptance of the Company's
products.  If  the  Highwire  products  or  other  new products developed by the
Company do not gain market acceptance, the Company's business, operating results
and  financial  condition  would  be  materially  adversely  affected.

HIGHLY  COMPETITIVE  ENVIRONMENT.  The  market  for  communications  products is
--------------------------------
highly  competitive.  The  Company competes directly with traditional vendors of
terminal  servers,  modems, remote control software, terminal emulation software
and  application-specific  communications  solutions.  The Company also competes
with  suppliers  of  routers,  hubs,  network  interface  cards  and  other data
communications  products.  In  the  future, the Company expects competition from
companies offering client/server access solutions based on emerging technologies
such  as  switched  digital  telephone  services.  In  addition, the Company may
encounter  increased  competition  from  operating  system and network operating
system  vendors  to  the  extent  such  vendors  include  full  communications
capabilities  in  their  products.  The  Company  may  also  encounter  future
competition  from telephony service providers (such as AT&T or the regional Bell
operating  companies)  that  may  offer  communications  services  through their
telephone  networks.

Increased competition with respect to any of the Company's products could result
in  price  reductions and loss of market share, which would adversely affect the
Company's  business,  operating  results  and  financial condition.  Many of the


                                      -5-
<PAGE>
Company's  current  and potential competitors have greater financial, marketing,
technical  and other resources than the Company.  There can be no assurance that
the  Company  will be able to compete successfully with its existing competitors
or  will  be  able  to  compete  successfully  with  new  competitors.

FLUCTUATIONS  IN  QUARTERLY  RESULTS.  The Company's quarterly operating results
------------------------------------
have  fluctuated  significantly  in  the  past  and  are  likely  to  fluctuate
significantly  in  the  future due to several factors, some of which are outside
the  control  of  the  Company,  including timing of significant orders from OEM
customers,  fluctuating  market demand for, and declines in, the average selling
prices  of  the  Company's products, delays in the introduction of the Company's
new  products,  competitive  product  introductions,  the  mix of products sold,
changes  in  the  Company's  distribution  network,  the  failure  to anticipate
changing  customer product requirements, the cost and availability of components
and  general economic conditions.  The Company generally does not operate with a
significant  order  backlog, and a substantial portion of the Company's revenues
in  any quarter is derived from orders booked in that quarter.  Accordingly, the
Company's sales expectations are based almost entirely on its internal estimates
of  future  demand and not on firm customer orders.  Based on the foregoing, the
Company  believes  that  quarterly  operating  results  are  likely  to  vary
significantly in the future and that period-to-period comparisons of its results
of  operations  are  not necessarily meaningful and should not be relied upon as
indications  of  future  performance.  Further, it is likely that in some future
quarter  the  Company's  revenues  or  operating  results  will  be  below  the
expectations  of public market analysts and investors.  In such event, the price
of  the  Company's  Common  Stock is likely to be materially adversely affected.

RAPID  TECHNOLOGICAL  CHANGE; ONGOING NEW PRODUCT DEVELOPMENT REQUIREMENTS.  The
--------------------------------------------------------------------------
markets  for  the  Company's  products  are  characterized  by  rapidly changing
technologies,  evolving  industry  standards  and  frequent  new  product
introductions.  The  Company's  future  success  will  depend  on its ability to
enhance its existing products and to introduce new products and features to meet
and  adapt  to  changing customer requirements and emerging technologies such as
ISDN  ("Integrated  Services  Digital  Network"), Frame Relay, ADSL ("Asymmetric
Digital  Subscriber  Line") and ATM ("Asynchronous Transfer Mode"). There can be
no  assurance  that  the  Company will be successful in identifying, developing,
manufacturing  and marketing new products or enhancing its existing products. In
addition,  there  can  be  no  assurance that services, products or technologies
developed  by  others  will  not render the Company's products noncompetitive or
obsolete.

DEPENDENCE  ON KEY EMPLOYEES.  The Company is highly dependent on the technical,
----------------------------
management,  marketing  and  sales  skills of a limited number of key employees.
The  Company  does not have employment agreements with, or life insurance on the
lives  of,  any  of  its  key  employees.  The  loss  of the services of any key
employees  could  adversely affect the Company's business and operating results.

NEED  TO  RECRUIT  AND  RETAIN  QUALIFIED PERSONNEL.  The Company's success also
---------------------------------------------------
depends  on  its  ability  to  continue  to attract and retain additional highly
talented  personnel.  Competition  for  qualified  personnel  in  the networking
industry,  and  in  the  San  Francisco  Bay  Area, is intense.  There can be no
assurance  that the Company will be successful in retaining its key employees or
that  it  can  attract  or  retain  additional  skilled  personnel  as required.

SUCCESSFUL  INTEGRATION  OF ACQUISITIONS. In July 2000, the Company acquired LAN
----------------------------------------
Media  Corporation.  We  may  continue  to  acquire  companies,  technologies or
products  or  to  sell  or  discontinue  some of our technologies or products in


                                      -6-
<PAGE>
future  periods.  Our  acquisitions involve numerous risks, including the use of
significant  amounts  of  our cash, diversion of the attention of our management
from  our  core business, loss of our key employees and significant expenses and
write-offs.  Incremental  acquisition  related  charges  including  in-process
research  and  development and amortization of goodwill and other intangibles or
divestitures  of  profitable technologies or products could adversely impact our
profitability.  The  success  of  these acquisitions depends upon our ability to
timely  and successfully develop, manufacture and gain market acceptance for the
products we acquired. If we engage in additional acquisitions or divestitures in
future  periods,  we may not be able to address these risks and our business may
be  harmed.

DEPENDENCE  ON  KEY  SUPPLIERS.  The chipsets used in the Company's products are
------------------------------
currently  available  only from Motorola.  In addition, certain other components
are  currently  available  only  from single suppliers.  The inability to obtain
sufficient  key components as required, or to develop alternative sources if and
as  required  in  the  future,  could  result in delays or reductions in product
shipments  which, in turn, would have a material adverse effect on the Company's
business,  operating  results  and  financial  condition.

DEPENDENCE  ON  CONTRACT  MANUFACTURER.  The  Company  and  XeTel  Corporation
--------------------------------------
("XeTel"), a contract manufacturing company headquartered in Austin, Texas, have
entered  into  an exclusive manufacturing service agreement under which XeTel is
to  manufacture  all  of  the  Company's  products  until at least May 2002. The
Company  is  dependent  on XeTel's ability to manufacture the Company's products
according  to  specifications  and  in  required volumes on a timely basis.  The
failure  of  XeTel  to  perform  its obligations under the manufacturing service
agreement  could  have  a  material  adverse  effect  on the Company's business,
operating  results  and  financial  condition.

DEPENDENCE  ON  PROPRIETARY  TECHNOLOGY.  Although the Company believes that its
---------------------------------------
future  success will depend primarily on continuing innovation, sales, marketing
and  technical expertise, the quality of product support and customer relations,
the  Company  must  also  protect  the  proprietary  technology contained in its
products.  The  Company  does  not  currently  hold  any patents and relies on a
combination  of  copyright,  trademark,  trade  secret  laws  and  contractual
provisions  to  establish and protect proprietary rights in its products.  There
can  be  no  assurance  that  steps  taken by the Company in this regard will be
adequate to deter misappropriation or independent third-party development of its
technology.  Although  the  Company believes that its products and technology do
not infringe on the proprietary rights of others, there can be no assurance that
third  parties  will  not  assert  infringement  claims  against  the  Company.

STOCK  PRICE  VOLATILITY.  The  trading  price  of the Company's Common Stock is
------------------------
subject  to  wide fluctuations in response to quarter-to-quarter fluctuations in
operating  results,  the  failure  to  meet  analyst estimates, announcements of
technological  innovations  or  new  products by the Company or its competitors,
general  conditions  in  the  computer  and  communications industries and other
events  or  factors.  In  addition, stock markets have experienced extreme price
and  trading  volume  volatility  in  recent  years.  This  volatility has had a
substantial  effect  on  the market prices of securities of many high technology
companies  for  reasons frequently unrelated to the operating performance of the
specific  companies.  These  broad  market fluctuations may adversely affect the
market  price  of  the  Company's  Common  Stock.


                                      -7-
<PAGE>
ANTI-TAKEOVER PROVISIONS AND DELAWARE LAW.  The Company's Board of Directors has
-----------------------------------------
the  authority  to  issue  up  to  2,000,000  shares  of  Preferred Stock and to
determine  the price, rights, preferences and privileges of those shares without
any  further  vote  or action by the stockholders.  The rights of the holders of
Common  Stock  will  be subject to, and may be materially adversely affected by,
the  rights  of  the  holders  of  any Preferred Stock that may be issued in the
future.  The issuance of Preferred Stock could have the effect of making it more
difficult  for  a  third  party  to acquire a majority of the outstanding voting
stock  of  the  Company.  Furthermore,  certain  provisions  of  the  Company's
Certificate  of  Incorporation  may  have  the  effect of delaying or preventing
changes  in  control  or management of the Company, which could adversely affect
the  market  price  of  the Company's Common Stock.  In addition, the Company is
subject  to  the  provisions  of Section 203 of the Delaware General Corporation
Law,  an  anti-takeover  law.

OUR  FUTURE  CAPITAL  NEEDS  MAY  EXCEED  OUR  ABILITY  TO  RAISE  CAPITAL.  The
--------------------------------------------------------------------------
development  and marketing of our products is capital intensive. We believe that
our  existing  cash  balances and our anticipated cash flow from operations will
satisfy  our  financing  requirements  for the next twelve months. Rapid revenue
growth  may  require that we seek additional capital to meet our working capital
needs  beyond  the  next 12 months. Likewise, a further decline in future orders
and  revenues  might  have  a  similar  effect should we be unable to reduce our
expenses  to  the  degree  necessary  to avoid incurring losses. There can be no
assurance  that  additional  financing,  if  required,  will  be  available  on
reasonable  terms  or  at  all.  To the extent that additional capital is raised
through  the  sale  of  additional  equity  or  convertible debt securities, the
issuance  of  such  securities  could  result  in  additional  dilution  to  our
stockholders.

PRODUCTS

The  Company  designs,  markets,  sells  and  supports innovative communications
controller  and adapter products for the global communications marketplace.  The
Company  offers  four  principal lines of products: Highwire, Wan Adapter, WanXL
and  VMEbus.  All  four  families  offer  a  variety  of  intelligent  and
non-intelligent  communications  products that enable computers to exchange data
across  networks.

Highwire Products. The Highwire products are focused on providing communications
solutions  to the telecommunications applications market. The telecommunications
applications  market is characterized as an Intelligent Network. The Intelligent
Network ("IN") utilizes out of band signaling to provide the basis for virtually
all  new  telecommunications services. The IN architecture uses two separate but
parallel  paths;  one  to handle the voice or data traffic and a second to carry
the  signaling  information  for  call set up and routing. The signaling channel
utilizes  a  protocol  referred  to  as Signaling System Seven or "SS7." Network
operators  utilize  the  IN  architecture  to  increase  the efficiency of their
networks  by  offloading signaling traffic onto the SS7 network, thus freeing up
trunk  line  capacity  needed  for  revenue  generating  traffic.

A  second generation Intelligent Network called the Advanced Intelligent Network
("AIN")  is  used  by  carriers  and  service providers seeking to differentiate
themselves by offering advanced voice and data communications services.  The AIN
is  a  network  architecture  and  a  set of standards designed to allow network
operators  to create, deploy and modify these services quickly and economically.
AIN  services  represent  the  merging  of  telephony  with database information
through  SS7  signaling.  Such  services  include  Caller  ID,  voice messaging,


                                      -8-
<PAGE>
personal  number  calling,  Service  Provider  Local  Number  Portability  and
customized  routing and billing as well as digital wireless services such as PCS
and  GSM.

Network operators are increasingly using SS7 networks as a source of competitive
advantage  to  introduce  new  services  through software changes in IN elements
rather  than  in  central  office switches.  The Company's Highwire products are
designed  to  provide from one to 128 SS7 signaling channels per controller card
and  to  integrate  easily  with  the industry's leading applications providers.

Wan  Adapter  products.  The  need  for reliable, easy to integrate and low cost
connectivity  products  for  routers,  network  gateways,  VPN servers and other
network appliances has never been greater.  All network based products that need
to  communicate across switched telephone networks or the internet require a WAN
connection  device.  Historically many companies have developed these interfaces
to  their  network  equipment  themselves.  However,  as  product release cycles
shorten  and  WAN  standards  become  ubiquitous,  many  network  equipment
manufacturers have chosen to integrate third parties standards based WAN devices
into  their  systems.  SBE's  Wan  Adapter  line  of products is focused on this
market  using  a unique design that is modeled on the successful models deployed
in the Local Area Network ("LAN") adapter markets.  The Company has utilized low
cost LAN components and custom firmware and integrated software to provide a low
cost  high  performance product that is easy for network equipment manufacturers
to  integrate  into  their  systems.  The  Company  offers  a broad range of WAN
connectivity  options  in  its  Wan Adapter product line ranging with interfaces
including  T-1/E1,  Clear  Channel,  HSSI,  and  T-3.

WanXL  Client/Server  WAN  products.  The  need  to  collect, store, analyze and
distribute  information  in  a secure, timely and efficient manner has become an
integral  part of operating a successful organization.  Developments in computer
technology  have resulted in less reliance on centralized mainframes and greater
reliance  on  distributed  computing,  which  has  led  to the computer software
architecture  concept  of  "client/server"  computing  systems.  Client/server
computing  systems typically provide for a large number of desktop computers, or
clients,  interconnected  with  one,  or  often more than one, file server.  The
server  provides  central  resources  to  all remote computer users and provides
common services such as printing, communications and data backup and information
gateways  to  other  local  or  distant  client/server systems.  The fundamental
premise  of this architecture relies heavily on computer networking for both LAN
interconnections  for  desktop-to-server communications and WAN interconnections
for  server-to-server  communications.

The  Company's  WanXL  products  are  specifically  targeted  to  meet  the
interconnectivity  needs  of client/server systems.  The Company offers a family
of  products  with  one  to  four  ports  per  controller  with various physical
connection  options  and  software  features.

VMEbus  Intelligent  Communications  Controller  Products.  Intelligent
communications  controller  products  are used to provide connectivity between a
system  such  as  a  mini-computer  or  bridge/router  and  a local or wide area
network.  Communication controller products enable computers to exchange data in
much  the  same  way  as the telephone system allows people to converse with one
another.  As  computers  become more pervasive in all areas of society, computer
users  are  demanding  greater productivity, efficiency and lower costs in their
computer  systems,  which  has  led  to  the  sharing  of  databases,  software


                                      -9-
<PAGE>
applications and computer peripheral equipment.  Communications controllers have
become  a  central  component  to  connecting  networks and computers to deliver
information  more  efficiently.

The  Company's  VMEbus  communications  products  target all four major protocol
communications technologies for each of the bus architectures: Fiber Distributed
Data  Interface  ("FDDI"),  Token  Ring,  Ethernet  and  high-speed  serial
communications.  The  latter  is  a growing wide-area networking technology that
enables  computers  to  talk  to one another using telephone lines.  FDDI, Token
Ring and Ethernet are local area networking technologies that offer a wide range
of  speed  and  reliability  options.

The  Company's strategy for its intelligent controller products is to expand its
offerings to more segments of the market by adding software interfaces, improved
performance  and  new  technologies  that  will provide lower-cost solutions for
high-speed,  high-volume  communication  applications.

Custom  Products.  The  Company  has developed several products specifically for
single  customer  applications.  These  products  typically  have  proprietary
functions  that  meet  specific  application needs of the customer.  The Company
does  not  seek  new  custom  relationships unless the products have significant
sales  potential.

The  following  table  shows  sales by major product type as a percentage of net
sales  for  fiscal  2001,  2000  and  1999:

<TABLE>
<CAPTION>
                                   Year Ended October 31,
                                   2001     2000     1999
                                  -------------------------
                                  (percentage of net sales)
<S>                               <C>      <C>      <C>

  VME Communication Controllers       64%      75%      81%
  Wan Adapter                         25       15        9
  WanXL products                       6        6        3
  Other                                5        4        7
                                  -------  -------  -------
                                     100%     100%     100%
                                  =======  =======  =======
</TABLE>

DISTRIBUTION,  SALES  AND  MARKETING

The Company primarily markets its Highwire and VMEbus intelligent communications
controller  products  to  OEMs  and  systems integrators.  The Company sells its
products  both  domestically  and internationally, using a direct sales force as
well  as  through  independent manufacturers' representatives.  The Company also
sells  certain  products  directly  to end users.  The Company believes that its
direct  sales  force is well suited to differentiate the Company's products from
those  of  its  competitors.

The  Company's  product sales are concentrated among a small number of customers
and,  consequently,  the  timing  of significant orders from major customers has
caused  and  is  likely  to continue to cause the Company's operating results to
fluctuate.  See  "Risk Factors-Dependence on a Limited Number of OEM Customers."

The  Company  markets its WanXL client/server products through multiple indirect
distribution  channels  worldwide,  including  distributors,  manufacturers'


                                      -10-
<PAGE>
representatives,  value-added  resellers  and certain OEM partners.  The Company
actively supports its indirect channel marketing partners with its own sales and
marketing  organization.  The  Company's  sales  staff  solicits  prospective
customers,  provides  technical  advice  with  respect to its products and works
closely  with  marketing  partners  to  train and educate their staffs on how to
sell,  install  and  support  the  WanXL  product  line.

The  Company  has  focused  its  sales  and marketing efforts principally in the
United  States,  Asia  and Europe.  All of the Company's international sales are
negotiated  in  U.S.  dollars.

The  Company  conducts  its  sales  and  marketing activities from its principal
offices  in San Ramon, California.  The Company's direct sales force is based in
four  locations  in  the  United  States.

RESEARCH  AND  DEVELOPMENT

The  Company's  product  development  efforts  are  focused  principally  on its
strategic  businesses,  telecommunications  applications,  client/server
internetworking  and  VMEbus  intelligent  communications  controllers.  The
Company's  experience  in high-speed data communication creates opportunities to
leverage  its engineering investments and develop additional integrated products
for  simpler,  more  innovative  communications  solutions  for  customers.  The
development  of  new  internetworking  products, high-performance communications
controllers  and  communications-related software is critical to attracting new,
and  retaining  existing,  customers.

During  the  past three years, the Company has developed communications products
based  on  CPCIbus,  PCIbus, VMEbus and EISA architecture.  The Company has also
redesigned and upgraded certain communications products to improve the products'
performance  and  lower  the  products'  manufacturing  costs.  In addition, the
Company  has  acquired  or  licensed  certain  hardware  products that have been
integrated  principally  through  the  addition  of  software into the Company's
product  line.

During  fiscal 2001, the Company focused the majority of its development efforts
on  the  Highwire product line, and it expects to continue Highwire development,
while  also  developing  other  new  product  platforms,  in  fiscal  2002.

Information  relating  to  accounting  for  research  and  development  costs is
included  in  Note  1  of  Notes to Consolidated Financial Statements.  Also see
"Item 7, Management's Discussion and Analysis of Financial Condition and Results
of  Operations."

MANUFACTURING

The  Company's  products  are  constructed  from  components  that are generally
available  as  needed from a variety of suppliers.  The Company believes that it
currently  possesses  adequate  supply  channels, however an interruption in its
existing  supplier  relationships  or  delays  by some suppliers could result in
production  delays  and  may  have  a  material  adverse effect on the Company's
operations.

Certain  parts  used in the Company's products are purchased from Motorola.  See
"Risk  Factors-Dependence  on  Key  Suppliers."  The  Company  believes that the


                                      -11-
<PAGE>
sole-source components supplied by Motorola will become available to the Company
from  alternative  suppliers  in  the  future.  Although  the Company has rarely
experienced  any  significant  problems in obtaining sole-source components, the
Company  has sought to establish a close relationship with sole-source suppliers
and,  if  necessary,  build  up  an  inventory  of  such  components.

In  December  1996, the Company sold all of its manufacturing assets and entered
into  a  contract  manufacturing  agreement  with  XeTel to supply manufacturing
services.  The Company believes that XeTel has been able to provide lower prices
and  a more efficient and timely product delivery than the Company could produce
with  its  previous  manufacturing  resources.

COMPETITION

The  market  for  telecommunications and client/server access products is highly
competitive.  Many of the Company's competitors have greater financial resources
and  are  more  established  than  the  Company.  Competition  within  the
telecommunications market is fragmented principally by application segment.  The
Company's  Highwire  products  compete  with offerings from Radisys, Performance
Technology,  Interphase,  Artesyn,  SBS  Technology  and Adax along with various
other  platform  and  controller  product  providers.  The Company's VMEbus, Wan
Adapter  and  WanXL  communications  controller  products compete primarily with
products  from Digi International, Motorola, Interphase Corp., Themis Computers,
Performance  Technologies  and  various  other companies on a product-by-product
basis.  To  compete  in  this  market, the Company emphasizes the functionality,
support, quality and price of its product in relation to its competitors as well
as  the  Company's  ability to customize the product or software to exactly meet
the  customer's  needs.

Additionally,  the  Company  competes with the internal engineering resources of
its  customers.  As  its  customers  become successful with their products, they
examine  methods  to  reduce costs and integrate functions.  To compete with the
internal  engineering resources of its customers, the Company works jointly with
their engineering staffs to understand its customers' system requirements and to
anticipate  new  product  needs.

INTELLECTUAL  PROPERTY

The  Company  believes  that  its  future success will depend principally on its
continuing product innovation, sales, marketing and technical expertise, product
support  and  customer  relations.  The  Company  also believes that it needs to
protect  the proprietary technology contained in its products.  The Company does
not  currently  hold  any  patents  and  relies  on  a combination of copyright,
trademark, trade secret laws and contractual provisions to establish and protect
proprietary  rights  in  its  products.  The  Company  typically  enters  into
confidentiality  agreements  with  its  employees,  strategic  partners, channel
partners  and suppliers and limits access to the distribution of its proprietary
information.

BACKLOG

On  December  31,  2001,  the  Company  had  a  backlog  of  product  orders  of
approximately  $337,000 for shipment within the next 12 months.  On December 31,
2000,  the Company had a backlog of product orders of approximately $2.7 million
for  shipment  within  the  next  12  months.  Because recorded sales orders are


                                      -12-
<PAGE>
subject  to  changes  in  customer  delivery  schedules,  cancellation, or price
changes,  the  Company's  backlog  as  of  any  particular  date  may  not  be
representative  of  actual  sales  for  any  succeeding fiscal period and is not
considered  firm.

EMPLOYEES

On  December  31,  2001,  the  Company  had 47 employees.  None of the Company's
employees  is represented by a labor union.  The Company has experienced no work
stoppages.  The  Company  believes  its  employee  relations  are  good.

The  Company believes that the Company's future success will depend, in part, on
its  ability  to  attract  and  retain  qualified  technical  (particularly
engineering),  marketing  and  management personnel.  Such experienced personnel
are  in great demand, and the Company must compete for their services with other
firms,  many  of  which  have  greater  financial  resources  than  the Company.

ITEM  2.   PROPERTIES

In  December  2001,  the  Company  relocated  its engineering and administrative
headquarters  to  15,000  square  feet  of  leased  space  located in San Ramon,
California.  The  lease  expires in 2004.  The Company expects that the facility
will  satisfy  its  anticipated  needs  through  the  foreseeable  future.  In
conjunction  with  the  relocation to the new building, the Company assigned the
lease  related  to  its former 63,000 square foot engineering and administrative
headquarters  facility to a third party corporation. The third party corporation
has guaranteed payment of the remaining lease payments though the termination of
the  original  lease  in  2006.

The  Company  leases 6,100 square feet of office space in Madison, Wisconsin for
various  product development activities.  The lease expires in 2005 and provides
the  Company  with  the  right  to  renew the lease for two additional five-year
terms.  The Company expects that this office space will satisfy the needs of the
Madison  development  group  for  the  foreseeable  future.

Additionally,  through  the  acquisition  of  LAN  Media Corp. in July 2000, the
Company leases approximately 3,650 square feet of office space in Sunnyvale, CA.
The  Sunnyvale lease expires in 2003. The Company subleased this office space to
a  third  party  corporation  for  the  remaining  term  of  the  lease.

ITEM  3.   LEGAL  PROCEEDINGS

The Company is not a party to any material pending legal proceedings.

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

Subsequent  to  our  2001  Annual Meeting of Stockholders, there were no matters
submitted  to  a  vote of our stockholders in the remainder of fiscal 2001.  The
voting results from the 2001 Annual Meeting of Stockholders were included in the
Company's  Quarterly  Report  on Form 10-Q for the quarter ended April 30, 2001.


                                      -13-
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY &
         RELATED STOCKHOLDER MATTERS

The  Company's  Common  Stock  is quoted on the Nasdaq National Market under the
symbol  SBEI.  The  following  table presents quarterly information on the price
range  of  the  Company's  Common  Stock, indicating the high and low bid prices
reported  by  the  Nasdaq  National  Market.  These prices do not include retail
markups,  markdowns  or  commissions.  As  of  December  31,  2001,  there  were
approximately  419 holders of record of the Company's Common Stock. There are no
restrictions on the Company's ability to pay dividends; however, it is currently
the  intention of the Board of Directors to retain all earnings, if any, for use
in  the  Company's  business  and  the  Company  does not anticipate paying cash
dividends  in the foreseeable future. Any future determination as to the payment
of  dividends  will  depend,  among  other  factors,  upon the earnings, capital
requirements,  operating  results  and  financial  condition  of  the  Company.

<TABLE>
<CAPTION>
                              Fiscal  quarter  ended
                   ---------------------------------------------
  Fiscal 2001      January 31   April 30   July 31   October 31
  -----------      -----------  ---------  --------  -----------
<S>                <C>          <C>        <C>       <C>
    High           $      8.75  $    5.50  $   3.50  $      1.70
    Low                   3.38       2.25      1.05         0.80
  Fiscal 2000
    High           $     11.88  $   22.25  $  26.38  $     22.75
    Low                   3.94       8.50     14.00         8.56
</TABLE>

ITEM  6.     SELECTED  FINANCIAL  DATA

The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations"  and  the  Consolidated  Financial  Statements and the Notes thereto
included  elsewhere  in  this  Form  10-K.

<TABLE>
<CAPTION>
For years ended October 31,
  and at October 31                     2001     2000      1999     1998     1997
-----------------------------------------------------------------------------------
(in thousands, except for per share amounts and number of employees)
<S>                                   <C>       <C>      <C>       <C>      <C>

Net sales                             $ 7,726   $29,178  $19,854   $21,124  $26,695

Net income (loss)                     $(9,896)  $ 3,970  $  (254)  $   184  $ 3,229

Net income (loss) per share - basic   $ (2.92)  $  1.24  $ (0.08)  $  0.07  $  1.25

Product research and development      $ 5,652   $ 5,635  $ 5,167   $ 3,864  $ 2,954

Working capital                       $ 7,595   $11,793  $ 7,191   $ 7,845  $ 7,918

Total assets                          $10,690   $17,427  $11,264   $11,783  $11,978

Long-term obligations                 $ 4,870   $   288  $   503   $   631  $   925

Stockholders' equity                  $ 4,119   $13,829  $ 8,636   $ 8,846  $ 8,475

Number of employees                        47        87       72        68       84
</TABLE>


                                      -14-
<PAGE>
ITEM  7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This  Management's Discussion and Analysis of Financial Condition and Results of
Operations  contains  forward-looking  statements that are subject to many risks
and  uncertainties  that could cause actual results to differ significantly from
expectations.  For  more information on forward-looking statements, refer to the
"Special  Note on Forward Looking Statements" at the front of this Annual Report
on  Form  10K.

The  Company's  business is characterized by a concentration of sales to a small
number of customers and consequently the timing of significant orders from major
customers  and  their  product  cycles  causes  fluctuations  in  the  Company's
operating  results.  See  "Item  1-Business-Risk  Factors-Dependence  on Limited
Number of OEM Customers."  The Company is attempting to diversify its sales with
the introduction of new products that are targeted at large growing markets such
as  telecommunications  and  client/server.  The Company's Highwire products are
focused  on  the  telecommunications  applications  market  and  the significant
increases  in  communications  activity  that  are  driven by the convergence of
traditional  telephony  applications  with  the  Internet.  While  the  Company
believes  the  market  for the Highwire product family is large, there can be no
assurance  that  the  Company will be able to succeed in penetrating this market
and  diversifying  its  sales.  See "Item 1-Business-Risk Factors-Future Success
Dependent  on  New  Product  Lines."

On  July  14, 2000, the Company acquired LAN Media Corporation, a privately held
wide area networking adapter company headquartered in Sunnyvale, California.  In
the  acquisition, we issued approximately 316,000 shares of our Common Stock for
all  LAN Media's outstanding common stock.  The acquisition was accounted for as
a  pooling  of  interests  under  Accounting  Principles  Board  Opinion No. 16.

During  the  year ended October 31, 2001, the Company reduced its workforce from
87  to  47 employees or 46% over the prior year. As a result of the reduction in
its  workforce,  the  Company will realize an annual savings related to employee
salaries  and benefits of approximately $3.0 million as compared to fiscal 2001.
The  Company  also  entered  into an agreement with a third party corporation to
assign the lease of its 63,000 square foot engineering and headquarters facility
located  in San Ramon, California. Simultaneously with the lease assignment, the
Company  sublet  a 15,000 square foot engineering and headquarters facility also
located  in San Ramon, California. The total net savings to the Company from the
move of its engineering and headquarters facility will be approximately $800,000
per  year  or  $3.0  million  over  the  term of the lease. The Company expensed
$964,000  in  restructuring  costs related to the reduction in its workforce and
change  in  facilities  in  fiscal  2001.

RESULTS  OF  OPERATIONS

The  following  table  sets  forth,  as  a  percentage  of  net  sales,  certain
consolidated  statements  of  operations data for the fiscal years ended October
31, 2001, 2000 and 1999.  These operating results are not necessarily indicative
of  Company's  operating  results  for  any  future  period.


                                      -15-
<PAGE>
<TABLE>
<CAPTION>
                                       YEAR  ENDED  OCTOBER  31,
                                     ----------------------------
                                       2001      2000      1999
                                     --------  --------  --------
<S>                                  <C>       <C>       <C>
Net sales                                100%      100%      100%
Cost of sales                             63        36        38
                                     --------  --------  --------
  Gross profit                            37        64        62
Operating expenses:
  Product research and development        73        19        26
  Sales and marketing                     40        16        23
  General and administrative              42        16
  Restructuring costs                     13       ---       ---
                                     --------  --------  --------
   Total operating expenses             (168)       51        64
                                     --------  --------  --------
Operating income (loss)                 (131)       13        (2)
Interest income                            3         1         1
                                     --------  --------  --------
Income (loss) before income taxes       (128)       14        (1)
Provision for income taxes               ---       ---       ---
                                     --------  --------  --------
Net income (loss)                      (128)%       14%      (1)%
                                     ========  ========  ========
</TABLE>

NET  SALES

Net  sales  for  fiscal 2001 were $7.7 million, a 74% decrease from fiscal 2000.
Net  sales  for fiscal 2000 were $29.2 million, a 47% increase from fiscal 1999.
The  decrease  from  fiscal  2000 to fiscal 2001 was primarily attributable to a
general  slowdown in demand from telecommunications customer and  to lower sales
of  custom  integrated circuit products to Compaq. The increase from fiscal 1999
to  fiscal 2000 was primarily attributable to increased sales of VMEbus products
to Compaq along with an overall increase in sales of WAN Adapter products. Sales
to  individual  customers  in excess of 10% of net sales of the Company included
net  sales  to  Compaq of $2.6 million in 2001, $19.4 million in fiscal 2000 and
$12.6  million  in  fiscal 1999, respectively. Net sales to Lockheed Martin were
$1.5  million,  $1.0  million  and  $500,000  in  fiscal  2001,  2000  and 1999,
respectively.  The  Company  expects  to  continue  to experience fluctuation in
product  sales  as  large  customers'  needs  change.  See "Item 1-Business-Risk
Factors-Dependence  on  a  Limited  Number  of  OEM  Customers."

International  sales  constituted  9%,  4%  and  4% of net sales in fiscal 2001,
fiscal  2000 and fiscal 1999, respectively.  International sales are executed in
US  dollars  and  are  principally  transacted  in  Europe.

GROSS  PROFIT

Gross  profit  as a percentage of net sales was 37%, 64% and 62% in fiscal 2001,
2000  and  1999, respectively.  During 2001, the Company increased its inventory
valuation  reserves  for  obsolete  and  slow  moving inventory by $1.0 million.
Excluding  the  inventory write-downs, the gross margin for fiscal 2001 was 50%.
Gross  profit  as  a percentage of sales decreased in fiscal 2001 as a result of
inventory  valuation write-downs and lower production volumes. Gross profit as a
percentage  of net sales increased in fiscal 2000 as a result of lower costs for
products  due  to  increased  volume.


                                      -16-
<PAGE>
PRODUCT  RESEARCH  AND  DEVELOPMENT

Product research and development expenses were $5.7 million in fiscal 2001, $5.6
million  in  fiscal  2000 and $5.2 million in fiscal 1999, representing 73%, 19%
and  26%  of  net sales, respectively.  The increase in research and development
spending  as  a percentage of revenue from fiscal 2000 to fiscal 2001 was due to
lower  revenue  without  a  corresponding  reduction in research and development
spending.  During  fiscal  2001,  the  Company  emphasized  completion  of  the
development  programs for the HighWire product line and software development for
the  SS7  and  WAN  product  lines.  The  increase  in  research and development
spending  from fiscal 1999 to fiscal 2000 was a result of higher spending on the
development  of new telecommunications products.  Due to staffing reductions and
other  cost  containment  measures  during  the  later  part of fiscal 2001, the
Company  expects  a  reduction  in overall spending for its product research and
development  in  absolute dollars and as a percentage of sales from fiscal 2001.
See "Item 1-Business-Risk Factors-Future Success Dependent on New Product Lines;
-Rapid  Technological  Change;  Ongoing  Product  Development  Requirements."

The Company did not capitalize any internal software development costs in fiscal
2001,  2000  or  1999,  respectively.

SALES  AND  MARKETING

Sales  and  marketing expenses for fiscal 2001 were $3.1 million, a 33% decrease
over  fiscal  2000. This decrease is primarily related to lower headcount in the
sales  and  marketing  departments  plus  a decrease in commissions due to lower
sales  volume.  Fiscal  2000  expense  was $4.6 million, essentially the same as
fiscal  1999.  Sales  and  marketing  programs  are  focused  on  new  customer
development  and  therefore  as new customer sales increase, sales and marketing
expenses will increase.  Customer new product sales cycles may span over periods
as  long as twenty-four months.  Due to staffing reductions and cost containment
measures during the latter part of 2001, the Company expects sales and marketing
expense  will  decrease  in  absolute dollars and as a percentage of total sales
from  fiscal  2001  levels.

In  the  latter  part  of  fiscal  2001,  the  Company reorganized its sales and
marketing groups enhancing the industry and product expertise of the groups. The
sales  department  is now organized around and the members of our sales team are
compensated  for  meeting  certain  objectives  referred  to as "Design Wins." A
Design  Win  is defined as a program with an OEM customer which will generate at
least  $400,000  in  annual  revenue  within  12 to 18 months after the customer
accepts  and  confirms  the  use of the Company's product in their platform. The
Company had three Design Wins in the fourth quarter of 2001 and expects to close
at  least  20  Design  Wins  in  fiscal  2002.

GENERAL  AND  ADMINISTRATIVE

General and administrative expenses for fiscal 2001 decreased to $3.3 million, a
28%  decrease  over  fiscal  2000. The decrease was due to headcount and expense
containment measures  plus reduced profit sharing and bonus  contributions which
are  tied to the Company's profitability.  Fiscal 2000 expense increased to $4.6
million from 3.0 million in fiscal 1999 or, 52%, as a result of increased profit
sharing  and bonus programs due to increased profitability and  costs related to
the  acquisition  of  LAN  Media  Corporation.


                                      -17-
<PAGE>
RESTRUCTURING  COSTS
In  response  to  the  continued  economic  slowdown,  the Company implemented a
restructuring  plan  in  fiscal  2001  and  recorded  a  restructuring charge of
$964,000.  Restructuring  costs are comprised of severance costs associated with
staff  reductions  totaling  $52,000,  leasehold  improvements  and  equipment
write-downs  related to the relocation of the Company's headquarters of $337,000
and  losses  related  to  its  sublease  of  $575,000.  The  Company reduced its
headcount from 87 employees to 47 employees during fiscal 2001. The reduction in
headcount  plus  the  relocation  of  the  XeTel manufacturing facility from the
Company's  engineering  and  headquarters  facility  in San Ramon, California to
Texas left the Company with excess facility space. The Company was able to enter
into  an  agreement  with  a third party corporation to assign the lease for its
63,000  square  foot  facility  located  at  4550  Norris  Canyon Rd, San Ramon,
California  and  simultaneously  sublease  a  15,000  square  foot facility also
located  in  San  Ramon,  California.  The  Company  abandoned  the  leasehold
improvements and certain of its equipment in conjunction with the relocation. As
a  result  of  this  transaction,  a  non-cash  $337,000 write down of leasehold
improvements  and equipment was expensed in fiscal 2001. Real estate commissions
and  building expenses totaling $442,000 were accrued in fiscal 2001 and will be
paid  in fiscal 2002. An additional amount totaling $133,000 was accrued related
to  a  loss  associated  with facilities acquired with the purchase of LAN Media
Corporation  in fiscal 2000 and subleased to a third party corporation in fiscal
2001.  This amount will be paid over 36 months beginning May 2001. As of October
31,  2001,  $590,000  of  the  restructuring costs was included in other current
liabilities.

INTEREST  INCOME

Interest  income  in  fiscal  2001  increased  slightly  from 2000 due to higher
average cash balances in fiscal 2001. Fiscal 2000 income decreased slightly from
fiscal  1999  due  to  lower average cash balances in fiscal 2000 as compared to
fiscal  1999.

INCOME  TAXES

The  Company  recorded  tax  provisions of $1,000, $126,000 and $3,000 in fiscal
2001,  2000 and fiscal 1999, respectively.  The Company's effective tax rate was
0%,  3%  and  1%  in  fiscal 2001, 2000 and 1999, respectively.  The Company has
recorded  a  valuation  allowance  in  fiscal  2001,  2000, and 1999 for certain
deferred  tax  assets  due  to  the  uncertainty of realization.  This valuation
allowance  decreased  from  approximately  $4.0  million  in fiscal 2000 to $8.1
million  in  fiscal  2001.  In the event of future taxable income, the Company's
effective  income  tax  rate in future periods could be lower than the statutory
rate  as  such  tax  assets  are  realized.

NET  INCOME  (LOSS)

As  a  result of the factors discussed above, the Company recorded a net loss of
$9.9  million  in fiscal 2001, net income of $4 million in fiscal 2000 and a net
loss  of  $254,000  in  fiscal  1999.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company  had  cash and cash equivalents of $3.6 million and $5.3 million on
October  31,  2001  and  October  31,  2000, respectively.  In fiscal 2001, $1.5
million of cash was used by operating activities, principally as a result of net
losses  of  $9.9  million  and  a $1.6 million decrease in other liabilities and


                                      -18-
<PAGE>
accounts  payable.  The  decrease  in  liabilities  and accounts payable was the
result  of  controlled  spending  during this period of lower sales volume.  The
decreases  in  cash were partially offset by $1,077,000 of non-cash depreciation
and  amortization  charges,  a $337,000 non-cash charge related to write-offs of
fixed  assets  and leasehold improvements included in the restructuring costs, a
$490,000  decrease  in  inventories,  a  $3.5 million decrease in trade accounts
receivable  and a $4.6 million increase in non-current liabilities. The decrease
in inventories is primarily related to a $1.0 million write down for slow moving
and  obsolete  inventory  and  was  partially  offset  by  purchases  of certain
end-of-life  components  to  be used in future production of VME and LMC adapter
products. We believe that we have acquired sufficient components to meet backlog
and  forecasted  customer  demand  and  are actively working with the applicable
customers to transition them to new product platforms. The decrease in the trade
accounts  receivable  is  the  result  of  lower sales volumes.  The increase in
non-current  liabilities was primarily the result of a $4.9 million deposit from
Compaq  which  was  part  of  a  four year end-of-life supply agreement that was
initiated  during  the second quarter of fiscal 2001. Working capital at October
31,  2001  was  $7.6  million, as compared to $11.6 million at October 31, 2000.

In  fiscal  2001,  the  Company  purchased  $299,000 of fixed assets, consisting
primarily  of  computers  and engineering equipment. Software costs amounting to
$10,000  were  capitalized  in  fiscal  2001.  The Company expects significantly
lower  levels  of  capital  expenditures  during  fiscal  2002.

The  Company  received  $160,000  in  fiscal  2001  from  employee  stock option
exercises  and  stock  purchase  plan  purchases.

The Company will realize significant reductions in its operating expenses due to
management's implementation of a program of controlled spending that encompasses
every  aspect  of  the  Company.  In  addition,  the  headcount  reductions will
translate  to  an  estimated  $3.0 million decrease in salaries and benefits and
other  employee  related  expenses  combined  with  an estimated $800,000 annual
decrease  in  facility  expenses  related  to  the  relocation  of the Company's
engineering and headquarters facility.  Based on the current operating plan, the
Company anticipates that its current cash balances and cash flow from operations
will  be sufficient to meet its working capital needs in fiscal 2002. After that
time,  we  cannot  be  certain  that  additional  funding  will  be available on
acceptable  terms,  or at all. If we require additional capital resource to grow
our  business, execute our operating plans or acquire complimentary technologies
or  businesses  at any time in the future, we may seek to sell additional equity
or  debt  securities  or  secure lines of credit, which may result in additional
dilution  to our stockholders. In addition, we cannot be assured that additional
financing,  if  needed,  will  be  available  on  favorable  terms,  or  at all.

ITEM  7A.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  Company's cash and cash equivalents are subject to interest rate risk.  The
Company  invests  primarily  on  a  short-term  basis.  The  Company's financial
instrument  holdings  at  October  31,  2001  were  analyzed  to determine their
sensitivity to interest rate changes.  The fair values of these instruments were
determined  by net present values.  In our sensitivity analysis, the same change
in  interest  rate  was  used for all maturities and all other factors were held


                                      -19-
<PAGE>
constant.  If interest rates increased by 10%, the expected effect on net income
(loss)  related  to  the  Company's  financial  instruments would be immaterial.

ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

The  financial  statements  and  supplementary  data  required  under Item 8 are
provided  under  Item  14.

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

None.


                                      -20-
<PAGE>
                                    PART III


ITEM  10.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

Identification  of  Directors;  Section  16(a)  Beneficial  Ownership  Reporting
--------------------------------------------------------------------------------
Compliance
----------

The  information  required  by  Item  10  concerning  the Company's directors is
incorporated by reference from the information in the section entitled "Election
of  Directors" appearing in the Company's definitive Proxy Statement to be filed
with  the  Securities  and  Exchange  Commission  for  the  Annual  Meeting  of
Stockholders  scheduled  for  March  19, 2002 (the "2002 Proxy Statement").  The
information  required  by  Item  10 concerning the compliance of certain persons
with the beneficial ownership reporting requirements of Section 16(a) of the Act
is  incorporated  by  reference  from  the  information  in the section entitled
"Compliance  with  Section  16(a)  of  the  Securities and Exchange Act of 1934"
appearing  in  the  2002  Proxy  Statement.

Identification  of  Executive  Officers
---------------------------------------

The  executive  officers  of the Company and their respective ages and positions
with  the  Company  as  December  31, 2001 are set forth in the following table.
Executive officers serve at the discretion of the Board of Directors.  There are
no  familial relationships between a director or executive officer and any other
director  or  executive  officer  of  the  Company.

<TABLE>
<CAPTION>
Name                                  Age                  Position
------------------------------------  ---  ----------------------------------------
<S>                                   <C>  <C>
William B. Heye, Jr.                   63  President and Chief Executive Officer

David W. Brunton                       51  Vice President, Finance, Chief Financial
                                           Officer, Treasurer and Secretary

Daniel Grey                            46  Vice President of Sales

Richard M. Strang                      56  Vice President, Technology

Kirk Anderson                          42  Vice President, Operations
</TABLE>

Mr.  Heye  joined  the  Company  in  November 1991 as President, Chief Executive
Officer  and  member  of the Board of Directors.  From 1989 to November 1991, he
served  as  Executive  Vice  President  of  Ampex Corporation, a manufacturer of
high-performance  scanning  recording  systems,  and  President  of  Ampex Video
Systems  Corporation,  a  wholly-owned  subsidiary  of  Ampex  Corporation and a
manufacturer  of  professional  video  recorders  and  editing  systems  for the
television  industry.  From  1986  to  1989,  Mr.  Heye served as Executive Vice
President  of  Airborn, Inc., a manufacturer of components for the aerospace and
military  markets.  Prior  to 1986, Mr. Heye served in various senior management
positions  at  Texas  Instruments,  Inc.  in  the  United  States  and overseas,
including  Vice President and General Manager of Consumer Products and President
of  Texas  Instruments  Asia,  Ltd.,  with  headquarters  in  Tokyo,  Japan.


                                      -21-
<PAGE>
Mr.  Brunton  joined  the  Company  in November 2001 as Vice President, Finance,
Chief  Financial Officer, Secretary and Treasurer.  From 2000 to 2001 he was the
Chief  Financial  Officer  for  NetStream,  Inc.,  a telephony broadband network
service  provider.  From  1997  to  2000,  Mr.  Brunton  was the Chief Financial
Officer  and  Senior  Vice  President  -  Operations  for ReSourcePhoenix.com, a
financial  services  outsource provider.  From 1987 to 1997, Mr. Brunton was the
Corporate  Controller  for the Phoenix American Companies, an equipment leasing,
cable TV, telecommunications and software development company.  Mr. Brunton is a
CPA  who  prior  to  1987  was with Arthur Andersen & Co. (now Andersen LLP), an
international  professional  services  firm.

Mr.  Grey  has served as Senior Vice President of Sales since May 2001.  He is a
former  member of the SBE sales staff who rejoined SBE in May 2001. From 1989 to
1996,  as the Director of Western Sales for SBE, he drove sales to record levels
through  the  initiation  of  relationships  with industry leaders such as Cisco
Systems,  Sun  Microsystems,  and  Tandem  Computers.  In  addition,  Grey  has
experienced  20  years  of  success  propelling  sales  for well known companies
including Force Computers, Mizar, Performance Technologies, and most recently as
senior  vice  president  of  sales  with  SBS  Technologies.

Mr.  Strang  has served as Vice President of Technology since 1997. and has been
the  company's  chief  architect  and  technologist.  He  originated many of the
company's  ASIC  and  board  design concepts, including its current HighWire(TM)
product  family,  and  has  been  instrumental  in  enabling SBE to identify and
respond  to  specific  needs  of key OEM customers who require the most advanced
technology.  Prior to founding SBE, Mr. Strang developed communications products
at Adaptive Science Corporation, becoming their Vice President of Engineering in
1980.  Previously, he developed data acquisition and display systems for nuclear
physics programs at Lawrence Berkeley Laboratory. Mr. Strang holds BA degrees in
Physics  and  Mathematics.

Mr.  Anderson  has  served  as Vice President, Operations since October 2001. He
joined  the Company as Manager, Operations in 1997 and was promoted to Director,
Operations  in  1999.  Prior  to  joining the Company he held various management
positions  in  operations, finance and marketing for several high-tech companies
in  Silicon  Valley,  including  Vitalink  Communications,  a  pioneer  in
internetworking  products.


ITEM  11.     EXECUTIVE  COMPENSATION

The  information  required  by  Item  11  is  incorporated by reference from the
information  in  the  section entitled "Executive Compensation" appearing in the
2002  Proxy  Statement.


ITEM  12.     SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

The  information  required  by  Item  12  is  incorporated by reference from the
information  in  the  section entitled "Security Ownership of Certain Beneficial
Owners  and  Management"  appearing  in  the  2002  Proxy  Statement.


                                      -22-
<PAGE>
ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

The  information  required  by  Item  13  is  incorporated by reference from the
information  in  the  sections  entitled  "Certain  Transactions" and "Executive
Compensation"  appearing  in  the  2002  Proxy  Statement.

                                     PART IV

ITEM  14.     EXHIBITS,  FINANCIAL STATEMENTS, FINANCIAL     STATEMENT SCHEDULES
              AND  REPORTS  ON  FORM  8-K

The following documents are filed as part of this Report:

(a)(1)    Financial Statements
          --------------------

                                                                            Page
                                                                            ----

          Report of Independent Accountants                                   27

          Consolidated Balance Sheets at October 31, 2001 and 2000            28

          Consolidated Statements of Operations for fiscal years 2001,
              2000 and 1999                                                   29

          Consolidated Statements of Stockholders' Equity for fiscal
               years 2001, 2000 and 1999                                      30

          Consolidated Statements of Cash Flows for fiscal years 2001,
               2000 and 1999                                                  31

          Notes to Consolidated Financial Statements                          32


(a)(2)    Financial  Statement  Schedule
          ------------------------------

          Schedule  II  -  Valuation  and  Qualifying  Accounts               45

          All  other schedules are omitted as the required information
          is  not  applicable or has been included in the consolidated
          financial  statements  or  the  notes  thereto.

(a)(3)    List  of  Exhibits


                                      -23-
<PAGE>
     Exhibit
     Number     Description
     ------     -----------

     3.1(1)     Certificate  of  Incorporation,  as  amended  through
                December  15,  1997.

     3.2(2)     Bylaws,  as  amended  through  December  8,  1998.

     10.1(3)*   1996  Stock  Option  Plan,  as  amended.

     10.2(4)*   1991  Non-Employee  Directors'  Stock  Option  Plan,  as
                amended.

     10.3(5)    1992  Employee  Stock  Purchase  Plan,  as  amended.

     10.4(6)    1998  Non-Officer  Stock  Option  Plan.

     10.5(7)    Lease  for  4550  Norris  Canyon Road, San Ramon, California
                dated  November  2,  1992  between  the  Company  and PacTel
                Properties.

     10.6(8)    Amendment dated June 6, 1995 to lease for 4550 Norris Canyon
                Road, San Ramon, California, between the Company and CalProp
                L.P.  (assignee  of  PacTel  Properties).

     10.7(9)    Asset  Purchase  Agreement between XeTel Corporation and the
                Company  dated  as  of  December  6,  1996.

     10.8(1)    Letter of agreement to provide credit facilities between the
                Company  and  Comerica  Bank  - California, dated August 26,
                1997.

     10.9(2)*   Full  Recourse  Promissory Note executed by William B. Heye,
                Jr.  in  favor  of  the  Company  dated November 6, 1998, as
                amended.

     10.10(10)+ Amendment  No. S/M018-4 dated April 3, 2001, to the Purchase
                Agreement  dated  May  6, 1991, between SBE, Inc. and Compaq
                Computer  Corporation.

*  Indicates  management  contract  or  compensation plans or arrangements filed
pursuant  to  Item  601(5)(10)  of  Regulation  SK.
+  Certain  confidential information has been deleted from this exhibit pursuant
to  a  confidential  treatment  order  that  has  been  granted.

     11.1       Statement re computation of per share earnings                46

     23.1       Consent of PricewaterhouseCoopers LLP, Independent
                Accountants                                                   47


                                      -24-
<PAGE>
(b)  REPORTS  ON  FORM  8-K

     No  report  on  Form  8-K was filed by the Company during the quarter ended
     October  31,  2001.

     (1)  Filed  as  an exhibit to Annual Report on Form 10-K for the year ended
          October  31,  1997  and  incorporated  herein  by  reference.

     (2)  Filed  as  an exhibit to Annual Report on Form 10-K for the year ended
          October  31,  1998  and  incorporated  herein  by  reference.

     (3)  Filed  as  an  exhibit  to  Form  S-8  dated  September  15,  1998 and
          incorporated  herein  by  reference.

     (4)  Filed  as  an exhibit to Annual Report on Form 10-K for the year ended
          October  31,  1991  and  incorporated  herein  by  reference.

     (5)  Filed  as  an  exhibit  to  Form  S-8  dated  November  24,  1998  and
          incorporated  herein  by  reference.

     (6)  Filed  as  an  exhibit  to  Form  S-8  dated  October  16,  1998  and
          incorporated  herein  by  reference.

     (7)  Filed  as  an exhibit to Annual Report on Form 10-K for the year ended
          October  31,  1993  and  incorporated  herein  by  reference.

     (8)  Filed  as  an exhibit to Annual Report on Form 10-K for the year ended
          October  31,  1995  and  incorporated  herein  by  reference.

     (9)  Filed  as  an exhibit to the report on Form 8-K dated December 6, 1996
          and  incorporated  herein  by  reference.

     (10) Filed  as  an exhibit to Quarterly Report on Form 10-Q for the quarter
          ended  April  30,  2001  and  incorporated  herein  by  reference.


                                      -25-
<PAGE>
                                   SIGNATURES


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


                                                   SBE,  Inc.
                                                  (Registrant)


Dated: January 25, 2002                  By:  /s/  David  W.  Brunton
                                              ----------------------------------
                                                   David  W.  Brunton
                                                   Chief  Financial  Officer
                                                   and Vice President, Finance


Pursuant  to  the  requirements  for  the  Securities Exchange Act of 1934, this
report  has  been signed below by the following persons on behalf of the Company
in  the  capacities  indicated,  as  of  January  25,  2002.


     Signature                           Title
     ---------                           -----


/s/  William  B.  Heye,  Jr.
----------------------------
William  B.  Heye  Jr.             Chief Executive Officer and President
                                   (Principal  Executive  Officer)


/s/  David  W.  Brunton
----------------------------
David  W.  Brunton                 Chief Financial Officer, Vice President,
                                   Finance, Secretary (Principal Financial and
                                   Accounting  Officer)


/s/  Raimon  L.  Conlisk
----------------------------
Raimon  L.  Conlisk                Director, Chairman of the Board


/s/  Randall  L-W.  Caudill
----------------------------
Randall  L-W.  Caudill             Director


/s/  Ronald  J.  Ritchie
----------------------------
Ronald  J.  Ritchie                Director


                                      -26-
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To  the  Board  of  Directors  and  Stockholders  of  SBE,  Inc.
and  Subsidiaries:

In  our  opinion,  the  consolidated  financial  statements  listed in the index
appearing  under  Item  14(a)(1)  present  fairly, in all material respects, the
financial  position  of  SBE, Inc. and  its subsidiaries at October 31, 2001 and
2000,  and  the results of their operations and their cash flows for each of the
three  years  in the period ended October 31, 2001 in conformity with accounting
principles  generally  accepted in the United States of America. In addition, in
our  opinion,  the  financial  statement  schedule listed in the index appearing
under  Item  14(a)(2) presents fairly, in all material respects, the information
set  forth  therein  when  read  in  conjunction  with  the related consolidated
financial  statements.  These  financial  statements  and  financial  statement
schedule  are the responsibility of the Company's management; our responsibility
is  to  express an opinion on these financial statements and financial statement
schedule  based  on  our  audits. We conducted our audits of these statements in
accordance  with  auditing  standards generally accepted in the United States of
America,  which  require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  financial  statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,  assessing  the
accounting  principles  used  and  significant estimates made by management, and
evaluating  the  overall  financial  statement presentation. We believe that our
audits  provide  a  reasonable  basis  for  our  opinion.

/s/  PricewaterhouseCoopers  LLP

San  Francisco,  California
November 30, 2001, except for Note 14 as to which the date is December 14, 2001.


                                      -27-
<PAGE>
<TABLE>
<CAPTION>
SBE,  INC.
CONSOLIDATED  BALANCE  SHEETS
(IN  THOUSANDS,  EXCEPT  SHARE  AND  PER  SHARE  AMOUNTS)


October 31                                                        2001      2000
----------------------------------------------------------------------------------
<S>                                                             <C>       <C>
ASSETS

Current assets:
  Cash and cash equivalents                                     $ 3,644   $ 5,311
  Trade accounts receivable, net                                    760     4,296
  Inventories, net                                                4,428     4,918
  Deferred income taxes                                             ---         7
  Other                                                             464       420
                                                                --------  --------
      Total current assets                                        9,296    14,952

Property and equipment, net                                       1,236     2,143
Capitalized software costs, net                                      86       293
Other                                                                72        39
                                                                --------  --------

      Total assets                                              $10,690   $17,427
                                                                ========  ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Trade accounts payable                                        $   545   $ 1,094
  Accrued payroll and employee benefits                             343     1,304
  Accrued product warranties                                         56       145
  Other                                                             757       767
                                                                --------  --------
      Total current liabilities                                   1,701     3,310

Deferred tax liabilities                                            ---         7
Deferred rent                                                       ---       281
Refundable deposit                                                4,870       ---
                                                                --------  --------

        Total liabilities                                         6,571     3,598
                                                                --------  --------
Commitments and contingencies (Notes 7 and 10)

Stockholders' equity:
  Convertible preferred stock:  no par value;
    Authorized 167,339 shares; issued 163,344 in fiscal 1999;
    none outstanding at October 31, 2001 and 2000                   ---       ---
  Common stock and additional paid-in capital
    ($0.001 par value); authorized
    10,000,000 shares; issued
    3,521,037 and 3,389,338 shares at
    October 31, 2001 and 2000, respectively (including
    Treasury shares:  79,500 at October 31, 2001 and 2000)       13,877    13,855
  Note receivable from stockholder                                 (744)     (744)
  Treasury stock                                                   (409)     (409)
  Deferred stock-based compensation                                 ---      (164)
  Retained earnings (accumulated deficit)                        (8,605)    1,291
                                                                --------  --------

        Total stockholders' equity                                4,119    13,829
                                                                --------  --------

        Total liabilities and stockholders' equity              $10,690   $17,427
                                                                ========  ========
</TABLE>

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


                                      -28-
<PAGE>
<TABLE>
<CAPTION>
SBE,  INC.
CONSOLIDATED  STATEMENTS  OF  OPERATIONS
(IN  THOUSANDS,  EXCEPT  FOR  PER  SHARE  AMOUNTS)


For the years ended October 31               2001      2000      1999
-----------------------------------------------------------------------
<S>                                        <C>        <C>      <C>

Net sales                                  $  7,726   $29,178  $19,854
Cost of sales                                 4,860    10,418    7,622
                                           ---------  -------  --------

  Gross profit                                2,866    18,760   12,232

Product research and development              5,652     5,635    5,167
Sales and marketing                           3,105     4,612    4,505
General and administrative                    3,265     4,602    3,037
Restructuring costs                             964       ---      ---
                                           ---------  -------  --------

  Total operating expenses                   12,986    14,849   12,709

  Operating income (loss)                   (10,120)    3,911     (477)

Interest income                                 225       185      226
                                           ---------  -------  --------

  Income (loss) before income taxes          (9,895)    4,096     (251)

Provision for income taxes                        1       126        3
                                           ---------  -------  --------

Net income (loss)                          $ (9,896)  $ 3,970  $  (254)
                                           =========  =======  ========


Basic earnings (loss) per common share     $  (2.92)  $  1.24  $ (0.08)
                                           =========  =======  ========

Diluted earnings (loss) per common share   $  (2.92)  $  1.04  $ (0.08)
                                           =========  =======  ========

Basic - Shares used in per share
  computations                                3,390     3,208    3,097
                                           =========  =======  ========

Diluted - Shares used in per share
  computations                                3,390     3,814    3,097
                                           =========  =======  ========
</TABLE>

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


                                      -29-
<PAGE>
<TABLE>
<CAPTION>
SBE,  INC.
CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY
(in  thousands,  except  shares)


                                                                                            Common Stock
                                                                       Convertible         and Additional      Note  Receivable
                                                                     Preferred Stock       Paid-in Capital     from stockholder
                                                                     Shares     Amount    Shares     Amount
<S>                                                                 <C>        <C>       <C>        <C>       <C>
Balance, October 31, 1998                                            147,364   $ 1,229   2,768,701  $10,044   $               -
Issuance Series B convertible Preferred Stock                         15,980       200           -        -                   -
Stock issued in connection with stock option plans                         -         -     195,987      834                   -
Stock issued in connection with stock purchase plan                        -         -      19,641       74                   -
Stock repurchase                                                           -         -           -        -                   -
Note receivable from stockholder                                           -         -           -        -                (744)
Deferred stock-based compensation                                          -         -           -      158                   -
Amortization of deferred stock compensation                                -         -           -        -                   -
Net loss
                                                                    ---------  --------  ---------  --------  ------------------
Balance, October 31, 1999                                            163,344     1,429   2,984,329   11,110                (744)
Stock issued in connection with stock option plans                         -         -     222,334    1,081                   -
Stock retired/issued in connection with conversion to common stock  (163,344)   (1,429)    163,344    1,429                   -
Stock issued in connection with stock purchase plan                        -         -      19,331      104                   -
Stock repurchase                                                           -         -           -        -                   -
Note receivable from stockholder                                           -         -           -        -                   -
Deferred stock-based compensation                                          -         -           -      131                   -
Amortization of deferred stock compensation                                -         -           -        -                   -
Net income                                                                 -         -           -        -                   -
                                                                    ---------  --------  ---------  --------  ------------------
Balance, October 31, 2000                                                  -         -   3,389,338   13,855                (744)
Stock issued in connection with stock option plans                                          99,054       51                   -
Stock issued in connection with stock purchase plan                        -         -      32,645      109                   -
Stock repurchase                                                           -         -           -        -                   -
Forfeiture of unvested stock options                                       -         -           -     (138)                  -
Amortization of deferred stock compensation                                -         -           -        -                   -
Net loss                                                                   -         -           -        -                   -
Balance, October 31, 2001                                                  -   $     -   3,521,037  $13,877   $            (744)
                                                                    =========  ========  =========  ========  ==================


                                                                                                        Retained
                                                                                        Deferred        Earnings
                                                                    Treasury Stock     Stock-Based    (Accumulated
                                                                    Shares   Amount    Compensation      deficit)    Total
<S>                                                                 <C>     <C>       <C>             <C>           <C>
Balance, October 31, 1998                                                -  $     -   $           -   $    (2,425)  $ 8,848
Issuance Series B convertible Preferred Stock                            -        -               -             -       200
Stock issued in connection with stock option plans                       -        -               -             -       834
Stock issued in connection with stock purchase plan                      -        -               -             -        74
Stock repurchase                                                    74,500     (358)                            -      (358)
Note receivable from stockholder                                         -        -                             -      (744)
Deferred stock-based compensation                                        -        -            (158)            -         -
Amortization of deferred stock compensation                              -        -              36             -        36
Net loss                                                                                                     (254)     (254)
                                                                    ------  --------  --------------  ------------  --------
Balance, October 31, 1999                                           74,500     (358)           (122)       (2,679)    8,636
Stock issued in connection with stock option plans                       -        -               -             -     1,081
Stock retired/issued in connection with conversion to common stock       -        -               -             -         -
Stock issued in connection with stock purchase plan                      -        -               -             -       104
Stock repurchase                                                     5,000      (51)                            -       (51)
Note receivable from stockholder                                         -        -                             -         -
Deferred stock-based compensation                                        -        -            (131)            -         -
Amortization of deferred stock compensation                              -        -              89             -        89
Net income                                                               -        -               -         3,970     3,970
                                                                    ------  --------  --------------  ------------  --------
Balance, October 31, 2000                                           79,500     (409)           (164)        1,291    13,829
Stock issued in connection with stock option plans                       -        -               -             -        51
Stock issued in connection with stock purchase plan                      -        -               -             -       109
Stock repurchase                                                         -        -               -             -         -
Forfeiture of unvested stock options                                     -        -             138             -         -
Amortization of deferred stock compensation                              -        -              26             -        26
Net loss                                                                 -        -               -        (9,896)   (9,896)
                                                                    ------  --------  --------------  ------------  --------
Balance, October 31, 2001                                           79,500  $  (409)  $           -   $    (8,605)  $ 4,119
                                                                    ======  ========  ==============  ============  ========

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


                                      -30-
<PAGE>
<TABLE>
<CAPTION>
SBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

For the years ended October 31                                  2001      2000      1999
------------------------------------------------------------------------------------------
<S>                                                           <C>       <C>       <C>
Cash flows from operating activities:
  Net income (loss)                                           $(9,896)  $ 3,970   $  (254)
  Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
    Depreciation and amortization                               1,077       962       818
    Non-cash restructuring costs                                  337       ---       ---
    Stock-based compensation expense                               26        89        36
    Loss on sale of assets                                          5       ---       ---
    Changes in operating assets and liabilities:
         Trade accounts receivable                              3,536      (808)      378
         Inventories                                              490    (2,951)       65
         Other assets                                             (70)      (89)      144
         Trade accounts payable                                  (549)      (26)     (468)
         Other current liabilities                             (1,060)    1,211       290
         Non-current liabilities                                4,582       (64)      (47)
                                                              --------  --------  --------
          Net cash provided by (used in) operating activities  (1,522)    2,294       962
                                                              --------  --------  --------

Cash flows from investing activities:
  :
    Purchases of property and equipment                          (299)   (1,320)     (870)
    Proceeds from sale of assets                                    4       ---       ---
    Capitalized software costs                                    (10)     (182)     (268)
                                                              --------  --------  --------
          Net cash used in investing activities                  (305)   (1,502)   (1,138)
                                                              --------  --------  --------

Cash flows from financing activities:
  Proceeds from stock plans                                       160     1,185       164
  Proceeds from issuance of preferred stock                       ---       ---       200
  Purchase of treasury stock                                      ---       (51)     (358)
                                                              --------  --------  --------
          Net cash provided by financing activities               160     1,134         6
                                                              --------  --------  --------

      Net (decrease) increase in cash and cash equivalents     (1,667)    1,926      (170)

Cash and cash equivalents at beginning of year                  5,311     3,385     3,555
                                                              --------  --------  --------
Cash and cash equivalents at end of year                      $ 3,644   $ 5,311   $ 3,385
                                                              ========  ========  ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for:
  Interest                                                    $   ---   $    24   $   ---
                                                              ========  ========  ========
  Income taxes                                                $   ---   $   126   $    37
                                                              ========  ========  ========

SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING
ACTIVITIES

Conversion of preferred stock into common stock               $   ---   $ 1,429   $   ---
                                                              ========  ========  ========

Issuance of stock in exchange for note receivable             $   ---   $   ---   $   744
                                                              ========  ========  ========
</TABLE>

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


                                      -31-
<PAGE>
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS

1.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

Business  Segment  and  Basis  of  Presentation:

SBE,  Inc.  and  subsidiaries  (the  "Company")  designs  and  manufactures
high-performance  communications  controllers  and  equipment  used primarily in
carrier-grade  computer  systems  and signaling, switching and routing networks.
The  Company's  products  are  sold  worldwide.  The  Company's  business  falls
exclusively  within  one  industry  segment.

The  consolidated  financial  statements  of  the  Company include the financial
position  and results of operations of LAN Media Corporation, ("LMC"), which the
Company  acquired on July 14, 2000. The merger was accounted for as a pooling of
interests  and  accordingly, financial statements presented for all periods have
been  restated  to  reflect  combined  operations  and  financial  position.  As
consideration  for  all  outstanding  shares  of LMC, the Company issued 316,101
shares  of  its  common  stock. In addition, the Company assumed all outstanding
options  held  by  LMC  option  holders.

The  Company  has  incurred  substantial  losses  and  negative  cash flows from
operations  during the year ended October 31, 2001. Management has implemented a
cost  containment  program  to reduce the Company's headcount, real estate needs
and  certain  non-essential  spending.  The Company anticipates that its current
cash  balances  and  cash  flow  from  operations will be sufficient to meet its
working  capital  needs  in  fiscal 2002. After that time, the Company cannot be
certain  that  additional  funding  will be available on acceptable terms, or at
all.

Principles  of  Consolidation:

The  consolidated  financial  statements include the accounts of the Company and
its  wholly-owned  subsidiaries.

Use  of  Estimates:

The  preparation  of  consolidated  financial  statements  in  conformity  with
generally  accepted  accounting  principles  in  the  United  States  of America
requires  management  to make estimates and assumptions that affect the reported
amounts  of  assets  and  liabilities  and  disclosure  of contingent assets and
liabilities  at the date of the financial statements and the reported amounts of
revenues  and  expenses  during  the  reporting  period.  Such estimates include
levels of reserves for doubtful accounts, obsolete inventory, warranty costs and
deferred  tax  assets.  Actual  results  could  differ  from  those  estimates.

Fair  Value  of  Financial  Instruments:

The  fair value of the Company's cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their carrying value due to
the  short-term  maturity  rate  structure  of  those  instruments.


                                      -32-
<PAGE>
Cash  and  Cash  Equivalents:

The  Company  considers  all  highly liquid investments readily convertible into
cash  with  an original maturity of three months or less upon acquisition by the
Company  to  be  cash  equivalents.  Substantially  all  of  its  cash  and cash
equivalents  are  held  in  one  large  financial  institution.

Inventories:

Inventories  are  stated  at  the  lower  of cost, using the first-in, first-out
method,  or  market  value.  The  Company's  inventories include high-technology
parts  that  may  be  subject  to rapid technological obsolescence.  The Company
considers  technological  obsolescence in estimating required reserves to reduce
recorded amounts to market values. Such estimates could change in the future and
have  a  material adverse impact on the Company's financial position and results
of  operations.

Property  and  Equipment:

Property  and  equipment  are carried at cost.  The Company records depreciation
charges  over  the  assets' estimated useful lives of three to eight years, on a
straight-line  basis.  Leasehold  improvements  are amortized over the lesser of
their  useful  lives  or  the  remaining  term  of  the  related  leases.

When  assets  are  sold  or  otherwise  disposed  of  the  cost  and accumulated
depreciation  are  removed  from  the  accounts  and any gain or loss on sale or
disposal  is  recognized  in operations. Maintenance, repairs and minor renewals
are  charged  to expense as incurred.  Expenditures which substantially increase
an  asset's  useful  life  are  capitalized.

The  Company  reviews  property  and equipment for impairment whenever events or
changes  in  circumstances  indicate  the  carrying value of an asset may not be
recoverable.  In  performing  the  review  for recoverability, the Company would
estimate  the future cash flows expected to result from the use of the asset and
its  eventual  disposition.  The amount of the impairment loss, if any, would be
calculated based on the excess of the carrying amount of the asset over its fair
value.  During  the  year  ended  October  31,  2001,  the  Company committed to
relocating its engineering and administrative headquarters located in San Ramon,
California and as a consequence wrote off $337,000 in leasehold improvements and
property  and  equipment  associated with the former headquarters location. This
write  off  is  included  in  restructuring  costs.

Capitalized  Software  Costs:

Capitalized  software  costs  consist of costs to purchase software and costs to
internally  develop  software.  Capitalization of software costs begins upon the
establishment  of technological feasibility.  All capitalized software costs are
amortized  as  related  sales  are  recorded  on a per-unit basis with a minimum
amortization  based  on  a straight-line method over a two-year estimated useful
life.  The Company evaluates the estimated net realizable value of each software
product  and records provisions to the asset value of each product for which the
net  book  value  is  in  excess  of  the  net  realizable  value.


                                      -33-
<PAGE>
Revenue  Recognition  and  Warranty  Costs:

The  Company  records product sales at the time of product shipment. The Company
provides  a  reserve  for  estimated  warranty  costs,  which  have  not  been
significant,  at  the  time  of  sale  and  periodically adjusts such amounts to
reflect  actual  expenses.  The  Company's  sales transactions are negotiated in
U.S.  dollars.

Product  Research  and  Development  Expenditures:

Product  research  and  development  ("R&D")  expenditures,  other  than certain
software  development  costs,  are  charged to expense as incurred.  Contractual
reimbursements for R&D expenditures under joint R&D contracts with customers are
accounted  for  as  a  reduction of related expenses as incurred.  For the years
ended October 31, 2001, 2000 and 1999, direct costs incurred under R&D contracts
were  $7,000,  $203,000 and $6,000, respectively, and reimbursements earned were
$22,913,  $290,413  and  $43,750  ,  respectively.

Refundable  Deposit:

A  refundable  deposit associated with a multi-year supply agreement with Compaq
Computer  Corporation  of $4.9 million was received in April 2001.  This deposit
is  refundable  as the Company delivers certain quantities of products to Compaq
over the next four years.  The entire deposit has been classified as non current
as  the  first  refund is not expected to be made within the next twelve months.

Stock-based  Compensation:

The  Company  accounts  for  stock-based  employee  compensation arrangements in
accordance  with  Accounting  Principles  Board  Opinion No. 25, "Accounting for
Stock  Issued  to  Employees,"  ("APB  25")  and  complies  with  the disclosure
provisions  of  Statement  of  Financial  Accounting Standards ("SFAS") No. 123,
"Accounting  for  Stock-Based Compensation".  Under APB 25, compensation expense
is  based  on  the difference, if any, on the date of the grant between the fair
value  of the Company's stock and the exercise price of the option.  The Company
accounts  for equity instruments issued to non-employees in accordance with SFAS
No.  123  and  EITF 96-18, "Accounting for Equity Instruments that are Issued to
Other  than  Employees  for Acquiring, or in Conjunction with Selling, Goods, or
Services",  which require that such equity instruments be recorded at their fair
value.

Income  Taxes:

The  Company  accounts  for  income  taxes  in  accordance  with  SFAS  No. 109,
"Accounting  for  Income  Taxes."  SFAS No. 109 requires recognition of deferred
tax  liabilities  and  assets  for the expected future tax consequences of items
that have been included in the consolidated financial statements or tax returns.
Deferred  income taxes represent future net tax effects resulting from temporary
differences  between  the  financial  statement  and  tax  bases  of  assets and
liabilities,  using  enacted  tax  rates  in  effect  for  the year in which the
differences  are expected to reverse.  Valuation allowances are recorded against
net  deferred  tax  assets  where,  in the opinion of management, realization is
uncertain.  The provision for income taxes represents the net change in deferred
tax  amounts,  plus  income  taxes  payable  for  the  current  period.


                                      -34-
<PAGE>
Net  Earnings  Per  Common  Share:

Basic earnings per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding.  Diluted earnings
per  common  share  is  computed  by dividing net income by the weighted average
number  of  shares  of  common  stock  and common stock equivalents outstanding.
Common  stock  equivalents relate to stock options and include 605,803 shares of
common  stock for the year ended October 31, 2000.  Common stock equivalents are
excluded  from  the  diluted  earnings per share calculation for fiscal 2001 and
1999  due  to  their  anti-dilutive  effect.

Comprehensive  Results:

     Comprehensive  income  is  defined  as  the  change in equity of a business
enterprise  during a period from transactions and other events and circumstances
from  non-owner  sources.  Through October 31, 2001, the Company has not had any
transactions  that  were  required to be reported in other comprehensive income.

Recent  Accounting  Pronouncements:

In  June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133,  "Accounting  for  Derivative  Instruments and Hedging Activities," In June
1999, the FASB issued SFAS No. 137, which requires the Company to adopt SFAS 133
in  the  first  quarter  of fiscal 2001.  The new standard requires companies to
record  derivatives  on  the balance sheet as assets or liabilities, measured at
fair  value.  Gains  or  losses  resulting  from  changes in the values of those
derivatives  will  be  reported  in the statement of operations or as a deferred
item, depending on the use of the derivatives and whether they qualify for hedge
accounting.  The  Company  adopted  SFAS  No.  133  as  required  for  its first
quarterly filing of fiscal year 2001 with no material impact on its consolidated
financial  statements.

In  December  1999,  the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101").  SAB  101,  as  amended, summarizes the SEC's views in applying generally
accepted  accounting  principles to revenue recognition in financial statements.
The  Company  adopted  SAB  101  in  the  fourth  quarter of fiscal 2001 with no
material  impact  on  its  consolidated  financial  statements.

In  July  2001,  the  FASB  issued  ("SFAS No. 141") Statement No. 141, Business
Combinations  and  ("SFAS  No.  142")  Statement  No.  142,  Goodwill  and Other
Intangibles  Assets.  SFAS No. 141 revises the accounting treatment for business
combinations,  requiring  the use of purchase accounting and prohibiting the use
of  pooling-of-interests  method  for  all business combinations initiated after
June  30,  2001,  and  broadens  the  criteria  for  recording intangible assets
separate  from  goodwill  for all business combinations completed after June 30,
2001.  SFAS  No.  142  revises the accounting for goodwill and other intangibles
assets  by not allowing the amortization of goodwill and establishing accounting
for  the  impairment of goodwill and other intangible assets.  SFAS No. 142 will
be  effective  for  fiscal  years beginning after December 15, 2001. The Company
will  adopt  the  pronouncements  as  of November 1, 2002.  The Company does not
expect  the  adoption of the above pronouncements will have a material effect on
its  consolidated  financial  statements.


                                      -35-
<PAGE>
In  October  2001,  the  FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal  of  Long-Lived  Assets."  SFAS  No.  144  supercedes  SFAS  No.  121,
"Accounting  for  the  years  ended  Impairment  of  Long-Lived  Assets  and for
Long-Lived  Assets  to  be  Disposed  Of"  and  applies to all long-lived assets
(including  discontinued  operations)  and  consequently  amends  Accounting
Principles  Board Opinion No. 30, "Reporting Results of Operations Reporting the
Effects  of Disposal of a Segment of a Business."  SFAS No. 144 is effective for
financial  statements  issued  for  years beginning after December 15, 2001. The
Company  does not expect the adoption of SFAS 144 will have a material impact on
its  consolidated  financial  position  or  results  of  operations.

Reclassifications:

Certain  reclassifications  have  been  made  to  the  2000  and  1999 financial
statements  to  conform  to  the  2001 presentation with no effect on net income
(loss)  as  previously  reported.

2.   INVENTORIES

<TABLE>
<CAPTION>
Inventories at October 31, 2001 and 2000 comprise the following:

                                     2001      2000
------------------------------------------------------
<S>                                <C>       <C>
    Finished goods                 $ 3,220   $  2,380
    Parts and materials              2,500      3,717
                                   --------  ---------
    Total gross inventory            5,720      6,097

    Less reserve for obsolescence   (1,292)    (1,179)
                                   --------  ---------
    Total net inventory            $ 4,428   $  4,918
                                   ========  =========
</TABLE>

3.   PROPERTY  AND  EQUIPMENT

Property  and  equipment  at  October  31,  2001  and  2000 are comprised of the
following:

<TABLE>
<CAPTION>
                                     2001      2000
-----------------------------------------------------
<S>                                <C>       <C>
    Machinery and equipment        $ 7,548   $ 7,655
    Furniture and fixtures           1,146     1,236
    Leasehold improvements             536       529
                                   --------  --------
                                     9,230     9,420
    Less accumulated depreciation
      and amortization              (7,994)   (7,277)
                                   --------  --------

                                   $ 1,236   $ 2,143
                                   ========  ========
</TABLE>

     Depreciation  and  amortization  expense  totaled  $860,000,  $863,000  and
     $703,000  for  the  years  ended  October  31,  2001,  2000  and  1999,


                                      -36-
<PAGE>
4.   CAPITALIZED SOFTWARE COSTS

Capitalized software costs at October 31, 2001 and 2000 comprise the following:

<TABLE>
<CAPTION>
                                 2001      2000
-------------------------------------------------
<S>                            <C>       <C>
Purchased software             $   776   $   766
Internally developed software      805       805
                               --------  --------
                                 1,581     1,571

Less accumulated amortization   (1,495)   (1,278)
                               --------  --------
                               $    86   $   293
                               ========  ========
</TABLE>

The  Company  capitalized  $10,000,  $182,000 and $268,000 of purchased software
costs  in  2001,  2000,  and  1999  respectively.  Amortization  of  capitalized
software  costs  totaled  $217,000,  $227,000,  and $115,000 for the years ended
October  31,  2001,  2000,  and  1999,  respectively.


5.   STOCKHOLDERS'  EQUITY

On  December  15, 1997, the Company reincorporated in the state of Delaware.  In
connection  with  this  event,  the  Company  increased the number of authorized
shares  of  preferred  stock to 2,000,000 shares, and established a par value of
$0.001  per  share  for  both  its  common  and  preferred  stock.

In  May  1999, the Board of Directors authorized the Company to repurchase up to
100,000  shares  of  the  Company's issued and outstanding Common Stock.  During
fiscal  1999 and 2000, the Company repurchased 79,500 shares of its Common Stock
in  the  open  market for an aggregate purchase price of approximately $409,000.

The  Company acquired LMC on July 14, 2000. As consideration for all outstanding
shares  of  LMC,  the  Company  issued  316,101  shares  of its common stock. In
addition,  the  Company  assumed  all  outstanding  options  held  by LMC option
holders.

6.   INCOME  TAXES

The components of the provision for income taxes for the years ended October 31,
2001,  2000  and  1999,  comprise  the  following:

<TABLE>
<CAPTION>
                                        2001   2000   1999
--------------------------------------  -----  -----  -----
<S>                                     <C>    <C>    <C>
  Federal:
    Current                             $ ---  $ 109  $ ---
    Deferred                              ---    ---    ---
  State:
    Current                                 1     17      3
    Deferred                              ---    ---    ---
                                        -----  -----  -----
      Total provision for income taxes  $   1  $ 126  $   3
                                        =====  =====  =====
</TABLE>


                                      -37-
<PAGE>
The effective income tax rate differs from the statutory federal income tax rate
for  the  following  reasons:

<TABLE>
<CAPTION>
                                        2001    2000    1999
-------------------------------------  ------  ------  ------
<S>                                    <C>     <C>     <C>

    Statutory federal income tax rate   34.0%   34.0%   34.0%
    Change in valuation allowance      (34.0)  (30.9)  (32.9)
                                       ------  ------  ------
                                           0%    3.1%    1.1%
                                       ======  ======  ======
</TABLE>

Significant  components of the Company's deferred tax balances as of October 31,
2001  and  2000  are  as  follows:

<TABLE>
<CAPTION>
                                            2001      2000
----------------------------------------  --------  --------
<S>                                       <C>       <C>
  Deferred tax assets:
    Current
      Accrued employee benefits           $    57   $    69
      Inventory allowances                    498       450
      Allowance for doubtful accounts          90        60
      Warranty accruals                        22        58

  Noncurrent
      Deferred rent                           ---       137
      R&D credit carryforward               2,546     1,736
      Alternative minimum tax carryforward    193       143
      Net operating loss carryforwards      2,310       384
      Refundable deposit                    1,940       ---
      Depreciation                             55        58
      Restructuring costs                     369       ---
                                          --------  --------
        Total deferred tax assets           8,080     3,095
                                          --------  --------
  Deferred tax liabilities:
    Noncurrent
      Capitalized software costs              ---         7
                                          --------  --------
       Total deferred tax liabilities         ---         7
                                          --------  --------

  Deferred tax asset valuation allowance   (8,080)   (3,088)
                                          --------  --------
    Net deferred tax assets               $   ---   $   ---
                                          ========  ========
</TABLE>

A  valuation  allowance is recorded to offset certain deferred tax assets due to
management's uncertainty of realizing the benefit of these items.  The valuation
allowance  increased  by  $4,992,000  in fiscal 2001 primarily as a result of an
increase  in  the R&D credit carryforward, an increase in the net operating loss
carryforwards,  restructuring  costs  and  advance  receipts  from  a refundable
deposit  associated  with  a  multi-year  supply  agreement with Compaq Computer
Corporation   The  valuation allowance decreased in fiscal 2000 by $899,000 as a
result  of utilizing net operating loss carryforwards.  The Company has research
and  experimentation  tax  credit  carryforwards of $2.5 million for federal and
state  tax  purposes.  These  carryforwards  expire  in  the periods ending 2008
through  2016.  The Company has net operating loss carryforwards for federal and
state  income  tax  purposes  of  approximately  $6,223,000  and  $3,310,000,
respectively,  which  expire  in  periods  ending  2002  through  2021.


                                      -38-
<PAGE>
7.  COMMITMENTS

The  Company  leases  its  buildings  under noncancelable operating leases which
expire  at  various  dates  through the year 2006. Future minimum lease payments
under  noncancelable  operating leases, including lease commitments entered into
subsequent  to  October  31,  2001,  are  as  follows:

<TABLE>
<CAPTION>
<S>                                                       <C>
          Year ending October 31:
               2002                                       $ 1,228
               2003                                         1,208
               2004                                         1,096
               2005                                           806
               2006                                           265
                                                          --------
                                                            4,603

               Less: Total reimbursements from subleases   (2,998)
                                                          --------

               Total minimum lease payments               $ 1,605
                                                          ========
</TABLE>

In  November  2001,  the  Company  entered  into  a new facilities lease for its
engineering  and  administrative  headquarters located in San Ramon, California.
The  lease  expires  in  2004.  The  Company  expects that the new facility will
satisfy its anticipated needs through the foreseeable future.   Additionally the
Company assigned the lease related to its current 63,000 square foot engineering
and  administrative  headquarters  facility  to  a  third-party corporation. The
third-party  corporation  has guaranteed payment of the remaining lease payments
though  the  termination  of  the  original  lease  in  2006.

The  Company  leases 6,100 square feet of office space in Madison, Wisconsin for
various  product development activities.  The lease expires in 2005 and contains
two  renewal  options  of five years each.  The Company expects that this office
space  will  satisfy  the  needs  of  the  Madison  development  group  for  the
foreseeable  future.

Additionally,  through  the  acquisition  of  LAN  Media Corp. in July 2000, the
Company leases approximately 3,650 square feet of office space in Sunnyvale, CA.
The  Sunnyvale lease expires in 2003. In fiscal 2001, the Company subleased this
office  space  to a third party corporation for the remaining term of the lease.

The  Company's  rent  expense  under  all  operating  leases for the years ended
October  31,  2001,  2000 and 1999 totaled $843,587 (net of sublease proceeds of
$260,590), $753,397 (net of sublease proceeds of $389,666), and $588,734 (net of
sublease  proceeds  of  $360,000),  respectively.

8.   STOCK  OPTION  AND  STOCK  PURCHASE  PLANS

The Company sponsors two employee stock option plans, the 1996 Stock Option Plan
(the  "1996 Plan") and the 1998 Non-Officer Stock Option Plan (the "1998 Plan").
Originally adopted as the 1987 Supplemental Stock Option Plan, the 1996 Plan was
amended and restated on January 18, 1996 and renamed the 1996 Stock Option Plan.
A total of 1,580,000 shares of Common Stock were reserved under the 1996 Plan at
October  31,  2001.  The  Company's  Board of Directors adopted the 1998 Plan on
June 15, 1998.  A total of 800,000 shares of Common Stock are reserved under the


                                      -39-
<PAGE>
1998  Plan.  Stock options granted under the 1996 and 1998 Plans are exercisable
over  a  maximum  term  of  ten  years  from  the date of grant, vest in various
installments  over a one to four-year period and have exercise prices reflecting
the  market  value  of  the  shares  of  Common  Stock  on  the  date  of grant.

Additionally,  in  1991,  stockholders  approved  a  Non-Employee Director Stock
Option  Plan  (the  "Director Plan").  A total of 140,000 shares of Common Stock
are  reserved  for  issuance under the Director Plan.  Options granted under the
Director  Plan  vest  over a one to four-year period, expire five to seven years
after  the date of grant and have exercise prices reflecting market value at the
date  of  grant.

At  October  31,  2001  and  2000,  191,536  and 286,245 shares of Common Stock,
respectively,  were available for grant under the 1996 Plan.  A total of 103,768
and  64,200  shares of Common Stock were available for grant under the 1998 Plan
at October 31, 2001 and 2000, respectively.  A total of 40,750 and 65,750 shares
of  Common Stock were available for grant under the Director Plan at October 31,
2001  and 2000, respectively.  Additionally, options to purchase 5,136 shares of
Common  Stock  were outstanding as of October 31, 2001 under the LAN Media stock
option  plan.  The  Company  discontinued  new  grants under the LAN Media stock
option  plan  in  fiscal  2000.

A  summary  of  the combined activity under all of the stock option plans is set
forth  below:

<TABLE>
<CAPTION>
                                                               Weighted
                                                                Average
                      Number of     Price Per      Aggregate   Exercise
                        Shares        Share          Price       Price
------------------------------------------------------------------------
<S>                   <C>         <C>             <C>          <C>
Outstanding at
    October 31, 1998    998,675   $ 0.51 - 13.00  $    4,382   $    4.39

  Granted               432,083   $  1.25 - 8.63  $    2,821   $    6.53
  Terminated           (258,558)  $  1.25 - 9.50  $   (1,387)  $    5.37
  Exercised            (195,987)  $  1.25 - 5.13  $     (834)  $    4.26
                      ----------  --------------  -----------  ---------
  Outstanding at
    October 31, 1999    976,213   $0.51 - $13.00  $    4,982   $    5.10

  Granted               617,995   $ 1.27 - 24.81  $    7,238   $   11.71
  Terminated           (124,995)  $ 0.51 - 21.56  $     (861)  $    6.89
  Exercised            (222,334)  $ 0.51 - 13.00  $   (1,081)  $    4.86
                      ----------  --------------  -----------  ---------
  Outstanding at
    October 31, 2000  1,246,879   $0.51 - $24.81  $   10,278   $    8.24

  Granted               791,000   $  0.98--$8.63  $    2,278   $    2.88
  Terminated           (403,023)  $ 0.51--$24.81  $   (3,353)  $    8.32
  Exercised             (99,054)  $  0.51--$1.27  $      (51)  $    0.52
                      ----------  --------------  -----------  ---------
  Outstanding at
    October 31, 2001  1,419,003   $ 0.51--$23.50  $    9,152   $    6.18
                      ==========                  ===========

  Exercisable at
    October 31, 2001    475,690   $ 0.51--$23.50  $    4,024   $    8.46
                      ==========                  ===========
</TABLE>


                                      -40-
<PAGE>
The  following  table  summarizes  information  with  respect  to all options to
purchase  shares of Common Stock outstanding under the 1996 Plan, the 1998 Plan,
the  Director  Plan  and  the  LAN  Media  Plan  at  October  31,  2001:

<TABLE>
<CAPTION>
                              Options Outstanding            Options Exercisable
=================================================================================
                                   Weighted
                                    Average      Weighted                Weighted
                    Number         Remaining      Average      Number     Average
   Range of       Outstanding  Contractual Life  Exercise   Exercisable  Exercise
 Exercise Price   at 10/31/01      (years)         Price    at 10/31/01   Price
----------------  -----------  ----------------  ---------  -----------  --------
<S>               <C>          <C>               <C>        <C>          <C>
$ 0.00 -   2.48      226,636               5.9  $    1.72        5,136  $    0.86
$ 2.48 -   4.96      487,180               4.9  $    3.47       56,752  $    4.44
$ 4.96 -   7.44      314,905               4.0  $    5.28      184,937  $    5.23
$ 7.44 -   9.93      160,513               3.6  $    8.12       98,627  $    8.05
$ 9.93   $12.41       22,500               0.8  $   10.50       22,500  $   10.50
$12.41 -  14.89      106,250               2.1  $   13.64       64,999  $   13.39
$14.89   $17.37       35,395               1.1  $   16.63       10,902  $   16.59
$17.37   $19.85       20,000               5.6  $   18.81        6,839  $   18.74
$19.85   $24.81       45,624               0.3  $   23.50       24,998  $   23.50

                  -----------                               -----------
                   1,419,003                                   475,690
                  ===========                               ===========
</TABLE>

The Company sponsors an Employee Stock Purchase Plan (the "Purchase Plan") under
which  200,000  shares of Common Stock were reserved for issuance at October 31,
2001.  The  Purchase  Plan  allows  participating employees to purchase, through
payroll  deductions,  shares  of the Company's Common Stock at 85 percent of the
fair  market  value  of  the shares at specified dates.  At October 31, 2001, 48
employees  were  eligible  to participate in the Purchase Plan and 19,699 shares
were available for issuance.  In fiscal year 2001, 2000 and 1999, 32,645, 19,331
and  19,641  shares  of  Common  Stock  were  issued  under  the  Purchase Plan,
respectively.

During the fiscal year ended October 31, 1999, the Company granted options under
the  LAN  Media  stock  option  plan  to purchase 23,970 shares of the Company's
Common Stock to consultants in conjunction with services performed.  The Company
calculated  the  fair  value  of  the  options on the date of grant and recorded
deferred  compensation  expense of $26,000 and $89,000 in the fiscal years ended
October  31,  2001  and  2000,  respectively.

Had compensation cost for these plans been determined pursuant to the provisions
of  SFAS  No.  123, the Company's pro forma net income (loss) would have been as
follows:

<TABLE>
<CAPTION>
Years ended October 31                              2001      2000     1999
-----------------------------------------------------------------------------
<S>                                               <C>        <C>     <C>
(in thousands except per share amount)
Pro forma net income (loss)                       $(11,831)  $2,146  $(2,327)
Pro forma net income (loss) per share -basic      $  (3.49)  $ 0.67  $ (0.75)
Pro forma net income (loss) per share - diluted   $  (3.49)  $ 0.56  $ (0.75)
</TABLE>

The  fair value of each option grant is estimated on the date of grant using the
Black-Scholes  option  pricing  model  with  the  following  weighted-average
assumptions:


                                      -41-
<PAGE>
<TABLE>
<CAPTION>
Options granted in years ended October 31    2001     2000     1999
--------------------------------------------------------------------
<S>                                         <C>      <C>      <C>
Expected life (in years)                      5.00     5.00    5.00
Risk-free interest rate                       6.00%    6.00%   4.50%
Volatility                                  114.00%  104.00%  91.00%
Dividend yield                                0.00%    0.00%   0.00%
</TABLE>

The  weighted  average estimated fair value of each option granted during fiscal
2001,  2000  and  1999  was  $1.78,  $11.79  and  $6.53,  respectively.

9.   EMPLOYEE  SAVINGS  AND  INVESTMENT  PLAN

The  Company  contributes  a  percentage  of  income before income taxes into an
employee  savings and investment plan.  The percentage is determined annually by
the  Board  of  Directors.  These  contributions are payable annually, vest over
five  years, and cover substantially all employees who have been employed by the
Company at least one year.  Additionally, the Company makes matching payments to
the  employee savings and investment plan of 50% of each employee's contribution
up  to  three  percent  of  employees'  earnings.

For  the  years  ended  October 31, 2001, 2000 and 1999, total expense under the
employee  savings  and  investment  plan  was  $148,974,  $391,066 and $121,530,
respectively.

10.  CONCENTRATION  OF  CREDIT  AND  BUSINESS  RISKS

The Company's trade accounts receivable are concentrated among a small number of
customers, principally located in the United States.  One customer accounted for
10%  of total accounts receivable at October 31, 2001.  Four customers accounted
for 32%, 18%, 13% and 10%, respectively, of total accounts receivable at October
31,  2000.  Ongoing  credit  evaluations  of  customers' financial condition are
performed  and,  generally, no collateral is required.  The Company maintains an
allowance  for  doubtful  accounts for potential credit losses.  Actual bad debt
losses  have  not been material and have not exceeded management's expectations.
Trade accounts receivable are recorded net of allowance for doubtful accounts of
$225,000  and  $252,000  at  October  31,  2001  and  2000,  respectively.

Sales  to  individual  customers  in  excess  of 10% of net sales of the Company
included  sales  to Compaq Computer of $2.6 million and Lockheed of $1.5 million
in  2001; Compaq Computer of $19.4 million in 2000; and Compaq Computer of $12.6
million  in  1999.  International  sales  accounted for 9% and 4% of total sales
during  fiscal  2001  and  fiscal  2000,  respectively.

The  Company has depended on a limited number of customers for substantially all
revenue  to date.  Failure by the Company to anticipate or to respond adequately
to  technological  developments in its industry, changes in customer or supplier
requirements or changes in regulatory requirements or industry standards, or any
significant  delays  in the development or introduction of products or services,
could  have  a  material  adverse effect on the Company's business and operating
results.

Substantially all of the Company's manufacturing process is subcontracted to one
independent  company.


                                      -42-
<PAGE>
11.  ACQUISITION  OF  LAN  MEDIA  CORPORATION

On July 14, 2000, the Company completed the acquisition of LAN Media Corporation
("LMC"), a privately held wide area network communications company headquartered
in  Sunnyvale,  California.  As  a  result, the outstanding LMC common stock was
converted  into approximately 316,000 shares of SBE, Inc. common stock, based on
an  exchange  ratio  of  approximately  7.99 shares of LMC common stock for each
share  of  the  Company's  common  stock.  The  merger  was  accounted  for as a
pooling-of-interests  under  Accounting  Principles  Board  Opinion  No. 16, and
accordingly,  financial  statements presented for all periods have been restated
to  reflect  combined  operations  and  financial  position.  All  intercompany
transactions  have  been  eliminated.

The  following  reconciles  revenue and net income (loss) previously reported to
the  restated  information  presented  in the consolidated financial statements:

<TABLE>
<CAPTION>
                          Six Months Ended       Year Ended
                           April 30, 2000     October 31, 1999
---------------------------------------------------------------
<S>                       <C>                <C>

Net Sales
  Previously Reported     $          14,433  $          18,022
  LAN Media Corporation               1,480              1,832
                          -----------------  ------------------
      Restated            $          15,913  $          19,854
                          =================  ==================

Net income (loss)
  Previously Reported                 2,743                151
  LAN Media Corporation                 202               (405)
                          -----------------  ------------------
      Restated            $           2,945  $            (254)
                          =================  ==================
</TABLE>

     In  connection  with  the  acquisition,  the  Company  recorded a charge to
operating  expenses  of  approximately  $383,000  for  acquisition related costs
during  the  third  quarter  of  2000.

12.  QUARTERLY  FINANCIAL  INFORMATION  (UNAUDITED)

<TABLE>
<CAPTION>
(in thousands except                        First     Second      Third     Fourth
  per share amounts)                       Quarter    Quarter    Quarter    Quarter
------------------------------------------------------------------------------------
<S>                                       <C>        <C>        <C>        <C>
2001: Net sales                           $  3,418   $  1,813   $  1,449   $  1,046
      Gross profit                           2,039        290        534          3
      Net loss                              (1,313)    (3,212)    (2,244)    (3,127)
      Basic loss per common share         $  (0.39)  $  (0.95)  $  (0.66)  $  (0.91)
      Diluted loss per common share       $  (0.39)  $  (0.95)  $  (0.66)  $  (0.91)

2000: Net sales                           $  6,967   $  8,945   $  7,835   $  5,431
      Gross profit                           4,746      5,834      4,889      3,291
      Net income                               960      1,984        842        184
      Basic earnings per common share     $   0.31   $   0.64   $   0.25   $   0.06
      Diluted earnings per common share   $   0.30   $   0.53   $   0.21   $   0.05
</TABLE>


                                      -43-
<PAGE>
13.  RESTRUCTURING  COSTS

In  response  to  the  continued  economic  slowdown,  the Company implemented a
restructuring  plan  in  fiscal  2001  and  recorded  a  restructuring charge of
$964,000.  Restructuring  costs are comprised of severance costs associated with
staff  reductions  totaling  $52,000,  leasehold  improvements  and  equipment
write-downs  related to the relocation of the Company's headquarters of $337,000
and  losses  related  to  its  sublease  of  $575,000,  net of the reversal of a
$281,000  liability  associated  with  deferred  rent.  The  Company reduced its
headcount from 87 employees to 47 employees during fiscal 2001. The reduction in
headcount  plus  the  relocation  of  the  XeTel manufacturing facility from the
Company's  engineering  and headquarters facility to Texas left the Company with
excess  facility  space.  The Company was able to enter into an agreement with a
third  party corporation to assign the lease for its 63,000 square foot facility
located  at  4550  Norris  Canyon  Rd,  San Ramon, California and simultaneously
sublease  a  15,000  square foot facility also located in San Ramon, California.
The Company abandoned the leasehold improvements and certain of its equipment in
conjunction  with  the  relocation.  As a result of this transaction, a non-cash
$337,000  write  down  of  leasehold  improvements and equipment was expensed in
fiscal  2001.  Real  estate  commissions and building expenses totaling $442,000
were  accrued  in  fiscal  2001  and  will be paid in fiscal 2002. An additional
amount  totaling  $133,000  was  accrued  related  to  a  loss  associated  with
facilities  acquired  with  the purchase of LAN Media Corporation in fiscal 2000
and  subleased  to a third party corporation in fiscal 2001. This amount will be
paid  over 36 months beginning May 2001. As of October 31, 2001, $590,000 of the
restructuring  costs  was  included  in  other  current  liabilities.

The  following  table  sets  forth  an  analysis  of  the  components  of  the
restructuring reserve and the payments made against it through October 31, 2001:

<TABLE>
<CAPTION>
<S>                                                            <C>
      Restructuring reserve
          Severance and benefits                               $  52
          Accrued lease costs                                    856
                                                               ------
      Total restructuring reserve                              $ 908
          Less: Cash paid for severance and benefits
                   and accrued lease costs                      (318)
                                                               ------
      Total restructuring costs included in other liabilities  $ 590
                                                               ======
</TABLE>

14.  SUBSEQUENT  EVENT

On  November  6,  1998, the Company made a loan to an officer and stockholder in
the  amount  of  $622,800  under  a two-year recourse promissory note bearing an
interest  rate  of 4.47% and collateralized by 145,313 shares of Common Stock of
the Company.  The loan was used to pay for the exercise of an option to purchase
139,400  shares  of  the Company's Common Stock and related taxes.  On April 16,
1999  the  loan  was increased to $743,800. The loan was extended for a one-year
term  under  the same terms and conditions on November 6, 2000.  On December 14,
2001,  the  note  was  amended,  restated and consolidated to extend the term to
December  2003 and to require certain mandatory repayments of principal of up to
$100,000 a year while the note is outstanding. The loan bears interest at a rate
of  2.48%  per  annum,  with  interest due annually and the entire amount of the
principal  due  in  December  2003.


                                      -44-
<PAGE>
<TABLE>
<CAPTION>
                                         SBE, INC.
                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEARS ENDED OCTOBER 31, 2001 AND 2000

             Column A               Column B        Column C          Column D      Column E
---------------------------------  -----------  -----------------  --------------  ----------
                                   Balance  at      Additions                       Balance
                                    Beginning   charged to costs                     End of
           Description              of Period     and expenses     Deductions (a)    Period
---------------------------------  -----------  -----------------  --------------  ----------
<S>                                <C>          <C>                <C>             <C>
YEAR ENDED OCTOBER 31, 2001

Allowance for Doubtful Accounts    $   251,620               ---         (26,620)  $  225,000
Allowance for Obsolete Inventory     1,179,000         1,033,869        (920,869)   1,292,000
Allowance for Warranty Claims          144,676               ---         (89,049)      55,627
Allowance for Deferred Tax Assets    3,088,000         4,992,000             ---    8,080,000

YEAR ENDED OCTOBER 31, 2000

Allowance for Doubtful Accounts    $   251,620               ---             ---   $  251,620
Allowance for Obsolete Inventory     1,381,370           151,983        (354,353)   1,179,000
Allowance for Warranty Claims          101,049            54,952         (11,325)     144,676
Allowance for Deferred Tax Assets    3,987,000                          (899,000)   3,088,000
</TABLE>


                                      -45-
<PAGE>