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

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


                   FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
                                       or
    [   ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934


                           Commission File No. 0-8419

                                    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)

              4550 Norris Canyon Road, 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, 1998 as reported on the Nasdaq
National Market, was approximately $17,158,812.  Shares of Common Stock held by
each executive officer, director and stockholder whose ownership exceeds five
percent of Common Stock outstanding have been excluded in that 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, 1998 was 2,837,384.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------
(1) Proxy statement for Annual Meeting of Stockholders scheduled for March 23,
1999 - Part III

Exhibit Index on Page 23
Total Pages 67

<PAGE>
                                    SBE, INC.

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

                                TABLE OF CONTENTS



PART I


  Item 1     Business                                                          3
  Item 2     Properties                                                       11
  Item 3     Legal Proceedings                                                12
  Item 4     Submission of Matters to a Vote of Security Holders              12

PART II

  Item 5     Market for The Registrant's Common Equity 
             and Related Stockholder Matters                                  13
  Item 6     Selected Financial Data                                          13
  Item 7     Management's Discussion and Analysis of
             Financial Condition and Results of Operations                    14
  Item 8     Financial Statements and Supplementary Data                      19
  Item 9     Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure                           19

PART III

  Item 10    Directors and Executive Officers of the Registrant               20
  Item 11    Executive Compensation                                           21
  Item 12    Security Ownership of Certain Beneficial Owners
             and Management                                                   21
  Item 13    Certain Relationships and Related Transactions                   21

PART IV

  Item 14    Exhibits, Financial Statement Schedules
             and Reports on Form 8-K                                          22

SIGNATURES                                                                    25

SCHEDULE                                                                      42

EXHIBITS                                                                      43


                                       2
<PAGE>
                                     PART I


Except for the historical information contained herein, the following discussion
contains  forward-looking  statements that involve risks and uncertainties.  The
Company's  actual  results  could  differ  materially from those discussed here.
Factors  that could cause or contribute to such differences include, but are not
limited  to,  those  discussed  in  this  report,  particularly  in the sections
entitled  "Item 1-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")  develops,  markets,  sells and supports high-speed
intelligent  computer  communications  controllers that enable users to exchange
data between computer systems.  The Company's products are distributed worldwide
through  a  direct  sales  force,  distributors,  independent  manufacturers'
representatives  and  value-added  resellers.

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  three years the Company expanded its product lines to include a
family  of  wide  area networking communications controllers for PCI (Peripheral
Component  Interface/Interconnect) based workstations and network servers called
WanXL.  WanXL  products  are  targeted  to  meet the growing need for high-speed
communications  servers  and  client/server  data  communications products.  The
market  served  by  this  new  product  line  is  significantly  larger and more
competitive  than  the  other  markets  in  which the Company participates.  See
"-Products"  for  product  mix  by  percentages.

The  Company markets, sells and supports a broad range of high-speed intelligent
communications  controller  products  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  include
cellular  network  data communication, data networking, process control, medical
imaging,  CAE/automated  test  equipment,  military  defense  systems  and
telecommunications  networks.

The  Company's  WanXL  communications  controllers  leverage  the Company's core
technology  strength  into  a  large  applications  market.  The Company's WanXL
products  are  designed  for  applications  that  require  high-performance  and
high-speed  communications capability.  All of these 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 family of WanXL products is supported by communications
software  developed  by  both the Company and a variety of third party partners.

RISK  FACTORS

DEPENDENCE  ON  A  LIMITED NUMBER OF OEM CUSTOMERS.  In fiscal 1998, most of the
Company's  sales  were  attributable  to  sales of board-level products and were

                                      3
<PAGE>
derived  from  a  limited number of OEM customers.  In the fiscal 1998, sales to
Tandem  Computers  ("Tandem")  and  Motorola, Inc. ("Motorola") accounted for 49
percent  and  15 percent, respectively, of the Company's net sales.  The Company
expects  that  sales from these two companies will also constitute a substantial
portion  of the Company's net sales in fiscal 1999.  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
agreements  with  OEM  customers  typically  do  not  require  minimum  purchase
quantities.  A  significant  reduction  in  orders from any of the Company's OEM
customers,  particularly  Tandem  and  Motorola,  could  have a material adverse
effect  on  the  Company's  business, operating results and financial condition.
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.  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 early 1995, the Company
has focused a significant portion of its research and development, marketing and
sales  efforts on WanXL 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  WanXL  products  or other new products developed by the Company do not gain
widespread  market  acceptance,  the  Company's  business, operating results and
financial  condition  may  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
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

                                      4
<PAGE>
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.
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 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.

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, could have a material adverse effect on the Company's
business,  operating  results  and  financial  condition.

DEPENDENCE  ON CONTRACT MANUFACTURER.  In December 1996, the Company sold all of
its  manufacturing  operations  to  XeTel  Corporation  ("XeTel"),  a  contract
manufacturing  company  headquartered  in  Austin,  Texas.  At the same time the
Company  and  XeTel  entered  into  an exclusive manufacturing service agreement
under which XeTel is to manufacture all of the Company's products until at least
December  2000.  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

                                      5
<PAGE>
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 proprietary rights of others, there can be no assurance that third
parties  will  not  assert  infringement  claims  against  the  Company.

YEAR  2000  COMPLIANCE;  REPLACEMENT  OF  MANAGEMENT  INFORMATION  SYSTEMS.  The
Company's  current  products,  to the extent they have the capability to process
date-related  information,  were  designed  to  be Year 2000 compliant; in other
words,  the  products  were designed to manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality and
without  inaccurate  results  relating to such dates.  There can be no assurance
that  systems  operated  by  third  parties  that  interface with or contain the
Company's  products  will  timely  achieve Year 2000 compliance.  Any failure of
these third parties' systems to timely achieve Year 2000 compliance could have a
material  adverse  effect  on  the  Company's  business, financial condition and
results  of  operations.

The  Company  updated its internal management information systems in fiscal 1998
to  be Year 2000 compliant.  The Company currently projects future non-recurring
capitalized  costs  of  approximately $50,000 for the replacement of its various
non-critical  systems,  the  majority of which will be capitalized in 1999.  The
Company believes it has allocated adequate resources to replace such systems and
otherwise  timely  achieve  Year  2000  compliance.  However,  there  can  be no
assurance  to  that  effect.

STOCK  PRICE  VOLATILITY.  The trading price of the Company's Common Stock could
be  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.

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

                                      6
<PAGE>
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.

PRODUCTS

The  Company  designs and markets data communications products designed to allow
the connection of LANs to external WANs.  In 1996 the Company began shipping its
WanXL products to meet the growing demand for client/server networking products.

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 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  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.

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.

As  a  result  of the growing installed base of client/server computing systems,
the  market  opportunity  for  client/server  networking  products  is  rapidly

                                      7
<PAGE>
expanding.  According  to  a  recent industry study, there were approximately 91
million  computers  with  network  interface  connections installed worldwide in
1995,  and  the  number  of  those  connections  is expected to grow to over 249
million  by  the  year 2000.  This growth, combined with other market trends, is
expected  to  cause  the  computer  networking equipment industry to continue to
experience  substantial  growth.

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.

Single-Board  Computer  Products.  The  Company  supplies  high-performance
single-board computers  (SBC)  for Multibus* and  VMEbus  architectures.  An SBC
manages  and  processes  the  data  that  passes  between  the  boards  within a
computer  system.  The Company's SBC products  provide  a  high-speed  interface
for  linking  to  peripherals  and  intelligent I/O controllers that accommodate
plug-on modules for many industrial applications.

Integrated  Circuits.  The  Company  has  designed  a  number  of  proprietary
integrated circuits that are used on many SBE products.  The Company has a small
group  of  customers  that  purchase  some  of these proprietary chips for their
applications.  The  Company  is  not  actively  pursuing  this line of business.

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.

Software  Products.  The Company supplies software products that operate various
communications  protocols  for  certain  communications  controller  products
including  X.25 for serial communications, SMT (Station Management) for FDDI and
TCP/IP  for  Ethernet  applications.  Real-time operating systems for Motorola's
68000  family  are  also  supported.  The  Company's  software  products  are
principally  bundled  with  the  hardware  platform  based  upon  the customer's
application  requirement.

The  following  table  shows  sales by major product type as a percentage of net
sales  for  fiscal  1998,  1997  and  1996.


                               Year Ended October 31,
                                 1998  1997   1996
                                 ----  ----   ----
                             (percentage of net sales)


  Communication Controllers       80%   72%   73%
  WanXL products                   4    14     1 
  Single Board Computer            5     3     4 
  Integrated Circuits              6     1     1 
  Other                            5    10    21 
                                 ----  ----  ----
                                 100%  100%  100%
                                 ====  ====  ====
----------
*Multibus is a Trademark of Intel Corporation.

                                      8
<PAGE>
DISTRIBUTION, SALES AND MARKETING

The Company primarily markets its 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 communications controller
products  from  those  of  its  competitors.

The Company's intelligent communications controller 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'
representatives,  value-added  resellers  and certain OEM partners.  The Company
actively supports its indirect channel marketing partners with its own sales and
marketing  organization.  SBE's  sales  staff  solicits  prospective  customers,
provides  technical  advice  with respect to SBE 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 provides most of its distributors and resellers with product return
rights  for  stock  balancing  or  product  evaluation.  Stock balancing permits
distributors  to return products for credit, within specified limits and subject
to  purchasing  additional  products.  The Company believes that it has adequate
reserves  to  cover  product returns although there can be no assurance that the
Company  will  not  experience  significant  returns  in  the  future.

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 and one location in the United Kingdom.

RESEARCH  AND  DEVELOPMENT

The  Company's  product  development  efforts  are  focused  principally  on its
strategic  businesses,  client/server  internetworking  and  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 PCIbus, VMEbus and EISA architecture.  The Company has also redesigned

                                      9
<PAGE>
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 1998, the Company focused the majority of its development efforts
on  the  WanXL product line, and it expects to continue WanXL development, while
also  developing  other  new  product  platforms,  in  1999.

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

MANUFACTURING

The  Company  does  not  use  raw materials in any of its products or production
activity.  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.  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  these
components will become available from alternative suppliers over time.  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 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 intelligent communications controller
market  is  fragmented principally by application segment.  The Company's VMEbus
and  WanXL  communications  controller  products compete primarily with products
from  Digi  International,  Motorola, Interphase Corp., CMC, a Rockwell Company,
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.  Competition within the EISAbus
communications  controller  market  is  also  fragmented among various companies
providing  different  applications.  The  Company's  EISAbus-based  products are
targeted  to  potential  customers using Hewlett Packard (HP) 9000 workstations.
Currently,  the  Company's  EISAbus  products  face  nominal competition in this
market.

                                     10
<PAGE>
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  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, 1998 the Company had a backlog of orders of approximately $4.4
million  for shipment within the next 12 months.  On January 5, 1998 the Company
had  a  backlog  of orders of approximately $2.4 million for shipment within the
next  12  months.  Because  recorded  sales  orders  are  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  January  4,  1999  the  Company  had  65  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

The  Company's engineering and administrative headquarters are located in 63,000
square feet of leased space in a building located in San Ramon, California.  The
lease  expires  in 2006.  The Company expects that the facility will satisfy its
anticipated  needs  through  the  foreseeable  future.  In  December  1996,  in
conjunction  with  the  sale  of  all of the Company's manufacturing assets, the
Company  subleased approximately 24,000 square feet of this space to XeTel for a
four-year  term  with  an  option  to  renew  for  an  additional  five  years.

                                     11
<PAGE>
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

(a)     A  special  meeting of stockholders of the Company was held on Thursday,
October  22,  1998,  at  the  Company's corporate offices located at 4550 Norris
Canyon  Road,  San  Ramon,  California.

     The  stockholders  approved  the  following  item:

     (i) Approval of the Company's 1992 Employee Stock Purchase Plan, as amended
to  increase  the  aggregate  number  of  shares  of Common Stock authorized for
issuance  under  such  plan by 100,000 and extend the term of such plan.  (For -
2,331,610; Against - 62,089; Abstain - 30,598)

                                     12
<PAGE>

                                  PART II


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


                                          Fiscal quarter ended
                             -----------------------------------------------
     1998                    January 31    April 30    July 31    October 31
----------------------------------------------------------------------------

      High                      $ 15.88     $  8.50     $  6.50     $  6.63
      Low                          7.00        6.25        3.13        2.88

     1997

      High                      $  4.50     $  6.50     $  9.75     $ 19.50
      Low                          3.38        3.63        4.88        8.00

The  Company's  common  stock  is quoted on the Nasdaq National Market under the
symbol  SBEI.  The  above  table sets forth the high and low bid prices for 1998
and 1997 for the quarters indicated.  The Company has not paid cash dividends on
its common stock and anticipates that for the foreseeable future it would retain
earnings  for  use  in  its  business.  Additionally,  the Company's credit line
agreement  currently  prohibits  the  Company from paying cash dividends without
consent of the bank.  As of December 31, 1998, the Company had approximately 700
stockholders  of  record.


ITEM 6.     SELECTED FINANCIAL DATA

(in thousands, except for per share
amounts and number of employees)

For years ended October 31,
  and at October 31                  1998     1997      1996      1995     1994
---------------------------------  -------  -------  --------  --------  -------
Net sales                          $18,985  $24,970  $13,350   $19,368   $22,337

Net income (loss)                      380    3,333   (9,625)   (4,568)    1,336

Net income (loss) per share        $  0.13  $  1.23   ($4.51)   ($2.22)  $  0.63

Product research and development     3,592    2,808    5,084     6,900     4,769

Working capital                      7,609    7,492    2,049     7,644     7,436

Total assets                        11,183   11,269    7,894    14,978    17,665

Long-term obligations                  631      925      757     1,218       410

Stockholders' equity                 8,534    7,966    3,981    12,108    15,864

Shares outstanding                   2,680    2,641    2,233     2,074     2,035

Number of employees                     64       80       92       173       165

                                     13
<PAGE>
ITEM  7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the following discussion
contains  forward-looking  statements that involve risks and uncertainties.  The
Company's  actual  results  could  differ  materially from those discussed here.
Factors  that could cause or contribute to such differences include, but are not
limited  to,  those  discussed  in  this  section and the section entitled "Item
1-Business" (particularly "Item 1-Business-Risk Factors").

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  WanXL  products are
focused  on  the  client/server  market  and  the  significant  increases  in
communications  activity  that  are  driven  by  applications  such  as  email,
electronic  commerce,  geographically  diverse  corporate  networks  and general
computer  communications.  While  the  Company believes the market for the WanXL
products  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."

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, 1998, 1997 and 1996.  These operating results are not necessarily indicative
of  Company's  operating  results  for  any  future  period.


                                   YEAR ENDED OCTOBER 31,
                                   ----------------------

                                     1998   1997   1996

Net sales                             100%   100%   100%
Cost of sales                          40     49     62 
                                     -----  -----  -----
  Gross profit                         60     51     38 
Operating expenses:
  Product research and development     19     11     38 
  Sales and marketing                  23     15     34 
  General and administrative           17     15     24 
  Restructuring and other             ---    ---     14 
                                     -----  -----  -----
  Total operating expenses             59     41    110 
                                     -----  -----  -----
Operating income (loss)                 1     10    (72)
Gain on sale of assets                ---      3    --- 
Interest and other expense, net         1    ---    --- 
                                     -----  -----  -----
Income (loss) before taxes              2     13    (72)
Income tax provision (benefit)        ---    ---    --- 
                                     -----  -----  -----
Net income (loss)                       2%    13%  (72)%
                                     =====  =====  =====

                                     14
<PAGE>
NET SALES

Net  sales for fiscal 1998 were $19.0 million, a 24 percent decrease from fiscal
1997.  Net sales for fiscal 1997 were $25.0 million, an 87 percent increase from
fiscal  1996.  The  decrease  from  fiscal  1997  to  fiscal  1998 was primarily
attributable  to lower sales to Silicon Graphics and Lockheed Martin and certain
telecommunications  integrators  that distribute product primarily in Asia.  The
increase from fiscal 1996 to fiscal 1997 was primarily attributable to increased
sales  of controller products and WanXL products.  Sales to individual customers
in excess of 10 percent of net sales of the Company included net sales to Tandem
and Motorola of $9.4 million and $2.8 million, respectively, in fiscal 1998; net
sales  to  Tandem, Motorola, and Silicon Graphics of $8.8 million, $3.8 million,
and  $3.0 million, respectively, in fiscal 1997; and net sales to Tandem of $2.7
million  in  fiscal 1996.  Net sales to Silicon Graphics were $175,000 in fiscal
1998.  Net  sales to Motorola were $700,000 in fiscal 1996.  There were no sales
to  Silicon  Graphics  in  fiscal  1996.  The  Company  expects  to  continue to
experience  fluctuation  in  communication  controller  product  sales  as large
customers'  needs  change.  See  "Item  1-Business-Risk  Factors-Dependence on a
Limited  Number  of  OEM  Customers."

International  sales  constituted  5  percent,  12 percent and 26 percent of net
sales  in  fiscal 1998, fiscal 1997 and fiscal 1996, respectively.  The decrease
in international sales from fiscal 1997 to fiscal 1998 is primarily attributable
to  lower  demand  in  Asia.  The  decrease  from  fiscal 1996 to fiscal 1997 is
primarily  attributable  to  lower  sales to certain Korean customers.  Sales of
VMEbus-based  communications  products  through  the  Company's  Channel Partner
relationship  with  Hewlett Packard constituted 2 percent of net sales in fiscal
1998  and  fiscal  1997 and 11 percent of net sales in fiscal 1996.  No customer
within this channel represented more than 5 percent of total sales.  The Company
expects  that  future  sales  through  the  HP  channel will continue at current
levels;  however,  sales  through  this  channel  will be subject to significant
variability  from  quarter  to  quarter.

GROSS  PROFIT

Gross  profit as a percentage of sales was 60 percent, 51 percent and 38 percent
in  fiscal  1998,  fiscal 1997 and fiscal 1996, respectively.  The increase from
fiscal  1997  to  fiscal  1998  was  primarily attributable to discontinuance of
low-margin  netXpand(R)  products  and  improved  operational efficiencies.  The
increase  from  fiscal  1996  to fiscal 1997 was primarily attributable to lower
component  costs  and  favorable  pricing  with XeTel.  In late fiscal 1996, the
Company  concluded  that  it would not be able to maintain a production facility
that  would  allow  it  to  be  competitive  with  the  production  costs of its
competitors;  therefore,  in  December  1996  the Company sold its manufacturing
assets  and  operations  to  XeTel.  The Company also entered into a contract to
purchase  manufacturing  services  from  XeTel,  which  has  decreased,  and may
continue  to  decrease,  the  volatility  of  the  quarterly  cost of sales as a
percentage  of  sales.  See "Item 1-Business-Risk Factors-Dependence on Contract
Manufacturer."

PRODUCT  RESEARCH  AND  DEVELOPMENT

Product research and development expenses were $3.6 million in fiscal 1998, $2.8
million in fiscal 1997 and $5.1 million in fiscal 1996, representing 19 percent,
11  percent and 38 percent of sales, respectively.  The increase in research and
development  spending  from  fiscal  1997  to  fiscal  1998  was due to expanded
software  development  programs  for  the WanXL product line.  The decrease from

                                     15
<PAGE>
fiscal  1996  to fiscal 1997 was a result of the completion of the base netXpand
product  line  and  a  corresponding  decrease  in  third party consulting costs
associated  with  the launch of the netXpand products.  The Company expects that
product research and development expenses will decrease as a percentage of sales
as  the  Company  focuses  its  resources  on  developing new telecommunications
product offerings and enhancing its traditional board-level products.  See "Item
1-Business-Risk  Factors-Future  Success  Dependent on New Product Lines; -Rapid
Technological  Change;-Ongoing  Product  Development  Requirements."

The  Company  capitalized no internal software development costs in fiscal 1998,
fiscal  1997  or  fiscal  1996.  All previously capitalized software development
costs  have  been  fully  amortized.

SALES  AND  MARKETING

Sales  and  marketing  expenses for fiscal 1998 were $4.3 million, up 12 percent
from  $3.8  million in fiscal 1997.  This increase was due to expanded marketing
programs  and  the  establishment  of  a  UK branch office.  Sales and marketing
expenses  for  fiscal  1996 were $4.6 million.  The decrease from fiscal 1996 to
fiscal 1997 was due to lower sales and commission expenses and the completion of
one-time costs associated with product launch of the netXpand product line.  The
Company  expects sales and marketing expenses, as new products are announced, to
increase slightly as a percentage of total sales from fiscal 1998 levels for the
foreseeable  future.

GENERAL  AND  ADMINISTRATIVE

General  and  administrative  expenses for fiscal 1998 decreased 11 percent from
$3.7  million  in  fiscal  1997  to  $3.3  million.  General  and administrative
expenses  for  fiscal 1997 were $3.7 million, an 18 percent increase from fiscal
1996.  The  decrease  from  fiscal 1997 to fiscal 1998 represents lower variable
expenses  for  profit  sharing  and  bonuses.  The  increase from fiscal 1996 to
fiscal 1997 represents increased variable compensation expense due to additional
executive  compensation  and  the  Company's  employee  profit  sharing  plan.

RESTRUCTURING  COSTS  AND  OTHER

The  Company  incurred  nonrecurring  charges of $1.9 million in fiscal 1996 for
severance  costs,  disposition  of certain assets related to a reorganization of
the  Company  and  writedown  of  capitalized  software  costs.

GAIN  ON  SALE  OF  ASSETS

In December 1996, the Company sold all the assets of its manufacturing operation
to  XeTel  for $1.6 million.  Additionally, the Company entered into a four-year
exclusive  agreement to purchase manufacturing services from XeTel and subleased
a  portion  of  its San Ramon facility to XeTel.  The Company reported a gain of
$685,000  net  of  expenses  on  the  sale  of  these  assets  in  fiscal  1997.

INTEREST  AND  OTHER  EXPENSE,  NET

Interest  income  decreased  in  fiscal  1998 from fiscal 1997 due to lower cash
balances  in  fiscal 1998.  Interest income increased in fiscal 1997 from fiscal
1996  due  to  higher cash balances in fiscal 1997.  Interest expense for fiscal

                                     16
<PAGE>
1998  decreased  from  fiscal  1997 and from fiscal 1996 due to the repayment of
borrowings  in  fiscal  1996  and  fiscal  1997.

INCOME  TAXES

The  Company  recorded  a  tax provision of $31,600 in fiscal 1998.  The Company
recorded  a  tax  benefit  of $82,000 in fiscal 1997 due to carryback of certain
credits  to  prior year returns.  The Company did not record any significant tax
expense in fiscal 1996 as a result of not being able to realize any benefit from
its  net  operating  losses and unused tax credits.  The Company's effective tax
rate  was  7 percent and (3) percent in fiscal 1998 and 1997, respectively.  The
Company  has  recorded  a  valuation allowance in fiscal 1998, 1997 and 1996 for
certain  deferred  tax  assets  due  to  the  uncertainty  of realization.  This
valuation  allowance increased from approximately $3.4 million in fiscal 1997 to
$3.9  million  in  fiscal  1998.  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 net income of
$380,000  and  $3.3  million in fiscal 1998 and fiscal 1997, respectively, and a
net  loss  of  $9.6  million  in  fiscal  1996.

LIQUIDITY  AND  CAPITAL  RESOURCES

At  October  31, 1998 the Company had cash and cash equivalents of $3.4 million,
as  compared  to $5.6 million at October 31, 1997.  In fiscal 1998, $1.2 million
of  cash  was  used  by  operating activities, principally as a result of a $1.1
million  increase  in accounts receivable, a $903,000 increase in inventories, a
$705,000  decrease  in current liabilities, and $553,000 used by other operating
assets  and liabilities.  These decreases in cash were offset by $1.0 million in
noncash  depreciation  and  amortization  charges,  $380,000  in net income, and
$619,000 provided by other operating assets and liabilities.  Working capital at
October  31,  1998  was $7.6 million, as compared to $7.5 million at October 31,
1997.

In  fiscal  1998  the  Company  purchased  $971,000  of fixed assets, consisting
primarily  of  a  management  information  system,  as  well  as  computer  and
engineering  equipment,  and  purchased  $207,000  of capitalized software.  The
Company  expects  capital expenditures during fiscal 1999 to be less than fiscal
1998  levels.

The  Company  received  $187,000  in  fiscal  1998  from  employee  stock option
exercises  and  stock  purchase  plan  purchases,  a decrease of 70 percent from
fiscal  1997  amounts.

In  August  1997,  the  Company entered into a revolving working capital line of
credit  agreement.  The  agreement  allows  for  a $2,000,000 line of credit and
expires  on March 1, 1999.  Borrowings under the line of credit bear interest at
the  bank's  prime rate plus one-half percent and are collateralized by accounts
receivable  and  other assets.  Borrowings are limited to 75 percent of adjusted
accounts  receivable balances, and the Company is required to maintain a minimum
tangible  net  worth  of  $6.1  million, a quick ratio of cash, investments, and
receivables  to  current  liabilities  of  not  less than 1.30:1.00, and minimum
profitability  levels.  The  line of credit agreement also prohibits the payment
of  cash  dividends  without  consent  of  the  bank.

                                     17
<PAGE>
As  of  January  4, 1999, there were no borrowings outstanding under the line of
credit.

Based  on  the  current operating plan, the Company anticipates that its current
cash  balances,  cash  flow  from  operations  and  credit  facilities  will  be
sufficient  to  meet  its  working  capital  needs  in  the  foreseeable future.

YEAR 2000 COMPLIANCE

Many older computer software programs refer to years in terms of their final two
digits  only.  Such  programs  may interpret the year 2000 to mean the year 1900
instead.  If  not corrected, those programs could cause date-related transaction
failures.

The  Company's  current  products,  to  the  extent  they have the capability to
process  date-related  information,  were designed to be Year 2000 compliant; in
other  words, the products were designed to manage and manipulate data involving
the transition of dates from 1999 to 2000 without functional or data abnormality
and  without  inaccurate  results  relating  to  such  dates.  There  can  be no
assurance  that systems operated by third parties that interface with or contain
the Company's products will timely achieve Year 2000 compliance.  Any failure of
these third parties' systems to timely achieve Year 2000 compliance could have a
material  adverse  effect  on  the  Company's  business, financial condition and
results  of  operations.

The  Company  believes  it  has  identified  substantially  all  of  the  major
information systems used in connection with its internal operations that must be
modified,  upgraded  or  replaced  to  minimize  the  possibility  of a material
disruption of its business.  The Company has commenced the process of modifying,
upgrading  and  replacing systems that have been identified as potentially being
adversely  affected  and  expects to complete this process before the end of its
1999 fiscal year.  The Company does not expect the cost related to these efforts
to be material to its business, financial condition or operating results.

The  Company  depends  on  third  party  suppliers  for the manufacturing of its
products.  The  Company  has  been gathering information from, and has initiated
communication  with,  these  suppliers and, to the extent possible, has resolved
issues  involving the Year 2000 problem.  However, the Company has limited or no
control  over  the  actions  of  its  suppliers.  Therefore,  the Company cannot
guarantee that its manufacturing services suppliers will resolve any or all Year
2000  problems with their systems before the occurrence of a material disruption
to  their  businesses.  Any  failure  of  these  suppliers  to resolve Year 2000
problems  with  their  systems  in a timely manner could have a material adverse
effect on the Company's business, financial condition or operating results.

The  Company is currently developing contingency plans to be implemented as part
of its efforts to identify and correct Year 2000 problems affecting its internal
systems.  The  Company  expects  to complete its contingency plans by the end of
its  1999  fiscal year.  Depending  on  the  systems affected, these plans could
include  (a)  accelerated  replacement  of  affected  equipment or software; (b)
increased  work  hours;  and  (c)  other  similar approaches.  If the Company is
required  to  implement  any of these contingency plans, such plans could have a
material  adverse  effect  on  its  business,  financial  condition or operating
results.

                                     18
<PAGE>

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.

                                     19
<PAGE>
                                   PART III


ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

The  information  called  for  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 for the
Annual  Meeting  of  Stockholders  to be held on March 23, 1999 (the "1999 Proxy
Statement").  The information called for 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  "Section  16(a)  Beneficial  Ownership  Reporting Compliance"
appearing  in  the  1999  Proxy  Statement.

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

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

Name                               Age                  Position
---------------------------------  ---  ----------------------------------------

William B. Heye, Jr.                60  President and Chief Executive Officer

Timothy J. Repp                     38  Vice President, Finance, Chief Financial
                                        Officer, Treasurer and Secretary

Michael R. Coker                    45  Vice President, Sales and Marketing

Paul Garbaczeski                    46  Vice President, Engineering

Mr. Heye has served as President, Chief Executive Officer, and a director of the
Company since November 1991.  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.

                                     20
<PAGE>
Mr.  Repp has served as Secretary of the Company since December 1996 and as Vice
President,  Finance,  Chief  Financial Officer and Treasurer since January 1992.
He  joined  the Company in January 1991 as Controller.  From 1987 until 1990, he
was  assistant  controller  at Grubb and Ellis, a national real estate firm, and
prior  to  1987  he  was  an  audit  manager  at  Coopers  &  Lybrand  (now
PricewaterhouseCoopers  LLP),  an  international  professional  services  firm.

Mr.  Coker  has been Vice President, Sales and Marketing since October 1996.  He
joined  the  Company  as Vice President, Sales in March 1996.  From January 1993
until February 1996, he was President and Chief Executive Officer of Syskonnect,
a provider of networking communication equipment.  From October 1983 to December
of 1993, Mr. Coker served in various senior management positions, including Vice
President  of  International  Sales,  Vice  President, Marketing and Director of
Marketing  at  Vitalink, a provider of routers, bridges and networking products.

Mr.  Garbaczeski joined the Company as Vice President, Engineering in June 1998.
From  1996  to  1997, he was Vice President, Engineering of GAI-Tronics Corp., a
manufacturer  of  communication  products  for heavy industrial customers.  From
1994  to  1996,  he  was  a  self-employed  consultant  with  clients  in  the
telecommunications  and  utilities  industries.  From  1986  to  1994,  he  was
President  of  Pentagram  Software  Corp.,  a  software  development and systems
integrator  of  data  communication  systems  for  airlines.  Prior to 1986, Mr.
Garbaczeski  served  in  various  consulting  and product development positions.


ITEM  11.     EXECUTIVE  COMPENSATION

The  information  called  for  by  Item 11 is incorporated by reference from the
information  in  the  section entitled "Executive Compensation" appearing in the
1999  Proxy  Statement.


ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  called  for  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  1999  Proxy  Statement.


ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by Item 13 is incorporated by reference from the
information in the section entitled "Certain Transactions" appearing in the 1999
Proxy Statement.

                                     21
<PAGE>
                                     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)  Financial Statements (see Item 8).
     ---------------------------------

                                                                            Page
                                                                            ----

     Report of Independent Accountants                                        26

     Consolidated Balance Sheets at October 31, 1998 and 1997                 27

     Consolidated Statements of Operations for fiscal years 1998, 1997
          and 1996                                                            28

     Consolidated Statements of Stockholders' Equity for fiscal years 1998,
          1997 and 1996                                                       29

     Consolidated Statements of Cash Flows for fiscal years 1998, 1997
          and 1996                                                            30

     Notes to Consolidated Financial Statements                               31


(b)  Financial Statement Schedule
     ----------------------------

     Schedule II - Valuation and Qualifying Accounts                          42

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.

                                     22
<PAGE>
(c)  Exhibits

     Exhibit                                                          Sequential
     Number     Description                                           Page No.
     ------     -----------                                           --------

  (e)   3.1     Certificate of Incorporation, as amended through
                December 15, 1997                                          ---

        3.2     Bylaws, as amended through December 8, 1998                 43

  (f)   10.1    1996 Stock Option Plan, as amended                         ---

  (a)   10.2    1991 Non-Employee Directors' Stock Option Plan, as 
                amended                                                    ---

  (h)   10.3    1992 Employee Stock Purchase Plan, as amended              ---

  (g)   10.4    1998 Non-Officer Stock Option Plan                         ---

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

  (c)   10.6     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)          ---

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

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

        10.9     Full Recourse Promissory Note executed by William B.
                 Heye, Jr. in favor of the Company dated November 6, 1998   64

        11.1     Statement re computation of per share earnings             66

        23.1     Consent of PricewaterhouseCoopers LLP, Independent Public
                 Accountants                                                67

        27.1     Financial Data Schedule                                    68


(d)  REPORTS ON FORM 8-K

     No report on Form 8-K was filed by the Company during the quarter
     ended October 31, 1998.

                                     23
<PAGE>
Explanations for letter footnotes:
----------------------------------

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

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

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

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

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

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

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

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

                                     24

<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 29, 1999            By:     /s/ Timothy J. Repp
                                               -------------------
                                               Timothy J. Repp
                                               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  29,  1999.


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

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

/s/ Timothy J. Repp
------------------------
Timothy J. Repp                     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/ George E. Grega
------------------------
George E. Grega                     Director

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

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

                                     25
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


November  18,  1998


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

In  our  opinion,  the  consolidated  financial  statements  listed in the index
appearing  under  Item  14(a)  present  fairly,  in  all  material respects, the
financial  position of SBE, Inc. and subsidiary as of  October 31, 1998 and 1997
and  the  results of their operations and their cash flows for each of the three
years  in  the  period  ended  October  31,  1998,  in conformity with generally
accepted  accounting  principles.  In  addition,  in  our opinion, the financial
statement  schedule  listed  in  the  index  appearing under Item 14(b) 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 schedule based on our audits.  We conducted
our  audits  of  these statements in accordance with generally accepted auditing
standards  which require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  financial  statements  are  free  of  material
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  reason-able  basis  for  the  opinion  expressed  above.




/s/ PricewaterhouseCoopers LLP

                                     26
<PAGE>
SBE, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

October 31                                                                                 1998          1997
-------------------------------------------------------------------------------------  ------------  ------------

ASSETS
<S>                                                                                    <C>           <C>
Current assets:
  Cash and cash equivalents                                                            $ 3,381,021   $ 5,568,873 
  Trade accounts receivable, net                                                         3,836,916     2,780,273 
  Inventories                                                                            1,753,771       851,141 
  Deferred income taxes                                                                    239,986       513,237 
  Other                                                                                    416,576       156,370 
                                                                                       ------------  ------------
        Total current assets                                                             9,628,270     9,869,894 

Property, plant and equipment, net                                                       1,330,476     1,083,037 
Capitalized software costs, net                                                            185,084       275,588 
Other                                                                                       39,450        40,700 
                                                                                       ------------  ------------

        Total assets                                                                   $11,183,280   $11,269,219 
                                                                                       ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Trade accounts payable                                                               $ 1,374,569   $ 1,029,110 
  Accrued payroll and employee benefits                                                    321,049       949,739 
  Accrued product warranties                                                               207,444       251,956 
  Other                                                                                    115,935       147,439 
                                                                                       ------------  ------------
        Total current liabilities                                                        2,018,997     2,378,244 

Deferred tax liabilities                                                                   239,986       513,237 
Deferred rent                                                                              390,747       411,881 
                                                                                       ------------  ------------

        Total liabilities                                                                2,649,730     3,303,362 
                                                                                       ------------  ------------

Commitments (Note 8).

Stockholders' equity:
  Common stock and additional paid-in capital
    ($0.001 par value); authorized
    10,000,000 shares; issued and outstanding
    2,680,414 and 2,640,539 shares at
    October 31, 1998 and 1997, respectively                                             10,016,181     9,828,837 
  Accumulated deficit                                                                   (1,482,631)   (1,862,980)
                                                                                       ------------  ------------

        Total stockholders' equity                                                       8,533,550     7,965,857 
                                                                                       ------------  ------------

  Total liabilities and stockholders' equity                                           $11,183,280   $11,269,219 
                                                                                       ============  ============
</TABLE>


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

                                     27
<PAGE>
SBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

For the years ended October 31


                                                                                            1998          1997          1996
                                                                                        ------------  ------------  ------------
<S>                                                                                     <C>           <C>           <C>
Net sales                                                                               $18,985,054   $24,970,427   $13,350,228 
Cost of sales                                                                             7,518,068    12,151,883     8,277,879 
                                                                                        ------------  ------------  ------------

  Gross profit                                                                           11,466,986    12,818,544     5,072,349 

Product research and development                                                          3,591,962     2,807,872     5,083,707 
Sales and marketing                                                                       4,295,030     3,833,801     4,605,275 
General and administrative                                                                3,268,098     3,686,890     3,137,132 
Restructuring costs                                                                             ---           ---       960,747 
Write-off of prepaid offering costs                                                             ---           ---       105,000 
Writedown of software costs                                                                     ---           ---       794,018 
                                                                                        ------------  ------------  ------------

  Total expenses                                                                         11,155,090    10,328,563    14,685,879 

  Operating income (loss)                                                                   311,896     2,489,981    (9,613,530)

Gain on sale of assets                                                                          ---       684,502           --- 
Interest income                                                                             100,405       101,546        34,486 
Interest expense                                                                               (352)      (24,858)      (43,859)
                                                                                        ------------  ------------  ------------

  Income (loss) before income taxes                                                         411,949     3,251,171    (9,622,903)

Provision (benefit) for income taxes                                                         31,600       (82,010)        1,600 

  Net income (loss)                                                                     $   380,349   $ 3,333,181   $(9,624,503)
                                                                                        ============  ============  ============


Basic earnings (loss) per common share                                                  $      0.14   $      1.33   $     (4.51)
                                                                                        ============  ============  ============

Diluted earnings (loss) per common share                                                $      0.13   $      1.23   $     (4.51)
                                                                                        ============  ============  ============

Basic - Shares used in per share
  computations                                                                            2,666,707     2,501,786     2,131,593 
                                                                                        ============  ============  ============

Diluted - Shares used in per share
  Computations                                                                            2,890,740     2,703,423     2,131,593 
                                                                                        ============  ============  ============
</TABLE>





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

                                     28
<PAGE>
SBE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                              Common Stock and
                                      Preferred Stock    Additional Paid-In Capital      Retained
                                    Shares     Amount       Shares      Amount       Earnings (Deficit)      Total
                                    ------  -----------    ---------  -----------    ------------------  ------------
<S>                                 <C>     <C>            <C>        <C>            <C>                 <C>
Balances, October 31, 1995           ---           ---     2,074,277   $7,679,819        $4,428,342      $12,108,161

Stock issued in connection
  with preferred stock offering      167    $1,109,087           ---          ---               ---        1,109,087

Stock retired/issued in connection
  with conversion to
  common stock                       (54)     (358,627)      104,719      358,627               ---              ---

Stock issued in connection
  with stock option plans            ---           ---        35,283      221,939               ---          221,939

Stock issued in connection
  with stock purchase plan           ---           ---        18,602      165,930               ---          165,930

Net loss                             ---           ---           ---          ---        (9,624,503)      (9,624,503)
                                    ------  -----------    ---------  -----------       ------------     ------------

Balances, October 31, 1996           113       750,460     2,232,881    8,426,315        (5,196,161)       3,980,614

Stock retired/issued in connection
  with conversion to
  common stock                      (113)     (750,460)      240,083      750,460               ---              ---

Stock issued in connection
  with dividend on converted
  preferred shares                   ---           ---         8,836       31,558               ---           31,558

Stock issued in connection
  with exercise of stock warrants    ---           ---        42,539          ---               ---             ---
 
Stock issued in connection
  with stock option plans            ---           ---       102,588      570,988               ---          570,988

Stock issued in connection
  with stock purchase plan           ---           ---        13,612       49,516               ---           49,516

Net income                           ---           ---           ---          ---         3,333,181        3,333,181
                                    ------  -----------    ---------  -----------       ------------     ------------

Balances, October 31, 1997           ---           ---     2,640,539    9,828,837        (1,862,980)       7,965,857

Stock issued in connection
  with stock option plans            ---           ---        20,325      100,908               ---          100,908

Stock issued in connection
  with stock purchase plan           ---           ---        19,550       86,436               ---           86,436

Net income                           ---           ---           ---          ---           380,349          380,349
                                    -----  ------------    ---------  -----------       ------------     ------------

Balances, October 31, 1998           ---   $       ---     2,680,414  $10,016,181       $(1,482,631)     $ 8,533,550
                                    =====  ============    =========  ===========       ============     ============
</TABLE>





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

                                     29
<PAGE>
SBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

For the years ended October 31                                                              1998         1997          1996
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>           <C>          <C>
Cash flows from operating activities:
  Net income (loss)                                                                     $   380,349   $3,333,181   $(9,624,503)
  Adjustments to reconcile net income (loss) to net cash
    (used) provided by operating activities:
    Depreciation and amortization                                                         1,020,708    1,083,274     1,659,787 
    Gain from sale of property and equipment                                                    ---     (684,502)          --- 
    Costs and reserves related to sale of property and equipment                                ---     (442,585)          --- 
    Restructuring costs                                                                         ---          ---       329,498 
    Write-off of prepaid offering costs                                                         ---          ---       105,000 
    Writedown of capitalized software                                                           ---          ---       794,018 
    Changes in operating assets and liabilities:
    (Increase) decrease in trade accounts receivable                                     (1,056,643)    (736,314)    1,343,773 
    (Increase) decrease in inventories                                                     (902,630)   1,890,215      (129,943)
    Decrease in deferred and recoverable income tax                                             ---        8,990     1,827,325 
    (Increase) decrease in other assets                                                    (258,956)     (78,252)      195,883 
    Increase (decrease) in trade accounts payable                                           345,459      (55,703)      143,925 
    (Decrease) increase in other current liabilities                                       (704,706)     258,099       380,519 
    (Decrease) increase in noncurrent liabilities                                           (21,134)         ---        99,805 
                                                                                        ------------  -----------  ------------
      Net cash (used) provided by operating activities                                   (1,197,553)   4,576,403    (2,874,913)
                                                                                        ------------  -----------  ------------

Cash flows from investing activities:
  Purchases of property and equipment                                                      (970,843)    (290,464)     (385,236)
  Disposals of property and equipment                                                           ---    1,600,000           --- 
  Proceeds from sale of fixed assets                                                            ---        1,709         8,208 
  Capitalized software costs                                                               (206,800)         ---       (41,500)
                                                                                        ------------  -----------  ------------
      Net cash (used) provided by investing activities                                   (1,177,643)   1,311,245      (418,528)
                                                                                        ------------  -----------  ------------

Cash flows from financing activities:
  Proceeds from borrowings on line of credit                                                    ---          ---     5,528,595 
  Repayment of borrowings on line of credit                                                     ---     (980,340)   (4,548,255)
  Proceeds from sale of preferred stock                                                         ---          ---     1,109,087 
  Proceeds from stock plans                                                                 187,344      620,504       387,869 
                                                                                        ------------  -----------  ------------
      Net cash  provided (used) by financing activities                                     187,344     (359,836)    2,477,296 
                                                                                        ------------  -----------  ------------

      Net (decrease) increase in cash and cash equivalents                               (2,187,852)   5,527,812      (816,145)

Cash and cash equivalents at beginning of year                                            5,568,873       41,061       857,206 
                                                                                        ------------  -----------  ------------
Cash and cash equivalents at end of year                                                $ 3,381,021   $5,568,873   $    41,061 
                                                                                        ============  ===========  ============


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for:
  Interest                                                                              $       352   $   24,858   $    43,859 
                                                                                        ============  ===========  ============
  Income taxes                                                                          $   121,197   $    2,540   $       417 
                                                                                        ============  ===========  ============

SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES

Conversion of preferred stock into common stock                                         $       ---   $  750,460   $   358,627 
                                                                                        ============  ===========  ============

Issuance of common stock in lieu of dividend on
  converted preferred stock                                                             $       ---   $   31,558   $       --- 
                                                                                        ============  ===========  ============
</TABLE>




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

                                     30
<PAGE>
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS


1.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

Business  Segment  and  Basis  of  Presentation:

SBE, Inc. and subsidiary (the Company) designs and manufactures high-performance
network  systems  and  products  for  world-wide  distribution.  The  Company's
business  falls  exclusively  within  one  industry  segment.

On  December  6,  1996,  the  Company  sold  all the assets of its manufacturing
operation  to  XeTel  Corporation (XeTel), a contract manufacturing company with
headquarters  in  Austin,  Texas,  for  $1.6 million.  Additionally, the Company
entered  into a four-year exclusive agreement to purchase manufacturing services
from  XeTel  and  subleased  a  portion of its San Ramon facility to XeTel.  The
Company  reported a gain of $685,000 net of expenses on the sale of these assets
in  fiscal  1997.

Principles  of  Consolidation:

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

Use  of  Estimates:

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

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.

Property,  Plant  and  Equipment:

Property,  plant  and  equipment  are carried at cost.  The Company provides for
depreciation  and  amortization  by  charges to expense, which are sufficient to
write  off the costs of the assets over their estimated useful lives of three to

                                     31
<PAGE>
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 asset and allowance for depreciation accounts
and  any gain or loss on such sale or disposal is credited or charged to income.

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.  No  such  events  have occurred to date.  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 an impairment exists, would be calculated based on the
excess  of  the  carrying  amount  of  the  asset  over  its  fair  value.

Capitalized  Software  Costs:

Capitalized  software  costs  consist  of  costs  to  purchase  software  and 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 three-year 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.

Revenue  Recognition  and  Warranty  Costs:

The  Company  records  product  sales at the time of product shipment.  Warranty
costs are not significant; however, the Company provides a reserve for estimated
warranty  costs  at  the  time  of sale and periodically adjusts such amounts to
reflect  actual  expenses.  The  Company's  sales  transactions  are  negotiated
principally  in  US  dollars.

Product  Research  and  Development  Expenditures:

Product  research  and  development  (R&D) expenditures, except 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, 1998, 1997 and 1996, direct costs incurred under R&D contracts
were  $1,032, $172,895 and $42,543, respectively, and reimbursements earned were
$7,250,  $338,470  and  $73,852,  respectively.

Income  Taxes:

The  Company accounts for income taxes in accordance with Statement of Financial
Accounting  Standards  (SFAS)  No. 109, "Accounting for Income Taxes."  SFAS No.
109 requires recognition of deferred tax liabilities and assets for the expected

                                     32
<PAGE>
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.

Net  Income  (Net  Loss)  Per  Common  Share:

In  fiscal 1998, the Company adopted Statement of Financial Accounting Standards
No.  128,  "Earnings Per Share."  All historical earnings per share amounts have
been  restated  to  conform to the provisions of this statement.  Basic earnings
per  common  share for the years ended October 31, 1998 and 1997 was computed by
dividing  net  income  by  the weighted average number of shares of common stock
outstanding.  Diluted  earnings per common share for the years ended October 31,
1998 and 1997 was 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 224,033 and 201,637 shares
for  the  years  ended  October  31,  1998 and 1997, respectively.  Common stock
equivalents  are  excluded  from  the  diluted  loss  per  common  share  (LPS)
calculation  for  the  year  ended  October 31, 1996, as they have the effect of
decreasing  LPS.

Recent  Accounting  Pronouncements:

In  1998,  the  Accounting  Standards  Executive  Committee  of the AICPA issued
Statement  of  Position  Number  98-1,  "Accounting  for  the  Costs of Computer
Software  Developed  or Obtained for Internal Use."  The Company implemented the
provisions  of  this  statement  in  the  fiscal  year  ended  October 31, 1998.

Reclassifications:

Certain  reclassifications  have  been  made  to  the  1997  and  1996 financial
statements  to  conform to the 1998 presentation with no effect on net income or
net  loss  as  previously  reported.

2.     INVENTORIES

Inventories  at  October  31,  1998  and  1997  are  comprised of the following:

                            1998       1997
                         ----------  --------
Finished goods           $1,656,650  $822,670
Parts and materials          97,121    28,471
                         ----------  --------
                         $1,753,771  $851,141
                         ==========  ========

                                     33
<PAGE>
3.     PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at October 31, 1998 and 1997 are comprised of the
following:

                                      1998        1997
                                   ----------  ----------
    Machinery and equipment        $5,753,540  $4,840,507
    Furniture and fixtures          1,015,905   1,007,679
    Leasehold improvements            320,276     289,572
                                   ----------  ----------
                                    7,089,721   6,137,758
    Less accumulated depreciation
      and amortization              5,759,245   5,054,721
                                   ----------  ----------
                                   $1,330,476  $1,083,037
                                   ==========  ==========

Depreciation  and amortization expense totaled $723,404, $807,694 and $1,307,054
for  the  years  ended  October  31,  1998,  1997  and  1996,  respectively.

4.     CAPITALIZED  SOFTWARE  COSTS

Capitalized  software  costs  at  October 31, 1998 and 1997 are comprised of the
following:

                                  1998       1997
                               ----------  --------
Purchased software             $  315,916  $109,116
Internally developed software     805,333   805,333
                               ----------  --------
                                1,121,249   914,449
Less accumulated amortization     936,165   638,861
                               ----------  --------
                               $  185,084  $275,588
                               ==========  ========

The Company capitalized $206,800 and $41,500 of purchased software costs in 1998
and  1996,  respectively.  No  software  costs  were  capitalized  in  1997.
Amortization  of  capitalized  software  costs  totaled  $297,304,  $275,580 and
$352,733  for  the  years  ended  October 31, 1998, 1997 and 1996, respectively.
Additionally, the Company recorded a writedown of its capitalized software costs
of  $794,000  during  fiscal  year  1996.  The  carrying  value of the asset was
reduced  due  to the uncertainty of the future realization of the asset, because
of  slower  than  expected  sales  of  netXpand  products.

5.     BANK  FACILITY

On  August 26, 1997 the Company entered into a revolving working capital line of
credit  agreement  with  a  bank.  The  agreement,  as  modified,  allows  for a
$2,000,000  line  of  credit  and  expires  on  March  1,  1999.  There  were no
borrowings under this line as of October 31, 1998.  Borrowings under the line of
credit  bear  interest  at  the  bank's prime rate plus one-half percent and are
collateralized by accounts receivable and all other tangible assets.  Borrowings
are  limited  to  75  percent  of adjusted accounts receivable balances, and the
Company  is required to maintain a minimum tangible net worth of $6.1 million, a

                                     34
<PAGE>
quick  ratio of cash, investments, and receivables to current liabilities of not
less  than  1.30:1.00,  maximum  debt  to equity ratio of 1.00:1.00, and minimum
profitability  levels.  The  line of credit agreement also prohibits the payment
of  cash  dividends  without  consent  of  the  bank.

6.     STOCKHOLDERS'  EQUITY

On  July  10,  1996 the Company issued and sold 167 shares of Series A Preferred
Stock  ("Series  A  Preferred")  for net proceeds of approximately $1.1 million.
The  issuance  of  Series  A  Preferred  was  exempt,  pursuant  to Regulation S
promulgated  under  the  Securities  Act  of  1933, as amended (the "Act"), from
registration requirements under the Act.  As of December 4, 1996 all outstanding
shares  of  Series  A Preferred had been converted into 240,083 shares of Common
Stock.

In  connection  with  the  sale  of  the  Series A Preferred, the Company issued
warrants  to  purchase  an  aggregate  of  93,703 shares of Common Stock with an
exercise  price  of  $8.25  per share.  The warrants expire in July 1999.  As of
October  31,  1997,  all  the  warrants had been exercised on a net basis, which
resulted  in  the  issuance  of  42,539  shares  of  Common  Stock.

Additionally,  during  fiscal  1997,  the  Company issued 8,836 shares of Common
Stock  in  lieu  of $31,588 of dividends due on the convertible preferred stock.

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

7.     INCOME  TAXES

The components of the provision for income taxes for the years ended October 31,
1998,  1997  and  1996,  are  as  follows:

                                                   1998      1997      1996
                                                  -------  ---------  ------
  Federal:
    Current                                       $18,000  $(83,610)  $  ---
    Deferred                                          ---       ---      ---
  State:
    Current                                        13,600     1,600    1,600
    Deferred                                          ---       ---      ---
                                                  -------  ---------  ------
      Total (benefit) provision for income taxes  $31,600  $(82,010)  $1,600
                                                  =======  =========  ======

The effective income tax rate differs from the statutory federal income tax rate
for  the  following  reasons:

                                                     1998    1997    1996
                                                    ------  ------  -------
    Statutory federal income tax rate                34.0%   34.0%  (34.0)%
    State taxes, net of federal income tax benefit    ---     ---      --- 
    Change in valuation allowance                   (26.3)  (30.0)    34.0 
    Refund of prior year taxes                        ---    (5.5)     --- 
    Tax credits                                       ---     ---      --- 
    Nontaxable interest income                        ---     ---      --- 
    Other, net                                        ---    (1.0)     --- 
                                                    ------  ------   ------
                                                      7.7%   (2.5)%    0.0%
                                                    ======   ======  ======

                                     35
<PAGE>

Significant  components of the Company's deferred tax balances as of October 31,
1998  and  1997  are  as  follows:

                                              1998          1997
                                          ------------  ------------
Deferred tax assets:
  Current
    Accrued employee benefits             $    62,000   $    70,000 
    Inventory allowances                      558,000       401,000 
    Allowance for doubtful accounts            80,000        67,000 
    Warranty accruals                          83,000       100,000 

  Noncurrent
    Deferred rent                             164,000       173,000 
    R&D credit carryforward                 1,115,000       784,000 
    Alternative minimum tax carryforward      143,000       251,000 
    Operating loss carryforward             1,252,000     1,841,000 
    Investments                               130,000       130,000 
    Capital loss carryforward                  74,000        74,000 
                                          ------------  ------------
      Total deferred tax assets             3,661,000     3,891,000 
                                          ------------  ------------
Deferred tax liabilities:
  Noncurrent
    Depreciation                               48,000      (294,000)
    Capitalized software costs                192,000      (220,000)
                                          ------------  ------------
      Total deferred tax liabilities          240,000      (514,000)
                                          ------------  ------------

Deferred tax asset valuation allowance     (3,901,000)   (3,377,000)
                                          ------------  ------------
  Net deferred tax assets                 $       ---   $       --- 
                                          ============  ============



A  valuation allowance was established to offset certain deferred tax assets due
to  management's  uncertainty  of realizing the benefit of these items.  The net
changes  in  the valuation allowance were an increase of $524,000 and a decrease
of  $964,000  for  the years ended October 31, 1998 and 1997, respectively.  The
Company  has research and experimentation tax credit carryforwards of $1,115,000
for  federal  and state tax purposes.  These carryforwards expire in the periods
ending 2007 through 2013.  The Company has net operating loss carryforwards for
federal  and  state  income  tax purposes of approximately $3.3 million and $2.3
million,  respectively,  which  expire  in  periods  ending  1999  through 2013.

8.     COMMITMENTS

The  Company leases all its buildings under noncancelable operating leases which
expire  at  various  dates through the year 2006.  Future minimum lease payments
under  all operating leases, net of sublease proceeds, with initial or remaining
noncancelable  lease  terms  in  excess  of  one year at October 31, 1998 are as
follows:

Year ending October 31:
      1999                            $                394,633
      2000                                             418,524
      2001                                             646,197
      2002                                             643,115
      2003                                             638,796
      Thereafter                                     1,543,757
                                      ------------------------

        Total minimum lease payments  $              4,285,022
                                      ========================

                                     36
<PAGE>
Under  the  terms of the San Ramon, California building lease, rent includes the
lessor's operating costs and is offset by sublease proceeds.  The building lease
also  includes  two  five-year renewal options at market rates as defined by the
lease.  Rent  expense under all operating leases for the years ended October 31,
1998,  1997  and  1996  was  $657,142  (net  of  sublease proceeds of $363,750),
$664,409  (net  of  sublease  proceeds  of  $328,911) and $822,835 respectively.

9.     STOCK  OPTION  AND  STOCK  PURCHASE  PLANS

The Company has 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 retitled the 1996 Stock Option
Plan.  A  total  of 1,330,000 shares of common stock are reserved under the 1996
Plan.  The  Company's Board of Directors adopted the 1998 Plan on June 15, 1998.
A  total  of  300,000  shares  of common stock are reserved under the 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 this period and have exercise prices reflecting market value at the date of
grant.

In  May 1996, due to the reduced market price of the Company's common stock, the
Company  offered  employees the opportunity to have their options under the 1996
Plan  repriced  to  $8.93  in  exchange for restrictions of certain rights under
their  option  grants.  In  July  1998,  due  to the reduced market price of the
Company's  common stock, the Company offered employees the opportunity to cancel
their  existing  options under the 1996 Plan and have the options reissued under
the  1998  Plan  at  a  price  of $5.125.  The new options retain their original
vesting  periods but carry restrictions of certain rights that had existed under
the  original  option  grants.

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

At  October  31,  1998  and  1997, 326,470 and 38,320 shares, respectively, were
available  for  stock  option  grants  under  the 1996 Plan.  A total of 100,300
shares  were  available  for  grant  under the 1998 Plan at October 31, 1998.  A
total  of  52,000  and  70,000  shares  were  available  for  grant  under  the
Non-Employee  Director  Plan  at  October  31,  1998  and  1997,  respectively.

                                     37
<PAGE>
A summary of the activity under the stock option plans is set forth below:

                                                                     Weighted
                                                                      Average
                         Number of       Price Per      Aggregate    Exercise
                          Shares           Share          Price        Price
                      ---------------  --------------  ------------  ---------
Outstanding at
    October 31, 1995         593,038   $4.13 - $13.00  $ 4,355,755   $    7.34

  Granted                    528,998     4.38 - 10.50    3,314,709        6.27
  Terminated                (244,553)    5.31 - 12.00   (1,902,625)       7.78
  Exercised                  (35,283)    4.25 - 10.25     (221,939)       6.29
                      ---------------  --------------  ------------  ---------

  Outstanding at
    October 31, 1996         842,200     4.13 - 13.00    5,545,900        6.59

  Granted                    222,100     3.69 - 17.25    1,296,903        5.84
  Terminated                (245,937)    3.75 - 13.50   (1,952,804)       7.94
  Exercised                 (102,588)     4.38 - 9.75     (571,011)       5.57
                      ---------------  --------------  ------------  ---------

  Outstanding at
    October 31, 1997         715,775     3.69 - 17.25    4,318,988        6.03

  Granted                    453,650     3.44 - 15.50    3,436,502        7.58
  Terminated                (324,100)    3.69 - 17.25   (2,838,040)       8.76
  Exercised                  (20,325)     3.69 - 8.93     (100,908)       4.96
                      ---------------  --------------  ------------  ---------

  Outstanding at
    October 31, 1998         825,000     3.44 - 13.00    4,816,541        5.84
                      ===============                  ============           

  Exercisable at
    October 31, 1998         413,125   $3.69 - $10.50  $ 2,073,718   $    5.02
                      ===============                  ============           

                                     38
<PAGE>

The following table summarizes information with respect to stock options 
outstanding at October 31, 1998:
<TABLE>
<CAPTION>

                                                 Options Outstanding             Options Exercisable
                                                 -------------------             -------------------
        <S>                  <C>                  <C>                 <C>       <C>           <C>
                                                       Weighted
                                                        Average       Weighted                Weighted
                                    Number             Remaining       Average      Number    Average
              Range of           Outstanding       Contractual Life   Exercise   Exercisable  Exercise
           Exercise Price        at 10/31/98            (years)         Price    at 10/31/98   Price
        -------------------  -------------------  ------------------  --------  ------------  --------

                   $ 3.44           50,000                6.6          $ 3.44            0     $ 0.00
            3.45  -  5.18          553,750                3.5            4.54      346,875       4.47
            5.18  -  6.90           43,750                5.4            5.46       18,750       5.30
            6.90  -  8.63           65,000                3.4            7.98       28,750       8.15
            8.63  - 10.35           10,000                1.4            9.50        7,500       9.50
           10.35  - 12.08           22,500                4.1           10.50       11,250      10.50
           12.08  - 13.00           80,000                6.1           13.00            0       0.00
                             -------------------                                ------------

                                   825,000                                         413,125
                             ===================                                ============
</TABLE>

The  Company has an Employee Stock Purchase Plan (the Purchase Plan) under which
200,000  shares  of  common stock have been reserved for issuance.  The Purchase
Plan  allows  participating  employees  to purchase, through payroll deductions,
shares  of  the  Company's common stock at 85 percent of the stock's fair market
value  at  specified  dates.  At October 31, 1998, 57 employees were eligible to
participate  in  the  Purchase Plan and 100,087 common shares were available for
issuance.  In  fiscal year 1998, 1997 and 1996, 19,550, 13,612 and 18,602 shares
were  issued  under  the  Purchase  Plan,  respectively.

In  fiscal  1997,  the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation."  The  Company  accounts  for  stock options under its three plans
under  APB Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost for these plans been determined pursuant to the provisions
of  SFAS No. 123, the Company's pro forma net income would have been as follows:
<TABLE>
<CAPTION>

Years ended October 31                             1998        1997         1996
                                                ----------  ----------  -------------
<S>                                             <C>         <C>         <C>
Pro forma net (loss) income                     $(983,566)  $2,516,518  $(10,343,702)
Pro forma net (loss) income per share           $   (0.37)  $     0.93  $      (4.85)
</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:

Options granted in years ended October 31    1998    1997    1996
                                            ------  ------  ------
Expected life (in years)                     5.00    6.45    5.21 
Risk-free interest rate                      4.50%   7.00%   7.00%
Volatility                                  91.00%  93.41%  99.84%
Dividend yield                               0.00%   0.00%   0.00%

                                     39
<PAGE>
The  weighted  average estimated fair value of each option granted during fiscal
1998,  1997  and  1996  was  $7.53,  $5.32  and  $5.32,  respectively.

Because  the  SFAS  No. 123 method of accounting has not been applied to options
granted prior to November 1, 1995, the resulting pro forma compensation cost may
not  be  representative  of  that  to  be  expected  in  future  years.

10.     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 with the Company
at  least  one  year.  Additionally,  the Company makes matching payments to the
employee  savings  and  investment  plan  of  50  percent  of  each  employee's
contribution  up  to  three  percent  of  employees'  earnings.

For  the  years  ended  October 31, 1998, 1997 and 1996, total expense under the
above  plan  was  $173,847,  $279,899  and  $185,596,  respectively.

11.     CONCENTRATION  OF  CREDIT  RISK  AND  SIGNIFICANT  CUSTOMERS

The Company's trade accounts receivable are concentrated among a small number of
customers, principally located in the United States.  One customer accounted for
80  percent  of total accounts receivable at October 31, 1998, and two customers
accounted  for 50 percent and 10 percent of total accounts receivable at October
31,  1997.  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, and 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
$200,000  and  $169,000  at  October  31,  1998  and  1997,  respectively.

Sales  to  individual  customers  in  excess  of  10 percent of net sales of the
Company included sales to Tandem Computers and Motorola of $9.4 million and $2.8
million, respectively, in 1998; sales to Tandem Computers, Motorola, and Silicon
Graphics  of $8.8 million, $3.8 million and $3.0 million, respectively, in 1997;
and  sales  to  Tandem  Computers of $2.7 million in fiscal 1996.  International
sales  accounted  for 5 percent and 12 percent of total sales during fiscal 1998
and  fiscal  1997,  respectively.

                                     40
<PAGE>
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>
  1998: Net sales                         $    4,444   $  4,412   $  4,041    $6,088
        Gross profit                           2,722      2,768      2,438     3,539
        Net (loss) income                       (469)      (241)       154       936
        Basic (loss) earnings per share   $    (0.18)  $  (0.09)  $   0.06  $   0.35
        Diluted (loss) earnings per share $    (0.18)  $  (0.09)  $   0.06  $   0.35

  1997: Net sales                         $    4,217   $  5,852  $   7,393    $7,508
        Gross profit                           1,961      2,593      3,711     4,553
        Net income                               830        384        740     1,379
        Basic earnings per share          $     0.35   $   0.15   $   0.29  $   0.53
        Diluted earnings per share        $     0.35   $   0.15   $   0.27  $   0.46
</TABLE>

The Company's fiscal 1997 first quarter reflects a $685,000 gain on the sale of
assets.

13.     SUBSEQUENT EVENT

On  November  6,  1998  the  Company  made a loan to an officer in the amount of
$592,450  under  a two-year recourse promissory note bearing an interest rate of
4.47  percent  and  collateralized  by  145,313  shares  of  Common Stock of the
Company.

                                     41
<PAGE>
SBE, INC.
                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

             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, 1998

Allowance for Doubtful Accounts            169,205          32,373         (1,578)        200,000
Allowance for Obsolete Inventory         1,022,463         353,461         24,076       1,400,000
Allowance for Warranty Claims              251,956          47,410        (91,922)        207,444
Allowance for the deferred tax asset     3,377,000         524,000              0       3,901,000

YEAR ENDED OCTOBER 31, 1997

Allowance for Doubtful Accounts            105,000          78,000        (13,795)        169,205
Allowance for Obsolete Inventory           166,146       1,075,014       (218,697)      1,022,463
Allowance for Warranty Claims               90,447         280,462       (118,953)        251,956
Allowance for the deferred tax asset     4,341,000        (964,000)             0       3,377,000

</TABLE>






(a) Deductions represent activity charged to related asset or liability account.

                                     42