<PAGE>

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

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


                  DATE OF REPORT: FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000


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

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

                           Commission File No. 0-8419

              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, 2000 as reported on the Nasdaq
National Market, was $11,995,487. Shares of Common Stock held by each executive
officer, director and stockholder whose ownership exceeds five percent of Common
Stock outstanding have been excluded because such persons may be deemed to be
affiliates of the Registrant. This determination of affiliate status for
purposes of the foregoing calculation is not necessarily a conclusive
determination of affiliate status for other purposes.

The number of shares of the Registrant's Common Stock outstanding as of December
31, 2000 was 3,427,282.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy statement for the Registrant's
Annual Meeting of Stockholders scheduled for March 20, 2001 have been
incorporated by reference into Part III of this Annual Report on Form 10-K.

Exhibit Index on Page 22
Total Pages 43


<PAGE>


                                    SBE, INC.

                                    FORM 10-K

                                TABLE OF CONTENTS


<TABLE>
<S>                                                                                              <C>
PART I

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



PART II

       Item 5         Market for The Registrant's Common Equity
                           and Related Stockholder Matters                                         14
       Item 6         Selected Financial Data                                                      14
       Item 7         Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                           15
       Item 7A        Quantitative and Qualitative Disclosures about Market Risk                   18
       Item 8         Financial Statements and Supplementary Data                                  18
       Item 9         Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure                                  18

PART III

       Item 10        Directors and Executive Officers of the Registrant                           19
       Item 11        Executive Compensation                                                       20
       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                                                                                           41

EXHIBITS                                                                                           42
</TABLE>



                                      -2-
<PAGE>

                                     PART I


CERTAIN STATEMENTS SET FORTH IN OR INCORPORATED BY REFERENCE IN THIS ANNUAL
REPORT ON FORM 10-K CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995. THESE STATEMENTS INCLUDE,
WITHOUT LIMITATION, THE COMPANY'S EXPECTATIONS REGARDING ITS SALES TO COMPAQ
COMPUTER IN FISCAL 2001, THE BELIEF THAT THE MARKET FOR CLIENT SERVER NETWORKING
PRODUCTS IS GROWING, THE ADEQUACY OF ANTICIPATED SOURCES OF CASH, PLANNED
CAPITAL EXPENDITURES, THE EFFECT OF INTEREST RATE INCREASES, AND TRENDS OR
EXPECTATIONS REGARDING THE COMPANY'S OPERATIONS. IN ADDITION, WORDS SUCH AS
"BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," "ESTIMATES" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE
EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. SUCH STATEMENTS ARE BASED ON
CURRENTLY AVAILABLE OPERATING, FINANCIAL AND COMPETITIVE INFORMATION AND ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. READERS ARE CAUTIONED THAT THE
FORWARD-LOOKING STATEMENTS REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE
HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THESE STATEMENTS. ACTUAL
FUTURE RESULTS, EVENTS AND TRENDS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN
OR IMPLIED BY SUCH STATEMENTS DEPENDING ON A VARIETY OF FACTORS, INCLUDING, BUT
NOT LIMITED TO THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS FORM
10-K. SEE "BUSINESS -- RISK FACTORS" AND "ITEM 7 --MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

ITEM 1. BUSINESS


OVERVIEW

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

On July 14, 2000, the Company acquired LAN Media Corporation, a privately held
wide area networking adapter company headquartered in Sunnyvale, California. In
the acquisition, we issued approximately 316,000 shares of our common stock for
all LAN Media's outstanding common stock. The Company also assumed all
outstanding options to acquire LAN Media common stock. The acquisition was
accounted for as a pooling of interests under Principles Board Opinion No. 16.
Accordingly, the financial statements of the Company have been restated for all
periods prior to the merger to reflect the combined results of operations,
financial position and cash flows. In connection with the acquisition, the
Company recorded a charge to operating expenses of $383,000 for
acquisition-related costs in the fiscal third quarter ended July 31, 2000.

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 year the Company expanded its product lines to include its
Highwire(TM) family of high performance telecommunications controllers. The
Highwire family provides high bandwidth intelligent connectivity to servers
designed to act as gateways and signaling points within telecommunication
networks. The Highwire coprocessing controllers enable operators of wireline and
wireless networks to deliver Intelligent Network ("IN") and Advanced Intelligent
Network ("AIN") services such as Caller ID, voice messaging, personal number
calling, Service Provider Local Number Portability and customized routing and
billing, as well as


                                      -3-
<PAGE>

digital wireless services such as Personal Communications Systems ("PCS") and
Global System for Mobile Telecommunications ("GSM"). The Highwire products are
designed for integration with standard server platforms that will enable
traditional carriers and new telecom entrants to pursue cost-reduced and
performance-enhanced network architectures based on Internet Protocol ("IP"),
Asynchronous Transfer Mode ("ATM") or other "packet" technologies. The Company
is focusing substantial resources on the continued development, marketing and
sales activities for the Highwire products.

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

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

RISK FACTORS

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

DEPENDENCE ON A LIMITED NUMBER OF OEM CUSTOMERS. In fiscal 2000, most of the
Company's sales were derived from a limited number of OEM customers. In fiscal
2000, sales to Compaq Computer accounted for 66 percent of the Company's net
sales. The Company expects that sales from Compaq Computer will also constitute
a substantial portion of the Company's net sales in fiscal 2001. Orders by the
Company's OEM customers are affected by factors such as new product
introductions, product life cycles, inventory levels, manufacturing strategy,
contract awards, competitive conditions and general economic conditions. The
Company's sales to any single OEM customer are also subject to significant
variability from quarter to quarter. Such fluctuations may have a material
adverse effect on the Company's operating results. A significant reduction in
orders from any of the Company's OEM customers, particularly Compaq Computer and
Lockheed Martin, would have a material effect on the Company's operating


                                      -4-
<PAGE>

results and financial condition. In addition, there can be no assurance that the
Company will become a qualified supplier with new OEM customers or that the
Company will remain a qualified supplier with existing OEM customers.

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

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

Increased competition with respect to any of the Company's products could result
in price reductions and loss of market share, which would adversely affect the
Company's business, operating results and financial condition. Many of the
Company's current and potential competitors have greater financial, marketing,
technical and other resources than the Company. There can be no assurance that
the Company will be able to compete successfully with its existing competitors
or will be able to compete successfully with new competitors.

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


                                      -5-
<PAGE>

operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock is likely to
be materially adversely affected.

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

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

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

SUCCESSFUL INTEGRATION OF ACQUISITIONS. In July 2000, the Company acquired LAN
Media Corporation. We may continue to acquire companies, technologies or
products or to sell or discontinue some of our technologies or products in
future periods. Our acquisitions involve numerous risks, including the use of
significant amounts of our cash, diversion of the attention of our management
from our core business, loss of our key employees and significant expenses and
write-offs. Incremental acquisition related charges including in-process
research and development and amortization of goodwill and other intangibles or
divestitures of profitable technologies or products could adversely impact our
profitability. The success of these acquisitions depends upon our ability to
timely and successfully develop, manufacture and gain market acceptance for the
products we acquired. If we engage in additional acquisitions or divestitures in
future periods, we may not be able to address these risks and our business may
be harmed.

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

DEPENDENCE ON CONTRACT MANUFACTURER. The Company and XeTel Corporation
("XeTel"), a contract manufacturing company headquartered in Austin, Texas have
entered into an


                                      -6-
<PAGE>

exclusive manufacturing service agreement under which XeTel is to manufacture
all of the Company's products until at least December 2001. The Company is
dependent on XeTel's ability to manufacture the Company's products according to
specifications and in required volumes on a timely basis. The failure of XeTel
to perform its obligations under the manufacturing service agreement could have
a material adverse effect on the Company's business, operating results and
financial condition.

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

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

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

YEAR 2000 COMPLIANCE. The Company believes it has identified and modified
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 related to compliance with
year 2000 date codes. To date the Company has not experienced any year 2000
business problems.

PRODUCTS


                                      -7-
<PAGE>


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

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

A second generation Intelligent Network called the Advanced Intelligent Network
("AIN") is used by carriers and service providers seeking to differentiate
themselves by offering advanced voice and data communications services. The AIN
is a network architecture and a set of standards designed to allow network
operators to create, deploy and modify these services quickly and economically.
AIN services represent the merging of telephony with database information
through SS7 signaling. Such services include Caller ID, voice messaging,
personal number calling, Service Provider Local Number Portability and
customized routing and billing as well as digital wireless services such as PCS
and GSM.

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

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

WANXL CLIENT/SERVER WAN PRODUCTS. The need to collect, store, analyze and
distribute information in a secure, timely and efficient manner has become an
integral part of operating a successful organization. Developments in computer
technology have resulted in less reliance


                                      -8-
<PAGE>

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 Company believes the market opportunity for client/server networking
products is rapidly expanding. According to a recent industry study, the market
for WAN access equipment was $2.8 billion in 1999, with increased demand in the
years 2000 through 2005.

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

VMEBUS INTELLIGENT COMMUNICATIONS CONTROLLER PRODUCTS. Intelligent
communications controller products are used to provide connectivity between a
system such as a mini-computer or bridge/router and a local or wide area
network. Communication controller products enable computers to exchange data in
much the same way as the telephone system allows people to converse with one
another. As computers become more pervasive in all areas of society, computer
users are demanding greater productivity, efficiency and lower costs in their
computer systems, which has led to the sharing of databases, software
applications and computer peripheral equipment. Communications controllers have
become a central component to connecting networks and computers to deliver
information more efficiently.

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

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

OTHER  PRODUCTS

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

The following table shows sales by major product type as a percentage of net
sales for fiscal 2000, 1999 and 1998.


                                      -9-
<PAGE>

<TABLE>
<CAPTION>
                                                                   Year Ended October 31,
                                                          2000              1999               1998
                                                     ----------------------------------------------
                                                                  (percentage of net sales)

<S>                                                    <C>                <C>              <C>
         VME Communication Controllers                      75%                81%              79%
         Wan Adapter                                        15                  9               11
         WanXL products                                      6                  3                5
         Other                                               4                  7                5
                                                     ------------------------------------------------
                                                           100%               100%             100%
                                                     ================================================
</TABLE>

DISTRIBUTION, SALES AND MARKETING

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

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

The Company markets its WanXL client/server products through multiple indirect
distribution channels worldwide, including distributors, manufacturers'
representatives, value-added resellers and certain OEM partners. The Company
actively supports its indirect channel marketing partners with its own sales and
marketing organization. The Company's sales staff solicits prospective
customers, provides technical advice with respect to its products and works
closely with marketing partners to train and educate their staffs on how to
sell, install and support the WanXL product line.

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

The Company 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, telecommunications applications, client/server
internetworking and VMEbus


                                      -10-
<PAGE>

intelligent communications controllers. The Company's experience in high-speed
data communication creates opportunities to leverage its engineering investments
and develop additional integrated products for simpler, more innovative
communications solutions for customers. The development of new internetworking
products, high-performance communications controllers and communications-related
software is critical to attracting new and retaining existing customers.

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

During fiscal 2000, the Company focused the majority of its development efforts
on the Highwire product line, and it expects to continue Highwire development,
while also developing other new product platforms, in fiscal 2001.

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

MANUFACTURING

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

Certain parts used in the Company's products are purchased from Motorola. See
"Risk Factors--Dependence on Key Suppliers." The Company believes that the
sole-source components supplied by Motorola will become available to the Company
from alternative suppliers in the future. Although the Company has rarely
experienced any significant problems in obtaining sole-source components, the
Company has sought to establish a close relationship with sole-source suppliers
and, if necessary, build up an inventory of such components.

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

COMPETITION

The market for telecommunications and client/server access products is highly
competitive. Many of the Company's competitors have greater financial resources
and are more established than the Company. Competition within the
telecommunications market is fragmented principally by application segment. The
Company's Highwire products compete with


                                      -11-
<PAGE>

offerings from Radisys, Performance Technology, Interphase, Artesyn, SBS
Technology and Adax along with various other platform and controller product
providers. The Company's VMEbus, Wan Adapter and WanXL communications controller
products compete primarily with products from Digi International, Motorola,
Interphase Corp., Themis Computers, Performance Technologies and various other
companies on a product-by-product basis. To compete in this market, the Company
emphasizes the functionality, support, quality and price of its product in
relation to its competitors as well as the Company's ability to customize the
product or software to exactly meet the customer's needs.

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

INTELLECTUAL PROPERTY

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

BACKLOG

On December 31, 2000, the Company had a backlog of orders of approximately $2.7
million for shipment within the next 12 months. On December 31, 1999, the
Company had a backlog of orders of approximately $6.9 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 3, 2001, the Company had 87 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.


                                      -12-
<PAGE>

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. In December 2000 the sublease was renewed for an additional
year, and additional renewal options exist which would extend the sublease until
2006.

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

Additionally, through the acquisition of LAN Media Corp. in July 2000, the
Company leases approximately 3,650 square feet of office space in Sunnyvale, CA.
The Sunnyvale lease expires in 2003.

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

None



                                      -13-
<PAGE>


                                     PART II


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

The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol SBEI. The following table presents quarterly information on the price
range of the Company's Common Stock, indicating the high and low bid prices
reported by the Nasdaq National Market. These prices do not include retail
markups, markdowns or commissions. 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. As of December 31, 2000, the Company had 537
named stockholders of record.

<TABLE>
<CAPTION>
                                                    Fiscal quarter ended
                           ----------------------------------------------------------------------
     2000                         January 31          April 30           July 31       October 31
-------------------------------------------------------------------------------------------------
<S>                               <C>               <C>              <C>               <C>
         High                        $11.88            $22.25           $26.38            $22.75
         Low                           3.94              8.50            14.00              8.56

     1999
         High                         $9.00             $8.50            $6.50             $5.06
         Low                           6.63              4.19             4.63              3.50
</TABLE>

ITEM 6.  SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
For years ended October 31,
  and at October 31                     2000            1999           1998           1997            1996
----------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>             <C>             <C>
Net sales                            $29,178        $ 19,854       $ 21,124        $26,695         $13,350

Net income (loss)                    $ 3,970        $   (254)      $    184        $ 3,229         ($9,625)

Net income (loss) per share          $  1.24        $  (0.08)      $   0.07        $  1.25          ($4.51)

Product research and development     $ 5,635        $  5,167       $  3,864        $ 2,954        $  5,084

Working capital                      $11,793        $  7,191       $  7,845        $ 7,918        $  2,049

Total assets                         $17,427        $ 11,264       $ 11,783        $11,978        $  7,894

Long-term obligations                $   288        $    503       $    631        $   925        $    757

Stockholders' equity                 $13,829        $  8,636       $  8,846        $ 8,475        $  3,981

Shares outstanding                     3,208           3,097          2,755          2,590           2,233

Number of employees                       87              72             68             84              92
</TABLE>



                                      -14-
<PAGE>


ITEM 7.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

On July 14, 2000, we acquired LAN Media Corporation, a privately held wide
area networking adapter company headquartered in Sunnyvale, California. In
the acquisition, we issued approximately 316,000 shares of our Common Stock
for all LAN Media's outstanding common stock. We also assumed all outstanding
options to acquire LAN Media common stock. The acquisition was accounted for
as a pooling of interests under Accounting Principles Board Opinion No. 16.
Accordingly, our financial statements have been restated for all periods
prior to the merger to reflect the combined results of operations, financial
position and cash flows. In connection with the acquisition, we recorded a
charge to operating expenses of $383,000 for acquisition-related costs in the
fiscal third quarter ended July 31, 2000.

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, 2000, 1999 and 1998. These operating results are not necessarily indicative
of Company's operating results for any future period.

<TABLE>
<CAPTION>
                                                                        YEAR ENDED OCTOBER 31,
                                                                        ----------------------
                                                              2000               1999               1998
                                                              ----               ----               ----
<S>                                                          <C>                <C>                <C>
  Net sales                                                    100%               100%               100%
  Cost of sales                                                 36                 38                 43
                                                              ----               ----               ----
     Gross profit                                               64                 62                 57
  Operating expenses:
     Product research and development                           19                 26                 18
     Sales and marketing                                        16                 23                 22
     General and administrative                                 16                 15                 17
                                                              ----               ----               ----
      Total operating expenses                                  51                 64                 57
                                                              ----               ----               ----
  Operating income (loss)                                       13                 (2)                --
  Interest and other income, net                                 1                  1                  1
                                                              ----               ----               ----
  Income before income taxes                                    14                 (1)                 1
  Provision for income taxes                                    --                 --                 --
                                                              ----               ----               ----
  Net income (loss)                                             14%                (1)%                1%
                                                              ====               =====              ====
</TABLE>


                                      -15-
<PAGE>

NET SALES

Net sales for fiscal 2000 were $29.2 million, a forty seven percent increase
from fiscal 1999. Net sales for fiscal 1999 were $19.9 million, a six percent
decrease from fiscal 1998. The increase from fiscal 1999 to fiscal 2000 was
primarily attributable to increased sales of VMEbus products to Compaq along
with an overall increase in sales of WAN Adapter products. The decrease from
fiscal 1998 to fiscal 1999 was primarily attributable to lower sales of custom
integrated circuit products to one customer. Sales to individual customers in
excess of 10 percent of net sales of the Company included net sales to Compaq of
$19.4 million in fiscal 2000 and $12.6 million in fiscal 1999. In fiscal 1998,
customers constituting more than 10 percent of our net sales were Compaq and
Motorola which were $9.4 million and $2.8 million, respectively. Net sales to
Motorola were $1.0 million and $500,000 in fiscal 2000 and 1999, respectively.
The Company expects to continue to experience fluctuation in product sales as
large customers' needs change. See "Item 1--Business--Risk Factors--Dependence
on a Limited Number of OEM Customers."

International sales constituted 4 percent, 4 percent and 5 percent of net sales
in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. International sales
are executed in US dollars and are principally transacted in Europe.

GROSS PROFIT

Gross profit as a percentage of net sales was 64 percent, 62 percent and 57
percent in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. Gross profit
as a percentage of net sales increased in fiscal 2000 as a result of lower costs
for products due to increased volume. The increase from fiscal 1998 to fiscal
1999 was primarily attributable to lower material costs and improved operational
efficiencies.

PRODUCT RESEARCH AND DEVELOPMENT

Product research and development expenses were $5.6 million in fiscal 2000, $5.2
million in fiscal 1999 and $3.9 million in fiscal 1998, representing 19 percent,
26 percent and 18 percent of net sales, respectively. The increase in research
and development spending from fiscal 1999 to fiscal 2000 was a result of higher
spending on the development of new telecommunications products. The increase in
research and development spending from fiscal 1998 to fiscal 1999 was due to
expanded development programs for the HighWire product line. The Company expects
that product research and development expenses will increase from fiscal 2000
levels as the Company focuses its resources on developing new telecommunications
and WAN Adapter 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 2000,
fiscal 1999 or fiscal 1998.



                                      -16-
<PAGE>


SALES AND MARKETING

Sales and marketing expenses for fiscal 2000 were $4.6 million, essentially the
same as fiscal 1999 and fiscal 1998. Sales and marketing programs are focused on
new customer development and therefore as new customer sales increase, sales and
marketing expenses will increase. Customer new product sales cycles may span
over periods as long as twenty-four months. The Company expects sales and
marketing expenses, as new products are announced and sales to new customers are
expanded, will increase slightly as a percentage of total sales from fiscal 2000
levels.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for fiscal 2000 increased to $4.6 million
from 3.0 million in fiscal 1999 or 52 percent as a result of increased profit
sharing and bonus programs due to increased profitability and for costs related
to the acquisition of Lan Media Corporation. General and administrative expenses
for fiscal 1999 decreased 13 percent from $3.5 million in fiscal 1998 to $3.0
million. The decrease from fiscal 1998 to fiscal 1999 was a result of lower
outside costs and continued expense control efforts.

INTEREST AND OTHER INCOME, NET

Interest income in fiscal 2000 decreased slightly from fiscal 1999 due to
lower average cash balances in fiscal 2000 as compared to fiscal 1999.
Interest income in fiscal 1999 increased from fiscal 1998 due to increased
average cash balances in fiscal 1999.

INCOME TAXES

The Company recorded tax provisions of $126,000, $3,000 and $32,000 in fiscal
2000, 1999 and fiscal 1998, respectively. The Company's effective tax rate was 3
percent, 1 percent and 14 percent in fiscal 2000, 1999 and 1998, respectively.
The Company has recorded a valuation allowance in fiscal 2000, 1999, and 1998
for certain deferred tax assets due to the uncertainty of realization. This
valuation allowance decreased from approximately $4.0 million in fiscal 1999 to
$3.1 million in fiscal 2000. 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

As a result of the factors discussed above, the Company recorded net income of
$4.0 million in fiscal 2000, a net loss of $254,000 in fiscal 1999 and net
income of $184,000 in fiscal 1998.


LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of $5.3 million and $3.4 million on
October 31, 2000 and October 31, 1999, respectively. In fiscal 2000, $2.3
million of cash was provided by operating activities, principally as a result
of net income of $4.0 million, a $1.2 million increase in other liabilities
along with $1.1 million of non cash depreciation and amortization charges.
These increases in cash were offset by a $3.0 million increase in
inventories, a $808,000 increase in trade accounts receivable, and a $89,000
increase in other assets. Working capital at October

                                      -17-
<PAGE>

31, 2000 was $11.6 million, as compared to $7.2 million at October 31, 1999.

In fiscal 2000, the Company purchased $1.3 million of fixed assets,
consisting primarily of an enterprise resource planning system, computers,
and engineering equipment, and purchased $182,000 of capitalized software.
The Company expects capital expenditures during fiscal 2001 to approximate
the same level as fiscal 2000.

The Company received $1.3 million in fiscal 2000 from employee stock option
exercises and stock purchase plan purchases, and such proceeds were offset by
$51,000 of stock repurchases.

In fiscal 1999, the Company made a loan to an officer and stockholder in the
amount of $743,800 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. The loan was used to pay for the exercise of 139,400 shares of Company
stock options and related taxes.

In May 1999, the Board of Directors authorized the Company to repurchase up to
100,000 shares of the Company's issued and outstanding common stock. The Company
repurchased 79,500 shares of its common stock in the open market during fiscal
1999 and 2000, for an aggregate purchase price of $409,000. The Board
authorization expired in May of 2000.

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 fiscal 2001.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's cash and cash equivalents are subject to interest rate risk.
The Company invests primarily on a short-term basis. The Company's financial
instrument holdings at October 31, 2000 were analyzed to determine their
sensitivity to interest rate changes. The fair values of these instruments
were determined by net present values. In our sensitivity analysis, the same
change in interest rate was used for all maturities and all other factors
were held constant. If interest rates increased by 10 percent, the expected
effect on net income related to the Company's financial instruments would be
immaterial.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

None.



                                      -18-
<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 20, 2001 (the "2001 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 2001 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 familial relationships
between a director or executive officer and any other director or executive
officer of the Company.

<TABLE>
<CAPTION>
NAME                                    AGE          POSITION
--------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>
William B. Heye, Jr.                    62           President and Chief Executive Officer

Timothy J. Repp                         40           Vice President, Finance, Chief Financial
                                                     Officer, Treasurer and Secretary

Steven K. Nester                        46           Vice President, Sales and Business Development

David Schaetzel                         44           Vice President, Engineering

Richard M. Strang                       55           Vice President, Technology

Ronald C. Crane                         50           Vice President, WAN Engineering
</TABLE>


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


                                      -19-
<PAGE>

Manager of Consumer Products and President of Texas Instruments Asia, Ltd., with
headquarters in Tokyo, Japan.

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. Nester has served as Vice President, Sales and Business Development since
February 2000. He joined the Company as a Senior Applications Engineer in May of
1990 and has held various management positions including Director of OEM Product
Sales, Vice President Business Development. Prior to joining the Company, he
held management and engineering positions with communications and data storage
companies.

Mr. Schaetzel has served as Vice President, Engineering since June 1999. He
joined the Company as a Hardware Engineer in August 1997 and has served in
various engineering management positions since then. From 1994 to June 1997, Mr.
Schaetzel was an executive of Woodward Governor Co., a manufacturer of engine
control systems. From 1992 to 1994, he was a consultant in microelectronics
design, development and manufacturing. Prior to 1992, he was a manager at TRW, a
manufacturer of electronic products.

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

Mr. Crane joined SBE in July 2000 as a result of the acquisition of LAN Media
Corporation, a privately held corporation founded in 1992. Mr. Crane is one of
the pioneers of modern communications, having represented Xerox during the
writing of the original Ethernet "Blue Book" specification as well as leading
many of 3Com Corporations hardware engineering efforts. During 10 years at 3Com,
Mr. Crane was issued 5 patents related to Ethernet transmission technology. As a
founding member of the Fast Ethernet Alliance and working in conjunction with
Sun Microsystems, 3Com Corporation and Grand Junction Networks, Mr. Crane
demonstrated the feasibility for Fast Ethernet technology. Mr. Crane received
his Bachelor of Science in Electrical Engineering from MIT in 1972 and a Master
of Science in Electrical Engineering from Stanford University in 1974.

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
2001 Proxy Statement.


                                      -20-
<PAGE>

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 2001 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 2001
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


<TABLE>
<CAPTION>
                                                                                                   PAGE
<S>                                                                                               <C>
         Report of Independent Accountants                                                           26

         Consolidated Balance Sheets at October 31, 2000 and 1999                                    27

         Consolidated Statements of Operations for fiscal years 2000, 1999
                  and 1998                                                                           28

         Consolidated Statements of Stockholders' Equity for fiscal years 2000,
                  1999 and 1998                                                                      29

         Consolidated Statements of Cash Flows for fiscal years 2000, 1999
                  and 1998                                                                           30

         Notes to Consolidated Financial Statements                                                  31


(b)      FINANCIAL STATEMENT SCHEDULE

         Schedule II-- Valuation and Qualifying Accounts                                             41
</TABLE>

         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.

(c)      Exhibits


<TABLE>
<CAPTION>
          Exhibit                                                                                 Sequential
          Number          Description                                                              Page No.
          -------         -----------                                                             ----------
<S>                      <C>                                                                     <C>
     (e)     3.1          Certificate of Incorporation, as amended through
                          December 15, 1997                                                          ---

     (i)     3.2          Bylaws, as amended through December 8, 1998                                ---

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

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


                                      -22-
<PAGE>

<TABLE>
<S>                      <C>                                                                       <C>
     (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                                                                       ---

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

            11.1          Statement re computation of per share earnings                              42

            23.1          Consent of PricewaterhouseCoopers LLP, Independent Public                   43
                          Accountants
</TABLE>



(d)      REPORTS ON FORM 8-K

         No report on Form 8-K was filed by the Company during the quarter ended
         October 31, 2000.



                                      -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 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.

     (i)  Filed as an exhibit to Annual Report on Form 10-K for the year ended
          October 31, 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 31, 2001             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 31, 2001.

<TABLE>
<CAPTION>
         Signature                                            Title
         ---------                                            -----
<S>                                                <C>
/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/ Randall L-W. Caudill
------------------------
Randall L-W. Caudill                               Director

/s/ Ronald J. Ritchie
---------------------
Ronald J. Ritchie                                  Director
</TABLE>



                                      -25-
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the Index
appearing under Item 14(a) present fairly, in all material respects, the
financial position of SBE, Inc. and subsidiaries at October 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended October 31, 2000 in conformity with accounting
principles generally accepted in the United States. 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 statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/  PricewaterhouseCoopers LLP

San Jose, California
November 30, 2000




                                      -26-
<PAGE>


SBE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

<TABLE>
<CAPTION>
OCTOBER 31                                                                    2000                 1999
------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                   <C>
ASSETS

Current assets:
    Cash and cash equivalents                                            $       5,311         $       3,385
    Trade accounts receivable, net                                               4,296                 3,488
    Inventories                                                                  4,918                 1,967
    Deferred income taxes                                                            7                   158
    Other                                                                          420                   331
                                                                         -------------         -------------
             Total current assets                                               14,952                 9,329

Property and equipment, net                                                      2,143                 1,558
Capitalized software costs, net                                                    293                   338
Other                                                                               39                    39
                                                                         -------------         -------------

             Total assets                                                $      17,427         $      11,264
                                                                         =============         =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Trade accounts payable                                               $       1,094         $       1,120
    Accrued payroll and employee benefits                                        1,304                   449
    Accrued product warranties                                                     145                   101
    Other                                                                          767                   455
                                                                         -------------         -------------
             Total current liabilities                                           3,310                 2,125

Deferred tax liabilities                                                             7                   158
Deferred rent                                                                      281                   345
                                                                         -------------         -------------

                  Total liabilities                                              3,598                 2,628
                                                                         -------------         -------------

Commitments and Contingencies (Notes 7 and 10).

Stockholders' equity:
    Convertible preferred stock:  no par value;
         Authorized 167,339 shares; issued and outstanding
         0 and 163,344 shares at October 31, 2000
         and 1999 respectively                                                     ---                 1,429
    Common stock and additional paid-in capital
         ($0.001 par value); authorized
         10,000,000 shares; issued
         3,389,338 and 2,984,329 shares at
         October 31, 2000 and 1999, respectively including
         treasury shares: 79,500 and 74,500 at October 31, 2000
         and 1999, respectively                                                 13,855                11,110
    Note receivable from stockholder                                              (744)                 (744)
    Treasury stock                                                                (409)                 (358)
    Deferred stock-based compensation                                             (164)                 (122)
    Retained earnings (accumulated deficit)                                      1,291                (2,679)
                                                                         -------------         -------------

                  Total stockholders' equity                                    13,829                 8,636
                                                                         -------------         -------------

                  Total liabilities and stockholders' equity             $      17,427         $      11,264
                                                                         =============         =============
</TABLE>

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


                                      -27-
<PAGE>


SBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
For the Years Ended October 31                                      2000                1999              1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>                <C>
Net sales                                                   $        29,178     $        19,854    $         21,124
Cost of sales                                                        10,418               7,622               8,985
                                                            ---------------     ---------------    ----------------

     Gross profit                                                    18,760              12,232              12,139

Product research and development                                      5,635               5,167               3,864
Sales and marketing                                                   4,612               4,505               4,687
General and administrative                                            4,602               3,037               3,486
                                                            ---------------     ---------------    ----------------

     Total operating expenses                                        14,849              12,709              12,037

     Operating income (loss)                                          3,911                (477)                102

Interest and other income, net                                          185                 226                 114
                                                            ---------------     ---------------    ----------------

     Income (loss) before income taxes                                4,096                (251)                216

Provision for income taxes                                              126                   3                  32
                                                            ---------------     ---------------    ----------------

Net income (loss)                                           $         3,970     $          (254)   $            184
                                                            ===============     ================   ===============

Basic earnings (loss) per common share                      $          1.24     $         (0.08)   $           0.07
                                                            ===============     ================   ===============

Diluted earnings (loss) per common share                    $          1.04     $         (0.08)   $           0.06
                                                            ===============     ================   ===============

Basic - Shares used in per share
     computations                                                     3,208               3,097               2,755
                                                            ===============     ===============    ================

Diluted - Shares used in per share
     computations                                                     3,814               3,097               3,057
                                                            ===============     ===============    ================
</TABLE>



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



                                      -28-
<PAGE>


SBE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except shares)

<TABLE>
<CAPTION>
                                                                                                Common Stock and          Note
                                                                            Convertible        Additional Paid-in      Receivable
                                                                          Preferred Stock           Capital               from
                                                                                                                       Stockholder
                                                                         Shares     Amount      Shares       Amount      Amount
                                                                       ----------- --------- ------------- ----------- -----------
<S>                                                                    <C>         <C>       <C>           <C>         <C>
Balance, October 31, 1997                                                       -  $      -     2,728,826  $   9,857   $   1,229


Issuance Series A convertible Preferred Stock on conversion of notes
  payable                                                                 147,364     1,229                               (1,229)

Stock issued in connection with stock option plans                              -         -        20,325        101           -

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

Net income
                                                                       ----------- --------- ------------- ----------------------
Balance, October 31, 1998                                                 147,364     1,229     2,768,701     10,044           -


Stock issued in connection with stock option plans                              -         -       195,987        834           -

Issuance Series B convertible Preferred Stock                              15,980       200

Stock issued in connection with stock purchase plan                             -         -        19,641         74           -

Stock repurchase                                                                -         -             -          -           -

Note receivable from stockholder                                                -         -             -          -        (744)

Deferred stock-based compensation                                                                                158           -

Amortization of deferred stock compensation

Net loss
                                                                       ----------- --------- ------------- ----------------------
Balance, October 31, 1999                                                 163,344     1,429     2,984,329     11,110        (744)


Stock issued in connection with stock option plans                                                222,334      1,081

Stock retired/issued in connection with conversion to common stock       (163,344)   (1,429)      163,344      1,429

Stock issued in connection with stock purchase plan                                                19,331        104

Stock repurchase

Deferred stock-based compensation                                                                                131

Amortization of deferred stock compensation

Net income
                                                                       ----------------------------------------------------------
Balance, October 31, 2000                                                       -  $      -     3,389,338  $  13,855   $    (744)
                                                                       ==========================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                                                        Retained
                                                                         Treasury Stock    Deferred     Earnings
                                                                                          Stock-Based  (Accumulated
                                                                         Shares   Amount  Compensation   deficit)   Total
                                                                       ---------- ------- ------------ ----------- --------
<S>                                                                    <C>        <C>     <C>          <C>         <C>
Balance, October 31, 1997                                                     -   $    -  $      -     $ (2,609)   $ 8,477


Issuance Series A convertible Preferred Stock on conversion of notes
  payable                                                                                                                -

Stock issued in connection with stock option plans                            -        -         -            -        101

Stock issued in connection with stock purchase plan                           -        -         -            -         86

Net income                                                                                                  184        184
                                                                       --------- -------- ---------------------------------
Balance, October 31, 1998                                                     -        -         -       (2,425)     8,848


Stock issued in connection with stock option plans                            -        -                      -        834

Issuance Series B convertible Preferred Stock                                                                          200

Stock issued in connection with stock purchase plan                           -        -                      -         74

Stock repurchase                                                        (74,500)    (358)                     -       (358)

Note receivable from stockholder                                              -        -                      -       (744)

Deferred stock-based compensation                                             -        -      (158)           -          -

Amortization of deferred stock compensation                                                     36                      36

Net loss                                                                                                   (254)      (254)
                                                                       --------- -------- ---------------------------------
Balance, October 31, 1999                                               (74,500)  $ (358)     (122)      (2,679)     8,636


Stock issued in connection with stock option plans                                                                   1,081

Stock retired/issued in connection with conversion to common stock                                                       -

Stock issued in connection with stock purchase plan                                                                    104

Stock repurchase                                                         (5,000)      (51)                             (51)

Deferred stock-based compensation                                                             (131)                      -

Amortization of deferred stock compensation                                                     89                      89

Net Income                                                                                                3,970      3,970
                                                                      -----------------------------------------------------
Balance, October 31, 2000                                               (79,500)  $  (409) $   (164)  $    1,291   $ 13,829
                                                                      =====================================================
</TABLE>




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


                                     -29-
<PAGE>



SBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
For the years ended october 31                                           2000        1999      1998
----------------------------------------------------------------------------------------------------------
<S>                                                                   <C>        <C>        <C>
Cash flows from operating activities:
       Net income (loss)                                               $ 3,970    $  (254)   $   184
       Adjustments to reconcile net income (loss) to net cash
                     provided by (used in) operating activities:
            Depreciation and amortization                                  962        818      1,062
            Stock-based compensation expense                                89         36       --
            Changes in operating assets and liabilities:
                    Decrease (increase) in trade accounts receivable      (808)       378       (998)
                    Decrease (increase) in inventories                  (2,951)        65     (1,066)
                    Decrease (increase) in other assets                    (89)       144       (294)
                    (Decrease) increase in trade accounts payable          (26)      (468)       398
                    (Decrease) increase in other current liabilities     1,211        290       (671)
                    Decrease in noncurrent liabilities                     (64)       (47)       (21)
                                                                       -------    -------    -------
                         Net cash provided by (used in) operating
                           activities                                    2,294        962     (1,406)
                                                                       -------    -------    -------

Cash flows from investing activities:
       Capital expenditures:
            Purchases of property and equipment                         (1,320)      (870)    (1,008)
            Capitalized software costs                                    (182)      (268)      (207)
                                                                       -------    -------    -------
                         Net cash used in investing activities          (1,502)    (1,138)    (1,215)
                                                                       -------    -------    -------

Cash flows from financing activities:
       Proceeds from stock plans                                         1,185        164        188
       Proceeds from issuance of preferred stock                          --          200       --
       Purchase of treasury stock                                          (51)      (358)      --
                                                                       -------    -------    -------
                         Net cash provided by financing activities       1,134          6        188
                                                                       -------    -------    -------

                    Net (decrease) increase in cash and cash
                      equivalents                                        1,926       (170)    (2,433)

Cash and cash equivalents at beginning of year                           3,385      3,555      5,988
                                                                       -------    -------    -------
Cash and cash equivalents at end of year                               $ 5,311    $ 3,385    $ 3,555
                                                                       -------    -------    -------
                                                                       -------    -------    -------


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for:

       Interest                                                        $    24    $  --      $  --
                                                                       -------    -------    -------
                                                                       -------    -------    -------

       Income taxes                                                    $   126    $    37    $   121
                                                                       -------    -------    -------
                                                                       -------    -------    -------

SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES

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

Issuance of stock in exchange for note receivable                      $  --      $   744    $ 1,229
                                                                       -------    -------    -------
                                                                       -------    -------    -------

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


                                      -30-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS SEGMENT AND BASIS OF PRESENTATION:

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

The consolidated financial statements of the Company include the financial
position and results of operations of LAN Media Corporation, which the Company
acquired on July 14, 2000. The merger was accounted for as a pooling of
interests, and accordingly, financial statements presented for all periods have
been restated to reflect combined operations and financial position.

PRINCIPLES OF CONSOLIDATION:

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

USE OF ESTIMATES:

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

FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

CASH AND CASH EQUIVALENTS:

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

INVENTORIES:

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

                                      -31-
<PAGE>

PROPERTY, PLANT AND EQUIPMENT:

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

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

The Company reviews property and equipment for impairment whenever events or
changes in circumstances indicate the carrying value of an asset may not be
recoverable. 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 any, 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 costs to
internally develop software. Capitalization of software costs begins upon the
establishment of technological feasibility. All capitalized software costs are
amortized as related sales are recorded on a per-unit basis with a minimum
amortization based on a straight-line method over a two-year estimated useful
life. The Company evaluates the estimated net realizable value of each software
product and records provisions to the asset value of each product for which the
net book value is in excess of the net realizable value.

REVENUE RECOGNITION AND WARRANTY COSTS:

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

PRODUCT RESEARCH AND DEVELOPMENT EXPENDITURES:

Product research and development ("R&D") expenditures, other than certain
software development costs, are charged to expense as incurred. Contractual
reimbursements for R&D expenditures under joint R&D contracts with customers are
accounted for as a reduction of related expenses as incurred. For the years
ended October 31, 2000, 1999 and 1998, direct costs incurred under R&D contracts
were $203,000, $6,000 and $1,000, respectively, and reimbursements earned were
$290,413, $43,750 and $7,250 , respectively.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25") and complies with the disclosure
provisions of Statement of Financial


                                      -32-
<PAGE>

Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". Under APB 25, compensation expense is based on the difference, if
any, on the date of the grant between the fair value of the Company's stock and
the exercise price of the option. The Company accounts for equity instruments
issued to non-employees in accordance with SFAS No. 123 and EITF 96-18,
"Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods, or Services."

INCOME TAXES:

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

NET EARNINGS PER COMMON SHARE:

Basic earnings per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding. Diluted earnings
per common share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding.
Common stock equivalents relate to stock options and include 605,803 and 302,422
shares for the years ended October 31, 2000 and 1998, respectively. Common stock
equivalents are excluded from the diluted earnings per share calculation for
fiscal 1999 due to their anti-dilutive effect.

COMPREHENSIVE RESULTS:

Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Through October 31, 2000 the Company
has not had any transactions that were required to be reported in other
comprehensive income.

RECENT ACCOUNTING PRONOUNCEMENTS:

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. Management does not believe
this will have a material effect on the Company's operations. Implementation of
this standard has recently been delayed by the FASB for a 12-month period. The
Company will adopt SFAS No. 133 as required for its first quarterly filing of
fiscal year 2001.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101, as amended, summarizes the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. At this time, management does not expect the adoption of SAB 101
to have a material effect on the Company's operations or

                                      -33-
<PAGE>

financial position; however, the SEC's final guidance for implementation has
not been released to date. The Company is required to adopt SAB 101 in the
fourth quarter of fiscal 2001.

In March 2000 the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of APB Opinion No. 25. FIN
44 clarifies the application of Opinion 25 for (a) the definition of employee
for purposes of applying Opinion 25, (b) the criteria for determining whether
a plan qualifies as a non-compensatory plan, (c) the accounting consequence
of various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for and exchange of stock compensation awards
in a business combination.

FIN 44 is effective July 1, 2000, but certain conclusions cover specific events
that occur after either December 15, 1998 or January 12, 2000. Management
believes that the impact of FIN 44 will not have a material effect on the
financial position or results of operation of the Company.

RECLASSIFICATIONS:

Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to the 2000 presentation with no effect on net income as
previously reported.


2.  INVENTORIES

Inventories at October 31, 2000 and 1999 comprise the following:

<TABLE>
<CAPTION>
                                                                     2000                    1999
--------------------------------------------------------------------------------------------------------
<S>                                                           <C>                     <C>
         Finished goods                                       $            2,144      $              898
         Parts and materials                                               2,774                   1,069
                                                              ------------------      ------------------
                                                              $            4,918      $            1,967
                                                              ==================      ==================
</TABLE>


3.  PROPERTY AND EQUIPMENT

Property and equipment at October 31, 2000 and 1999 are comprised of the
following:

<TABLE>
<CAPTION>
                                                                     2000                    1999
--------------------------------------------------------------------------------------------------------
<S>                                                           <C>                     <C>
         Machinery and equipment                              $            7,655      $            6,675
         Furniture and fixtures                                            1,236                   1,070
         Leasehold improvements                                              529                     355
                                                              ------------------      ------------------
                                                                           9,420                   8,100
         Less accumulated depreciation
           and amortization                                                7,277                   6,542
                                                              ------------------      ------------------

                                                              $            2,143      $            1,558
                                                              ==================      ==================
</TABLE>

Depreciation and amortization expense totaled $863,000, $703,000 and $765,000
for the years ended October 31, 2000, 1999 and 1998, respectively.


                                      -34-
<PAGE>

4.  CAPITALIZED SOFTWARE COSTS

Capitalized software costs at October 31, 2000 and 1999 comprise the
following:

<TABLE>
<CAPTION>
                                                                     2000                    1999
--------------------------------------------------------------------------------------------------------
<S>                                                           <C>                     <C>
Purchased software                                            $              766      $              584
Internally developed software                                                805                     805
                                                              ------------------      ------------------
                                                                           1,571                   1,389
Less accumulated amortization                                              1,278                   1,051
                                                              ------------------      ------------------
                                                              $              293      $              338
                                                              ==================      ==================
</TABLE>

The Company capitalized $182,000, $268,000 and $207,000 of purchased software
costs in 2000, 1999, and 1998 respectively. Amortization of capitalized software
costs totaled $227,000, $115,000, and $297,000 for the years ended October 31,
2000, 1999, and 1998, respectively.

5.  STOCKHOLDERS' EQUITY

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

As of October 31, 1999, the Company had outstanding shares of convertible
preferred stock, consisting of shares of stock assumed from the acquisition of
LAN Media Corporation. These shares were converted into shares of common stock
of LAN Media Corporation and exchanged for shares of the Company's Common Stock
on July 14, 2000.

On November 6, 1998, the Company made a loan to an officer and stockholder in
the amount of $622,800 under a two-year recourse promissory note bearing an
interest rate of 4.47 percent and collateralized by 145,313 shares of Common
Stock of the Company. The loan was used to pay for the exercise of an option to
purchase 139,400 shares of the Company's Common Stock and related taxes. On
April 16, 1999 the loan was increased to $743,800.

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

6.  INCOME TAXES

The components of the provision for income taxes for the years ended October 31,
2000, 1999 and 1998, comprise the following:

<TABLE>
<CAPTION>
                                                                     2000               1999                1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>                 <C>
    Federal:
         Current                                                $         109       $         ---       $          18
         Deferred                                                         ---                 ---                 ---
    State:
         Current                                                           17                   3                  14
         Deferred                                                         ---                 ---                 ---
                                                                -------------       -------------       -------------
              Total provision for income taxes                  $         126       $           3       $          32
                                                                =============       =============       =============
</TABLE>


                                      -35-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     2000               1999                1998
----------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>                 <C>
         Statutory federal income tax rate                           34.0%              34.0%               34.0%
         Change in valuation allowance                              (30.9)             (32.9)              (26.3)
                                                                ---------           --------            --------
                                                                      3.1%               1.1%                7.7%
                                                                =========           ========            ========
</TABLE>

Significant components of the Company's deferred tax balances as of October 31,
2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                  2000               1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>
     Deferred tax assets:
         Current
               Accrued employee benefits                                    $         69         $        59
               Inventory allowances                                                  450                 550
               Allowance for doubtful accounts                                        60                  60
               Warranty accruals                                                      58                  40

         Noncurrent
               Deferred rent                                                         137                 156
               R&D credit carryforward                                             1,736               1,358
               Alternative minimum tax carryforward                                  143                 143
               Operating loss carryforward                                           384               1,575
               Investments                                                            --                 130
               Depreciation                                                           58                  --
               Capital loss carryforward                                              --                  74
                                                                            ------------        ------------
                  Total deferred tax assets                                        3,095               4,145
                                                                            ------------        ------------
     Deferred tax liabilities:
         Noncurrent
               Depreciation                                                           --                   9
               Capitalized software costs                                              7                 149
                                                                            ------------        ------------
                Total deferred tax liabilities                                         7                 158
                                                                            ------------        ------------

     Deferred tax asset valuation allowance                                       (3,088)             (3,987)
                                                                            ------------        ------------
         Net deferred tax assets                                            $        ---        $        ---
                                                                            ============        ============
</TABLE>

A valuation allowance is recorded to offset certain deferred tax assets due to
management's uncertainty of realizing the benefit of these items. The valuation
allowance decreased by $695,000 in fiscal 2000 as a result of utilizing
operating loss carryforwards. The valuation allowance increased in fiscal 1999
by $330,000 as a result of increased operating loss carryforwards. The Company
has research and experimentation tax credit carryforwards of $1.7 million for
federal and state tax purposes. These carryforwards expire in the periods ending
2007 through 2015. The Company has net operating loss carryforwards for federal
and state income tax purposes of approximately $978,000 and $884,000,
respectively, which expire in periods ending 2001 through 2020.

7. COMMITMENTS

The Company leases its buildings under noncancelable operating leases which
expire at various dates through the year 2006. Future minimum lease payments
under noncancelable operating leases, including lease commitments entered into
subsequent to October 31, 2000, are as follows:


                                      -36-
<PAGE>

<TABLE>
<S>                                                                     <C>
         Year ending October 31:
              2001                                                        $  914
              2002                                                           923
              2003                                                           851
              2004                                                           741
              2005                                                           686
              Thereafter                                                     252
                                                                          ------

                   Total minimum lease payments                           $4,367
                                                                          ======
</TABLE>

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,
2000, 1999 and 1998 totaled $753,397 (net of sublease proceeds of $389,666),
$588,734 (net of sublease proceeds of $360,000), and $657,142 (net of sublease
proceeds of $363,750), respectively.

8.  STOCK OPTION AND STOCK PURCHASE PLANS

The Company sponsors two employee stock option plans, the 1996 Stock Option Plan
(the 1996 Plan) and the 1998 Non-Officer Stock Option Plan (the 1998 Plan).
Originally adopted as the 1987 Supplemental Stock Option Plan, the 1996 Plan was
amended and restated on January 18, 1996 and renamed the 1996 Stock Option Plan.
A total of 1,580,000 shares of Common Stock 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 a
four-year period and have exercise prices reflecting the market value of the
shares of Common Stock on the date of grant.

Additionally, in 1991, stockholders approved a Non-Employee Director Stock
Option Plan (the "Director Plan"). A total of 140,000 shares of Common Stock are
reserved for issuance under the Director Plan. Options granted under the
Director Plan vest over a 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, 2000 and 1999, 286,245 and 326,470 shares of Common Stock,
respectively, were available for grant under the 1996 Plan. A total of 64,200
and 100,300 shares of Common Stock were available for grant under the 1998 Plan
at October 31, 2000 and 1999, respectively. A total of 65,750 and 52,000 shares
of Common Stock were available for grant under the Director Plan at October 31,
2000 and 1999, respectively. Additionally, options to purchase 183,264 shares of
Common Stock were outstanding as of October 31, 2000 under the LAN Media stock
option plan. The Company discontinued new grants under the LAN Media stock
option plan in fiscal 2000.

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

                                      -37-
<PAGE>


<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                                                       Average
                                        Number of             Price Per             Aggregate         Exercise
                                         Shares                 Share                 Price             Price
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>                     <C>             <C>
       Outstanding at
           October 31, 1997                 894,695           $0.63 - 17.25             $ 5,143          $5.75

       Granted                              448,405            0.51 - 15.50               2,178           4.86
       Terminated                          (324,100)           3.69 - 17.25              (2,838)          8.76
       Exercised                            (20,325)           3.69 - 8.93                 (101)          4.96
                                            ------------------------------------------------------------------

       Outstanding at
           October 31, 1998                 998,675            0.51 - 13.00               4,382           4.39

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

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

       Exercisable at
           October 31, 2000                 396,412          $0.51 - $13.00              $2,058          $5.19
                                            =======                               =============
</TABLE>

The following table summarizes information with respect to all options to
purchase shares of Common Stock outstanding under the 1996 Plan, the 1998 Plan,
the Director Plan and the LAN Media Plan at October 31, 2000:

<TABLE>
<CAPTION>
                                      Options Outstanding                        Options Exercisable
                                      -------------------                        -------------------
                                           Weighted
                                            Average         Weighted                           Weighted
                          Number           Remaining         Average           Number           Average
       Range of         Outstanding    Contractual Life     Exercise         Exercisable       Exercise
    Exercise Price      At 10/31/00         (Years)           Price          At 10/31/00         Price
    --------------    --------------  ----------------     -----------     -------------      -----------
<S>                   <C>             <C>                  <C>              <C>               <C>
    $0.50  -  $3.45       108,956             6.9             $0.56            108,956           $0.56
    $3.45  -  $5.18       267,556             3.6             $4.79            146,391           $4.81
    $5.18  -   8.63       516,367             5.3             $6.51             86,065           $7.37
    $8.63  -  13.00        89,500             3.7            $12.29             55,000          $11.98
   $13.00  -  22.00       169,500             6.4            $16.68               ---              ---
   $22.00  -  24.81        95,000             6.4            $23.51               ---             ---

                        ---------                                            ---------
                        1,246,879                                              396,412
                        =========                                            =========
</TABLE>

The Company sponsors 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 fair
market value of the shares at specified dates. At October 31, 2000, 74 employees
were eligible to participate in the Purchase Plan and 60,805 shares were


                                      -38-
<PAGE>

available for issuance. In fiscal year 2000, 1999 and 1998, 19,331, 19,641,
and 19,550 shares of Common Stock were issued under the Purchase Plan,
respectively.

During the fiscal year ended October 31, 1999, the Company granted options under
the LAN Media stock option plan to purchase 23,970 shares of the Company's
Common Stock to consultants in conjunction with services performed. The Company
calculated the fair value of the options on the date of grant and recorded
deferred compensation expense of $89,000 and $36,000 in the fiscal years ended
October 31, 2000 and 1999, respectively.

In fiscal 1997, the Company adopted the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company accounts for
employee stock options under APB Opinion No. 25, whereby 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 (loss) would have been as follows:

<TABLE>
<CAPTION>
Years ended October 31                                                   2000              1999             1998
                                                              ---------------------------------------------------
<S>                                                                  <C>           <C>               <C>
(in thousands except per share amount)
Pro forma net income (loss)                                            $2,146        $   (2,327)       $  (2,496)
Pro forma net income (loss) per share                                   $0.56        $    (0.75)       $   (0.91)
</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:

<TABLE>
<CAPTION>
Options granted in years ended October 31                                2000              1999             1998
                                                              --------------------------------------------------
<S>                                                           <C>                  <C>                 <C>
Expected life (in years)                                                 5.00              5.00             6.45
Risk-free interest rate                                                  6.00%             4.50%            7.00%
Volatility                                                             104.00%            91.00%           93.41%
Dividend yield                                                           0.00%             0.00%            0.00%
</TABLE>

The weighted average estimated fair value of each option granted during fiscal
2000, 1999 and 1998 was $11.79, $6.53 and $4.86, respectively.

9.   EMPLOYEE SAVINGS AND INVESTMENT PLAN

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

For the years ended October 31, 2000, 1999 and 1998, total expense under the
employee savings and investment plan was $391,066, $121,530 and $173,847,
respectively.


                                      -39-
<PAGE>


10.  CONCENTRATION OF CREDIT AND BUSINESS RISKS

The Company's trade accounts receivable are concentrated among a small number of
customers, principally located in the United States. Four customers accounted
for 32, 18, 13 and 10 percent, respectively of total accounts receivable at
October 31, 2000. Two customers accounted for 52 and 16 percent, respectively,
of total accounts receivable at October 31, 1999. Ongoing credit evaluations of
customers' financial condition are performed and, generally, no collateral is
required. The Company maintains an allowance for doubtful accounts for potential
credit losses. Actual bad debt losses have not been material and have not
exceeded management's expectations. Trade accounts receivable are recorded net
of allowance for doubtful accounts of $252,000 and $150,000 at October 31, 2000
and 1999, respectively.

Sales to individual customers in excess of 10 percent of net sales of the
Company included sales to Compaq Computer of $19.4 million in 2000; Compaq
Computer of $12.6 million in 1999; as well as Compaq Computer and Motorola of
$9.4 million and $2.8 million, respectively, in 1998. International sales
accounted for 4 percent of total sales during both fiscal 2000 and fiscal 1999,
respectively.

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

11.  ACQUISITION OF LAN MEDIA CORPORATION:

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

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

<TABLE>
<CAPTION>
                                                  Six Months Ended                Year Ended October 31,
                                                   April 30, 2000                  1999           1998
----------------------------------------------------------------------------------------------------------
<S>                                               <C>                           <C>            <C>
Revenue
      Previously Reported                                $ 14,433               $  18,022      $  18,985
      Lan Media Corporation                                 1,480                   1,832          2,139
                                                          -------                 -------        -------
                  Restated                                 15,913                  19,854         21,124

Net Income (loss)
      Previously Reported                                   2,743                     151            380
      Lan Media Corporation                                   202                    (405)          (196)
                                                          -------                ---------      ---------
            Restated                                     $  2,945               $    (254)     $     184
                                                          =======                =========      ========
</TABLE>

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

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

     1999:   Net sales                                 $7,055         $4,160          $3,919         $4,720
             Gross profit                               4,480          2,754           2,292          2,706
             Net income (loss)                          1,263           (300)           (573)          (644)
             Basic earnings (loss) per share            $0.40         $(0.10)         $(0.18)        $(0.20)
             Diluted earnings (loss) per share          $0.38         $(0.10)         $(0.18)        $(0.20)
</TABLE>




                                      -40-
<PAGE>

                                    SBE, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  FOR THE YEARS ENDED OCTOBER 31, 2000 AND 1999

<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, 2000

Allowance for Doubtful Accounts       $   251,620              ---               ---      $   251,620
Allowance for Obsolete Inventory        1,381,370          151,983          (403,353)       1,130,000
Allowance for Warranty Claims             101,049           54,952           (11,325)         144,676
Allowance for Deferred Tax assets       3,987,000                           (899,000)       3,088,000

YEAR ENDED OCTOBER 31, 1999

Allowance for Doubtful Accounts       $   200,000          101,620           (50,000)     $   251,620
Allowance for Obsolete Inventory        1,400,000          100,802          (119,432)       1,381,370
Allowance for Warranty Claims             207,445          (33,233)          (73,163)         101,049
Allowance for Deferred Tax assets       3,901,000           86,000               ---        3,987,000
</TABLE>







                                      -41-