UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549

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FORM 10-K

T

or





Commission file number 1-10981



SBS Technologies, Inc.



|New Mexico                                           | 85-0359415            
|---------------------------------------------------- | ----------------------
|(State or other jurisdiction of                      | (IRS Employer         
|incorporation or organization)                       | Identification Number)
|                                                     |                       
|2400 Louisiana Blvd. NE, AFC Bldg 5, Suite
      600 |                       
|Albuquerque, New Mexico                              | 87110                 
|(Address of principal executive office)              | (Zip code)            



Registrant's telephone number, including area code: (505)
875-0600Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ P] 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 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. [ ]Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes [P] No [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, based upon the closing sale price of the Common
Stock on August 25, 2004 as reported on The Nasdaq Stock Market® was
$107,364,688. Shares of Common Stock held by each officer and director as of
August 25, 2004 and by each person who owns 5% or more of the outstanding Common
Stock according to filings with the Securities and Exchange Commission dated
June 30, 2004 have been excluded because these persons may be deemed to be
affiliates. As of August 25, 2004, Registrant had 15,503,774 shares of
Common Stock outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE










TABLE OF CONTENTS



|         |                                                                                                              | Page
|-------- | ------------------------------------------------------------------------------------------------------------ | ----
|         | PART I                                                                                                       |     
|         |                                                                                                              |     
|         | Forward Looking Statements                                                                                   | 1   
|Item 1.  | Business                                                                                                     | 2   
|Item 2.  | Properties                                                                                                   | 14  
|Item 3.  | Legal Proceedings                                                                                            | 15  
|Item 4.  | Submission of Matters to a Vote of Security Holders                                                          | 16  
|         |                                                                                                              |     
|         | PART II                                                                                                      |     
|         |                                                                                                              |     
|Item 5.  | Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities | 16  
|Item 6.  | Selected Financial Data                                                                                      | 17  
|Item 7.  | Management's Discussion and Analysis of Financial Condition and
Results of Operations                        | 18  
|Item 7A. | Quantitative and Qualitative Disclosures About Market
Risk                                                   | 33  
|Item 8.  | Financial Statements and Supplementary Data                                                                  | 33  
|Item 9.  | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure                         | 59  
|Item 9A. | Controls and Procedures                                                                                      | 59  
|Item 9B. | Other Information                                                                                            | 60  
|         |                                                                                                              |     
|         | PART III                                                                                                     |     
|         |                                                                                                              |     
|Item 10. | Directors and Executive Officers of the Registrant                                                           | 60  
|Item 11. | Executive Compensation                                                                                       | 60  
|Item 12. | Security Ownership of Certain Beneficial Owners and
Management                                               | 60  
|Item 13. | Certain Relationships and Related Transactions                                                               | 60  
|Item 14. | Principal Accounting Fees and Services                                                                       | 60  
|         |                                                                                                              |     
|         | PART IV                                                                                                      |     
|         |                                                                                                              |     
|Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-
K                                            | 61  









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FORWARD-LOOKING STATEMENTS



This Form 10-K contains forward-looking statements with respect to the
financial condition, results of operations and business of SBS Technologies,
Inc. and subsidiaries (referred to variously as "SBS," the "Company," "we," "us"
and "our"). You may find many of these statements by looking for words like
"intends," "expects," "projects," "believes," "anticipates" or similar
expressions in this Form 10-K. These forward-looking statements
include:

- statements regarding future events and the future financial performance
    of SBS;
- expected sales and gross margin levels for the fiscal year ending June
    30, 2005;
- expected sales levels for the quarter ending September 30, 2004;
- expectations of internally-generated cash flows;
- the continued health of the end markets we serve;
- the expectation of several government systems design wins to start
    production in fiscal year 2005;
- the expectation of sales to Applied Materials and Ericsson to continue
    during fiscal year 2005 at the same dollar level as in fiscal year 2004; and
- new product and business development efforts.

> 

These statements are based upon certain assumptions and assessments made by
the Company in light of our experience and our perception of historical trends,
current conditions, expected future developments and other factors we believe to
be appropriate. These assumptions and assessments include the volume and product
mix of sales, estimates of costs and inventory and receivable levels based on
preliminary information, and other items.

The forward-looking statements included in this document are subject to a
number of risks, uncertainties, and other factors. Among these factors are:

- business and economic conditions generally affecting our customers and
    their end customers, including but not limited to the changes in size and
    program priorities of military procurement budgets, which may be less
    favorable than we expect, resulting in lower sales and earnings;
- a high degree of uncertainty and rapid change in the markets addressed
    by our products that could reduce sales or render certain SBS products
    obsolete, resulting in reduced gross profit levels;
- customer demand for and acceptance of our products, which may be less
    than we expect, affecting both sales and margins;
- our ability to design, test and introduce new products on a timely
    basis, which, if we are not able, may decrease both sales and margins;
- the other risk factors listed under "Risk Factors" included elsewhere in
    this Form 10-K.

Because forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by them.
SBS cautions you not to place undue reliance on these statements, which speak
only as of the date of this Form 10-K.

SBS does not undertake any obligation to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

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PART I

Item 1. Business

Introduction

We design and build open-architecture embedded computer
products that enable original equipment manufacturers (OEM) to serve the
government, commercial, and communications end markets. Embedded computer
products are put inside or made part of larger systems to process information,
control machines, move computer data between machines, and interact with people.
The companies that use our products manufacture very sophisticated, expensive
devices, for example, MRI machines, flight simulators, wireless networks,
fighter jets and industrial robots.

The SBS product line is strategically focused on embedded computing, and we
serve virtually all parts of the market. We currently list more than 450
products in the product section of our website, www.sbs.com. We offer components
like input/output (I/O) modules, bus adapters, carrier cards, system enclosures,
FPGA boards and single board computers, as well as network switches, blades and
fully integrated systems. Many of these products are available in ruggedized
versions, which can operate in conditions of extreme temperature, vibration,
shock and humidity.

We serve a broad range of customers. We help our customers get to market
faster, more reliably and more economically, by providing a wide range of
standard and customized embedded computer products. Our products have
application in diverse industries, including space and aviation,
telecommunications, military and government, transportation, telemetry,
robotics, networking, broadcasting, wireless communications and medical imaging.

We have grown because we understand our role in the embedded computing
process: we make components which are part of larger, more complicated devices.
As embedded computer applications expand, we broaden our product line to meet
our customers' needs and to attract new customers. We invest in technology and
customer service so that we can grow with our customers.

We have grown organically and through strategic acquisitions, acquiring
companies that supplement our core competencies - a pattern we expect to
continue. Our organic growth is driven by adding new products, improving
existing products through our research and development program, and attracting
new customers with our products and service. We also completed eleven
acquisitions between 1992 and June 2004 that broadened our product offerings and
our customer base.

SBS Technologies, Inc. was incorporated in New Mexico in November 1986 and
began operations in September 1987. Our executive office is located at 2400
Louisiana Boulevard, NE, AFC Building 5, Suite 600, Albuquerque, New Mexico,
87110, telephone number (505) 875-0600. As of June 30, 2004, SBS Technologies,
Inc. had five direct subsidiaries: SBS Technologies, Inc., Commercial Group
("SBS Commercial"), SBS Technologies, Inc., Government Group ("SBS Government"),
SBS Technologies, Inc., Communications and Enterprise Group ("SBS
Communications"), SBS Technologies, Inc. Foreign Holding Company ("Foreign
Holding"), and SBS Technologies, Inc., German Holdings, LLC ("German Holdings").
In July 2002, the Avionics Products division of SBS was combined with SBS
Government. In September 2002, SBS Technologies, Inc., Industrial Computers, and
SDL Communications, Inc., both of which were formerly subsidiaries of SBS
Technologies, Inc., merged into SBS Technologies, Inc., Communications Products,
a subsidiary of SBS Technologies, Inc., at which time its name was changed to
SBS Technologies, Inc., Communications and Enterprise Group.

In April 2003, German Holdings acquired all of the shares of
SBS Technologies Holding GmbH ("Holding GmbH"), formerly a subsidiary of Foreign
Holding, and all of the shares of SBS or Computers Verwaltungs GmbH
("Verwaltungs"), formerly a subsidiary of Holding GmbH. Later in April 2003,
Holding GmbH was merged into SBS Technologies, GmbH & Co. KG ("KG"),
formerly a subsidiary of Holding GmbH. As a result of the merger, ortec
Electronic Assembly GmbH ("ortec"), formerly a wholly-owned subsidiary of
Holding GmbH, is a wholly-owned subsidiary of KG. KG and Verwaltungs are
subsidiaries of German Holdings. KG is a partnership between German Holdings as
sole limited partner and Verwaltungs as sole general partner.

SBS Technologies (Canada), Inc. ("SBS Canada") is a subsidiary
of Foreign Holding. Effective June 30, 2003, SBS Canada acquired all of the
shares of Avvida Holdings Corp. ("Avvida Holdings"). At that time, Avvida
Systems Inc. ("Avvida Systems") was a subsidiary of Avvida Holdings. In July
2003, both Avvida Systems and Avvida Holdings were amalgamated under Canadian
law into SBS Canada. SBS Technologies Finance LP, a limited partnership, is
owned 99% by Foreign Holding as sole general partner, and 1% by SBS
Technologies, Inc. as sole limited partner.

SBS Technologies (Shenzhen) Limited, a subsidiary of Foreign
Holding, was formed in June 2004.

A chart of our corporate structure follows:



SBS Technologies®, IndustryPack®, Omnispan®, and dataBLIZZARD®
are registered trademarks of SBS. PC MIP® is a registered trademark of MEN
Micro, Inc. of Carrollton, Texas, and SBS. All other trademarks or tradenames
referred to in this document are the property of their respective
owners.

Corporate Governance

We strive to achieve excellence and integrity in all of our
business practices, including corporate governance, oversight, accountability
and transparency. We believe we have incorporated best practices in our
governance, including those currently required by the Sarbanes-Oxley Act of 2002
and The Nasdaq Stock Market®. The following are several examples of corporate
governance initiatives implemented by the Company, many dating several years
before the passage of the Sarbanes-Oxley Act:

- The Company's Board of Directors is comprised of seven members, five of
    whom are independent from management ("Independent Directors"). The Board
    has consisted of a majority of Independent Directors since 1992.
- The Board has three standing committees: the Audit Committee, the
    Corporate Governance and Nominating Committee, and the Management
    Development and Compensation Committee. Each Committee has a written
    charter, available for review on our web site at www.sbs.com, and membership on
    all Board Committees is limited to the Independent Directors.
- At each regularly scheduled meeting of the Board of Directors, a meeting
    is held of the Independent Directors without any company officer or Employee
    Director participation. The Independent Directors' meeting is chaired by the
    Board's Lead Director, who is an Independent Director. These meetings have
    been conducted since 1998.
- The Company has an Internal Financial and Disclosure Controls Committee,
    whose primary duties are to establish, evaluate and maintain systems of
    internal controls regarding financial information of the Company and
    disclosures required by applicable laws to ensure (a) accuracy,
    completeness, reliability and timeliness of financial and other reports, (b)
    effectiveness and efficiency of operations, and (c) compliance with
    applicable laws and regulations. That committee's charter is available on
    our web site at www.sbs.com.
- The Company has disseminated to all of its employees a Financial
    Complaint Procedures Policy, available for review on our web site at
    www.sbs.com, to
    enable the anonymous reporting of any possible financial wrongdoing within
    the Company.
- The Company has adopted a Code of Ethics, available for review on our
    web site at www.sbs.com, binding upon all directors and employees of the Company, designed
    to deter wrongdoing and promote honest and ethical conduct, full, fair,
    accurate and timely public disclosures, compliance with all governmental
    requirements, prompt internal reporting of violations of the Code of Ethics,
    and accountability for adherence to the Code of Ethics. We will disclose on
    our website when there have been waivers of, or amendments to, the Code of
    Ethics.
- The Board of Directors has adopted a Statement on Corporate Governance,
    available for review on our website at www.sbs.com, which contains corporate
    governance standards applicable to the Board, including Board functions,
    structure and operations of the Board and its Committees, and shareholder
    meetings.
- The reports we file with the U.S. Securities and Exchange Commission on
    a current, quarterly and annual basis are available, as soon as practicable
    after they are filed, on our website at www.sbs.com.

The following narrative should be read in conjunction with the Section
entitled "Risk Factors."

SBS' Operating Segments

Throughout our fiscal year ended June 30,
2004, we operated worldwide based on geographic markets through two operating
segments: the Americas Group and the Europe Group. These segments enable
management to focus on regional market development, alignment of sales channels
with customers' product needs, and enhancement of customer service and
satisfaction. Each segment has management who report directly to our Chief
Executive Officer and its own sales and distribution channels. The Americas
Group consists of our operations based in the United States and Canada, and most
recently Shenzhen, China. This includes the engineering, test and assembly
activities in Albuquerque, New Mexico; Mansfield, Massachusetts; Newark,
California; Raleigh, North Carolina; St. Paul, Minnesota; and Waterloo, Ontario,
Canada, the manufacturing operations located in St. Paul, Minnesota and the
sales and technical support activities located in Shenzhen, China. The Europe
Group consists of our operations based in Germany, which include the
engineering, test, assembly, and manufacturing activities located in Augsburg
and Mindelheim, Germany. For fiscal years 2004, 2003 and 2002, sales by
operating segments are listed below.

`SALES BY SEGMENT
                                          (dollars in millions)
                                            Fiscal years ended
                          June 30,   % of    June 30,   % of    June 30,   % of
                            2004     total     2003     total     2002     total
                          --------- -------  --------- -------  --------- -------

Americas Group.......... $    97.1      73% $    94.3      82% $   106.3      89%
Europe Group............      36.8      27%      21.2      18%      12.6      11%
                          --------- -------  --------- -------  --------- -------
Total................... $   133.9     100% $   115.5     100% $   118.9     100%
                          ========= =======  ========= =======  ========= =======`



See Notes 13 and 14 to SBS' Consolidated Financial Statements
for additional information about SBS' operating segments, geographic areas, and
major customers.

Order Backlog

Order backlog expected to be filled within the fiscal year
ending June 2005 was approximately $28.0 million and $14.2 million, as of
September 1, 2004 for the Americas Group and Europe Group, respectively. Our
order backlog represents customer orders that have been contracted for future
delivery. Order backlog as of September 1, 2003 was approximately $19.0 million
and $8.9 million for the Americas Group and Europe Group, respectively. We have
experienced order cancellations and requests for extensions of product shipments
in the past and may continue to experience these cancellations and extensions in
the future. As a result, shipments of current backlog may be delayed or
canceled.

SBS' Products

Both the Americas Group and the Europe Group sell our complete portfolio of
embedded computer products into the government, commercial and communications
end markets. Our product line is strategically focused on open standards
embedded computing, and we serve most parts of the embedded market. We produce
more than 450 standard products which can be combined, configured and customized
in literally thousands of ways.

We offer individual components like Input/Output modules (I/O), bus adapters,
carrier cards, and single board computers, plus network switches, blades and
fully integrated computer systems. Many of these products are available in
ruggedized versions, which can operate in conditions of extreme temperature,
vibration, shock and humidity.

Within our diverse collection of product lines, we offer many different form
factors, including PCI, CompactPCI®, PMC, AMC, Processor PMC, and
Industry Packs. We support our products with software in multiple operating
systems. Our wide selection of single board computers enables a system designer
to choose between multiple processor types, speeds, form factors, memory
configurations, I/O types and rugged build grades. Similarly, our Field
Programmable Gate Array products (FPGAs) allow designers to create custom
processors by programming the hardware to execute their particular
application.

Our I/O products greatly expand the capabilities of our Single Board
Computers by adding additional networking capabilities, by adding more
processing power, by allowing incompatible systems to communicate, by providing
network switching and monitoring capabilities, or by adding more powerful
graphic processing power. Our I/O technologies include popular standards such as
SCSI, iSCSI, IEEE 1394 (Firewire), Ethernet, InfiniBand®, MIL-
STD-1553, Fibre Channel, HIPPI, and telecom standards such as T1/E1/J1, HSSI,
T3/E3, OC-3/STM-1 including HDLC, ATM, SONET, Frame Relay, TDM and IP.

In addition to producing board-level embedded computer products, SBS produces
finished computer systems. This process includes designing and building the
"boxes" the computers are housed in, installing the single board computers and
I/O modules, and testing and certifying the entire system.

We also deliver the software tools that are necessary to integrate our
products into the overall design. This includes drivers, driver development
kits, board support packages, protocol stack and specialized tools for specific
markets.

Customers and Applications

Our broad range of products is used by a diversified OEM customer base
serving the government, commercial and communications end markets. Our products
are used in a variety of applications in diverse industries including space and
aviation, telecommunications, military and government, transportation,
telemetry, robotics, networking, broadcasting, wireless communications and
medical imaging. In fiscal year 2004, one customer (Applied Materials)
represented 10% of our total sales and in 2003 and 2002, no one customer equaled
or exceeded 10% of our sales. OEMs serving the communications market use our
products in applications such as wireless base station controllers, optical
switches, routers and network monitoring, and security applications. OEMs
serving the commercial market use our products primarily to build products that
are used in semiconductor manufacturing, industrial automation, medical imaging,
and entertainment applications. Examples of these applications include
semiconductor manufacturing equipment, CT scan and MRI equipment, automotive
manufacturing and test equipment, test and measurement equipment, industrial
automation equipment, commercial aircraft flight simulators, and audio mixing
and video authoring equipment. OEMs serving the government market use our
products in mission critical components in fighter aircraft and ground vehicles,
flight and ground simulation, electronic system test solutions, and data link
and command and control applications. Examples of these applications include
systems and equipment for military aircraft, military ground vehicles, navy
vessels, telemetry equipment, and space exploration applications.

Sales and Marketing

We market our products both domestically and internationally utilizing a
combination of direct employee sales personnel, independent manufacturers'
representatives, and distributors. As of August 1, 2004, we had 92 employees,
who typically hold engineering degrees, in sales, marketing and customer
relations, 17 U.S.-based independent manufacturers' representatives and 35
distributors located outside the U.S. Within North America, our direct employee
sales personnel are deployed regionally throughout the U.S. and Canada as sales
specialists in our traditional markets. Within Europe, as of August 1, 2004, we
have direct employee sales personnel located in the United Kingdom, Sweden,
France, and Germany.Sales
into the Asian markets are primarily through distributors supported by our
employees of SBS Technologies (Shenzhen) Limited. Domestically and
internationally, the direct employee sales personnel are supported by field
application engineers, who provide pre-sale technical support to our customers,
and business development personnel, who specialize in our traditional markets of
commercial, government and communications. We serve a diverse set of large and
small customers. In order to gain access to this diverse customer base, we use
all available selling channels. Domestically, the direct employee sales
personnel generally sell to larger OEM accounts, while manufacturers'
representatives sell to smaller accounts. Internationally, our direct employee
sales personnel sell to larger OEM accounts, and independent distributors sell
to smaller accounts. All quoting, pricing and final order acceptance for all
sales are controlled by the responsible product line manager.

We maintain our primary sales and support offices in Albuquerque, New Mexico;
Raleigh, North Carolina; Mansfield, Massachusetts; St. Paul, Minnesota;
Waterloo, Ontario, Canada; Augsburg, Germany; and Shenzhen, China. Sales and
sales leads are generated through a range of activities, including direct sales
calls, identification of participants in key defense and government related
programs, participation in numerous trade shows, direct mail catalogs,
advertisements in leading trade publications, and our web site.

Research and Development

We invest in research and development programs to develop new products in
related markets and to integrate state of the art technology into existing
products. As of August 1, 2004, we had approximately 155 employees engaged in
research and development activities. Of these employees, 82 have technical
degrees and 36 have advanced degrees. We seek to combine special- purpose
hardware, firmware and software in our products to provide our customers with
the desired functionality. Our research and development expense was $20.6
million, $18.1 million, and $18.5 million in fiscal year 2004, 2003, and 2002,
respectively, corresponding to 15.4%, 15.6%, and 15.5% of sales,
respectively.

We have several trademarks and have one pending application for another.
However, we have generally sought only limited patent protection for our
technology. Currently, we have only six U.S. patents issued and two Canadian
patents issued, expiring December 2013 through October 2021. We primarily rely
on trade secrets for protection of our intellectual property and believe that
future financial performance is much more dependent on the timely introduction
of new products and technology and our customer relationships than protection of
our intellectual property.

With a product line of over 450 different products, a portion of our research
and development efforts is focused on sustaining and improving the existing
products. In addition, we continue to develop new standard products for all of
our markets, as well as adding new technologies to our product line. For fiscal
year 2004, we released thirty-seven new products to the marketplace. In our
single board computer product line we introduced the CT9, CR9 and CP9 Intel®
Pentium M® based compact PCI cards as well as the VR9 VME bus Pentium M card.
For 3U compact PCI we introduced the CR3 and CA3 Intel Ultra Low Voltage
Celeron® processor card. These cards are designed to be used for all of our
markets and are available in air cooled as well as conduction cooled
configurations. A new technology, FPGA centric computer platforms, was added to
the single board computer family in fiscal year 2004. The first FPGA product was
a PCI-based card and the second was an FPGA-based PC104 card. In addition to
releasing new single board computers, we also released new versions of packaged
systems. We released the ruggedized PC7 Intel Pentium III® based industrial
control computer. The PC7R is dustproof and waterproof and is designed to be
used in harsh environments. We also released the new advanced mission computer
product that is one of the only off-the-shelf standard computers available that
can be used for military flight and mission computer applications. The advanced
mission computers are available in 3U and 6U cPCI, and 6U VME, and are fully
qualified for military programs.

In fiscal year 2004, we expanded our I/O products by increasing our Ethernet
product line with two cPCI Ethernet switches and two new gigabit Ethernet PMC
cards. We also extended our conduction cooled I/O product family by adding a
fibre channel PMC, a 1394 PMC card, a 12 channel 3U cPCI serial card, an 8
channel PMC serial card, an audio PMC card and six new MIL-STD-1553 cards in
PMC, cPCI and PCI formats. As a provider of high performance I/O solutions, we
also expanded our InfiniBand product line with a twenty-four port switch and two
new host bus adapter cards, one in PCI format and the other a PMC card. We
extended our SCSI product line by introducing a new Ultra SCSI PMC card and
adding an iSCSI PMC card, which is an internet-connected SCSI interface. To
expand our I/O products for military systems applications, we also developed and
released a new line of FPGA I/O cards in cPCI and VME formats that provide
analog, digital, serial and custom I/O required for military applications.

For our I/O products aligned with communications applications, we released
the Maxim 921-DS PMC card that provides full duplex DS3 connectivity. In
addition, we developed new variants of our Wanic T1/E1 Serial monitoring cards
and Maxim 524 T1/E1 cards, extended the Maxim 520 family to support rear panel
I/O, and developed several customer specific wide area network cards that will
be available as standard products. A major initiative was started in fiscal year
2004 to provide Advanced Mezzanine Cards (AMC) for Advanced Telecom Computing
Architecture (ATCA) carrier cards. The first AMC product is the Telum 1001 which
provides OC-3 connectivity.

During fiscal year 2004, we expanded our software support of real-time Linux,
UNIX and Microsoft Windows® operating systems by adding drivers and new board
support packages to support our new single board computers. We also released a
development environment to support developing applications for our FPGA-based
products.

Suppliers

We use contract manufacturing to produce substantially all of our U.S.-built
board-level products. We obtain parts from large electronics parts suppliers and
printed circuit boards from printed circuit board manufacturers and provide
these parts and boards as kits to contract manufacturing companies that
fabricate our products. Following manufacturing, we perform test, packaging and
support functions for our products. We have two manufacturing facilities, St.
Paul, Minnesota and Mindelheim, Germany. We have begun complete turnkey
outsourcing to contract manufacturers, although it is for a small portion of our
total production. We reduce our dependence on a single contract manufacturer by
using multiple contract manufacturers for many of our products.

Our German operation manufactures approximately 45% of its board-level
products at its facility in Mindelheim, Germany, and uses contract manufacturers
for the remainder of its manufacturing, consisting primarily of OEM production
business and certain ruggedized and military applications.

Competition

The embedded computer industry is highly competitive and fragmented, and our
competitors differ depending on product type, company size, geographic market
and application type. Consolidation within the communications, capital equipment
and defense industries has resulted in increased competition and may result in
an increase in pricing pressure across our product lines. We believe we
differentiate ourselves from our competition based on the following:

- broad product line,
- willingness to adapt products to customer needs (customization),
- after sale support, and
- long-term customer relationships.

Our competition in each of our product lines is described below.

Our CPU product line competes against other suppliers of CPU boards based on
PowerPC® and Intel microprocessor technology, including GE Fanuc Embedded
Systems, Kontron AG, Motorola, Inc., Performance Technologies, Incorporated,
RadiSys Corporation, and others. In the ruggedized computer board and system
market primarily serving military customers, our main competitors are Curtiss-
Wright Corporation and Radstone Technologies PLC.

Our WAN I/O products compete with other suppliers of similar products within
the embedded computer market. They include companies such as Interphase
Corporation, Performance Technologies, Incorporated, and SBE, Inc.

Our general purpose I/O products are standards-based I/O modules for
technologies such as Ethernet, Fibre Channel, and Serial. Among our competitors
for these products are Acromag, Inc., Curtiss-Wright Corporation, GE Fanuc
Embedded Systems, and a few small companies. Specialized products such as bus
adapters and dataBLIZZARD have no direct competitors. Our InfiniBand technology
products compete with Infinicon Systems, Inc., and a number of small start-up
companies serving that market.

Our avionics interface products compete with those of other companies such as
Ballard Technologies, Inc., Condor Engineering, Inc., Data Devices Corporation,
Excalibur Technologies Corporation, and Gesellschaft Fur Angewandte Informatik
und Mikroelekemik GmbH.

SBS Canada designs FPGA computing products that apply FPGA technology to
processing applications often associated with DSP boards or single board
computers. We compete with companies offering these technologies like Mercury
Computer Systems, and imaging companies such as Matrox Graphics Inc., as well as
a few small companies with FPGA products such as Annapolis Micro Systems,
Inc.

Our systems and enclosure products compete with other suppliers of special
purpose PC and CompactPCI platforms, enclosures and turnkey systems, such as
Motorola, Inc. and RadiSys Corporation.

Employees

As of August 1, 2004, we had approximately 472 employees at our nine
locations: Albuquerque, New Mexico; Newark, California; Raleigh, North Carolina;
St. Paul, Minnesota; Mansfield, Massachusetts; Waterloo, Ontario, Canada;
Shenzhen, China; and Augsburg and Mindelheim, Germany. Of these employees, 66
were in executive and administrative positions; 92 were in sales, marketing and
customer relations; 155 were in research and development; 148 were employed in
support of ongoing production, and 11 were employed on a part-time
basis.

Risk Factors

Statements in this Report about the outlook for our business and markets,
such as projections of future performance, statements of management's plans and
objectives, and forecasts of market trends and other matters, are forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that may cause such a difference, and may impact our future
financial performance, include, but are not limited to, those discussed
below:

Risks Related to Our Business

Our period to period sales and operating results have fluctuated, and may
continue to fluctuate significantly, which has caused, and may continue to
cause, volatility in the market price for our common stock. Our Company
has experienced fluctuations in its period to period sales and operating results
in the past, and management expects that fluctuations will occur in the future.
Our sales, on both an annual and a quarterly basis, can fluctuate as a result of
a variety of factors, many of which are beyond our control and which we may not
be able to predict. These factors include:

- the timing and volume of customer orders and delays,
- success in achieving design wins in which our products are designed into
    those of our customers,
- manufacturing delays,
- delays in shipment due to component shortages,
- cancellations of orders,
- changes in the mix of products sold,
- the rate of introduction of new products,
- ability to maintain appropriate inventory levels,
- excess or obsolete inventory and changes in valuation of inventory,
- cyclicality or downturns in the markets served by our customers,
    including significant reductions in defense, communications and capital
    equipment expenditures,
- political, legal, regulatory and economic conditions and developments in
    the areas of the world in which we operate or into which we might expand our
    operations,
- competition from new technologies and other companies,
- variations in sales channels, product costs and the mix of products
    sold, and
- economic disruptions due to terrorist activity or epidemics.

Because fluctuations in operating results have happened in the past, and may
continue to happen in the future, we believe that comparisons of the results of
our operations for preceding quarters and fiscal years are not necessarily
meaningful, and that investors should not rely on the results for any one
quarter or year as an indication of how the Company will perform in the future.
Investors should also understand that, if our sales or earnings for any quarter
or year are less than the level expected by securities analysts or the market in
general, the market price for the Company's common stock has been in the past,
and may be, in the future, subject to an immediate and significant
decline.

Our sales have been, and may in the future be, significantly reduced due to
volatile communications and capital equipment markets. We derive a
significant portion of our sales from products for communications and capital
equipment applications. The communications and capital equipment markets are
characterized by intense competition and rapid technological change. The
communications market grew rapidly in the late 1990's, but experienced depressed
conditions during recent years, from which a recovery appears to have begun. For
example, our sales into that market dropped by over 60% between our fiscal year
2001 and fiscal year 2002 and by another 30% from fiscal year 2002 to fiscal
year 2003 before staging some recovery in fiscal year 2004. The volatility of
the communications market over recent years could result in a future dramatic
downturn in areas of the communications market targeted by us, such as wireless
telephony and network monitoring, resulting in reductions in sales into that
market.

Our future sales may be limited if anticipated increases in U.S.
defense spending do not occur, if defense spending in the U.S. and other
countries is reduced or not allocated in a way that benefits us, or if U.S.
military actions result in reluctance by customers outside of the U.S. to
purchase our products. We derive a significant portion of our sales
directly or indirectly from the U.S. Department of Defense (DoD). The majority
of our government sales are to contractors in U.S. Government military programs
for either new military systems or upgrades of existing military platforms.
These sales may be affected by changes in procurement policies, budget
considerations, changing defense requirements, and political developments. The
influence of these factors, which are largely beyond our control, could impact
our financial position or results of operations.

The President's budget for the DoD for fiscal year 2005 and beyond responds
to increased needs for homeland security and combating terrorism. This is
evidenced by budget increases for operation readiness and personnel needs, as
well as for both procurement and research and development. This trend was
reiterated in the Future Year Defense Plan (FYDP) submitted with the President's
budget for fiscal year 2005. It projects sustained growth in both the
procurement and research and development budgets for the DoD through fiscal year
2006, and in the case of the procurement budgetary authority, through fiscal
year 2009. While there is no assurance that the increased DoD budget levels will
be approved by Congress, the current U.S. defense budget outlook appears to be
one of modest growth. However, the level and sustainability of growth and the
amount of the budget that will ultimately be allocated to programs most closely
aligned with our business, such as new military systems and upgrades of existing
military platforms, is unknown, particularly in light of:

- current record U.S. government budget deficits, and
- increased expenditures on operations and maintenance arising from
    conflicts in Iraq, Afghanistan, and other locations, which typically do not
    benefit our business.

In addition, non-U.S. defense budgets have generally been declining over the
past decade. This has resulted in consolidation in the European aerospace
industry. This type of environment could reduce opportunities, and increase
competition and pricing pressure, for sales of SBS products into non-U.S.
government markets. Further, international backlash against United States
government policy decisions relating to terrorism, the conflicts in Iraq and
Afghanistan, and other international events may result in reluctance in certain
foreign countries to buy products from companies, like SBS, headquartered in the
United States.

We must persuade customers to outsource their component needs to grow our
business. Many of our potential customers design and manufacture
embedded computer components internally, which they may view as a cost-savings
over purchasing these components from suppliers like SBS. To increase our sales,
we need to persuade them that use of our components and services is cost-
effective.

Increased market acceptance of our products also depends on a number of other
factors, including:

- the quality of our design and production expertise,
- the increasing use and complexity of embedded computer systems in new
    and traditional products,
- the expansion of markets that are served by embedded computers,
- time to market requirements of our products,
- the assessment by our customers of direct and indirect cost savings, and
- our customers' willingness to rely on us for mission-critical
    applications.

Any failure to persuade customers to outsource their embedded computer needs
could reduce our future revenues and earnings.

We face significant competition. The embedded computer industry is
highly competitive and fragmented, and is in the process of consolidating, such
as the recently announced acquisition of Force Computers, Inc. by Motorola Inc.
Our competitors differ depending on product and market type, company size,
geographic market and application type. We face competition in each of our
product lines.

Competition in all of our product lines is based on:

- performance,
- time-to-market,
- customer support,
- product longevity,
- existing customer relationships,
- supplier stability,
- price,
- breadth of product offerings, and
- reliability.

Many of our existing and potential competitors are companies larger than we
are that have a number of significant advantages over us, including:

- significantly greater financial, technological and marketing resources,
    giving them the ability to respond more quickly to new or changing
    opportunities, technologies and customer requirements,
- established relationships with customers or potential customers, which
    can make it harder for us to sell our products to those customers,
- a longer operating history, and
- more extensive name recognition and marketing capability.

In addition, existing or potential competitors may establish cooperative
relationships with each other or with third parties, or adopt aggressive pricing
policies to gain market share.

Because of increased competition, we might encounter significant pricing
pressures across our product lines. These pricing pressures could result in
significantly lower average selling prices and reduced profit margins for our
products. We may not be able to offset the effects of any price reductions with
an increase in the number of our customers, cost reductions or otherwise. We
cannot assure investors that we will be able to compete effectively in our
current or future markets.

If we do not persuade OEM's to use our products instead of those of other
suppliers, our sales could be harmed. Our sales depend, in part, on our
ability to obtain and maintain design wins for our products from OEM's. OEM's
that do not currently integrate our components into their products may not be
willing to purchase components from us because the cost of integrating new
components into their products may be more expensive than continuing to use
existing components. OEM's currently using our components often re-bid for next-
generation components and may elect to use another supplier's components if the
other supplier's designs are superior to our designs. Also, OEM's currently
integrating our components may redesign their products in a manner that no
longer requires our components. If we fail to maintain existing design wins or
to achieve new design wins, our sales could be reduced.

We might have to expend substantial funds to redesign our products because of
changes in industry standards, customer preferences or technology. Most
of our products are developed to meet industry standards that define the basis
of compatibility in operation and communication of a system supported by
different vendors. These standards are continuing to develop. If these standards
are eliminated, changed, or are superseded with more advanced technologies, the
design of our products could be inappropriate or obsolete, and we could be
required to undertake costly redesign and research and development efforts. Our
sales also depend in part on our ability to develop state of the art products
that comport with changing customer preferences. We may not be successful in
developing these products in a timely manner, or in selling the products we
develop. Our sales could significantly decrease, and our products could become
obsolete, if we fail to adapt timely to changing industry standards, advances in
technology, or customer preferences.

We purchase many of our components from third party suppliers who may
discontinue or change their products or have insufficient supply. Many
of our products contain state-of-the-art electronic components, such as
microprocessors and memory technology. We depend upon third parties for our
supply of many of these components. We obtain some of these components from a
sole supplier or a limited number of suppliers, for which alternate sources may
be difficult to locate. We have experienced, and may experience in the future,
component part shortages, and we have in the past built, and may in the future
build, inventory of these components. Moreover, suppliers may discontinue or
upgrade some of the products incorporated into our products, which could require
us to redesign a product to incorporate newer or alternative technology. Our
inventory of component parts may become obsolete, which has in the past and may
in the future result in write-downs. Although we believe that we have arranged
for an adequate supply of components to meet our short-term requirements, we do
not routinely obtain long-term binding contracts with our suppliers to assure
future availability. If sufficient components are not available when we need
them, our product shipments could be delayed, which could adversely affect our
sales during certain periods as well as lead to customer dissatisfaction. If
enough components are unavailable, we might have to pay premiums for parts in
order to make shipment deadlines. Paying premiums for parts, building inventory
of scarce parts, or having our existing inventory become obsolete could lower or
eliminate our profit margin, reduce our cash flow, and otherwise harm our
financial performance.

We use contract manufacturers to produce the bulk of our board-level products
and are dependent on their timeliness, quality, and availability. We
obtain parts from large electronics parts suppliers and printed circuit boards
from printed circuit board manufacturers and provide these parts and boards as
kits to contract manufacturing companies that fabricate our products. Many of
the contract manufacturers we utilize are small companies with limited capital
resources. We reduce dependence on a particular contract manufacturer by using
multiple contract manufacturers for many of our products, although there is no
assurance that we will not experience delays in obtaining product from contract
manufacturers. If we must move our production to new contract manufacturers due
to non-performance by current contract manufacturers, additional delays in
obtaining product could be incurred, as qualifying new contract manufacturers is
costly and time-consuming. If we are unable to meet our customers' delivery
requirements due to delays in obtaining product from contract manufacturers, our
sales and results of operations could be materially reduced. We also use
contract manufacturers with operations in low-cost locations, such as Asia.
Those products may be subject to shipping and other delays resulting from the
location of those fabrication facilities. These manufacturers are also subject
to political, economic and regulatory risk similar to those arising from our
international sales and operations generally, as described on page 13.

We often incur substantial expense and development time well in advance of
sales, requiring accurate gauging of future market demand. Our business
depends upon continually introducing new and enhanced products and solutions for
business needs. The development or adaptation of products and technologies
requires us to commit financial resources, personnel and time significantly in
advance of sales. In order to compete, our decisions with respect to those
commitments must accurately anticipate both future demand and the technologies
that will win market acceptance to meet that demand. In addition, our customers
typically require several months to test and evaluate our products before
designing their products to incorporate our components. Once our customers have
decided to use our components, it may take up to 18 months or longer to begin
volume production of products incorporating these components. Because of this
lengthy sales cycle, we may experience delays from the time we increase our
operating expenses and our investments in inventory until the time that we
generate sales from these components. We may never generate sales from
components after incurring development expenses if our customers decide not to
purchase them. Even if our customers select our components to incorporate into
their products, our customers may not be able to market or sell their products
successfully.

We are subject to order and shipment uncertainties that could harm our
operating results. We typically sell our products pursuant to purchase
orders that customers can cancel or defer delivery on short notice without
incurring a significant penalty. Cancellations or deferrals could cause us to
hold excess inventory that may not be salable to other customers at commercially
reasonable terms, and which could reduce our profit margins, require inventory
write downs, and restrict our ability to fund our operations. This risk is
exacerbated by a current trend from our customers of requiring shorter lead
times between placing an order with us and the shipment date. That typically
necessitates an increase in our inventory of that product, raising the
likelihood that upon cancellation or deferral, we may be holding greater amounts
of inventory.

We have limited patent protection covering our technology, and we may not be
able to protect our intellectual property. Disputes could be expensive.
Our success depends, in part, on our ability to develop and protect our
intellectual property. We have sought only limited patent protection for our
technology. We currently have six U.S. patents and two Canadian patents issued
and no U.S. patents pending. We cannot guarantee that our existing patents will
be enforced in a court of law if challenged. Patent applications in the United
States are not publicly disclosed until the patents are issued.

We primarily rely on trade secret laws, industrial know-how and
confidentiality agreements with employees, customers, distributors and vendors
to protect our intellectual property and believe that future financial
performance is much more dependent on the timely introduction of new products
and technology and our customer relationships than protection of our
intellectual property. Third parties or employees may breach those
confidentiality agreements or otherwise attempt to disclose, obtain or use our
products and technologies.

We enter into contracts with OEM's which typically provide for broad
indemnification of the OEM's against allegations of infringements of
intellectual property rights arising from our products, including costs of
defense. We do not carry insurance covering any such claims. Any such claim or
claims could materially harm our financial condition.

We may have to litigate to enforce or defend our intellectual property
rights. Any litigation, regardless of outcome, may be costly and time consuming.
Further, if it were ultimately determined that our claimed intellectual property
rights are unenforceable, or that our products infringe on the rights of others,
we may be required to pay past royalties or obtain licenses to use technologies.
We may not be able to obtain licenses for these technologies on commercially
reasonable terms, or at all.

General business conditions are vulnerable to the effects of epidemics, which
could materially disrupt our operations and financial results. Our
Company is vulnerable to the general economic effects of epidemics and other
health-related concerns. In mid-2003, the outbreak of the SARS epidemic resulted
in quarantines and substantial curtailment of travel and business activities for
areas as geographically diverse as China and Toronto, Ontario. During that time,
the epidemic disrupted sales activities of SBS Canada with a significant
customer in China. We believe that many growth opportunities for current and
future SBS products are located in Asia and other parts of the world where
public health systems are not considered to be as advanced as in North America
and Western Europe. Further, we have significant customers, and significant end-
customers of our customers, located in Asia, including China, which are areas
SBS has specifically targeted for growth. A recurrence of SARS or any other
epidemic could substantially reduce or delay regional or worldwide demand for
our products, or disrupt supply channels, which could materially impact our
future results of operations.

Risks Related to Our Financial Condition

Our success depends, in part, on our ability to identify, acquire and
successfully integrate new businesses. A major element of our business
strategy is to pursue acquisitions that either expand or complement our
business. We have increased the scope of our operations through eleven
acquisitions since 1992, including the June 2003 acquisition of Avvida Systems,
now SBS Canada. Where business conditions permit, we intend to actively pursue
acquisition opportunities whenever they arise. This acquisition strategy may
pose additional risks to us, including:

- We might not be able to identify or acquire acceptable acquisition
    candidates on favorable terms, and in a timely manner.
- Our management, financial controls, internal controls over financial
    reporting, personnel, and other corporate support systems might not be
    adequate to manage the increase in the size and the diversity of scope of
    our operations as a result of acquisitions and to effectively integrate
    acquired businesses.
- Our acquisitions might not increase revenue or earnings, and the
    companies acquired might not continue to perform at their historical or
    anticipated levels.
- We may use cash for acquisitions that would otherwise be available to
    fund our operations or to use for other corporate purposes.
- Our shareholders may experience dilution if we use the Company's capital
    stock to pay for acquisitions.
- We may incur debt to pay for acquisitions, resulting in interest costs
    and reduced earnings.

We may need to raise additional capital to fund our operations and to
complete acquisitions. We depend on cash flow from operations to fund
our operations and pay for our acquisitions. If we experience decreased sales,
increased expenses, or a combination of the two, we may need to raise additional
capital to fund our operations or acquire other businesses. If we decide to do
so, we could attempt to issue debt securities or capital stock. We may not be
able to sell these securities under then current market conditions. Even if we
were successful in finding buyers for our securities, the buyers could demand
commercially unreasonable terms. For example, if we had to sell debt securities,
we might be forced to pay high interest rates or agree to onerous operating
covenants, which could in turn harm our ability to operate our business by
reducing our cash flow and restricting our operating activities. If we were to
sell the Company's capital stock, we might be forced to sell shares at a
depressed market price, which could result in dilution to our existing
shareholders. In addition, any shares of capital stock we may issue may have
rights, privileges, and preferences superior to those of our common
shareholders. If we are unable to raise additional capital on commercially
reasonable terms, we may be required to reduce our operations and delay or
terminate any potential acquisition plans, which would harm our ability to
grow.

If our sales do not increase, or if they decline, we could experience
difficulty in obtaining debt or equity financing. Contraction and
declines in the markets we serve have had and may in the future have an adverse
impact on our sales and income. We currently do not have any bank credit
facility in place. We may require external financing in the future, and that
financing may not be available on terms acceptable to management or at all. In
the future, if our sales do not increase, or if they decline, it would likely
impede our ability to raise funds through the sale of debt or equity securities.

Our future results are subject to the efficiency of our past and future
consolidation efforts. We have consolidated operations in the past,
including Communications and Enterprise Group operating facilities previously
based in Madison, Wisconsin, and Carlsbad, California. These consolidations
included moving manufacturing, testing and support functions to the St. Paul,
Minnesota, facility, and moving certain product design functions to the
Mansfield, Massachusetts and Raleigh, North Carolina facilities in fiscal years
2003 and 2004. We may elect to consolidate other operations in the future.
Failure to effect a consolidation efficiently could result in missed customer
deliveries, higher costs, reductions in quality, and lost productivity on other
important projects, any of which could adversely affect our future results of
operations.

Our earnings have been, and could in the future be, adversely affected
because of charges resulting from acquisitions, or an acquisition could reduce
shareholder value. As part of our strategy for growth, we acquire
compatible businesses. In accounting for a newly acquired business, we are, in
many cases, required to amortize, over a period of years, certain identifiable
intangible assets. Although the acquired business' current operating profit may
offset the amortization expense, a decrease in the acquired business' operating
profit could reduce our overall net income and earnings per share. Changes in
future markets or technologies may require us to amortize intangible assets
faster and in such a way that our overall financial condition or results of
operations are harmed. If economic and/or business conditions decline in the
future, we may incur impairment charges against earnings which could be
significant. We may also be required, under accounting principles generally
accepted in the United States of America, to charge against earnings upon
consummation of an acquisition the value of an acquired business' technology
that does not meet the accounting definition of "completed technology." Acquired
businesses could also reduce shareholder value if they generate a net loss or
require invested capital.

We may expend resources without receiving benefit from strategic alliances
with third parties. From time to time, we enter into strategic alliances
to deliver solutions to our customers. These alliances are typically formed to
provide products or services that we do not provide in our core businesses. We
may expend capital and resources on these alliances but may not receive any
immediate or long-term return or economic benefit from them, thereby reducing
our sales and earnings.

We depend on our employees for success. Our ability to maintain our
competitive position and to develop and market new products depends, in part,
upon our ability to retain key employees and to recruit and retain additional
qualified personnel, particularly engineers. Competition for qualified employees
in the computer industry is intense. In addition, we have traditionally relied
in large part on granting of stock options as incentive compensation to recruit
and retain qualified personnel. If proposed changes to accounting standards that
require us to expense the fair value of stock option grants results in a
reduction or elimination of future stock option awards to our employees, we
could have difficulty recruiting and retaining qualified persons. If we are
unable to retain and recruit key employees, our product development, and
marketing and sales could be harmed.

We are subject to product liability risk. Our products and services
could subject us to product liability or government or commercial warranty
claims. We maintain primary product liability insurance for our non- aviation
products with a general aggregate limit of $1.0/$2.0 million per occurrence and
a $50.0 million excess umbrella policy. We maintain, for our aviation products,
a $100.0 million liability insurance policy, per occurrence. Our products are
widely used in a variety of applications. If a claim is made against us, our
insurance coverage might not be adequate to pay for our defense or to pay for
any award, in which case we would have to pay for it. Also, in the future we
might not be able to continue our insurance coverage at desired levels for
premiums acceptable to us. If a litigant were successful against us, a lack or
insufficiency of insurance coverage could significantly harm our financial
condition.

We face political, economic and regulatory risks associated with our
international sales and operations not faced by businesses operating only in the
United States. We sell our products in countries throughout the world
from our United States, Canadian and German based operations. We intend to
continue to expand our operations and sales outside the United States and have
specifically targeted Asia, in addition to Europe, for future growth. Consistent
with that policy, we opened our sales support and customer support office in
Shenzhen, China in June 2004. Our international operations and sales subject the
Company to risks not experienced by companies operating only in the United
States, including:

- increased governmental regulations,
- export and import controls,
- political, economic and other uncertainties, including, risk of war,
    revolution, terrorist attacks, epidemics, expropriation, renegotiation or
    modification of existing contracts, standards and tariffs, and taxation
    policies,
- international monetary fluctuations that may make payment more expensive
    for foreign customers who may, as a result, limit or reduce purchases,
- exposure to different and inconsistent legal standards, particularly
    with respect to intellectual property,
- longer accounts receivable collection cycles,
- trade disputes or new trading policies that could limit, reduce, disrupt
    or eliminate our sales and business prospects outside the United States, and
- unexpected changes in regulatory requirements that impose multiple
    conflicting tax laws and regulations.

Those risks could reduce our sales and earnings in the future.

Exchange rate fluctuations could reduce our earnings when stated in U.S.
Dollars. Substantially all of our U.S. export sales transactions to date
have been denominated in United States dollars and substantially all sales
transactions of our Germany operation have been denominated in Euros. Due to the
transfer of all sales and support of European customers to our European
operation and the recent growth in sales experienced by our European operation,
a growing percentage of our overall sales transactions has been denominated in
Euros. Some sales in the future may be denominated in other currencies,
including the Canadian dollar. Any decline in the value of other currencies in
which we make sales against the United States dollar, the Canadian dollar or the
Euro, or any decline in the value of the Canadian dollar or the Euro against the
United States dollar, will have the effect of decreasing our consolidated
earnings when stated in United States dollars. In the future, we may engage in
hedging transactions to minimize the effect of the risks associated with these
types of currency fluctuations; however, such hedging transactions could
adversely impact our financial position and results of operations.

Risks Related to Our Securities

Our common stock price can be volatile because of several factors, including
a limited public float. During the twelve-month period ended June 30,
2004, the sales price of our common stock fluctuated between $9.17 and $19.46
per share. We believe that the Company's common stock is subject to wide price
fluctuations because of several factors, including:

- quarterly and annual fluctuations in our operating results,
- a relatively thin trading market for our common stock, which causes
    trades of small blocks of stock to have a significant impact on the
    Company's stock price,
- announcements of new technologies by us, our competitors or customers,
- general conditions in the markets we serve,
- fluctuations in earnings of our competitors,
- changes in earnings estimates or investment recommendations by
    securities analysts,
- general volatility of the stock markets and the market prices of other
    publicly traded companies,
- economic disruptions due to terrorist activity,
- investor sentiment regarding equity markets generally, including public
    perception of corporate ethics and governance and the accuracy and
    transparency of financial reporting, and
- investor sentiment regarding the valuation of technology companies
    generally.

A lower stock value for SBS could make it more difficult to raise, or
preclude us from raising, capital through sales of stock or other securities or
obtaining debt financing.



Item 2. Properties

We lease office and manufacturing space in Albuquerque, New Mexico, Newark,
California, Raleigh, North Carolina, St. Paul, Minnesota, Mansfield,
Massachusetts, Waterloo, Ontario, Canada, Augsburg and Mindelheim, Germany and
Shenzhen, China. We are also obligated under a lease for our former facility in
Carlsbad, California, which we vacated in August 2003 and have subleased to a
third party throughout the remaining term of the lease. Our standard practice is
to obtain all of our facilities through operating leases. We maintain an
insurance plan covering all our facilities and contents.

The Albuquerque, New Mexico leased facility consists of approximately 42,500
square feet located in a multi-floor office building. This facility houses
certain sales, engineering and support functions for SBS Government, a part of
the Americas Group segment. The Albuquerque facility also serves as our
corporate headquarters. The lease term runs through June 30, 2005. We believe
that this facility will be sufficient to serve our needs through June 2005.
Effective July 2004, we executed a lease for a one-story build-to-suit facility
consisting of approximately 47,500 square feet. The term of the lease, which
commences upon the later of substantial completion of construction or May 1,
2005, will run for a period of approximately 122 months expiring June 2015. We
contemplate moving our entire Albuquerque operations to the new facility before
the June 30, 2005 expiration of our current Albuquerque lease. The new lease
contains a right of first refusal to purchase the facility, a right of early
termination exercisable on or after July 1, 2012, a right to expand the premises
by 10,000 square feet on or before July 1, 2010, a right to contract within the
premises by 10,000 square feet on or after July 1, 2010, and a right to extend
the term for up to three additional five-year terms. We believe that the new
facility will be sufficient to serve our needs through the term of the lease.

Our general purpose I/O engineering team is located in Newark, California.
The facility, which contains approximately 13,000 square feet and is leased for
a term expiring November 30, 2007, is a one-story, multi-tenant building in a
business park. We believe that this facility will be sufficient to serve our
needs through the term of the lease.

Our Intel and PowerPC CPU sales and engineering functions are located in
Raleigh, North Carolina, where we lease approximately 11,700 square feet of a
one-story multi-tenant facility. The lease expires January 31, 2008, subject to
one option to extend the term of the lease for three additional years. We
believe that this facility will be sufficient to serve our needs through the
term of the lease.

Our St. Paul, Minnesota facility consists of approximately 43,650 square
feet, located in a business park. This facility consists of approximately 18,850
square feet of office space occupied by certain sales, engineering, and support
functions for SBS Commercial, a part of the Americas Group segment, and 24,800
square feet of manufacturing and warehouse space utilized by our U.S.
manufacturing center. The lease expires on January 31, 2006. We believe that
this facility will be sufficient to serve our needs through the term of the
lease.

Our facility, located in Mansfield, Massachusetts is a one-story multi-tenant
building in a business park. The facility consists of approximately 31,200
square feet occupied by sales, engineering and support functions for SBS
Communications, a part of the Americas Group segment. The lease is for a five-
year term expiring on June 14, 2005. We believe that this facility will be
sufficient to serve our needs through the term of the lease.

We lease in Waterloo, Ontario, Canada, approximately 19,400 square feet of a
two-story multi-tenant building located within a business park. This location
includes office space, and engineering, assembly and test facilities for the
operations of SBS Canada, a part of the Americas Group segment. The lease term
expires November 30, 2006, subject to one option to extend the term of the lease
for five additional years. We also have a right of first refusal to expand into
any adjacent unoccupied portions of the building during the term of the lease.
We believe that this facility will be sufficient to serve our needs through the
term of the lease.

We lease in Augsburg, Germany, a six-floor building,
consisting of approximately 30,000 square feet of office, test, packaging and
support areas for the operations of KG, a part of the Europe Group. The lease
has a term of ten years expiring December 31, 2005. We are currently negotiating
an extension of the lease to January 31, 2011 to include an addition consisting
of approximately 7,500 square feet, bringing the total area to approximately
37,500 square feet. We believe that the facility, as expanded, will be
sufficient to serve our needs through the term of the lease.



We lease in Mindelheim, Germany approximately 6,200 square feet of a single-
story multi-tenant building located within a business area, consisting of
approximately 1,200 square feet of office space and approximately 5,000 square
feet of manufacturing and warehouse space for the operations of ortec, a part of
the Europe Group. The lease term expires August 31, 2008, subject to one option
to extend the term of the lease for five additional years. We believe this
facility will be sufficient to serve our needs through the term of the lease.

We lease in Shenzhen, China approximately 4,400 square feet of office space
in a multi-story multi-tenancy building located within a high technology
business area that houses certain sales and technical support personnel for the
Americas Group. The lease term expires May 9, 2006, subject to three options to
extend the term of the lease for two additional years each. We believe this
facility will be sufficient to serve our needs through the term of the lease.

In August 2003, we vacated our facility located in a business park in
Carlsbad, California and subsequently subleased the building to an unrelated
third party. This facility consists of approximately 75,200 square feet; 32,000
square feet of office space and 43,200 square feet of warehouse space, and the
lease term for both our lease and the sublease expires in April 2006.



Item 3. Legal Proceedings

We are subject to various claims that arise in the ordinary course of our
business. In our opinion, the amount of ultimate liability with respect to these
actions will not materially affect our financial position, results of
operations, or liquidity. We are not a party to, and none of our property is
subject to, any material pending legal proceedings. We know of no material
proceedings contemplated by governmental authorities.



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

Not applicable.

PART II



Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities

Market price per share

The Company's common stock is traded on the Nasdaq Stock Market
using the symbol SBSE. Quarterly market prices (as reported on the Nasdaq Stock
Market) for the last two fiscal years were:

`2004                 2003
                         -------------------- --------------------
Fiscal quarters            High        Low      High        Low
-----------------------  ---------  --------- ---------  ---------  
First                   $   13.93       9.17 $   12.30       5.00
Second                      17.00       9.89     12.00       6.25
Third                       17.75      14.30      9.90       7.06
Fourth                      19.46      12.72      9.94       6.51`

Record Holders

Based on data provided by SBS' transfer agent and The Depository Trust
Company, management believes that as of August 25, 2004, the number of share
owner accounts of record, as defined by Rule 12g5-1 of the Exchange Act, was
approximately 215, at which date the closing market price of SBS' common stock
was $11.15 per share.

Dividends

SBS has not paid any cash dividends on its Common Stock. Management's current
policy is to retain earnings, if any, for use in SBS' operations and for
expansion of the business. No dividend payments are anticipated in the
foreseeable future (see "Management's Discussion and Analysis: Liquidity and
Financial Condition").

Unregistered Securities

On June 30, 2003, we issued an aggregate of 386,940 shares of
our common stock in connection with the acquisition of 100 percent of the
outstanding common stock of Avvida Holdings Corp. and its wholly-owned
subsidiary, Avvida Systems Inc. The offer and sale of these securities were
affected without registration in reliance on the exemption afforded by
Regulation S of the Securities Act of 1933, as amended. We filed a registration
statement on Form S-3 to register the 386,940 shares issued on June 30, 2003,
which was declared effective by the Securities and Exchange Commission on
January 14, 2004.

Equity Compensation Plan Information

The following sets forth certain information as of June 30,
2004 with respect to equity compensation plans of SBS under which securities may
be issued:



|Plan Category                                              |  | Number of securities to be issued upon exercise of
      outstanding options, rights, restricted stock, and other stock-based
      awards |  | Weighted-average exercise price of outstanding options,
      rights, restricted stock, and other stock-based awards |  | Number of securities remaining available for future
      issuance under equity compensation plans (excluding securities reflected
      in first column)
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 2,952,505                                                                                                                                  |  | $14.91                                                                                                               |  | 2,794,638 *                                                                                                                                              
|Equity compensation plans not approved by security
holders |  | -                                                                                                                                          |  | -                                                                                                                    |  | -                                                                                                                                                        
|Total                                                      |  | 2,952,505                                                                                                                                  |  | $14.91                                                                                                               |  | 2,794,638 *                                                                                                                                              



* Certain equity compensation plans of the Company contain a formula that
automatically increases the number of securities available for issuance by a
percentage of the number of outstanding securities of the Company as
follows:

- the 1993 Director and Officer Stock Option Plan provides securities
    available for grant equal to 5% of the number of shares of the Company's
    common stock outstanding the first day of each fiscal year plus shares
    underlying expired or terminated options (1,405,824 shares available at June
    30, 2004).
- the 2000 Long-Term Equity Incentive Plan provides securities available
    for grant equal to ten percent of the adjusted average of the outstanding
    stock, as that number is determined by SBS to calculate net income per
    common share - assuming dilution for the preceding fiscal year, reduced by
    any shares of stock under the plan subject to unexercised options and any
    shares of stock under the plan subject to restrictions (452,921 shares
    available at June 30, 2004).

Issuer Purchases of Equity Securities

Not applicable.





Item 6. Selected Financial Data

The following selected financial data for the years ended June
30, 2000 through June 30, 2004 have been derived from the audited consolidated
financial statements of SBS. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and related notes
to the consolidated financial statements included elsewhere in this
report.

`Years ended June 30,
                                                        ----------------------------------------------------
                                                           2004     2003         2002      2001      2000
                                                        --------- ---------    --------- --------- ---------
                                                                      (Thousands except per share data)     
Statements of Operations Data:                                                                              
  Sales............................................... $ 133,874   115,521      118,856   187,180   128,189
  Gross profit........................................    64,729    57,519       42,628    88,565    67,015
  Operating income (loss).............................     7,132     2,165      (38,412)   27,736    15,736
  Net income (loss)...................................     5,193    (4,450)(a)  (24,360)   17,184     8,903

Per Share Data:
  Net income (loss) per common share:
    Income (loss) before cumulative effect
      of change in accounting principle............... $    0.34      0.11 (a)    (1.67)     1.23      0.71
    Net income (loss).................................      0.34     (0.30)       (1.67)     1.23      0.71

Net income (loss) per common share -
  assuming dilution:
    Income (loss) before cumulative effect
      of change in accounting principle............... $    0.34      0.11 (a)    (1.67)     1.14      0.66
    Net income (loss).................................      0.34     (0.30)       (1.67)     1.14      0.66
                                                                                                            
Balance Sheet Data:                                                                                         
  Working capital..................................... $  86,715    73,187       69,304    75,282    37,535
  Total assets........................................   145,136   128,610      125,648   147,172   133,160
  Total liabilities...................................    15,509    12,503       12,002    13,377    34,146
  Total stockholders' equity..........................   129,627   116,107      113,646   133,795    99,014`

__________

Notes: We have not declared any dividends during the periods presented and we
do not expect to pay dividends in the foreseeable future.

(a) The fiscal year 2003 summary financial data includes a transitional impairment charge
of $6,058,000 (or ($0.41) per common share), net of tax, reported as a cumulative effect of
change in accounting principle as a result of the Company's adoption of Statement of Financial
Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets," on July 1, 2002.

On August 18, 2000, SBS declared a two- for-one stock split for
stockholders of record on September 5, 2000, distributed on September 20, 2000.
All references to net income per common share, net income per common share -
assuming dilution, common stock, and stockholders' equity have been restated as
if the stock split had occurred as of the earliest period presented.

On June 30, 2003, SBS completed the purchase of Avvida Holdings
and Avvida Systems (subsequently amalgamated under Canadian law into SBS
Canada).

On April 12, 2000, SBS completed the purchase of SDL
Communications, Inc. (subsequently merged into SBS Communications). In
connection with the acquisition, SBS recorded a $4.0 million acquired in-process
research and development ("IPR&D") charge in the fourth quarter of fiscal
2000.

On December 20, 1999, SBS completed a pooling of interests
transaction with SciTech Inc. ("SciTech"). SciTech was subsequently merged into
SBS Communications. SciTech's historical results did not have a material effect
on combined financial position or results of operations; therefore, the
financial position and results of operations of SBS and SciTech are combined
from October 1, 1999 on a prospective basis.



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

Company Overview

We design and build open-architecture embedded computer
products that enable OEMs to serve the government, commercial, and
communications end markets. Embedded computer products are put inside or made
part of larger systems to process information, control machines, move computer
data between machines, and interact with people. The companies that use our
products manufacture very sophisticated, expensive devices, for example, MRI
machines, flight simulators, wireless networks, fighter jets and industrial
robots.

The SBS product line is strategically focused on embedded
computing, and we serve virtually all parts of the market. We currently list
more than 450 products in the product section of our website, www.sbs.com. We
offer components like I/O modules, bus adapters, carrier cards, system
enclosures, FPGA boards and single board computers, as well as network switches,
blades and fully integrated systems. Many of these products are available in
ruggedized versions, which can operate in conditions of extreme temperature,
vibration, shock and humidity.

We serve a broad range of customers. We help our customers get
to market faster, more reliably and more economically, by providing a wide range
of standard and customized embedded computer products. Our products have
application in diverse industries, including space and aviation,
telecommunications, military and government, transportation, telemetry,
robotics, networking, broadcasting, wireless communications and medical imaging.

We have grown because we understand our role in the embedded
computing process: we make components which are part of larger, more complicated
devices. As embedded computer applications expand, we broaden our product line
to meet our customers' needs and to attract new customers. We invest in
technology and customer service so that we can grow with our customers.

We have grown organically and through strategic acquisitions,
acquiring companies that supplement our core competencies - a pattern we expect
to continue. Our organic growth is driven by adding new products, improving
existing products through our research and development program, and attracting
new customers with our products and service. We also completed eleven
acquisitions between 1992 and June 2004 that broadened our product offerings and
our customer base.

Executive Summary

During the fiscal year ended June 30, 2004, we made significant
progress in the implementation of our strategic plan. As a team, we completed a
major restructure of the Company and developed an outward looking, aggressive
approach to the market. As an example, we expanded into China with the opening
and staffing of a sales and technical support office in June 2004.

For the past two years, we have maintained an annual book-to-
bill ratio of greater than one-to-one. Throughout fiscal 2004, our customers
required shorter lead times for our products, increasing our turn business and
resulting in more extensive variability of our bookings. In addition, we believe
the number and quality of design win opportunities in all of our markets are
strong, and we remain committed to providing an excellent base of products.

During the fiscal year ended June 30, 2004 (fiscal 2004), we
noted the following:

- Our book-to-bill ratio for fiscal 2004 was 1.04 to 1.

Book-to-bill ratio represents the net value of customer orders
received and booked each period divided by total sales.

- Order backlog was $42.1 million as of June 30, 2004, compared to $36.2
    million as of June 30, 2003;

Order backlog represents customer orders that have been
contracted for future delivery. Accordingly, these orders have not yet been
recognized as revenue, but represent potential future revenue.

- Thirty-four design wins were achieved during fiscal 2004.

Each reported design win represents an initial purchase order
of a minimum of $100,000 and is forecasted to produce a minimum of $500,000 in
sales annually when in production.

By end market, the design wins included twenty in the
government market, seven in the commercial market, and seven in the
communications market.

- During fiscal 2004, one commercial customer represented approximately
    10% of our total sales and one communications customer represented
    approximately 8% of our total sales. We had no other customer whose sales
    represented more than 5% of our total in fiscal 2004.

Financial Highlights

Select financial highlights during the year ended June 30, 2004
compared to the years ended June 30, 2003 and 2002 follows:

`Fiscal Years Ended
                                   ---------------------------------------------------
                                           June 30,                 June 30,
Thousands (except                  --------------------     %      ---------     %
  per share amounts)                 2004       2003     change      2002     change
                                   ---------  --------- ---------  --------- --------- 
Sales............................ $ 133,874  $ 115,521      15.9% $ 118,856      12.6%
                                   =========  =========            =========

Operating income (loss).......... $   7,132  $   2,165     229.4% $ (38,412)    118.6%
                                   =========  =========            =========

Income (loss) before
  cumulative effect of change
  in accounting.................. $   5,193  $   1,608     222.9% $ (24,360)    121.3%
                                   =========  =========            =========

Net income (loss)(*)............. $   5,193  $  (4,450)    216.7% $ (24,360)    121.3%
                                   =========  =========            =========

Income (loss) per share
  before cumulative effect of
  change in accounting........... $    0.34  $    0.11     209.1% $   (1.67)    120.4%
                                   =========  =========            =========

Net income (loss) per
  share - assuming
  dilution (**).................. $    0.34  $   (0.30)    213.3% $   (1.67)    120.4%
                                   =========  =========            =========`

Sales for fiscal 2004 were $133.9 million, a 15.9% increase from sales of
$115.5 million for the prior year.

Operating income for fiscal 2004 increased approximately $5.0 million, or
229.4% from the fiscal 2003 balance.

Net income for fiscal 2004 was $5.2 million, compared with income before the
cumulative effect of change in accounting for goodwill of $2.4 million and net
loss of $(4.4) million for the prior fiscal year.

* Included in the determination of net loss in fiscal year 2003 is a
transitional goodwill impairment charge of $6.1 million (or ($0.41) per
common share), net of tax, which is reported as a cumulative effect of change in
accounting principle, as a result of our adoption of SFAS 142 effective on July
1, 2002.

Net income per share - assuming dilution for fiscal 2004 was $0.34, compared
with income per common share - assuming dilution before the cumulative effect of
change in accounting for goodwill of $0.11 and net loss per common share -
assuming dilution of $(0.30) for the prior fiscal year.

** Included in the results for fiscal 2004 are employee severance and
consolidation costs associated with the closure of the Carlsbad, California
facility of approximately $2.4 million, which negatively impacted net income per
common share - assuming dilution by ($0.11) on an after tax basis. This compares
to employee severance and consolidation costs associated with closure of the
Carlsbad facility and other management actions totaling approximately $1.7
million for fiscal 2003, which negatively impacted income per common share -
assuming dilution before the cumulative effect of change in accounting for
goodwill by ($0.08) on an after tax basis.

For a more complete analysis of the financial results, see
"Results of Operations" below.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements and
related disclosures in accordance with accounting principles generally accepted
in the United States of America requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. We use estimates when we account for items such as
inventory, allowances for uncollectible accounts receivable, depreciation and
amortization periods for property and equipment and certain identifiable
intangible assets, goodwill and intangible asset impairment analysis, and income
taxes (see Note 1 to the SBS' consolidated financial statements). These
estimates and assumptions are based upon our continuous evaluation of historical
results and anticipated future events. Actual results could differ from these
estimates under different assumptions or conditions.

The Securities and Exchange Commission defines critical
accounting polices as those that are, in management's view, most important to
the portrayal of SBS' financial condition and results of operations and those
that require significant judgments and estimates. We believe the following
critical accounting policies affect our more significant judgments and estimates
used in preparing our consolidated financial statements:

- Revenue Recognition
- Inventory Valuation. We record inventory write- downs based on
    estimates of obsolete or unmarketable inventory, taking into account
    historical usage, forecasted future demand, and general market conditions.
    Write-downs may also be recorded based on our decision to discontinue the
    marketing of certain products or product lines. If our forecasts are
    incorrect, market conditions deteriorate, or we decide to exit other product
    lines, further inventory write-downs may be required which result in an
    increase to cost of sales and reduced gross profit. If market conditions or
    demand are better than expected, we may sell inventories that have been
    previously written down, resulting in reduced or zero cost of sales and
    improved gross profit.
- Allowance for Uncollectible Accounts.We maintain allowances
    for uncollectible accounts receivable resulting from the failure of our
    customers to make required payments. Our estimate is based on, among other
    things, the aging of accounts receivable, historical write-off experience,
    and the current and projected financial condition of our customers. If we
    misinterpret the financial condition of our customers or if the financial
    condition of customers deteriorates, additional allowances for uncollectible
    accounts may be required, which would increase operating costs and reduce
    operating profit.
- Goodwill. In conjunction with the implementation of SFAS 142 as of
    the beginning of fiscal year 2003, we no longer amortize goodwill, but
    instead test for impairment at least annually. The first step of the
    goodwill impairment test is a comparison of the fair value of a reporting
    unit to its carrying value. The fair value of a reporting unit is the amount
    which the unit as a whole could be bought or sold in a current transaction
    between willing parties. The goodwill impairment test requires us to
    identify our reporting units and obtain estimates of the fair values of
    those units as of the testing date. We estimate the fair values of our
    reporting units using discounted cash flow and public company market
    multiple valuation models. Those models require estimates of future
    revenues, profits, capital expenditures and working capital for each
    reporting unit. We estimate these amounts by evaluating historical trends,
    current budgets, operating plans and industry data. A decline in the fair
    value of any of our reporting units below its carrying value is an indicator
    that the underlying goodwill of the unit is potentially impaired. If that
    occurs, we are required to complete the second step of the goodwill
    impairment test to determine whether the unit's goodwill is impaired. The
    second step of the goodwill impairment test is a comparison of the implied
    fair value of a reporting unit's goodwill to its carrying value. An
    impairment loss is required for the amount which the carrying value of a
    reporting unit's goodwill exceeds its implied fair value. If an impairment
    loss is recognized, the implied fair value of the reporting unit's goodwill
    becomes the new cost basis of the unit's goodwill.

We conduct our annual goodwill impairment test as of April 1 of
each fiscal year when our budgets and operating plans for the forthcoming year
are finalized. The timing and frequency of our goodwill impairment tests are
based on an ongoing assessment of events and circumstances that would more than
likely reduce the fair value of a reporting unit below its carrying value. We
will continue to monitor our goodwill balance for impairment and conduct formal
tests when impairment indicators are present.

- Long-Lived and Intangible Assets
- Income Taxes. Our estimate of current and deferred income taxes
    reflects our assessment of current and future taxes to be paid or received
    on items reflected in the financial statements, giving consideration to the
    recoverability of certain of the deferred tax assets, which arise from
    temporary differences between the tax and financial statement recognition of
    revenue and expense. Estimates of current income taxes include benefits for
    items such as general business and other credits, U.S. sales to foreign
    jurisdictions, and utilization of foreign tax credits. Actual income taxes
    may vary from our estimates due to future changes in tax laws or because of
    a review of our tax returns by taxing authorities, which may result in an
    increase or decrease to income tax expense. We must also assess the
    likelihood that we will be able to recover our deferred tax assets. If
    recovery is determined not to be more likely than not, we must increase our
    provision for taxes by recording a reserve, in the form of a valuation
    allowance, for the deferred tax assets that we estimate will not ultimately
    be recoverable. As of June 30, 2004, excluding certain operating losses and
    tax credits for U.S. State income purposes, we believe our recorded deferred
    tax assets will ultimately be recovered. However, should there be a change
    in our ability to recover the deferred tax assets, our tax provision would
    increase in the period we determine that recovery is no longer more likely
    than not.

Recent Acquisitions

We made no acquisitions during the fiscal year ended June 30,
2004. SBS completed the acquisitions described below during the fiscal year
ended June 30, 2003. The acquisition was accounted for using the purchase method
of accounting, and the results of operations of the acquired companies have been
combined with SBS' since the date of the acquisition. The purchase price has
been allocated to the underlying assets acquired and liabilities assumed based
on their estimated fair values with goodwill, if any, representing the excess of
the purchase price over the fair value of the net assets acquired.

On June 30, 2003, SBS acquired 100 percent of the outstanding
common stock of Avvida Holdings Corp. and its wholly-owned subsidiary, Avvida
Systems Inc. (Avvida), located in Waterloo, Canada. Avvida provides image
processing solutions to customers serving a wide variety of applications.
Avvida's focus is emerging programmable logic, including fully programmable
gateway array (FPGA) technology utilized in high performance video, image and
data processing solutions. We plan to incorporate FPGA technology into existing
and future products across all SBS product lines.

The aggregate purchase price of $6.2 million, including
acquisition costs of $0.6 million, was paid in cash and shares of SBS common
stock valued at $3,574,020. The value of the 386,940 shares of SBS common stock
was determined based on the average market price of SBS' common shares over the
two-day period before and after the terms of the acquisition were agreed to and
announced. In conjunction with the purchase price allocation, the estimated fair
value of identifiable intangible assets, specifically a core technology asset
valued at $970,000 and a covenant not-to-compete valued at $1.2 million, was
based on an assessment of their fair value determined by management, and
goodwill of approximately $3.5 million was recorded which is not deductible for
tax purposes. During the year ended June 30, 2004, we received an income tax
refund that exceeded the amount recorded at acquisition by $104,000 which was
recorded as a reduction to goodwill. The identifiable intangible assets will be
amortized over a period of 5 years based on the estimated economic useful life
of the core technology asset and the contractual period of the covenant.

Results of Operations

The following table sets forth for the periods indicated
certain operating data, including balances, as a percentage of
sales:

`Years ended June 30,
                                                        ------------------------------------------------------
Dollars in thousands                                        2004    %           2003   %           2002   %
                                                        --------- ------   --------- ------   --------- ------  

Sales................................................. $ 133,874  100.0 % $ 115,521  100.0 % $ 118,856  100.0 %
Cost of sales.........................................    69,145   51.6 %    58,002   50.2 %    76,228   64.1 %
                                                        --------- ------   --------- ------   --------- ------
Gross profit..........................................    64,729   48.4 %    57,519   49.8 %    42,628   35.9 %

Selling, general and administrative expense...........    32,504   24.3 %    33,608   29.1 %    38,817   32.7 %
Research and development expense......................    20,552   15.4 %    18,077   15.6 %    18,461   15.5 %
Employee severance and consolidation costs............     2,400    1.8 %     1,729    1.5 %     3,232    2.7 %
Impairment of intangible assets.......................        --     -- %        --     -- %    13,005   10.9 %
Amortization of goodwill .............................        --     -- %        --     -- %     4,523    3.8 %
Amortization of intangible assets.....................     2,141    1.6 %     1,940    1.7 %     3,002    2.6 %
                                                        --------- ------   --------- ------   --------- ------
Operating income (loss) ..............................     7,132    5.3 %     2,165    1.9 %   (38,412) (32.3)%
                                                        --------- ------   --------- ------   --------- ------
Interest and other income, net........................       634    0.5 %       434    0.4 %       631    0.5 %
Foreign exchange losses...............................      (348)  (0.3)%      (207)  (0.2)%       (29)  (0.0)%
                                                        --------- ------   --------- ------   --------- ------
                                                             286    0.2 %       227    0.2 %       602    0.5 %
                                                        --------- ------   --------- ------   --------- ------
Income (loss) before income taxes and cumulative
    effect of change in accounting principle..........     7,418    5.5 %     2,392    2.1 %   (37,810) (31.8)%
Income tax expense....................................     2,225    1.6 %       784    0.7 %   (13,450) (11.3)%
                                                        --------- ------   --------- ------   --------- ------
Income (loss) before cumulative effect of
    change in accounting principle....................     5,193    3.9 %     1,608    1.4 %   (24,360) (20.5)%
Cumulative effect of change in accounting
    principle (net of income tax benefit of $3,412)...        --     -- %    (6,058)  (5.2)%        --     -- %
                                                        --------- ------   --------- ------   --------- ------
Net income (loss)..................................... $   5,193    3.9 % $  (4,450)  (3.9)% $ (24,360) (20.5)%
                                                        ========= ======   ========= ======   ========= ======`

Year Ended June 30, 2004 Compared to Year Ended June 30,
2003

(References to fiscal 2004 and fiscal 2003 relate to the fiscal
years ended on June 30)

Sales

Our total sales during the fiscal year ended June 30, 2004
compared to the year ended June 30, 2003 and 2002 follows:

`Fiscal Years Ended
                                   ---------------------------------------------------
                                          June 30,                  June 30,
                                   --------------------     %      ---------     %
Thousands                            2004       2003     change      2002     change
                                   ---------  --------- ---------  --------- --------- 
Sales............................ $ 133,874  $ 115,521      15.9% $ 118,856      12.6%
                                   =========  =========            =========`

For fiscal 2004, sales increased $18.3 million compared to
fiscal 2003, of which approximately $2.7 million was the result of the impact of
a weakening U.S. dollar on the translation of our Europe Group financial
statements. Sales for the fiscal year ended June 30, 2004 include approximately
$1.1 million contributed from the acquisition of SBS Canada (formerly Avvida
Systems) in June 2003. Sales by end market for fiscal 2004 compare to fiscal
2003 and 2002 as indicated below:

`SALES BY END MARKET
                                          (dollars in thousands)
                          June 30,   % of    June 30,   % of    June 30,   % of
                            2004     total     2003     total     2002     total
                          --------- -------  --------- -------  --------- -------
Fiscal year ended:    
  Government............ $  67,944      51% $  60,465      52%    50,425      42%
  Commercial............    39,924      30%    37,689      33%    39,625      34%
  Communications........    26,006      19%    17,367      15%    28,806      24%
                          --------- -------  --------- -------  --------- -------
Total................... $ 133,874     100% $ 115,521     100%   118,856     100%
                          ========= =======  ========= =======  ========= =======`

For the year ended June 30, 2004, sales to government customers
increased 12.4%, sales to commercial customers increased 5.9% and sales to
communications customers increased 49.7%, all compared with the prior fiscal
year. To align with current management responsibility, sales to a majority of
our enterprise customers are reflected as sales to commercial customers. During
fiscal 2004, one commercial customer (Applied Materials) represented
approximately 10% of our total sales and one communications customer (Ericsson)
represented approximately 8% of our total sales. We had no other customer whose
sales represented more than 5% of our total sales in fiscal 2004, 2003 or
2002.

As we progress through calendar 2004 and start fiscal year
2005, we believe the government market will remain strong. We experienced growth
in this market in fiscal year 2004, and, as planned, the majority of design wins
and new opportunities were for system level solutions. The military budget is
still heavily focused on unmanned vehicles and upgrade programs. Both of these
are areas where SBS is positioned to win new business. Sales to communications
customers increased in fiscal year 2004, and we expect additional growth in
fiscal year 2005. Our traditional markets of wireless and network monitoring
continue to show positive growth, and, with the addition of Advanced Telecom
Computing Architecture based products we are expanding into new opportunities.
In the commercial market, sales increased in fiscal year 2004 and in fiscal year
2005, we expect steady demand from semiconductor and medical equipment
manufacturers, and we are optimistic that we will see growth in the industrial
automation market.

Looking forward, based on our forecasts, backlog, and timing of
new orders, we expect sales for the first quarter ending September 30, 2004 to
be between $36 million and $37 million, a 35% to 39% increase compared to the
first quarter of fiscal 2004; however, actual results may vary. We anticipate
growth in sales throughout the remainder of fiscal year 2005 resulting in total
fiscal year 2005 sales of between $150 million and $160 million, all from
organic growth; however, actual results may vary. The assumptions on which we've
based our sales projections include continued health of the markets we serve,
the expectation of several government system design wins to start production,
and sales to Applied Materials and Ericsson to continue at the same dollar sales
level as in fiscal year 2004, approximately $13.2 million and $10.3 million,
respectively. Based on forecasts from these two customers, and continued health
of the markets we serve as evidenced by our strong quoting activity and design
win funnel, we believe these assumptions are valid for the fiscal year ending
June 30, 2005.

Gross Profit

Gross profit during fiscal 2004 compared to fiscal 2003
follows:

`Fiscal years ended
                                -----------------------------------
                                       June 30,
                                ----------------------  Increase/
Thousands                           2004        2003    (decrease)
                                ----------  ----------  ----------  
Gross profit.................. $   64,729  $   57,519       7,210
                                ==========  ==========  ==========
Gross profit as a percent
  of sales....................       48.4%       49.8%
                                ==========  ==========`

Gross profit as a percent of sales for the year ended June 30, 2004,
decreased from levels noted in fiscal 2003 principally as a result of a higher
proportion of sales of lower margin products in relation to total sales. The
decrease was due to the impact of sales relating to several large, lower margin
communications and commercial production orders. The Company's policy is to
dispose of obsolete inventory as soon as practicable after such inventory has
been identified as having no value. During fiscal 2004, the sale of inventory
written down to zero cost amounted to approximately $0.8 million, increasing
gross margin as a percentage of sales by 0.6%. During fiscal 2003, we sold
approximately $1.0 million of inventory written down to zero cost, increasing
gross margin as a percentage of sales by 0.9%. For fiscal year 2005, we
anticipate gross profit as a percentage of sales to range from 46% to 50%;
however, actual results may vary.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A) expense during the fiscal year
ended June 30, 2004 as compared to fiscal 2003 follows:

`Fiscal years ended
                                ----------------------------------
                                       June 30,
                                ----------------------  Increase/
Thousands                       2004        2003        (decrease)
                                ----------  ----------  ----------  
SG&A expense.................. $   32,504  $   33,608  $   (1,104)
                                ==========  ==========  ==========

As a percent of sales.........       24.3%       29.1%
                                ==========  ==========`

For the year ended June 30, 2004, SG&A expense decreased 3.3%, compared
to the prior fiscal year, due primarily to the cost reduction efforts
implemented in connection with the consolidation of operations during fiscal
2004, partially offset by the costs added as a result of the acquisition of SBS
Canada in June 2003. For these reasons, together with increased sales, SG&A
expense as a percentage of sales declined in fiscal 2004 compared with fiscal
2003.

Research and Development Expense

Research and development (R&D) expense during fiscal 2004
as compared to the fiscal year ended June 30, 2003 follows:

`Fiscal years ended
                                ----------------------------------
                                       June 30,
                                ----------------------  Increase/
Thousands                       2004        2003        (decrease)
                                ----------  ----------  ----------  
R&D expense................... $   20,552  $   18,077  $    2,475
                                ==========  ==========  ==========

As a percent of sales.........       15.4%       15.6%
                                ==========  ==========`

For the year ended June 30, 2004, R&D expense increased
13.7%, compared to the prior fiscal year, due primarily to the costs added as a
result of the acquisition of SBS Canada in June 2003. Increasing our
intellectual property is a key element of our growth strategy. During fiscal
2004, we introduced thirty-seven new products as we continue to implement this
segment of our strategy. Research and development expenses fluctuate from period
to period throughout the life cycle of our research and development efforts. As
a percentage of sales, R&D expense during fiscal 2004 was in line with our
current development plan and remained consistent with fiscal 2003 levels.

Employee Severance and Consolidation Costs

On June 12, 2003, we announced that we would be closing our
Carlsbad, California facility and consolidating its manufacturing operations
into our St. Paul, Minnesota facility, centralizing all manufacturing in the
United States into one facility. This consolidation was completed in August,
2003. As a result of these actions, we recorded employee severance and
consolidation costs totaling approximately $2.4 million during fiscal 2004.
These costs included the following:

- Employee severance and related costs of $470,000 (recorded over the
    remaining service period in accordance with SFAS No. 146, Accounting for
    Costs Associated with Exit or Disposal Activities) due to the reduction
    of our workforce. There were no amounts remaining to be paid at June 30,
    2004.
- Other consolidation costs of $530,000 (recorded as incurred in
    accordance with SFAS 146) as a result of the consolidation of our
    communications operations into other facilities. There were no amounts
    remaining to be paid at June 30, 2004.
- Lease termination costs of $1.4 million, (recorded on the cease use date
    in accordance with SFAS 146) as a result of the closure of our Carlsbad,
    California facility in August 2003. The lease termination costs represent
    the estimated fair value of the remaining future lease payments and related
    obligations, net of sublease income, over the term of the lease. The
    remaining lease obligations are expected to be paid monthly through April
    2006.

For fiscal 2003, we recorded employee severance and
consolidation costs totaling $1.7 million. This total includes approximately
$1.1 million recorded as a result of the announcement of the closure of our
Carlsbad California facility, of which $290,000 was employee severance and
related costs and $841,000 was a leasehold improvement impairment charge. The
fiscal 2003 total also includes $412,000 of employee severance costs due to the
elimination of 53 employees as a result of the economic and market conditions
facing our telecommunications customers and $186,000 of lease termination costs
as a result of our decision to exit certain locations during 2003. There were no
amounts remaining to be paid at June 30, 2004.

Amortization of Intangible Assets

For the fiscal year ended June 30, 2004, amortization of
intangible assets was $2.1 million, compared to $1.9 million for fiscal 2003.
Amortization expense increased in fiscal 2004 due to the amortization of the
purchased identifiable intangible assets recorded in connection with the
acquisition of SBS Canada (formerly Avvida Systems) in June 2003. Also, in
fiscal 2003, amortization expense included a write-down of $136,000 recorded in
connection with a prepaid license agreement for a product that SBS determined
during the quarter ended September 30, 2002 would not be brought to
market.

Interest and Other Income, Net

For the year ended June 30, 2004, net interest and other income
of $634,000, included interest received in September 2003 in connection with
income tax refunds of payments made in prior periods of approximately $250,000.
Excluding the interest on the tax refunds in fiscal 2004, net interest and other
income represented primarily interest income associated with surplus cash, which
declined from fiscal 2003 levels as a result of lower interest rates.

Foreign Exchange Losses

For fiscal 2004 and 2003, foreign exchange losses of $348,000
and $207,000, respectively, represent primarily realized and unrealized losses
on certain inter-company transactions that are denominated in non- functional
currencies due to changes in currency exchange rates as a result of the
weakening of the U.S. dollar during fiscal 2004 and 2003.

Income Tax Expense

For the year ended June 30, 2004 and 2003, income tax expense
was recorded using worldwide effective tax rates of 30.0% and 32.8%,
respectively. The change in the estimated worldwide effective income tax rate
was due to the impact of a shift in the mix of pre-tax income from domestic and
foreign sources together with benefits realized as a result of the
implementation of tax planning strategies during the fourth quarter of fiscal
2004.

In assessing the realizability of the Company's deferred tax
assets of approximately $13.2 million at June 30, 2004, management considers
projected future sources of taxable income together with tax planning
strategies. As of June 30, 2004, the valuation allowance, which increased
approximately $1.3 million during fiscal 2004, applies to certain U.S. State
operating loss and tax credit carryforwards that, in the opinion of management,
may expire unused due to uncertainty regarding future taxable income. Based on
SBS' historical taxable transactions, the timing of the reversal of existing
temporary differences, and the evaluation of tax planning strategies, management
believes it is more likely than not that SBS' future taxable income will be
sufficient to realize the benefit of the remaining deferred tax assets existing
at June 30, 2004.

SBS generally does not record deferred income taxes on the
undistributed earnings of its foreign subsidiaries in accordance with the
indefinite reversal criterion in APB Opinion No. 23, "Accounting for Income
Taxes - Special Areas", because the Company currently does not expect
those unremitted earnings to reverse and become taxable in the foreseeable
future. Upon distribution of these earnings, which amounted to approximately
$26.4 million at June 30, 2004, SBS may be subject to U.S. income taxes and
foreign withholding taxes. It is not practical, however, to estimate the amount
of taxes that may be payable on the eventual remittance of these
earnings.

Cumulative Effect of Change in Accounting Principle

For the year ended June 30, 2003, we recorded a transitional
impairment charge of $9.5 million ($6,058,000 net of tax), reported as a
cumulative effect of change in accounting principle, as a result of our adoption
of Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, (SFAS 142) effective July 1, 2002.

Earnings Per Share

For the year ended June 30, 2004, net income per common share
and net income per common share - assuming dilution was $0.34. This compares to
income per share and income per share - assuming dilution before the cumulative
effect of the change in accounting principle of $0.11 during the fiscal year
ended June 30, 2003. Net loss per share and net loss per common share - assuming
dilution was $(0.30) during the fiscal year ended June 30, 2003, including the
impact of the cumulative effect of change in accounting for goodwill of $(0.41)
per common share as a result of our adoption of SFAS 142 effective July 1,
2002.

Review of Business Segments

As a result of changes in management responsibility, the
Company's desire to enhance its regional-based sales and service to the
Company's European customers and the June 2003 acquisition of SBS Canada
(formerly Avvida Systems), the Company changed its reportable segments to a
structure based on geographic markets. This change has enabled management to
focus on regional market development, alignment of sales channels with
customers' product needs, and enhancement of customer service and
satisfaction.

The Company is engaged in the design, research, development, integration and production of embedded
computer products and weoperate worldwide through two
operating segments: the Americas Group and the Europe Group.Both the Americas Group and the Europe Group offerour complete portfolio of embedded computer products to
customers in the government, commercial and communications end markets. Each
segment has management who report directly to the Company's Chief Executive
Officer and its own sales and distribution channels. The Americas Group consists
of the Company's operations based in the United States and Canada, and most
recently in Shenzhen, China. This includes the engineering, test, and assembly
activities in Albuquerque, New Mexico; Mansfield, Massachusetts; Newark,
California; Raleigh, North Carolina; St. Paul, Minnesota; and Waterloo, Ontario,
Canada; the manufacturing operations located in St. Paul, Minnesota; and the
sales and technical support activities based in Shenzhen, China. The Europe
Group consists of the Company's operations based in Germany which include the
engineering, test, assembly, and manufacturing activities located in Augsburg
and Mindelheim, Germany.

The following is a discussion of sales to external customers
and segment profit (loss) for each reportable segment. We measure the results of
operations for segments (Segment Profit (Loss)) based on income (loss) before
income taxes and the cumulative effect of change in accounting principle and
before:

- the allocation of corporate overhead expenses other than marketing
    costs;
- substantially all amortization expense associated with acquisitions; and
- interest income earned on U.S. operations cash balances.

Americas Group

`Fiscal Years Ended
                                       -------------------------------
                                              June 30,
                                       --------------------     %
Thousands                                2004       2003     change
                                       ---------  --------- --------- 
Sales to External Customers.......... $  97,066  $  94,268       3.0%
                                       =========  =========

Segment Profit ...................... $  12,864  $  10,073      27.7%
                                       =========  =========`

Sales to External Customers. For the year ended June 30,
2004, sales to external customers increased approximately $2.8 million, or 3.0%,
compared to the prior fiscal year, as unit shipments increased across all the
Group's product lines, with the exception of telecommunications product
shipments which declined from prior year levels. The Group's sales to external
customers for the year ended June 30, 2004 exclude approximately $3.5 million of
sales that, after the transfer of sales and support for our European customers
to our German operations, were included in sales for the Europe Group. Sales
contributed by the acquisition of SBS Canada (formerly Avvida Systems) in June
2003 were approximately $1.1 million for the year ended June 30, 2004.

Segment Profit. Segment profit increased $2.8 million, or
27.7%, for the year ended June 30, 2004, compared to the prior fiscal year.
Segment profit in fiscal 2004 increased over fiscal 2003 levels as a result of a
change in sales mix to higher margin products, together with reduced SG&A
expenses due to management actions taken as a result of market conditions
impacting the Company during fiscal 2003 and 2002. In addition, segment profit
in fiscal 2004 was unfavorably impacted by approximately $2.4 million of
employee severance and consolidation costs recorded from the consolidation of
our communications operations that resulted in the closure of our Carlsbad,
California facility in August 2003. This compares to approximately $1.7 million
of employee severance and consolidation costs recorded during fiscal 2003, of
which $1.1 million was due to our announcement to consolidate our communications
operations resulting in the closure of our Carlsbad, California facility during
the fourth fiscal quarter of 2003, $412,000 of employee severance costs due to
workforce reductions implemented as a result of the depressed market conditions
impacting our communications market customers throughout fiscal 2003, and
$186,000 of lease termination costs as a result of our decision to exit certain
locations during 2003. For these reasons, segment profit as a percentage of
sales to external customers increased to 13.3% for fiscal 2004, compared with
10.7% for fiscal 2003.

Europe Group

`Fiscal Years Ended
                                       -------------------------------
                                              June 30,
                                       --------------------     %
Thousands                                2004       2003     change
                                       ---------  --------- --------- 
Sales to External Customers.......... $  36,808  $  21,253      73.2%
                                       =========  =========

Segment Profit....................... $   7,540  $   5,138      46.7%
                                       =========  =========`

Sales to External Customers. Unit shipments of the Group's
products increased resulting in increased sales to external customers. For the
fiscal year ended June 30, 2004, sales to external customers increased $15.6
million, compared to the prior fiscal year, of which approximately $2.7 million
was the result of changes in currency exchange rates used to translate the
Group's financial statements to U.S. dollars. The Group's sales to external
customers for fiscal 2004 included an increase of approximately $2.5 million of
sales that, before the transfer of sales and support for our European customers
to our German operations, would have been included in sales of the Americas
Group.

Segment Profit. For the year ended June 30, 2004, segment
profit increased $2.4 million, or 46.7%, compared to the prior year, due
primarily to the increase in sales, offset partially by an increase in SG&A
and R&D expenses commensurate with the growth in the business. For these
reasons, segment profit as a percentage was 20.5% for fiscal 2004, compared to
24.2% for fiscal 2003.

Year Ended June 30, 2003 Compared to Year Ended June 30,
2002

(References to fiscal 2003 and fiscal 2002 relate to the fiscal
years ended on June 30)

Sales

For the year ended June 30, 2003, sales decreased 3%, or $3.4
million, from $118.9 million for the year ended June 30, 2002, to $115.5
million. In fiscal 2003, by end market, sales to government customers increased
19.9%, or $10.0 million, sales to commercial customers declined 4.9%, or $1.9
million, and sales to communications customers decreased 39.7%, or $11.4
million, all compared with fiscal 2002 sales levels. During fiscal 2003, we
continued to experience the effects of the economic and market conditions that
were negatively impacting our telecommunications infrastructure customers.

Gross Profit

For the year ended June 30, 2003, gross profit increased 35%,
or $14.9 million, from $42.6 million for the year ended June 30, 2002, to $57.5
million. The increase in gross profit was primarily due to significant inventory
write-downs and other charges recorded in fiscal 2002. In fiscal 2002, we
recorded $15.1 million of inventory write-downs and $185,000 of expenditures
associated with our manufacturing consolidation and cost reduction efforts. The
write-downs consisted of inventory associated with programs that were not
anticipated to come back to their previous forecasts, inventory associated with
our decision to exit the legacy PCI chassis product line, inventory associated
with products that we will no longer market, and reduced demand for certain
Communications and Enterprise Group products. Additionally, the implementation
of a new inventory management methodology associated with the consolidation of
our manufacturing operations, contributed to the inventory write-down in fiscal
2002. The consolidation efforts and new inventory methodology resulted in a
reduction in required inventory levels. For these reasons, gross profit as a
percent of sales for fiscal 2003 improved to 49.8% compared with 35.9% for
fiscal 2002 (48.7% excluding the $15.3 million of charges noted above). During
the year ended June 30, 2003, we sold approximately $1.0 million of inventory
that had been previously written down to zero cost, increasing gross margin as a
percentage of sales by 0.9%.

Selling, General and Administrative Expense

For the year ended June 30, 2003, selling, general and
administrative (SG&A) expense decreased 13.4%, or $5.2 million from $38.8
million for the year ended June 30, 2002, to $33.6 million. This decrease was
primarily due to the benefits realized from the implementation of cost reduction
efforts which began during fiscal 2002 and continued in fiscal 2003. SG&A
expense as a percentage of sales decreased to 29.1% in the year ended June 30,
2003 from 32.7% in the year ended June 30, 2002, primarily as a result of the
cost reduction efforts, partially offset by reduced sales levels.

Research and Development Expense

For the year ended June 30, 2003, research and development
(R&D) expense decreased 2.1%, or $384,000 from $18.5 million for the year
ended June 30, 2002, to $18.1 million. This decrease was primarily due to the
cost reduction efforts implemented in both fiscal 2003 and fiscal 2002,
partially offset by the addition of research and development employees resulting
from the acquisition of the assets of Essential Communications completed in
March 2002. For the year ended June 30, 2003, R&D expense as a percentage of
sales remained consistent at 15.6% compared with 15.5% in the year ended June
30, 2002.

Employee Severance and Consolidation Costs

For the year ended June 30, 2003, we recorded employee
severance and consolidation costs of $1.7 million, which include the
following:

- a charge for the impairment of leasehold improvements of approximately
    $841,000 recorded in the fourth quarter;

On June 12, 2003, we announced that we would be closing our
Carlsbad, California facility and consolidating its manufacturing operations
into our St. Paul, Minnesota facility, centralizing all manufacturing in the
United States to one facility. This consolidation was completed in August,
2003.

- employee severance and related costs of approximately $702,000; and

Due to the economic and market conditions facing our
telecommunications customers, on July 22, 2002, we notified 19 full and part-
time employees at our Madison, Wisconsin engineering design center that their
jobs had been eliminated. Additionally, for the same reason, on September 30,
2002, we notified 22 employees of that their jobs were being eliminated. We also
incurred severance costs for 12 other employees who were notified that their
jobs had been eliminated. As a result of these actions, we incurred $412,000 of
employee severance costs, of which there were no costs remaining to be paid as
of June 30, 2003.

As a result of the June 2003 announcement of the closure of our
Carlsbad, California facility, we recorded severance and related costs of
approximately $290,000, due primarily to the planned reduction of the workforce
in August 2003. Of this amount, approximately $224,000 was accrued at June 30,
2003, and we paid all of these costs during the year ended June 30, 2004.

- lease termination costs of approximately $186,000, as a result of our
    decision to exit certain locations.

These costs compare with total employee severance and related
costs of approximately $3.2 million incurred during fiscal 2002, as a result of
other actions taken by management in response to unfavorable economic and market
conditions.

Impairment of Intangible Assets

We recorded no intangible asset impairment charges in fiscal
2003, compared to impairment charges of $13.0 million recorded in fiscal 2002.
For the year ended June 30, 2002, $2.7 million of the $13.0 million asset
impairment charge represented the write-off of the remaining goodwill recorded
in connection with the acquisition of SBS Technologies, Inc., Industrial
Computers (formerly Micro Alliance) in November 1997. This write-off was the
result of SBS' decision in the quarter ended December 31, 2001 to exit the PCI
chassis business. The remaining $10.3 million represented the write-down of
goodwill and other identifiable intangible assets associated with the
acquisition of SDL in April of 2000. The write-down, which occurred in the
fourth quarter of fiscal 2002, was based on SBS' projection of undiscounted
future operating cash flows. This evaluation indicated that these cash flows
were not sufficient to recover the carrying amounts of the goodwill and other
identifiable intangible assets. As a result, the impairment charge was recorded
to the extent that the carrying value exceeded fair value of the assets. The
evaluation was performed as a result of continued order cancellations and a
continued decline in sales and bookings in the fourth quarter of fiscal
2002.

Amortization of Goodwill

There was no goodwill amortization expense in fiscal 2003,
whereas goodwill amortization amounted to approximately $4.5 million for the
year ended June 30, 2002. Effective July 1, 2002, we adopted SFAS 142 and no
longer amortize goodwill. As of the date of adoption, we had unamortized
goodwill of approximately $20.5 million, subject to the transition provisions of
SFAS 142. Included in the determination of net loss in fiscal 2003 is a
transitional goodwill impairment charge of $9.5 million ($6.1 million net of
income taxes), which is reported as a cumulative effect of change in accounting
principle, as a result of the Company's adoption of SFAS 142. We completed step
1 of our transitional impairment analysis during the quarter ended December 31,
2002 and noted an indication of potential impairment for two reporting units.
Accordingly, we completed step 2 of the required transitional impairment
analysis during the fourth quarter of fiscal 2003 and determined that the
carrying values of goodwill of the Communications and Enterprise reporting unit
and the Commercial reporting unit (both components of the Americas Group
segment) were in excess of their implied fair value as of July 1, 2002. We
completed our annual goodwill impairment test for fiscal 2003 as of April 1,
2003 and found no indication of impairment.

Amortization of Intangible Assets

For the year ended June 30, 2003, amortization of intangible
assets was $1.9 million, compared to $3.0 million for the same period of fiscal
2002. The decrease was primarily due to the intangible asset impairment charges
recorded during fiscal 2002 discussed previously.

Interest and Other Income, Net

For the year ended June 30, 2003, net interest and other income
of $434,000 consisted primarily of interest income associated with surplus cash.
For the year ended June 30, 2002, net interest and other income of $631,000
consisted primarily of a recovery from insurance of $307,000, and interest
income associated with surplus cash, partially offset by a $323,000 charge
related to an other-than-temporary decline in our investment in a software
company.

Foreign Exchange Losses

For the year ended June 30, 2003, net foreign exchange losses
of $207,000 were principally attributable to changes in exchange rates relating
to payments made by SBS to a foreign subsidiary for marketing and other
corporate costs borne by the foreign subsidiary. For fiscal 2002, net foreign
exchange losses were not significant.

Income Tax Expense (Benefit)

For the years ended June 30, 2003 and 2002, income tax expense
(benefit) from continuing operations (excluding taxes allocated to the
cumulative effect of the change in accounting principle of $3.4 million)
represented effective rates of 32.8% and (35.6)%, respectively. The change in
the effective income tax rate was due to the impact of a shift in the mix of
pre-tax income from domestic and foreign sources coupled with benefits realized
from tax planning strategies in excess of previous estimates. We recorded a tax
benefit related to the net loss in fiscal 2002 due to our ability to realize the
benefit through a tax loss carry back to prior periods.

Earnings Per Share

For the year ended June 30, 2003, income per common share and
income per common share - assuming dilution, before the cumulative effect of the
change in accounting principle, was $0.11 compared to a loss per common share
and a loss per common share - assuming dilution, before the cumulative effect of
the change in accounting principle, of $(1.67) for the same period in fiscal
2002. The per share impact of the transitional impairment charge as a result of
the Company's adoption of SFAS 142, reported as a cumulative effect of change in
accounting principle in fiscal 2003, was a loss per common share and a loss per
common share - assuming dilution of $(0.41). For the year ended June 30, 2003,
net loss per common share and net loss per common share - assuming dilution were
$(0.30) compared to $(1.67) for the same period in fiscal 2002.

Review of Business Segments

During fiscal 2004, we changed our reportable segments to a
structure based on geographic markets as a result of changes in management
responsibility, our desire to enhance our regional-based sales and service to
our European customers, and the June 2003 acquisition of SBS Canada (formerly
Avvida Systems). This change has enabled management to focus on regional market
development, alignment of sales channels with customers' product needs, and
enhancement of customer service and satisfaction.

The Company is engaged in the design, research, development, integration and production of embedded
computer products and weoperate worldwide through two
operating segments: the Americas Group and the Europe Group.Both the Americas Group and the Europe Group offerour complete portfolio of embedded computer products to
customers in the government, commercial and communications end markets. Each
segment has management who report directly to our Chief Executive Officer and
its own sales and distribution channels. The Americas Group consists of our
operations based in the United States and Canada, including the engineering,
test, and assembly activities in Albuquerque, New Mexico; Mansfield,
Massachusetts; Newark, California; Raleigh, North Carolina; St. Paul, Minnesota;
and Waterloo, Ontario, Canada; and the manufacturing operations located in St.
Paul, Minnesota. The Europe Group consists of our operations based in Germany,
which include the engineering, test, assembly, and manufacturing activities
located in Augsburg and Mindelheim, Germany.

The following is a discussion of sales to external customers
and segment profit (loss) for each reportable segment. We measure the results of
operations for segments (Segment Profit (Loss)) based on income (loss) before
income taxes and the cumulative effect of change in accounting principle and
before:

- the allocation of corporate overhead expenses other than marketing
    costs;
- substantially all amortization expense associated with acquisitions; and
- interest income earned on U.S. operations cash balances.

Americas Group

`Fiscal Years Ended
                                       -------------------------------
                                              June 30,
                                       --------------------     %
Thousands                                2003       2002     change
                                       ---------  --------- --------- 
Sales to External Customers.......... $  94,268  $ 106,288     -11.3%
                                       =========  =========

Segment Profit ...................... $  10,073  $  (5,976)   -268.6%
                                       =========  =========`

Sales to External Customers. For the year ended June 30,
2003, sales to external customers decreased approximately $12.0 million, or
11.3%, compared to the prior fiscal year. Unit shipments in fiscal 2003
decreased slightly from fiscal 2002 levels for general purpose input/output
products, computer connectivity and expansion products, and avionics and
telemetry products. We believe the uncertainty caused by the military activity
in the Middle East during the quarter ended March 31, 2003 adversely affected
the placement of some customer orders. Unit shipments for the Group's
telecommunications products declined from prior year levels. This decrease was
due principally to the economic and market conditions negatively affecting the
telecommunications market. We continued to experience the effects of reduced
booking activities compared to prior periods, and delays of existing backlog
orders and prior order cancellations by our telecommunications infrastructure
customers.

Segment Profit. For the year ended June 30, 2003, the
increase in segment profit was due to a change in sales mix to products with
higher gross margins, decreases in SG&A expenses as a result of the cost
reduction efforts implemented during fiscal 2003 and 2002 and the significant
inventory write-downs recorded in fiscal 2002, partially offset by increased
R&D costs resulting from the Essential Communications asset acquisition in
March 2002. Total inventory write-downs of $15.1 million and $185,000 of
expenditures associated with our manufacturing consolidation and cost reduction
efforts were recorded in fiscal 2002. The inventory write-downs in fiscal 2002
were associated with programs that were not anticipated to come back to their
previous forecasts, products that will no longer be marketed and excess
component parts based on the implementation of the new inventory management
methodology associated with the consolidation of our manufacturing operations
and our decision to exit our legacy PCI chassis product line. In fiscal 2003, we
recorded employee severance and consolidation costs due to the cost reduction
efforts implemented in response to the economic and market conditions negatively
affecting the Group and the announcement, on June 12, 2003, of the closure of
our Carlsbad, California facility and the consolidation of its manufacturing
operations into our St. Paul, Minnesota facility, which we completed in August,
2003. For these reasons, segment profit (loss) as a percent of sales to external
customers improved to 10.7% for the year ended June 30, 2003, from (5.6)% for
the same period of fiscal 2002.

Europe Group

`Fiscal Years Ended
                                       -------------------------------
                                              June 30,
                                       --------------------     %
Thousands                                2003       2002     change
                                       ---------  --------- --------- 
Sales to External Customers.......... $  21,253  $  12,568      69.1%
                                       =========  =========

Segment Profit....................... $   5,138  $   3,287      56.3%
                                       =========  =========`

Sales to External Customers. Unit shipments of the Group's
computer processor products increased resulting in increased sales to external
customers. For the fiscal year ended June 30, 2003, sales to external customers
increased $8.7 million, compared to the prior fiscal year.

Segment Profit. For the year ended June 30, 2004, segment
profit increased $1.9 million, or 56.3%, compared to the prior year, due
primarily to the increase in sales, offset partially by an increase in SG&A
and R&D expenses commensurate with the growth in the business. For these
reasons, segment profit as a percentage of sales to external customers was 24.2%
for fiscal 2003, compared to 26.2% for fiscal 2002.

Liquidity, Capital Resources and Financial Condition

Our objective is to maintain adequate financial resources and
liquidity to finance the operations of the Company. We use a combination of
proceeds from the sale or issuance of equity securities and internally generated
funds to finance our working capital requirements, capital expenditures,
acquisitions, and operations.

Our cash balance of $47.9 million at June 30, 2004 represents an increase of
$10.8 million during the year ended June 30, 2004. Net cash flows from operating
activities and proceeds from the exercise of employee stock options were the
principal sources of funding, and cash was used for a mix of activities
including working capital needs and capital expenditures. We anticipate that
this trend will continue in the fiscal year ending June 30, 2005, however,
future cash inflows as a result of employee stock option exercises are difficult
to predict with certainty.

Cash Flows

Changes to our cash balance during the years ended June 30,
2004, 2003 and 2002 follows:

Comparison of Condensed
Consolidated Statements of Cash Flows

`Years Ended June 30,
                                                      ----------------------------------
                                                         2004        2003        2002
                                                      ----------  ----------  ----------
Cash Flow Provided by (Used in)                                   Thousands       
   Operating activities............................  $    8,289      16,832      20,571
   Investing activities............................      (3,283)     (4,390)     (4,359)
   Financing activities............................       5,646        (456)     (1,433)
   Net effect on cash from:
      Exchange rates...............................         161         333         298
      Cumulative effect of change
         in accounting principle...................          --       6,058          --
                                                      ==========  ==========  ==========`

Operating Activities

Cash flows from operating activities were principally the result of the
Company's net income, changes in working capital and the impact of non-cash and
non-operating activities including depreciation and amortization of $6.0 million
in fiscal 2004.

The underlying drivers of the changes in working capital during fiscal 2004
were as follows:

- The increase in accounts receivable used operating cash of $371,000,
    prior to foreign currency translation adjustments of $241,000, due
    principally to the growth in sales.
- The increase in inventory used operating cash of $9.1 million, prior to
    foreign currency translation adjustments of $319,000. Throughout fiscal
    2004, our customers required shorter lead times for our products, resulting
    in a need to maintain higher levels of inventory. However, we believe that
    we have reached a level of inventory necessary to satisfy customers'
    requirements as of June 30, 2004.
- We recorded an income tax benefit associated with the exercise of
    employee stock options of approximately $1.0 million in fiscal 2004. In
    addition, we received income tax refunds, net of tax payments, of $0.7
    million as a result of the carryback of tax losses to prior tax years.
- Our total liabilities increased by $3.0 million in fiscal 2004, which is
    consistent with the growth in our operations and we continue to have no bank
    debt as of June 30, 2004.

Investing Activities

Our principal recurring investing activity is the funding of capital
expenditures necessary to support the growth of our business and to enhance the
productivity of our operations. During fiscal 2004, we used $3.4 million for the
purchase of property and equipment and received an income tax refund which
exceeded the amount recorded at the acquisition of SBS Canada by $104,000, which
was recorded as a reduction to goodwill.

Financing Activities

We received proceeds of $5.6 million from the issuance of common stock
associated with the exercise of employee stock options in fiscal 2004.

Exchange Rates

Changes in foreign currency exchange rates impacted beginning cash balances
during the year ended June 30, 2004 by approximately $161,000. Due to the
Company's international operations, where transactions are recorded in
functional currencies other than the U.S. dollar, the effects of changes in
foreign currency exchange rates on existing cash balances during any given
period results in amounts on the consolidated statements of cash flows that may
not reflect the changes in the corresponding accounts on the consolidated
balance sheets.

Cash Requirements

We believe that our internally generated cash flows will provide us with
sufficient capital resources and liquidity to manage our operations, meet our
contractual obligations, and fund capital expenditures, excluding acquisitions,
for at least the next twelve months. Based upon our assessment of future cash
needs and sources of cash as of the date of this report, we believe that our
liquidity needs do not require us to maintain a credit facility at this time.

Because long-term cash flow cannot be predicted with certainty, it is
possible that SBS could require external financing in the future, and that such
financing may not be available on terms acceptable to SBS or at all.

Capital Resources

As of the date of this report, SBS does not have any material capital
expenditure commitments.

Contractual Obligations

SBS is committed under non-cancelable operating leases for
buildings and equipment that expire at various dates through fiscal 2015. The
following is a schedule of our contractual obligations at June 30,
2004:

`CONTRACTUAL OBLIGATIONS

                             Payments due by fiscal years ending June 30,
                         ----------------------------------------------------
                                               2006 -     2008 -    2010 and
Thousands                  Total      2005      2007       2009      beyond
-----------------------  ---------  --------- ---------  ---------  ---------
Operating lease
   obligations......... $  10,926      2,358     2,772      1,414      4,382
                         ---------  --------- ---------  ---------  ---------
Total.................. $  10,926      2,358     2,772      1,414      4,382
                         =========  ========= =========  =========  =========`

Off-Balance Sheet Arrangements

As of June 30, 2004, we have no transactions that would be
considered off-balance sheet arrangements in accordance with the definition
under SEC rules.

Inflation

For the periods ended June 30, 2004, 2003 and 2002, there was
no significant impact from inflation.

Business Outlook

Consistent with our press release dated August 10, 2004, we are
pleased with the progress made in implementing our strategic plan. As a team, we
completed a major restructure of the company and developed an outward looking,
aggressive approach to the market. As an example, we opened a sales and
technical support office in Shenzhen, China in June 2004. In order for SBS to
continue to maintain and increase organic growth, we believe we must expand our
global presence and maintain our market diversity.

For the past two years, we maintained an annual book-to-bill
ratio of greater than one-to-one. Throughout fiscal 2004, our customers required
shorter lead times for our products, increasing our turn business and resulting
in more extensive variability of our bookings.

As we progress through calendar 2004 and start fiscal year
2005, we believe the government market will remain strong. We experienced growth
of 12.4% in this market in fiscal year 2004, and, as planned, the majority of
design wins and new opportunities were for system level solutions. The military
budget is still heavily focused on unmanned vehicles and upgrade programs. Both
of these are areas where SBS is positioned to win new business. Sales to
communications customers increased 49.4% in fiscal year 2004, and we expect
additional growth in fiscal year 2005. The wireless and network monitoring
markets, both traditionally served by SBS, continue to show positive growth,
and, with the addition of Advanced Telecom Computing Architecture based products
we anticipate new opportunities. Sales to commercial customers increased 6.1% in
fiscal year 2004. We expect steady demand from semiconductor and medical
equipment manufacturers, and we are optimistic that we will see growth in the
industrial automation market in fiscal year 2005.

Looking forward, based on our forecasts, existing order
backlog, and the timing of new orders, we expect sales for the quarter ending
September 30, 2004 to be between $36 million and $37 million, a 35% to 39%
increase from the first quarter of fiscal 2004; however, actual results may
vary. Further, we anticipate growth in sales throughout the remainder of fiscal
year 2005 resulting in total sales for the year ending June 30, 2005 to be
between $150 million and $160 million, all from organic growth; however, actual
results may vary.

The assumptions we based our sales projections on include the
continued health of the end markets we serve, the expectation of several
government system design wins to begin production, and for sales to Applied
Materials and Ericsson to continue at the same dollar level as in fiscal year
2004, approximately $13.2 million and $10.3 million, respectively. Based on
forecasts from these two customers, and the health of the end markets we serve
as evidenced by our strong quoting activity and design win funnel, we believe
these assumptions are valid for the coming year. We believe that our new product
and business development efforts will expand opportunities in each end market
contributing to our performance.

Management expects that corporate representatives of SBS will
meet privately during the year with investors, investment analysts, the media
and others, and may reiterate the Business Outlook published in this Form 10-K.
At the same time, this Form 10-K and the included Business Outlook will remain
publicly available on our Web site (www.sbs.com). Unless a notice stating otherwise
is published, the public can continue to rely on this Business Outlook as
representing our current expectations on matters covered.



Item 7A. Quantitative and Qualitative Disclosures About
Market Risk

The Company's principal investment is cash invested in either
money market accounts or in overnight repurchase agreements. Due to the nature
of these investments, we believe that the market risk related to these
investments is minimal. As a result of the Company's German and Canadian
operating and financing activities, we are exposed to market risk from changes
in foreign currency exchange rates. At present we do not utilize any derivative
instruments to manage this risk.

Currency translation.  The results of operations of
our foreign subsidiaries are translated into U.S. dollars at the average
exchange rates for each period concerned. The balance sheets of foreign
subsidiaries are translated into U.S. dollars at the closing exchange rates. Any
adjustments resulting from the translation are recorded as translation
adjustments in other comprehensive income. As of June 30, 2004, assets of
foreign subsidiaries constituted approximately 31% of total assets. Foreign
currency exchange rate exposure is most significant with respect to the euro.
For the fiscal year ended June 30, 2004, net sales were positively impacted
by the appreciation of foreign currencies, primarily the euro, versus the U.S.
dollar by approximately $2.7 million.

Currency transaction exposure.  Currency transaction
exposure arises where a business or company makes actual sales and purchases in
a currency other than its own functional currency. We generally source raw
materials and sell our products within our local markets in their functional
currencies and therefore have limited currency transaction exposure.



Item 8. Financial Statements and Supplementary
Data

---











Report of Independent Registered Public Accounting Firm

The Board of Directors

SBS Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of
SBS Technologies, Inc. and subsidiaries as of June 30, 2004 and 2003, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of SBS
Technologies, Inc. and subsidiaries as of June 30, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 2004 in conformity with U.S. generally accepted
accounting principles.

As discussed in Note 1 to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, effective July 1, 2002.

KPMG
LLP

Albuquerque, New Mexico

August 9, 2004





---





SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                                      
                             CONSOLIDATED BALANCE SHEETS

`June 30,        June 30,
                                                                        2004            2003
                                                                    -------------   -------------
                           ASSETS
Current assets:
  Cash and cash equivalents....................................... $      47,943   $      37,130
  Receivables, net ...............................................        23,776          23,164
  Inventories.....................................................        26,249          16,816
  Income tax receivable...........................................           983           4,830
  Deferred income taxes...........................................         1,351           1,629
  Prepaid expenses................................................         1,573           1,661
  Other current assets............................................           332             431
                                                                    -------------   -------------
    Total current assets..........................................       102,207          85,661

Property and equipment, net.......................................         7,979           8,462
Goodwill..........................................................        16,734          16,124
Intangible assets, net............................................         4,764           6,906
Deferred income taxes.............................................        13,173          11,086
Other assets......................................................           279             371
                                                                    -------------   -------------
    Total assets.................................................. $     145,136   $     128,610
                                                                    =============   =============
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable................................................ $       6,854   $       3,990
  Accrued representative commissions..............................           889             688
  Accrued compensation............................................         4,893           4,595
  Accrued severance and consolidation costs.......................           870             224
  Other current liabilities ......................................         1,986           2,977
                                                                    -------------   -------------
    Total current liabilities.....................................        15,492          12,474
Other long-term liabilities.......................................            17              29
                                                                    -------------   -------------
    Total liabilities.............................................        15,509          12,503
                                                                    -------------   -------------
Commitments and contingencies (notes 10, 12, 16 and 17)

Stockholders' equity:
  Common stock, no par value; 200,000,000 shares authorized;
    15,496,949 and 14,989,248 issued and outstanding
    at June 30, 2004 and 2003, respectively.......................        96,601          89,916
  Unearned compensation...........................................           (29)            (37)
  Accumulated other comprehensive income..........................         1,891             257
  Retained earnings...............................................        31,164          25,971
                                                                    -------------   -------------
    Total stockholders' equity....................................       129,627         116,107
                                                                    -------------   -------------
    Total liabilities and stockholders' equity.................... $     145,136   $     128,610
                                                                    =============   =============`

See accompanying notes to consolidated financial statements



---





SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                                              
               CONSOLIDATED STATEMENTS OF OPERATIONS

`Years ended June 30,
                                                           ----------------------------------------
                                                               2004           2003          2002
                                                           ------------  ------------  ------------
                                                              Thousands (except per share amounts)

Sales.................................................... $    133,874  $    115,521  $    118,856
Cost of sales............................................       69,145        58,002        76,228
                                                           ------------  ------------  ------------
Gross profit.............................................       64,729        57,519        42,628

Selling, general and administrative expense..............       32,504        33,608        38,817
Research and development expense.........................       20,552        18,077        18,461
Employee severance and consolidation costs...............        2,400         1,729         3,232
Impairment of intangible assets..........................           --            --        13,005
Amortization of goodwill ................................           --            --         4,523
Amortization of intangible assets........................        2,141         1,940         3,002
                                                           ------------  ------------  ------------
Operating income (loss) .................................        7,132         2,165       (38,412)
                                                           ------------  ------------  ------------
Interest and other income, net...........................          634           434           631
Foreign exchange losses..................................         (348)         (207)          (29)
                                                           ------------  ------------  ------------
                                                                   286           227           602
                                                           ------------  ------------  ------------
Income (loss) before income taxes and cumulative
    effect of change in accounting principle.............        7,418         2,392       (37,810)
Income tax expense.......................................        2,225           784       (13,450)
                                                           ------------  ------------  ------------
Income (loss) before cumulative effect of
    change in accounting principle.......................        5,193         1,608       (24,360)
Cumulative effect of change in accounting
    principle (net of income tax benefit of $3,412)......           --        (6,058)           --
                                                           ------------  ------------  ------------
Net income (loss)........................................ $      5,193  $     (4,450) $    (24,360)
                                                           ============  ============  ============


Earnings per share data:
Net income (loss) per share:
  Income (loss) before cumulative effect................. $       0.34  $       0.11  $      (1.67)
  Cumulative effect of change in accounting principle....           --         (0.41)           --
                                                           ------------  ------------  ------------
Net income (loss)........................................ $       0.34  $      (0.30) $      (1.67)
                                                           ============  ============  ============
Net income (loss) per share - assuming dilution:
  Income (loss) before cumulative effect................. $       0.34  $       0.11  $      (1.67)
  Cumulative effect of change in accounting principle....           --         (0.41)           --
                                                           ------------  ------------  ------------
Net income (loss)........................................ $       0.34  $      (0.30) $      (1.67)
                                                           ============  ============  ============`

See accompanying notes to consolidated financial statements

---





SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                                                                      
               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                                                           
                       YEARS ENDED JUNE 30, 2004, 2003 and 2002

`Accumulated
                                                                                           other                 Total      Compre-
                                                          Common Stock         Unearned    compre-               stock-    hensive
                                                       ----------------------   compen-   hensive    Retained   holders'    income
                                                         Shares      Amount     sation     income    earnings    Equity     (loss)
                                                       -----------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                                  Thousands (except share amounts)

Balances at June 30, 2001............................. 14,522,080  $  85,476  $    (478) $  (5,983) $  54,781  $ 133,796
Exercise of stock options.............................    179,129      1,555         --         --         --      1,555
Stock-based compensation..............................         --         45         56         --         --        101
Stock repurchased and retired.........................    (42,500)      (488)        --         --         --       (488)
Cancellation of stock issued to officer under
  restricted stock award..............................    (30,000)      (422)       422         --         --         --
Income tax benefit from stock option exercises .......         --        172         --         --         --        172
Net loss..............................................         --         --         --         --    (24,360)   (24,360) $ (24,360)
Other comprehensive income:
  Foreign currency translation adjustments............         --         --         --      2,870         --      2,870      2,870
                                                                                                                           ---------
Comprehensive income..................................                                                                    $ (21,490)
                                                       -----------  ---------  ---------  ---------  ---------  ---------  =========
Balances at June 30, 2002............................. 14,628,709  $  86,338  $      --  $  (3,113) $  30,421  $ 113,646
Exercise of stock options.............................      5,560         13         --         --         --         13
Restricted stock awards issued to directors ..........     14,039        312       (110)        --         --        202
Stock-based compensation..............................         --         --         73         --         --         73
Stock repurchased and retired.........................    (46,000)      (321)        --         --         --       (321)
Acquisition of Avvida Systems, Inc....................    386,940      3,574         --         --         --      3,574
Net loss..............................................         --         --         --         --     (4,450)    (4,450) $  (4,450)
Other comprehensive income:
  Foreign currency translation adjustments............         --         --         --      3,370         --      3,370      3,370
                                                                                                                           ---------
Comprehensive income..................................                                                                    $  (1,080)
                                                       -----------  ---------  ---------  ---------  ---------  ---------  =========
Balances at June 30, 2003............................. 14,989,248  $  89,916  $     (37) $     257  $  25,971  $ 116,107
Exercise of stock options.............................    496,425      5,646         --         --         --      5,646
Restricted stock awards issued to directors ..........     11,276         88        (88)        --         --         --
Stock-based compensation..............................         --         --         96         --         --         96
Income tax benefit from stock option exercises .......         --        951         --         --         --        951
Net income............................................         --         --         --         --      5,193      5,193  $   5,193
Other comprehensive income:
  Foreign currency translation adjustments............         --         --         --      1,634         --      1,634      1,634
                                                                                                                           ---------
Comprehensive income..................................                                                                    $   6,827
                                                       -----------  ---------  ---------  ---------  ---------  ---------  =========
Balances at June 30, 2004............................. 15,496,949  $  96,601  $     (29) $   1,891  $  31,164  $ 129,627
                                                       ===========  =========  =========  =========  =========  =========`

See accompanying notes to consolidated financial statements

---





SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS

`Years ended June 30,
                                                             -------------------------------------
                                                                 2004         2003         2002
                                                             -----------  -----------  -----------
                                                                             Thousands
Cash flows from operating activities:
  Net income (loss)........................................ $     5,193  $    (4,450) $   (24,360)
  Cumulative effect of change in accounting principle, net.          --        6,058           --
                                                             -----------  -----------  -----------
  Income (loss) before cumulative effect of change.........       5,193        1,608      (24,360)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation and amortization........................       6,040        6,851       11,311
      Impairment of intangible assets......................          --           --       13,005
      Bad debt expense.....................................          81          458          799
      Deferred income taxes................................      (1,794)       6,200      (10,204)
      Income tax benefit from stock option exercises.......         951           --          172
      (Gain) loss on disposition of assets.................           6           16          (15)
      Foreign exchange losses..............................         348          207           29
      Non-cash compensation................................          80           --           --
      Stock-based compensation, including restricted
       stock awards issued to directors....................          96          275          101
      Changes in assets and liabilities (net of acquisition
        Receivables........................................        (371)        (288)       4,328
        Inventories........................................      (9,114)       2,212       23,532
        Income tax receivable..............................       3,835           73       (1,473)
        Prepaid expenses and other.........................         217         (614)       2,545
        Accounts payable...................................       2,682         (667)         659
        Accrued representative commissions.................         191          153         (324)
        Accrued compensation...............................         229          455         (330)
        Accrued severance and consolidation costs..........         646           --           --
        Other liabilities..................................      (1,027)        (107)         796
                                                             -----------  -----------  -----------
        Net cash provided by operating activities..........       8,289       16,832       20,571

Cash flows from investing activities:
  Business acquisitions, net of cash acquired..............         104       (2,643)      (1,033)
  Acquisition of property and equipment....................      (3,387)      (1,431)      (3,334)
  Purchase of license agreement............................          --         (325)          --
  Other....................................................          --            9            8
                                                             -----------  -----------  -----------
        Net cash used by investing activities..............      (3,283)      (4,390)      (4,359)

Cash flows from financing activities:
  Payments on notes payable................................          --         (148)      (2,500)
  Repurchase and retirement of common stock................          --         (321)        (488)
  Proceeds from exercise of stock options..................       5,646           13        1,555
                                                             -----------  -----------  -----------
        Net cash provided (used) by financing activities...       5,646         (456)      (1,433)
Effect of exchange rate changes on cash....................         161          333          298
                                                             -----------  -----------  -----------
        Net change in cash and cash equivalents............      10,813       12,319       15,077
Cash and cash equivalents at beginning of period...........      37,130       24,811        9,734
                                                             -----------  -----------  -----------
Cash and cash equivalents at end of period................. $    47,943  $    37,130  $    24,811
                                                             ===========  ===========  ===========

                                                                                       (Continued)`

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                              CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

`Years ended June 30,
                                                             -------------------------------------
                                                                 2004         2003         2002
                                                             -----------  -----------  -----------
                                                                             Thousands
Supplemental disclosure of cash flow information:
  Interest paid............................................ $        --  $        12  $        15
                                                             ===========  ===========  ===========
  Income taxes received, net............................... $      (727) $    (4,256) $    (1,991)
                                                             ===========  ===========  ===========

Non-cash financing and investing activities -
  common stock issued for acquisition...................... $        --  $     3,574  $        --
                                                             ===========  ===========  ===========

Summary of assets acquired and liabilities
  assumed through acquisitions
    Current assets                                          $        --  $       437  $       603
    Property and equipment, net                             $        --  $       388  $       417
    Deferred income taxes                                   $        --  $       280  $       224
    Goodwill                                                $        --  $     3,496  $        --
    Intangible assets                                       $        --  $        67  $        --
    Identifiable intangible assets                          $        --  $     2,170  $       364
    Current liabilities                                     $        --  $      (473) $      (149)
    Deferred revenue                                        $        --  $        --  $      (426)
    Notes payable                                           $        --  $      (148) $        --`

See accompanying notes to consolidated financial statements

---





SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Overview

SBS Technologies, Inc. ("SBS" or "the Company") designs and
builds open-architecture embedded computer products that enable original
equipment manufacturers (OEM) to serve the government, commercial, and
communications end markets. Embedded computer products are put inside or made
part of larger systems to process information, control machines, move computer
data between machines, and interact with people. SBS' product line ranges from
individual embedded computer components like Input/Output (I/O) modules, bus
adapters, carrier cards, system enclosures, FPGA boards and single board
computers, to network switches, blades and fully integrated systems, and many of
these products are available in ruggedized or high availability versions. The
Company's products have application in diverse industries, including space and
aviation, telecommunications, military and government, transportation,
telemetry, robotics, networking, broadcasting, wireless communications and
medical imaging. SBS has operations in New Mexico, Minnesota, North Carolina,
California, Massachusetts, Germany, Canada and China.

1) Summary of Significant Accounting Policies

(a) Principles of Consolidation

The accompanying consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All inter- company accounts
and transactions have been eliminated.

(b) Cash Equivalents

Temporary investments with original maturities of ninety days
or less are classified as cash equivalents. At June 30, 2004, substantially all
cash was held at two financial institutions.

(c) Inventories

Inventories are valued at standard cost, which approximates the
lower of weighted average cost or market.

(d) Property and Equipment

Property and equipment are carried at cost. Depreciation of
property and equipment is provided for by straight-line and accelerated methods
over the estimated useful lives of the assets. Leasehold improvements are
depreciated over the shorter of the life of the lease or the estimated useful
lives of the assets.

(e) Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair value of
assets of businesses acquired. Goodwill and intangible assets acquired in a
purchase business combination and determined to have an indefinite useful life
are not amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS 142. SFAS 142 also requires that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" (SFAS 144).

The Company conducts its annual impairment test as of April 1
of each fiscal year. To accomplish this, the Company is required to identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the test date. The Company is
required to perform the second step of the impairment test if the carrying
amount of a reporting unit exceeds its fair value. In this second step, the
Company would compare the implied fair value of the reporting unit goodwill with
the carrying amount of the reporting unit goodwill, both of which were measured
as of the date of the test. The implied fair value of goodwill would be
determined by allocating the fair value of the reporting unit to all of the
assets (recognized and unrecognized) and liabilities of the reporting unit in a
manner similar to a purchase price allocation, in accordance with SFAS 141,
"Business Combinations." The residual fair value after this allocation would be
the implied fair value of the reporting unit goodwill.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142), as of July 1, 2002. In connection with SFAS 142's
transitional goodwill impairment evaluation, the Company performed an assessment
of whether there was an indication that goodwill is impaired as of the date of
adoption. The implied fair value as of July 1, 2002 for two reporting units
tested was less than the carrying amount requiring an impairment loss to be
recognized.

Prior to the adoption of SFAS 142, goodwill was amortized on a
straight-line basis over the expected period of benefit, generally 10 years, and
assessed for recoverability by determining whether the amortization of the
goodwill balance over its remaining life could be recovered through undiscounted
future operating cash flows of the acquired operation. All other intangible
assets were amortized on a straight-line basis, generally from 3 to
10&NBSP;years. The amount of goodwill and other intangible asset impairment, if
any, was measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of funds.

(f) Impairment of Long-Lived Assets

The Company reviews long-lived assets, such as property, plant,
and equipment, and purchased intangibles subject to amortization, for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable in accordance with the provisions of SFAS No.
144. Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized
equal to the excess of the carrying amount of the asset over the fair value of
the asset. Assets to be disposed of would be separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs
to sell, and the assets would no longer be depreciated. The assets and
liabilities of a disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the balance
sheet.

Goodwill and intangible assets not subject to amortization are
tested annually for impairment, and are tested for impairment more frequently if
events and circumstances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the carrying amount exceeds the
asset's fair value.

The Company adopted SFAS 144 on July 1, 2002. Prior to the
adoption of SFAS 144, the Company accounted for long-lived assets in accordance
with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."

(g) Revenue Recognition

Revenue from product sales is recognized upon shipment to
customers, provided the Company has received a valid purchase order, the price
is fixed, title has transferred, collection of the associated receivable is
reasonably assured, and there are no remaining significant obligations. Where
customer acceptance provisions exist, the Company defers revenue recognition
until acceptance by the customer unless the Company demonstrates the product
meets the customer specified criteria upon shipment provided all other revenue
recognition criteria have been met.

(h) Income Taxes

SBS accounts for income taxes under the asset and liability
method. Deferred income taxes are recognized for the tax consequences of
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities by applying enacted statutory tax rates
applicable to future years. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the change.

(i) Financial Instruments

SBS' financial instruments are cash and cash equivalents,
accounts receivable, and accounts payable. The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable, because of their nature,
approximate fair value.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



(j) Reclassifications

Certain amounts in the prior year financial statements have
been reclassified to conform to the current year presentation.

(k) Use of Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

(l) Stock Based Compensation

The Company applies the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations,
to account for its fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Substantially all stock-based
compensation reflected in reported net income (loss) relates to restricted stock
award grants to members of the Company's Board of Directors, as all employee
stock options granted under the Company's stock option plans had an exercise
price equal to the market value of the underlying common stock on the grant
date.

SFAS No. 123, "Accounting for Stock-Based Compensation,"
(SFAS 123) established accounting and disclosure requirements using a fair-
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS 123, the Company has elected to continue to apply the intrinsic-
value-based method of accounting described above, and has adopted only the
disclosure requirements of SFAS 123, as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." The following table
illustrates the effect on net income (loss) and net income (loss) per common
share if the company had applied the fair value recognition provisions of SFAS
123 to stock-based employee compensation.

`Thousands                                                             Years ended June 30,
(except per share amounts)                                     ----------------------------------
                                                                  2004        2003        2002
                                                               ----------  ----------  ---------- 
Net income (loss), as reported............................... $    5,193  $   (4,450) $  (24,360)
Add: stock-based employee compensation
  expense included in reported net income
  (loss), net of related tax effects.........................         58         167          62
Deduct: stock-based employee compensation
  expense determined under fair value method
  for all awards, net of related tax effects.................     (1,714)     (3,341)     (4,375)
                                                               ----------  ----------  ----------
Pro forma net income (loss).................................. $    3,537  $   (7,624) $  (28,673)
                                                               ==========  ==========  ==========
Net income (loss) per common share:
  As reported................................................ $     0.34  $    (0.30) $    (1.67)
                                                               ==========  ==========  ==========
  Pro forma.................................................. $     0.23  $    (0.52) $    (1.97)
                                                               ==========  ==========  ==========
Net income (loss) per common share - assuming dilution:
  As reported................................................ $     0.34  $    (0.30) $    (1.67)
                                                               ==========  ==========  ==========
  Pro forma.................................................. $     0.23  $    (0.52) $    (1.97)
                                                               ==========  ==========  ==========`

The per share weighted average fair value of stock options,
granted at a price equal to the market value of the underlying common stock on
the grant date was $5.89, $4.23, and $6.37 during the fiscal years ended June
30, 2004, 2003, and 2002, respectively.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The fair value was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions:

`2004        2003        2002
                                                               ----------  ----------  ---------- 
Expected life (years)........................................       2.72        2.40        2.95
Risk free interest rate......................................       2.28 %      2.39 %      3.74 %
Volatility...................................................      76.26 %     77.93 %     72.08 %
Dividend yield...............................................         --          --          --`

(m) Comprehensive Income (Loss)

Comprehensive income (loss) represents net income (loss) for
the period adjusted for non-owner changes in stockholders' equity in the
consolidated financial statements. Cumulative comprehensive income (loss) in the
Consolidated Statements of Changes in Stockholders' Equity consists of foreign
currency translation adjustments.

(n) Currency Translation

For foreign operations that prepare financial statements in
functional currencies other than the U.S. dollar, the Company translates the
assets and liabilities at the exchange rates in effect at the end of the period
and the statement of operations balances using average exchange rates from
throughout the period. Cumulative translation adjustments are presented as a
separate component of accumulated other comprehensive income (loss) within
stockholders' equity. Gains or losses from transactions denominated in
non-functional currencies are recognized in the statement of operations based on
changes in the exchange rates during the period the transactions remain
outstanding.

2) Business Acquisition

There were no business acquisitions during the year ended June
30, 2004. SBS completed the acquisition described below during the fiscal year
ended June 30, 2003. The acquisition was accounted for using the purchase method
of accounting, and the results of operations of the acquired companies have been
combined with SBS'since the date of the acquisition. The purchase price has been allocated
to the underlying assets acquired and liabilities assumed based on their
estimated fair values with goodwill, if any, representing the excess of the
purchase price over the fair value of the net assets acquired.

On June 30, 2003, SBS acquired 100 percent of the outstanding
common stock of Avvida Holdings Corp. and its wholly-owned subsidiary, Avvida
Systems Inc. (Avvida), located in Waterloo, Canada. Avvida provides image
processing solutions to customers serving a wide variety of applications.
Avvida's focus is emerging programmable logic, including fully programmable
gateway array (FPGA) technology utilized in high performance video, image and
data processing solutions. The Company plans to incorporate FPGA technology into
existing and future products of SBS.

The aggregate purchase price of $6.2 million, including
acquisition costs of $0.6 million, was paid in cash and shares of SBS common
stock valued at $3,574,020. The value of the 386,940 shares of SBS common stock
was determined based on the average market price of SBS' common shares over the
two-day period before and after the terms of the acquisition were agreed to and
announced.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The following table summarizes the estimated fair value
of the assets acquired and liabilities assumed at the date of acquisition.

`Current assets............................ $       437
Property and equipment....................         388
Intangible assets.........................       2,237
Goodwill..................................       3,496
Deferred income taxes.....................         280
                                            -----------
     Total assets acquired................       6,838
                                            -----------
Current liabilities.......................        (473)
Notes payable.............................        (148)
                                            -----------
     Total liabilities assumed............        (621)
                                            -----------
     Net assets acquired.................. $     6,217
                                            ===========`

In conjunction with the purchase price allocation, the
estimated fair value of identifiable intangible assets, specifically, a core
technology asset valued at $970,000 and a covenant not-to- compete valued at
$1.2 million, were based on an assessment of their fair value determined by
management and goodwill of approximately $3.5 million was recorded which is not
deductible for tax purposes. During the year ended June 30, 2004, the Company
received an income tax refund that exceeded the amount recorded at the
acquisition by $104,000 which was recorded as a reduction to goodwill. The
identifiable intangible assets are being amortized over a period of 5 years
based on the estimated economic useful life of the core technology asset and the
contractual period of the covenant.

3) Receivables

Receivables, net consisted of the following:

`Thousands                                                  June 30,
                                                   ------------------------
                                                      2004         2003
                                                   -----------  -----------                             
Accounts receivable.............................. $    24,335  $    24,000
  Allowance for doubtful accounts:
    Beginning balance............................        (836)      (1,373)
      Provision for bad debts....................         (81)        (458)
      Accounts written off and foreign
        currency translation adjustments.........         358          995
                                                   -----------  -----------
    Ending balance...............................        (559)        (836)
                                                   -----------  -----------
Accounts receivable, net......................... $    23,776  $    23,164
                                                   ===========  ===========`

4) Inventories

Inventories consisted of the following:

`June 30,
                                                   ------------------------
Thousands                                             2004         2003
                                                   -----------  -----------                             
Raw materials.................................... $    11,444  $     8,793
Work in process..................................       6,596        5,414
Finished goods...................................       8,209        2,609
                                                   -----------  -----------
                                                  $    26,249  $    16,816
                                                   ===========  ===========`

The Company's policy is to dispose of obsolete inventory as
soon as practicable after such inventory has been identified as having no value.
During fiscal 2004, the sale of inventory written down to zero cost amounted to
approximately $0.8 million, increasing gross margin as a percentage of sales by
0.6%. During fiscal 2003, we sold approximately $1.0 million of inventory
written down to zero cost, increasing gross margin as a percentage of sales by
0.9%.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



SBS recorded a $12.4 million inventory write-down during the
second quarter of fiscal 2002, and a $2.7 million inventory write-down during
the fourth quarter of fiscal 2002. The second quarter write-down consisted of
inventory associated with programs that are not anticipated to come back to
their previous forecasts, inventory associated with SBS

5) Property and Equipment

Property and equipment, net consisted of the following:

`June 30,
Thousands                                           Estimated   ------------------------
                                                   useful life     2004         2003
                                                   -----------  -----------  -----------
Computers........................................   3 - 5 yrs  $     5,848  $     5,392
Purchased software...............................   3 - 5 yrs        8,682        7,925
Furniture and equipment..........................  3 - 10 yrs        7,478        6,001
Leasehold improvements...........................   2 - 7 yrs        3,488        3,278
                                                                -----------  -----------
                                                                    25,496       22,596
Less accumulated depreciation
  and amortization...............................                  (17,517)     (14,134)
                                                                -----------  -----------
                                                               $     7,979  $     8,462
                                                                ===========  ===========`

During the quarter ended June 30, 2003, the Company recorded an
impairment charge of approximately $841,000, included in the caption "Employee
severance and consolidation costs" in the accompanying financial statements,
related to certain leasehold improvements in connection with the announcement of
the Company's consolidation of the communications operations resulting in the
closure of its Carlsbad, California facility. The impairment charge was
recognized based on the amount by which the carrying amount of the assets
exceeded the fair value of the assets as determined on the date of announcement
in accordance with SFAS 144.

6) Goodwill and Intangible Assets

Effective July 1, 2002, SBS adopted SFAS 142 and no longer
amortizes goodwill. As of the date of adoption, SBS had unamortized goodwill of
approximately $20.5 million subject to the transition provisions of SFAS 142,
which included approximately $434,000 for the net book value of acquired
assembled workforce intangibles, as these assets did not meet the criteria for
recognition apart from goodwill.

The Company completed step 1 of the required transitional
goodwill impairment analysis in accordance with SFAS 142 prior to December 31,
2002 and an indication of potential impairment was determined for two reporting
units, the Commercial reporting unit and the Communications and Enterprise
reporting unit (both components of the Americas Group segment). The Company
completed step 2 of the required transitional analysis during the quarter ended
June 30, 2003 and the results indicated the carrying value of goodwill for both
reporting units was greater than the implied fair value of the goodwill
determined in accordance with SFAS 142. As a result, the Company recorded a
transitional impairment charge of approximately $9.5 million ($6.1 million net
of tax) which has been reflected as a cumulative effect of a change in
accounting principle in the year ended June 30, 2003 in the accompanying
statements of operations.

On April 1, 2004 and 2003, the Company completed step 1 of the
required annual goodwill impairment analysis for the fiscal years ended June 30,
2004 and 2003, respectively, and the estimated fair value of goodwill was
determined to be in excess of its carrying value indicating the underlying
goodwill was not impaired at that date.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



Changes in the carrying amount of goodwill for the years
ended June 30, 2004 and 2003 are as follows:

`Total Goodwill by Operating Segment

                                                    Americas      Europe
Thousands                                             Group        Group        Total
                                                   -----------  -----------  -----------
Balance at June 30, 2002......................... $     9,470  $    10,998  $    20,468

  Transitional impairment charge.................      (9,470)          --       (9,470)
  Acquisition of Avvida..........................       3,496           --        3,496
  Foreign currency translation
    adjustments..................................          --        1,630        1,630
                                                   -----------  -----------  -----------
Balance at June 30, 2003.........................       3,496       12,628       16,124

  Foreign currency translation
    adjustments..................................          24          690          714
  Income tax refund in excess of
    amount recorded at acquisition ..............        (104)          --         (104)
                                                   -----------  -----------  -----------
Balance at June 30, 2004......................... $     3,416  $    13,318  $    16,734
                                                   ===========  ===========  ===========`

The following table presents the impact of the adoption of SFAS
142 on reported income (loss) before the cumulative effect of a change in
accounting principle and net income (loss) per applicable common share before
the cumulative effect of a change in accounting principle had SFAS 142 been in
effect in fiscal 2002:

`Thousands (except per share amounts)                                   Years ended June 30,
                                                               ----------------------------------
                                                                  2004        2003        2002
                                                               ----------  ----------  ---------- 
Reported income (loss) before cumulative effect of
  change in accounting principle............................. $    5,193  $    1,608  $  (24,360)
Adjustments:
  Goodwill amortization......................................         --          --       4,448
  Workforce amortization.....................................         --          --          75
  Income tax effect..........................................         --          --      (1,741)
                                                               ----------  ----------  ----------
    Net adjustments..........................................         --          --       2,782
                                                               ----------  ----------  ----------
Adjusted income (loss) before cumulative effect of
  change in accounting principle............................. $    5,193  $    1,608  $  (21,578)
                                                               ==========  ==========  ==========

Income (loss) per common share before cumulative
  effect of change in accounting principle:
    Reported................................................. $     0.34  $     0.11  $    (1.67)
    Adjusted.................................................       0.34        0.11       (1.48)

Income (loss) per share - assuming dilution before
  cumulative effect of change in accounting principle:
    Reported................................................. $     0.34  $     0.11  $    (1.67)
    Adjusted.................................................       0.34        0.11       (1.48)`

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The following table discloses information regarding the
carrying amounts and associated accumulated amortization for intangible assets
subject to amortization.

`Amortized Intangible Assets

                                 Estimated     Gross                      Net
                                   useful     carrying   Accumulated    carrying
 Thousands                          life       amount    amortization    amount
                                 ----------  ----------  ------------  ----------
As of June 30, 2004
  Core-developed technology..... 2 - 7 yrs  $    9,724  $      6,767  $    2,957
  License agreements............ 2 - 5 yrs       2,425         1,781         644
  Covenant not-to-compete....... 3 - 5 yrs       2,852         1,890         962
  Other intangibles............. 8 - 17 yrs        368           167         201
                                             ----------  ------------  ----------
        Total                               $   15,369  $     10,605  $    4,764
                                             ==========  ============  ==========
As of June 30, 2003
  Core-developed technology.....            $    9,723  $      5,679  $    4,044
  License agreements............                 2,561         1,424       1,137
  Covenant not-to-compete.......                 2,842         1,365       1,477
  Other intangibles.............                   368           120         248
                                             ----------  ------------  ----------
        Total...................            $   15,494  $      8,588  $    6,906
                                             ==========  ============  ==========`

During the fourth quarter of fiscal 2002, due to order
cancellations and a continued decline in sales and bookings, SBS recorded a
$10.3 million write-down of the core-developed technology and related goodwill
associated with the acquisition of SDL Communications, Inc. in April 2000. This
write-down was based on SBS' projection of undiscounted future operating cash
flows over the remaining useful lives of the core-technology asset and related
goodwill, which indicated that these cash flows were not sufficient to recover
the carrying amounts of the assets. As such, impairment charges were recorded to
the extent that the carrying amount of the assets exceeded fair value.
Additionally, on December 26, 2001, the SBS Board of Directors approved SBS'
plan to exit our legacy PCI chassis product line. This product line was
associated with SBS' acquisition of SBS Technologies, Inc. Industrial Computers
(formerly Micro Alliance) in November 1997. In conjunction with the acquisition,
SBS recorded approximately $4.5 million of goodwill, of which $2.7 million was
unamortized at December 26, 2001. Based on SBS' decision to exit the PCI Chassis
product line, the remaining unamortized goodwill was determined to be impaired
and was written off in the quarter ended December 31, 2001, as the fair value of
projected future cash flows was zero.

The following table summarizes estimated future amortization
expense.

`Estimated amortization expense:                          Thousands                         
  For the fiscal years ending:
      June 30, 2005.................................... $    1,736
      June 30, 2006....................................      1,311
      June 30, 2007....................................      1,183
      June 30, 2008....................................        493
      June 30, 2009....................................          5
      Thereafter.......................................         36
                                                         ----------
                                                        $    4,764
                                                         ==========`

7) Product Warranty Liability

The Company's customers receive a warranty, generally for a
period of two years, upon purchase of products. The Company accrues estimated
costs to repair or replace potentially defective products when products are
shipped and revenue is recognized. Estimated warranty costs are based upon prior
actual warranty costs for substantially similar transactions.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The following table presents the activity in the
Company's
product warranty liability for the years ended June 30, 2004 and 2003.

`Years ended June 30,
                                                         ----------------------
                                                            2004        2003
Thousands                                                ----------  ----------                       
Balance at beginning of period......................... $      548         567
  Estimated warranty costs for product sales...........        917         554
  Adjustments to settle warranty activity..............       (866)       (573)
                                                         ----------  ----------
Balance at end of period............................... $      599         548
                                                         ==========  ==========`

8) Income Taxes

Income (loss) from continuing operations before income taxes
and cumulative effect of change in accounting principle is comprised of the
following:

`Thousands                                                              Years ended June 30,
                                                               ----------------------------------
                                                                  2004        2003        2002
                                                               ----------  ----------  ---------- 
U.S.......................................................... $    1,663  $   (2,142) $  (38,833)
Foreign......................................................      5,755       4,534       1,023
                                                               ----------  ----------  ----------
                                                              $    7,418  $    2,392  $  (37,810)
                                                               ==========  ==========  ==========`

Total income taxes for the years ended June 30, 2004, 2003 and
2002 were allocated as follows:

`Thousands                                                              Years ended June 30,
                                                               ----------------------------------
                                                                  2004        2003        2002
                                                               ----------  ----------  ---------- 
Income from continuing operations............................ $    2,225  $      784  $  (13,450)
Cumulative effect of change in
  accounting principle.......................................         --      (3,412)         --
                                                               ----------  ----------  ----------
                                                              $    2,225  $   (2,628) $  (13,450)
                                                               ==========  ==========  ==========`

Income tax expense (benefit) from continuing operations is
comprised of the following:

`Thousands                                                              Years ended June 30,
                                                               ----------------------------------
                                                                  2004        2003        2002
                                                               ----------  ----------  ---------- 
Current:
  U.S. Federal............................................... $       --  $   (6,793) $   (3,911)
  State......................................................        230         107          32
  Foreign....................................................      2,168       1,271         722
Deferred:
  U.S. Federal...............................................        757       5,345      (8,953)
  State......................................................       (508)        506      (1,540)
  Foreign....................................................       (422)        348         200
                                                               ----------  ----------  ----------
                                                              $    2,225  $      784  $  (13,450)
                                                               ==========  ==========  ==========`





---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



Income tax expense (benefit) from continuing operations was
provided for at effective rates of 30.0, 32.8, and 35.6 percent in 2004, 2003,
and 2002, respectively. Actual tax expense (benefit) differ from the "expected"
income taxes (computed by applying the statutory U.S. Federal tax rate to income
before income taxes) as follows:

`Thousands                                                              Years ended June 30,
                                                               ----------------------------------
                                                                  2004        2003        2002
                                                               ----------  ----------  ---------- 
Computed "expected" tax expense (benefit).................... $    2,596  $      837  $  (13,234)
State income taxes, net of federal benefit
  and impact of valuation allowance..........................       (181)        398        (980)
Non-deductible goodwill......................................         --          --       1,599
Foreign operations, net......................................       (116)        600         433
Benefit from foreign sales...................................       (131)       (105)       (646)
Research and experimental tax credits........................         23         (76)       (648)
Change in federal valuation allowance........................         --        (789)         --
Other........................................................         34         (81)         26
                                                               ----------  ----------  ----------
                                                              $    2,225  $      784  $  (13,450)
                                                               ==========  ==========  ==========`

The significant components of deferred income tax assets and
liabilities are as follows:

`Thousands                                                                          June 30,
                                                                           ----------------------
                                                                              2004        2003
                                                                           ----------  ---------- 
Deferred tax assets:
  Operating loss and tax credit carryforwards............................ $    7,571  $    2,622
  Amortization...........................................................      5,584       7,352
  Foreign tax credits....................................................      2,747       1,557
  Inventory..............................................................      1,376       1,751
  Accrued expenses and reserves..........................................      1,351       1,604
  Other..................................................................        342         166
                                                                           ----------  ----------
                                                                              18,971      15,052
Valuation allowance for State operating loss
  and tax credit carryforwards...........................................      1,336          --
                                                                           ----------  ----------
      Total deferred tax assets..........................................     17,635  $   15,052
                                                                           ----------  ----------
Deferred tax liabilities:
  Foreign dividends......................................................     (1,812)       (847)
  Occupancy and other expenses...........................................     (1,299)     (1,490)
                                                                           ----------  ----------
      Total deferred tax liabilities.....................................     (3,111) $   (2,337)
                                                                           ----------  ----------
      Net deferred tax assets............................................ $   14,524  $   12,715
                                                                           ==========  ==========`

At June 30, 2004, the Company has net operating loss
carryforwards for U.S. Federal income tax purposes of $7.1 million which are
available to offset future U.S. Federal taxable income, if any, through 2024. At
June 30, 2004, the Company has general business credit carryforwards for U.S.
Federal income tax purposes of approximately $0.9 million which are available to
offset future U.S. Federal tax payments, if any, through 2024. At June 30, 2004,
the Company has net operating loss carryforwards for U.S. State income tax
purposes, the tax effect of which, after reduction by the associated valuation
allowance, is approximately $1.6 million, which are available to offset future
State taxable income, if any, through 2009. The valuation allowance, which
increased approximately $1.3 million during the year ended June 30, 2004,
applies to certain U.S. State operating loss and tax credit carryforwards that,
in the opinion of management, may expire unused due to uncertainty regarding

As of June 30, 2004, SBS has foreign tax credit carryforwards
of approximately $2.7 million, which are available to offset future U.S. Federal
tax liabilities from foreign source income, if any, through 2009. Excess foreign
tax credits may be carried back two years and forward five years. During the
quarter ended June 30, 2003, in conjunction with the execution of certain tax
planning strategies management believed that it was more likely than not that the

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



At June 30, 2004, the Company has foreign net operating loss
and tax credit carryforwards of approximately $3.9 million which are available
to offset future taxable income, some of which are scheduled to begin to expire
in 2013, and others that have an indefinite carryforward period.

In assessing the realizability of the remaining deferred tax
assets, management considered projected future taxable income and tax planning
strategies. Based on SBS' historical taxable transactions, the timing of the
reversal of existing temporary differences, and the evaluation of tax planning
strategies, management believes it is more likely than not that SBS' future
taxable income will be sufficient to realize the benefit of the remaining
deferred tax assets existing at June 30, 2004.

SBS generally does not record deferred income taxes on the
undistributed earnings of its foreign subsidiaries in accordance with the
indefinite reversal criterion in

9) Earnings Per Share

Net income (loss) per common share is based on weighted average
shares outstanding. Net income (loss) per common share - assuming dilution
includes the dilutive effects of potential common shares outstanding during the
period.

`Thousands (except per share amounts)                            Years ended June 30,
                                                         ----------------------------------
                                                            2004        2003        2002
                                                         ----------  ----------  ----------           
Income (loss) before cumulative effect of change
   in accounting principle............................. $    5,193  $    1,608  $  (24,360)
Cumulative effect of change in accounting principle....         --      (6,058)         --
                                                         ----------  ----------  ----------
Net income (loss)...................................... $    5,193  $   (4,450) $  (24,360)
                                                         ==========  ==========  ==========           
Net income (loss) per common share                                                                    
Weighted-average common shares outstanding
   used in earnings per share computations.............     15,146      14,605      14,559
                                                         ==========  ==========  ==========
Income (loss) before cumulative effect of change
   in accounting principle............................. $     0.34  $     0.11  $    (1.67)
Cumulative effect of change in accounting principle....         --       (0.41)         --
                                                         ----------  ----------  ----------
Net income (loss)...................................... $     0.34  $    (0.30) $    (1.67)
                                                         ==========  ==========  ==========`





---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



`Thousands (except per share amounts)                            Years ended June 30,
                                                         ----------------------------------
                                                            2004        2003        2002
                                                         ----------  ----------  ----------
Net income (loss) per common share -
  assuming dilution                                                                                   
Weighted-average common shares outstanding
   used in earnings per share computations.............     15,477      14,630      14,559
                                                         ==========  ==========  ==========
Income (loss) before cumulative effect of change
   in accounting principle............................. $     0.34  $     0.11  $    (1.67)
Cumulative effect of change in accounting principle....         --       (0.41)         --
                                                         ----------  ----------  ----------
Net income (loss)...................................... $     0.34  $    (0.30) $    (1.67)
                                                         ==========  ==========  ==========
                                                                                                      
Shares used in net income (loss) per share
  computations                                                                                        
Average outstanding common shares......................     15,146      14,605      14,559
Incremental shares from assumed conversions -
   potential common shares ............................        331          25          --
                                                         ----------  ----------  ----------
Shares used in net income (loss) per common
  share - assuming dilution............................     15,477      14,630      14,559
                                                         ==========  ==========  ==========`

Due to the reported net loss for the year ended June 30, 2002,
190,757 potential common shares were not included in the computation of net loss
per common share - assuming dilution because the effect would be anti-dilutive.
For the years ended June 30, 2004, 2003, and 2002, options to purchase
1,551,073, 3,243,859, and 2,381,237 shares of common stock, respectively, were
outstanding but were not included in the computation of net income per common
share - assuming dilution, because the options

10) Leases

SBS leases its main facilities in Albuquerque, New Mexico; St.
Paul, Minnesota; Raleigh, North Carolina; Mansfield, Massachusetts; Newark,
California; Waterloo, Ontario, Canada; Augsburg and Mindelheim, Germany; and a
sales and technical support office in Shenzhen, China under noncancelable
operating leases which expire at various dates through fiscal 2008. SBS also
leases equipment under noncancelable operating leases which expire at various
dates through fiscal 2009.

On June 12, 2003, the Company announced the closure of its
Carlsbad, California facility and the consolidation of its manufacturing
operations into the Company's St. Paul, Minnesota facility, centralizing all
manufacturing in the United States to one facility (see note 16). As a result,
the Company recorded a lease termination charge associated with the former
Carlsbad, California facility that represents the estimated fair value of the
remaining future lease payments and related obligations, net of sublease income,
over the remaining term of the lease. The remaining accrued severance and
consolidation costs at June 30, 2004 represent primarily lease obligations
expected to be paid monthly through April 2006. Accordingly, the future minimum
lease payments for the Carlsbad lease are excluded from the minimum lease
payments reflected below.

Effective in July 2004, we executed a lease for a one-story
build-to-suit facility

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The following is a five-year schedule of future minimum
lease payments:

`Building   Equipment
                                                                 Lease       Lease
      Year ending                                               Payments    Payments     Total
      -------------                                            ----------  ----------  ---------- 
                                                                    (dollars in thousands)
      June 30, 2005.......................................... $    2,168  $      190  $    2,358
      June 30, 2006..........................................      1,565         102       1,667
      June 30, 2007..........................................      1,037          68       1,105
      June 30, 2008..........................................        726           2         728
      June 30, 2009..........................................        685           1         686
                                                               ----------  ----------  ----------
                                                              $    6,181  $      363  $    6,544
                                                               ==========  ==========  ==========`

Total rental expense for operating leases for the years ended
June 30, 2004, 2003, and 2002, was approximately $3.1 million, $3.6 million,
and $3.5 million, respectively.

11) Stock Option Plans

(a) Incentive Stock Option Plans

SBS has Incentive Stock Option Plans (the 1996 Plan and the
1997 Plan) whereby a total of 1,200,000 shares of its common stock are reserved
for discretionary grant of options by the Board to officers and employees. The
plans terminate ten years after inception, in 2005 and 2006. The options are
intended to qualify as "incentive stock options" within the meaning of Section
422A of the Internal Revenue Code (the "Code"). The plans generally permit
options to be granted (i) only to employees or officers and not to directors as
such; (ii) for a period of up to ten years; and (iii) at prices not less than
fair market value of the underlying common stock at the date of grant. Under the
Code, holders of more than 10 percent of SBS

(b) 1993 Director and Officer Stock Option Plan

SBS has a 1993 Director and Officer Stock Option Plan whereby a
total of 5% of the number of shares of its common stock outstanding at the first
day of each fiscal year plus shares not awarded in prior years and underlying
expired or terminated options are reserved for grant of options to all Directors
of SBS who are not employees and all Executive Officers of SBS. Directors who
are not employees of SBS receive automatic grants upon appointment to the Board
of Directors and annually for service as a Director. Executive Officers receive
grants at the discretion of the Board of Directors. All options are granted at a
price equal to fair market value of the underlying common stock on the date of
grant. The Directors

(c) 1996 Employee Stock Purchase Plan

The 1996 Employee Stock Purchase Plan was adopted by the Board
of Directors on January 21, 1996 and was subsequently approved at the November
1996 Annual Shareholders

(d) 1998 Long-Term Equity Incentive Plan

The 1998 Long-Term Equity Incentive Plan was adopted by the
Board of Directors on September 15, 1997 and subsequently approved at the
December 1997 reconvened Annual Shareholders

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



(e) 2000 Long-Term Equity Incentive Plan

The 2000 Long-Term Equity Incentive Plan was adopted by the
Board of Directors on August 31, 2000 and subsequently approved at the December
2000 reconvened Annual Shareholders

Information regarding SBS

`ALL        1993        1996     1998 LT     2000 LT
                                 ISOPs        D&O        ESPP       Plan       Plan        Total
                               ---------- ----------- ---------- ---------- ----------- ------------
Outstanding at June 30, 2001     389,572     518,883    185,102  1,569,079     674,500    3,337,136

  Granted                             --     404,479    188,650     25,000     482,337    1,100,466
  Exercised                       41,000      10,000         --    128,129          --      179,129
  Cancelled                           --     256,883    147,552    230,695     268,988      904,118
                               ---------- ----------- ---------- ---------- ----------- ------------
Outstanding at June 30, 2002     348,572     656,479    226,200  1,235,255     887,849    3,354,355

  Granted                             --     159,000    159,050     58,105     250,100      626,255
  Exercised                          566          --         --      4,994          --        5,560
  Cancelled                           --     127,500    110,900    163,375     219,966      621,741
                               ---------- ----------- ---------- ---------- ----------- ------------
Outstanding at June 30, 2003     348,006     687,979    274,350  1,124,991     917,983    3,353,309

  Granted                             --      30,000         --     72,684     472,300      574,984
  Exercised                       53,000      96,000     47,250    165,094     135,081      496,425
  Cancelled                       45,004      36,979    107,450    129,460     160,470      479,363
                               ---------- ----------- ---------- ---------- ----------- ------------
Outstanding at June 30, 2004     250,002     585,000    119,650    903,121   1,094,732    2,952,505
                               ========== =========== ========== ========== =========== ============`





---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



`ALL        1993        1996     1998 LT     2000 LT
                                 ISOPs        D&O        ESPP       Plan       Plan        Total
                               ---------- ----------- ---------- ---------- ----------- ------------
Exercisable at June 30, 2002     315,234     252,000     74,650    835,750     279,079    1,756,713
Exercisable at June 30, 2003     331,336     372,661    124,350    976,138     542,892    2,347,377
Exercisable at June 30, 2004     250,000     356,000    119,650    767,536     537,465    2,030,651
                               ========== =========== ========== ========== =========== ============
Available for grant at
  June 30, 2004                  137,000   1,405,824         --    798,893     452,921    2,794,638
                               ========== =========== ========== ========== =========== ============`

Weighted average option exercise price information follows:

`Years ended June 30,
                                                               ----------------------------------
                                                                  2004        2003        2002
                                                               ----------  ----------  ---------- 
Outstanding at July 1........................................ $    15.08  $    16.60  $    17.78
Granted at market during the year............................      12.23        9.53       13.20
Exercised during the year....................................      11.37        2.41        8.68
Cancelled during the year....................................      16.57       17.84       18.58
Outstanding at June 30.......................................      14.91       15.08       16.60
Exercisable at June 30.......................................      16.40       16.68       17.00`

Significant option groups outstanding and exercisable at June
30, 2004 and related weighted average price and life information follows:

`Weighted
                                     Average     Weighted                 Weighted
                                    Remaining    Average                  Average
      Range of           Number    Contractual   Exercise     Number      Exercise
  Exercise Prices     Outstanding     Life        Price    Exercisable     Price
--------------------  ------------ -----------  ---------- ------------  ---------- 
 $  5.44 - $  9.91        678,417     6.65     $     9.00      267,347  $     8.64
 $ 10.05 - $ 12.31        589,782     7.42          11.65      403,632       11.64
 $ 12.69 - $ 14.76        669,006     6.51          14.01      400,372       13.69
 $ 14.81 - $ 18.22        616,800     3.96          16.26      560,800       16.37
 $ 19.58 - $ 36.13        398,500     6.20          29.20      398,500       29.20
                      ------------                         ------------
 $  5.44 - $ 36.13      2,952,505     6.15     $    14.91    2,030,651  $    16.40
                      ============                         ============`

12) Retirement Plan

SBS maintains a retirement plan under Section 401(k) of the
Code for all U.S. employees of SBS. The plan provides for employees to
selectively defer a percentage of their wages, which SBS matches at a
predetermined rate not to exceed 4 percent of the employee's wages. The plan also provides for
additional contributions at the discretion of the Board of Directors.
SBS'contributions to the
plan during the years ended June 30, 2004, 2003, and 2002, were approximately
$0.9 million, $1.0 million, and $1.1 million, respectively.

13) Segment Financial Data

As a result of changes in management responsibility, the
Company's desire to enhance its regional-based sales and service to the
Company's European customers and the June 2003 acquisition of SBS Canada
(formerly Avvida Systems), the Company changed its reportable segments to a
structure based on geographic markets. This change has enabled

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The Company is engaged in the design, research, development, integration and production of embedded
computer products and weoperate worldwide through two
operating segments: the Americas Group and the Europe Group.Both the Americas Group and the Europe Group offerour complete portfolio of embedded computer products to
customers in the government, commercial and communications end markets. Each
segment has management who report directly to the Company's Chief Executive
Officer and its own sales and distribution channels. The Americas Group consists
of the Company's operations based in the United States and Canada including the
engineering, test, and assembly activities in Albuquerque, New Mexico;
Mansfield, Massachusetts; Newark, California; Raleigh, North Carolina; St. Paul,
Minnesota; and Waterloo, Ontario, Canada; the manufacturing operations located
in St. Paul, Minnesota; and the sales and support activities based in Shenzhen,
China. The Europe Group consists of the Company's operations based in Germany
which include the engineering, test, assembly, and manufacturing activities
located in Augsburg and Mindelheim, Germany.

SBS measures the results of operations for segments (segment
profit (loss)) based on income (loss) before income taxes and the cumulative
effect of change in accounting principle and prior to (a) the allocation of
corporate overhead expenses other than marketing costs, (b) substantially all
amortization associated with acquisitions and (c) interest and other income from
our U.S. operations. The accounting policies used to measure segment profit
(loss) are the same as those referred to in Note 1, Summary of Significant Accounting Policies.
Reportable segments for all periods presented have been reclassified to conform
to the current segment reporting structure.

`Americas    Europe      Corporate &
Thousands                                   Group       Group    Unallocated (1)     Total
                                          ----------  ---------  ---------------  -----------
Years ended June 30:                                                                         
Gross Sales                        2004  $  103,202  $  44,505  $            --  $   147,707
Inter-segment sales                          (6,136)    (7,697)              --      (13,833)
                                          ----------  ---------  ---------------  -----------
Sales to external customers              $   97,066  $  36,808  $            --  $   133,874

Gross Sales                        2003  $   97,459  $  26,734  $            --  $   124,193
Inter-segment sales                          (3,191)    (5,481)              --       (8,672)
                                          ----------  ---------  ---------------  -----------
Sales to external customers              $   94,268  $  21,253  $            --  $   115,521

Gross Sales                        2002  $  106,901  $  16,767  $            --  $   123,668
Inter-segment sales                            (613)    (4,199)              --       (4,812)
                                          ----------  ---------  ---------------  -----------
Sales to external customers              $  106,288  $  12,568  $            --  $   118,856

Interest and other income, net     2004  $       --  $     134  $           500  $       634
                                   2003          --  $     109  $           325  $       434
                                   2002         382         67              182          631

Depreciation and                   2004  $    2,437  $     343  $         3,260  $     6,040
  amortization                     2003       2,768  $     214  $         2,998  $     5,980
                                   2002       2,575        169            8,567       11,311

Segment profit (income (loss)
  before taxes)                    2004  $   12,864  $   7,540  $       (12,986) $     7,418
                                   2003      10,073  $   5,138  $       (12,819) $     2,392
                                   2002      (5,976) $   3,287  $       (35,121) $   (37,810)

As of June 30:
Total assets                       2004  $   39,640  $  26,531  $        78,965  $   145,136
                                   2003      35,798  $  17,540  $        75,272  $   128,610`



|(1) The corporate and unallocated column includes amounts
      for corporate items. With regard to results of operations, corporate and
      unallocated includes corporate overhead expenses other than corporate
      marketing costs, interest and other income, net from our U.S. operations,
      and substantially all amortization associated with acquisitions. Corporate
      assets primarily include cash and cash equivalents from our U.S.
      operations, deferred and current income tax assets, goodwill and
      intangible assets.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



14) Geographic Areas and Major Customers

Geographic information for sales to external customers
(attributed based on the location of the product shipment) and long-lived assets
by country of domicile are as follows:

`United
Thousands                                   States     Germany       Canada          Total
                                          ----------  ---------  ---------------  -----------
Years ended June 30:
Sales to external customers        2004  $   95,966  $  36,808  $         1,100  $   133,874
                                   2003      94,268  $  21,253  $            --  $   115,521
                                   2002     106,288  $  12,568  $            --  $   118,856
                                                                                             
As of June 30:
Long-lived assets, net             2004  $    6,028  $   1,516  $           435  $     7,979
                                   2003       7,473  $     601  $           388  $     8,462`

Geographic information for sales to external customers
attributed based on the location of the customer are as follows:

`Years ended June 30,
                                                   ------------------------------------------------------
(Dollars in thousands)                                    2004               2003               2002
                                                   ------------------ ------------------ ----------------
                                                     Sales     %        Sales     %        Sales     %
                                                   --------- ------   --------- ------   --------- ------  
United States                                     $  91,636   68.4 % $  83,298   72.1 % $  88,499   74.5 %
Sweden                                               11,930    8.9 %     2,002    1.7 %     3,250    2.7 %
Germany                                               7,205    5.4 %     6,533    5.7 %     5,139    4.3 %
Japan                                                 5,231    3.9 %     3,835    3.3 %     3,066    2.6 %
France                                                4,054    3.0 %     2,964    2.6 %     3,636    3.1 %
Denmark                                               2,665    2.0 %     3,019    2.6 %       659    0.6 %
United Kingdom                                        2,289    1.7 %     3,107    2.7 %     1,640    1.4 %
Canada                                                1,046    0.8 %     1,546    1.3 %     3,494    2.9 %
Korea                                                   963    0.7 %     1,167    1.0 %     1,240    1.0 %
Hong Kong                                               769    0.6 %       812    0.7 %       284    0.2 %
All others                                            6,086    4.6 %     7,238    6.3 %     7,949    6.7 %
                                                   --------- ------   --------- ------   --------- ------
                                                  $ 133,874  100.0 % $ 115,521  100.0 % $ 118,856  100.0 %
                                                   ========= ======   ========= ======   ========= ======`

In fiscal 2004, sales to one customer represented approximately
10% of SBS' sales ($13.2 million from the Americas Group), sales to another
customer represented approximately 8% of SBS' sales ($10.3 million from the
Europe Group) and no other customer exceeded 5% of SBS' sales. In fiscal 2003
and 2002, no single customer, or group of entities known to be under common
control, exceeded 10% of SBS

15) Related Party Transactions

Effective March 9, 2001, Grahame E. Rance was appointed to the
positions of President and Chief Executive Officer of SBS and member of the
Board of Directors. Mr. Rance succeeded Christopher J. Amenson, who remained as
Chairman of the Board of Directors of SBS until November 8, 2001, at which time
Mr. Rance was appointed as Chairman. As part of his compensation package, Mr.
Rance received a $1,893,750 interest free loan from SBS, paid in cash on April
4, 2001. Forgiveness of the loan was to occur ratably over six annual
anniversaries of Mr. Rance

On April 26, 2002, at its regularly scheduled Board meeting,
Christopher J. Amenson was elected Chairman of the Board of Directors and Chief
Executive Officer and David H. Greig was elected President and Chief Operating
Officer. Former Chairman and Chief Executive Officer, Grahame E. Rance, resigned
to pursue other business opportunities. As part of the Separation Agreement
between Mr. Rance and SBS, the unamortized portion of the loan to Mr. Rance of
$1,573,700 was

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



16) Employee Severance and Consolidation Expenses

On June 12, 2003, the Company announced the closure of its
Carlsbad, California facility and the consolidation of its manufacturing
operations into the Company's St. Paul, Minnesota facility, centralizing all
manufacturing in the United States to one facility. The total employee severance
and consolidation costs incurred as a result of the consolidation were
approximately $3.4 million. The total costs include employee severance and
related costs recorded over the remaining service period, consolidation costs
recorded as incurred, lease termination costs recorded on the cease use date
(all in accordance with SFAS 146), and leasehold improvement impairment charges
recorded as a result of the announcement in accordance with SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets.

The following table summarizes the accounting for the
consolidation of the Company's Carlsbad, California facility:

`Thousands                                          Employee       Property      Lease
                                                 severance and      and      termination     Other
Description                                      related costs   equipment      charge       costs      Total
----------------------------------------------  ---------------  ----------  ------------  ---------  ----------
Quarter ended June 30, 2003                                                                                     
Employee severance and consolidation costs.... $           290  $      841  $         --  $      --  $    1,131
Cash payments.................................             (66)         --            --         --         (66)
Write-offs....................................              --        (841)           --         --        (841)
                                                ---------------  ----------  ------------  ---------  ----------
Accrued at June 30, 2003......................             224          --            --         --         224
                                                                                                                
Year ended June 30, 2004                                                                                        
Employee severance and consolidation costs....             470          --         1,400        530       2,400
Cash payments.................................            (694)         --          (530)      (530)     (1,754)
                                                ---------------  ----------  ------------  ---------  ----------
Accrued at June 30, 2004...................... $            --  $       --  $        870  $      --  $      870
                                                ===============  ==========  ============  =========  ==========`

The lease termination charge, recorded on the cease use date as
a result of closure of the Company's Carlsbad, California facility, represents
the estimated fair value of the remaining future lease payments and related
obligations, net of estimated sublease income, over the term of the lease. The
remaining costs represent primarily lease obligations expected to be paid
monthly through April 2006.

During the year ended June 30, 2003, due to the continued
depressed economic and market conditions impacting the Company's communications
customers, on July 22, 2002, SBS notified 19 full and part-time employees at our
Madison, Wisconsin engineering design center that their jobs had been
eliminated. For the same reasons, on September 30, 2002, SBS notified 22
additional employees that their jobs were being eliminated and 12 other
employees were notified that their jobs had been eliminated during the three
months ended December 31, 2002. Also, SBS paid lease termination fees of
approximately $186,000 in connection with the closure of certain locations
during the three months ended December 31, 2002. As a result, for the year ended
June 30, 2003, SBS recorded employee severance and consolidation costs of
$598,000. There are no costs remaining to be paid related to these activities at
June 30, 2004.

During the year ended June 30, 2002, based on unfavorable
economic and market conditions, facility consolidation actions, and the decision
to exit the legacy PCI Chassis product line, SBS reduced its employee base,
resulting in elimination of 159 positions in manufacturing, research and
development, administration, and sales and marketing. As a result, for the year
ended June 30, 2002, employee severance and other termination charges of
approximately $1,253,000 were recorded. As of June 30, 2002, cash payments of
$963,000 had been made, $21,000 of the original charge was reversed as a result
of the decision not to terminate certain originally notified employees, and the
remaining $269,000 was paid during the year ended June 30, 2003.

---



SBS TECHNOLOGIES, INC. AND SUBSIDIARIES                         
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



17) Contingencies

SBS is subject to various claims that arise in the ordinary
course of its business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect the financial
position, results of operations, or liquidity of SBS.

---

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

Not applicable.



Item 9A. Controls and Procedures

Controls Evaluation and Related CEO and CFO Certifications

As of the end of the period covered by this Annual Report on
Form 10-K, the company evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, (the "Exchange
Act")). The controls evaluation was done under the supervision and with the
participation of management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO).

Attached as Exhibits to this Annual Report on Form 10-K are
certifications of the CEO (Exhibit 31.1) and the CFO (Exhibit 31.2), which are
required in accordance with Rule 13a-14 of the Exchange Act. This Controls and
Procedures section includes the information concerning the controls evaluation
referred to in the certifications and it should be read in conjunction with the
certifications for a more complete understanding of the topics presented.

Disclosure Controls and Procedures and Internal Control over Financial
Reporting

Disclosure controls and procedures are designed to ensure that
information required to be disclosed in our reports filed under the Exchange
Act, such as this Annual Report, is recorded, processed, summarized and reported
within the time periods specified in the U.S. Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures are also
designed to ensure that the information is accumulated and communicated to our
management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.

Internal control over financial reporting (as defined in
Rules13a-15(f) and 15d-15(f) of the Exchange Act) are procedures designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles and includes those policies
and procedures that: (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company;and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements.

Limitations on the Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that
our disclosure controls and procedures or internal control over financial
reporting will prevent all errors and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system's objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.

Conclusions

Based on our controls evaluation (with the participation of our
CEO and CFO), as of the end of the period covered by this report, our CEO and
CFO have concluded that, subject to the limitations noted above, our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.

There was no change in our internal control over financial
reporting during our fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.



Item 9B. Other Information

None.

PART III

Certain information required by Part III is incorporated by
reference from SBS' definitive Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the solicitation of proxies for SBS'
2004 Annual Meeting of Shareholders (the "Proxy Statement") pursuant to
Regulation 14A.



Item 10. Directors and Executive Officers of the
Registrant

The information required by this item is incorporated by
reference to SBS' Proxy Statement under the sections entitled "Board of
Directors," pertaining to information on directors, and "Compensation of Named
Executive Officers," pertaining to information on executive officers.



Item 11. Executive Compensation

The information required by this item is incorporated by
reference to SBS' Proxy Statement under the section entitled "Compensation of
Named Executive Officers."



Item 12. Security Ownership of Certain Beneficial Owners and
Management

The information required by this item is incorporated by
reference to SBS' Proxy Statement under the section entitled "Ownership of SBS
Common Stock."



Item 13. Certain Relationships and Related
Transactions

The information required by this item is incorporated by
reference to SBS' Proxy Statement under the section entitled "Reportable
Transactions."



Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated by
reference to SBS' Proxy Statement under the section entitled "Independent Public
Accountants."





PART IV



Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K

(a) Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders' Equity

Consolidated Statements of Cash Flows

(b) Financial Statement Schedules

Not applicable

(c) Exhibits

The Exhibits listed on the accompanying Index to Exhibits at
the end of this Report are filed as part of, or incorporated by reference into,
this Report. Management contracts or compensatory plans or arrangements are
indicated in the index by an asterisk (*).

(d) Reports on Form 8-K during the Fourth Quarter

1. On April 15, 2004, SBS Technologies, Inc. filed a Form 8-K furnishing
    information regarding its financial results for the quarter ended March 31,
    2004.
2. On April 21, 2004, SBS Technologies, Inc. filed a Form 8- K announcing
    that at its regularly scheduled meeting the Board of Directors accepted the
    resignation for personal reasons of Director Louis C. Golm.

SIGNATURES

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

SBS TECHNOLOGIES,
INC.

Date: September 10, 2004



Date: September 10, 2004



KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Clarence W. Peckham, his attorney-in- fact, for
such person in any and all capacities, to sign any and all amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorney-in-fact may lawfully
do or cause to be done by virtue hereof.

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

|SIGNATURE                                        |  | TITLE                                                         |  | DATE              
|------------------------------------------------ |  | ------------------------------------------------------------- |  | ------------------
|
|/s/ Clarence W. PeckhamClarence W. Peckham       |  | Chief Executive Officer and Director                          |  | September 10, 2004
|/s/ James E. Dixon, Jr.James E. Dixon, Jr.       |  | Executive Vice President,Chief Financial Officerand Treasurer |  | September 10, 2004
|/s/ Christopher J. AmensonChristopher J. Amenson |  | Chairman of the Boardof Directors and ExecutiveChairman       |  | September 10, 2004
|/s/ Warren W. AndrewsWarren W. Andrews           |  | Director                                                      |  | September 10, 2004
|/s/ Lawrence A. BennigsonLawrence A. Bennigson   |  | Director                                                      |  | September 10, 2004
|/s/ Peter D. FennerPeter D. Fenner               |  | Director                                                      |  | September 10, 2004
|/s/ Richard A. SzafranskiRichard A. Szafranski   |  | Director                                                      |  | September 10, 2004
|/s/ Alan F. White Alan F. White                  |  | Director                                                      |  | September 10, 2004



---





|INDEX TO EXHIBITS
|-----------------
|                 
|Exhibit Number   

|3.i     | Restated Articles of Incorporation dated November 10,
2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 10-Q | 001-10981 | 3.i   | 9-30-2000  |  
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------- | ----- | ---------- | -
|3.ii    | Second Restated and Amended By-laws dated November 13,
    2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 10-Q | 001-10981 | 3.ii  | 12-31-2003 |  
|4.a     | Article VI of the Articles of Incorporation, as amended, as included in
      the Articles of Incorporation of SBS Technologies, Inc.                                                                                                                                                                                                                                                                                                                                                                                               | 10-Q | 001-10981 | 3.i   | 9-30-2000  |  
|4.b     | Articles I and II of the Second Restated and Amended By-laws of SBS
      Technologies, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                        | 10-Q | 001-10981 | 3.ii  | 12-31-2003 |  
|4.c     | Form of certificate evidencing Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 10-Q | 001-10981 | 4.c   | 3-31-2001  |  
|4.1     | Rights Agreement dated as of September 15, 1997 between SBS
      Technologies, Inc. and First Security Bank (now Wells Fargo), National
      Association, as Rights Agent, which includes the form of Right Certificate
      as Exhibit A, and the Summary of Rights to Purchase Common Stock as
      Exhibit B.2. Agreement to Serve as Rights Agent. On January 21, 1998,
      pursuant to Section 21 of the Rights Agreement, SBS appointed Norwest Bank
      Minnesota, N.A. (now Wells Fargo) as Successor Rights Agent. | 10-K | 001-10981 | 4.1   | 6-30-2002  |  
|10.c*   | 1997 Employee Incentive Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 10-K | 001-10981 | 10.c  | 6-30-2002  |  
|10.i *  | 1993 Director and Officer Stock Option Plan (as amended).                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 10-K | 001-10981 | 10.i  | 6-30-2002  |  
|10.v *  | 1996 Employee Stock Purchase Plan (as amended).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 10-K | 001-10981 | 10.v  | 6-30-2002  |  
|10.ac   | Office/Warehouse Lease Between Lutheran Brotherhood, (a Minnesota
      Corporation), and Bit 3 Computer Corporation, a wholly-owned subsidiary of
      SBS Technologies, Inc., dated September 5, 1997                                                                                                                                                                                                                                                                                                                            | 10-Q | 001-10981 | 10.ac | 9-30-2002  |  
|10.ad   | Amendment #1 to Lease between Lutheran Brotherhood, a Minnesota
      Corporation, and Bit 3 Computer Corporation, a wholly owned subsidiary of
      SBS Technologies, Inc., dated December 23, 1997                                                                                                                                                                                                                                                                                                                               | 10-Q | 001-10981 | 10.ad | 9-30-2002  |  
|10.ah   | Standard Industrial Lease Between Carlsbad Business Park, LLC, (a
      California Limited Liability Company), and SBS Technologies, Inc. dated
      September 10, 1998                                                                                                                                                                                                                                                                                                                                                            |      |           |       |            | X
|10.al   | Lease Agreement between Mair GmbH & Co. KG and or Industrial
      Computers GmbH, a wholly-owned subsidiary of SBS Holding GmbH, a
      wholly-owned subsidiary of SBS Technologies, Inc.                                                                                                                                                                                                                                                                                                                                         |      |           |       |            | X
|10.am * | 1998 Long-Term Equity Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 10-K | 001-10981 | 10.am | 6-30-2003  |  
|10.an   | Partnership Agreement between SBS or Industrial Computer GmbH & Co.
      KG and SBS or Industrial Computers Verwaltungs GmbH, general partner, and
      SBS Technologies Holding GmbH, limited partner                                                                                                                                                                                                                                                                                                                            |      |           |       |            | X





---





|INDEX TO EXHIBITS
|-----------------
|                 
|Exhibit Number   

|10.ao   | Lease Agreement between 8-L Newark 8371, LLC and SBS Technologies, Inc.
      dated August 14, 1999                                                                                                                                                                                                                                                                          |         |           |             |            | X
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | --------- | ----------- | ---------- | -
|10.ax   | Lease between AFC-5, LLC, a New Mexico limited liability Company, and
      SBS Technologies, Inc., dated May 16, 2000                                                                                                                                                                                                                                                       | 10-K    | 001-10981 | 10.ax       | 6-30-2000  |  
|10.ay   | Lease between Long Gate, LLC, a Delaware limited liability company, and
      SDL Communications, Inc., a Massachusetts corporation, dated June 15,
      2000                                                                                                                                                                                                               | 10-K    | 001-10981 | 10.ay       | 6-30-2000  |  
|10.be * | 2000 Long-Term Equity Incentive Plan                                                                                                                                                                                                                                                                                                                                         | DEF 14A | 001-10981 | Exhibit "A" | 10-2-2000  |  
|10.bt   | Amendment #2 to Lease between Oakview Eagan Investors, LLC (a Delaware
      Limited Liability Company), as successor in interest to Lutheran
      Brotherhood, (a Minnesota Corporation), and SBS Technologies, Inc.,
      Commercial Group, formerly known as Bit 3 Computer Corporation, a
      wholly-owned subsidiary of SBS Technologies, Inc., dated May 22, 2002. | 10-K    | 001-10981 | 10.bt       | 6-30-2002  |  
|10.bu   | Amendment #1 to Lease between AFC-5, LLC (a New Mexico Limited
      Liability Company) and SBS Technologies, Inc., dated February 1, 2001.                                                                                                                                                                                                                                  | 10-K    | 001-10981 | 10.bu       | 6-30-2002  |  
|10.bv   | Amendment #2 to Lease between AFC-5, LLC (a New Mexico Limited
      Liability Company) and SBS Technologies, Inc., dated April 1, 2002.                                                                                                                                                                                                                                     | 10-K    | 001-10981 | 10.bv       | 6-30-2002  |  
|10.bw   | Lease Agreement between Teal Properties, LLC and SBS Technologies, Inc.
      dated October 2, 2002.                                                                                                                                                                                                                                                                         | 10-Q    | 001-10981 | 10.bw       | 9-30-2002  |  
|10.by * | Employment agreement between Christopher J. Amenson and SBS
      Technologies, Inc., effective April 17, 2003, dated April 17,
      2003                                                                                                                                                                                                                                   | 10-Q    | 001-10981 | 10.by       | 9-30-2003  |  
|10.bz * | Employment agreement between Clarence W. Peckham and SBS Technologies,
      Inc., effective April 17, 2003, dated April 17, 2003                                                                                                                                                                                                                                            | 10-Q    | 001-10981 | 10.bz       | 9-30-2003  |  
|10.ca * | Employment agreement between James E. Dixon, Jr. and SBS Technologies,
      Inc., effective July 29, 2003, dated July 29, 2003                                                                                                                                                                                                                                              | 10-Q    | 001-10981 | 10.ca       | 9-30-2003  |  
|10.cb * | Employment agreement between David Greig and SBS Technologies, Inc.,
      effective July 29, 2003, dated July 29, 2003                                                                                                                                                                                                                                                      | 10-Q    | 001-10981 | 10.cb       | 9-30-2003  |  
|10.cc * | Employment agreement between Bruce E. Castle and SBS Technologies,
      Inc., effective July 29, 2003, dated July 29, 2003                                                                                                                                                                                                                                                  | 10-Q    | 001-10981 | 10.cc       | 9-30-2003  |  
|10.cd   | Sublease agreement between SBS Technologies, Inc., and Viasat, Inc., a
      Delaware corporation, dated October 29, 2003                                                                                                                                                                                                                                                    | 10-Q    | 001-10981 | 10.cc       | 12-31-2003 |  

---





|INDEX TO EXHIBITS
|-----------------
|                 
|Exhibit Number   

|10.ce | Lease Agreement between Sabine u. Hermann Gotzfried GbZ and ortec
      Electronic Assembly GmbH dated August 2003                        |     |           |    |            | X
|----- | ----------------------------------------------------------------------------------------------------------------------------------------- | --- | --------- | -- | ---------- | -
|10.cf | Amendment #4 to Lease between AFC-5, LLC (a New Mexico Limited
      Liability Company) and SBS Technologies, Inc., dated August 1, 2003. |     |           |    |            | X
|10.cg | Amendment to lease agreement between 8-L Newark 8371, LLC and SBS
      Technologies, Inc. dated May 5, 2004                              |     |           |    |            | X
|10.ch | Lease Agreement between Shenzhen Jiannian Travel Limited and SBS
      Technologies, Inc. Foreign Holding Company dated June 2004         |     |           |    |            | X
|14    | Code of Ethics.                                                                                                                           | 8-K | 001-10981 | 14 | 11-21-2003 |  
|21    | Subsidiaries of the registrant.                                                                                                           |     |           |    |            | X
|23.1  | Consent of KPMG LLP, Independent Registered Public Accounting
      Firm                                                                  |     |           |    |            | X
|24.1  | Power of Attorney (see page 62 of this Form 10-K)                                                                                         |     |           |    |            | X
|31.1  | Section 302 certification of Clarence W. Peckham, Chief Executive
      Officer                                                           |     |           |    |            | X
|31.2  | Section 302 certification of James E. Dixon Jr., Chief Financial
      Officer                                                            |     |           |    |            | X
|32.1  | Section 906 certification of Clarence W. Peckham, Chief Executive
      Officer                                                           |     |           |    |            | X
|32.2  | Section 906 certification of James E. Dixon Jr., Chief Financial
      Officer                                                            |     |           |    |            | X

* Indicates a management contract or compensatory plan or
arrangement.