UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549

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FORM 10-K



Commission file number 1-10981



SBS Technologies, Inc.



|New Mexico                              | 85-0359415            
|--------------------------------------- | ----------------------
|(State or other jurisdiction of         | (I.R.S. Employer      
|incorporation or organization)          | Identification Number)
|                                        |                       
|7401 Snaproll NE                        |                       
|Albuquerque, New Mexico                 | 87109                 
|(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:
NoneSecurities registered pursuant to Section 12(g) of the
Act:Common Stock, no par value(Title of Class)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (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 [

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 [

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [

The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of August 25, 2005 was approximately $59,633,799.
For purposes of this calculation, the term "affiliate" refers to executive
officers and directors of the registrant and shareholders beneficially owning
more than 5% of the registrant's common stock according to filings with the
Securities and Exchange Commission dated June 30, 2005. 

As of August 26, 2005, Registrant had 15,646,255 shares of Common Stock outstanding.





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DOCUMENTS INCORPORATED BY REFERENCE












TABLE OF CONTENTS

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



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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,
2006;
- expected sales levels for the quarter ending September 30, 2005;
- the expectation of internally-generated cash flows;
- the continued health of the end markets we serve;
- the expectation that orders for military systems will increase as we
progress through fiscal year 2006;
- the expectation of revenues from AdvancedMCTM products to begin to ramp
up during the later part of fiscal year 2006;
- the expectation of sales to Ericsson to continue during fiscal year 2006 at
approximately the same dollar level as in fiscal year 2005;
- the expectation that we will continue to grow through strategic
acquisitions;
- statements that we expect a majority of our sales for any fiscal year to be
based on orders received and booked during that fiscal year;
- statements that our infrastructure as of June 30, 2005 is in place for
leveraged growth;
- statements that consolidation within the communications, capital equipment
and defense industries will continue to result in increased competition and
increased pricing pressure across our product lines; and
- new product and business development efforts.

These statements are based upon certain assumptions and assessments made by
SBS 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 (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, such as 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 550
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, robotics,
networking, broadcasting, wireless communications and medical imaging.

The embedded computer industry is highly competitive and fragmented.  The
size of the total embedded computer market has been estimated to be
approximately $4 billion for board-level products, exclusive of complete
embedded computer systems.  This market is addressed by many competitors.  No
single competitor holds a dominant position in the embedded computer market.

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 have completed eleven acquisitions since 1992 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 7401
Snaproll NE, Albuquerque, New Mexico, 87109, telephone number (505) 875-0600.
As of  June 30, 2005, 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 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.

As of August 2005, SBS Technologies, Inc. now has four direct subsidiaries as
a result of the merger of SBS Technologies, Inc., Communications and Enterprise
Group into SBS Commercial, with SBS Commercial as the surviving corporation, at
which time its name was changed to SBS Technologies, Inc., Communications and
Enterprise Group ("SBS Communications").

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.



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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® is a registered trademark of SBS.  All other trademarks
or trade names 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 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 eight members,
six 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 in the Corporate Governance section of our website at
www.sbs.com/ir,
and membership on all Board Committees is limited to the Independent Directors.



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- At each regularly scheduled meeting of the Board of Directors, a
meeting of the Independent Directors is held 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 control 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 in the Corporate Governance
section of our website at www.sbs.com/ir.
- The Company has disseminated to all of its employees a Financial
Complaint Procedures Policy, available for review in the Corporate Governance
section of our website at www.sbs.com/ir, to enable the anonymous
reporting of any potential financial wrongdoing within the
Company.
- The Company has adopted a Code of Ethics, available for review
in the Corporate Governance section of our website at www.sbs.com/ir, 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 waivers granted to the company's
principal executive officer, principal financial officer, principal accounting
officer, or persons performing similar functions, or amendments to, the Code of
Ethics.
- The Board of Directors has adopted a Statement on Corporate
Governance, available for review in the Corporate Governance section of our
website at www.sbs.com/ir, 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 Company has adopted a policy requiring the use of trading
plans that comply with the requirements of Securities and Exchange Commission
Rule 10b5-1 for any sales or donations of SBS securities (stock or options) by
all Directors and executive officers outside of the Company's 401(k) individual
account plan.   These Rule 10b5-1 plans are written, binding contracts governing
the terms of future sales or donations of SBS securities and must be approved in
advance by the General Counsel.  The policy is designed, among other purposes,
to prevent inadvertent violations of insider trading laws and to avoid the
appearance of impropriety by Directors and executive officers.
- The reports we file with the U.S. Securities and Exchange
Commission on a current, quarterly and annual basis are available free of
charge, 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



We operate 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, Canada,
and Shenzhen, China.  This includes the sales, engineering and test activities
in Albuquerque, New Mexico, Mansfield, Massachusetts, Newark, California,
Raleigh, North Carolina, St. Paul, Minnesota, and Waterloo, Ontario, Canada; the
manufacturing and assembly operations located in St. Paul, Minnesota, and
Albuquerque, New Mexico; and the sales and technical support activities located
in Shenzhen, China.  The Europe Group consists of our operations based in
Germany, which include the sales, engineering, test, assembly, and manufacturing
activities located in Augsburg and Mindelheim, Germany.



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For fiscal years 2005, 2004, and 2003, sales to external customers by
operating segment were as listed below.

`SALES BY SEGMENT
                                          (dollars in thousands)
                          June 30,   % of    June 30,   % of    June 30,   % of
                            2005     total     2004     total     2003     total
                          --------- -------  --------- -------  --------- -------
Fiscal years ended:
Americas Group.......... $  96,384      63% $  97,066      73% $  94,268      82%
Europe Group............    56,053      37%    36,808      27%    21,253      18%
                          --------- -------  --------- -------  --------- -------
Total................... $ 152,437     100% $ 133,874     100% $ 115,521     100%
                          ========= =======  ========= =======  ========= =======`



Selected financial data attributable to operating segments, including
geographic and major customer data, for fiscal years 2005, 2004, and 2003 is set
forth in Notes 13 and 14 to the consolidated financial statements and is
included in Item 8 of this report on Form 10-K.



Order Backlog

As of August 1, 2005, our order backlog expected to be filled within the
fiscal year ending June 30, 2006 for the Americas Group and Europe Group was
approximately $29.5 million and $12.1 million, respectively.  Our order backlog
represents customer orders that have been contracted for future delivery.
Historically, a majority of our sales for each fiscal year is booked during that
fiscal year, and we expect this to continue.  As of September 1, 2004, our order
backlog expected to be filled in fiscal 2005 for the Americas Group and Europe
Group, was approximately $28.0 million and $14.2 million, 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 550 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, AdvancedMC, 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 industry design standards
such as SCSI, iSCSI, IEEE 1394 (Firewire), Ethernet, InfiniBand®,
MIL-STD-1553, Fibre Channel, and telecom standards such as T1/E1/J1, HSSI,
T3/E3, OC-3/STM-1 including HDLC, ATM, SONET, Frame Relay, TDM and IP.

We offer a broad line of AdvancedMC modules to meet the needs of
AdvancedTCA® and proprietary communications systems.  This new
open standard is a fundamental building block of the next generation of
telecommunication systems.  SBS provides WAN, LAN, storage, processor, video,
and chassis products in our AdvancedMC family.

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.



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Our line of Advanced Vehicle Computers provides a flexible and rugged
computing platform that can readily be configured to meet the needs of a variety
of mission critical applications.  Using open systems architecture, these
systems can be quickly developed and offer the economic advantages of being
built from commercial off-the-shelf (COTS) components and allowing for future
technology upgrades.

We also provide with our hardware products 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.

In February 2003, the European Union (EU) issued a directive regarding the
Restriction on the use of certain Hazardous Substances in electrical and
electronic equipment (RoHS).  The RoHS directive requires producers of
electrical and electronic equipment to eliminate the use of six environmentally
sensitive substances; including lead, in products sold in the EU beginning July
1, 2006.  We are taking steps to comply with the RoHS directive.

Customers and Applications

Our broad range of products is used by a diverse OEM customer base
serving the government, commercial and communications end markets.  Our products
are used in a variety of applications in many industries, including space and
aviation, telecommunications, military and government, transportation, robotics,
networking, broadcasting, wireless communications and medical imaging.

In fiscal year 2005, two customers, Ericsson, a customer of the Europe Group,
and Applied Materials, a customer of the Americas Group, represented 16% and 9%,
respectively of our total sales.  In fiscal year 2004, Applied Materials, a
customer of the Americas Group, represented 10% of our total sales and Ericsson,
a customer of the Europe Group, represented 8% of total sales.  In either year,
no other customer equaled or exceeded 5% of tota

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

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, and
space exploration applications.   In this market, we typically sell our products
to prime or lower tier private contractors of the government.  We sell our
products to these customers on commercial terms, and therefore we are not
subject to renegotiation of prices or profits by a governmental entity.  We are,
however, subject to the risk of loss of business due to cancellation or
curtailment of the government program on which we are acting as a supplier.

We are experiencing a trend from many of our customers mandating shorter lead
times between placing an order with us and the shipment date.   This often
requires us to carry increased inventory of the particular product and its
components.

Sales and Marketing

For all of fiscal year 2005, we marketed our products both
domestically and internationally utilizing a combination of direct employee
sales personnel, independent manufacturers' representatives, and distributors.
Effective July 31, 2005, we terminated all of our U.S.-based independent
manufacturers' representatives with the intent of using our direct sales force
in the U.S. for all domestic sales.  As of August 1, 2005, we had 27 employees,
who typically hold engineering degrees, in sales, marketing and customer
relations, 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, 2005, we have direct employee sales personnel located in the United
Kingdom, Sweden, France, Belgium, and Germany.



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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.  To gain access to this diverse
customer base, we use multiple selling channels.  Domestically through July 31,
2005, the direct employee sales personnel generally sold to larger OEM accounts,
while manufacturers' representatives sold to smaller accounts.  After July 31,
2005, our direct employee sales personnel handle all domestic sales.
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.   The independent distributors we utilize to
sell our products in certain foreign jurisdictions are SBS' customers for those
product sales.  Thus, we bill and collect receivables from our foreign
distributors and the terms we provide to them are consistent with terms provided
to OEMs.

We maintain our primary sales and support offices in Albuquerque, New Mexico;
Newark, California; 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, 2005, we had approximately 188 employees engaged in
research and development activities. Of these employees, 104 have technical
degrees and 37 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 $24.9
million, $20.6 million, and $18.1 million in fiscal year 2005, 2004, and 2003,
respectively, corresponding to 16.3%, 15.4%, and 15.6% of sales,
respectively.

We have several trademarks and have one pending application.  However,
we have generally sought only limited patent protection for our technology.
Currently, we have 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 550 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 2005, we released forty-two new products to the marketplace. In our single
board computer and FPGA product line we introduced eight products. These
products were two Intel

In fiscal year 2005, we expanded our I/O products by adding nineteen new
products, including nine new digital I/O cards for military applications, two
new Infiniband switched fabric cards, four new Ethernet switch products, a SCSI
Ultra 320 PMC card, a 1394B CompactPCI card and two PCI Express expansion
products. All of these I/O products were introduced to serve our key markets. By
providing a broad family of I/O solutions it helps us convince our customers
that SBS can provide a complete solution.

For our I/O products aligned with communications applications, we released
ten new products, including eight new products for the AdvancedMC product line.
The AdvancedMC products are designed to capture business in the emerging
advanced telecom computer architecture market and represent a new product
direction for SBS.  In addition, in fiscal year 2005 we introduced a new
product line of systems for military applications.  A total of three new
products were released, which were a remote I/O system and two flight/mission
computers.  These systems were designed to give our military customers the
option of having commercial off the shelf solutions for flight and mission
computer applications.

We also released two FPGA software defined radio development systems. These
development systems are designed to help our customers quickly integrate our
FPGA products into software defined radio applications.



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During fiscal year 2005, we expanded our software support of real-time
Linux

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, our St. Paul, Minnesota,
facility performs test, packaging and initial support functions for our
products.  Over the past several years, we have begun complete turnkey
outsourcing to contract manufacturers, which includes test, packaging, and
initial support functions for our products.  Currently, complete turnkey
outsourcing is a small portion of our total production, but we plan to continue
this migration.  During fiscal year 2005, we subcontracted approximately 80% of
our U.S.-built board-level assemblies to Micro Dynamics Corporation, Montevideo,
Minnesota.

Our German operation manufactures approximately 52% of its board-level
products at its facility in Mindelheim, Germany, and uses one contract
manufacturer for substantially all of 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.
The size of the total embedded computer market has been estimated to be
approximately $4 billion for board-level products, exclusive of complete
embedded computer systems.  This market is addressed by many competitors.  No
single competitor holds a dominant position in the embedded computer market.

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 has
resulted in increased pricing pressure across our product lines, particularly in
the communications and commercial markets.  We expect this to continue. We
believe we differentiate ourselves from our competition based on the
following:

- one of the broadest product lines in the industry,
- many products based on our proprietary intellectual property,
- product leadership in strategic technologies,
- flexibility to adapt products to customer needs, and
- pre- and post-sales support.

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, Artesyn Technologies, Inc., 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 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 AdvancedMC products compete with other suppliers with similar products.
They include companies such as Kontron, AG, Artesyn Technologies, Inc., and
Interphase Corporation.

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



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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 in the commercial and communications
market.  In the military systems market our systems compete with Curtiss-Wright
Corporation, and Radstone PLC.

Please refer to "Risks Related to Our Business," below, for
further information.

Employees

As of August 1, 2005, we had
approximately 516 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, 80 were in executive and administrative
positions; 90 were in sales, marketing and customer relations; 188 were in
research and development; 152 were employed in support of ongoing production,
and 6 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.  SBS 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
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 natural disasters.

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
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Our future sales may be limited if anticipated increases in U.S.
defense spending do not occur or if defense spending in the U.S. and other
countries is reduced or not allocated in a way that benefits us.  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, including those arising from terrorist-related activities, and
political developments. The influence of these factors, which are largely beyond
our control, could impact our financial position or results of operations.

The funding of U.S. Government military programs is subject to congressional
appropriations.  Although multiple year contracts may be planned in connection
with major procurements or upgrades, Congress generally appropriates funds on a
fiscal year basis even though a program may continue for several years.
Consequently, programs are often only partially funded initially, and additional
funds are committed only as Congress makes further appropriations.  The
termination of funding for a Government program would result in a loss of
anticipated future revenues attributable to that program.  That could have a
negative impact on our operations.  In addition, the termination of a program or
failure to commit funds to a prospective program or a program already started
could increase our overall costs of doing business.

The President's budget for the DoD for fiscal year 2006 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 are constrained and in some cases have
been declining in recent years.  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.

A significant portion of our sales is to a small number of customers.
Our sales could be harmed if our relationship with those customers deteriorates,
or if the end products marketed by those customers are not successful in the
marketplace.   In recent years, a significant and growing proportion of
our sales have been to a small number of customers.  In fiscal year 2005, two
customers, Ericsson and Applied Materials, represented 16% and 9%, respectively
of our total sales.  For fiscal year
2006, we expect sales to Applied Materials to decline and sales to Ericsson to
continue at approximately the same dollar sales level, each as compared to
fiscal year 2005.   Many of the significant opportunities we have targeted for
growth are for high-volume opportunities from a select number of
customers.   These opportunities, if successful, may further
concentrate our sales into a small number of large customers.  If our
relationship with any of those customers deteriorates due to technical,
operational, or other reasons, or the customers determine that sourcing products
from SBS is not in their economic best interest, our sales and earnings could be
reduced.  Further, if any of those customers' end products are unsuccessful in
the marketplace, or in the case of military programs, if the particular program
is terminated or significantly curtailed, our sales and earnings will be
reduced.

We often incur substantial expense and development time well in advance of
sales, requiring accurate gauging of future market demand, industry standards
and technologies.  Our business depends upon continually introducing new
and enhanced products and solutions for business needs. 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.  Those
standards constantly change, and new competing standards emerge.  The
development or adaptation of products and technologies requires us to commit
financial resources, personnel and time significantly in advance of sales. In
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We have invested heavily in the communications market in introducing and
marketing new AdvancedMC products intended for use with the AdvancedTCA and
MicroTCATM standards.  Although we project wide usage of those two new
standards in the future in telecommunication systems, neither standard has yet
been implemented in the telecommunications marketplace, and the MicroTCA
standard is not yet even finalized.  Our investment will not benefit us if the
AdvancedTCA and MicroTCA standards are not widely accepted in the foreseeable
future.  Our investment in InfiniBand technology products is another example of
an investment in an emerging technology that may not result in the rate of
acceptance we anticipate.  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 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.
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:

- changes in regulatory requirements,
- export and import controls,
- domestic and foreign government policies, including requirements to expend a
portion of government program funds locally,
- the uncertainty of the ability of foreign customers to finance
purchases,
- compliance with a variety of foreign laws, as well as the U.S. laws
affecting the activities of U.S. companies abroad,
- 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.

We may not be successful in obtaining necessary export licenses to
conduct business abroad.  Licenses for the export of many of our
products are required from government agencies in accordance with various
statutory authorities.  We can give no assurance that we will be successful in
obtaining these necessary licenses in order to conduct business abroad.

We face significant competition.  The embedded computer industry is
highly competitive and fragmented, and has been consolidating in recent years.
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,



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- 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, 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 sales, cost reductions or otherwise. We cannot assure investors
that we will be able to compete effectively in our current or future
markets.

The success of our government business is dependent on compliance with
increasingly complex legal requirements.  We could be suspended or debarred for
noncompliance.  Complex legal requirements, although customary in
government contracts, increase our performance and compliance costs.  These
costs might increase in the future, reducing our margins, which could have a
negative effect on our financial condition.  Failure to comply with these
requirements could lead to suspension or debarment, for cause, from Government
contracting or subcontracting for a period of time.  Among the causes for
debarment are violations of various statutes, including those related to:

- procurement integrity
- export control
- government security
- employment practices
- accuracy of records
- foreign corruption

Debarment would have a substantive negative impact on our operations and
could have negative effect on our reputation and ability to procure other U.S.
Government subcontracts in the future.  If the prime contractor on a program for
which we were a subcontractor were debarred, the U. S. Government could
terminate the prime contract, irrespective of the quality of our products and
services as a subcontractor, thereby reducing our revenues.

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.

If we do not persuade OEMs to use our products in new or next-generation
applications, our sales could be harmed.  Our sales depend, in part, on
our ability to obtain and maintain design wins for our products from OEMs. OEMs
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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.

New environmental requirements applicable to SBS products beginning
July 1, 2006 may increase SBS' costs and could result in inventory write-
offs.  In February 2003, the European Union (EU) issued a directive
regarding the Restriction on the use of certain Hazardous Substances in
electrical and electronic equipment (RoHS).  The RoHS directive requires
producers of electrical and electronic equipment to eliminate the use of six
environmentally sensitive substances; including lead, in products sold in the EU
beginning July 1, 2006.  We are pursuing steps toward full compliance of the
impending RoHS directive.  This directive may increase SBS' design and testing
costs during the transition to the new requirements.  In addition,
implementation of the new directive could render certain non-compliant products
obsolete.  If we are unable to accurately forecast demand for non-compliant
products during the transition period, we could hold substantial inventory that
would become obsolete which could lower or eliminate our profit margin, reduce
our cash flow, and otherwise harm our financial performance. If we are unable to
obtain RoHS-compliant component parts, our ability to build and deliver RoHS-
compliant products to our customers in a timely manner could be affected, which
could reduce our sales and cash flow.

We use a limited number of 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.   In recent years we have consolidated
contract manufacturers in the United States to obtain various benefits relating
to price, quality, timeliness, service and efficiency.  For example, during
fiscal year 2005, we subcontracted approximately 80% of our U.S.-built board-
level assemblies to Micro Dynamics Corporation, Montevideo, Minnesota.  In
addition, our German operation uses a single contract manufacturer for
substantially all of its outsourced manufacturing.  This concentration of
manufacturing increases our vulnerability to any manufacturing or quality
disruptions occurring at the contract manufacturer, which in turn could reduce
our ability to make on-time shipments to our customers, reduce customer
satisfaction, and increase our warranty costs.  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
for a limited number of products 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 11.

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 on commercially
reasonable terms, and which could reduce our profit margins, require inventory
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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 OEMs which typically provide for broad
indemnification of the OEMs 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.

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.  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.  Many of the recent
consolidation transactions in our industry have been at prices that exceed what
we believe are prudent.  If we are unable to find acceptable acquisition
candidates, we may hold, as we currently do now, substantial amounts of cash
that provide a low rate of return in the current interest rate environment.
- 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
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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 have a $20 million bank line of
credit facility from Wells Fargo Bank National Association.  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 SBS Communications operating facilities previously based in Carlsbad,
California.  This consolidation 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 earnings.

We depend on the recruitment and retention of qualified personnel, and
our failure to attract and retain such personnel could seriously harm our
business.  Due to the specialized nature of our business, our future
performance is highly dependent upon our ability to attract and retain qualified
engineering, manufacturing, marketing, sales and management personnel for our
operations.  Competition for personnel is intense, and we may not be successful
in attracting and retaining qualified personnel.  Our failure to compete for
these personnel could seriously harm our business, results of operations and
financial condition.  In addition, if incentive programs we offer are not
considered desirable by current and prospective employees, we could have
difficulty retaining or recruiting qualified personnel.  If we are unable to
recruit and retain 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.

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 growth in sales in Europe experienced by our Germany operation, a growing
percentage of our overall sales transactions have been denominated in Euros.
Some sales in the future may be



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Our disclosure controls and internal control over financial reporting
do not guarantee the absence of error or fraud.  Disclosure Controls are
procedures 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 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 (Internal Controls) are procedures
which are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America 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 SBS; (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 SBS are being made
only in accordance with authorizations of management and directors of SBS; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of SBS' assets that could have a
material effect on the financial statements.  To the extent that components
of our Internal Controls are included in our Disclosure Controls, they are
included in the scope of our quarterly controls evaluation.

Our management, including the CEO and CFO, do not expect that our Disclosure
Controls or Internal Controls will prevent all error 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 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 we cannot assure 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.

Risks Related to Our Securities

Our common stock price can be volatile because of several factors,
including a limited public float, which could impact our ability to raise
capital.  During the twelve-month period ended June 30, 2005, the sales
price of our common stock fluctuated between $8.55 and $16.50 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 or natural disasters,
- 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.



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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.

Item 2.  Properties

We lease office and manufacturing space for our Americas Group in
Albuquerque, New Mexico, Newark, California, Raleigh, North Carolina, St. Paul,
Minnesota, Mansfield, Massachusetts, Waterloo, Ontario, Canada and Shenzhen,
China, and for our Europe Group in Augsburg and Mindelheim, Germany. We are also
obligated under a lease for our former facility in Carlsbad, California,
(Americas Group) 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 47,500
square feet located in a one-story, single-user building in a business park.
This facility contains our corporate headquarters and houses sales, engineering
and support functions for SBS Government, a part of the Americas Group segment.
The facility consists of approximately 33,200 square feet of office space and
approximately 14,300 square feet of laboratory and warehouse space.   We moved
into this building in June 2005.  The term of the lease expires June 2015.  The
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 this
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 13,500 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 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 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 Communications, a part of the Americas Group segment,
and 24,800 square feet of manufacturing and warehouse space utilized by our U.S.
manufacturing center.  In July 2005 we extended the term of the lease through
January 2011.  The lease as amended grants to us a right of first refusal to
expand into adjacent unoccupied portions of the building and provides a right to
extend the term by one additional three-year period.  We believe this facility
will be sufficient to serve our needs through the term of the lease.

Our Mansfield, Massachusetts facility is in a multi-story, multi-tenant
building in a business park.  The facility consists of approximately 17,000
square feet occupied by sales, engineering and support functions for SBS
Communications, a part of the Americas Group segment.  The lease expires July
31, 2010.  The lease grants to us a right to extend the term of the lease by one
additional five-year period.  We believe this facility will be sufficient to
serve our needs through the term of the lease.

Our Waterloo, Ontario, Canada facility consists of 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 this facility will be sufficient to
serve our needs through the term of the lease.

Our Shenzhen, China facility consists of 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 SBS Technologies (Shenzhen) Limited, a part of 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.

Our Augsburg, Germany facility is a six-floor building,
consisting of approximately 37,500 square feet of office, test, packaging and
support areas for the operations of KG, a part of the Europe Group. The lease
expires January 31, 2011.  We believe this



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Our Mindelheim, Germany facility consists of approximately 6,200 square feet
of a single-story multi-tenant building located within a business area, of which
approximately 1,200 square feet is office space and approximately 5,000 square
feet is 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.

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:





|                | 2005    |  | 2004   
|--------------- | ------- |  | -------
|Fiscal Quarters | High    |  | Low    
|First           | $ 16.50 |  | $  9.07
|Second          | 15.00   |  | 11.93  
|Third           | 14.57   |  | 10.56  
|Fourth          | 11.49   |  | 8.55   

Record Holders

Based on data provided by SBS' transfer agent and The Depository Trust
Company, management believes that as of
August 25, 2005, the number of share owner accounts of record, as defined by
Rule 12g5-1 of the Exchange Act, was approximately 212, at which date the
closing market price of SBS' common stock was $9.50 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").



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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.

Issuer Purchases of Equity Securities

Not applicable.



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Item 6.  Selected Financial Data

The following selected financial data for the years ended June 30, 2001
through June 30, 2005 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,
                                                  ---------------------------------------------------
                                                     2005      2004      2003        2002      2001
                                                  --------- --------- ---------   --------- ---------
                                                           (Thousands except per share data)         
Statements of Operations Data:                                                                       
  Sales......................................... $ 152,437   133,874   115,521     118,856   187,180
  Gross profit..................................    66,516    63,151    55,966      33,548    85,919
  Operating income (loss).......................     5,548     7,132     2,165     (38,412)   27,736
  Net income (loss).............................     4,424     5,193    (4,450)(a) (24,360)   17,184
                                                                                                     
Per Share Data:                                                                                      
  Net income (loss) per common share:
    Income (loss) before cumulative effect
      of change in accounting principle......... $    0.28      0.34      0.11 (a)   (1.67)     1.23
    Net income (loss)...........................      0.28      0.34     (0.30)      (1.67)     1.23

  Weighted average shares used in net income
    per share computations......................    15,567    15,146    14,605      14,559    13,926

  Net income (loss) per common share -
    assuming dilution:
      Income (loss) before cumulative effect
        of change in accounting principle....... $    0.28      0.34      0.11 (a)   (1.67)     1.14
      Net income (loss).........................      0.28      0.34     (0.30)      (1.67)     1.14

  Weighted average shares used in net income
    per share - assuming dilution computations..    15,718    15,477    14,630      14,559    15,123
                                                                                                     
Balance Sheet Data:                                                                                  
  Working capital............................... $  91,861    86,715    73,187      69,304    75,282
  Total assets..................................   152,458   145,136   128,610     125,648   147,172
  Total liabilities.............................    16,571    15,509    12,503      12,002    13,377
  Total stockholders' equity....................   135,887   129,627   116,107     113,646   133,795`

__________

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



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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, such as 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 550
products in the product section of our website,

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, robotics,
networking, broadcasting, wireless communications and medical imaging.

The embedded computer industry is highly competitive and fragmented.  The
size of the total addressable embedded computer market has been estimated by
industry publications to be approximately $4 billion for board-level products,
exclusive of complete embedded computer systems.  This market is addressed by
many competitors.  No single competitor holds a dominant position in the
embedded computer market.

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 have completed eleven
acquisitions since 1992 that broadened our product offerings and our customer
base.

Executive Summary

For the fiscal year 2005, sales increased 13.9%, even though we
experienced fluctuations in our markets and delays in the start of production of
several government programs.  Our earnings were impacted by lower margins and
our mid-year decision, due to market conditions, to further invest in our
infrastructure to better address the government systems market and the Asian
market.  In addition, we made a significant investment in our recently announced
AdvancedMC product family, which we believe places SBS in an excellent position
in the emerging AdvancedTCA market.  SBS is a product and technology company,
and we will continue to focus our research and development efforts to provide
solutions for our customers.

In November 2004, we announced strategic operating investments to pursue
growth initiatives and take advantage of market conditions in the government and
international markets.  For our government systems opportunities, we increased
our business development, program management and engineering teams to be more
responsive to proposal requests, execute on engineering projects faster, and
build stronger relationships with our customer base.  To meet growing demand, we
increased our sales and support staffing to more effectively address the Asian
market.

During the fiscal year ended June 30, 2005 (fiscal 2005), we noted the
following:

- Customer orders received and booked were $154.8 million, resulting in a
book-to-bill ratio of 1.02 to 1.



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- Order backlog was $44.4 million as of June 30, 2005, compared to $42.1
million as of June 30, 2004;

- Thirty-four design wins were achieved during fiscal 2005, consistent
with the thirty-four achieved in fiscal 2004.

- During fiscal 2005, one communications market customer, Ericsson,
represented approximately 16% of our total sales and one commercial market
customer, Applied Materials, represented approximately 9% of our total sales.
We had no other customer whose sales represented more than 5% of our total in
fiscal 2005.

Financial Highlights

Select financial highlights during the year ended June 30, 2005 compared
to the years ended June 30, 2004 and 2003 follows:

`Fiscal Years Ended
                                   ---------------------------------------------------
                                           June 30,                 June 30,
Thousands (except                  --------------------     %      ---------     %
  per share amounts)                 2005       2004     change      2003     change
                                   ---------  --------- ---------  --------- --------- 
Sales............................ $ 152,437  $ 133,874      13.9% $ 115,521      32.0%
                                   =========  =========            =========

Operating income (loss).......... $   5,548  $   7,132     -22.2% $   2,165     156.3%
                                   =========  =========            =========

Income (loss) before
  cumulative effect of change
  in accounting.................. $   4,424  $   5,193     -14.8% $   1,608     175.1%
                                   =========  =========            =========

Net income (loss)(*)............. $   4,424  $   5,193     -14.8% $  (4,450)    199.4%
                                   =========  =========            =========

Income (loss) per share
  before cumulative effect of
  change in accounting........... $    0.28  $    0.34     -17.6% $    0.11     154.5%
                                   =========  =========            =========

Net income (loss) per
  share - assuming
  dilution (**).................. $    0.28  $    0.34     -17.6% $   (0.30)    193.3%
                                   =========  =========            =========`

Sales for fiscal 2005 were $152.4 million, a 13.9% increase from sales of
$133.9 million for the prior year and an increase of 32.0% from sales of $115.5
million in fiscal 2003.

Operating income for fiscal 2005 was $5.5 million, which represents a
decrease of approximately $1.6 million, or 22.2% from the fiscal 2004 balance,
but represents an increase of 156.3% from the $2.2 million in fiscal 2003.   Our
earnings were impacted by lower margins, primarily a result of increased sales
of lower margin production business, competitive pricing primarily from
commercial and communications customers, and lower sales of the Company's quick-
turn, higher margin business, together with our mid-year decision to further
invest in our infrastructure to better address the government systems market and
the Asian market.  In addition, we made a significant investment in our recently
announced AdvancedMC product family, which we believe places SBS in an excellent
position in the emerging AdvancedTCA market.

Net income for fiscal 2005 was $4.4 million, compared with net income of $5.2
million for the prior fiscal year and a net loss of ($4.4) million in fiscal
year 2003.



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*	The financial results for the fiscal year ended June 30, 2004 included
restructuring costs of approximately $2.4 million associated with the closure of
the Carlsbad, California facility, which negatively impacted net income.

*	The financial results for the fiscal year ended June 30, 2003 included a
transitional goodwill impairment charge of $6.1 million, net of tax, which was
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 2005 was $0.28, compared
with $0.34 for fiscal 2004, and 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 fiscal
year 2003.

**	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.

**	The financial results for the fiscal year ended June 30, 2003 included
a transitional goodwill impairment charge of $6.1 million (or ($0.41) per common
share), net of tax, which was reported as a cumulative effect of change in
accounting principle, as a result of our adoption of SFAS 142 effective on July
1, 2002.

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 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



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- Allowance for Uncollectible Accounts
- Goodwill.

- Long-Lived and Intangible Assets
- Income Taxes

Acquisitions

We made no acquisitions during the fiscal years ended June 30, 2005 and 2004.
During the fiscal year ended June 30, 2003, we completed the acquisitions
described below.  The acquisitions were 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.



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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 fiscal years ended June 30,
2005, 2004 and 2003, certain operating data, including balances, as a percentage
of sales:

`Years ended June 30,
                                                        ------------------------------------------------------
Dollars in thousands                                        2005    %          2004    %           2003   %
                                                        --------- ------   --------- ------   --------- ------  

Sales................................................. $ 152,437  100.0 % $ 133,874  100.0 % $ 115,521  100.0 %
Cost of sales:
  Cost of products sold...............................    84,379   55.4 %    69,145   51.6 %    58,002   50.2 %
  Amortization of intangible assets...................     1,542    1.0 %     1,578    1.2 %     1,553    1.4 %
                                                        --------- ------   --------- ------   --------- ------
    Total cost of sales...............................    85,921   56.4 %    70,723   52.8 %    59,555   51.6 %
                                                        --------- ------   --------- ------   --------- ------
Gross profit..........................................    66,516   43.6 %    63,151   47.2 %    55,966   48.4 %

Selling, general and administrative expense...........    35,746   23.4 %    32,504   24.3 %    33,608   29.1 %
Research and development expense......................    24,919   16.3 %    20,552   15.4 %    18,077   15.6 %
Employee severance and consolidation costs............        --     -- %     2,400    1.8 %     1,729    1.5 %
Amortization of intangible assets.....................       303    0.3 %       563    0.4 %       387    0.3 %
                                                        --------- ------   --------- ------   --------- ------
Operating income......................................     5,548    3.6 %     7,132    5.3 %     2,165    1.9 %
                                                        --------- ------   --------- ------   --------- ------
Interest and other income, net........................       941    0.6 %       634    0.5 %       434    0.4 %
Foreign exchange losses...............................       (77)   0.0 %      (348)  (0.3)%      (207)  (0.2)%
                                                        --------- ------   --------- ------   --------- ------
                                                             864    0.6 %       286    0.2 %       227    0.2 %
                                                        --------- ------   --------- ------   --------- ------
Income before income taxes and cumulative
    effect of change in accounting principle..........     6,412    4.2 %     7,418    5.5 %     2,392    2.1 %
Income tax expense....................................     1,988    1.3 %     2,225    1.6 %       784    0.7 %
                                                        --------- ------   --------- ------   --------- ------
Income before cumulative effect of
    change in accounting principle....................     4,424    2.9 %     5,193    3.9 %     1,608    1.4 %
Cumulative effect of change in accounting
    principle (net of income tax benefit of $3,412)...        --     -- %        --     -- %    (6,058)  (5.2)%
                                                        --------- ------   --------- ------   --------- ------
Net income (loss)..................................... $   4,424    2.9 % $   5,193    3.9 % $  (4,450)  (3.9)%
                                                        ========= ======   ========= ======   ========= ======`



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Year Ended June 30, 2005 Compared to Year Ended June 30, 2004

(References to fiscal 2005 and fiscal 2004 relate to the fiscal years
ended on June 30)

Sales

Our total sales during the fiscal year ended June 30, 2005 compared to
the year ended June 30, 2004 follows:

`Fiscal Years Ended
                                   -------------------------------
                                          June 30,
                                   --------------------     %
Thousands                            2005       2004     change
                                   ---------  --------- ---------                      
Sales............................ $ 152,437  $ 133,874      13.9%
                                   =========  =========`

For fiscal 2005, sales increased $18.6 million compared to fiscal 2004, of
which approximately $3.2 million was the result of changes in currency exchange
rates used to translate our Europe Group financial statements to U.S. dollars.
During fiscal 2005, sales to one communications customer (Ericsson) increased
137%, or approximately $14 million (including the impact of changes in currency
exchange rates used to translate our Europe Group financial statements to U.S.
dollars), from fiscal 2004 sales levels, and sales to one commercial customer
(Applied Materials) increased 7%, or approximately $1 million, from fiscal 2004
sales levels.

Sales by end market for fiscal 2005 compare to fiscal 2004 and 2003 as
indicated below:

`SALES BY END MARKET
                                          (dollars in thousands)
                          June 30,   % of    June 30,   % of    June 30,   % of
                            2005     total     2004     total     2003     total
                          --------- -------  --------- -------  --------- -------
Fiscal years ended:       
  Government............ $  67,872      45% $  67,944      51%    60,465      52%
  Commercial............    41,068      27%    39,924      30%    37,689      33%
  Communications........    43,497      28%    26,006      19%    17,367      15%
                          --------- -------  --------- -------  --------- -------
Total................... $ 152,437     100% $ 133,874     100%   115,521     100%
                          ========= =======  ========= =======  ========= =======`

For the year ended June 30, 2005, sales to government customers were
relatively unchanged from fiscal 2004 levels.  Sales to commercial customers
increased 2.9% and sales to communications customers increased 67.3%, both
compared with the prior fiscal year.  A significant percent of the increase in
sales to communications customers was the result of the increase in sales to
Ericsson during fiscal 2005.

Looking forward, based on our forecasts, we expect that a significant amount
of our revenue growth for fiscal year 2006 will occur in the second half of the
fiscal year. This is due to two primary factors: we expect revenues from
AdvancedMC products to begin to ramp up during the later part of the fiscal
year, and based on customers' forecasts, we expect that orders for military
systems will increase as we progress through the fiscal year.  In addition,
for fiscal year 2006, we expect sales
to Ericsson to continue at approximately the same dollar sales level compared to
fiscal year 2005.  For the fiscal year ending June 30, 2006,
we expect revenue to be between $165 million and $175 million; however,
actual results may vary.  In addition, based on our backlog and our customers'
forecasts, we expect revenue for the quarter ending September 30, 2005 to be
between $35 million and $37 million; however, actual results may vary.  For the
past several years, the September quarter has been the lowest sales quarter of
the fiscal year, and we expect this to continue.



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Gross Profit

Gross profit during fiscal 2005 compared to fiscal 2004 follows:

`Fiscal years ended
                                      -----------------------------------
                                             June 30,
                                      ----------------------  Increase/
Thousands                                 2005        2004    (decrease)
                                      ----------  ----------  ----------  
Gross profit........................ $   66,516  $   63,151       3,365
                                      ==========  ==========  ==========
Gross profit as a percent of sales:
  Cost of products sold.............       55.4%       51.6%
  Intangible asset amortization.....        1.0%        1.2%
                                      ----------  ----------
    Gross profit....................       43.6%       47.2%
                                      ==========  ==========`

Gross profit in fiscal 2005 increased $3.4 million, or 5.3%, from fiscal 2004
levels.  Gross profit as a percent of sales for the year ended June 30, 2005,
decreased from fiscal 2004 levels principally as a result of increased sales of
lower margin production business, competitive pricing primarily from commercial
and communications customers, and lower sales of our quick-turn, higher margin
business.  For the fiscal year ending June 30, 2006, based on the sales mix
included in our forecasts, we currently anticipate gross profit as a percentage
of sales to range from 40% to 45%; however, actual results may vary.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A) expense during the fiscal
year ended June 30, 2005 as compared to fiscal 2004 follows:

`Fiscal years ended
                                      ----------------------------------
                                             June 30,
                                      ----------------------  Increase/
Thousands                                 2005        2004    (decrease)
                                      ----------  ----------  ----------  
SG&A expense........................ $   35,746  $   32,504  $    3,242
                                      ==========  ==========  ==========

As a percent of sales...............       23.4%       24.3%
                                      ==========  ==========`

For the year ended June 30, 2005, SG&A expense increased 10.0%, compared
to the prior fiscal year, due primarily to our mid-year decision to invest in
our infrastructure to pursue opportunities in the government systems market and
the Asian market.  Costs associated with the execution of our Sarbanes-Oxley
Section 404 documentation and testing requirements in fiscal 2005 also
contributed to the increase in costs when compared to fiscal 2004.   As a result
of increased sales, although SG&A expenses increased in fiscal 2005,
SG&A expense as a percentage of sales declined slightly in fiscal 2005
compared with fiscal 2004.

Research and Development Expense

Research and development (R&D) expense during fiscal 2005 as compared
to the fiscal year ended June 30, 2004 follows:

`Fiscal years ended
                                      ----------------------------------
                                             June 30,
                                      ----------------------  Increase/
Thousands                                 2005        2004    (decrease)
                                      ----------  ----------  ----------  
R&D expense......................... $   24,919  $   20,552  $    4,367
                                      ==========  ==========  ==========

As a percent of sales...............       16.3%       15.4%
                                      ==========  ==========`

Increasing our intellectual property continues to represent a key element of
our growth strategy.  During fiscal 2005, we introduced forty-two new products,
including eight new AdvancedMC products, announced in June 2005, that address
the emerging AdvancedTCA segment of the communications end market.  Research and
development expenses fluctuate from period to period throughout the life cycle
of our research and development efforts and we expect these fluctuations to
continue.



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For the year ended June 30, 2005, R&D expense increased 21.2%, compared
to the prior fiscal year, due primarily to the timing of outside development
costs and our mid-year decision to invest in our infrastructure to pursue
opportunities in the government systems market and our investment in the
recently announced AdvancedMC product line.  While R&D expense as a
percentage of sales increased 0.9% from fiscal 2004 levels to 16.3%, fiscal 2005
expenses were in line with our current development plans.

Employee Severance and Consolidation Costs

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
$3.5 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
                                                                                                                  
Year ended June 30, 2005                                                                                          
  Cash payments.................................              --          --          (446)        --        (446)
                                                  ---------------  ----------  ------------  ---------  ----------
Accrued at June 30, 2005........................ $            --  $       --  $        424  $      --  $      424
                                                  ===============  ==========  ============  =========  ==========`

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 lease obligations expected to be paid
through April 2006.

Amortization of Intangible Assets

For the fiscal year ended June 30, 2005, amortization of intangible
assets was $0.3 million, compared to $0.6 million for fiscal 2004.  Amortization
expense decreased in fiscal 2005 due to the completion of the amortization of
identifiable intangible assets recorded in connection with the acquisition of
SDL Communications in April 2000.

Interest and Other Income, Net

For the year ended June 30, 2005, net interest and other income of
$941,000, represented primarily interest income associated with increased cash
balances.  Excluding the interest received in September 2003 (fiscal 2004) in
connection with income tax refunds of payments made in prior periods of
approximately $250,000, net interest and other income increased from fiscal 2004
levels primarily as a result of increased cash balances and higher interest
rates during fiscal 2005.

Foreign Exchange Losses

For fiscal 2005 and 2004, foreign exchange losses of $77,000 and
$348,000, 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 2005 and 2004.



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Income Tax Expense

For the year ended June 30, 2005 and 2004, income tax expense was
recorded using worldwide effective tax rates of 31.0% and 30.0%, respectively.
The change in the estimated worldwide effective income tax rate was due
principally to the impact of a shift in the mix of pre-tax income from domestic
and foreign sources together with the completion, by the German tax authorities,
of the audit of our statutory tax returns from fiscal 1998 through fiscal 2002,
during the fourth quarter of fiscal 2005.  Our annual worldwide effective tax
rate for fiscal 2005 includes the impact, excluding foreign dividend
repatriation, of the recently enacted Americans Jobs Creation Act of 2004 (the
Act), which was signed into law by the U.S. President in October 2004.  We
continue to evaluate the potential impact of the dividend repatriation
provisions of the Act on our annual worldwide effective tax rate.  For the
fiscal year ending June 30, 2006, we currently expect a worldwide effective tax
rate of 35%.

In assessing the realizability of the Company's net deferred tax asset of
approximately $16.9 million at June 30, 2005, management considers projected
future sources of taxable income together with tax planning strategies.  As of
June 30, 2005, the valuation allowance, which increased approximately $1.8
million during fiscal 2005, applies to certain U.S. State and foreign 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, 2005.

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 $34.6
million at June 30, 2005, 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.

Earnings Per Share

For the year ended June 30, 2005, net income per common share and net
income per common share - assuming dilution were $0.28, compared to net income
per common share and net income per common share - assuming dilution of $0.34
during the prior fiscal year.

Review of Business Segments

We are engaged in the design,
research, development, integration and production of embedded computer products
and we operate worldwide through two operating segments: the Americas Group and
the Europe Group.  Both the Americas Group and the Europe Group offer
our 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, Canada, and Shenzhen, China.  This includes the sales,
engineering and test activities in Albuquerque, New Mexico; Mansfield,
Massachusetts; Newark, California; Raleigh, North Carolina; St. Paul, Minnesota;
and Waterloo, Ontario, Canada; the manufacturing and assembly operations located
in St. Paul, Minnesota and Albuquerque, New Mexico; and the sales and technical
support activities based in Shenzhen, China.  The Europe Group consists of our
operations based in Germany which include the sales, 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.



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AMERICAS GROUP

`Fiscal Years Ended
                                       -------------------------------
                                              June 30,
                                       --------------------     %
Thousands                                2005       2004     change
                                       ---------  --------- --------- 
Sales to External Customers.......... $  96,384  $  97,066      -0.7%
                                       =========  =========

Segment Profit ...................... $   7,037  $  12,864     -45.3%
                                       =========  =========`

Sales to External Customers.  For the year ended June 30, 2005, sales
to external customers were relatively unchanged from fiscal 2004 levels.
Looking forward, based on our forecasts, we expect to see an increase in sales
in the Americas Group in fiscal 2006, and a significant amount of such revenue
growth will occur in the second half of the fiscal year; however, actual results
may vary. This is due to two primary factors: we expect revenues from AdvancedMC
products to begin to ramp up during the later part of the fiscal year, and based
on customers' forecasts, we expect orders for domestic military systems will
increase as we progress through the fiscal year.

Segment Profit.  Segment profit decreased $5.8 million, or 45.3%, for
the year ended June 30, 2005, compared to the prior fiscal year.  Segment profit
in fiscal 2005 decreased from fiscal 2004 levels primarily as a result of
decreased gross profit as a result of a change in sales mix due to a higher
proportion of sales of lower margin products in relation to total sales,
together with increased SG&A and R&D expenses as discussed previously.
The increased SG&A expenses were due primarily to our mid-year decision to
invest in our infrastructure to pursue opportunities in the government systems
market and the Asian market, together with costs associated with the execution
of our Sarbanes-Oxley Section 404 documentation and testing requirements in
fiscal 2005.  The increased R&D expenses were due primarily to the timing of
outside development costs and our mid-year decision to invest in our
infrastructure to pursue opportunities in the government systems market as well
as our investment in eight new AdvancedMC products, announced in June 2005.  The
decrease in segment profit in fiscal 2005 excludes the impact of approximately
$2.4 million of employee severance and consolidation costs recorded in fiscal
2004 from the consolidation of our communications operations that resulted in
the closure of our Carlsbad, California facility in August 2003.  For these
reasons, segment profit as a percentage of sales to external customers decreased
to 7.3% for fiscal 2005, compared with 13.3% for fiscal 2004.  With the targeted
investments we have made, we believe, as of June 30, 2005, our infrastructure is
now in place for leveraged growth.  As a result, with the expected increase in
sales in fiscal 2006 for the Americas Group, we anticipate an increase in
segment profit as a percentage of sales to external customers however, actual
results may vary.

EUROPE GROUP

`Fiscal Years Ended
                                       -------------------------------
                                              June 30,
                                       --------------------     %
Thousands                                2005       2004     change
                                       ---------  --------- --------- 
Sales to External Customers.......... $  56,053  $  36,808      52.3%
                                       =========  =========

Segment Profit....................... $  12,984  $   7,540      72.2%
                                       =========  =========`

Sales to External Customers.  The Group's sales to external customers
increased $19.2 million in fiscal 2005 compared to fiscal 2004.  This increase
is primarily due to the $14.0 million in additional sales to Ericsson (which
include the impact of changes in foreign currency exchange rates) in fiscal 2005
compared to fiscal 2004, and approximately $3.2 million resulting from changes
in currency exchange rates used to translate the Group's financial statements to
U.S. dollars.

Segment Profit.  For the year ended June 30, 2005, segment profit
increased $5.4 million, or 72.2%, compared to the prior year, due primarily to
the increase in sales and gross profit, which more than offset increases 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
increased to 23.2% for fiscal 2005, compared to 20.5% for fiscal 2004.



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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 follows:

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

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 compared 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.

Gross Profit

Gross profit during fiscal 2004 compared to fiscal 2003 follows:

`Fiscal years ended
                                      -----------------------------------
                                             June 30,
                                      ----------------------  Increase/
Thousands                                2004        2003     (decrease)
                                      ----------  ----------  ----------  
Gross profit........................ $   63,151  $   55,966       7,185
                                      ==========  ==========  ==========
Gross profit as a percent of sales:
  Cost of products sold.............       51.6%       50.2%
  Intangible asset amortization.....        1.2%        1.4%
                                      ----------  ----------
    Gross profit....................       47.2%       48.4%
                                      ==========  ==========`



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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%.

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
development plans 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.



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- 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 $0.6 million, compared to $0.4 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.

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 increased cash
balances, 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.

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.



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Review of Business Segments

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), we changed are
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.

We are engaged in the design, research,
development, integration and production of embedded computer products and we
operate worldwide through two operating segments: the Americas Group and the
Europe Group.  Both the
Americas Group and the Europe Group offer our 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, Canada, and Shenzhen, China.  This includes the sales,
engineering, and test activities in Albuquerque, New Mexico; Mansfield,
Massachusetts; Newark, California; Raleigh, North Carolina; St. Paul, Minnesota;
and Waterloo, Ontario, Canada; the manufacturing and assembly operations located
in Albuquerque, New Mexico and St. Paul, Minnesota; and the sales and technical
support activities based in Shenzhen, China.  The Europe Group consists of our
operations based in Germany which include the sales, 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 excludes approximately $3.5 million of sales to
European customers as a result of our decision to transfer the sales and support
for these customers to our German operations.  For fiscal 2004, these sales are
included in 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 SBS
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.



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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 approximately $3.5 million of sales resulting from our
decision to transfer the sales and support for our European customers to our
German operations.

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.

Liquidity, Capital Resources and Financial Condition

Our objective is to maintain adequate financial resources and
liquidity to finance our operations.  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 $55.2 million at June 30, 2005 represents an increase of
$7.3 million during the year ended June 30, 2005.  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, 2006, however,
future cash inflows as a result of employee stock option exercises are difficult
to predict.

Cash Flows

Changes to our cash balance during the years ended June 30, 2005, 2004 and
2003 follow:

Comparison of Condensed
Consolidated Statements of Cash Flows

`Years Ended June 30,
                                                            ----------------------------------
                                                               2005        2004        2003
                                                            ----------  ----------  ----------
Cash Flow Provided by (Used in)                                            Thousands        
   Operating activities..................................  $    9,796       8,289      16,832
   Investing activities..................................      (3,537)     (3,283)     (4,390)
   Financing activities..................................       1,374       5,646        (456) 
   Net effect on cash from:                                                                    
      Exchange rates.....................................        (381)        161         333
      Cumulative effect of change in accounting
         principle (included in operating activities)....          --          --       6,058
                                                            ==========  ==========  ==========`

Operating Activities

Cash flows from operating activities were principally the result of SBS' net
income, changes in working capital and the impact of non-cash and non-operating
activities, including depreciation and amortization of $5.7 million in fiscal
2005.



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The significant drivers of the changes in working capital during fiscal 2005
were as follows:

- The increase in accounts receivable used operating cash of $4.1 million,
prior to foreign currency translation adjustments of $0.3 million, due
principally to the growth in sales.
- The decrease in inventory provided operating cash of $4.5 million, prior to
foreign currency translation adjustments of less than $0.1 million, due
principally to our efforts to reduce required inventory levels during fiscal
2005.
- The increase in income taxes payable, net of the increase in our deferred
tax assets, provided cash from operations of approximately $1.9 million in
fiscal 2005.
- Excluding the increase in income taxes payable, our total liabilities
decreased by approximately $2.0 million, in fiscal 2005, due primarily to the
timing of payments, and we continue to have no bank debt as of June 30,
2005.

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 2005, we used $3.5 million for the
purchase of property and equipment, consistent with our plans.

Financing Activities

We received proceeds of $1.4 million from the issuance of common stock
associated with the exercise of employee stock options in fiscal 2005.

Exchange Rates

Changes in foreign currency exchange rates impacted beginning cash
balances during the year ended June 30, 2005 by approximately ($381,000).  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

On March 30, 2005, we entered into a revolving line of credit agreement
(Credit Agreement) with Wells Fargo Bank National Association.  The credit
agreement provides for borrowings for working capital and general corporate
purposes of up to $20 million and any outstanding borrowings are due and payable
in full on March 28, 2006. The Credit Agreement is secured by a first priority
lien in substantially all assets of SBS.  Interest on borrowings is set forth in
each promissory note executed under the terms of the Credit Agreement which are
either payable on a variable basis at the Wells Fargo Bank prime rate or payable
for a fixed rate term of either one, two or three months at a rate of LIBOR plus
1.75%.

Effective on May 9, 2005, the Credit Agreement was amended (First Amendment
to Credit Agreement) to modify the minimum tangible net worth requirement
defined in Section 4.9(a) of the agreement to exclude the impact of foreign
currency translation adjustments from the minimum required balance.

The terms of the Credit Agreement, as amended, require SBS to comply with
certain financial and other covenants, including but not limited to:

- an Adjusted Tangible Net Worth balance of not less than $109,129,000, plus
50% of quarterly net income beginning with the quarter ended March 31, 2005,
excluding any loss quarters, plus all proceeds from equity offerings;

- a Leverage Ratio of not greater than 0.50 to 1;

- a Quick Ratio of not less than 1.75 to 1;



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- an average Accounts Receivable Days Outstanding balance of no more than 90
days; and

- a requirement to maintain profitable operations defined as no more than two
(2) consecutive loss quarters or a net loss for the total fiscal year.

In addition, under the terms of the Credit Agreement, we are required to
maintain our primary operating accounts with Wells Fargo Bank or maintain a
balance of not less than $20 million on deposit with the bank.  As of June 30,
2005, we had not completed the transition of our primary operating accounts to
Wells Fargo Bank; however, our balance on deposit with the bank was in excess of
$20 million.

As of the date of this report, we have no borrowings outstanding under the
Credit Agreement and we were in compliance with all financial covenants required
under the terms of the amended Credit Agreement as of June 30, 2005.

We believe the funds available under the revolving line of credit agreement
and 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.  Because long-term cash flow cannot be predicted with
certainty, it is possible that we could require additional external financing in
the future and that the financing may not be available on terms acceptable to us
or at all.

Capital Resources

As of the date of this report, we do not have any material capital
expenditure commitments.

Contractual Obligations

We are 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, 2005:

`CONTRACTUAL OBLIGATIONS

                             Payments due by fiscal years ending June 30,
                         ----------------------------------------------------
                                               2007 -     2009 -    2011 and
Thousands                  Total      2006      2008       2010      beyond
-----------------------  ---------  --------- ---------  ---------  ---------
Operating lease
   obligations......... $  13,318      2,353     3,656      3,234      4,075
                         ---------  --------- ---------  ---------  ---------
Total.................. $  13,318      2,353     3,656      3,234      4,075
                         =========  ========= =========  =========  =========`

Off-Balance Sheet Arrangements

As of June 30, 2005, we had no transactions that would be considered off-
balance sheet arrangements in accordance with the definition under SEC rule.

Inflation

For the periods ended June 30, 2005, 2004 and 2003, we experienced no
significant impact from inflation.



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Business Outlook

Consistent with our press release dated August 9, 2005, fiscal year
2005 was a year of mixed results, but overall we are pleased with the long-term
partnerships we are building with our customers, and we are excited about our
future.  With the targeted investments we have made, we believe our
infrastructure is now in place for leveraged growth.  We are executing our
strategy, which we believe will deliver growth in sales and earnings over the
next several years.

In fiscal 2005, we introduced our AdvancedMC product line for communications
applications.  As a result of meetings with customers, and the industry focus on
the emerging AdvancedTCA market, we believe we have developed the right
products.  The agreement with IBM®
to develop an AdvancedMC carrier card for
IBM eServer®
BladeCenterTM systems capable of
using up to four AdvancedMC modules, which we announced in June 2005, is an
example of the type of applications we are pursuing.  The agreement will allow
us to sell the SBS carrier card along with our AdvancedMC solutions to IBM
server customers in all markets. Since we announced our AdvancedMC product line
at SUPERCOMM®
in June 2005, we have generated interest
from customers as measured by increased leads and web site inquiries.

Additionally, we have had great success in achieving design wins in the
government military systems market. Our systems are now recognized by customers
as being a cost effective open standard based solution for both flight and
mission computer applications.  We believe we will continue to close new design
wins; and since many of our existing design wins have completed the development
and qualification phase, we expect to see an increase in production orders in
fiscal year 2006; however, actual results may vary.  Increasing our presence in
the government military systems market is a key element of our growth strategy.

In the commercial market, we are pursuing opportunities by focusing our
business development efforts on semiconductor manufacturing equipment, image
processing, and medical electronics applications.  These are segments of the
commercial market that require high performance solutions which we believe are a
good fit for our product portfolio.

Looking forward, based on our forecasts, we expect that a significant amount
of our revenue growth for fiscal year 2006 will occur in the second half of the
fiscal year.  This is due to two primary factors: we expect revenues from
AdvancedMC products to begin to ramp up during the later part of the year, and
based on customers' forecasts, orders for military systems will increase as we
progress through the fiscal year.  In addition,
for fiscal year 2006, we expect sales to Ericsson to continue at
approximately the same dollar sales level compared to fiscal year 2005.
For fiscal year 2006, we expect revenue between $165 million
and $175 million; however, actual results may vary.  In addition, based on
our backlog and our customers' forecasts, we expect revenue for the first
quarter of fiscal year 2006 ending September 30, 2005 to be between $35 million
and $37 million; however, actual results may vary.  Over the past several years,
the September quarter has been the lowest sales quarter of the fiscal year, and
we expect this to continue.

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 at

Recently Issued Accounting Standards

In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 151 (SFAS 151), Inventory Costs.
SFAS 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling charges and wasted material (spoilage).  SFAS 151 requires all such
(abnormal) costs to be treated as current-period charges under all
circumstances. In addition, fixed production overhead should be allocated based
on the normal capacity of the production facilities, with unallocated overhead
charged to expense when incurred.  SFAS 151 shall be effective for inventory
costs incurred during fiscal years beginning after June 15, 2005, however,
earlier application is permitted for fiscal years beginning after the date SFAS
151 was issued.  The adoption of SFAS 151 did not have a material impact on our
financial condition, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share Based
Payment: an amendment of SFAS 123 and SFAS 95 (SFAS 123R).  SFAS 123R replaces
SFAS 123, supersedes APB 25, and amends SFAS No. 95, "Statement of
Cash Flows."  SFAS 123R requires companies to recognize in the income
statement the grant-date fair value of stock options and other equity-based
compensation issued to employees.  While the fair value method under SFAS
123R is very similar to the fair value method under SFAS 123 with respect to
measurement and recognition of stock-based compensation, management is currently



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On April 21, 2005, the Board of Directors of SBS approved the acceleration of
the vesting of all outstanding unvested stock options with an exercise price
greater than $9.22 (the Acceleration).  The Acceleration was effective for all
such options outstanding on April 21, 2005, all of which were granted by the
Company when the accounting rules permitted use of the intrinsic-value method of
accounting for stock options.  All of the other terms and conditions applicable
to such outstanding stock option grants still apply.  SBS' decision to
accelerate the vesting of these options was in anticipation of compensation
expense to be recorded subsequent to the effective date of SFAS 123R on July 1,
2005 in connection with outstanding unvested stock options issued to employees.
As a result of the Acceleration, options to purchase approximately 1.3 million
shares of SBS' common stock became immediately exercisable.  Due to the
Acceleration, SBS will not recognize future compensation expense totaling
approximately $2.5 million in fiscal years ending June 30, 2006 and beyond
(estimated using the Black-Scholes fair value model).  The $2.5 million of
stock-based compensation expense which otherwise would have been reported in
future periods, is reflected in the pro forma footnote disclosures, assuming we
had applied the fair value recognition provisions of SFAS 123, in our fiscal
year ended June 30, 2005 consolidated financial statements included elsewhere in
this Form 10-K as permitted under the provisions of SFAS 123 prior to its
revision.  We do not believe the adoption of SFAS 123R will have any significant
effect on our financial position or cash flows.  However, as a result of the
Acceleration, there are approximately 101,000 unvested stock options outstanding
as of June 30, 2005 in which the unrecognized future compensation expense was
approximately $180,000, of which $130,000 will be recorded in the fiscal year
ending June 30, 2006.

Item 7A.  Quantitative and Qualitative Disclosures
About Market Risk

SBS' 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 our 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, 2005, assets of foreign subsidiaries constituted
approximately 38% of total assets.  Foreign currency exchange rate exposure is
most significant with respect to the Euro.  For the fiscal year ended
June 30, 2005, net sales were positively impacted by the appreciation of
foreign currencies, primarily the Euro, versus the U.S. dollar by approximately
                                                                                                                                                                                                                                            ERR

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



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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 (SBS
Technologies) as of June 30, 2005 and 2004, and the related consolidated
statements of operations, changes in stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended June
30, 2005. 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, 2005 and
2004, and the results of their operations and their cash flows for each of the
years in the three-year period ended June 30, 2005, in conformity with U.S.
generally accepted accounting principles.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the effectiveness of
SBS Technologies' internal control over financial reporting as of June 30, 2005,
based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated September 2, 2005 expressed an unqualified opinion
on management's assessment of, and the effective operation of, internal control
over financial reporting.

KPMG LLP

Albuquerque, New Mexico 
September 2, 2005



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Report of Independent Registered Public Accounting
Firm

The Board of Directors
SBS Technologies, Inc.:

We have audited management's assessment, included in the
accompanying Management's Report on Internal Control Over Financial Reporting,
that SBS Technologies, Inc. (SBS Technologies) maintained effective internal
control over financial reporting as of June 30, 2005, based on criteria
established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management of SBS Technologies, Inc. is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the company's internal control over financial reporting based
on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting 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 the 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.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that SBS Technologies
maintained effective internal control over financial reporting as of June 30,
2005, is fairly stated, in all material respects, based on the criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).  Also, in our
opinion, SBS Technologies maintained, in all material respects, effective
internal control over financial reporting as of June 30, 2005, based on the
criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of SBS Technologies, Inc. and subsidiaries as of June 30, 2005
and 2004, and the related consolidated statements of operations, changes in
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended June 30, 2005 and our report dated
September 2, 2005 expressed an unqualified opinion on those consolidated
financial statements.

KPMG LLP

Albuquerque, New Mexico 
September 2, 2005



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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

`June 30,           June 30,
                                                                       2005               2004
                                                                 ----------------   ----------------
                     ASSETS (note 6)                        Thousands (except share amounts)
Current assets:
  Cash and cash equivalents.................................... $         55,195   $         47,943
  Receivables, net ............................................           27,535             23,776
  Inventories..................................................           21,815             26,249
  Income tax receivable........................................               --                983
  Deferred income taxes........................................            1,361              1,351
  Prepaid expenses.............................................            1,676              1,573
  Other current assets.........................................              718                332
                                                                 ----------------   ----------------
    Total current assets.......................................          108,300            102,207

Property and equipment, net....................................            7,635              7,979
Goodwill.......................................................           16,995             16,734
Intangible assets, net.........................................            3,108              4,764
Deferred income taxes..........................................           15,529             13,173
Other assets...................................................              891                279
                                                                 ----------------   ----------------
    Total assets............................................... $        152,458   $        145,136
                                                                 ================   ================
           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable............................................. $          4,509   $          6,854
  Accrued representative commissions...........................              819                889
  Income taxes payable.........................................            3,051                 --
  Accrued compensation.........................................            4,851              4,893
  Accrued severance and consolidation costs....................              424                870
  Other current liabilities ...................................            2,785              1,986
                                                                 ----------------   ----------------
    Total current liabilities..................................           16,439             15,492
Other long-term liabilities....................................              132                 17
                                                                 ----------------   ----------------
    Total liabilities..........................................           16,571             15,509
                                                                 ----------------   ----------------
Commitments and contingencies (notes 6, 10, 12, 15 and 16)

Stockholders' equity:
  Common stock, no par value; 200,000,000 shares authorized;
    15,645,929 issued and outstanding at June 30, 2005,
    15,496,949 issued and outstanding at June 30, 2004                    98,369             96,601
  Unearned compensation .......................................              (84)               (29)
  Accumulated other comprehensive income.......................            2,014              1,891
  Retained earnings............................................           35,588             31,164
                                                                 ----------------   ----------------
    Total stockholders' equity.................................          135,887            129,627
                                                                 ----------------   ----------------
    Total liabilities and stockholders' equity................. $        152,458   $        145,136
                                                                 ================   ================`

See accompanying notes to consolidated financial statements

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

`Years ended June 30,
                                                          -------------------------------------------
                                                              2005           2004            2003
                                                          -------------  -------------  -------------
                                                                Thousands (except per share amounts)

Sales................................................... $     152,437  $     133,874  $     115,521
Cost of sales:
  Cost of products sold.................................        84,379         69,145         58,002
  Amortization of intangible assets.....................         1,542          1,578          1,553
                                                          -------------  -------------  -------------
    Total cost of sales.................................        85,921         70,723         59,555
                                                          -------------  -------------  -------------
Gross profit............................................        66,516         63,151         55,966

Selling, general and administrative expense.............        35,746         32,504         33,608
Research and development expense........................        24,919         20,552         18,077
Employee severance and consolidation costs..............            --          2,400          1,729
Amortization of intangible assets.......................           303            563            387
                                                          -------------  -------------  -------------
Operating income........................................         5,548          7,132          2,165
                                                          -------------  -------------  -------------
Interest and other income, net..........................           941            634            434
Foreign exchange losses.................................           (77)          (348)          (207)
                                                          -------------  -------------  -------------
                                                                   864            286            227
                                                          -------------  -------------  -------------
Income before income taxes and cumulative
    effect of change in accounting principle............         6,412          7,418          2,392
Income tax expense......................................         1,988          2,225            784
                                                          -------------  -------------  -------------
Income before cumulative effect of
    change in accounting principle......................         4,424          5,193          1,608
Cumulative effect of change in accounting
    principle (net of income tax benefit of $3,412).....            --             --         (6,058)
                                                          -------------  -------------  -------------
Net income (loss)....................................... $       4,424  $       5,193  $      (4,450)
                                                          =============  =============  =============

Earnings per share data:
Net income (loss) per share:
  Income before cumulative effect....................... $        0.28  $        0.34  $        0.11
  Cumulative effect of change in accounting principle...            --             --          (0.41)
                                                          -------------  -------------  -------------
Net income (loss)....................................... $        0.28  $        0.34  $       (0.30)
                                                          =============  =============  =============
Weighted average shares used in net income
  per share computations..................................      15,567         15,146         14,605
                                                          =============  =============  =============
Net income (loss) per share - assuming dilution:
  Income before cumulative effect....................... $        0.28  $        0.34  $        0.11
  Cumulative effect of change in accounting principle...            --             --          (0.41)
                                                          -------------  -------------  -------------
Net income (loss)....................................... $        0.28  $        0.34  $       (0.30)
                                                          =============  =============  =============
Weighted average shares used in net income
  per share - assuming dilution computations..............      15,718         15,477         14,630
                                                          =============  =============  =============`

See accompanying notes to consolidated financial statements

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Years Ended June 30, 2005, 2004 and 2003

`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, 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
Comprehensive income (loss):
  Net loss..........................................         --         --         --         --     (4,450)    (4,450) $  (4,450)
  Other comprehensive income:
    Foreign currency translation adjustments........         --         --         --      3,370         --      3,370      3,370
                                                                                                                         ---------
    Comprehensive income (loss).....................                                                                    $  (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
Comprehensive income:
  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
Exercise of stock options...........................    142,730      1,374         --         --         --      1,374
Restricted stock awards issued to directors ........      6,250        248       (248)        --         --         --
Stock-based compensation............................         --         --        193         --         --        193
Income tax benefit from stock option exercises .....         --        146         --         --         --        146
Comprehensive income:
  Net income........................................         --         --         --         --      4,424      4,424  $   4,424
  Other comprehensive income:
    Foreign currency translation adjustments........         --         --         --        123         --        123        123
                                                                                                                         ---------
    Comprehensive income............................                                                                    $   4,547
                                                     -----------  ---------  ---------  ---------  ---------  ---------  =========
Balances at June 30, 2005........................... 15,645,929  $  98,369  $     (84) $   2,014  $  35,588  $ 135,887
                                                     ===========  =========  =========  =========  =========  =========`

See accompanying notes to consolidated financial statements

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

`Years ended June 30,
                                                                  -------------------------------------
                                                                      2005         2004         2003
                                                                  -----------  -----------  -----------
                                                                                 Thousands
Cash flows from operating activities:
  Net income (loss)............................................. $     4,424  $     5,193  $    (4,450)
  Cumulative effect of change in accounting principle, net......          --           --        6,058
                                                                  -----------  -----------  -----------
  Income before cumulative effect of change.....................       4,424        5,193        1,608
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and amortization.............................       5,737        6,040        6,851
      Bad debt expense..........................................          39           81          458
      Deferred income taxes.....................................      (2,216)      (1,794)       6,200
      Income tax benefit from stock option exercises............         146          951           --
      (Gain) loss on disposition of assets......................          (9)           6           16
      Foreign exchange losses...................................          77          348          207
      Non-cash compensation.....................................          --           80           --
      Stock-based compensation, including restricted
       stock awards issued to directors.........................         193           96          275
      Changes in assets and liabilities (net of acquisitions):
        Receivables.............................................      (4,075)        (371)        (288)
        Inventories.............................................       4,483       (9,114)       2,212
        Prepaid expenses and other..............................      (1,104)         217         (614)
        Accounts payable........................................      (2,406)       2,682         (667)
        Accrued representative commissions......................         (68)         191          153
        Income taxes............................................       4,102        3,835           73
        Accrued compensation....................................         (26)         229          455
        Accrued severance and consolidation costs...............        (446)         646           --
        Other liabilities.......................................         945       (1,027)        (107)
                                                                  -----------  -----------  -----------
        Net cash provided by operating activities...............       9,796        8,289       16,832

Cash flows from investing activities:
  Business acquisitions, net of cash acquired...................          --          104       (2,643)
  Acquisition of property and equipment.........................      (3,510)      (3,387)      (1,431)
  Purchase of license agreement.................................         (27)          --         (325)
  Other.........................................................          --           --            9
                                                                  -----------  -----------  -----------
        Net cash used by investing activities...................      (3,537)      (3,283)      (4,390)

Cash flows from financing activities:
  Payments on notes payable.....................................          --           --         (148)
  Repurchase and retirement of common stock.....................          --           --         (321)
  Proceeds from exercise of stock options.......................       1,374        5,646           13
                                                                  -----------  -----------  -----------
        Net cash provided (used) by financing activities........       1,374        5,646         (456)
Effect of exchange rate changes on cash.........................        (381)         161          333
                                                                  -----------  -----------  -----------
        Net change in cash and cash equivalents.................       7,252       10,813       12,319
Cash and cash equivalents at beginning of period................      47,943       37,130       24,811
                                                                  -----------  -----------  -----------
Cash and cash equivalents at end of period...................... $    55,195  $    47,943  $    37,130
                                                                  ===========  ===========  ===========

                                                                                            (Continued)`

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

`Years ended June 30,
                                                                  -------------------------------------
                                                                      2005         2004         2003
                                                                  -----------  -----------  -----------
                                                                          --
Supplemental disclosure of cash flow information:
  Interest paid................................................. $        --  $        --  $        12
                                                                  ===========  ===========  ===========
  Income taxes paid (received), net............................. $       792  $      (727) $    (4,256)
                                                                  ===========  ===========  ===========

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
    Property and equipment, net................................. $        --  $        --  $       388
    Deferred income taxes....................................... $        --  $        --  $       280
    Goodwill.................................................... $        --  $        --  $     3,496
    Intangible assets........................................... $        --  $        --  $        67
    Identifiable intangible assets.............................. $        --  $        --  $     2,170
    Current liabilities......................................... $        --  $        --  $      (473)
    Notes payable............................................... $        --  $        --  $      (148)`

See accompanying notes to consolidated financial statements

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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 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
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, 2005, substantially all cash was held at three 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
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 Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" (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 No. 141,
"Business Combinations." The residual fair value after this allocation
would be the implied fair value of the reporting unit goodwill.

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company adopted the provisions of 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.

Amortization expense associated with completed technology
assets and license agreements is recorded as a separate component of cost of
sales over their respective estimated useful lives consistent with the
requirements of SFAS No. 86, "Accounting for the Costs of Computer Software
to Be Sold, Leased, or Otherwise Marketed."  The Company reclassified
intangible asset amortization associated with completed technology assets and
license agreements of approximately $1.5 million and $1.6 million to costs of
sales in the fiscal years ended June 30, 2004 and 2003, respectively, that was
previously reflected in the caption "amortization of intangible
assets" within costs of operations.

(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 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 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.

(g)	Revenue Recognition

The Company accounts for revenue recognition based on the
guidance in Staff Accounting Bulletin No. 104, "Revenue Recognition in
Financial Statements." 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. Our standard terms and conditions contain the shipping terms of FOB
shipping point, which provide for transfer of title and risk of loss upon our
delivery to the carrier. 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

The Company 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. Valuation
allowances are established when the Company determines it is more likely than
not that all or a portion of a deferred tax asset will not be realized.

(i)	Financial Instruments

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

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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 financial statement
presentation.  The reclassifications had no effect on net income, earnings per
share, total assets, total liabilities or shareholders' equity.

(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)                                   ---------------------------------------
                                                                2005          2004          2003
                                                             -----------   -----------   -----------  
Net income (loss), as reported............................. $     4,424   $     5,193   $    (4,450)
Add: stock-based employee compensation
  expense included in reported net income
  (loss), net of related tax effects.......................         118            58           167
Deduct: stock-based employee compensation
  expense determined under fair value method
  for all awards, net of related tax effects...............      (4,934)       (1,714)       (3,341)
                                                             -----------   -----------   -----------
Pro forma net income (loss)................................ $      (392)  $     3,537   $    (7,624)
                                                             ===========   ===========   ===========
Net income (loss) per common share:
  As reported.............................................. $      0.28   $      0.34   $     (0.30)
                                                             ===========   ===========   ===========
  Pro forma................................................ $     (0.03)  $      0.23   $     (0.52)
                                                             ===========   ===========   ===========
Net income (loss) per common share - assuming dilution:
  As reported.............................................. $      0.28   $      0.34   $     (0.30)
                                                             ===========   ===========   ===========
  Pro forma................................................ $     (0.03)  $      0.23   $     (0.52)
                                                             ===========   ===========   ===========`

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On April 21, 2005, the Board of Directors of SBS approved the
acceleration of the vesting of all outstanding unvested stock options with an
exercise price greater than $9.22 (the Acceleration).  The Acceleration was
effective for all such options outstanding on April 21, 2005, all of which were
granted by the Company when the accounting rules permitted use of the intrinsic-
value method of accounting for stock options.  All of the other terms and
conditions applicable to such outstanding stock option grants still apply.
Under APB 25, the Acceleration did not result in recognition of stock-based
compensation expense because the exercise price for all stock options subject to
the Acceleration was in excess of the then current market price.  The Company's
decision to accelerate the vesting of these options was in anticipation of
compensation expense to be recorded in connection with outstanding unvested
stock options issued to employees subsequent to the effective date of SFAS 123
(Revised 2004), "Share Based Payment," issued in December 2004.  As a
result of the Acceleration, options to purchase 1,299,258 shares of the
Company's common stock became immediately exercisable and the Company will not
recognize future compensation expense totaling approximately $2.5 million
(estimated using the Black-Scholes fair value model) in fiscal years ending June
30, 2006 and beyond.  The pro forma footnote disclosures above assuming we had
applied the fair value recognition provisions of SFAS 123 include $2.5 million
of stock-based compensation expense in fiscal 2005 as a result of the
Acceleration as permitted under the provisions of SFAS 123 prior to its
revision.  As of June 30, 2005, there are 101,334 unvested stock options
outstanding with unrecognized future compensation expense of approximately
$180,000.

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 $4.92, $5.89, and $4.23 during the fiscal years ended June
30, 2005, 2004, and 2003,  respectively.  The fair value was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:

`2005          2004          2003
                                                             -----------   -----------   -----------  
Expected life (years)......................................        2.68          2.72          2.40
Risk free interest rate....................................        3.02 %        2.28 %        2.39 %
Volatility.................................................       56.51 %       76.26 %       77.93 %
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.

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2)	Receivables

Receivables, net consisted of the following:

`Thousands                                                  June 30,
                                                   ------------------------
                                                      2005         2004
                                                   -----------  -----------                             
Accounts receivable.............................. $    27,836  $    24,335
  Allowance for doubtful accounts:
    Beginning balance............................        (559)        (836)
      Provision for bad debts....................         (96)         (81)
      Accounts written off and foreign
        currency translation adjustments.........         354          358
                                                   -----------  -----------
    Ending balance...............................        (301)        (559)
                                                   -----------  -----------
Accounts receivable, net......................... $    27,535  $    23,776
                                                   ===========  ===========`

3)	Inventories

Inventories consisted of the following:

`June 30,
                                                   ------------------------
Thousands                                             2005         2004
                                                   -----------  -----------                             
Raw materials.................................... $     9,711  $    12,279
Work in process..................................       3,880        6,596
Finished goods...................................       8,224        7,374
                                                   -----------  -----------
                                                  $    21,815  $    26,249
                                                   ===========  ===========`

4)	Property and Equipment

Property and equipment, net consisted of the following:

`June 30,
Thousands                                           Estimated   ------------------------
                                                   useful life     2005         2004
                                                   -----------  -----------  -----------
Computers........................................   3 - 5 yrs  $     6,256  $     5,848
Purchased software...............................   3 - 5 yrs        8,862        8,682
Furniture and equipment..........................  3 - 10 yrs        8,461        7,478
Leasehold improvements...........................  2 - 10 yrs        3,062        3,488
                                                                -----------  -----------
                                                                    26,641       25,496
Less accumulated depreciation
  and amortization...............................                  (19,006)     (17,517)
                                                                -----------  -----------
                                                               $     7,635  $     7,979
                                                                ===========  ===========`

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 consolidated statements of operations, related to certain leasehold
improvements in connection with the announcement of the closure of its Carlsbad,
California facility.  The impairment charge was recognized as the amount 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.

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5)	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 (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
is reflected as a cumulative effect of a change in accounting principle in the
year ended June 30, 2003 in the accompanying consolidated statements of
operations.

On April 1, 2005 and 2004, the Company completed step 1 of
the required annual goodwill impairment analysis for the fiscal years ended June
30, 2005 and 2004, 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.

Changes in the carrying amount of goodwill for the years
ended June 30, 2005 and 2004 are as follows:

`Total Goodwill by Operating Segment

                                                    Americas      Europe
Thousands                                             Group        Group        Total
                                                   -----------  -----------  -----------
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

  Foreign currency translation
    adjustments..................................         281          (20)         261
                                                   -----------  -----------  -----------
Balance at June 30, 2005......................... $     3,697  $    13,298  $    16,995
                                                   ===========  ===========  ===========`

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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, 2005                                                              
  Completed technology.......... 2 - 7 yrs  $    9,816  $      7,767  $    2,049
  License agreements............ 2 - 5 yrs       2,452         2,345         107
  Covenant not-to-compete....... 3 - 5 yrs       2,965         2,176         789
  Other intangibles............. 8 - 17 yrs        376           213         163
                                             ----------  ------------  ----------
        Total                               $   15,609  $     12,501  $    3,108
                                             ==========  ============  ==========
As of June 30, 2004                                                              
  Completed technology..........            $    9,724  $      6,767  $    2,957
  License agreements............                 2,425         1,781         644
  Covenant not-to-compete.......                 2,852         1,890         962
  Other intangibles.............                   368           167         201
                                             ----------  ------------  ----------
        Total...................            $   15,369  $     10,605  $    4,764
                                             ==========  ============  ==========`

Intangible asset amortization expense associated with
completed technology (acquired in prior business combination transactions) and
license agreements is included as a separate component of cost of sales in the
accompanying consolidated statements of operations.  Amortization expense
associated with covenants not-to-compete and other intangible assets are
reflected in the caption "amortization of intangible assets" within
the costs of operations section in the accompanying consolidated statements of
operations.

The following table summarizes estimated future amortization
expense.

`Estimated amortization expense:                                        Thousands
  For the fiscal years ending:
      June 30, 2006.................................................. $      1,337
      June 30, 2007..................................................        1,209
      June 30, 2008..................................................          520
      June 30, 2009..................................................            5
      June 30, 2010..................................................            5
      Thereafter.....................................................           32
                                                                       ------------
                                                                      $      3,108
                                                                       ============`

6)	Revolving Line of Credit

On March 30, 2005, SBS entered into a revolving line of
credit agreement (Credit Agreement) with Wells Fargo Bank National Association.
The Credit Agreement provides for borrowings for working capital and general
corporate purposes of up to $20 million and any outstanding borrowings are due
and payable in full on March 28, 2006.  The Credit Agreement is secured by
a first priority lien in substantially all assets of SBS.  Interest on
borrowings is set forth in each promissory note executed under the terms of the
Credit Agreement which are either payable on a variable basis at the Wells Fargo
Bank prime rate or payable for a fixed rate term of either one, two or three
months at a rate of LIBOR plus 1.75%.  During the year ended June 30, 2005,
there were no borrowings under the Credit Agreement.

Effective on May 9, 2005, the Credit Agreement was amended
(First Amendment to Credit Agreement) to modify the minimum tangible net worth
requirement defined in Section 4.9(a) of the agreement to exclude the impact of foreign

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

currency translation adjustments from the minimum required balance.  The
terms of the Credit Agreement, as amended, require SBS to comply with certain
financial and other covenants, including but not limited to:



- an Adjusted Tangible Net Worth balance of not less than $109,129,000, plus
50% of quarterly net income beginning with the quarter ended March 31, 2005,
excluding any loss quarters, plus all proceeds from equity offerings;

- a Leverage Ratio of not greater than 0.50 to 1;

- a Quick Ratio of not less than 1.75 to 1;

- an average Accounts Receivable Days Outstanding balance of no more than 90
days; and

- a requirement to maintain profitable operations defined as no more than two
consecutive loss quarters or a net loss for the total fiscal year.

In addition, under the terms of the Credit Agreement, SBS is
required to maintain its primary operating accounts with Wells Fargo Bank or
maintain a balance of not less than $20 million on deposit with the bank. As of
June 30, 2005, SBS had started the process of maintaining the Company's primary
operating accounts at Wells Fargo Bank; however, this process was not complete.
As of June 30, 2005, the Company's balance on deposit with Wells Fargo Bank was
in excess of the $20 million requirement. As of June 30, 2005, SBS is in
compliance with all financial covenants required under the terms of the amended
Credit Agreement.

7)	Product Warranty Liability

The Company

The following table presents the activity in the
Company

`Years ended June 30,
                                                         --------------------------
Thousands                                                    2005          2004
                                                         ------------  ------------  
Balance at beginning of period......................... $        599           548
  Estimated warranty costs for product sales...........          895           917
  Adjustments to settle warranty activity..............         (729)         (866)
                                                         ------------  ------------
Balance at end of period............................... $        765           599
                                                         ============  ============`

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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,
                                                             ---------------------------------------
                                                                2005          2004          2003
                                                             -----------   -----------   -----------  
U.S........................................................ $    (4,835)  $     1,663   $    (2,142)
Foreign....................................................      11,247         5,755         4,534
                                                             -----------   -----------   -----------
                                                            $     6,412   $     7,418   $     2,392
                                                             ===========   ===========   ===========`

Total income taxes for the years ended June 30, 2005, 2004
and 2003 were allocated as follows:

`Thousands                                                              Years ended June 30,
                                                             ---------------------------------------
                                                                2005          2004          2003
                                                             -----------   -----------   -----------  
Income from continuing operations.......................... $     1,988   $     2,225   $       784
Cumulative effect of change in
  accounting principle.....................................          --            --        (3,412)
                                                             -----------   -----------   -----------
                                                            $     1,988   $     2,225   $    (2,628)
                                                             ===========   ===========   ===========`

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

`Thousands                                                              Years ended June 30,
                                                             ---------------------------------------
                                                                2005          2004          2003
                                                             -----------   -----------   -----------  
Current:
  U.S. Federal............................................. $      (331)  $        --   $    (6,793)
  State....................................................          99           230           107
  Foreign..................................................       4,278         2,168         1,271
                                                             -----------   -----------   -----------
                                                                  4,046         2,398        (5,415)
Deferred:
  U.S. Federal.............................................      (3,298)          757         5,345
  State....................................................         765          (508)          506
  Foreign..................................................         475          (422)          348
                                                             -----------   -----------   -----------
                                                                 (2,058)         (173)        6,199
                                                             -----------   -----------   -----------
                                                            $     1,988   $     2,225   $       784
                                                             ===========   ===========   ===========`

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,
                                                             ---------------------------------------
                                                                2005          2004          2003
                                                             -----------   -----------   -----------  
Computed "expected" tax expense (benefit)..................        35.0 %        35.0 %        35.0 %
State income taxes, net of federal benefit
  and impact of valuation allowance........................         8.7          (2.4)         16.6
Foreign operations, net of impact of valuation allowance...        (6.2)         (1.6)         25.1
Benefit from foreign sales.................................        (1.3)         (1.8)         (4.4)
Research and experimental tax credits......................        (4.7)          0.3          (3.2)
Change in federal valuation allowance......................          --            --         (33.0)
Other......................................................        (0.5)          0.5          (3.3)
                                                             -----------   -----------   -----------
                                                                   31.0 %        30.0 %        32.8 %
                                                             ===========   ===========   ===========`

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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.  At June 30, 2005, the undistributed earnings of foreign
subsidiaries amounted to approximately $34.6 million.  Upon distribution of
these earnings, 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.

The American Jobs Creation Act of 2004 (the Act) created a
temporary incentive for U.S. companies to repatriate non-U.S. earnings at a
5.25% tax rate rather than the normal U.S. tax rate of 35% provided that certain
criteria, including qualified U.S. reinvestment, are met.  Available tax credits
related to the repatriated earnings would be reduced.  The Company may apply
this provision of the Act to qualifying earnings repatriation through June 30,
2006.  In December 2004, the Financial Accounting Standards Board issued Staff
Position No. FSP 109-2, "Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of
2004" (FSP 109-2).  FSP 109-2 provides that an enterprise is allowed time
beyond the financial reporting period of enactment to evaluate the effect of the
new tax law on its plan for applying SFAS No. 109, "Accounting for Income
Taxes."  The Company has not yet completed its evaluation of the tax law on
its plan for repatriation and, as such, has not adjusted its tax expense or
deferred tax liability as of June 30, 2005 to reflect the possible effect of the
new provision.  Income tax expense, if any, associated with any repatriation
under the Act will be provided in the company's consolidated financial
statements in the quarter in which the required management and board approvals
have been completed.

`Thousands                                                                           June 30,
                                                                           -------------------------
                                                                              2005          2004
                                                                           -----------   -----------  
Deferred tax assets:
  Operating loss and tax credit carryforwards...........................  $    10,852   $     7,571
  Foreign tax credits...................................................        4,809         2,747
  Amortization..........................................................        4,716         5,584
  Inventory.............................................................        1,615         1,376
  Accrued expenses and reserves.........................................        1,256         1,351
  Other.................................................................          799           342
                                                                           -----------   -----------
                                                                               24,047        18,971
Valuation allowance for State and Foreign operating
  loss and tax credit carryforwards.....................................        3,111         1,336
                                                                           -----------   -----------
      Total deferred tax assets.........................................  $    20,936   $    17,635
                                                                           -----------   -----------
Deferred tax liabilities:
  Foreign dividends.....................................................  $    (2,845)  $    (1,812)
  Occupancy and other expenses..........................................       (1,201)       (1,299)
                                                                           -----------   -----------
      Total deferred tax liabilities....................................  $    (4,046)  $    (3,111)
                                                                           -----------   -----------
      Net deferred tax assets...........................................  $    16,890   $    14,524
                                                                           ===========   ===========`

At June 30, 2005, the Company has net operating loss
carryforwards for U.S. Federal income tax purposes of $9.7 million which are
available to offset future U.S. Federal taxable income, if any, through 2025.
At June 30, 2005, the Company has general business credit carryforwards for U.S.
Federal income tax purposes of approximately $1.1 million which are available to
offset future U.S. Federal tax payments, if any, through 2025. At June 30, 2005,
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 $0.7 million, which are available to offset future
State taxable income, if any, through 2010.  The valuation allowance, which
increased approximately $1.8 million during the year ended June 30, 2005,
applies to certain U.S. State and foreign operating loss carryforwards that, in
the opinion of management, may expire unused due to uncertainty regarding future
taxable income.

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of June 30, 2005, SBS has foreign tax credit carryforwards
of approximately $4.8 million, which are available to offset future U.S. Federal
tax liabilities from foreign source income, if any, through 2015.  Excess
foreign tax credits may be carried back one year and forward ten years.  Due to
the consideration of the repatriation of undistributed foreign earnings to the
extent necessary to utilize excess foreign tax credits, as a source of foreign
income in future periods, management established a deferred tax liability of
approximately $2.8 million and $1.8 million as of June 30, 2005 and 2004,
respectively.

At June 30, 2005, the Company has foreign net operating loss
and tax credit carryforwards, net of the associated valuation allowance, of
approximately $5.4 million which are available to offset future taxable income,
some of which are scheduled to begin to expire in 2010, 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

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,
                                                         ----------------------------------------
                                                             2005          2004          2003
                                                         ------------  ------------  ------------           
Income before cumulative effect of change
   in accounting principle............................. $      4,424  $      5,193  $      1,608
Cumulative effect of change in accounting principle....           --            --        (6,058)
                                                         ------------  ------------  ------------
Net income (loss)...................................... $      4,424  $      5,193  $     (4,450)
                                                         ============  ============  ============           
Net income (loss) per common share                                                                          
  Weighted-average common shares outstanding
    used in earnings per share computations............       15,567        15,146        14,605
                                                         ============  ============  ============
  Income before cumulative effect of change
    in accounting principle............................ $       0.28  $       0.34  $       0.11
  Cumulative effect of change in accounting principle..           --            --         (0.41)
                                                         ------------  ------------  ------------
  Net income (loss).................................... $       0.28  $       0.34  $      (0.30)
                                                         ============  ============  ============           
Net income (loss) per common share -
  assuming dilution                                                                                         
  Weighted-average common shares outstanding
   used in earnings per share computations.............       15,718        15,477        14,630
                                                         ============  ============  ============
  Income before cumulative effect of change
   in accounting principle............................. $       0.28  $       0.34  $       0.11
  Cumulative effect of change in accounting principle..           --            --         (0.41)
                                                         ------------  ------------  ------------
  Net income (loss).................................... $       0.28  $       0.34  $      (0.30)
                                                         ============  ============  ============
                                                                                                            
Shares used in net income (loss) per share
  computations                                                                                              
  Average outstanding common shares....................       15,567        15,146        14,605
  Incremental shares from assumed conversions -
    potential common shares ...........................          151           331            25
                                                         ------------  ------------  ------------
  Shares used in net income (loss) per common
    share - assuming dilution..........................       15,718        15,477        14,630
                                                         ============  ============  ============`

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

For the years ended June 30, 2005, 2004, and 2003, options to
purchase 2,362,016, 1,551,073, and 3,243,859 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 2015.  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 15).  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, 2005 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.

In July 2005, we executed an
amendment to the lease for the SBS facility located in St.
Paul, Minnesota which extended the term of the lease through January
2011.  The lease payments for the amended lease
are included in the future minimum lease payments reflected below.

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, 2006........................................ $     2,241   $       112   $     2,353
      June 30, 2007........................................       1,868            82         1,950
      June 30, 2008........................................       1,695            11         1,706
      June 30, 2009........................................       1,603             9         1,612
      June 30, 2010........................................       1,621             1         1,622
                                                             -----------   -----------   -----------
                                                            $     9,028   $       215   $     9,243
                                                             ===========   ===========   ===========`

Total rental expense for operating leases for the years ended
June 30, 2005, 2004, and 2003, was approximately 
$3.1 million, $3.1 million, and $3.6 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.  Options granted under the plans may be exercised as provided by the
administering committee or Board of Directors of SBS.  All of these options are
exercisable at the quoted market value of SBS

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(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

(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 approved at the December 2000
reconvened Annual Shareholders

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Information regarding SBS'stock option plans is summarized in the table
below:

`ALL        1993        1996     1998 LT     2000 LT
                                   ISOPs        D&O        ESPP       Plan       Plan        Total
                                 ---------- ----------- ---------- ---------- ----------- ------------
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                         45,006      36,979    107,450    129,458     160,470      479,363
                                 ---------- ----------- ---------- ---------- ----------- ------------
Outstanding at June 30, 2004       250,000     585,000    119,650    903,123   1,094,732    2,952,505

  Granted                           10,000     155,000         --    595,700      72,500      833,200
  Exercised                             --       3,000     88,050     10,878      40,802      142,730
  Cancelled                             --      42,000     31,600     74,550      97,411      245,561
                                 ---------- ----------- ---------- ---------- ----------- ------------
Outstanding at June 30, 2005       260,000     695,000         --  1,413,395   1,029,019    3,397,414
                                 ========== =========== ========== ========== =========== ============`

`ALL        1993        1996     1998 LT     2000 LT
                                   ISOPs        D&O        ESPP       Plan       Plan        Total
                                 ---------- ----------- ---------- ---------- ----------- ------------
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
Exercisable at June 30, 2005       250,000     617,000         --  1,413,395   1,015,685    3,296,080
                                 ========== =========== ========== ========== =========== ============
Available for grant at
  June 30, 2005                    127,000   1,473,209         --    260,723     542,820    2,403,752
                                 ========== =========== ========== ========== =========== ============`

Weighted average option exercise price information
follows:

`Years ended June 30,
                                                             ---------------------------------------
                                                                2005          2004          2003
                                                             -----------   -----------   -----------  
Outstanding at July 1...................................... $     14.91   $     15.08   $     16.60
Granted at market during the year..........................       13.01         12.23          9.53
Exercised during the year..................................        9.63         11.37          2.41
Cancelled during the year..................................       18.72         16.57         17.84
Outstanding at June 30.....................................       14.39         14.91         15.08
Exercisable at June 30.....................................       14.58         16.40         16.68`

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Significant option groups outstanding and exercisable at June
30, 2005 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 - $ 10.85        690,489     7.06     $     9.37      589,155  $     9.59
 $ 10.94 - $ 12.49        795,169     7.73          12.22      795,169       12.22
 $ 12.69 - $ 14.50        824,106     6.55          13.63      824,106       13.63
 $ 14.61 - $ 17.00        737,650     4.76          15.77      737,650       15.77
 $ 17.47 - $ 36.13        350,000     5.18          28.08      350,000       28.08
                      ------------ -----------  ---------- ------------  ----------
 $  5.44 - $ 36.13      3,397,414     6.40     $    14.39    3,296,080  $    14.58
                      ============                         ============`

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, 2005, 2004, and 2003, were approximately
$1.0 million, $0.9 million, and $1.0 million, respectively.

13)	Segment Financial Data

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 sales, engineering and test activities in Albuquerque, New Mexico;
Mansfield, Massachusetts; Newark, California; Raleigh, North Carolina; St. Paul,
Minnesota; and Waterloo, Ontario, Canada; the manufacturing and assembly
operations located in St. Paul, Minnesota and Albuquerque, New Mexico; 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 sales,
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.

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

`Americas     Europe     Corporate &
Thousands                                    Group       Group     Unallocated (1)   Total
                                           ----------  ----------  --------------  ----------
Years ended June 30:                                                                          
Gross Sales                         2005  $  104,593      66,462              --  $  171,055
Inter-segment sales                           (8,209)    (10,409)             --     (18,618)
                                           ----------  ----------  --------------  ----------
Sales to external customers               $   96,384      56,053              --  $  152,437

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

Interest and other income, net      2005  $       --         182             759  $      941
                                    2004          --         134             500         634
                                    2003          --         109             325         434

Depreciation and                    2005  $    2,337         461           2,939  $    5,737
  amortization                      2004       2,437         343           3,260       6,040
                                    2003       2,768         214           2,998       5,980

Segment profit (income (loss)
  before taxes)                     2005  $    7,037      12,984         (13,609) $    6,412
                                    2004      12,864       7,540         (12,986)      7,418
                                    2003      10,073       5,138         (12,819)      2,392
                                                                                              
As of June 30:                                                                                
Total assets                        2005  $   34,349      38,067          80,042  $  152,458
                                    2004      39,640      26,531          78,965     145,136`



|(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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14)	Geographic Areas and Major Customers

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

`Years ended June 30,
                                                             ---------------------------------------
Thousands                                                       2005          2004          2003
                                                             -----------   -----------   -----------
Sales to external customers based
  on location of product shipment:                                                                    
    United States.......................................... $    94,747        95,966        94,268
    Germany................................................      56,053        36,808        21,253
    Canada.................................................       1,637         1,100            --
                                                             -----------   -----------   -----------
                                                            $   152,437       133,874       115,521
                                                             ===========   ===========   ===========`

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Geographic information for long-lived assets by country of
domicile are as follows:

`June 30,
                                                             -------------------------
Thousands                                                       2005          2004
                                                             -----------   -----------
Long-lived assets by country of
  domicile:                                                                                           
    United States.......................................... $     5,434         6,028
    Germany................................................       1,747         1,516
    Canada.................................................         372           435
    China..................................................          82            --
                                                             -----------   -----------
                                                            $     7,635         7,979
                                                             ===========   ===========`

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)                                         2005               2004               2003
                                                        ------------------ ------------------ ----------------
                                                          Sales     %        Sales     %        Sales     %
                                                        --------- ------   --------- ------   --------- ------  
United States......................................... $  88,424   58.0 % $  91,636   68.4 % $  83,298   72.1 %
Sweden................................................    26,382   17.3 %    11,930    8.9 %     2,002    1.7 %
Germany...............................................     7,982    5.2 %     7,205    5.4 %     6,533    5.7 %
Japan.................................................     5,533    3.6 %     5,231    3.9 %     3,835    3.3 %
France................................................     5,259    3.4 %     4,054    3.0 %     2,964    2.6 %
Denmark...............................................     4,879    3.2 %     2,665    2.0 %     3,019    2.6 %
United Kingdom........................................     2,235    1.5 %     2,289    1.7 %     3,107    2.7 %
Hong Kong.............................................     1,828    1.2 %       769    0.6 %       812    0.7 %
Canada................................................     1,688    1.1 %     1,046    0.8 %     1,546    1.3 %
Switzerland...........................................     1,310    0.9 %     2,195    1.6 %       519    0.4 %
Korea.................................................       641    0.4 %       963    0.7 %     1,167    1.0 %
All others............................................     6,276    4.2 %     3,891    3.0 %     6,719    5.9 %
                                                        --------- ------   --------- ------   --------- ------
                                                       $ 152,437  100.0 % $ 133,874  100.0 % $ 115,521  100.0 %
                                                        ========= ======   ========= ======   ========= ======`

In fiscal 2005, sales to one customer represented
approximately 16% of SBS' sales ($24.3 million from the Europe Group), sales to
another customer represented approximately 9% of SBS' sales ($14.2 million from
the Americas Group) and no other customer exceeded 5% of SBS' sales.  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, no single customer,
or group of entities known to be under common control, exceeded 10% of
SBS'sales.

15)	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 $3.5 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, "Accounting for Costs Associated with
Exit or Disposal Activities"), and leasehold improvement impairment charges
recorded as a result of the announcement in accordance with SFAS 144.

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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
                                                                                                                  
Year ended June 30, 2005                                                                                          
  Cash payments.................................              --          --          (446)        --        (446)
                                                  ---------------  ----------  ------------  ---------  ----------
Accrued at June 30, 2005........................ $            --  $       --  $        424  $      --  $      424
                                                  ===============  ==========  ============  =========  ==========`

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.

16)  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.



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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,
we 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 Rules 13a-15(f) and
15d-15(f) of the Exchange Act) encompasses 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

Disclosure Controls and Procedures.  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 our
disclosure controls and procedures are effective to provide reasonable assurance
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.



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Management's Report on Internal Control over Financial Reporting.

Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rule 13a-15(f) of the Exchange
Act.  Management has assessed the effectiveness of our internal control over
financial reporting as of June 30, 2005 based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).  As a result of this
assessment, management concluded that, as of June 30, 2005, our internal control
over financial reporting was effective in providing reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.

KPMG LLP has issued an audit report on management's assessment of the
effectiveness of internal control over financial reporting, a copy of which is
included elsewhere in this report on Form 10-K under Item 8 - Financial
Statements and Supplementary Data.

Internal Control over Financial Reporting.  There was no change in our
internal control over financial reporting during our most recently completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

Item 9B.  Other Information

None.



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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 who
are not directors.

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 and Related Stockholder Matters

The information concerning security ownership of certain beneficial
owners and management is incorporated by reference to SBS' Proxy Statement under
the section entitled "Ownership of SBS Common Stock."

Equity Compensation Plan Information

The following sets forth certain information as of June 30, 2005 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     |                                                                                                                                | 3,397,414                                                                                                      |                                                                                                                                              
|Equity compensation plans not approved by security holders |                                                                                                                                | -                                                                                                              |                                                                                                                                              
|Total                                                      |                                                                                                                                | 3,397,414                                                                                                      |                                                                                                                                              

*	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 (1,473,209 shares available at June 30, 2005).
- 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
subject to unexercised options and any shares of stock subject to restrictions
(542,820 shares available at June 30, 2005).

In addition, the 1998 Long-Term Equity Incentive Plan provides for the award
of restricted stock, stock appreciation rights, and stock unit awards, in
addition to options, up to the number of shares remaining in the Plan (260,723
shares available as of June 30, 2005).  The 2000 Long-Term Equity Plan also
provides for restricted stock awards and restricted stock unit awards, not to
exceed a total of 50,000 shares in any one year.



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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 and Financial
Statement Schedules

(a)	Financial Statements



(b)	Financial Statement Schedules



(c) 	Exhibits





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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.

|SIGNATURE                                        |  | TITLE                                                          |  | DATE              
|------------------------------------------------ |  | -------------------------------------------------------------- |  | ------------------
|/s/ Clarence W. PeckhamClarence W. Peckham       |  | Chief Executive Officer and Director                           |  | September 13, 2005
|/s/ James E. Dixon, Jr.James E. Dixon, Jr.       |  | Executive Vice President, ChiefFinancial Officer and Treasurer |  | September 13, 2005
|/s/ Christopher J. AmensonChristopher J. Amenson |  | Executive Chairmanand Director                                 |  | September 13, 2005
|/s/ Warren W. AndrewsWarren W. Andrews           |  | Director                                                       |  | September 13, 2005
|/s/ Lawrence A. BennigsonLawrence A. Bennigson   |  | Chairman of the Boardof Directors                              |  | September 13, 2005
|/s/ Peter D. FennerPeter D. Fenner               |  | Director                                                       |  | September 13, 2005
|/s/ Harold E. KennedyHarold E. Kennedy           |  | Director                                                       |  | September 13, 2005
|/s/ Richard SzafranskiRichard Szafranski         |  | Director                                                       |  | September 13, 2005
|/s/ Alan F. White Alan F. White                  |  | Director                                                       |  | September 13, 2005





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|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 Restated Articles of Incorporation, as
amended, as included in the Restated 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                                                                                                                                                                                                                                                                                                                                     | 10-K | 001-10981 | 10.ah | 6-30-2004  | 
|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.                                                                                                                                                                                                                                                                                                                  | 10-K | 001-10981 | 10.al | 6-30-2004  | 
|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                                                                                                                                                                                                                                                                                                     | 10-K | 001-10981 | 10.an | 6-30-2004  | 
|10.ao   | Lease Agreement between 8-L Newark 8371, LLC and SBS
Technologies, Inc. dated August 14, 1999                                                                                                                                                                                                                                                                                                                                                                                                    | 10-K | 001-10981 | 10.ao | 6-30-2004  | 



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



|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.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.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 | 
|10.ce   | Lease Agreement between Sabine u. Hermann Götzfried GbZ and
ortec Electronic Assembly GmbH dated August 2003                                                                                                                                                                                                                                         | 10-K    | 001-10981 | 10.ce       | 6-30-2004  | 
|10.cg   | Amendment to lease agreement between 8-L Newark 8371, LLC and
SBS Technologies, Inc. dated May 5, 2004                                                                                                                                                                                                                                               | 10-K    | 001-10981 | 10.cg       | 6-30-2004  | 
|10.ch   | Lease Agreement between Shenzhen Jiannian Travel Limited and SBS
Technologies, Inc. Foreign Holding Company dated June 2004                                                                                                                                                                                                                          | 10-K    | 001-10981 | 10.ch       | 6-30-2004  | 
|10.1    | Addendum to Lease Agreement between Edwin Mair KG and SBS
Technologies, GmbH & Co. KG (a wholly-owned subsidiary of SBS Technologies,
Inc., German Holdings LLC, a wholly-owned subsidiary of SBS Technologies, Inc.)
dated September 14, 2004                                                                                                       | 8-K     | 001-10981 | 10.1        | 9-14-2004  | 
|10.cj   | Form of Indemnification Agreement between SBS Technologies, Inc.
and Directors and Executive Officers                                                                                                                                                                                                                                                | 8-K     | 001-10981 | 10.cj       | 12-28-2004 | 



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



|10.ck * | Form of Option Agreement for option grants to executive officers
of SBS Technologies, Inc. under the 1993 Director and Officer Stock Option
Plan.        | 8-K  | 001-10981 | 10.ck | 12-30-2004 |  
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------- | ----- | ---------- | -
|10.cm   | Lease between SBS Technologies, Inc. and Brunacini Development
Ltd. Co. dated July 12, 2004                                                              | 10-Q | 001-10981 | 10.cm | 12-31-2004 |  
|10-cm   | Lease agreement between SBS Technologies, Inc. and West Street
Associates, LP dated March 18, 2005                                                       | 8-K  | 001-10981 | 10-cm | 3-24-2005  |  
|10-cn   | Credit Agreement between SBS Technologies, Inc. and Wells Fargo
Bank National Association, effective March 30, 2005                                      | 8-K  | 001-10981 | 10-cn | 4-05-2005  |  
|10-co   | Revolving Line of Credit Note with Wells Fargo Bank National
Association, effective March 30, 2005                                                       | 8-K  | 001-10981 | 10-co | 4-05-2005  |  
|10-cp   | Security Agreement granted to Wells Fargo Bank National
Association, effective March 30, 2005                                                            | 8-K  | 001-10981 | 10-cp | 4-05-2005  |  
|10-cq * | Employment agreement between Christopher J. Amenson and SBS
Technologies, Inc., effective April 11, 2005                                                 | 8-K  | 001-10981 | 10-cq | 4-13-2005  |  
|10-cr   | First Amendment to Credit Agreement between SBS Technologies,
Inc. and Wells Fargo Bank National Association dated March 30, 2005, effective
May 6, 2005 | 10-Q | 001-10981 | 10.cm | 3-31-2005  |  
|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 69 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.