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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                         
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended June 30, 2003                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10981



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SBS Technologies, Inc.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|New Mexico                                                     |  | 85-0359415                          
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification Number)

2400 Louisiana Blvd. NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110(Address of principal executive offices including zip code)

(505) 875-0600(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:NoneSecurities registered pursuant to Section 12(g) of the Act:

Title of each class
Common Stock, no par value



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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 [ü] NO [    ]

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). YES [ü] NO [   ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on
September 2, 2003 as reported on The Nasdaq Stock Market® was $84,877,948.
Shares of Common Stock held by each officer and director as of September 2,
2003 and by each person who owns 5% or more of the outstanding Common Stock
according to filings with the Securities and Exchange Commission dated June
30, 2003 have been excluded because these persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

As of September 2, 2003, Registrant had 15,009,498 shares of Common
Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the following document are incorporated by reference into Part
III of this Form 10-K Report: (1) Definitive Proxy Statement for Registrants
2003 Annual Meeting of Shareholders to be held November 13, 2003.



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TABLE OF CONTENTS



|                                              |                                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                              | 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 Registrants Common Equity and Related Stockholder Matters                          
|                                              | Item 6. Selected Financial Data                                                                        
|                                              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation           
|                                              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                              | 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                                                                       
|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, Financial Statement Schedules, and Reports on Form 8-K                              
|SIGNATURES                                   
|INDEX TO EXHIBITS                            
|EX-10.am 1998 Long-Term Equity Incentive Plan
|EX-14 Code of Ethics                         
|EX-21 Subsidiaries of the Registrant         
|EX-23.1 Consent of KPMG LLP                  
|EX-25 Power of Attorney                      
|EX-31.1 Section 302 Certification of CEO     
|EX-31.2 Section 302 Certification of CFO     
|EX-32.1 Section 906 Certification of CEO     
|EX-32.2 Section 906 Certification of CFO     



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SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-K FOR THE YEAR ENDED JUNE 30, 2003

TABLE OF CONTENTS

|         |  |                                                                                      |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------ |  | ---- | -- | 
|         |  |                                                                                      |  | Page
|         |  |                                                                                      |  |     
|PART
I   |  |                                                                                      |  |     
|         |  | Forward Looking Statements                                                           |  |      | 1  | 
|Item 1.  |  | Business                                                                             |  |      | 2  | 
|Item 2.  |  | Properties                                                                           |  |      | 13 | 
|Item 3.  |  | Legal Proceedings                                                                    |  |      | 14 | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                  |  |      | 14 | 
|PART
II  |  |                                                                                      |  |     
|Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                |  |      | 15 | 
|Item 6.  |  | Selected Financial Data                                                              |  |      | 16 | 
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operation |  |      | 17 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                           |  |      | 29 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                          |  |      | 29 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |  |      | 55 | 
|Item 9A. |  | Controls and Procedures                                                              |  |      | 55 | 
|PART III |  |                                                                                      |  |     
|Item 10. |  | Directors and Executive Officers of the Registrant                                   |  |      | 56 | 
|Item 11. |  | Executive Compensation                                                               |  |      | 56 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                       |  |      | 56 | 
|Item 13. |  | Certain Relationships and Related Transactions                                       |  |      | 57 | 
|Item 14. |  | Principal Accounting Fees and Services                                               |  |      | 57 | 
|PART IV  |  |                                                                                      |  |     
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |  |      | 57 | 

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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 for the fiscal year ending June 30, 2004;      
|
| |  |  | expected sales levels for the quarter ending September 30, 2003;               
|
| |  |  | expectations of internally-generated cash flows;                               
|
| |  |  | new product introductions; and                                                 
|
| |  |  | growth of the markets we serve.                                                

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

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



| |  |  | business and economic conditions generally affecting our
customers and their end customers, including but not limited to
the changes in size and program priorities of military procurement
budgets, 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, which may impact the timing and amount
of future sales levels or cause the market value of our inventory
to decline, resulting in reduced gross profit levels;                           
|
| |  |  | customer demand for and acceptance of our products, which
may be less than we expect, which may decrease both sales and
margins;                                                                                                                                                 
|
| |  |  | costs related to the integration into SBS of newly-acquired
businesses may be greater than we expected;                                                                                                                                                                          
|
| |  |  | 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 financial condition of our customers may be less
favorable than we expect, resulting in reduced sales and earnings;
and                                                                                                                                                      
|
| |  |  | the other risk factors listed under Risk Factors included
elsewhere in this Form 10-K.                                                                                                                                                                                         

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

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

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PART I




Item 1.Business

Introduction

We design and build open-architecture embedded computer products that
enable original equipment manufacturers (OEM) to serve the commercial,
communications, enterprise and government markets. Our products are
integrated into a variety of applications, including communications
networking, medical imaging, industrial automation and military systems.
Our portfolio includes an extensive line of CPU boards, computer
interconnections, avionics, telemetry, and fully integrated systems and
enclosures. Our objective is to continue to capitalize on our design
expertise and customer service capabilities to enhance product quality and
reduce time to market for OEM customers. We have grown, and intend to
continue to do so, through a combination of internal growth and
acquisitions. We completed eleven acquisitions between 1992 and June 30,
2003 that broadened our product offerings and customer base. We achieve
internal growth by expanding our existing product lines through new
product development, through increasing penetration of our existing
customer base, and by adding new customers.

SBS Technologies, Inc. was incorporated in New Mexico in November
1986 and began operations in September 1987. Our executive office is
located at 2400 Louisiana Boulevard, NE, AFC Building 5, Suite 600,
Albuquerque, New Mexico, 87110, telephone number (505) 875-0600. As of
June 30, 2003, SBS Technologies, Inc. had five 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 (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. As of
June 30, 2003, KG and Verwaltungs were subsidiaries of German Holdings.
KG is a partnership between German Holdings as sole limited partner and
Verwaltungs as sole general partner.

SBS Technologies (Canada), Inc. (SBS Canada) is a subsidiary of
Foreign Holding. Effective June 30, 2003, SBS Canada acquired all of the shares of Avvida Holdings Corp. (Avvida Holdings). At that time, Avvida
Systems Inc. (Avvida Systems) was a subsidiary of Avvida Holdings. In
July 2003, both Avvida Systems and Avvida Holdings were amalgamated under
Canadian law into SBS Canada. SBS Technologies Finance LP (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.
Finance LP provides financing to SBS Canada.

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

Corporate Governance

We strive to achieve excellence and integrity in all of our business
practices, including corporate governance, oversight, accountability and
transparency. We believe we have incorporated current 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | The Board has three standing committees: the Audit
Committee, the Nominating and Corporate Governance Committee, and
the Management Development and Compensation Committee. Each
Committee has a written charter, available for review on our web
site at www.sbs.com, and membership on all Board Committees is
limited to the Independent Directors.                                                                                                                                              
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | At each regularly scheduled meeting of the Board of
Directors, a meeting is held of the Independent Directors without
any company officer or Employee Director participation. The
Independent Directors meeting is chaired by the Boards Lead
Director, who is an Independent Director. These meetings have been
conducted since 1998.                                                                                                                                                            
|
| |  |  | The Company has an Internal Financial and Disclosure
Controls Committee, whose primary duties are to establish,
evaluate and maintain systems of internal controls regarding
financial information of the Company and disclosures required by
applicable laws to ensure (a) accuracy, completeness, reliability
and timeliness of financial and other reports, (b) effectiveness
and efficiency of operations, and (c) compliance with applicable
laws and regulations.                             
|
| |  |  | The Company has disseminated to all of its employees a
Financial Complaint Procedures Policy, available for review on our
web site at www.sbs.com, to enable the anonymous reporting of any
possible financial wrongdoing within the Company.                                                                                                                                                                                                                                                       
|
| |  |  | The Company has adopted a Code of Ethics for Directors and
Principal Officers, available for review on our web site at
www.sbs.com, binding upon all directors and executive officers 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.

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

SBS Operating Segments and Products

Throughout fiscal year 2003, we operated internationally through two
operating segments: the Communications and Enterprise Group, and the
Commercial and Government Group. The Commercial and Government Group
consists of SBS Government, SBS Commercial, KG, ortecand SBS Canada,
aligning similar technologies and selling channels. The Communications
and Enterprise Group consists of SBS Communications. These segments are
based on the markets that are served and the products that are provided to
those markets. During fiscal year 2003, each segment had its own sales
and distribution channels and had a manager who reported directly to the
President and Chief Operating Officer. The Commercial and Government
Groups primary focus is to serve customers in the medical, semiconductor,
aerospace, defense and other commercial markets. The Communications and
Enterprise Group serves major telecommunications OEMs and OEMs that
manufacture and distribute business-computing equipment. As a result of
changes in management responsibility, our desire to enhance regional-based
sales and service to our European customers, and the acquisition of SBS
Canada, we will be changing our operating segments to a geographic focus.
Going forward, we will report results for two operating segments  the
Americas and Europe. Under this structure, all sales and support to
European customers will be handled by KG, and the balance of sales and
support will be handled by our United States and Canadian operations. We
believe this change will enable management to better focus on regional
market development, alignment of sales channels and customers product
needs, and enhance customer service and satisfaction.

Communications and Enterprise Group Products

The Communications and Enterprise Group designs and builds high
performance embedded system products including single board computers,
input/output modules, and fully integrated systems. Our products are
designed to meet the evolving requirements of communications customers
while reducing cost and expediting time to market. Our products are based
on standard form factor hardware designs such as CompactPCI, PMC, PCI with
open standard operating support such as VxWorks and Linux, and consistent
driver development kits for ATM, frame relay and other software protocols.
Our approach to product engineering and manufacture allows our OEM
customers to quickly and efficiently integrate these
products using advanced components and software. Typical OEM
products in which SBS products are used are optical switches, routers,
wireless base stations and access systems, radio network controllers, ATM
switches, media gateways, network access servers, test and monitoring
equipment, and firewall and security appliances. In fiscal years 2003,
2002, and 2001, sales of these products comprised approximately 22.0%,
30.8%, and 49.2%, respectively, of Company total sales. As of September 1,
2003, 2002, and 2001, backlog orders expected to be filled within the
current fiscal year were $5.4 million, $6.4 million, and $17.7 million,
respectively. However, we have in the past experienced order cancellations
and requests for

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extensions of product shipments and may continue to
experience these cancellations and extensions in the future, and as a
result, shipments of the Communications and Enterprise Groups current
backlog may be delayed or canceled.

Commercial and Government Group Products

The Commercial and Government Group designs and builds
open-architecture computer components and systems for CompactPCI, PCI,
PMC, VME, and PC/104 standard bus architectures. Our product lines include
Intel and PowerPC architecture CPU boards, serial and networking modules,
analog and digital I/O modules, computer interconnection and expansion
units, MIL-STD-1553, ARINC 429, telemetry, and complete computer systems.
These products support OEM and end-user applications in semiconductor
manufacturing equipment, industrial automation, medical imaging, military
and aerospace, and entertainment applications. Standard commercial level
products are sold in these segments as well as ruggedized products in the
military and aerospace markets. In fiscal years 2003, 2002, and 2001,
sales of these products comprised approximately 78.0%, 69.2%, and 50.8%,
respectively, of Company total sales. As of September 1, 2003, 2002, and
2001, backlog orders expected to be filled within the current fiscal year
were $22.4 million, $24.1 million, and $16.3 million, respectively.
However, we have in the past experienced order cancellations and requests
for extensions of product shipments and may continue to experience these
cancellations and extensions in the future, and as a result, shipments of
the Commercial and Government Groups current backlog may be delayed or
canceled.

Segment Financial Data

See Notes 14 and 15 to SBS Consolidated Financial Statements for
information about SBS industry segments, geographic areas, and major
customers.

Customers and Applications

Our broad range of products is used by a diversified OEM customer
base in a variety of applications including communications networking,
medical imaging, industrial automation and military systems. In fiscal
years 2003, 2002, and 2001, no one customer equaled or exceeded 10% of our
sales. Most of the Communications and Enterprise Groups customers are
OEMs serving the telecommunications or business-computing markets. They
use our products in applications such as wireless base station
controllers, optical switches, routers and network monitoring and security
applications. The Commercial and Government Groups customers are
primarily OEMs building products that are used in semiconductor
manufacturing, industrial automation, medical imaging, military and
aerospace, and entertainment applications, or customers using our products
in applications such as 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 products include semiconductor manufacturing equipment, CT scan
and MRI equipment, automotive manufacturing and test equipment, test and
measurement equipment, industrial automation equipment, aircraft flight
simulators, and audio mixing and video authoring equipment, systems and
equipment for military aircraft, military ground vehicles, navy vessels,
telemetry equipment, and space exploration applications.

Sales and Marketing

We market our products both domestically and internationally
utilizing a combination of direct employee sales personnel, independent
manufacturers representatives, and distributors. As of September 1, 2003,
we had 91 employees, who typically hold engineering degrees, in sales,
marketing and customer relations, 16 U.S.-based independent manufacturers
representatives and 36 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. Also, we had one direct sales employee located in the United
States and one located in Canada, who support our sales and distribution
channels in the Asia Pacific region. Within Europe, as of September 1,
2003, we had one direct sales employee located in
each of the United Kingdom, Sweden, and France, and four in Germany.
Domestically and internationally, the direct employee sales personnel are
supported by field application engineers, who provide pre-sale technical
support to our customers, and business development personnel, who
specialize in our traditional markets of commercial, government and
communications. We serve a diverse set of large and small customers. In
order to gain access to this diverse customer base, we use all available
selling channels. Domestically, the direct employee sales personnel
generally sell to the larger OEM accounts, while manufacturers
representatives sell to the smaller accounts. Internationally, our direct
employee sales personnel sell to the larger OEM accounts, and independent
distributors sell to the smaller accounts. All quoting, pricing and final
order acceptance for all sales are controlled by the responsible product
line manager.

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We maintain our primary sales offices in Albuquerque, New Mexico,
Raleigh, North Carolina, Mansfield, Massachusetts, St. Paul, Minnesota,
Waterloo, Ontario, Canada and Augsburg, Germany. 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 September 1, 2003, we had approximately 163
employees engaged in research and development activities. Of these
employees, 79 have technical degrees and 34 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 $18.1 million, $18.5 million, and $20.1 million in
fiscal year 2003, 2002 and 2001, respectively, corresponding to 15.6%,
15.5% and 10.7% of sales, respectively.

We have several trademarks and have filed applications for other
trademarks as described in the Introduction above. However, we have
generally sought only limited patent protection for our technology.
Currently, we have only five U.S. patents issued and two Canadian patents
issued, expiring December 2013 through June 2021, and one U.S. patent
pending. 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.

During fiscal year 2003, our research and development efforts
concentrated on introducing new products and technologies and on improving
existing technology. For the commercial and government markets, our focus
was on releasing new boards such as the STANAG 3910 VME board. In
addition, we introduced a new graphics product line, with the first
product being the Sentiris 4110, a conduction cooled high performance
graphics PMC card based on the NVidia graphics chip. Also, we introduced a
1/2ATR conduction cooled VME chassis, a custom ATR chassis, and three
additional custom chassis. The research and development efforts targeted
at the government market also were heavily focused on developing military
systems, including several versions of flight computers for avionics. For
the single board computer product line, we developed the CM4, a 3U PowerPC
based CompactPCI product, in both commercial and conduction cooled
formats. Also, we released an updated VG4 PowerPC based VME board and a
dual PowerPC version called the VG5. In the Intel product line, we
released a new version of the CL7 Pentium III board and six custom
versions of Intel CompactPCI and VME boards. We continued to expand the
Ethernet and Fibre Channel offerings by developing eight new PCI-x/PMC
boards, a new dual channel 2Gb Fibre Channel PMC card, and a conduction
cooled Fibre Channel card. In addition, we released two new Ethernet
switches and an eight port Ethernet hub for military applications. New
technology developments included a conduction cooled 3U CompactPCI 1394
card and a conduction cooled PMC audio card. Additionally, we developed
new products based on the InfiniBand® architecture, including an 8 port
InfiniBand® switch and a PCI InfiniBand® host adapter card. Developments
in software included release of support for the LynxOS operating system
for PowerPC and Intel based single board computers. Also, we completed the
Ready Driver program for VxWorks. Ready Driver is an SBS program to
develop I/O drivers for a real time operating system to assure
interoperability between I/O boards and single board computers. New
products continue to be designed for launch in the coming year,
including new higher performance single board computers in single and dual
processor models, high bandwidth input-output connectivity device, and
integrated avionics platforms.

During fiscal year 2003, we responded to continuing shifts in demand
and technology trends of the communications
market. Our research and development efforts concentrated on both
increasing the breadth of products available and evaluating new
technologies to compete in a broader portion of this market. We expanded
our PowerPC processor portfolio to include a new PPC 750FX (Palomar 500),
a high performance product for low cost applications. Also, we introduced
the MAXIM 524-T1R-F and the MAXIM 524-E1R-F WAN PMC adaptors to our
popular 520 series of products. We also completed development of the next
generation Voice over ATM Blade, which supports AAL1, AAL2 and AAL5 with
automatic protection switching software. New products continue to be
designed for launch in the coming year. We expect these to increase the
ease in which our broad selection of WAN I/O and processor PMC
technologies can be embedded in communication equipment based on PIGMG
2.16 and PICMG 3 standards. As an example, we are completing a new
High-Density T1/E1 Blade for 32 port T1/E1 monitoring on the CPCI bus.
This new Blade will incorporate the new Palomar 500.

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Suppliers

We use contract manufacturing to produce substantially all of our
U.S.-built board-level products. We obtain parts from large electronics
parts suppliers and printed circuit boards from printed circuit board
manufacturers and provide these parts and boards as kits to contract
manufacturing companies that fabricate our products. Following
manufacturing, we perform test, packaging and support functions for our
products. 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. This consolidation was completed in
August, 2003. We now have two manufacturing facilities, St. Paul,
Minnesota and Mindelheim, Germany. We have begun complete turnkey
outsourcing to contract manufacturers, although it is for a small portion
of our total production. We reduce our dependence on a single contract
manufacturer by using multiple contract manufacturers for many of our
products.

Our German operation manufactures approximately 70% of its
board-level products at its facility in Mindelheim, Germany, using
contract manufacturers for its OEM production business and certain
ruggedized and military applications.

Competition

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



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

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

Our CPU product line competes against other suppliers of CPU boards
based on PowerPC and Intel microprocessor technology, including Motorola,
Inc., Force Computers, Inc. (a wholly-owned subsidiary of Solectron
Corporation), RadiSys Corporation, Performance Technologies, Incorporated,
Kontron AG, GE Fanuc Embedded Systems, and others. In the ruggedized
computer board and system market primarily serving military customers, our
main competitors are DY4 Systems, a business unit of Force Computers, Inc.
(a subsidiary of Solectron Corporation), and Radstone Technologies PLC.

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

Our general purpose I/O products are standards-based I/O modules for
technologies such as Ethernet, Fibre Channel, Serial, and others. Among
our competitors for these products are Acromag, Inc., Systran, Inc., GE
Fanuc Embedded Systems, and a few small companies. Our computer expansion
unit product line competes directly with Mesa Ridge Technologies, Inc. dba
Magma (a subsidiary of Mobility Electronics, Inc.) and indirectly with
personal computer manufacturers that offer
specialized computer motherboards with increasing numbers of PCI
slots. Specialized products such as bus adapters and dataBLIZZARD have no
direct competitors. Our InfiniBand technology products compete with
Infinicon Systems, Inc., and a number of small start-up companies serving
that market.

Our avionics interface products compete with those of other companies
such as Ballard Technologies, Inc., Data Devices Corporation, Excalibur
Technologies Corporation, Condor Engineering, Inc. and Gesellschaft Fur
Angewandte Informatik und Mikroelekemik GmbH. Our telemetry products
compete with suppliers such as AVTECH Systems, Inc., L3 Communications,
Inc. and the Veridian Systems division of Veridian Corporation.

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 SKY Computers, Inc., a subsidiary of
Analogic Corporation, 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,

6



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enclosures and turnkey
systems, such as Force Computers, Inc., RadiSys Corporation and Motorola,
Inc.

Employees

As of September 1, 2003, we had approximately 417 employees at our
eight locations: Albuquerque, New Mexico; Newark, California; Raleigh,
North Carolina; St. Paul, Minnesota; Mansfield, Massachusetts; Waterloo,
Ontario, Canada; and Augsburg and Mindelheim, Germany. Of these employees,
61 were in executive and administrative positions; 91 were in sales,
marketing and customer relations; 163 were in research and development; 91
were employed in support of ongoing production, and 11 were employed on a
part-time basis.

Risk Factors

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

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



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

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

SBS sales have been, and may to continue to be, significantly
reduced due to the currently depressed communications and capital
equipment markets and may be further limited if anticipated increases in
defense spending do not occur or if defense spending is reduced or not
allocated in a way that benefits us.We have derived a significant
portion of our sales from products for communications and capital
equipment applications and directly or indirectly from the U.S. Department
of Defense. The communications and capital equipment markets are
characterized by intense competition

7



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and rapid technological change. The
communications market grew rapidly in the late 1990s, but is currently
experiencing prolonged depressed conditions as to which we have no
immediate expectations of recovery. After over a decade of downward
trends, the current defense budget outlook is one of short-term growth.
However, Congress may not continue to approve increased defense funding,
and in light of current record U.S. government budget deficits, may elect
to reduce or defer defense spending. Any increased funding may not be
available for hardware procurements or increased research and development
spending, especially in light of increased expenditures on consumables
such as ordnance relating to actual and possible conflicts in Afghanistan,
Iraq and other locations, and we may not win any contracts funded by any
budgetary increases. In addition, significant consolidation in the
defense industry has reduced the number of defense contractors, resulting
in increased competition for companies like SBS in establishing customer
relationships with defense contractors. If spending by the Department of
Defense declines, or if consolidation in the defense industry continues,
we may be unable to maintain existing customer relationships or establish
new relationships with defense contractors. Even if we are successful in
maintaining existing customers and establishing new customer relationships
with defense contractors, sales of our products to those customers may be
reduced as a result of any Department of Defense spending cutbacks.

SBS must persuade customers to outsource their component needs to
grow SBS 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.                    

SBS faces significant competition.The embedded computer industry is
highly competitive and fragmented. Our competitors differ depending on
product and market type, company size, geographic market and application
type. We face competition in each of our operating segments.

Competition in all of our operating segments is based on:



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

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



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

8



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| |  |  | more extensive name recognition and marketing capability.
| | - |  | ---------------------------------------------------------

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

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

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

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

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

SBS purchases many of the components it uses 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. 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 have
contracts for all components that would assure availability and price. 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 not available, we might have to pay premiums for parts in
order to make shipment deadlines. Paying premiums for parts or 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 business.

SBS uses contract manufacturers to produce substantially all of its
U.S.-built board-level products and so is dependent on their timeliness,
quality, and availability.We obtain parts from large electronics parts
suppliers and printed circuit boards from printed circuit board
manufacturers and provide these parts and boards as kits to contract
manufacturing companies that fabricate our products. Many of the contract
manufacturers we utilize are small companies with limited capital
resources. We reduce dependence on a particular contract manufacturer by
using multiple contract manufacturers for many of our products, although
there is no assurance that we will not experience delays in obtaining
product from contract manufacturers. If it becomes necessary for us to
move our production to new contract manufacturers due to non-performance

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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.

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

SBS is subject to order and shipment uncertainties that could harm
its operating results.We typically sell our products pursuant to
purchase orders that customers can cancel or defer on short notice without
incurring a significant penalty. Cancellations or deferrals could cause us
to hold excess inventory that may not be salable to other customers at
commercially reasonable terms, which could reduce our profit margins,
require inventory write downs, and restrict our ability to fund our
operations.

SBS has limited patent protection covering its technology, and we may
not be able to protect its 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 five U.S. patents and two
Canadian patents issued and one U.S. patent pending. The bulk of the
intellectual property on which we depend is unpatented. We
cannot guarantee that our pending patent will be issued, or that if
issued, our pending or 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. Therefore, undisclosed U.S. patent
applications that relate to our products and technology may have been
filed. Also, we cannot be certain that foreign patents have not or will
not be issued that would harm our ability to commercialize our current and
future products. Even as we obtain certain patent protection for our
intellectual property, third parties could independently develop and
patent equivalent or superior products or technology, in which case we may
be required to obtain licenses to that technology from those parties,
reducing our profit margins.

In addition to patent rights, we rely upon trade secret laws,
industrial know-how and employee confidentiality agreements to protect our
intellectual property. Third parties or employees may breach our
agreements with them or otherwise attempt to disclose, obtain or use our
products and technologies. Further, if consultants, employees and other
parties apply technological information developed independently, by them
or others, to our projects, disputes may arise as to the proprietary
rights to that information. Those disputes may not be resolved in our
favor.

We may not be able to obtain court enforcement of our agreements,
which would leave us with inadequate remedies to protect our intellectual
property rights. This is particularly true in foreign countries, where
laws or law enforcement practices often do not protect intellectual
property as fully as in the United States.

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

We may have to litigate to enforce or defend our intellectual
proprietary rights. In addition, companies frequently sue other companies
as a means of delaying the introduction of a competitors products or
technologies. Any litigation, regardless of outcome, including any
interference proceeding to determine priority of inventions, oppositions
to patents in foreign countries, or litigation against us or any OEM
indemnified by us under our contract with the OEM, 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.

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SBS success depends, in part, on its ability to identify and to
acquire and successfully integrate new businesses.A major element of our
business strategy is to pursue acquisitions that either expand or
complement our business. We have increased the scope of our operations
through eleven acquisitions since 1992, including the June 2003
acquisition of Avvida Systems. Where business conditions permit, we intend
to continue to pursue actively acquisition opportunities, including some
that could be material and that may become available in the near future.
This acquisition strategy may pose additional risks to us, including:



| |  |  | We might not be able to identify or acquire acceptable acquisition
candidates on favorable terms, and in a timely manner.                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our management and financial controls, 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 integrate effectively 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.                                                                                                                                                                  
|
| |  |  | Our debt burden will increase as a result of any borrowings we may make to pay for acquisitions.                                                                                                                                                                         

SBS may need to raise additional capital to fund its 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 increasing restrictions on 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 substantial dilution to our
existing shareholders. In addition, any shares of capital stock we may
issue may have rights, privileges, and preferences superior to those of
our common shareholders. If we are unable to raise additional capital on
commercially reasonable terms, we may be required to reduce our operations
and delay or terminate any potential acquisitions plans, which would harm
our ability to grow.

SBS future results are subject to the efficiency of its past and
future consolidation efforts.We have consolidated operations in the
past, including Communications and Enterprise Group operating facilities
previously based in Madison, Wisconsin, and Carlsbad, California. These
consolidations included moving manufacturing, testing and support
functions to the St. Paul, Minnesota, facility, and moving certain product
design functions to the Mansfield, Massachusetts and Raleigh, North
Carolina facilities. 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.

SBS earnings have been, and could continue to 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 usually the acquired business
current operating profit offsets 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.

SBS may expend resources without receiving benefit from strategic
alliances with third parties.From time to time, we may 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

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but may not receive any immediate or long-term return or
economic benefit from them.

SBS depends on its employees for success.Our ability to maintain
our competitive position and to develop and market new products depends,
in part, upon our ability to retain key employees and to recruit and
retain additional qualified personnel, particularly engineers. Competition
for qualified employees in the computer industry is intense. The closure
of the Carlsbad, California facility and the consolidation of
Communications and Enterprise Group functions into facilities located in
St. Paul, Minnesota, Mansfield, Massachusetts and Raleigh, North Carolina
will require timely hiring of new competent employees. If we are unable
to retain and recruit key employees, our product development and marketing
and sales could be harmed.

SBS is subject to significant 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, as a result of the
terrorist attacks of September 11, 2001, the cost of insurance coverage
has significantly increased. 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.

SBS faces political, economic and regulatory risks associated with
its 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. Our international operations and
sales subject the Company to risks not experienced by companies operating
only in the United States, including:



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

Exchange rate fluctuations could reduce SBS earnings when stated in
U.S. Dollars.Substantially all of our U.S. export sales to date have
been denominated in United States dollars and substantially all sales
generated by our subsidiary based in Germany have been denominated in
Euros. However, some sales in the future may be denominated in other
currencies, including the Canadian dollar. Any decline in the value of
other currencies in which we make sales against the United States dollar,
the Canadian dollar or the Euro, or any decline in the value of the
Canadian dollar or the Euro against the United States dollar, will have
the effect of decreasing our consolidated earnings when stated in United
States dollars. In the future, we may engage in hedging transactions to
minimize the effect of the risks associated with these types of currency
fluctuations; however, such hedging transactions could adversely impact
our financial position and results of operations.

SBS common stock price can be volatile because of several factors,
including a limited public float.During the twelve-month period ended
June 30, 2003, the sales price of our common stock fluctuated from $12.30
to $5.00 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,

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| |  |  | announcements of new technologies by us, our competitors or customers,                                                                                                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | general conditions in the markets we serve,                                                                                                                                        
|
| |  |  | fluctuations in earnings of our competitors,                                                                                                                                       
|
| |  |  | changes in earnings estimates or investment recommendations by securities analysts,                                                                                                
|
| |  |  | general volatility of the stock markets and the market prices of other publicly traded companies,                                                                                  
|
| |  |  | economic disruptions due to terrorist activity,                                                                                                                                    
|
| |  |  | investor sentiment regarding equity markets generally, including
public perception of corporate ethics and governance and the accuracy
and transparency of financial reporting, and
|
| |  |  | investor sentiment regarding the valuation of technology companies
generally.                                                                                                      

SBS is subject to credit risk.Credit risk is inherent in our
commercial activities. Credit risk relates to the risk of loss resulting
from a customers failure to pay in accordance with contractual
obligations. The majority of our sales are on open account, typically
with 30 to 60 day payment terms without any down payment or security.
Many of our customers and potential customers in various markets,
including the communications market, have had the credit ratings of their
debt reduced. As a result, some of our customers creditworthiness may be
reduced, which could pose a heightened risk of
bankruptcy or delayed payment that could affect our earnings and cash
flow.

SBS may be vulnerable to the effects of terrorist attacks and acts of
war.We are unable to predict the impact of future terrorist attacks and
acts of war on our industry and the United States economy as a whole. The
uncertainty associated with military activity of the United States and
other nations and the risk of future terrorist activity may impact our
results of operations and financial condition in unpredictable ways. The
occurrence or risk of occurrence of future terrorist attacks or related
acts of war could adversely affect the economy of the United States and
other countries. A lower level of economic activity could result in a
decline in demand for our products that could adversely affect our sales
and earnings and limit our future growth prospects. International backlash
against United States government policy decisions relating to terrorism
may result in reluctance in certain foreign countries to buy products from
companies like SBS headquartered in the United States. The associated
uncertainties caused by terrorist attacks and acts of war have resulted in
adverse changes in the insurance markets. We have already experienced
substantial increases in insurance premium costs. In the future, if we
are unable to obtain adequate insurance coverage and experience an
uninsured event, or if we incur significant increases in the cost of
insurance, our future results of operations could be materially impacted.

General business conditions are vulnerable to the effects of
epidemics, which could materially disrupt SBS operations and financial
results. Our Company is vulnerable to the general economic effects of
epidemics and other health-related concerns. In mid-2003, the outbreak of
the SARS epidemic resulted in quarantines and substantial curtailment of
travel and business activities for areas as geographically diverse as
China and Toronto, Ontario. We believe that many growth opportunities for
current and future SBS products are located in Asia and other parts of the
world where public health systems are not considered to be as advanced as
in North America and Western Europe. Further, we have significant
customers, and significant end-customers of our customers, located in
Asia, including China. Public reports have speculated that terrorists or
other states or organizations could in the future release biological
hazards such as smallpox or anthrax that could result in epidemics. A
recurrence of SARS or any other epidemic could substantially reduce or
delay regional or worldwide demand for our products, or disrupt supply
channels, which could materially impact our future results of operations.




Item 2.Properties

We lease office and manufacturing space in Albuquerque, New Mexico,
Carlsbad, California, Newark, California, Raleigh, North Carolina, St.
Paul, Minnesota, Mansfield, Massachusetts, Waterloo, Ontario, Canada, and
Augsburg and Mindelheim, Germany. Our standard practice is to obtain all
of our facilities through operating leases. We maintain an insurance plan
covering all our facilities and contents.

The Albuquerque, New Mexico leased facility consists of approximately
42,500 square feet located in a multi-floor office building. This facility
houses certain sales, engineering and support functions for the Commercial
and Government Group. The Albuquerque facility also serves as our
corporate headquarters. The lease term runs through June 30, 2005, with
an option to extend the term for an additional five years. We believe that
this facility will be sufficient to serve our needs through the term of
the lease.

13



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Our general purpose I/O engineering team (Commercial and Government
Group) is located in Newark, California. The facility, which contains
approximately 27,000 square feet and is leased for a five-year term
expiring November 30, 2004, is a one-story, multi-tenant building in a
business park. We are actively attempting to sub-lease this facility, and
if successful, will move the general purpose I/O engineering team to a
smaller facility in the immediate Newark, California area.

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

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

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

We lease a facility in Carlsbad, California, of approximately 75,200
square feet, located in a business park, consisting of approximately
32,000 square feet of office space and approximately 43,200 square feet of
test, packaging and support space. The lease term is for seven years
expiring in April 2006, plus one option to extend the lease for three
additional years. In August 2003, we substantially vacated the facility
and are actively attempting to sublet this location.

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

We lease in Augsburg, Germany, a six-floor building, consisting of
approximately 30,000 square feet of office, test, packaging and support
areas for the operations of KG (Commercial and Government Group). The
lease has a term of ten years expiring December 31, 2005. We believe that
the facility is sufficient to serve our needs through the term of the
lease.

We lease in Mindelheim, Germany approximately 6,200 square feet of a
single-story multi-tenant building located within a business area,
consisting of approximately 1,200 square feet of office space and
approximately 5,000 square feet of manufacturing and warehouse space for
our ortecoperations. 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.




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.

14



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##### Table of Contents






PART II




Item 5.Market for Registrants Common Equity and Related Stockholder Matters

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:

|                |  |      |       |      |  |      |      |     |  |   |       |  |  |   |       | 
|--------------- |  | ---- | ----- | ---- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ----- | 
|                |  | 2003 |       | 2002
|                |  |      |       |     
|Fiscal Quarters |  | High |       | Low  |  | High |      | Low
|                |  |      |       |      |  |      |      |    
|First           |  | $    | 12.30 |      |  | $    | 5.00 |     |  | $ | 20.05 |  |  | $ | 9.99  | 
|Second          |  |      | 12.00 |      |  |      | 6.25 |     |  |   | 17.50 |  |  |   | 9.94  | 
|Third           |  |      | 9.90  |      |  |      | 7.06 |     |  |   | 16.00 |  |  |   | 11.76 | 
|Fourth          |  |      | 9.94  |      |  |      | 6.51 |     |  |   | 15.30 |  |  |   | 11.51 | 

Record Holders

Based on data provided by SBS transfer agent and The Depository
Trust Company, management believes that as of September 2, 2003, the
number of share owner accounts of record, as defined by Rule 12g5-1 of the
Exchange Act, was approximately 236, at which date the closing market
price of SBS common stock was $11.26 per share.

Dividends

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

Unregistered Securities

On June 30, 2003, we issued an aggregate of 386,940 shares of our
common stock in connection with the acquisition of 100 percent of the
outstanding common stock of Avvida Holdings Corp. and its wholly-owned
subsidiary, Avvida Systems Inc. The offer and sale of these securities
were effected without registration in reliance on the exemption afforded
by Regulation S of the Securities Act of 1933, as amended. We plan to
file a registration statement on Form S-3 to register the shares issued on
June 30, 2003 by December 31, 2003.

15



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##### Table of Contents






Item 6.Selected Financial Data

The following selected financial data for the years ended June 30,
1999 through June 30, 2003 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 Operation and the audited consolidated financial
statements and related notes to the consolidated financial statements
included elsewhere in this report.

|                    |                                                        |                                                                          |   |                                   |       |      |   |         |       |      |   |         |      |  |   |         |      |  |   |         |      | 
|------------------- | ------------------------------------------------------ | ------------------------------------------------------------------------ | - | --------------------------------- | ----- | ---- | - | ------- | ----- | ---- | - | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                    |                                                        |                                                                          |   | Years Ended June 30              
|                    |                                                        |                                                                          |   |                                  
|                    |                                                        |                                                                          |   | 2003                              |       | 2002 |   | 2001    |       | 2000 |   | 1999   
|                    |                                                        |                                                                          |   |                                   |       |      |   |         |       |      |   |        
|                    |                                                        |                                                                          |   | (Thousands except per share data)
|Income:             |                                                        |                                                                          |   |                                   |       |      |   |         |       |      |   |         |      |  |   |         |      |  |   |        
|                    | Sales                                                  |                                                                          | $ | 115,521                           |       |      | $ | 118,856 |       |      | $ | 187,180 |      |  | $ | 128,189 |      |  | $ | 105,999 |     
|                    | Gross profit                                           |                                                                          |   | 57,519                            |       |      |   | 42,628  |       |      |   | 88,565  |      |  |   | 67,015  |      |  |   | 61,518  |     
|                    | Operating income (loss)                                |                                                                          |   | 2,165                             |       |      |   | (38,412 | )     |      |   | 27,736  |      |  |   | 15,736  |      |  |   | 18,677  |     
|                    | Net income (loss)                                      |                                                                          |   | (4,450                            | )(a)  |      |   | (24,360 | )     |      |   | 17,184  |      |  |   | 8,903   |      |  |   | 12,278  |     
|Financial Position: |                                                        |                                                                          |   |                                   |       |      |   |         |       |      |   |         |      |  |   |         |      |  |   |        
|                    | Working capital                                        |                                                                          |   | 73,187                            |       |      |   | 69,304  |       |      |   | 75,282  |      |  |   | 37,535  |      |  |   | 29,084  |     
|                    | Total assets                                           |                                                                          |   | 128,610                           |       |      |   | 125,648 |       |      |   | 147,172 |      |  |   | 133,160 |      |  |   | 92,008  |     
|                    | Total liabilities                                      |                                                                          |   | 12,503                            |       |      |   | 12,002  |       |      |   | 13,377  |      |  |   | 34,146  |      |  |   | 14,780  |     
|                    | Total stockholders equity                             |                                                                          |   | 116,107                           |       |      |   | 113,646 |       |      |   | 133,795 |      |  |   | 99,014  |      |  |   | 77,228  |     
|Per Share Data:     |                                                        |                                                                          |   |                                   |       |      |   |         |       |      |   |         |      |  |   |         |      |  |   |        
|                    | Net income (loss) per
common share:                    |                                                                          |   |                                   |       |      |   |         |       |      |   |         |      |  |   |         |      |  |   |         |     
|                    |                                                        | Income (loss) before
cumulative effect of
change in accounting
principle |   | $                                 | 0.11  | (a)  |   | $       | (1.67 | )    |   | $       | 1.23 |  |   | $       | 0.71 |  |   | $       | 1.05 | 
|                    |                                                        | Net income (loss)                                                        |   | $                                 | (0.30 | )    |   | $       | (1.67 | )    |   | $       | 1.23 |  |   | $       | 0.71 |  |   | $       | 1.05 | 
|                    | Net income (loss) per
common share 
assuming
dilution |                                                                          |   |                                   |       |      |   |         |       |      |   |         |     
|                    |                                                        | Income (loss) before
cumulative effect of
change in accounting
principle |   | $                                 | 0.11  | (a)  |   | $       | (1.67 | )    |   | $       | 1.14 |  |   | $       | 0.66 |  |   | $       | 1.00 | 
|                    |                                                        | Net income (loss)                                                        |   | $                                 | (0.30 | )    |   | $       | (1.67 | )    |   | $       | 1.14 |  |   | $       | 0.66 |  |   | $       | 1.00 | 



| | 
| | 
| | 



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



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



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



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 12, 2000, SBS completed the purchase of SDL
Communications, Inc. (subsequently merged into SBS Communications). In
connection with the acquisition, SBS recorded a $4.0 million acquired
in-process research and

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| |                                                                   
| | ------------------------------------------------------------------
| | development (IPR&D) charge in the fourth quarter of fiscal 2000.



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



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | On August 12, 1998, SBS completed the purchase of VI Computer,
Inc. (currently known as SBS Communications).



| |                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On July 1, 1998, SBS acquired, through its subsidiary Holding
GmbH, a 50.1% interest in or Industrial Computers GmbH (currently known
as KG) and a 50.2% interest in ortec.SBS also acquired, through its
subsidiary, SBS Government, a 100% interest in or Computers, Inc. On
December 9, 1998, SBS completed the purchases of the minority interests
in KGand ortec.




Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operation

Overview

We design and build open-architecture embedded computer products that
enable original equipment manufacturers (OEM) to serve the commercial,
communications, enterprise and government markets. Our products are
integrated into a variety of applications, including communications
networking, medical imaging, industrial automation and military systems.
Our portfolio includes an extensive line of CPU boards, computer
interconnections, avionics, telemetry, and fully integrated systems and
enclosures. Our objective is to continue to capitalize on our design
expertise and customer service capabilities to enhance product quality and
reduce time to market for OEM customers. We have grown, and intend to
continue to do so, through a combination of internal growth and
acquisitions. We completed eleven acquisitions between 1992 and June 30,
2003 that broadened our product offerings and customer base. We achieve
internal growth by expanding our existing product lines through new
product development, through increasing penetration of our existing
customer base, and by adding new customers.

Sales for the year ended June 30, 2003 were $115.5 million, which
represents a 2.8% decrease from the $118.9 million of sales for fiscal
2002. Net loss for the year ended June 30, 2003 was $(4.4) million, or
net loss per common share  assuming dilution of $(0.30). Included in the
determination of net loss in fiscal year 2003 is a transitional goodwill
impairment charge of $6.1 million (or ($0.41) per common share), net of
tax, which is reported as a cumulative effect of change in accounting
principle, as a result of our adoption of SFAS 142 effective on July 1,
2002. We completed step 2 of our transitional impairment analysis during
the fourth quarter of fiscal year 2003 and determined that the carrying
values of goodwill in the Communications and Enterprise reporting unit and
the Commercial reporting unit were in excess of their implied fair value
as of July 1, 2002. Additionally, on June 12, 2003, we announced plans to
consolidate the Communications and Enterprise Group operations, which
resulted in the closure of the Companys Carlsbad, California facility in
August 2003. As a result, we recorded employee severance and other
consolidation costs of $1.1 million during the fourth quarter of fiscal
year 2003. Including these charges, the total employee severance and
consolidation costs for fiscal year 2003 were $1.7 million, which
incorporates the cost reduction efforts implemented by management in
fiscal year 2003. See our discussion below in the section titled,
Results of Operations.

The net loss in fiscal year 2003 compares to a net loss for the year
ended June 30, 2002 of ($24.4) million, or net loss per common share -
assuming dilution of ($1.67). Our performance during fiscal 2002 was
affected by external factors, including dramatic changes in the markets we
serve, and internal factors, including changes in senior management and
overall corporate strategy. The net loss for fiscal 2002 included $15.1
million of inventory write-downs, $13.0 million of goodwill and
identifiable intangible impairment charges, and $3.2 million of employee
severance and consolidation costs.

On June 30, 2003, SBS completed the acquisition of Avvida Systems
Inc., based in Waterloo, Ontario, Canada. Avvida specializes in the
development of image processing solutions focused on programmable logic,
specifically, fully programmable gateway array (FPGA) technology used on
high performance video, image and data processing solutions. See our
discussion below in the section titled, Recent Acquisitions.

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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, depreciation and
amortization periods, goodwill and intangible assets, and income taxes
(see Note 1 to the SBS consolidated financial statements). These
estimates and assumptions are based upon our continuous evaluation of
historical results and anticipated future events. Actual results could
differ from these estimates under different assumptions or conditions.

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



| |  | Revenue Recognition. We recognize revenue from product sales
generally upon shipment to customers provided we have received a
valid purchase order, the price is fixed, title has transferred,
collection of the associated receivable is reasonably assured, and
there are no remaining significant obligations. Where customer
acceptance provisions exist, we generally defer revenue recognition
until acceptance by the customer unless we demonstrate the product
meets the customer specified criteria upon shipment provided all
other revenue recognition criteria were met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Inventory Valuation. We record inventory write-downs based on
estimates of obsolescence or unmarketable inventory, taking into
account historical usage, forecasted future demand, and general
market conditions. Write-downs may also be recorded based on our
decision to discontinue the marketing of certain products or product
lines. If our forecasts are incorrect, market conditions
deteriorate, or we decide to exit other product lines, further
inventory write-downs may be required which result in an increase to
cost of sales and reduced gross profit. If market conditions or
demand are better than expected, we may sell inventories that have
been previously written down, resulting in reduced or zero cost of
sales and improved gross profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | Allowance for Uncollectible Accounts. We maintain allowances for
uncollectible accounts receivable resulting from the failure of our
customers to make required payments. Our estimate is based on, among
other things, the aging of accounts receivable, historical write-off
experience, and the current and projected financial condition of our
customers. If we misinterpret the financial condition of our
customers or if the financial condition of customers deteriorates,
additional allowances for uncollectible accounts may be required,
which would increase operating costs and reduce operating profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| |  | Goodwill.In conjunction with the implementation of SFAS 142 as
of the beginning of fiscal year 2003, goodwill is no longer
amortized, but instead tested for impairment at least annually. The
first step of the goodwill impairment test is a comparison of the
fair value of a reporting unit to its carrying value. The fair value
of a reporting unit is the amount which the unit as a whole could be
bought or sold in a current transaction between willing parties. We
conducted a transitional goodwill impairment test upon adoption of
SFAS 142 as of July 1, 2002, and an annual goodwill impairment test
as of April 1, 2003. The goodwill impairment test requires us to
identify our reporting units and obtain estimates of the fair values
of those units as of the testing date. We estimate the fair values
of our reporting units using discounted cash flow and public company
market multiple valuation models. Those models require estimates of
future revenues, profits, capital expenditures and working capital
for each reporting unit. We estimate these amounts by evaluating
historical trends, current budgets, operating plans and industry
data. A decline in the fair value of any of our reporting units below
its carrying value is an indicator that the underlying goodwill of
the unit is potentially impaired. If that occurs, we are required the
complete the second step of the goodwill impairment test to determine
whether the units goodwill is impaired. The second step of the
goodwill impairment test is a comparison of the implied fair value of
a reporting units goodwill to its carrying value. An impairment loss
is required for the amount which the carrying value of a reporting
units goodwill exceeds its implied fair value. If an impairment loss
is recognized, the implied fair value of the reporting units
goodwill becomes the new cost basis of the units goodwill.
| 
|  |  | The estimated fair value in our transitional impairment analysis
completed in December 2002 for two reporting units was less than each
respective units carrying value indicating a potential for impairment
at the test dates. Accordingly, we performed the required second step
of the goodwill impairment test and compared the implied fair value of
each                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|  |  | reporting units goodwill to its carrying value. The implied fair value
of the goodwill in both reporting units tested in step 2, which was
finalized during the quarter ended June 30, 2003, was less than the
carrying value. This resulted in a transitional impairment charge of
approximately $6,058,000, net of tax, which is reflected as a
cumulative effect of change in accounting principle in SBS
consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | The estimated fair value of goodwill in the annual test on April 1,
2003 was determined to be in excess of its carrying value, indicating
the underlying goodwill was not impaired at that date. We plan to
conduct our annual impairment test as of April 1 of each fiscal year,
when our budgets and operating plans for the forthcoming year are
finalized. The timing and frequency of our goodwill impairment tests
are based on an ongoing assessment of events and circumstances that
would more than likely reduce the fair value of a reporting unit below
its carrying value. We will continue to monitor our goodwill balance
for impairment and conduct formal tests when impairment indicators are
present.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | Long-Lived and Intangible Assets. We evaluate the carrying value
of long-lived and intangible assets whenever certain events or
changes in circumstances indicate that the carrying amount may not be
recoverable. These events or circumstances include, but are not
limited to, a prolonged industry or economic downturn, a significant
decline in SBS market value, or significant reductions in projected
future cash flows. An asset is considered to be impaired if future
undiscounted cash flows, without consideration of interest, are
insufficient to recover the carrying amount of the asset. Once an
asset is deemed impaired, a charge to expense is recognized to the
extent that the carrying amount of the asset exceeds fair value.
Fair value is generally determined by calculating the discounted
future cash flows using a discount rate based upon our weighted
average cost of capital. Estimates of future cash flows require
significant judgment, and any change in these estimates may result in
additional impairment charges and reduced operating profits.                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | Income Taxes. Our estimate of current and deferred income taxes
reflects our assessment of current and future taxes to be paid or
received on items reflected in the financial statements, giving
consideration to the recoverability of certain of the deferred tax
assets, which arise from temporary differences between the tax and
financial statement recognition of revenue and expense. Estimates of
current income taxes include estimates for general business credits,
benefits from U.S. sales to foreign jurisdictions, and benefits from
the utilization of foreign tax credits. Actual income taxes may vary
from our estimates due to future changes in tax laws or because of a
review of our tax returns by taxing authorities, which may result in
an increase or decrease to income tax expense. We must also assess
the likelihood that we will be able to recover our deferred tax
assets. If recovery is determined not to be more likely than not, we
must increase our provision for taxes by recording a reserve, in the
form of a valuation allowance, for the deferred tax assets that we
estimate will not ultimately be recoverable. As of June 30, 2003, we
believe that all of our recorded deferred tax assets will ultimately
be recovered. However, should there be a change in our ability to
recover the deferred tax assets, our tax provision would increase in
the period we determine that recovery is no longer more likely than
not.

Recent Acquisitions

SBS completed the acquisitions described below during the fiscal
years ended June 30, 2003 and 2002. The acquisitions have been accounted
for using the purchase method of accounting, and the results of operations
of the acquired companies have been combined with SBS since the
respective dates of acquisition. The purchase price has been allocated to
the underlying assets acquired and liabilities assumed based on their
estimated fair values with goodwill, if any, representing the excess of
the purchase price over the fair value of the net assets acquired.

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

The aggregate purchase price of $6.2 million, including acquisition
costs of $0.6 million, was paid in cash and shares of SBS common stock
valued at $3,574,020. The value of the 386,940 shares of SBS common stock
was determined based on the average market price of SBS common shares
over the two-day period before and after the terms of the acquisition were
agreed to and announced. The purchase price was allocated to the
underlying assets acquired and liabilities assumed based on their
estimated fair values. 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. The identifiable
intangible assets will be amortized over a period of 5

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years based on the estimated economic useful life of the core
technology asset and the contractual period of the covenant.

The following unaudited pro forma consolidated results of operations
for the fiscal year ended June 30, 2003 have been prepared as if the
acquisition of Avvida had occurred on July 1, 2002. Accordingly, the
weighted average shares used in the pro forma per share data were
increased to reflect the shares issued in the acquisition. Pro forma
results of operations for 2002 are not presented as Avvidas results of
operations in fiscal 2002 were not material to SBS consolidated results
of operations.

|                                                                  |                                                                   |   |         |       |  
|----------------------------------------------------------------- | ----------------------------------------------------------------- | - | ------- | ----- | -
|Thousands (except per share amounts)                              |                                                                   |   |         |      
|                                                                  |                                                                   |   |         |      
|Sales                                                             |                                                                   | $ | 116,178 |      
|                                                                  |                                                                   |   |         |      
|Income before cumulative effect of change in accounting
principle |                                                                   | $ | 207     |      
|Cumulative effect of change in accounting principle               |                                                                   |   | (6,058  | )    
|                                                                  |                                                                   |   |         |      
|Net loss                                                          |                                                                   | $ | (5,851  | )    
|                                                                  |                                                                   |   |         |      
|Per share  assuming dilution:                                    |                                                                   |   |         |      
|                                                                  | Income before cumulative effect of change in accounting
principle |   | $       | 0.01  |  
|                                                                  | Cumulative effect of change in accounting principle               |   |         | (0.40 | )
|                                                                  |                                                                   |   |         |      
|                                                                  | Net loss                                                          |   | $       | (0.39 | )
|                                                                  |                                                                   |   |         |      

The pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisition been consummated on
July 1, 2002, nor is it intended to be a projection of future results.

On March 4, 2002, SBS completed the acquisition of certain assets and
assumed certain liabilities of Essential Communications, a division of
publicly held Intrusion, Inc., for approximately $1.0 million in cash.
Founded in 1992, Essential develops and delivers early stage InfiniBand
products. SBS utilizes Essentials InfiniBand product expertise and
industry relationships to build on its current InfiniBand efforts in the
enterprise server and storage markets. The purchase price has been
allocated to the underlying assets acquired and liabilities assumed based
on their estimated fair values. In conjunction with the purchase price
allocation, SBS recorded approximately $364,000 of identifiable
intangibles, principally core-technology assets, which are being amortized
over a two-year period. No goodwill was recorded.

20



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Results of Operation

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

|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |      | 
|------------------------------------------------------------------------ | --------------------------------- | ------------------- | ------- | ------ | - |  | ----- | ---- | - | - | ------- | ------- | - |  | ----- | ----- | - | - | ------- | ------ |  |  | ----- | ---- | 
|(dollars in thousands)                                                   |                                   | Years ended June 30
|                                                                         |                                   |                    
|                                                                         |                                   |                     | 2003    |        | % |  | 2002  |      | % |   | 2001    |         | %
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |  
|Sales                                                                    |                                   | $                   | 115,521 |        |   |  | 100.0 |      |   | $ | 118,856 |         |   |  | 100.0 |       |   | $ | 187,180 |        |  |  | 100.0 |     
|Cost of sales                                                            |                                   |                     | 58,002  |        |   |  | 50.2  |      |   |   | 76,228  |         |   |  | 64.1  |       |   |   | 98,615  |        |  |  | 52.7  |     
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |     
|                                                                         | Gross profit                      |                     |         | 57,519 |   |  |       | 49.8 |   |   |         | 42,628  |   |  |       | 35.9  |   |   |         | 88,565 |  |  |       | 47.3 | 
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |     
|Selling, general and administrative expense                              |                                   |                     | 33,608  |        |   |  | 29.1  |      |   |   | 38,817  |         |   |  | 32.7  |       |   |   | 33,031  |        |  |  | 17.6  |     
|Research and development expense                                         |                                   |                     | 18,077  |        |   |  | 15.6  |      |   |   | 18,461  |         |   |  | 15.5  |       |   |   | 20,054  |        |  |  | 10.7  |     
|Employee severance and consolidation costs                               |                                   |                     | 1,729   |        |   |  | 1.5   |      |   |   | 3,232   |         |   |  | 2.7   |       |   |   |        |        |  |  |       |     
|Impairment of intangible assets                                          |                                   |                     |        |        |   |  |       |      |   |   | 13,005  |         |   |  | 10.9  |       |   |   |        |        |  |  |       |     
|Goodwill amortization                                                    |                                   |                     |        |        |   |  |       |      |   |   | 4,523   |         |   |  | 3.8   |       |   |   | 4,720   |        |  |  | 2.5   |     
|Amortization of intangible assets                                        |                                   |                     | 1,940   |        |   |  | 1.7   |      |   |   | 3,002   |         |   |  | 2.5   |       |   |   | 3,024   |        |  |  | 1.6   |     
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |     
|                                                                         | Operating income (loss)           |                     |         | 2,165  |   |  |       | 1.9  |   |   |         | (38,412 | ) |  |       | (32.3 | ) |   |         | 27,736 |  |  |       | 14.8 | 
|Interest and other income, net                                           |                                   |                     | 454     |        |   |  | 0.4   |      |   |   | 646     |         |   |  | 0.5   |       |   |   | 410     |        |  |  | 0.2   |     
|Interest expense                                                         |                                   |                     | (20     | )      |   |  |      |      |   |   | (15     | )       |   |  |      |       |   |   | (1,071  | )      |  |  | (0.6  | )   
|Foreign exchange losses                                                  |                                   |                     | (207    | )      |   |  | (0.2  | )    |   |   | (29     | )       |   |  |      |       |   |   | (200    | )      |  |  | (0.1  | )   
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |     
|                                                                         | Income (loss) before income taxes |                     |         | 2,392  |   |  |       | 2.1  |   |   |         | (37,810 | ) |  |       | (31.8 | ) |   |         | 26,875 |  |  |       | 14.4 | 
|Income tax expense (benefit)                                             |                                   |                     | 784     |        |   |  | 0.7   |      |   |   | (13,450 | )       |   |  | (11.3 | )     |   |   | 9,691   |        |  |  | 5.2   |     
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |     
|Income (loss) before cumulative effect of
change in accounting principle |                                   |                     | 1,608   |        |   |  | 1.4   |      |   |   | (24,360 | )       |   |  | (20.5 | )     |   |   | 17,184  |        |  |  | 9.2   |     
|Cumulative effect of change in accounting
principle                      |                                   |                     | (6,058  | )      |   |  | (5.2  | )    |   |   |        |         |   |  |       |       |   |   |        |        |  |  |       |     
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |     
|Net income (loss)                                                        |                                   |                     | (4,450  | )      |   |  | (3.8  | )    |   |   | (24,360 | )       |   |  | (20.5 | )     |   |   | 17,184  |        |  |  | 9.2   |     
|                                                                         |                                   |                     |         |        |   |  |       |      |   |   |         |         |   |  |       |       |   |   |         |        |  |  |       |     

Year Ended June 30, 2003 Compared to Year Ended June 30, 2002(References to fiscal 2003 and fiscal 2002 relate to the fiscal years ended on June 30)

Sales.For the year ended June 30, 2003, sales decreased 3%, or
$3.4 million, from $118.9 million for the year ended June 30, 2002, to
$115.5 million. Sales for the Communications and Enterprise Group were
down 31%, or $11.2 million, from $36.6 million in fiscal 2002, to $25.4
million as we continue to experience the effects of economic and market
conditions negatively impacting our telecommunications infrastructure
customers. Sales for the Commercial and Government Group increased 10%,
or $7.9 million, to $90.2 million for the year ended June 30, 2003, from
sales for the comparable period in fiscal 2002 of $82.3 million. One of
our greatest challenges is a market that is still not demonstrating
growth. We have seen some signs of economic recovery in our lead
generation and quoting activity, but the timing and scale of the effects
on our business of these early indicators are, at this point,
unpredictable. We believe that both the commercial and communications
markets bottomed during fiscal year 2003. Both markets remain very
competitive, but we will continue to invest in our business development
team and in focused R&D so that we can increase our market share. In the
government market, we believe that opportunities for new systems and
applications will continue. We believe that our product portfolio is
competitive, and that SBS will benefit from those opportunities. We are
aggressive in our development activities, and we believe that there will
be growth in this market, which should contribute to total company sales
growth in fiscal year 2004. However, should the U.S. defense budget be
reviewed in light of the growth in the federal budget deficit or for other
reasons, U.S. procurement spending may be affected.

Gross Profit.For the year ended June 30, 2003, gross profit
increased 35%, or $14.9 million, from $42.6 million for the year ended
June 30, 2002, to $57.5 million. The increase in gross profit was
primarily due to significant inventory write-downs and other charges
recorded in fiscal 2002. In fiscal 2002, we recorded $15.1 million of
inventory write-downs and $185,000 of expenditures associated with our
manufacturing consolidation and cost reduction efforts. The write-downs

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consisted of inventory associated with programs that were not
anticipated to come back to their previous forecasts, inventory associated
with our decision to exit the legacy PCI chassis product line, inventory
associated with products that we will no longer market, and reduced demand
for certain Communications and Enterprise Group products. Additionally,
the implementation of a new inventory management methodology associated
with the consolidation of our manufacturing operations, contributed to the
inventory write-down in fiscal 2002. The consolidation efforts and new
inventory methodology resulted in a reduction in required inventory
levels. For these reasons, gross profit as a percent of sales for fiscal
2003 improved to 49.8% compared with 35.9% for fiscal 2002 (48.7%
excluding the $15.3 million of charges noted above). During the year
ended June 30, 2003, we sold approximately $1.0 million of inventory that
had been previously written down to zero cost, increasing gross margin as
a percentage of sales by 0.9%. Based on managements sales projections
for fiscal 2004, gross profit as a percentage of sales is expected to be
similar to the percentage experienced in the year ended June 30, 2003;
however, actual results may vary.

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

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

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



| |  |  | a charge for the impairment of leasehold improvements of
approximately $841,000 recorded in the fourth quarter;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | On June 12, 2003, we announced that we would be closing our
Carlsbad, California facility and consolidating its manufacturing
operations into our St. Paul, Minnesota facility, centralizing all
manufacturing in the United States to one facility. This
consolidation was completed in August, 2003. In addition, the
results for the quarter ending September 30, 2003, will include
charges associated with the closure of the Carlsbad, California
facility, which we estimate will range from $1.1 million to $1.6
million.                                                                                                                                                          
|
| |  |  | employee severance and related costs of approximately
$702,000; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |   |  | Due to the economic and market conditions facing our Communications
and Enterprise Group, on July 22, 2002, we notified 19 full and
part-time employees at our Madison, Wisconsin engineering design
center that their jobs had been eliminated. Additionally, for the
same reason, on September 30, 2002, we notified 22 employees of the
Communications and Enterprise Group that their jobs were being
eliminated. We also incurred severance costs for 12 other employees
who were notified that their jobs had been eliminated. As a result
of these actions, we incurred $412,000 of employee severance costs,
of which there were no costs remaining to be paid as of June 30,
2003.
|
| |   |  | As a result of the June 2003 announcement of the closure of our
Carlsbad, California facility, we recorded severance and related
costs of approximately $290,000, due primarily to the planned
reduction of the workforce in August 2003. Of this amount,
approximately $224,000 was accrued at June 30, 2003 and we expect to
pay substantially all of these costs during the quarter ending
September 30, 2003. The results for the quarter ending September
30, 2003 will include the remainder of the severance and related
costs associated with the closure of the Carlsbad, California
facility, which we estimate will be approximately $400,000.                                  
|
| |  |  | lease termination costs of approximately $186,000, as a
result of our decision to exit certain locations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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

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

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

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

Interest and Other Income, Net.For the year ended June 30, 2003,
net interest and other income of $454,000 consisted primarily of interest
income associated with surplus cash. For the year ended June 30, 2002,
net interest and other income of $646,000 consisted primarily of a
recovery from insurance of $307,000, and interest income associated with
surplus cash, partially offset by a $323,000 charge related to an
other-than-temporary decline in our investment in a software company.

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

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

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

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Review of Business Segments

We operate internationally through two operating segments: the
Communications and Enterprise Group, and the Commercial and Government
Group. The Commercial and Government Group consists of SBS Government,
SBS Commercial, KG, ortecand SBS Canada,aligning similar technologies
and selling channels. The Communications and Enterprise Group consists of
SBS Communications. These segments are based on the markets we serve and
the products we provide to those markets. Each segment has its own sales
and distribution channels and a manager who reports directly to the
President and Chief Operating Officer. The Commercial and Government
Groups primary focus is to serve customers in the medical, semiconductor,
aerospace, defense and other commercial markets. The Communications and
Enterprise Group serves major telecommunications OEMs and OEMs that
manufacture and distribute business-computing equipment.

The following is a discussion of sales to external customers and
segment profit (loss) for each reportable segment. In the measure of
segment profit (loss) (Segment Profit (Loss)), we do not allocate the
following to these segments:



| |  |  | substantially all amortization expense associated with acquisitions,
| | - |  | --------------------------------------------------------------------
| |  |  | intangible asset impairment charges,                                
| |  |  | substantially all interest income earned on cash balances, and      
| |  |  | corporate overhead costs, excluding corporate marketing costs.      

Communications and Enterprise Group

|            |  |                   |  |                  |  |  |  |  | 
|----------- |  | ----------------- |  | ---------------- |  |  |  |  | 
|            |  | Sales to External |  | Segment         
|            |  | Customers         |  | Loss            
|            |  |                   |  |                 
|Fiscal 2003 |  | $25.4 million     |  | $  (4.2) million
|Fiscal 2002 |  | $36.6 million     |  | $(14.4) million 

For the year ended June 30, 2003, Communications and Enterprise Group
sales to external customers decreased 30.7%, or $11.2 million compared to
the same period of fiscal 2002. This decrease was due principally to the
economic and market conditions negatively affecting this Group. We
continue to experience the effects of reduced booking activities compared
to prior periods, and delays of existing backlog orders and prior order
cancellations by our telecommunications infrastructure customers.

For the year ended June 30, 2003, the reduction in the Groups
segment loss was primarily due to significant inventory write-downs
recorded in fiscal 2002, coupled with lower sales and gross profit, offset
partially by reduced R&D expenses in fiscal 2003 compared with fiscal
2002. Total inventory write-downs of $11.7 million recorded in fiscal
2002 were associated with programs that were not anticipated to come back
to their previous forecasts and with our decision to exit our legacy PCI
chassis product line. In fiscal 2003, we recorded employee severance and
consolidation costs due to the cost reduction efforts implemented in
response to the economic and market conditions negatively affecting the
Group and the announcement, on June 12, 2003, of the closure of our
Carlsbad, California facility and the consolidation of its manufacturing
operations into our St. Paul, Minnesota facility, which we completed in
August, 2003. For these reasons, for the year ended June 30, 2003,
segment loss as a percent of sales to external customers improved from
(39.3)% for the year ended June 30, 2002 to (16.7)%. The results for the
quarter ending September 30, 2003 will include the balance of the costs
associated with the closure of the Carlsbad, California facility,
estimated to be between $1.5 million and $2.0 million.

Commercial and Government Group

|            |  |                   |  |               |  |  |  |  | 
|----------- |  | ----------------- |  | ------------- |  |  |  |  | 
|            |  | Sales to External |  | Segment      
|            |  | Customers         |  | Profit       
|            |  |                   |  |              
|Fiscal 2003 |  | $90.2 million     |  | $19.4 million
|Fiscal 2002 |  | $82.3 million     |  | $11.7 million

For the year ended June 30, 2003, Commercial and Government Group
sales to external customers increased 9.6%, or approximately $7.9 million
compared to the same period of fiscal 2002. Unit shipments in fiscal 2003
increased for the Groups computer processor products, and decreased
slightly from fiscal 2002 levels for general purpose input/output
products, computer connectivity and expansion products, and avionics and
telemetry products. We believe the uncertainty caused by the military
activity in the Middle East during the quarter ended March 31, 2003
adversely affected the placement of some customer orders.

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For the year ended June 30, 2003, the increase in segment profit was
primarily due to the increase in sales combined with a change in sales mix
to products with higher gross margins and decreases in SG&A expenses as a
result of the cost reduction efforts implemented during fiscal 2003 and
2002. In addition, there were significant inventory write-downs recorded
in fiscal 2002. In fiscal 2002, a $3.4 million inventory write-down and
$185,000 of expenditures associated with our manufacturing consolidation
and cost reduction efforts were recorded. The inventory write-down in
fiscal 2002 consisted of inventory associated with products that will no
longer be marketed and excess component parts based on the implementation
of the new inventory management methodology associated with the
consolidation of our manufacturing operations. This was partially offset
by increased R&D expenses in fiscal 2003 compared with fiscal 2002
resulting from the Essential Communications asset acquisition in March
2002. For the same reasons, for the year ended June 30, 2003, segment
profit as a percent of sales to external customers improved to 21.6% in
fiscal 2003 from 14.2% for the same period of fiscal 2002.

Year Ended June 30, 2002 Compared to Year Ended June 30, 2001(References to fiscal 2002 and fiscal 2001 relate to the fiscal
years ended on June 30)

Sales.In fiscal 2002, sales decreased 36.5%, or $68.3 million, from
$187.2 million in fiscal 2001, to $118.9 million. Unit shipments declined
within the Communications and Enterprise Group, primarily due to depressed
market and economic conditions, customer order cancellations, and delays
of shipment dates by several of the Groups telecommunications
infrastructure customers. Unit shipments of the Commercial and Government
Groups avionics, telemetry and computer processor products increased.
Unit shipments of the Groups general purpose I/O products and computer
connectivity and expansion unit products declined, due to unfavorable
economic and market conditions and delays of shipment dates by several
customers.

Gross Profit.In fiscal 2002, gross profit decreased 51.9%, or $46.0
million, from $88.6 million in fiscal 2001, to $42.6 million. This
decrease was primarily due to the decrease in sales combined with $0.2
million of expenditures associated with SBS manufacturing consolidation
and cost reduction efforts, a $12.4 million inventory write-down recorded
during the second quarter of fiscal 2002, and a $2.7 million inventory
write-down recorded during the fourth quarter of fiscal 2002. The second
quarter write-down consisted of inventory associated with programs that
are not anticipated to come back to their previous forecasts, inventory
associated with SBS decision to exit our legacy PCI chassis product line,
and inventory associated with SBS products that will no longer be
marketed. Additionally, the implementation of a new inventory management
methodology associated with the consolidation of SBS manufacturing
operations contributed to the inventory write-down. The consolidation
efforts included a reduction in the number of material handling employees
and inventory specialists, a reduction in the amount of floor space for
the storage of inventory, and the adoption of a purchasing methodology
based on projected component part demand to achieve manufacturing and
material handling efficiencies. This new methodology calculates the
maximum level of inventory to be maintained by comparing historical usage
over a fixed period of time to forecasted future demand. The
consolidation efforts and new inventory methodology resulted in a
reduction in required inventory levels. The fourth quarter write-down was
primarily due to reduced demand for certain Communications and Enterprise
Group products. As of June 30, 2002, approximately $0.7 million of
inventory previously written down had been utilized. Excluding the $15.3
million of charges noted above, for fiscal 2002, gross profit as a
percentage of sales would have been 48.7%, compared to 47.3% for fiscal
2001.

Selling, General and Administrative Expense.In fiscal 2002,
selling, general and administrative expense increased 17.5%, or $5.8
million from $33.0 million in fiscal 2001, to $38.8 million. This increase
was primarily due to an increase in SBS sales personnel associated with
the realignment of our business, additional corporate personnel, increases
in executive compensation, relocation expenses for recently hired
employees, additional information technology department personnel,
depreciation and consulting expenses associated with the implementation of
SBS customer relationship management system, additional reserves for
accounts receivable due to collection issues, and costs associated with
the termination of SBS proposed acquisition of Interactive Circuit
Systems (ICS) in the quarter ended December 31, 2001. This increase,
combined with the decrease in sales, resulted in an increase in SG&A
expense as a percentage of sales to 32.7% in fiscal 2002 from 17.6% in
fiscal 2001.

Research and Development Expense.In fiscal 2002, research and
development expense decreased by 7.9%, or $1.6 million, from $20.1 million
in fiscal 2001, to $18.5 million, primarily due to cost reductions in the
Communications and Enterprise Group, resulting from depressed business
conditions. In fiscal 2002, research and development expense as a
percentage of sales increased to 15.5% from 10.7% in fiscal 2001,
primarily due to the decrease in sales volume. In July 2002, the
Communications and Enterprise Groups Madison, Wisconsin facility was
closed, resulting in the termination of 7 full-time employees and 11
part-time employees.

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Employee Severance and Consolidation Costs.In fiscal 2002, SBS
recorded employee severance and related costs as follows:



| |  |  | On April 28, 2002, SBS announced the resignation of the Chairman
of the Board and Chief Executive Officer, Grahame E. Rance. During
the quarter ended June 30, 2002, SBS recorded approximately $2.0
million of severance and other costs related to the Separation
Agreement between SBS and Mr. Rance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | During the year ended June 30, 2002, because of unfavorable
economic and market conditions, facility consolidation actions, and
the decision to exit the legacy PCI Chassis product line, SBS reduced
its employee base, resulting in elimination of 159 positions in
manufacturing, R&D, administration, and sales and marketing. On
August 14, 2001, SBS notified 58 employees that their positions would
be eliminated by the end of September 2001. On December 26, 2001,
the SBS Board of Directors approved additional reductions, to be
completed through March 31, 2002, and SBS notified 54 employees that
their jobs would be eliminated. On May 21, 2002, SBS announced
further reductions, which were effective immediately, and notified 47
employees that their jobs had been eliminated. As a result, for the
year ended June 30, 2002, we recorded employee severance and other
termination charges of approximately $1,253,000. As of
June 30, 2002, cash payments of $963,000 were made, $21,000 of the
original charge was reversed as a result of the decision not to
terminate certain originally notified employees, and $269,000 was paid
prior to December 31, 2002.

Impairment of Intangible Assets.For fiscal 2002, $2.7 million of the
$13.0 million asset impairment charge represented the write-off of the
remaining goodwill recorded in connection with the acquisition of
Industrial Computers (formerly Micro Alliance) in November 1997. This
write-off was the result of SBS decision in the quarter ended December
31, 2001 to exit the PCI chassis business. The remaining $10.3 million
represented the write-down of goodwill and other identifiable intangible
assets associated with the acquisition of SDL in April of 2000. The
write-down, which occurred in the fourth quarter, was based on SBS
projection of undiscounted future operating cash flows. This evaluation
indicated that these cash flows were not sufficient to recover the
carrying amounts of the goodwill and other identifiable intangible assets.
As a result, the impairment charge was recorded to the extent that the
carrying value exceeded fair value of the assets. The evaluation was
performed as a result of continued order cancellations and a continued
decline in sales and bookings in the fourth quarter.

Interest and Other Income, Net.In fiscal 2002, net interest and
other income of $646,000 consisted primarily of a recovery from insurance
of $307,000, and interest income associated with surplus cash, partially
offset by the fiscal 2002 second quarter $323,000 write-down related to
the other-than-temporary decline in the fair value of SBS investment in
an unrelated software company. In fiscal 2001, interest income of
$410,000 consisted primarily of interest associated with SBS surplus
cash.

Income Taxes.For fiscal 2002 and fiscal 2001, income taxes
represented effective income tax rates of 35.6% and 36.1%, respectively.
A tax benefit related to the loss from operations was recorded in fiscal
2002 primarily due to SBS ability to realize the benefit through tax loss
carrybacks to prior periods.

Earnings per Share.For fiscal 2002, net loss per common share was
$(1.67) compared to net income per share of $1.23 for fiscal 2001. For
fiscal 2002, net loss per common share  assuming dilution was $(1.67)
compared to net income per common share  assuming dilution of $1.14 for
fiscal 2001.

Review of Business Segments

SBS operates internationally through two operating segments: the
Communications and Enterprise Group, and the Commercial and Government
Group. These segments are based on the markets we serve and the products
we provide to those markets. Each segment has its own sales and
distribution channels and has a manager who reports directly to the
President and Chief Operating Officer.

The following is a discussion of sales to external customers and
segment profit (loss) for each reportable segment. In the measure of
segment profit or loss, SBS does not allocate to segments: substantially
all of the amortization expense associated with acquisitions; asset
impairment charges; substantially all interest income earned on cash
balances; interest expense associated with SBS borrowing facilities;
acquired in-process research and development charges; and corporate
overhead costs, excluding sales and marketing costs.

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Communications and Enterprise Group

|            |  |                   |  |                 |  |  |  |  | 
|----------- |  | ----------------- |  | --------------- |  |  |  |  | 
|            |  | Sales to External |  | Segment Profit 
|            |  | Customers         |  | (Loss)         
|            |  |                   |  |                
|Fiscal 2002 |  | $36.6 million     |  | $(14.4) million
|Fiscal 2001 |  | $92.0 million     |  | $22.1 million  

Communications and Enterprise Group sales to external customers in
fiscal 2002 decreased 60.2%, or $55.4 million, from $92.0 million in
fiscal 2001, to $36.6 million. This decrease was primarily due to
depressed market and economic conditions, customer order cancellations
and delays of shipment dates by several of the Groups telecommunications
infrastructure customers.

For fiscal 2002, Communications and Enterprise Group segment loss
was $(14.4) million, compared to segment profit of $22.1 million for
fiscal 2001. This decrease was primarily due to the decrease in sales,
severance and other employee termination costs, reserves for accounts
receivable, a second quarter $9.0 million inventory write-down and a
fourth quarter $2.7 million inventory write-down. The second quarter
inventory write-down was associated with programs that were not
anticipated to come back to their previous forecasts and with SBS
decision to exit our legacy PCI chassis product line. The fourth quarter
inventory write-down was due to additional order cancellations and the
continued decline in sales and bookings. This decrease was partially
offset by a reduction in R&D expenditures resulting from depressed
business conditions. In July 2002, SBS closed the Groups Madison,
Wisconsin facility, resulting in the termination of 7 full-time employees
and 11 part-time employees.

Commercial and Government Group

|            |  |                   |  |               |  |  |  |  | 
|----------- |  | ----------------- |  | ------------- |  |  |  |  | 
|            |  | Sales to External |  | Segment      
|            |  | Customers         |  | Profit       
|            |  |                   |  |              
|Fiscal 2002 |  | $82.3 million     |  | $11.7 million
|Fiscal 2001 |  | $95.2 million     |  | $21.4 million

Commercial and Government Group sales to external customers in fiscal
2002 decreased 13.5%, or $12.9 million from $95.2 million in fiscal 2001,
to $82.3 million. Sales of the Groups general purpose I/O products and
computer connectivity and expansion unit products decreased 33.0%,
primarily as a result of unfavorable economic and market conditions and
several customer delays of shipment dates. Unit shipments of the Groups
computer processor products increased 6.2%, primarily due to the focus on
high volume production business in the quarter ended September 30, 2001,
and an increase in shipments to a customer in the quarter ended June 30,
2002, partially offset by weak demand in the quarters ended
December 31, 2001 and March 31, 2002. Unit shipments of the Groups
avionics and telemetry products increased 3.0%, primarily due to the
release of the conduction-cooled PMC design, an increase in sales of the
PMC2 board, and an increase in sales of integrated products.

Commercial and Government Group segment profit decreased 45.3%, or
$9.7 million, from $21.4 million in fiscal 2001 to $11.7 million. This
decrease was primarily due to the decrease in sales, $0.2 million of
expenditures associated with SBS manufacturing consolidation and cost
reduction efforts, severance and other employee termination costs, a
second quarter $3.4 million inventory write-down, and an increase in SG&A
expenses. The inventory write-down consisted of inventory associated with
products that will no longer be marketed and with the implementation of a
new inventory management methodology associated with the consolidation of
manufacturing operations. The increase in SG&A expense was primarily due
to an increase in sales and marketing costs due to SBS pro-rata
allocation of certain corporate SG&A expenses among segments, based on
sales. For the same reasons, segment profit as a percentage of sales
decreased from 22.5% in fiscal 2001 to 14.2% in fiscal 2002.

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##### Table of Contents



Liquidity and Financial Condition

We use a combination of the sale of equity securities, internally
generated funds and bank borrowings to finance our acquisitions, working
capital requirements, capital expenditures and operations.

Comparison of Condensed
Consolidated Statements of Cash Flows

|                                |                                                     |  |                      |        |      |  |      |        |   |  |  |        |  
|------------------------------- | --------------------------------------------------- |  | -------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                |                                                     |  | Years ended June 30,
|                                |                                                     |  |                     
|                                |                                                     |  | 2003                 |        | 2002 |  | 2001
|                                |                                                     |  |                      |        |      |  |     
|                                |                                                     |  | Thousands           
|Cash Flow Provided By (Used In) |                                                     |  |                      |        |      |  |      |        |   |  |  |       
|                                | Operating activities                                |  | $                    | 16,832 |      |  |      | 20,571 |   |  |  | 17,286 |  
|                                | Financing activities                                |  |                      | (4,390 | )    |  |      | (4,359 | ) |  |  | (6,553 | )
|                                | Investing activities                                |  |                      | (456   | )    |  |      | (1,433 | ) |  |  | (4,513 | )
|Net Effects on Cash from:       |                                                     |  |                      |        |      |  |      |        |   |  |  |       
|                                | Exchange rates                                      |  |                      | 333    |      |  |      | 298    |   |  |  | (81    | )
|                                | Cumulative effect of change in
accounting principle |  | $                    | 6,058  |      |  |      |       |   |  |  |       |  

Cash totaled $37.1 million at June 30, 2003, an increase of $12.3
million from June 30, 2002. Net cash provided by operating activities was
$16.8 million and proceeds from the exercise of stock options totaled
$13,000. Operating cash inflows during fiscal 2003 include income tax
refunds of approximately $4.3 million as a result of the net operating
loss carryback of the tax loss generated in fiscal 2002 to prior tax
years. These cash inflows were offset by $2.6 million used for the
acquisition of Avvida, $325,000 used for the purchase of license
agreements, $1.4 million used for the purchase of capital equipment,
$148,000 used to pay off notes payable assumed in the acquisition of
Avvida, and $321,000 used to repurchase 46,000 shares of SBS common stock
pursuant to a repurchase plan initially adopted for a one year period by
the Board of Directors on September 14, 2001 and extended until September
13, 2003. That plan allowed for the repurchase of up to 1,000,000 shares
of SBS Common Stock at an aggregate cost not to exceed $8,000,000. During
the year ended June 30, 2003, the increase in accounts receivable used
operating cash of $288,000 prior to foreign currency translation
adjustments of $257,000, and the decrease in inventory provided cash for
operations of $1.6 million, prior to foreign currency translation
adjustments of $600,000, due to continued efforts to reduce inventory
quantities. Liabilities, which increased by $0.5 million in fiscal 2003
principally due to liabilities assumed in the acquisition of SBS Canada,
remain consistent with our current level of business.

On September 20, 2002, the Company canceled its amended $30.0 million
Credit Agreement (Agreement) with Bank of America, N.A. At no time
during fiscal year 2003 were any borrowings drawn on the Agreement.
Management does not believe, as of the date of this report and based upon
managements assessment of future cash needs and sources of cash, that our
liquidity needs require us to maintain a credit facility at this time.

Management believes that our internally generated funds will be
sufficient to finance SBS current operations and 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 SBS could require external financing in the future, and that such
financing may not be available on terms acceptable to SBS or at all.

As of the date of this report, SBS does not have any material capital
expenditure commitments. As of June 30, 2003, SBS is committed to pay
approximately $625,000 of severance and related costs to employees in
connection with the closure of the Companys Carlsbad, California facility
(of which $224,000 is accrued). Substantially all of these amounts will
be paid during the quarter ending September 30, 2003 (see Employee
Severance and Consolidation Costs above).

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SBS is committed under non-cancelable operating leases that expire at
various dates through fiscal 2008. The following is a five-year schedule
of future minimum lease payments:

|              |  |                        |       |                |  |       |     |  |  |   |       | 
|------------- |  | ---------------------- | ----- | -------------- |  | ----- | --- |  |  | - | ----- | 
|              |  | Buildings              |       | Equipment      |  |       |     | 
|Year ending   |  | Lease Payments         |       | Lease Payments |  | Total
|              |  |                        |       |                |  |      
|              |  | (dollars in thousands)
|June 30, 2004 |  | $                      | 3,165 |                |  | $     | 186 |  |  | $ | 3,351 | 
|June 30, 2005 |  |                        | 2,902 |                |  |       | 109 |  |  |   | 3,011 | 
|June 30, 2006 |  |                        | 1,344 |                |  |       | 47  |  |  |   | 1,391 | 
|June 30, 2007 |  |                        | 394   |                |  |       | 30  |  |  |   | 424   | 
|June 30, 2008 |  |                        | 207   |                |  |       |    |  |  |   | 207   | 
|              |  |                        |       |                |  |      
|              |  | $                      | 8,012 |                |  | $     | 372 |  |  | $ | 8,384 | 
|              |  |                        |       |                |  |      

For the periods ended June 30, 2003, 2002 and 2001, there was no
significant impact from inflation.

Business Outlook

Consistent with our press release dated August 12, 2003, one of our
greatest challenges is a market that is still not demonstrating growth. We
have seen some signs of economic recovery in our lead generation and
quoting activity, but the timing and scale of the effects on our business
of these early indicators are, at this point, unpredictable. We believe
that both the commercial and communications markets bottomed during fiscal
year 2003. Both markets remain very competitive, but we will continue to
invest in our business development team and in focused R&D so that we can
increase our market share. In the government market, we believe that
opportunities for new systems and applications will continue. We believe
that our product portfolio is competitive, and that SBS will benefit from
those opportunities. We are aggressive in our development activities, and
we believe that there will be growth in this market, which should
contribute to total company sales growth in fiscal year 2004. However,
should the U.S. defense budget be reviewed in light of the growth in the
federal budget deficit or for other reasons, U.S. procurement spending may
be affected.

At this time, we expect sales for the quarter ending September 30,
2003 to be similar to the sales of $29.5 million reported for the quarter
ended June 30, 2003. In addition, the results for the quarter ending
September 30, 2003, will include the balance of costs associated with the
closure of the Carlsbad, California facility, estimated to be between $1.5
million and $2.0 million. For the longer term, we believe we have the
right strategy and we reaffirm our commitment to growth and earnings
improvement.

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




Item 7A.Quantitative and Qualitative Disclosures About Market Risk

The Companys liquid investment is cash invested in either money
market accounts or in overnight repurchase agreements. Due to the nature
of these investments, we believe that the market risk related to these
investments is minimal.

As a result of the Companys German and Canadian operating and
financing activities, we are exposed to market risk from changes in
foreign currency exchange rates. As of June 30, 2003, we have no plans to
enter into foreign exchange forward contracts to reduce exposure to
changes in foreign currency exchange rates.




Item 8.Financial Statements and Supplementary Data

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Independent Auditors Report

The Board of Directors
SBS Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of SBS
Technologies, Inc. and subsidiaries as of
June 30, 2003 and 2002, and the related consolidated statements of
operations, changes in stockholders equity, and cash flows for each of
the years in the three-year period ended June 30, 2003. 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 auditing standards
generally accepted in the United States of America. 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, 2003 and 2002, and
the results of their operations and their cash flows for each of the years
in the three-year period ended June 30, 2003 in conformity with accounting
principles generally accepted in the United States of America.

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

KPMG LLP

Albuquerque, New Mexico
August 11, 2003

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SBS TECHNOLOGIES, INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETSThousands (except share amounts)

---

|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |          |         |  |  | 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------ | ------- | -------- | ------ | -------- | ------- |  |  | 
|                                                           |                                                                                                                                                     |                                            |        |        |         | June 30, |        | June 30,
|                                                           |                                                                                                                                                     |                                            |        |        |         | 2003     |        | 2002    
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           |                                                                                                                                                     |                                            |        |        |        
|Assets                                                    
|Current assets:                                            |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           | Cash and cash equivalents                                                                                                                           |                                            | $      | 37,130 |         |          |        | 24,811   |        
|                                                           | Receivables, net                                                                                                                                    |                                            |        | 23,164 |         |          |        | 22,619   |        
|                                                           | Inventories                                                                                                                                         |                                            |        | 16,816 |         |          |        | 18,428   |        
|                                                           | Income tax receivable                                                                                                                               |                                            |        | 4,830  |         |          |        | 4,584    |        
|                                                           | Deferred income taxes                                                                                                                               |                                            |        | 1,629  |         |          |        | 9,446    |        
|                                                           | Prepaid expenses                                                                                                                                    |                                            |        | 1,661  |         |          |        | 1,226    |        
|                                                           | Other current assets                                                                                                                                |                                            |        | 431    |         |          |        | 165      |        
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           |                                                                                                                                                     | Total current assets                       |        |        | 85,661  |          |        |          | 81,279  | 
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|Property and equipment, net                                |                                                                                                                                                     |                                            | 8,462  |        |         |          | 11,507 |         
|Goodwill, net                                              |                                                                                                                                                     |                                            | 16,124 |        |         |          | 20,468 |         
|Intangible assets, net                                     |                                                                                                                                                     |                                            | 6,906  |        |         |          | 6,284  |         
|Deferred income taxes                                      |                                                                                                                                                     |                                            | 11,086 |        |         |          | 5,703  |         
|Other assets                                               |                                                                                                                                                     |                                            | 371    |        |         |          | 407    |         
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           |                                                                                                                                                     | Total assets                               |        | $      | 128,610 |          |        |          | 125,648 | 
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|Liabilities and Stockholders Equity                      
|Current liabilities:                                       |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           | Accounts payable                                                                                                                                    |                                            | $      | 3,990  |         |          |        | 4,528    |        
|                                                           | Accrued representative commissions                                                                                                                  |                                            |        | 688    |         |          |        | 518      |        
|                                                           | Accrued compensation                                                                                                                                |                                            |        | 4,819  |         |          |        | 4,170    |        
|                                                           | Other current liabilities                                                                                                                           |                                            |        | 2,977  |         |          |        | 2,759    |        
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           |                                                                                                                                                     | Total current liabilities                  |        |        | 12,474  |          |        |          | 11,975  | 
|Other long-term liabilities                                |                                                                                                                                                     |                                            | 29     |        |         |          | 27     |         
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           |                                                                                                                                                     | Total liabilities                          |        |        | 12,503  |          |        |          | 12,002  | 
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|Commitments and contingencies (notes 8, 12, 14, 18 and 19) |                                                                                                                                                     |                                            |        |        |         |          |        |         
|Stockholders equity:                                      |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           | Common stock, no par value; 200,000,000 shares
authorized; 14,989,248 and 14,628,709 issued and
outstanding at June 30, 2003 and 2002, respectively |                                            |        | 89,916 |         |          |        | 86,338   |        
|                                                           | Unearned compensation                                                                                                                               |                                            |        | (37    | )       |          |        |         |        
|                                                           | Accumulated other comprehensive income (loss)                                                                                                       |                                            |        | 257    |         |          |        | (3,113   | )      
|                                                           | Retained earnings                                                                                                                                   |                                            |        | 25,971 |         |          |        | 30,421   |        
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           |                                                                                                                                                     | Total stockholders equity                 |        |        | 116,107 |          |        |          | 113,646 | 
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         
|                                                           |                                                                                                                                                     | Total liabilities and stockholders equity |        | $      | 128,610 |          |        |          | 125,648 | 
|                                                           |                                                                                                                                                     |                                            |        |        |         |          |        |         

See accompanying notes to consolidated financial statements

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SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thousands (except per share amounts)

---

|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |   |      |        | 
|----------------------------------------------------------------------------------------- | ------------------------------------------------ | --------------------------------------------------- | ----------------------- | - | -------------------- | ------ | ------- | - | ----- | ------- | ------- | - | ---- | ------ | 
|                                                                                          |                                                  |                                                     |                         |   | Years Ended June 30,
|                                                                                          |                                                  |                                                     |                         |   |                     
|                                                                                          |                                                  |                                                     |                         |   | 2003                 |        | 2002    |   | 2001 
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |      
|Sales                                                                                     |                                                  | $                                                   | 115,521                 |   |                      |        | 118,856 |   |       |         | 187,180 |  
|Cost of sales                                                                             |                                                  |                                                     | 58,002                  |   |                      |        | 76,228  |   |       |         | 98,615  |  
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|                                                                                          |                                                  |                                                     | Gross profit            |   |                      | 57,519 |         |   |       | 42,628  |         |   |      | 88,565 | 
|Selling, general and administrative expense                                               |                                                  |                                                     | 33,608                  |   |                      |        | 38,817  |   |       |         | 33,031  |  
|Research and development expense                                                          |                                                  |                                                     | 18,077                  |   |                      |        | 18,461  |   |       |         | 20,054  |  
|Employee severance and consolidation costs                                                |                                                  |                                                     | 1,729                   |   |                      |        | 3,232   |   |       |         |        |  
|Impairment of intangible assets                                                           |                                                  |                                                     |                        |   |                      |        | 13,005  |   |       |         |        |  
|Amortization of goodwill                                                                  |                                                  |                                                     |                        |   |                      |        | 4,523   |   |       |         | 4,720   |  
|Amortization of intangible assets                                                         |                                                  |                                                     | 1,940                   |   |                      |        | 3,002   |   |       |         | 3,024   |  
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|                                                                                          |                                                  |                                                     | Operating income (loss) |   |                      | 2,165  |         |   |       | (38,412 | )       |   |      | 27,736 | 
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|Interest and other income, net                                                            |                                                  |                                                     | 454                     |   |                      |        | 646     |   |       |         | 410     |  
|Interest expense                                                                          |                                                  |                                                     | (20                     | ) |                      |        | (15     | ) |       |         | (1,071  | )
|Foreign exchange losses                                                                   |                                                  |                                                     | (207                    | ) |                      |        | (29     | ) |       |         | (200    | )
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|                                                                                          |                                                  |                                                     | 227                     |   |                      |        | 602     |   |       |         | (861    | )
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|Income (loss) before income taxes and cumulative
effectof change in accounting principle  |                                                  |                                                     | 2,392                   |   |                      |        | (37,810 | ) |       |         | 26,875  |  
|Income tax expense (benefit)                                                              |                                                  |                                                     | 784                     |   |                      |        | (13,450 | ) |       |         | 9,691   |  
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|Income (loss) before cumulative effect of change in
accounting principle                  |                                                  |                                                     | 1,608                   |   |                      |        | (24,360 | ) |       |         | 17,184  |  
|Cumulative effect of change in accounting principle
(net of income tax benefit of $3,412) |                                                  |                                                     | (6,058                  | ) |                      |        |        |   |       |         |        |  
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|Net income (loss)                                                                         |                                                  | $                                                   | (4,450                  | ) |                      |        | (24,360 | ) |       |         | 17,184  |  
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|Earnings per share data:                                                                  |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|                                                                                          | Net income (loss) per share:                     |                                                     |                         |   |                      |        |         |   |       |         |         |   |     
|                                                                                          |                                                  | Income (loss) before cumulative effect              |                         | $ | 0.11                 |        |         |   | (1.67 | )       |         |   | 1.23 |       
|                                                                                          |                                                  | Cumulative effect of change in accounting
principle |                         |   | (0.41                | )      |         |   |      |         |         |   |     |       
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|                                                                                          |                                                  | Net income (loss)                                   |                         | $ | (0.30                | )      |         |   | (1.67 | )       |         |   | 1.23 |       
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|                                                                                          | Net income (loss) per share  assuming dilution: |                                                     |                         |   |                      |        |         |   |       |         |         |   |     
|                                                                                          |                                                  | Income (loss) before cumulative effect              |                         | $ | 0.11                 |        |         |   | (1.67 | )       |         |   | 1.14 |       
|                                                                                          |                                                  | Cumulative effect of change in accounting
principle |                         |   | (0.41                | )      |         |   |      |         |         |   |     |       
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  
|                                                                                          |                                                  | Net income (loss)                                   |                         | $ | (0.30                | )      |         |   | (1.67 | )       |         |   | 1.14 |       
|                                                                                          |                                                  |                                                     |                         |   |                      |        |         |   |       |         |         |  

See accompanying notes to consolidated financial statements

32



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##### Table of Contents



SBS TECHNOLOGIES, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITYYears ended June 30, 2003, 2002 and
2001
Thousands (except share amounts)

---

|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |        |         |  
|--------------------------------------------------------------------- | ---------------------------------------- | -------------------- | ---------- | ------------ |  | -------- | ------ | ------- |  | ------------- | ---- | -------- |  | ------ | ------ | ----------- | - | - | ------- | - |  | ----- | ------- | ------- | - | - | ------- | ------ | ------- | -
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        | Accumulated |   |   |         |   |  |       |         |         |   |   |         |       
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        | other       |   |   |         |   |  | Total |         | Compre-
|                                                                      |                                          |                      |            | Common stock |  | Unearned |        | compre- |  |               |      |          |  | stock- |        | hensive    
|                                                                      |                                          |                      |            |              |  | Compen-  |        | hensive |  | Retained      |      | holders' |  | income
|                                                                      |                                          |                      |            | Shares       |  | Amount   |        | sation  |  | income (loss) |      | earnings |  | equity |        | (loss)     
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |            
|Balances at June 30, 2000                                             |                                          |                      | 13,302,144 |              |  | $        | 65,385 |         |  | $             |     |          |  | $      | (3,967 | )           |   | $ | 37,597  |   |  | $     | 99,015  |         |   |   |         |       
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |        |         |  
|Exercise of stock options                                             |                                          |                      | 1,180,010  |              |  |          | 12,987 |         |  |               |     |          |  |        |       |             |   |   |        |   |  |       | 12,987  |         |   |   |         |       
|Stock-based compensation                                              |                                          |                      |           |              |  |          | 28     |         |  |               | 28   |          |  |        |       |             |   |   |        |   |  |       | 56      |         |   |   |         |       
|Restricted stock awards
issued to directors                           |                                          |                      | 39,926     |              |  |          | 611    |         |  |               | (506 | )        |  |        |       |             |   |   |        |   |  |       | 105     |         |   |   |         |       
|Income tax benefit from
stock options exercised                       |                                          |                      |           |              |  |          | 6,465  |         |  |               |     |          |  |        |       |             |   |   |        |   |  |       | 6,465   |         |   |   |         |       
|Net income                                                            |                                          |                      |           |              |  |          |       |         |  |               |     |          |  |        |       |             |   |   | 17,184  |   |  |       | 17,184  |         |   | $ | 17,184  |       
|Other comprehensive
income:                                           |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|                                                                      | Foreign currency
translation adjustments |                      |            |             |  |          |        |        |  |               |      |         |  |        |        | (2,016      | ) |   |         |  |  |       |         | (2,016  | ) |   |         | (2,016 | )      
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|                                                                      |                                          | Comprehensive income |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |        | 15,168  |  
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|Balances at June 30, 2001                                             |                                          |                      | 14,522,080 |              |  |          | 85,476 |         |  |               | (478 | )        |  |        | (5,983 | )           |   |   | 54,781  |   |  |       | 133,796 |         |   |   |         |       
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |        |         |  
|Exercise of stock options                                             |                                          |                      | 179,129    |              |  |          | 1,555  |         |  |               |     |          |  |        |       |             |   |   |        |   |  |       | 1,555   |         |   |   |         |       
|Stock-based compensation                                              |                                          |                      |           |              |  |          | 45     |         |  |               | 56   |          |  |        |       |             |   |   |        |   |  |       | 101     |         |   |   |         |       
|Stock repurchased and
retired                                         |                                          |                      | (42,500    | )            |  |          | (488   | )       |  |               |     |          |  |        |       |             |   |   |        |   |  |       | (488    | )       |   |   |         |       
|Cancellation of stock
issued to officer under
restricted stock awards |                                          |                      | (30,000    | )            |  |          | (422   | )       |  |               | 422  |          |  |        |       |             |   |   |        |   |  |       |        |         |   |   |         |       
|Income tax benefit from
stock options exercised                       |                                          |                      |           |              |  |          | 172    |         |  |               |     |          |  |        |       |             |   |   |        |   |  |       | 172     |         |   |   |         |       
|Net loss                                                              |                                          |                      |           |              |  |          |       |         |  |               |     |          |  |        |       |             |   |   | (24,360 | ) |  |       | (24,360 | )       |   |   | (24,360 | )     
|Other comprehensive
income:                                           |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|                                                                      | Foreign currency
translation adjustments |                      |            |             |  |          |        |        |  |               |      |         |  |        |        | 2,870       |   |   |         |  |  |       |         | 2,870   |   |   |         | 2,870  |        
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|                                                                      |                                          | Comprehensive income |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |        | (21,490 | )
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|Balances at June 30, 2002                                             |                                          |                      | 14,628,709 |              |  |          | 86,338 |         |  |               |     |          |  |        | (3,113 | )           |   |   | 30,421  |   |  |       | 113,646 |         |   |   |         |       
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |        |         |  
|Exercise of stock options                                             |                                          |                      | 5,560      |              |  |          | 13     |         |  |               |     |          |  |        |       |             |   |   |        |   |  |       | 13      |         |   |   |         |       
|Restricted stock awards
issued to directors                           |                                          |                      | 14,039     |              |  |          | 312    |         |  |               | (110 | )        |  |        |       |             |   |   |        |   |  |       | 202     |         |   |   |         |       
|Stock-based compensation                                              |                                          |                      |           |              |  |          |       |         |  |               | 73   |          |  |        |       |             |   |   |        |   |  |       | 73      |         |   |   |         |       
|Stock repurchased and
retired                                         |                                          |                      | (46,000    | )            |  |          | (321   | )       |  |               |     |          |  |        |       |             |   |   |        |   |  |       | (321    | )       |   |   |         |       
|Acquisition of Avvida
Systems, Inc.                                   |                                          |                      | 386,940    |              |  |          | 3,574  |         |  |               |     |          |  |        |       |             |   |   |        |   |  |       | 3,574   |         |   |   |         |       
|Net loss                                                              |                                          |                      |           |              |  |          |       |         |  |               |     |          |  |        |       |             |   |   | (4,450  | ) |  |       | (4,450  | )       |   |   | (4,450  | )     
|Other comprehensive
income:                                           |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|                                                                      | Foreign currency
translation adjustments |                      |            |             |  |          |        |        |  |               |      |         |  |        |        | 3,370       |   |   |         |  |  |       |         | 3,370   |   |   |         | 3,370  |        
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|                                                                      |                                          | Comprehensive income |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         | $      | (1,080  | )
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       
|Balances at June 30, 2003                                             |                                          |                      | 14,989,248 |              |  | $        | 89,916 |         |  |               | (37  | )        |  |        | 257    |             |   |   | 25,971  |   |  |       | 116,107 |         |   |   |         |       
|                                                                      |                                          |                      |            |              |  |          |        |         |  |               |      |          |  |        |        |             |   |   |         |   |  |       |         |         |   |   |         |       

See accompanying notes to consolidated financial statements

33



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##### Table of Contents



SBS TECHNOLOGIES, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands

---

|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |         |        |         |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------- | ----------------------------------------- | ----- | -------------------- | ------ | ------- | ------- | ------ | ----------- | ------- | ------ | ------- | ------ | -
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       | Years ended June 30,
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                     
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       | 2003                 |        | 2002    |         | 2001  
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |       
|Cash flows from operating activities:            |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 | Net income (loss)                                                                        |                                                                                 |                                    | (4,450                                    | )     |                      |        | (24,360 | )       |        |             | 17,184  |       
|                                                 | Cumulative effect of change in accounting principle, net                                 |                                                                                 |                                    | 6,058                                     |       |                      |        |        |         |        |             |        |       
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 | Income (loss) before cumulative effect of change in
accounting principle                 |                                                                                 | $                                  | 1,608                                     |       |                      |        | (24,360 | )       |        |             | 17,184  |       
|                                                 | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |         |       
|                                                 |                                                                                          | Depreciation and amortization                                                   |                                    |                                           | 6,851 |                      |        |         | 11,311  |        |             |         | 10,198 |        
|                                                 |                                                                                          | Impairment of intangible assets                                                 |                                    |                                           |      |                      |        |         | 13,005  |        |             |         |       |        
|                                                 |                                                                                          | Bad debt expense                                                                |                                    |                                           | 458   |                      |        |         | 799     |        |             |         | 454    |        
|                                                 |                                                                                          | Deferred income taxes                                                           |                                    |                                           | 6,200 |                      |        |         | (10,204 | )      |             |         | (451   | )      
|                                                 |                                                                                          | Income tax benefit of stock options exercised                                   |                                    |                                           |      |                      |        |         | 172     |        |             |         | 6,465  |        
|                                                 |                                                                                          | (Gain) loss on disposition of assets                                            |                                    |                                           | 16    |                      |        |         | (15     | )      |             |         | 25     |        
|                                                 |                                                                                          | Foreign exchange losses                                                         |                                    |                                           | 207   |                      |        |         | 29      |        |             |         | 200    |        
|                                                 |                                                                                          | Stock-based compensation, including restricted stock
awards issued to directors |                                    |                                           | 275   |                      |        |         | 101     |        |             |         | 161    |        
|                                                 |                                                                                          | Changes in assets and liabilities (net of effects
from acquisitions):           |                                    |                                           |       |                      |        |         |         |        |             |         |        |        
|                                                 |                                                                                          |                                                                                 | Receivables                        |                                           |       | (288                 | )      |         |         | 4,328  |             |         |        | 1,157   |       
|                                                 |                                                                                          |                                                                                 | Inventories                        |                                           |       | 2,212                |        |         |         | 23,532 |             |         |        | (10,602 | )     
|                                                 |                                                                                          |                                                                                 | Income tax receivable              |                                           |       | 73                   |        |         |         | (1,473 | )           |         |        | (1,814  | )     
|                                                 |                                                                                          |                                                                                 | Prepaid expenses and other assets  |                                           |       | (614                 | )      |         |         | 2,545  |             |         |        | (2,907  | )     
|                                                 |                                                                                          |                                                                                 | Accounts payable                   |                                           |       | (667                 | )      |         |         | 659    |             |         |        | (2,116  | )     
|                                                 |                                                                                          |                                                                                 | Accrued representative commissions |                                           |       | 153                  |        |         |         | (324   | )           |         |        | 168     |       
|                                                 |                                                                                          |                                                                                 | Accrued compensation               |                                           |       | 455                  |        |         |         | (330   | )           |         |        | (263    | )     
|                                                 |                                                                                          |                                                                                 | Other current liabilities          |                                           |       | (107                 | )      |         |         | 796    |             |         |        | (573    | )     
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 |                                                                                          |                                                                                 |                                    | Net cash provided by operating activities |       |                      | 16,832 |         |         |        | 20,571      |         |        |         | 17,286 |  
|Cash flows from investing activities:            |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 | Business acquisitions, net of cash acquired                                              |                                                                                 |                                    | (2,643                                    | )     |                      |        | (1,033  | )       |        |             |        |       
|                                                 | Acquisition of property and equipment                                                    |                                                                                 |                                    | (1,431                                    | )     |                      |        | (3,334  | )       |        |             | (6,713  | )     
|                                                 | Purchase of license agreement                                                            |                                                                                 |                                    | (325                                      | )     |                      |        |        |         |        |             | (236    | )     
|                                                 | Other                                                                                    |                                                                                 |                                    | 9                                         |       |                      |        | 8       |         |        |             | 396     |       
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 |                                                                                          |                                                                                 |                                    | Net cash used by investing activities     |       |                      | (4,390 | )       |         |        | (4,359      | )       |        |         | (6,553 | )
|Cash flows from financing activities:            |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 | Payments on notes payable                                                                |                                                                                 |                                    | (148                                      | )     |                      |        | (2,500  | )       |        |             | (17,500 | )     
|                                                 | Repurchase and retirement of common stock                                                |                                                                                 |                                    | (321                                      | )     |                      |        | (488    | )       |        |             |        |       
|                                                 | Proceeds from exercise of stock options                                                  |                                                                                 |                                    | 13                                        |       |                      |        | 1,555   |         |        |             | 12,987  |       
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 |                                                                                          |                                                                                 |                                    | Net cash used by financing activities     |       |                      | (456   | )       |         |        | (1,433      | )       |        |         | (4,513 | )
|Effect of exchange rate changes on cash          |                                                                                          |                                                                                 | 333                                |                                           |       |                      | 298    |         |         |        | (81         | )      
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 |                                                                                          |                                                                                 |                                    | Net change in cash and cash equivalents   |       | $                    | 12,319 |         |         |        | 15,077      |         |        |         | 6,139  |  
|Cash and cash equivalents at beginning of period |                                                                                          |                                                                                 | 24,811                             |                                           |       |                      | 9,734  |         |         |        | 3,595       |        
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|Cash and cash equivalents at end of period       |                                                                                          | $                                                                               | 37,130                             |                                           |       |                      | 24,811 |         |         |        | 9,734       |        
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        |             |        
|                                                 |                                                                                          |                                                                                 |                                    |                                           |       |                      |        |         |         |        | (Continued) |        

34



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##### Table of Contents



SBS TECHNOLOGIES, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)
Thousands

---

|                                                  |                                                                                   |                                |   |                      |       |      |  |        |      |   |  |       |   | 
|------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------ | - | -------------------- | ----- | ---- |  | ------ | ---- | - |  | ----- | - | 
|                                                  |                                                                                   |                                |   | Years ended June 30,
|                                                  |                                                                                   |                                |   |                     
|                                                  |                                                                                   |                                |   | 2003                 |       | 2002 |  | 2001  
|                                                  |                                                                                   |                                |   |                      |       |      |  |       
|Supplemental disclosure of cash flow information: |                                                                                   |                                |   |                      |       |      |  |        |      |   |  |      
|                                                  | Interest paid                                                                     |                                | $ | 12                   |       |      |  | 15     |      |   |  | 1,415 |  
|                                                  |                                                                                   |                                |   |                      |       |      |  |        |      |   |  |      
|                                                  | Income taxes paid (received)                                                      |                                | $ | (4,256               | )     |      |  | (1,991 | )    |   |  | 5,392 |  
|                                                  |                                                                                   |                                |   |                      |       |      |  |        |      |   |  |      
|                                                  | Non-cash
financing and investing activities 
common stock issued for acquisition |                                | $ | 3,574                |       |      |  |       |      |   |  |      |  
|                                                  |                                                                                   |                                |   |                      |       |      |  |        |      |   |  |      
|                                                  | Summary of assets acquired and liabilities
assumed through acquisitions           |                                |   |                      |       |      |  |        |      |   |  |       |  
|                                                  |                                                                                   | Current assets                 |   | $                    | 437   |      |  |        | 603  |   |  |       |  | 
|                                                  |                                                                                   | Property and equipment, net    |   |                      | 388   |      |  |        | 417  |   |  |       |  | 
|                                                  |                                                                                   | Deferred income taxes          |   |                      | 280   |      |  |        | 224  |   |  |       |  | 
|                                                  |                                                                                   | Goodwill                       |   |                      | 3,496 |      |  |        |     |   |  |       |  | 
|                                                  |                                                                                   | Intangible assets              |   |                      | 67    |      |  |        |     |   |  |       |  | 
|                                                  |                                                                                   | Identifiable intangible assets |   |                      | 2,170 |      |  |        | 364  |   |  |       |  | 
|                                                  |                                                                                   | Current liabilities            |   |                      | (473  | )    |  |        | (149 | ) |  |       |  | 
|                                                  |                                                                                   | Deferred revenue               |   |                      |      |      |  |        | (426 | ) |  |       |  | 
|                                                  |                                                                                   | Notes payable                  |   |                      | (148  | )    |  |        |     |   |  |       |  | 

See accompanying notes to consolidated
financial statements

35



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##### Table of Contents



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

Overview

SBS Technologies, Inc. (SBS or the Company) designs and builds open
architecture embedded computer products that enable original equipment
manufacturers (OEM) to serve the commercial, communications,
enterprise and government markets. SBS products are integrated into a
variety of applications including communication networking, medical
imaging, industrial automation, and military systems. The portfolio
includes an extensive line of CPU boards, computer interconnections,
avionics, telemetry and fully integrated systems and enclosures. SBS has
operations in New Mexico, Minnesota, North Carolina, California,
Massachusetts, Canada and Germany.



|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, 2003, substantially all cash was held at two financial
institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (c) |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | Inventories are valued at standard cost, which approximates the
lower of weighted average cost or market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (d) |  | Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | Property and equipment are carried at cost. Depreciation of
property and equipment is provided for by straight-line and
accelerated methods over the estimated useful lives of the assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (e) |  | Goodwill and Other Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     |  | Goodwill represents the excess of costs over fair value of assets
of businesses acquired. The Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets (SFAS 142), as of July 1,
2002. Goodwill and intangible assets acquired in a purchase
business combination and determined to have an indefinite useful
life are not amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS 142. SFAS 142
also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | 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. To accomplish this, the Company was 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 July 1, 2002. The Company was required to determine the
fair value of each reporting unit and compare it to the carrying
amount of the reporting unit within six months of July 1, 2002. To
the extent the carrying amount of a reporting unit exceeded fair
value, the Company would be required to perform the second step of
the transitional impairment test, as this is an indication that the
reporting unit goodwill may be impaired. 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 adoption. The implied
fair value of goodwill would be determined by allocating the fair
value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner
similar to a purchase price allocation, in accordance with SFAS
141, Business Combinations. The residual fair value after this
allocation would be the implied fair value of the reporting unit
goodwill. 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.

36



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##### Table of Contents



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



| |     |  | The Company plans to conduct its annual impairment test as of April
1 of each fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Prior to the adoption of SFAS 142, goodwill was amortized on a
straight-line basis over the expected periods to be benefited,
generally 10 years, and assessed for recoverability by determining
whether the amortization of the goodwill balance over its remaining
life could be recovered through undiscounted future operating cash
flows of the acquired operation. All other intangible assets were
amortized on a straight-line basis, generally from 3 to 10 years.
The amount of goodwill and other intangible asset impairment, if
any, was measured based on projected discounted future operating
cash flows using a discount rate reflecting the Companys average
cost of funds.                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (f) |  | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | SFAS 144 provides a single accounting model for long-lived assets
to be disposed of. SFAS 144 also changed the criteria for
classifying an asset as held for sale; and broadens the scope of
businesses to be disposed of that qualify for reporting as
discontinued operations and changes the timing of recognizing
losses on such operations. The Company adopted SFAS 144 on July 1,
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | In accordance with SFAS 144, long-lived assets, such as property,
plant, and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. 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
by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and the
assets would no longer be depreciated. The assets and liabilities
of a disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the
balance sheet.
|
| |     |  | Goodwill and intangible assets not subject to amortization are
tested annually for impairment, and are tested for impairment more
frequently if events and circumstances indicate that the asset
might be impaired. An impairment loss is recognized to the extent
that the carrying amount exceeds the assets fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | Prior to the adoption of SFAS 144, the Company accounted for
long-lived assets in accordance with SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (g) |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | Revenue from product sales is generally recognized upon shipment to
customers provided the Company has received a valid purchase order,
the price is fixed, title has transferred, collection of the
associated receivable is reasonably assured, and there are no
remaining significant obligations. Where customer acceptance
provisions exist, the Company generally defers revenue recognition
until acceptance by the customer unless the Company demonstrates
the product meets the customer specified criteria upon shipment
provided all other revenue recognition criteria have been met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (h) |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | SBS accounts for income taxes under the asset and liability method.
Deferred income taxes are recognized for the tax consequences of
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities by applying
enacted statutory tax rates applicable to future years. The effect
on deferred taxes of a change in tax rates is recognized in income
in the period that includes the change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (i) |  | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | SBS financial instruments are cash and cash equivalents, accounts
receivable, and accounts payable. The carrying amounts of cash and
cash equivalents, accounts receivable, and accounts payable,
because of their nature, approximate fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

37



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##### Table of Contents



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



| | (j) |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (k) |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (l) |  | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | On January 1, 2003, the Company adopted SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure, which
amended the disclosure requirements of SFAS No. 123, Accounting
for Stock-Based Compensation, (SFAS 123). 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 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. 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.

|                                                                                                                                |             |                      |        |       |   |      |         |       |   |  |        |      | 
|------------------------------------------------------------------------------------------------------------------------------- | ----------- | -------------------- | ------ | ----- | - | ---- | ------- | ----- | - |  | ------ | ---- | 
|                                                                                                                                |             | Years ended June 30,
|                                                                                                                                |             |                     
|Thousands
(except per share amounts)                                                                                            |             | 2003                 |        | 2002  |   | 2001
|                                                                                                                                |             |                      |        |       |   |     
|Net income (loss), as reported                                                                                                  |             |                      | (4,450 | )     |   |      | (24,360 | )     |   |  | 17,184 |     
|Add: stock-based employee compensation expense
included in reported net income (loss), net of related
tax effects               |             |                      | 167    |       |   |      | 62      |       |   |  | 98     |     
|Deduct: stock-based employee compensation expense
determined under fair value method for all awards, net
of related tax effects |             |                      | (3,341 | )     |   |      | (4,375  | )     |   |  | (8,104 | )   
|                                                                                                                                |             |                      |        |       |   |      |         |       |   |  |        |     
|Pro forma net income (loss)                                                                                                     |             |                      | (7,624 | )     |   |      | (28,673 | )     |   |  | 9,178  |     
|                                                                                                                                |             |                      |        |       |   |      |         |       |   |  |        |     
|Net income (loss) per common share:                                                                                             |             |                      |        |       |   |      |         |       |   |  |        |     
|                                                                                                                                | As reported |                      |        | (0.30 | ) |      |         | (1.67 | ) |  |        | 1.23 | 
|                                                                                                                                |             |                      |        |       |   |      |         |       |   |  |        |     
|                                                                                                                                | Pro forma   |                      |        | (0.52 | ) |      |         | (1.97 | ) |  |        | 0.66 | 
|                                                                                                                                |             |                      |        |       |   |      |         |       |   |  |        |     
|Net income (loss) per common share  assuming dilution:                                                                         |             |                      |        |       |   |      |         |       |   |  |        |     
|                                                                                                                                | As reported |                      |        | (0.30 | ) |      |         | (1.67 | ) |  |        | 1.14 | 
|                                                                                                                                |             |                      |        |       |   |      |         |       |   |  |        |     
|                                                                                                                                | Pro forma   |                      |        | (0.52 | ) |      |         | (1.97 | ) |  |        | 0.65 | 
|                                                                                                                                |             |                      |        |       |   |      |         |       |   |  |        |     



| |  |  | 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 $4.23, $6.37, and $12.43 during the fiscal
years ended June 30, 2003, 2002, and 2001, respectively.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38



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



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

|                        |  |      |       |      |  |      |       |   |  |  |       |  
|----------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                        |  | 2003 |       | 2002 |  | 2001
|                        |  |      |       |      |  |     
|Expected life (years)   |  |      | 2.40  |      |  |      | 2.95  |   |  |  | 3.09  |  
|Risk free interest rate |  |      | 2.39  | %    |  |      | 3.74  | % |  |  | 3.97  | %
|Volatility              |  |      | 77.93 | %    |  |      | 72.08 | % |  |  | 72.32 | %
|Dividend yield          |  |      |      |      |  |      |      |   |  |  |      |  



| | (m) |  | Comprehensive Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Comprehensive income (loss) represents net income (loss) for the
period adjusted for non-owner changes in stockholders equity in
the consolidated financial statements. Cumulative comprehensive
income (loss) in the Consolidated Statements of Changes in
Stockholders Equity consists of foreign currency translation
adjustments.                                                                                                                                                                                                                                                                                                                                                                 
|
| | (n) |  | Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | For foreign operations that prepare financial statements in
functional currencies other than the U.S. dollar, the Company
translates the assets and liabilities at the exchange rates in
effect at the end of the period and the statement of operations
balances using average exchange rates from throughout the period.
Cumulative translation adjustments are presented as a separate
component of accumulated other comprehensive income (loss) within
stockholders equity. Gains or losses from transactions
denominated in non-functional currencies are recognized in the
statement of operations based on changes in the exchange rates
during the period the transactions remain outstanding.



|2) |  | Business Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | SBS completed the acquisitions described below during the fiscal years
ended June 30, 2003 and 2002. The acquisitions have been accounted for
using the purchase method of accounting, and the results of operations
of the acquired companies have been combined with SBS since the
respective dates of acquisition. The purchase price has been allocated
to the underlying assets acquired and liabilities assumed based on
their estimated fair values with goodwill, if any, representing the
excess of the purchase price over the fair value of the net assets
acquired.
|  
|   |  | On June 30, 2003, SBS acquired 100 percent of the outstanding common
stock of Avvida Holdings Corp. and its wholly-owned subsidiary, Avvida
Systems Inc. (Avvida), located in Waterloo, Canada. Avvida provides
image processing solutions to customers serving a wide variety of
applications. Avvidas focus is emerging programmable logic, including
fully programmable gateway array (FPGA) technology utilized in high
performance video, image and data processing solutions. The Company
plans to incorporate FPGA technology into existing and future products
of SBS. 
|  
|   |  | The aggregate purchase price of $6.2 million, including acquisition
costs of $0.6 million, was paid in cash and shares of SBS common stock
valued at $3,574,020. The value of the 386,940 shares of SBS common
stock was determined based on the average market price of SBS common
shares over the two-day period before and after the terms of the
acquisition were agreed to and announced.                                                                                                                                                                                 

39



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



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

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



| |  | The purchase price was allocated to the underlying assets acquired and
liabilities assumed based on their estimated fair values. In
conjunction with the purchase price allocation, the estimated fair
value of identifiable intangible assets, specifically, a core
technology asset valued at $970,000 and a covenant not-to-compete
valued at $1.2 million, were based on an assessment of their fair
value determined by management and goodwill of approximately $3.5
million was recorded which is not deductible for tax purposes. 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following unaudited pro forma consolidated results of operations
for the fiscal year ended June 30, 2003 have been prepared as if the
acquisition of Avvida had occurred on July 1, 2002. Accordingly, the
weighted average shares used in the pro forma per share data were
increased to reflect the shares issued in the acquisition. Pro forma
results of operations for 2002 are not presented as Avvidas results
of operations in fiscal 2002 were not material to SBS consolidated
results of operations.                                                                                                                                                                                                                       

|                                                                  |                                                                   |   |         |       |  
|----------------------------------------------------------------- | ----------------------------------------------------------------- | - | ------- | ----- | -
|Thousands
(except per share amounts)                              |                                                                   |   |         |      
|                                                                  |                                                                   |   |         |      
|Sales                                                             |                                                                   | $ | 116,178 |      
|                                                                  |                                                                   |   |         |      
|Income before cumulative effect of change in accounting
principle |                                                                   | $ | 207     |      
|Cumulative effect of change in accounting principle               |                                                                   |   | (6,058  | )    
|                                                                  |                                                                   |   |         |      
|Net loss                                                          |                                                                   | $ | (5,851  | )    
|                                                                  |                                                                   |   |         |      
|Per share data:                                                   |                                                                   |   |         |      
|                                                                  | Income before cumulative effect of change in accounting
principle |   | $       | 0.01  |  
|                                                                  | Cumulative effect of change in accounting principle               |   |         | (0.40 | )
|                                                                  |                                                                   |   |         |      
|                                                                  | Net loss                                                          |   | $       | (0.39 | )
|                                                                  |                                                                   |   |         |      



| |  | The pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisitions been
consummated at such dates, nor is it intended to be a projection of
future results.                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On March 4, 2002, SBS completed the acquisition of certain assets and
assumed certain liabilities of Essential Communications, a division of
publicly held Intrusion, Inc., for approximately $1.0 million.
Founded in 1992, Essential develops and delivers early stage
InfiniBand® products. SBS utilizes Essentials InfiniBand product
expertise and industry relationships to build on its current
InfiniBand efforts in the enterprise server and storage markets. In
conjunction with the purchase price allocation, SBS recorded
approximately $364,000 of identifiable intangible assets, principally
core-technology assets, which are being amortized over a two-year
period. No goodwill was recorded.

40



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##### Table of Contents



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



|3) |  | Receivables                                 
|-- |  | --------------------------------------------
|  
|   |  | Receivables, net consisted of the following:

|                         |                                  |                   |                                                                   |      |        |      |        |  |        |      |  
|------------------------ | -------------------------------- | ----------------- | ----------------------------------------------------------------- | ---- | ------ | ---- | ------ |  | ------ | ---- | -
|                         |                                  | June 30          
|                         |                                  |                   |                                                                   |      |       
|Thousands                |                                  | 2003              |                                                                   | 2002
|                         |                                  |                   |                                                                   |     
|Accounts receivable      |                                  | $                 | 24,000                                                            |      |        | $    | 23,992 | 
|                         | Allowance for doubtful accounts: |                   |                                                                   |      |        |      |        |  |       
|                         |                                  | Beginning balance |                                                                   |      | (1,373 | )    |        |  | (980   | )   
|                         |                                  |                   | Provision for bad debts                                           |      |        | (458 | )      |  |        | (799 | )
|                         |                                  |                   | Accounts written off and foreign
currency translation adjustments |      |        | 995  |        |  |        | 406  |  
|                         |                                  |                   |                                                                   |      |        |      |        | 
|                         |                                  | Ending balance    |                                                                   |      | (836   | )    |        |  | (1,373 | )   
|                         |                                  |                   |                                                                   |      |        |      |        | 
|Accounts receivable, net |                                  | $                 | 23,164                                                            |      |        | $    | 22,619 | 
|                         |                                  |                   |                                                                   |      |        |      |        | 



|4) |  | Inventories
|-- |  | -----------

Inventories consisted of the following:

|                |  |         |        |      |  |  |        | 
|--------------- |  | ------- | ------ | ---- |  |  | ------ | 
|                |  | June 30
|                |  |        
|Thousands       |  | 2003    |        | 2002
|                |  |         |        |     
|Raw materials   |  | $       | 8,793  |      |  |  | 9,663  | 
|Work in process |  |         | 5,414  |      |  |  | 5,328  | 
|Finished goods  |  |         | 2,609  |      |  |  | 3,437  | 
|                |  |         |        |      |  |  |        | 
|                |  | $       | 16,816 |      |  |  | 18,428 | 
|                |  |         |        |      |  |  |        | 



|   |  | For the year ended June 30, 2003, approximately $1.0 million of
inventory previously written down was utilized. For the year ended
June 30, 2002, approximately $0.7 million of inventory previously
written down was utilized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | SBS recorded a $12.4 million inventory write-down during the second
quarter of fiscal 2002, and a $2.7 million inventory write-down during
the fourth quarter of fiscal 2002. The second quarter write-down
consisted of inventory associated with programs that are not
anticipated to come back to their previous forecasts, inventory
associated with SBS decision to exit our legacy PCI chassis product
line, and inventory associated with SBS products that were no longer
marketed. Additionally, the implementation of a new inventory
management methodology associated with the consolidation of SBS
manufacturing operations resulted in a reduction in required inventory
levels. The fourth quarter write-down was primarily due to customer
order cancellations and reduced demand for certain communications and
enterprise products noted during the fourth quarter.
|  
|5) |  | Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Property and equipment, net consisted of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                               |  |         |         |           |  |             |         |   |  |            |  | 
|---------------------------------------------- |  | ------- | ------- | --------- |  | ----------- | ------- | - |  | ---------- |  | 
|                                               |  | June 30 |         |          
|                                               |  |         |         | Estimated
|Thousands                                      |  | 2003    |         | 2002      |  | useful life
|                                               |  |         |         |           |  |            
|Computers                                      |  | $       | 5,392   |           |  | $           | 5,756   |   |  | 3  5 yrs 
|Purchased software                             |  |         | 7,925   |           |  |             | 7,979   |   |  | 3  5 yrs 
|Furniture and equipment                        |  |         | 6,001   |           |  |             | 5,762   |   |  | 3  10 yrs
|Leasehold improvements                         |  |         | 3,278   |           |  |             | 3,270   |   |  | 2  7 yrs 
|                                               |  |         |         |           |  |             |         |   |  |            |  | 
|                                               |  |         | 22,596  |           |  |             | 22,767  |   |  |            |  | 
|Less accumulated depreciation
and amortization |  |         | (14,134 | )         |  |             | (11,260 | ) |  |            |  | 
|                                               |  |         |         |           |  |             |         |   |  |            |  | 
|                                               |  | $       | 8,462   |           |  | $           | 11,507  |   |  |            |  | 
|                                               |  |         |         |           |  |             |         |   |  |            |  | 

41



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



|   |  | During the quarter ended June 30, 2003, the Company recorded an
impairment charge of approximately $841,000, included in the caption
Employee severance and consolidation costs in the accompanying
financial statements, related to certain leasehold improvements in
connection with the announcement of the Companys consolidation of the
Communications and Enterprise Group resulting in the closure of its
Carlsbad, California facility. The impairment charge was recognized
based on the amount by which the carrying amount of the assets
exceeded the fair value of the assets as determined on the date of
announcement in accordance with SFAS 144.                                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6) |  | Goodwill and Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Effective July 1, 2002, SBS adopted SFAS 142 and no longer amortizes
goodwill. As of the date of adoption, SBS had unamortized goodwill of
approximately $20.5 million subject to the transition provisions of
SFAS 142, which included approximately $434,000 for the net book value
of acquired assembled workforce intangibles, as these assets did not
meet the criteria for recognition apart from goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The Company completed step 1 of the required transitional goodwill
impairment analysis in accordance with SFAS 142 prior to December 31,
2002 and an indication of potential impairment was determined for two
reporting units, the Commercial Group reporting unit (component of the
Commercial and Government Group segment) and the Communications and
Enterprise Group reporting unit. The Company completed step 2 of the
required transitional analysis during the quarter ended June 30, 2003
and the results indicated the carrying value of goodwill for both
reporting units was greater than the implied fair value of the
goodwill determined in accordance with SFAS 142. As a result, the
Company recorded a transitional impairment charge of approximately
$9.5 million ($6.1 million net of tax) which has been reflected as a
cumulative effect of a change in accounting principle in the year
ended June 30, 2003 in the accompanying statements of operations.
|  
|   |  | On April 1, 2003, the Company completed step 1 of the required annual
goodwill impairment analysis for the fiscal year ended June 30, 2003
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 year ended June 30,
2003 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Total Goodwill by Operating Segment

|                         |                                          |       |                |        |                |       |        |        |   |  |        |        |  
|------------------------ | ---------------------------------------- | ----- | -------------- | ------ | -------------- | ----- | ------ | ------ | - |  | ------ | ------ | -
|                         |                                          |       | Communications |        | Commercial and |       |        |        |  
|                         |                                          |       | and Enterprise |        | Government     |       |        |        |  
|Thousands                |                                          | Group |                | Group  |                | Total
|                         |                                          |       |                |        |                |      
|Balance at June 30, 2002 |                                          | $     | 3,448          |        |                |       | 17,020 |        |   |  | 20,468 |       
|                         | Transitional impairment charge           |       |                | (3,448 | )              |       |        | (6,022 | ) |  |        | (9,470 | )
|                         | Acquisition of Avvida                    |       |                |       |                |       |        | 3,496  |   |  |        | 3,496  |  
|                         | Foreign currency translation
adjustments |       |                |       |                |       |        | 1,630  |   |  |        | 1,630  |  
|                         |                                          |       |                |        |                |       |        |        |   |  |        |       
|Balance at June 30, 2003 |                                          | $     |               |        |                |       | 16,124 |        |   |  | 16,124 |       
|                         |                                          |       |                |        |                |       |        |        |   |  |        |       

42



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



| |  | The following table presents the impact of the adoption of SFAS 142 on
reported income (loss) before the cumulative effect of a change in
accounting principle and net income (loss) per applicable common share
before the cumulative effect of a change in accounting principle had
SFAS 142 been in effect in fiscal 2002 and 2001:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                        |                        |                 |       |      |      |                      |         |        |       |   |        |        |       | 
|------------------------------------------------------------------------------------------------------- | ---------------------- | --------------- | ----- | ---- | ---- | -------------------- | ------- | ------ | ----- | - | ------ | ------ | ----- | 
|Thousands
except per share amounts                                                                      |                        |                 |       |      |      | Years ended June 30,
|                                                                                                        |                        |                 |       |      |      |                     
|                                                                                                        |                        |                 |       | 2003 |      | 2002                 |         | 2001  
|                                                                                                        |                        |                 |       |      |      |                      |         |       
|Reported income (loss) before
cumulative effect of change in
accounting principle                       |                        | $               | 1,608 |      |      |                      | (24,360 | )      |       |   | 17,184 |       
|                                                                                                        |                        |                 |       |      |      |                      |         |        |       |   |        |       
|Adjustments:                                                                                            |                        |                 |       |      |      |                      |         |        |       |   |        |       
|                                                                                                        | Goodwill amortization  |                 |       |     |      |                      |         | 4,448  |       |   |        | 4,645  |      
|                                                                                                        | Workforce amortization |                 |       |     |      |                      |         | 75     |       |   |        | 75     |      
|                                                                                                        | Income tax effect      |                 |       |     |      |                      |         | (1,741 | )     |   |        | (1,817 | )    
|                                                                                                        |                        |                 |       |      |      |                      |         |        |       |   |        |       
|                                                                                                        |                        | Net adjustments |       |      |     |                      |         |        | 2,782 |   |        |        | 2,903 | 
|                                                                                                        |                        |                 |       |      |      |                      |         |        |       |   |        |       
|Adjusted income (loss) before
cumulative effect of change in
accounting principle                       |                        | $               | 1,608 |      |      |                      | (21,578 | )      |       |   | 20,087 |       
|                                                                                                        |                        |                 |       |      |      |                      |         |        |       |   |        |       
|Income (loss) per common share
before cumulative effect of change
in accounting principle:              |                        |                 |       |      |      |                      |         |        |       |   |        |       
|                                                                                                        |                        | Reported        |       | $    | 0.11 |                      |         |        | (1.67 | ) |        |        | 1.23  | 
|                                                                                                        |                        | Adjusted        |       |      | 0.11 |                      |         |        | (1.48 | ) |        |        | 1.44  | 
|Income
(loss) per share  assuming
dilution before cumulative effect of
change in accounting principle: |                        |                 |       |      |      |                      |         |        |       |   |        |       
|                                                                                                        |                        | Reported        |       | $    | 0.11 |                      |         |        | (1.67 | ) |        |        | 1.14  | 
|                                                                                                        |                        | Adjusted        |       |      | 0.11 |                      |         |        | (1.48 | ) |        |        | 1.33  | 



| |  | The following table discloses information regarding the carrying
amounts and associated accumulated amortization for intangible assets
subject to amortization after the adoption of SFAS 142.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Amortized Intangible Assets

|                          |  |             |  |           |       |              |       |             |        |              |       |  |       |  |       |  |       | 
|------------------------- |  | ----------- |  | --------- | ----- | ------------ | ----- | ----------- | ------ | ------------ | ----- |  | ----- |  | ----- |  | ----- | 
|                          |  |             |  |           |       |              |       | Gross       |        |              |       |  |       |  |       | 
|                          |  |             |  | Estimated |       | carrying     |       | Accumulated |        | Net carrying
|Thousands                 |  | useful life |  | amount    |       | amortization |       | amount     
|                          |  |             |  |           |       |              |       |            
|As of June 30, 2003       |  |             |  |           |       |              |       |             |        |              |       |  |       |  |       | 
|Core-developed technology |  | 2  7 yrs   |  | $         | 9,723 |              |       |             | 5,679  |              |       |  | 4,044 | 
|License agreements        |  | 2  5 yrs   |  |           | 2,561 |              |       |             | 1,424  |              |       |  | 1,137 | 
|Covenant not-to-compete   |  | 3  5 yrs   |  |           | 2,842 |              |       |             | 1,365  |              |       |  | 1,477 | 
|Other intangibles         |  | 8  17 yrs  |  |           | 368   |              |       |             | 120    |              |       |  | 248   | 
|                          |  |             |  |           |       |              |       |             |        |              |       |  |       |  |       | 
|                          |  | Total       |  |           |       |              |       | $           | 15,494 |              |       |  | 8,588 |  |       |  | 6,906 | 
|                          |  |             |  |           |       |              |       |             |        |              |       |  |       |  |       | 
|As of June 30, 2002       |  |             |  |           |       |              |       |             |        |              |       |  |       |  |       | 
|Core-developed technology |  |             |  |           |       | $            | 8,753 |             |        |              | 4,723 |  |       |  | 4,030 | 
|License agreements        |  |             |  |           |       |              | 2,236 |             |        |              | 826   |  |       |  | 1,410 | 
|Covenant not-to-compete   |  |             |  |           |       |              | 1,623 |             |        |              | 996   |  |       |  | 627   | 
|Other intangibles         |  |             |  |           |       |              | 300   |             |        |              | 83    |  |       |  | 217   | 
|                          |  |             |  |           |       |              |       |             |        |              |       |  |       |  |       | 
|                          |  | Total       |  |           |       |              |       | $           | 12,912 |              |       |  | 6,628 |  |       |  | 6,284 | 
|                          |  |             |  |           |       |              |       |             |        |              |       |  |       |  |       | 



| |  | During the fourth quarter of fiscal 2002, due to recent order
cancellations and a continued decline in sales and bookings, SBS
recorded a $10.3 million write-down of the core-developed technology
and related goodwill associated with the acquisition of SDL
Communications, Inc. in April 2000. This write-down was based on SBS
projection of undiscounted future operating cash flows over the
remaining useful lives of the core-technology asset and related
goodwill, which indicated that these cash flows were not sufficient to
recover the carrying amounts of the assets. As
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



| |  | such, impairment charges were recorded to the extent that the carrying
amount of the assets exceeded fair value. Additionally, on December
26, 2001, the SBS Board of Directors approved SBS plan to exit our
legacy PCI chassis product line. This product line was associated
with SBS acquisition of SBS Technologies, Inc. Industrial Computers
(formerly Micro Alliance) in November 1997. In conjunction with the
acquisition, SBS recorded approximately $4.5 million of goodwill, of
which $2.7 million was unamortized at December 26, 2001. Based on
SBS decision to exit the PCI Chassis product line, the remaining
unamortized goodwill was determined to be impaired and was written off
in the quarter ended December 31, 2001, as the fair value of projected
future cash flows was zero.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table summarizes estimated amortization expense for the
fiscal years ending in June 2004 through 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                                |               |           |       |       | 
|------------------------------- | ------------- | --------- | ----- | ----- | 
|Estimated amortization expense: |               | Thousands
|For the fiscal years ending:    |               |           |       |      
|                                | June 30, 2004 |           | $     | 2,135 | 
|                                | June 30, 2005 |           |       | 1,734 | 
|                                | June 30, 2006 |           |       | 1,310 | 
|                                | June 30, 2007 |           |       | 1,181 | 
|                                | June 30, 2008 |           |       | 512   | 
|                                | Thereafter    |           |       | 34    | 
|                                |               |           |       |      
|                                |               | $         | 6,906 |      
|                                |               |           |       |      



|7) |  | Product Warranty Liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys customers receive a warranty, generally for a period of
two years, upon purchase of products. The Company accrues estimated
costs to repair or replace potentially defective products when
products are shipped and revenue is recognized. Estimated warranty
costs are based upon prior actual warranty costs for substantially
similar transactions. The following table presents the activity in
the Companys product warranty liability for the year ended June 30,
2003.

|                               |                                            |   |     |      |  
|------------------------------ | ------------------------------------------ | - | --- | ---- | -
|Thousands                      |                                            |   |     |     
|                               |                                            |   |     |     
|Balance at beginning of period |                                            | $ | 567 |     
|                               | Estimated warranty costs for product sales |   |     | 554  |  
|                               | Adjustments to settle warranty activity    |   |     | (573 | )
|                               |                                            |   |     |     
|Balance at end of period       |                                            | $ | 548 |     
|                               |                                            |   |     |     



|8) |  | Notes Payable                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Notes payable consist of revolving credit facility notes. As of June
30, 2002, there were no notes outstanding on the credit facility. On
September 20, 2002, SBS canceled its credit facility with Bank of
America, N.A.
|  
|9) |  | Income Taxes                                                                                                                                                                                                             
|  
|   |  | Income (loss) from continuing operations before income taxes and
cumulative effect of change in accounting principle is comprised of
the following:                                                                      

|          |  |                      |        |      |  |      |         |   |  |  |        |  
|--------- |  | -------------------- | ------ | ---- |  | ---- | ------- | - |  |  | ------ | -
|          |  | Years
Ended June 30,
|          |  |                     
|Thousands |  | 2003                 |        | 2002 |  | 2001
|          |  |                      |        |      |  |     
|U.S.      |  | $                    | (2,142 | )    |  |      | (38,833 | ) |  |  | 27,128 |  
|Foreign   |  |                      | 4,534  |      |  |      | 1,023   |   |  |  | (253   | )
|          |  |                      |        |      |  |      |         |   |  |  |        |  
|          |  | $                    | 2,392  |      |  |      | (37,810 | ) |  |  | 26,875 |  
|          |  |                      |        |      |  |      |         |   |  |  |        |  

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



| |  | Total income taxes for the years ended June 30, 2003, 2002 and 2001
were allocated as follows:
| |  | ----------------------------------------------------------------------------------------------

|                                                    |  |      |        |      |  |                      |         |   |  |  |       | 
|--------------------------------------------------- |  | ---- | ------ | ---- |  | -------------------- | ------- | - |  |  | ----- | 
|                                                    |  |      |        |      |  | Years ended June 30, |         |   |  | 
|                                                    |  |      |        |      |  |                      |         |   |  | 
|                                                    |  | 2003 |        | 2002 |  | 2001                
|                                                    |  |      |        |      |  |                     
|Income from continuing operations                   |  | $    | 784    |      |  |                      | (13,450 | ) |  |  | 9,691 | 
|Cumulative effect of change in
accounting principle |  |      | (3,412 | )    |  |                      |        |   |  |  |      | 
|                                                    |  |      |        |      |  |                      |         |   |  |  |       | 
|                                                    |  | $    | (2,628 | )    |  |                      | (13,450 | ) |  |  | 9,691 | 
|                                                    |  |      |        |      |  |                      |         |   |  |  |       | 



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

|          |              |      |                     |        |   |      |         |        |   |  |       |       |  
|--------- | ------------ | ---- | ------------------- | ------ | - | ---- | ------- | ------ | - |  | ----- | ----- | -
|          |              |      | Years Ended June 30
|          |              |      |                    
|Thousands |              | 2003 |                     | 2002   |   | 2001
|          |              |      |                     |        |   |     
|Current:  |              |      |                     |        |   |      |         |        |   |  |       |      
|          | U.S. Federal |      | $                   | (6,793 | ) |      |         | (3,911 | ) |  |       | 8,572 |  
|          | State        |      |                     | 107    |   |      |         | 32     |   |  |       | 1,694 |  
|          | Foreign      |      |                     | 1,271  |   |      |         | 722    |   |  |       | (210  | )
|Deferred: |              |      |                     |        |   |      |         |        |   |  |       |      
|          | U.S. Federal |      |                     | 5,345  |   |      |         | (8,953 | ) |  |       | (536  | )
|          | State        |      |                     | 506    |   |      |         | (1,540 | ) |  |       | (86   | )
|          | Foreign      |      |                     | 348    |   |      |         | 200    |   |  |       | 257   |  
|          |              |      |                     |        |   |      |         |        |   |  |       |      
|          |              | $    | 784                 |        |   |      | (13,450 | )      |   |  | 9,691 |      
|          |              |      |                     |        |   |      |         |        |   |  |       |      



| |  | Income tax expense (benefit) from continuing operations was provided
for at effective rates of 32.8, 35.6, and 36.1 percent in 2003, 2002,
and 2001, respectively. Actual tax expense (benefit) differ from the
expected income taxes (computed by applying the statutory U.S.
Federal tax rate to income before income taxes) as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          |  |                     |      |      |  |      |         |   |  |  |       |  
|----------------------------------------- |  | ------------------- | ---- | ---- |  | ---- | ------- | - |  |  | ----- | -
|                                          |  | Years Ended June 30
|                                          |  |                    
|Thousands                                 |  | 2003                |      | 2002 |  | 2001
|                                          |  |                     |      |      |  |     
|Computed expected tax expense (benefit) |  | $                   | 837  |      |  |      | (13,234 | ) |  |  | 9,406 |  
|State income tax, net of federal benefit  |  |                     | 398  |      |  |      | (980    | ) |  |  | 1,045 |  
|Non-deductible goodwill                   |  |                     |     |      |  |      | 1,599   |   |  |  | 325   |  
|Foreign operations, net                   |  |                     | 600  |      |  |      | 433     |   |  |  | (76   | )
|Benefit from foreign sales                |  |                     | (105 | )    |  |      | (646    | ) |  |  | (700  | )
|Research and experimental tax credits     |  |                     | (76  | )    |  |      | (648    | ) |  |  | (378  | )
|Change in valuation allowance             |  |                     | (789 | )    |  |      |        |   |  |  |      |  
|Other                                     |  |                     | (81  | )    |  |      | 26      |   |  |  | 69    |  
|                                          |  |                     |      |      |  |      |         |   |  |  |       |  
|                                          |  | $                   | 784  |      |  |      | (13,450 | ) |  |  | 9,691 |  
|                                          |  |                     |      |      |  |      |         |   |  |  |       |  

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



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

|                                            |                                             |                                |        |        |        |      |        |        |        |  
|------------------------------------------- | ------------------------------------------- | ------------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | -
|Thousands                                   |                                             | As of June 30                 
|                                            |                                             |                               
|                                            |                                             |                                |        | 2003   |        | 2002
|                                            |                                             |                                |        |        |        |     
|Deferred tax assets:                        |                                             |                                |        |        |        |      |        |       
|                                            | Amortization                                |                                | $      | 6,133  |        |      |        | 3,356  |       
|                                            | Operating loss and tax credit carryforwards |                                |        | 2,622  |        |      |        |       |       
|                                            | Acquired IPR&D                              |                                |        | 2,365  |        |      |        | 2,647  |       
|                                            | Inventory                                   |                                |        | 1,751  |        |      |        | 9,116  |       
|                                            | Accrued expenses and reserves               |                                |        | 1,604  |        |      |        | 1,388  |       
|                                            | Foreign tax credits                         |                                |        | 1,557  |        |      |        | 789    |       
|                                            | Other                                       |                                |        | 166    |        |      |        | 566    |       
|                                            |                                             |                                |        |        |        |      |        |       
|                                            |                                             |                                | 16,198 |        |        |      | 17,862 |       
|Valuation allowance for deferred tax assets |                                             |                                |       |        |        |      | (789   | )     
|                                            |                                             |                                |        |        |        |      |        |       
|                                            |                                             | Total deferred tax assets      |        |        | 16,198 |      |        |        | 17,073 |  
|                                            |                                             |                                |        |        |        |      |        |       
|Deferred tax liabilities:                   |                                             |                                |        |        |        |      |        |       
|                                            | Occupancy and other expenses                |                                |        | (1,490 | )      |      |        |       |       
|                                            | Identifiable intangible assets              |                                |        | (1,146 | )      |      |        | (1,924 | )     
|                                            | Foreign dividends                           |                                |        | (847   | )      |      |        |       |       
|                                            |                                             |                                |        |        |        |      |        |       
|                                            |                                             | Total deferred tax liabilities |        |        | (3,483 | )    |        |        | (1,924 | )
|                                            |                                             |                                |        |        |        |      |        |       
|                                            |                                             | Net deferred tax assets        |        | $      | 12,715 |      |        |        | 15,149 |  
|                                            |                                             |                                |        |        |        |      |        |       



| |  | At June 30, 2003, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $4.6 million which are
available to offset future Federal taxable income, if any, through
2023. At June 30, 2003, the Company has tax credit carryforwards for
Federal income tax purposes of approximately $311,000 which are
available to offset future Federal tax payments, if any, through 2023.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As of June 30, 2003, SBS had a foreign tax credit carryforward of
approximately $1.6 million, which are available to offset future
Federal tax liabilities from foreign source income, if any, through
2008. Excess foreign tax credits may be carried back two years and
forward five years. During the quarter ended June 30, 2003, in
conjunction with the execution of certain tax planning strategies
management believes that it is more likely than not that we will
realize the benefits of the foreign tax credit carryforward.
Accordingly, SBS released the valuation allowance established in prior
periods. In addition, as of June 30, 2003, management established a
deferred tax liability of approximately
$0.8 million 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. In assessing the realizability of the remaining deferred tax
assets, management considered projected future taxable income and tax
planning strategies. Based on SBS historical taxable transactions,
the timing of the reversal of existing temporary differences, and the
evaluation of tax planning strategies, management believes it is more
likely than not that SBS future taxable income will be sufficient to
realize the benefit of the remaining deferred tax assets existing at
June 30, 2003.
|
| |  | SBS generally does not record deferred income taxes on the
undistributed earnings of its foreign subsidiaries based upon our
policy that those earnings are permanently reinvested and have
specific uses in such foreign jurisdictions. At
June 30, 2003, the undistributed earnings of foreign subsidiaries
amounted to approximately $13.8 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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



|10) |  | 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,
|                                                                                   |                                                                                                        |                     
|                                                                                   |                                                                                                        |                      | 2003   |        | 2002 |  | 2001  
|                                                                                   |                                                                                                        |                      |        |        |      |  |       
|                                                                                   | Income (loss) before cumulative
effect of change in accounting
principle                               |                      | $      | 1,608  |      |  |        | (24,360 | ) |  |        | 17,184 | 
|                                                                                   | Cumulative effect of change in
accounting principle                                                    |                      |        | (6,058 | )    |  |        |        |   |  |        |       | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|                                                                                   | Net income (loss)                                                                                      |                      | $      | (4,450 | )    |  |        | (24,360 | ) |  |        | 17,184 | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|Net Income (Loss) Per Common Share                                                 |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|                                                                                   | Weighted-average common shares
outstanding used in earnings per
share computations                     |                      |        | 14,605 |      |  |        | 14,559  |   |  |        | 13,926 | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|                                                                                   | Per share  income (loss) before
cumulative effect of change in
accounting principle                   |                      | $      | 0.11   |      |  |        | (1.67   | ) |  |        | 1.23   | 
|                                                                                   | Per share  cumulative effect of
change in accounting principle                                        |                      |        | (0.41  | )    |  |        |        |   |  |        |       | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|                                                                                   | Per share  net income (loss)                                                                          |                      | $      | (0.30  | )    |  |        | (1.67   | ) |  |        | 1.23   | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|Net Income (Loss) Per Common Share                                                |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|Assuming Dilution                                                                  |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|                                                                                   | Weighted-average common shares
outstanding used in earnings per
share computations                     |                      |        | 14,630 |      |  |        | 14,559  |   |  |        | 15,123 | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|                                                                                   | Per share assuming dilution  income
(loss) before cumulative effect of
change in accounting principle |                      | $      | 0.11   |      |  |        | (1.67   | ) |  |        | 1.14   | 
|                                                                                   | Per share assuming dilution 
cumulative effect of change in
accounting principle                      |                      |        | (0.41  | )    |  |        |        |   |  |        |       | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|                                                                                   | Per share assuming dilution  net
income (loss)                                                        |                      | $      | (0.30  | )    |  |        | (1.67   | ) |  |        | 1.14   | 
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|Shares Used in Net Income (Loss) per
Share Computations                            |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|Average outstanding common shares                                                  |                                                                                                        |                      | 14,605 |        |      |  | 14,559 |         |   |  | 13,926 |       
|Incremental shares from assumed
conversions  potential common shares              |                                                                                                        |                      | 25     |        |      |  |       |         |   |  | 1,197  |       
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       
|Shares used in net income (loss) per
common share  assuming dilution
computations |                                                                                                        |                      | 14,630 |        |      |  | 14,559 |         |   |  | 15,123 |       
|                                                                                   |                                                                                                        |                      |        |        |      |  |        |         |   |  |        |       



| |  | Due to the reported net loss for the year ended June 30, 2002, 190,757
potential common shares were not included in the computation of net
loss per common share  assuming dilution because the effect would be
anti-dilutive. For the years ended June 30, 2003, 2002, and 2001,
options to purchase 3,243,859, 2,381,237, and 420,517 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 exercise price was greater than the average
market price of the common shares.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|11) |  | Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | SBS leases its main facilities in Albuquerque, New Mexico, Carlsbad,
California, Newark, California, St. Paul, Minnesota, Raleigh, North
Carolina, Mansfield, Massachusetts, Waterloo, Ontario, Canada,
Augsburg, Germany and Mindelheim, Germany under noncancelable
operating leases which expire at various dates through fiscal 2008.
SBS also leases various items of equipment under noncancelable
operating leases which expire at various dates through fiscal 2007.
|   
|    |  | The following is a five-year schedule of future minimum lease
payments:                                                                                                                                                                                                                                                                                                                                                                                                     

|                     |  |                |       |                |  |       |     |  |  |  |       | 
|-------------------- |  | -------------- | ----- | -------------- |  | ----- | --- |  |  |  | ----- | 
|Dollars in
thousands |  | Buildings      |       | Equipment      |  |       |     | 
|Year ending          |  | Lease Payments |       | Lease Payments |  | Total
|                     |  |                |       |                |  |      
|June 30, 2004        |  | $              | 3,165 |                |  |       | 186 |  |  |  | 3,351 | 
|June 30, 2005        |  |                | 2,902 |                |  |       | 109 |  |  |  | 3,011 | 
|June 30, 2006        |  |                | 1,344 |                |  |       | 47  |  |  |  | 1,391 | 
|June 30, 2007        |  |                | 394   |                |  |       | 30  |  |  |  | 424   | 
|June 30, 2008        |  |                | 207   |                |  |       |    |  |  |  | 207   | 
|                     |  |                |       |                |  |       |     |  |  |  |      
|                     |  | $              | 8,012 |                |  |       | 372 |  |  |  | 8,384 | 
|                     |  |                |       |                |  |       |     |  |  |  |      



|    |  | Total rental expense for operating leases for the years ended June 30,
2003, 2002, and 2001, was approximately
$3.3 million, $3.5 million, and $3.0 million, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|12) |  | Stock Option Plans and Warrants                                                                                                                                           



| | (a) |  | 1992, 1993, 1995, 1996 and 1997 Incentive Stock Option
Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | SBS has 1992, 1993, 1995, 1996 and 1997 Incentive Stock Option
Plans whereby a total of 2,800,000 shares of its common stock are
reserved for discretionary grant of options by the Board to
officers and employees. The plans all terminate ten years after
inception, from the years 2001 to 2006. As of June 30, 2003, the
1992 and 1993 Incentive Stock Option Plans have expired and there
are no options outstanding or available for grant. The options
are intended to qualify as incentive stock options within the
meaning of Section 422A of the Internal Revenue Code (the Code).
The plans generally permit options to be granted (i) only to
employees or officers and not to directors as such; (ii) for a
period of up to ten years; and (iii) at prices not less than fair
market value of the underlying common stock at the date of grant.
Under the Code, holders of more than 10 percent of SBS stock
cannot be granted options with a duration of more than five years
or exercisable at a price less than 110 percent of the fair market
value of the underlying common stock on 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 common
stock in effect on the respective dates of the grants.
|
| | (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 options become exercisable one year from the
date of grant and terminate twelve months from the date the
optionee ceases to be a member of the Board of Directors or in
five years, whichever occurs first.                                                                                                                                                                                                                                                                                                                                                                                                                                

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



| | (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 Meeting. The plan, as amended,
provided for the grant of options to eligible employees through
January 21, 2003. As a result, there are no more shares available
for grant in this plan as of June 30, 2003. In fiscal 1999, a
subsequent amendment changed the grant date from January 21 to
December 31 for grants made subsequent to January 21, 1999.
Individual grants are issued for a percentage of the employees
annual base salary, as determined each year by the Board of
Directors, up to 10%, divided by the fair market value of one
share of SBS common stock on the date of grant. Options are
eligible to be exercised beginning 18 months after the date of
grant for a period of nine months, at which time they will expire.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (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 Meeting. All
full-time employees of SBS and its subsidiaries and all
non-employee Directors of SBS are eligible to participate in the
plan, except that no person owning, directly or indirectly, more
than 15% of the total combined voting power of all classes of
stock shall be eligible to participate. The plan provides for the
grant of any or all of the following types of awards: (i) stock
options, including incentive stock options; (ii) stock
appreciation rights; (iii) restricted stock; (iv) performance
shares and units; and (v) other stock-based awards. The maximum
number of shares of common stock that shall be available for grant
of awards under the plan shall not exceed 3,000,000, subject to
adjustment in accordance with the provisions of the plan. The
exercise price of each option granted under (i) is determined by
the Board of Directors but cannot be less than 100% of the fair
market value of the underlying common stock on the date of grant.
The exercise price of each option granted under (v) is determined
by the Board of Directors and can be less than the fair market
value of the underlying common stock on the date of grant. The
term of these options cannot exceed ten years from grant date. The
plan expires in January 2008.                                                                                                                                                                                                 
|
| | (e) |  | 2000 Long-Term Equity Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | The 2000 Long-Term Equity Incentive Plan was adopted by the Board
of Directors on August 31, 2000 and subsequently approved at the
December 2000 reconvened Annual Shareholders Meeting. Any
employee of SBS or its subsidiaries, and any consultants,
directors, or other persons providing services to SBS or its
subsidiaries are eligible to participate in the plan. The plan
provides for the grant of nonqualified stock options and a limited
number of grants of restricted stock. The number of shares of
stock available for award under the plan during any fiscal year of
SBS is equal to ten percent of the adjusted average of the
outstanding stock, as that number is determined by SBS to
calculate net income per common share  assuming dilution for the
preceding fiscal year, reduced by any shares of stock under the
plan subject to unexercised options and any shares of stock under
the plan subject to restrictions. The exercise price of each
option granted shall be the fair market value of the underlying
common stock on the date of grant unless otherwise specified by
the Board at the time of grant. If options are awarded in exchange
for previously earned cash compensation, or in connection with an
acquisition, merger, combination or other similar event involving
SBS, or in substitution or replacement for options granted to
employees by the other entities, the Board has the authority to
establish an exercise price that is less that 100% of the fair
market value of the underlying common stock on the date of grant.
The term of these options cannot exceed ten years from grant date.
The plan expires in July 2010.

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



| |  | Information regarding SBS stock option plans and warrants is
summarized in the table below:
| |  | --------------------------------------------------------------------------------------------

|                               |           |  |         |         |          |  |           |         |         |  |         |         |       |  |           |         |  |  |         |         |  |  |           |           | 
|------------------------------ | --------- |  | ------- | ------- | -------- |  | --------- | ------- | ------- |  | ------- | ------- | ----- |  | --------- | ------- |  |  | ------- | ------- |  |  | --------- | --------- | 
|                               |           |  | ALL     |         |          |  |           |         | 1996    |  |         |         |       |  |           |         |  |  |         |         | 
|                               |           |  | ISOPs   |         | 1993 D&O |  | ESPP      |         | 1998 LT |  | 2000 LT |         | Total
|                               |           |  |         |         |          |  |           |         |         |  |         |         |       |  |           |         |  |  |         |         |  |  |           |          
|Outstanding at 6/30/00         |           |  | 773,524 |         |          |  | 243,926   |         |         |  | 205,490 |         |       |  | 2,584,546 |         |  |  |        |         |  |  | 3,807,486 |          
|                               | Granted   |  |         | 50,012  |          |  |           | 325,000 |         |  |         | 115,850 |       |  |           | 79,560  |  |  |         | 746,500 |  |  |           | 1,316,922 | 
|                               | Exercised |  |         | 433,964 |          |  |           | 50,043  |         |  |         | 108,788 |       |  |           | 587,215 |  |  |         |        |  |  |           | 1,180,010 | 
|                               | Cancelled |  |         |        |          |  |           |        |         |  |         | 27,450  |       |  |           | 507,812 |  |  |         | 72,000  |  |  |           | 607,262   | 
|                               |           |  |         |         |          |  |           |         |         |  |         |         |       |  |           |         |  |  |         |         |  |  |           |          
|Outstanding at 6/30/01         |           |  | 389,572 |         |          |  | 518,883   |         |         |  | 185,102 |         |       |  | 1,569,079 |         |  |  | 674,500 |         |  |  | 3,337,136 |          
|                               | Granted   |  |         |        |          |  |           | 404,479 |         |  |         | 188,650 |       |  |           | 25,000  |  |  |         | 482,337 |  |  |           | 1,100,466 | 
|                               | Exercised |  |         | 41,000  |          |  |           | 10,000  |         |  |         |        |       |  |           | 128,129 |  |  |         |        |  |  |           | 179,129   | 
|                               | Cancelled |  |         |        |          |  |           | 256,883 |         |  |         | 147,552 |       |  |           | 230,695 |  |  |         | 268,988 |  |  |           | 904,118   | 
|                               |           |  |         |         |          |  |           |         |         |  |         |         |       |  |           |         |  |  |         |         |  |  |           |          
|Outstanding at 6/30/02         |           |  | 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 6/30/03         |           |  | 348,006 |         |          |  | 687,979   |         |         |  | 274,350 |         |       |  | 1,124,991 |         |  |  | 917,983 |         |  |  | 3,353,309 |          
|                               |           |  |         |         |          |  |           |         |         |  |         |         |       |  |           |         |  |  |         |         |  |  |           |          
|Exercisable at 6/30/01         |           |  | 319,566 |         |          |  | 182,800   |         |         |  | 78,052  |         |       |  | 547,850   |         |  |  |        |         |  |  | 1,128,268 |          
|Exercisable at 6/30/02         |           |  | 315,234 |         |          |  | 252,000   |         |         |  | 74,650  |         |       |  | 835,750   |         |  |  | 279,079 |         |  |  | 1,756,713 |          
|Exercisable at 6/30/03         |           |  | 331,336 |         |          |  | 372,661   |         |         |  | 124,350 |         |       |  | 976,138   |         |  |  | 542,892 |         |  |  | 2,347,377 |          
|                               |           |  |         |         |          |  |           |         |         |  |         |         |       |  |           |         |  |  |         |         |  |  |           |          
|Available for grant
at 6/30/03 |           |  | 92,496  |         |          |  | 1,368,845 |         |         |  |        |         |       |  | 752,117   |         |  |  | 544,990 |         |  |  | 2,758,443 |          
|                               |           |  |         |         |          |  |           |         |         |  |         |         |       |  |           |         |  |  |         |         |  |  |           |          



| |  | Weighted average option exercise price information for fiscal years
2003, 2002, and 2001 follows:
| |  | -------------------------------------------------------------------------------------------------

|                                          |  |      |       |      |  |      |       |  |  |  |       | 
|----------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                          |  | 2003 |       | 2002 |  | 2001
|                                          |  |      |       |      |  |     
|Outstanding at July 1                     |  | $    | 16.60 |      |  |      | 17.78 |  |  |  | 12.71 | 
|Granted during the year (at market value) |  |      | 9.53  |      |  |      | 13.20 |  |  |  | 25.33 | 
|Exercised during the year                 |  |      | 2.41  |      |  |      | 8.68  |  |  |  | 11.05 | 
|Cancelled during the year                 |  |      | 17.84 |      |  |      | 18.58 |  |  |  | 15.56 | 
|Outstanding at June 30                    |  |      | 15.08 |      |  |      | 16.60 |  |  |  | 17.78 | 
|Exercisable at June 30                    |  |      | 16.68 |      |  |      | 17.00 |  |  |  | 13.29 | 

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



| |  | Significant option groups outstanding and exercisable at June 30, 2003
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 |  |             | 834,695   |             |  |           | 6.07 |             |  | $        | 9.08  |  |  |          | 249,990   |  |  | $ | 8.14  | 
|$11.15  $12.69  |  |             | 711,883   |             |  |           | 7.20 |             |  |          | 12.01 |  |  |          | 436,311   |  |  |   | 12.02 | 
|$12.94  $15.50  |  |             | 743,388   |             |  |           | 4.51 |             |  |          | 14.42 |  |  |          | 660,221   |  |  |   | 14.41 | 
|$15.63  $25.94  |  |             | 671,783   |             |  |           | 5.72 |             |  |          | 17.80 |  |  |          | 621,963   |  |  |   | 17.67 | 
|$26.75  $36.13  |  |             | 391,560   |             |  |           | 7.50 |             |  |          | 30.08 |  |  |          | 378,892   |  |  |   | 30.00 | 
|                 |  |             |           |             |  |           |      |             |  |          |       |  |  |          |           |  |  |   |       | 
|$  5.44  $36.13 |  |             | 3,353,309 |             |  |           | 6.06 |             |  | $        | 15.08 |  |  |          | 2,347,377 |  |  | $ | 16.68 | 
|                 |  |             |           |             |  |           |      |             |  |          |       |  |  |          |           |  |  |   |       | 



|13) |  | 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, 2003, 2002, and 2001 were approximately $1.0
million, $1.1 million, and $1.1 million, respectively.                                                                                                                                                                                                                  
|   
|14) |  | Segment Financial Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | SBS operates internationally through two operating segments: the
Communications and Enterprise Group, and the Commercial and Government
Group. These segments are based on the markets that are served and
the products that are provided to those markets. Each segment has its
own sales and distribution channels and has a manager who reports
directly to the President and Chief Operating Officer. The Commercial
and Government Groups primary focus is to serve customers in the
medical, semiconductor, aerospace, defense and other commercial
markets. The Communications and Enterprise Group serves major
telecommunications OEMs and OEMs that manufacture and distribute
business-computing equipment. A description of these segments
follows:



| |  |  | The Communications and Enterprise Group designs and builds
high performance embedded system products including single board
computers, input/output modules and fully integrated systems.
These products are designed to meet the evolving requirements of
communications customers while reducing cost and expediting time
to market. These products are based on standard form factor
hardware designs such as CompactPCI, PMC, PCI with open standard
operating support such as VxWorks and Linux, and consistent
driver development kits for ATM, frame relay and other software
protocols.                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Commercial and Government Group designs and builds
open-architecture computer components and systems for CompactPCI,
PCI, VME, and PC/104 standard bus architectures. The Groups
product lines include Intel and PowerPC architecture CPU boards,
serial and networking modules, analog and digital I/O modules,
computer interconnection and expansion units, MIL-STD-1553, ARINC
429, telemetry and complete computer systems. These products
support OEM and end-user applications in semiconductor
manufacturing equipment, industrial automation, medical imaging,
military and aerospace, and entertainment applications.



| |  | SBS measures its segments results of operations based on income
(loss) before income taxes and the cumulative effect of change in
accounting principle and prior to allocation of corporate overhead
expenses other than corporate sales and marketing costs, intangible
asset impairment charges, substantially all amortization associated
with acquisitions, substantially all interest income and expense, and
acquired in-process research and development charges associated with
purchase business combinations. The accounting policies used to
measure segment results of operations are the same as for SBS taken as
a whole.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                            |  |  |      |      |  |       |              |       |                  |     |             |       |           |  |         |       |  |  |         |        | 
|------------------------------------------- |  |  | ---- | ---- |  | ----- | ------------ | ----- | ---------------- | --- | ----------- | ----- | --------- |  | ------- | ----- |  |  | ------- | ------ | 
|                                            |  |  |      |      |  |       |              |       |                  |     |             |       | Corporate |  |         |       | 
|                                            |  |  |      |      |  |       | Commercial & |       | Communications & |     | &           |       |           |  |        
|                                            |  |  |      |      |  |       | Government   |       | Enterprise       |     | Unallocated |       |           |  |        
|Thousands                                   |  |  |      |      |  | Group |              | Group |                  | (1) |             | Total
|                                            |  |  |      |      |  |       |              |       |                  |     |             |      
|Years ended June 30:                        |  |  |      |      |  |       |              |       |                  |     |             |       |           |  |         |       |  |  |         |       
|Gross Sales                                 |  |  | 2003 |      |  |       | 90,646       |       |                  |     | 25,406      |       |           |  |        |       |  |  | 116,052 |       
|Inter-segment sales                         |  |  |      |      |  |       | (483         | )     |                  |     | (48         | )     |           |  |        |       |  |  | (531    | )     
|
|                                            |  |  |      |      |  |       |              |       |                  |     |             |       |           |  |         |       |  |  |        
|Sales to external customers                 |  |  |      |      |  |       | 90,163       |       |                  |     | 25,358      |       |           |  |        |       |  |  | 115,521 |       
|                                           
|Gross Sales                                 |  |  | 2002 |      |  |       | 85,122       |       |                  |     | 36,882      |       |           |  |        |       |  |  | 122,004 |       
|Inter-segment sales                         |  |  |      |      |  |       | (2,856       | )     |                  |     | (292        | )     |           |  |        |       |  |  | (3,148  | )     
|                                            |  |  |      |      |  |       |              |       |                  |     |             |       |           |  |         |       |  |  |        
|Sales to external customers                 |  |  |      |      |  |       | 82,266       |       |                  |     | 36,590      |       |           |  |        |       |  |  | 118,856 |       
|                                           
|Gross Sales                                 |  |  | 2001 |      |  |       | 98,463       |       |                  |     | 96,924      |       |           |  |        |       |  |  | 195,387 |       
|Inter-segment sales                         |  |  |      |      |  |       | (3,304       | )     |                  |     | (4,903      | )     |           |  |        |       |  |  | (8,207  | )     
|
|                                            |  |  |      |      |  |       |              |       |                  |     |             |       |           |  |         |       |  |  |        
|Sales to external customers                 |  |  |      |      |  |       | 95,159       |       |                  |     | 92,021      |       |           |  |        |       |  |  | 187,180 |       
|                                           
|Interest and other income, net              |  |  | 2003 |      |  |       | 117          |       |                  |     |            |       |           |  | 337     |       |  |  | 454     |       
|                                            |  |  | 2002 |      |  |       | 67           |       |                  |     | 382         |       |           |  | 197     |       |  |  | 646     |       
|                                            |  |  | 2001 |      |  |       | 23           |       |                  |     | 15          |       |           |  | 372     |       |  |  | 410     |       
|                                           
|Interest expense                            |  |  | 2003 |      |  |       | 8            |       |                  |     |            |       |           |  | 12      |       |  |  | 20      |       
|                                            |  |  | 2002 |      |  |       |             |       |                  |     |            |       |           |  | 15      |       |  |  | 15      |       
|                                            |  |  | 2001 |      |  |       | 1            |       |                  |     |            |       |           |  | 1,070   |       |  |  | 1,071   |       
|                                           
|Depreciation
and amortization               |  |  | 2003 |      |  |       | 2,090        |       |                  |     | 892         |       |           |  | 2,998   |       |  |  | 5,980   |       
|                                            |  |  |      | 2002 |  |       |              | 1,910 |                  |     |             | 834   |           |  |         | 8,567 |  |  |         | 11,311 | 
|                                            |  |  | 2001 |      |  |       | 1,691        |       |                  |     | 812         |       |           |  | 7,695   |       |  |  | 10,198  |       
|                                           
|Segment profit (income (loss)
before taxes) |  |  | 2003 |      |  |       | 19,448       |       |                  |     | (4,238      | )     |           |  | (12,818 | )     |  |  | 2,392   |       
|                                            |  |  | 2002 |      |  |       | 11,691       |       |                  |     | (14,381     | )     |           |  | (35,120 | )     |  |  | (37,810 | )     
|                                            |  |  | 2001 |      |  |       | 21,368       |       |                  |     | 22,122      |       |           |  | (16,615 | )     |  |  | 26,875  |       
|As of June 30:                              |  |  |      |      |  |       |              |       |                  |     |             |       |           |  |         |       |  |  |         |       
|Total Assets                                |  |  | 2003 |      |  |       | 41,956       |       |                  |     | 11,382      |       |           |  | 75,272  |       |  |  | 128,610 |       
|                                            |  |  | 2002 |      |  |       | 35,217       |       |                  |     | 15,465      |       |           |  | 74,966  |       |  |  | 125,648 |       



|(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 sales and marketing costs, asset impairment charges,
substantially all interest expense, substantially all interest income, investment write-downs, and substantially all amortization of
associated with acquisitions. Corporate assets primarily include cash and cash equivalents, deferred and current income tax assets,
goodwill, and intangible assets.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|15) |  | Geographic Areas and Major Customers
|--- |  | ------------------------------------

|                               |  |  |      |  |  |               |         |               |  |         |        |        |  |       |        |  |  |  |     |  |  |   |         | 
|------------------------------ |  |  | ---- |  |  | ------------- | ------- | ------------- |  | ------- | ------ | ------ |  | ----- | ------ |  |  |  | --- |  |  | - | ------- | 
|                               |  |  |      |  |  | United States |         | United States |  |         |        |        |  |       |        |  |  |  |     | 
|Thousands                      |  |  |      |  |  | Domestic      |         | Exports       |  | Germany |        | Canada |  | Total
|                               |  |  |      |  |  |               |         |               |  |         |        |        |  |      
|Sales to External
Customers(1) |  |  | 2003 |  |  | $             | 80,700  |               |  |         | 13,568 |        |  |       | 21,253 |  |  |  |    |  |  | $ | 115,521 | 
|                               |  |  | 2002 |  |  |               | 87,087  |               |  |         | 19,201 |        |  |       | 12,568 |  |  |  |    |  |  |   | 118,856 | 
|                               |  |  | 2001 |  |  |               | 140,887 |               |  |         | 34,448 |        |  |       | 11,845 |  |  |  |    |  |  |   | 187,180 | 
|                              
|Long-lived assets, net         |  |  | 2003 |  |  | $             | 7,473   |               |  |         |       |        |  |       | 601    |  |  |  | 388 |  |  | $ | 8,462   | 
|                               |  |  | 2002 |  |  |               | 11,090  |               |  |         |       |        |  |       | 417    |  |  |  |    |  |  |   | 11,507  | 

(1)  Sales are classified according to the location of the shipment.



| |  | During the years ended June 30, 2003, 2002, and 2001, United States
export sales as a percentage of total United States sales were 14.4%,
18.1%, and 19.6%, respectively. United States export sales were made
primarily in the following foreign markets (sales classified by
location of customer):
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                     |        |      |  |       |       |   |  |       |        |   |  |  |       |  |  |   |        |  |  |  |       | 
|-------------------- |  | ------------------- | ------ | ---- |  | ----- | ----- | - |  | ----- | ------ | - |  |  | ----- |  |  | - | ------ |  |  |  | ----- | 
|                     |  | Years ended June 30
|                     |  |                    
|                     |  | 2003                |        | 2002 |  | 2001 
|                     |  |                     |        |      |  |      
|Dollars in thousands |  | Sales               |        | %    |  | Sales |       | % |  | Sales |        | %
|                     |  |                     |        |      |  |       |       |   |  |       |        |  
|Japan                |  | $                   | 3,835  |      |  |       | 28.3  |   |  | $     | 3,066  |   |  |  | 16.0  |  |  | $ | 4,784  |  |  |  | 13.9  | 
|Canada               |  |                     | 1,546  |      |  |       | 11.4  |   |  |       | 3,494  |   |  |  | 18.2  |  |  |   | 5,424  |  |  |  | 15.7  | 
|Korea                |  |                     | 1,167  |      |  |       | 8.6   |   |  |       | 1,240  |   |  |  | 6.5   |  |  |   | 720    |  |  |  | 2.1   | 
|United Kingdom       |  |                     | 1,028  |      |  |       | 7.6   |   |  |       | 932    |   |  |  | 4.8   |  |  |   | 1,327  |  |  |  | 3.9   | 
|Sweden               |  |                     | 802    |      |  |       | 5.9   |   |  |       | 2,339  |   |  |  | 12.2  |  |  |   | 12,539 |  |  |  | 36.4  | 
|France               |  |                     | 715    |      |  |       | 5.3   |   |  |       | 1,682  |   |  |  | 8.8   |  |  |   | 1,752  |  |  |  | 5.1   | 
|Israel               |  |                     | 595    |      |  |       | 4.4   |   |  |       | 527    |   |  |  | 2.7   |  |  |   | 1,865  |  |  |  | 5.4   | 
|Germany              |  |                     | 400    |      |  |       | 2.9   |   |  |       | 1,528  |   |  |  | 7.9   |  |  |   | 2,275  |  |  |  | 6.6   | 
|China                |  |                     | 395    |      |  |       | 2.9   |   |  |       | 1,096  |   |  |  | 5.7   |  |  |   | 762    |  |  |  | 2.2   | 
|All others           |  |                     | 3,085  |      |  |       | 22.7  |   |  |       | 3,297  |   |  |  | 17.2  |  |  |   | 3,000  |  |  |  | 8.7   | 
|                     |  |                     |        |      |  |       |       |   |  |       |        |   |  |  |       |  |  |   |        |  |  |  |       | 
|                     |  | $                   | 13,568 |      |  |       | 100.0 |   |  | $     | 19,201 |   |  |  | 100.0 |  |  | $ | 34,448 |  |  |  | 100.0 | 
|                     |  |                     |        |      |  |       |       |   |  |       |        |   |  |  |       |  |  |   |        |  |  |  |       | 



|    |  | In fiscal 2003, 2002, and 2001, no one customer, or group of entities
known to be under common control, exceeded 10% of SBS sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|16) |  | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Effective March 9, 2001, Grahame E. Rance was appointed to the
positions of President and Chief Executive Officer of SBS and member
of the Board of Directors. Mr. Rance succeeded Christopher J.
Amenson, who remained as Chairman of the Board of Directors of SBS
until November 8, 2001, at which time Mr. Rance was appointed as
Chairman. As part of his compensation package, Mr. Rance received a
$1,893,750 interest free loan from SBS, paid in cash on April 4, 2001.
Forgiveness of the loan was to occur ratably over six annual
anniversaries of Mr. Rances employment with SBS. Additionally, Mr.
Rance received a $570,000 interest free loan from SBS that was repaid
upon the sale of his former home during the quarter ended December 31,
2001.
|   
|    |  | On April 26, 2002, at its regularly scheduled Board meeting,
Christopher J. Amenson was elected Chairman of the Board of Directors
and Chief Executive Officer and David H. Greig was elected President
and Chief Operating Officer. Former Chairman and Chief Executive
Officer, Grahame E. Rance, resigned to pursue other business
opportunities. As part of the Separation Agreement between Mr. Rance
and SBS, the unamortized portion of the loan to Mr. Rance of
$1,573,700 was                                                                                                                                                                                                                                                                              

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



|    |  | forgiven, Mr. Rance received 8 months base pay, and he returned 30,000
shares of restricted SBS common stock, 5,000 of which were vested and
25,000 of which were unvested. This resulted in severance and other
costs of approximately
$2.0 million in the quarter ended June 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|17) |  | 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 estimated total employee severance and related costs to be
recorded as a result of the closure are $690,000, excluding leasehold
improvement impairment charges of approximately $841,000 (recorded in
the quarter ended June 30, 2003 as a result of the announcement in
accordance with SFAS 144) and lease termination costs estimated to
range from $1.1 million to $1.6 million (to be recorded on the cease
use date during the quarter ending September 30, 2003 in accordance
with SFAS 146). For the quarter ended June 30, 2003, SBS recorded
employee severance and consolidation costs of $1,131,000, of which
$290,000 represents severance and related costs due to the planned
workforce reduction in August 2003 and $841,000 represents an
impairment charge for certain leasehold improvements (see Note 6). At
June 30, 2003, accrued severance and related costs of $224,000 will be
paid to substantially all employees during the three months ending
September 30, 2003.
|   
|    |  | Due to the depressed economic and market conditions facing our
Communications and Enterprise Group, 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. Additionally, for
the same reason, on September 30, 2002, SBS notified 22 employees of
the Communications and Enterprise Group that their jobs were being
eliminated. Also, during the year ended June 30, 2003, severance
costs were incurred for 12 other employees who were notified that
their jobs had been eliminated. As of June 30, 2003, severance costs
of $412,000 and lease termination fees in connection with the closure
of certain locations of approximately $186,000 were paid. There are
no costs remaining to be paid related to these activities at June 30,
2003.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | During the year ended June 30, 2002, based on unfavorable economic and
market conditions, facility consolidation actions, and the decision to
exit the legacy PCI Chassis product line, SBS reduced its employee
base, resulting in elimination of 159 positions in manufacturing,
research and development, administration, and sales and marketing. On
August 14, 2001, SBS notified 58 employees that their positions would
be eliminated by the end of September, 2001. On December 26, 2001,
the SBS Board of Directors approved additional reductions, to be
completed through March 31, 2002 and 54 employees were notified that
their jobs would be eliminated. On May 21, 2002, SBS announced
further reductions, which were effective immediately, and 47 employees
were notified that their jobs had been eliminated. As a result, for
the year ended June 30, 2002, employee severance and other termination
charges of approximately $1,253,000 were recorded. As of June 30,
2002, cash payments of $963,000 had been made, $21,000 of the original
charge was reversed as a result of the decision not to terminate
certain originally notified employees, and the remaining $269,000 was
paid during the year ended June 30, 2003.                      
|   
|18) |  | 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

Quarterly Controls Evaluation and Related CEO and CFO Certifications

As of the end of the period covered by this Annual Report on Form
10-K, the company evaluated the effectiveness of the design and operation
of disclosure controls and procedures (Disclosure Controls). 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 Securities Exchange Act
of 1934 (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 Internal Controls

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 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 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
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

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occur and not be detected.

Conclusions

Based on our controls evaluation (with the participation of our CEO
and CFO), as of the end of the period covered by this report, our CEO and
CFO have concluded that, subject to the limitations noted above, our
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, (the
Exchange Act)) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.

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




PART III

Certain information required by Part III is incorporated by reference
to the SBS definitive proxy statement pursuant to Regulation 14A (the
Proxy Statement) for our annual meeting to be held November 13, 2003.




Item 10.Directors and Executive Officers of the Registrant

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




Item 11.Executive Compensation

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




Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following sets forth certain information as of June 30, 2003 with
respect to equity compensation plans of SBS under which securities may be
issued:

Equity Compensation Plan Information

|                                                           |  |                    |           |                    |  |                     |       |                     |  |           |           | 
|---------------------------------------------------------- |  | ------------------ | --------- | ------------------ |  | ------------------- | ----- | ------------------- |  | --------- | --------- | 
|                                                           |  |                    |           |                    |  |                     |       |                     |  | Number of
|                                                           |  | Number of          |           |                    |  |                     |       | securities         
|                                                           |  | securities to be   |           |                    |  |                     |       | remaining available
|                                                           |  | issued upon        |           | Weighted-average   |  | for future issuance
|                                                           |  | exercise of        |           | exercise price of  |  | under equity       
|                                                           |  | outstanding        |           | outstanding        |  | compensation plans 
|                                                           |  | options, rights,   |           | options, rights,   |  | (excluding         
|                                                           |  | restricted stock,  |           | restricted stock,  |  | securities         
|                                                           |  | and other          |           | and other          |  | reflected in first 
|Plan Category                                              |  | stock-based awards |           | stock-based awards |  | column)            
|                                                           |  |                    |           |                    |  |                    
|Equity compensation
plans approved by
security holders     |  |                    | 3,353,309 |                    |  | $                   | 15.08 |                     |  |           | 2,758,443 | 
|                                                           |  |                    |           |                    |  |                     |       |                     |  |           |           | 
|Equity compensation
plans not approved
by security holders |  |                    |          |                    |  |                     |      |                     |  |           |          | 
|                                                           |  |                    |           |                    |  |                     |       |                     |  |           |           | 
|Total                                                      |  |                    | 3,353,309 |                    |  | $                   | 15.08 |                     |  |           | 2,758,443 | 
|                                                           |  |                    |           |                    |  |                     |       |                     |  |           |           | 

All other information required by this item is incorporated by
reference to SBS Proxy Statement under the section entitled Ownership of
SBS Common Stock.

56



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##### Table of Contents






Item 13.Certain Relationships and Related Transactions

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




Item 14.Principal Accounting Fees and Services

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




PART IV




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



| | (a) |  | Financial Statements                                                                                                                                                                                                                                               
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders Equity
Consolidated Statements of Cash Flows                                                                                                 
|
| | (b) |  | Financial Statement Schedules                                                                                                                                                                                                                                      
|
| |     |  | Not applicable                                                                                                                                                                                                                                                     
|
| | (c) |  | Exhibits                                                                                                                                                                                                                                                           
|
| |     |  | The Exhibits listed on the accompanying Index to Exhibits at the end
of this Report are filed as part of, or incorporated by reference
into, this Report. Management contracts or compensatory plans or
arrangements are indicated in the index by an asterisk (*).
|
| | (d) |  | Reports on Form 8-K During
the Fourth Quarter                                                                                                                                                                                                                      

| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | -- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 1. |  |  | On April 17, 2003, SBS Technologies, Inc. filed a Form
8-K regarding changes in senior management effective
immediately.                                                                                                                                    
| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | 2. |  |  | On April 24, 2003, SBS Technologies, Inc. filed a Form
8-K regarding its financial results for the quarter ended March
31, 2003.                                                                                                                            
| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | 3. |  |  | On June 12, 2003, SBS Technologies, Inc. filed a Form
8-K announcing that it has reached agreement to acquire Avvida
Systems, Inc., a privately held company located in Waterloo,
Ontario, Canada, and the closure of SBS facility in Carlsbad,
California.
| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | 4. |  |  | On June 30, 2003, SBS Technologies, Inc. filed a Form
8-K announcing the completion of the acquisition of Avvida
Systems, Inc., a privately held company located in Waterloo,
Ontario, Canada.                                                              

57



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##### Table of Contents






SIGNATURES

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

|      |  |                    |  |                        |  |                                                                                                              
|----- |  | ------------------ |  | ---------------------- |  | -------------------------------------------------------------------------------------------------------------
|      |  |                    |  | SBS TECHNOLOGIES, INC.
|      |  |                    |  |                        |  |                                                                                                              
|Date: |  | September 24, 2003 |  | By:                    |  | /s/ Clarence W. Peckham

Clarence W. Peckham
Chief Executive Officer                                         
|      |  |                    |  |                        |  |                                                                                                              
|Date: |  | September 24, 2003 |  | By:                    |  | /s/ James E. Dixon, Jr.

James E. Dixon, Jr.
Executive Vice President, Chief Financial
Officer, and Treasurer

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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------- |  | ------- |  | ------------- |  | --------
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Incorporated by Reference |  |          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |          
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  | Fiscal period |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Form                      |  | File No.  |  | Exhibit |  | ended         |  | Herewith
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|3.i     |  | Restated Articles of Incorporation dated
November 10, 2000                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 10-Q                      |  | 001-10981 |  | 3.i     |  | 9-30-2000     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|3.ii    |  | Restated and amended By-laws dated November
10, 2000                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | 10-Q                      |  | 001-10981 |  | 3.ii    |  | 9-30-2000     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|4.a     |  | Article VI of the Articles of Incorporation,
as amended, as included in the Articles of
Incorporation of SBS Technologies, Inc.                                                                                                                                                                                                                                                                                                                                                                |  | 10-Q                      |  | 001-10981 |  | 3.i     |  | 9-30-2000     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|4.b     |  | Articles I and II of the Restated and Amended
Bylaws of SBS Technologies, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 10-Q                      |  | 001-10981 |  | 3.ii    |  | 9-30-2000     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|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.f *  |  | 1992 Incentive Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | 10-K                      |  | 001-10981 |  | 10.f    |  | 6-30-2002     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|10.h*   |  | 1993 Incentive Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | 10-K                      |  | 001-10981 |  | 10.h    |  | 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-Q                      |  | 001-10981 |  | 10.ah   |  | 9-30-1998     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |         |  |               |  |         
|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-Q                      |  | 001-10981 |  | 10.al   |  | 3-31-1999     |  |         

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|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------- |  | ----------- |  | ------------- |  | --------
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  | Incorporated by Reference |  |          
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |          
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  | Fiscal period |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                 |  | Form                      |  | File No.  |  | Exhibit     |  | ended         |  | Herewith
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.am * |  | 1998 Long-Term Equity Incentive Plan                                                                                                                                                                                                                                                                                                                |  |                           |  |           |  |             |  |               |  | X       
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|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       |  | 6-30-1999     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.ao   |  | Lease Agreement between 8-L Newark
8371, LLC and SBS Technologies, Inc.
dated August 14, 1999                                                                                                                                                                                                                                                       |  | 10-Q                      |  | 001-10981 |  | 10.ao       |  | 9-30-1999     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.ax   |  | Lease between AFC-5, LLC, a New
Mexico limited liability Company,
and SBS Technologies, Inc., dated
May 16, 2000                                                                                                                                                                                                                                    |  | 10-K                      |  | 001-10981 |  | 10.ax       |  | 6-30-2000     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.ay   |  | Lease between Long Gate, LLC, a
Delaware limited liability company,
and SDL Communications, Inc., a
Massachusetts corporation, dated
June 15, 2000                                                                                                                                                                                                  |  | 10-K                      |  | 001-10981 |  | 10.ay       |  | 6-30-2000     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.ba   |  | Lease between Rosa Point II, LLC and
SBS Technologies, Inc., dated
February 15, 2001                                                                                                                                                                                                                                                                |  | 10-Q                      |  | 001-10981 |  | 10.ba       |  | 3-31-2001     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.be * |  | 2000 Long-Term Equity Incentive Plan                                                                                                                                                                                                                                                                                                                |  | DEF 14A                   |  | 001-10981 |  | Exhibit
A |  | 10-2-2000     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.bh * |  | Employment agreement between
Registrant and Charles Tompkins,
dated January 15, 2001                                                                                                                                                                                                                                                                |  | 10-K                      |  | 001-10981 |  | 10.bh       |  | 6-30-2001     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.bn   |  | Asset Purchase Agreement dated as of
March 4, 2002, by and among SBS
Technologies, Inc. Connectivity
Products, SBS Technologies, Inc. and
Intrusion, Inc. with respect to
certain assets of its Essential
Communications Division                                                                                                                   |  | 10-Q                      |  | 001-10981 |  | 10.bn       |  | 3-31-2002     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.bo * |  | Separation Agreement between Grahame
Rance and SBS Technologies, Inc.
effective April 26, 2002                                                                                                                                                                                                                                                      |  | 10-Q                      |  | 001-10981 |  | 10.bo       |  | 3-31-2002     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.bp * |  | Employment Agreements between David
Greig and SBS Technologies, Inc.,
Clarence Peckham and SBS
Technologies, Inc. and James E.
Dixon, Jr. and SBS Technologies,
Inc., effective April 26, 2002,
dated May 9, 2002                                                                                                                                   |  | 10-Q                      |  | 001-10981 |  | 10.bp       |  | 3-31-2002     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.bq * |  | Employment Agreements between
Christopher J. Amenson and SBS
Technologies, Inc., effective April
26, 2002, dated April 26, 2002                                                                                                                                                                                                                     |  | 10-Q                      |  | 001-10981 |  | 10.bq       |  | 3-31-2002     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.br * |  | Employment Agreement between Daniel
Moore and SBS Technologies, Inc.,
effective April 26, 2002, dated May
15, 2002                                                                                                                                                                                                                                  |  | 10-K                      |  | 001-10981 |  | 10.br       |  | 6-30-2002     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|10.bs   |  | Fourth Modification of Credit
Agreement, Note, Guaranty Agreements
and Related Loan Documents between
SBS Technologies, Inc., and Bank of
America, N.A., formerly NationsBank,
N.A., dated June 30, 2002                                                                                                                                            |  | 10-K                      |  | 001-10981 |  | 10.bs       |  | 6-30-2002     |  |         
|        |  |                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |           |  |             |  |               |  |         
|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     |  |         

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|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | --------- |  | ------- |  | ------------- |  | --------
|        |  |                                                                                                                                      |  | Incorporated by Reference |  |          
|        |  |                                                                                                                                      |  |                           |  |          
|Exhibit |  |                                                                                                                                      |  |                           |  |           |  |         |  | Fiscal period |  | Filed   
|Number  |  | Exhibit Description                                                                                                                  |  | Form                      |  | File No.  |  | Exhibit |  | ended         |  | Herewith
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|10.bu   |  | Amendment #1 to Lease between AFC-5,
LLC (a New Mexico Limited Liability
Company) and SBS Technologies, Inc.,
dated February 1, 2001 |  | 10-K                      |  | 001-10981 |  | 10.bu   |  | 6-30-2002     |  |         
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|10.bv   |  | Amendment #2 to Lease between AFC-5,
LLC (a New Mexico Limited Liability
Company) and SBS Technologies, Inc.,
dated April 1, 2002    |  | 10-K                      |  | 001-10981 |  | 10.bv   |  | 6-30-2002     |  |         
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|10.bw   |  | Lease Agreement between Teal
Properties, LLC and SBS
Technologies, Inc. dated October 2,
2002                                        |  | 10-Q                      |  | 001-10981 |  | 10.bw   |  | 9-30-2002     |  |         
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|10.bx   |  | Employment agreement between Bruce
E. Castle and SBS Technologies,
Inc., effective July 31, 2002                                     |  | 10-Q                      |  | 001-10981 |  | 10.bx   |  | 3-31-2003     |  |         
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|14      |  | Code of Ethics                                                                                                                       |  |                           |  |           |  |         |  |               |  | X       
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|21      |  | Subsidiaries of the registrant                                                                                                       |  |                           |  |           |  |         |  |               |  | X       
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|23.1    |  | Consent of KPMG LLP                                                                                                                  |  |                           |  |           |  |         |  |               |  | X       
|        |  |                                                                                                                                      |  |                           |  |           |  |         |  |               |  |         
|25      |  | Power of attorney                                                                                                                    |  |                           |  |           |  |         |  |               |  | 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.


61