<PAGE>

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


                                   FORM 10-K
  --------------------------------------------------------------------------
    X    Annual report pursuant to Section 13 or 15(d) of the Securities 
         Exchange Act of 1934 for the fiscal year ended June 30, 1998 or
  --------------------------------------------------------------------------
         Transition report pursuant to Section 13 or 15(d) of the Securities 
         Exchange Act of 1934


                         COMMISSION FILE NUMBER 1-10981




                             SBS TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


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


                            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:

                                      None

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


                              TITLE OF EACH CLASS

                           Common Stock, no par value

<PAGE>

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  X        No
                               ----    ----




Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of 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. ( )




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 1, 1998 as reported on NASDAQ was approximately $99,353,678. Shares 
of Common Stock held by each officer and director and by each person who owns 
5% or more of the outstanding Common Stock 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 1, 1998, Registrant had 5,838,725 shares of Common Stock 
outstanding.




                      DOCUMENTS INCORPORATED BY REFERENCE

Parts of the following documents are incorporated by reference into Part III 
of this Form 10-K Report: (1) Definitive Proxy Statement for Registrant's 
1998 Annual Meeting of Stockholders to be held November 9, 1998.

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH 
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES 
THERETO. INFORMATION DISCUSSED HEREIN MAY INCLUDE FORWARD-LOOKING STATEMENTS 
REGARDING FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, 
AND ARE SUBJECT TO A NUMBER OF RISKS AND OTHER FACTORS WHICH COULD CAUSE THE 
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD 
LOOKING STATEMENTS. AMONG SUCH FACTORS ARE: GENERAL BUSINESS AND ECONOMIC 
CONDITIONS; CUSTOMER ACCEPTANCE OF AND DEMAND FOR THE COMPANY'S PRODUCTS; THE 
COMPANY'S OVERALL ABILITY TO DESIGN, TEST AND INTRODUCE NEW PRODUCTS ON A 
TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED BY THE COMPANY'S PRODUCTS; 
AND OTHER RISK FACTORS LISTED HEREIN.

INTRODUCTION

SBS Technologies, Inc. (the "Company") is a leading designer and manufacturer 
of open-architecture, standard bus embedded computer components that system 
designers can easily utilize to create a custom solution specific to the 
user's unique application. The Company's product lines include CPU boards 
("CPU"), general purpose input/output ("I/O") modules, avionics interface 
modules and analyzers, interconnection and expansion units, telemetry boards, 
data acquisition software and industrial computer systems and enclosures. The 
Company's products are used in a variety of applications, such as 
telecommunications, medical imaging, industrial control, and flight 
instrumentation in commercial and aerospace markets. The Company capitalizes 
on its design expertise and customer service capabilities to enhance product 
quality and reduce time to market for OEM customers.

The Company's objective is to become a leading supplier of board level 
components to the standard bus embedded computer market. The Company intends 
to continue its growth through a combination of internal growth and 
acquisitions. Internal growth is achieved through expanding its existing 
product lines through new product development and through increasing 
penetration of its existing customer base.

Fiscal 1998 was a year of progress in the continued development of the 
Company. The Company focused on continually enhancing and improving the 
products it delivers and its ability to satisfy customer needs. During fiscal 
1998 the Company instituted a program of business integration. The Company 
renamed all of its subsidiary companies under the "SBS" trade name and 
realigned them into two operating groups, the SBS Computer Group and the SBS 
Aerospace Group. In addition, the Company combined its separate subsidiary 
sales forces into two groups, one focused on SBS Computer Group customers and 
one focused on the SBS Aerospace Group customers.

Revenues for the fiscal year ended June 30, 1998 increased 40.5% from $52.8 
million to $74.2 million. The source of this revenue increase was twofold: 
growth in the core businesses, and growth by acquisition.

The Company entered fiscal 1998 as a leader in several segments of the 
multi-billion dollar embedded computer market, with the continuing goal of 
expanding its market presence. In the computer mezzanine board I/O segment, 
the Company broadened its line of IndustryPacks -Registered Trademark- ("IPs")
to over 120 variants and introduced a series of ruggedized mezzanine I/O boards
that serve a segment of the market in which the Company previously did not 
participate. In the Avionics business, the Company's interface boards and bus 
analyzers remained the industry standard for quality and innovation with a 
broadening of the Company's customer base and participation in such programs 
as the Joint Strike Fighter Replacement Program, the C130J next generation 
military transport aircraft, and Sweden's GRIPEN fighter program. The 
Company's telemetry product line is focused toward the satellite test and 
control market in order to serve the rapidly expanding satellite market 
driven by both telecommunications and defense applications.


                                    Page 3

<PAGE>

During the last two fiscal years, the Company acquired three business which 
have expanded its products and marketing opportunities. It also divested one 
part of its business which was not synchronous with its core businesses. In 
August 1996, the Company expanded into the broader embedded computing market 
with the acquisition of Logical Design Group, Inc. (renamed SBS Embedded 
Computers, Inc. in fiscal 1998), a manufacturer of Intel processor-based CPU 
boards. This acquisition positioned the Company to take advantage of the 
growth in the use of both Intel processors and Microsoft software in the 
embedded computer market.

In November 1996, the Company acquired Bit 3 Computer Corporation (renamed 
SBS Bit 3 Operations, Inc. in fiscal 1998), a leading developer and 
manufacturer of high performance bus interconnect hardware and software 
products for many of the most widely used computer architecture standards in 
the standard bus embedded computer market. This acquisition took advantage of 
the introduction into the embedded computing market of new bus standards such 
as PCI and CompactPCI, expanded the Company's customer base and opened the bus 
interconnection and expansion market to the Company. In the quarter ended 
December 31, 1996, the Company recorded a $11.0 million in-process 
research and development charge to earnings associated with this acquisition.

In June 1997, the Company divested its Judgmental Use of Force Training 
Business. The Company determined that this business was not consistent with 
the Company's objective of becoming a leading supplier of board level 
components to the standard bus embedded computer market.

In November 1997, the Company acquired Micro Alliance, Inc. (renamed SBS 
Micro Alliance, Inc. in fiscal 1998), which specializes in the design and 
manufacture of special-purpose PC-compatible computer systems. This company 
offers a variety of CPU boards and system enclosures, including rack mount, 
desktop and mobile systems. Most systems contain passive backplanes that 
allow the addition of up to 20 ISA and PCI cards. These products are often 
customized to meet the needs of particular OEM applications.

After the end of the 1998 fiscal year, the Company acquired two more 
businesses. On July 1, 1998, the Company acquired, through its newly formed 
subsidiary, SBS Holdings GmbH, a 50.1% interest in OR Industrial Computers 
GmbH ("OR") (see "Management's Discussion & Analysis: Subsequent Events"), a 
leading European designer of CPU boards utilized in a wide range of embedded 
computer applications. Based in Augsburg, Germany, OR, designs, manufactures 
and markets CPU boards based on Intel computer architecture available in the 
VME, CompactPCI, and PCCompact form factors, as well as VME CPU boards based 
on the Motorola 680X0 series processors and a series of computer input/output 
boards. As part of this acquisition, the Company acquired, through its newly 
formed subsidiary, SBS Holdings GmbH, a 50.2% interest in ORTEC Electronic 
Assembly GmbH, ("ORTEC") based in Mindelheim, Germany, a related company 
which manufactures OR's commercial products and electronic products for other 
customers. The Company also acquired, through its wholly-owned subsidiary SBS 
Embedded Computers, Inc. based in Raleigh, NC, 100% of the shares of OR 
Computers, Inc, based in Fairfax, Virginia, which is the U.S. marketing 
support organization for the OR product line. In addition, the Company and 
the shareholders of both OR and ORTEC entered into exclusive option 
agreements under which the Company may acquire the remaining shares of both 
companies on February 28, 1999.

On August 12, 1998, the Company purchased 100% of the outstanding shares of 
V-I Computer ("V-I") (see "Management's Discussion & Analysis: Subsequent 
Events"). Based in Encinitas, California, V-I designs, manufactures and 
markets CPU boards based on the Motorola PowerPC -Registered Trademark- 
processor for embedded computer applications based on the VME and CompactPCI 
bus architecture standards.

Excluding the effect of the $11.0 million charge to earnings taken in fiscal 
1997 in conjunction with the acquisition of Bit 3, net income for the 1998 
fiscal year would have increased 42.3% from $7.1 million in fiscal 1997 to 
$10.1 million, and diluted earnings per common share would have increased 
22.4% from $1.34 to $1.64. Including the effects for the 1997 charge to 
earnings, net income for fiscal 1997 was $461,685, or $0.09 per diluted 
common share.


                                    Page 4

<PAGE>

The Company was incorporated in New Mexico in November 1986 and began 
operations in September 1987. The Company's executive offices are located at 
2400 Louisiana Boulevard, NE, AFC Building 5, Suite 600, Albuquerque, New 
Mexico 87110, and its telephone number is (505) 875-0600. References to the 
"Company" or "SBS" are to SBS Technologies, Inc. and its consolidated 
subsidiaries. As of June 30, 1998, the Company had five subsidiaries, SBS 
Berg Telemetry Systems, Inc. ("Berg"), SBS GreenSpring Modular I/O, Inc. 
("GreenSpring"), SBS Embedded Computers, Inc. ("SBS Embedded"), SBS Bit 3 
Operations, Inc. ("Bit 3") and SBS Micro Alliance, Inc ("Micro Alliance"). 
After the end of the 1998 fiscal year, the Company added five additional 
subsidiaries with the formation of SBS Holdings GmbH and the acquisitions of 
OR, ORTEC, OR Industrial Computers, Inc. and V-I.

IndustryPack -Registered Trademark- is a registered trademark of the Company. 
All other trademarks or tradenames referred to in this document are the property
of their respective owners.

SBS' PRODUCTS

The Company's primary product lines are divided into two groups: general 
purpose products including CPU products, general purpose I/O products, bus 
interface products and industrial computer systems and enclosures, and 
special purpose products including telemetry products, avionics interface 
products, and data acquisition software.

GENERAL PURPOSE PRODUCTS

CPU PRODUCTS. The Company entered the standard bus embedded computer CPU 
board market with its acquisition of SBS Embedded in August 1996 (see 
"Management's Discussion & Analysis: Recent Acquisitions"). CPU boards 
contain the computational functionality of an embedded computer system. The 
Company produces CPU boards for the VME segment of the embedded computer 
market, the most widely accepted bus standard in the industry. The VME CPU 
board market can be segmented by processor type. The largest segment is made 
up of boards designed around the Motorola 680X0 series processors, upon which 
the VME standard was based. A growing segment is comprised of boards based on 
Intel 80X86, Pentium and Pentium II processors which provide access to the 
large base of Windows and Windows NT software available from the PC market. 
The CPU boards sold by SBS Embedded are based on Intel 80X86, Pentium and 
Pentium II processors. At present, the Company offers nine Intel 
processor-based CPU boards ranging in price from approximately $2,500 to 
approximately $8,500. In fiscal 1998 and 1997, sales of these products 
comprised 8.8% and 11.5%, respectively, of the Company's total sales. As of 
September 1, 1998 and 1997, backlog orders were $.6 and $.7 million 
respectively. All backlog orders are expected to be filled in the current 
fiscal year.

The Company broadened its CPU product line with the recent acquisitions of OR 
and V-I. The OR product line includes CPU boards based on Intel computer 
architecture and is available in the VME, CompactPCI, and PCCompact form 
factors. In addition, OR provides VME CPU boards based on the Motorola 680X0 
series processors and a series of computer input/output boards. The OR 
product line consists of boards and systems, including ruggedized products 
for military and industrial applications, transportation, industrial 
controls, factory automation, and various other commercial and industrial 
applications. Like other SBS product lines, OR's products, can support some 
application specific modifications with their line of component products. The 
OR facility will serve as the European base of operations for the Company's 
other product lines, and OR Computers, Inc. will operate as a wholly-owned 
subsidiary of SBS Embedded Computers, Inc. for the foreseeable future. The 
V-I Computer product line consists of products that are typically used in 
telecommunication, industrial automation, and defense applications. The V-I 
Computer product line complements the other CPU offerings and will enable the 
Company to offer a more complete list of processor solutions to its customers.

GENERAL PURPOSE I/O PRODUCTS. In April 1995, the Company purchased 
GreenSpring, a leading developer and producer of I/O modules known as IPs. 
IPs are small mezzanine boards that plug onto an embedded computer


                                    Page 5

<PAGE>

board or a carrier board and provide specific types of I/O for embedded 
computer systems. The Company has continued to expand the market for IP 
products by broadening its line of carrier cards that can accommodate up to 
six IPs. The Company's offerings currently include VME, PCI, PC\104, Compact 
PCI and ISA bus carrier cards. GreenSpring's product line of over 120 I/O 
products services a wide range of applications in the embedded computer 
market including analog I/O, bus interface functions, digital/parallel I/O, 
motion control, telecommunications/serial I/O, telecommunications products, 
video/graphics adapters and temperature measurement with prices ranging from 
approximately $350 to approximately $3,500. During fiscal 1998, the Company 
introduced sixteen ruggedized conduction cooled mezzanine I/O boards 
primarily used in military environments. These serve a portion of the 
embedded computer market in which the Company previously did not participate 
and have prices ranging from approximately $800 to approximately $5,000. In 
fiscal years 1998, 1997 and 1996, sales of general purpose products comprised 
approximately 22.8%, 25.8% and 35.3%, respectively, of the Company's total 
sales. As of September 1, 1998, 1997 and 1996, backlog orders were $3.2, $2.4 
and $2.5 million, respectively. All backlog orders are expected to be filled 
in the current fiscal year.

BUS INTERFACE PRODUCTS. In November 1996, the Company purchased Bit 3 (see 
"Management's Discussion & Analysis: Recent Acquisitions"), a leading 
developer and manufacturer of high performance bus interconnect hardware and 
software products. The rapid expansion of microprocessor-based industrial 
computers has resulted in the proliferation of a number of different computer 
architecture standards. Generally speaking, a computer designed on one 
architectural standard cannot communicate with a computer designed on another 
architectural standard. Products could not be configured using two or more 
computer architectures unless a communications link between them could be 
established. Bit 3 identified this market for products which permit 
industrial computers designed around different computer architectures to 
communicate. In 1983, Bit 3 introduced its first adapter product, an 
interface device to connect IBM PC equipment with Multibus architecture 
computers. Since then, Bit 3 has expanded its product line to include 
computer networking and interconnection hardware for many of the popular 
computer architecture standards used in the standard bus embedded computer 
market, including VME, PCI, CompactPCI, Sbus, ISA, EISA, Micro Channel, GIO, 
TURBOCHANNEL, Multibus and Qbus. The development of Bit 3's new products is 
driven by the emergence of significant new standard bus specifications and 
applications. In addition, Bit 3 provides a series of PCI expansion units, 
which allows OEMs to increase the number of devices needed by their 
particular application.

Bit 3 products are used in a wide variety of applications, including data 
acquisition, image and visualization processing, industrial process control, 
medical electronics, signal processing and system integration. Bit 3's 
typical customer uses bus adapter products because of the need for high 
speed, low-latency interconnections between computer platforms. This 
connectivity cannot be provided at the required performance levels by common 
local area networking solutions, such as Ethernet or Token Ring, nor can it 
in most cases be provided by higher speed protocols, such as ATM or FDDI. Bit 
3 currently provides interconnect and expansion products to a wide variety of 
commercial users. In fiscal 1998 and 1997, sales of these products comprised 
22.7% and 17.1%, respectively, of the Company's total sales. As of September 
1, 1998 and 1997, backlog orders were $.9 and $1.5 million, respectively. All 
backlog orders are expected to be filled within the current fiscal year.

INDUSTRIAL COMPUTER SYSTEMS AND ENCLOSURES. In November 1997, the Company 
purchased Micro Alliance, (see "Management's Discussion & Analysis: Recent 
Acquisitions"), a leading designer and producer of PC-compatible industrial 
computer systems for the embedded computer market. The systems are based on 
PCI and ISA architectures and are typically passive backplane-based, allowing 
up to 20 PCI or ISA cards to be added. The Micro Alliance computer systems 
are designed for OEM customers in the industrial, telecommunication, 
scientific and military markets. They come in a variety of shapes and sizes, 
including rack mount, desktop and mobile. A majority of the systems are 
specially designed to include custom paint colors, custom logos, custom face 
plates, or custom chassis designs. In June of 1997, a new line of rugged 
portable systems was introduced focusing on new segments of existing 
business, including medical imaging, remote test and measurement and 
telemetry applications. In fiscal 1998, sales of these products comprised 
6.5% of the Company's total sales. As of September 1, 1998, backlog orders 
were $2.8 million. All backlog orders are expected to be filled within the 
current fiscal year.


                                    Page 6

<PAGE>

SPECIAL PURPOSE PRODUCTS

TELEMETRY PRODUCTS. In August 1992, the Company purchased Berg, a major 
supplier of telemetry interface equipment for the embedded computer market. 
Telemetry is the process used to send and receive digital data via radio 
waves. The Company's telemetry interface products allow computers to receive, 
interpret and process telemetry data. Telemetry is often used to transmit 
data from some object under test, such as an aircraft, to a receiving station 
while the test is underway. This allows engineers to monitor test performance 
in real time, often decreasing total test costs and enhancing test safety. 
Use of this technology has expanded to include continuous monitoring of 
remote sites and transmission of digital data from satellites to the earth. 
Berg pioneered the concept of using boards specially designed for telemetry 
interface which would be added to standard ground station computers. Berg has 
expanded its product offerings to include specialized equipment designed to 
receive and process satellite data. The Company's telemetry products serve a 
specialized market and include a significant software component. Berg sells 
approximately 30 products for the VME, PCI, and ISA bus telemetry markets at 
prices ranging from approximately $3,000 to approximately $30,000. In fiscal 
years 1998, 1997 and 1996, sales of these products comprised approximately 
9.7%, 11.9% and 20.8%, respectively, of the Company's total sales. As of 
September 1, 1998, 1997, and 1996, backlog orders were $1.6 million, $0.9 
million and $0.7 million, respectively. All backlog orders are expected to be 
filled within the current fiscal year.

AVIONICS INTERFACE PRODUCTS. The Company's avionics products interface an 
embedded computer system with the MIL-STD-1553 avionics bus used in a wide 
variety of military and space applications including aircraft, missiles, 
ground vehicles, the International Space Station, the Space Shuttle and naval 
vessels. Initial applications for the Company's products were support of 
system development, system testing and simulation. Over the past several 
years, the Company has expanded its product line to include ruggedized 
interface products that are used in operational systems, and monitor and test 
systems that can be used as diagnostic tools for operational systems. Like 
its telemetry products, the Company's avionics products occupy a niche market 
and include a significant software component. The Company offers 
approximately 20 avionics interface products at prices ranging from 
approximately $4,000 to approximately $20,000. In fiscal years 1998, 1997 and 
1996, sales of this product comprised approximately 29.5%, 30.6% and 39.9%, 
respectively, of the Company's total sales. As of September 1, 1998, 1997 and 
1996, backlog orders were $1.8 million, $2.0 million and $1.9 million, 
respectively. All backlog orders are expected to be filled within the current 
fiscal year.

DATA ACQUISITION SOFTWARE PRODUCT. The Company announced its first software 
product development effort in October 1997, with the introduction of 
DataXpress-TM-, a data acquisition software product designed for the 
Microsoft Windows NT operating environment. The first commercial release of 
DataXpress was shipped in July 1998. DataXpress acquires data from a variety 
of interfaces, displays the data in real-time using multiple, animated 
graphical views per screen, and distributes this information on a network. 
Because it can run on PC's, laptops and workstations, DataXpress can be 
easily and inexpensively expanded without sacrificing quality or 
capabilities. This new product is designed to meet the needs of telemetry 
ground and flight test applications, commercial and military avionics test 
and integration, and industrial automation applications. DataXpress can also 
expand existing data acquisition systems by providing object-oriented 
interfaces that enable system administrators and programmers to easily 
integrate DataXpress systems with the existing, third party software 
applications. The Company offers a complete software product including 
manuals, training and customer support for implementation and continuing 
service.

OTHER BUSINESS. In June 1997, the Company sold its Judgmental Use of Force 
product (see "Management's Discussion & Analysis: Sale of Judgmental Use of 
Force Business"). Sales of this product line were immaterial to the Company's 
operations.

CUSTOMERS AND APPLICATIONS

The Company's broad range of products support a wide range of applications. 
In fiscal 1998, 1997 and 1996, no one customer exceeded 10% of the Company's 
sales. The following table highlights some of the Company's representative 
customers and their applications utilizing the Company's products.


                                    Page 7

<PAGE>

<TABLE>
<CAPTION>

       APPLICATION                                   CUSTOMER                             COMPANY PRODUCT
       -----------                                   --------                             ---------------
       COMMERCIAL AND INDUSTRIAL APPLICATIONS
       <S>                                           <C>                                  <C>
       Aircraft Simulation                           Flight Safety International          I/O, Interconnect
       Aircraft Simulation                           CAE Electronics                      Interconnect
       Airport Baggage Inspection                    InVision Technologies                Interconnect
       Airport Ground Traffic Control                Norden/Westinghouse                  CPU
       Airport Ground Traffic Control                ARINC                                I/O
       Automated Plasma Processing Systems           Plasma Therm                         Industrial Systems & Enclosures
       "C" Size Copier                               Xerox                                I/O
       Color Proof Copier                            Eastman Kodak                        I/O
       Currency Inspection System                    Currency Systems                     CPU
       Document Scanner                              General Scanning                     I/O
       License Plate Readers                         Perceptics                           Interconnect
       OCR Mail Address Processing                   Bell & Howell                        Interconnect
       Semiconductor Handler                         Delta Design                         I/O
       Semiconductor Handler                         Lamm Research                        I/O
       Turbine Control System                        GE Motors                            CPU
       Video Compression                             Sun Microsystems                     Interconnect

       COMMUNICATIONS
       Cellular Telephone Systems                    ArgoSystems                          CPU
       Commercial DAMA                               Viasat                               I/O
       Communications Satellite Testing              TRW                                  Telemetry
       GSP Testing                                   Aerospatiale                         Telemetry
       Integrated Voice and Data Systems             Dictaphone                           Industrial Systems & Enclosures
       Network Switching Platforms                   Netrix                               Industrial Systems & Enclosures
       PBX Systems                                   Allstar Systems                      Industrial Systems & Enclosures
       Satellite Power Supply Testing                Elgar Corporation                    Industrial Systems & Enclosures
       Telephone Switch Billing System               ACECOM                               I/O

       INDUSTRIAL AUTOMATION
       Automotive Brake Tester                       Burke Porter Machinery               CPU
       CNC Controller                                MDSI                                 I/O
       CNC Controller                                Herkules                             I/O
       CNC Machine                                   UVA                                  I/O
       Carpet Manufacturer Process Control           MOOG                                 I/O
       Packaging Machinery                           Triangle Package Machinery           I/O
       Robot Control                                 Adept Technology                     I/O
       Automotive Test Stands                        W.M. Associates/Digital Equipment    Interconnect
                                                     Corp.
       Automotive Wheel Alignment                    Burke Porter Machinery               CPU
       Carpet Manufacturer Process Control           MOOG                                 I/O
       Packaging Machinery                           Triangle Package Machinery           I/O
       PLC Co-processor                              GE Fanuc                             CPU
       Programmable Logic Controller                 Reliance Electric                    Interconnect
       Real-time Control Systems                     Queue Systems, Inc./Digital          Interconnect
                                                     Equipment Corp
       Robot Control                                 Adept Technology                     I/O
       Semiconductor Trim Equipment                  Control Automation                   CPU
       Surface Mount Board Assembly                  Seiko Instruments                    Interconnect
</TABLE>


                                    Page 8

<PAGE>

<TABLE>

       <S>                                          <C>                                  <C>
       MEDICAL DEVICES
       Blood Analyzer                               IGEN                                 I/O
       CT Beam Scanner                              Imatron                              Interconnect
       DNA Analyzer                                 Organon Teknika                      I/O
       PET Imaging Systems                          UGM Medical Systems, Inc.            Interconnect
       Positron Emissions Topography                Positron Corporation                 Interconnect
       Ventilators Display                          NellCor                              I/O

       MILITARY AND SPACE APPLICATIONS
       Ariane V System Test and Simulation          Aerospatiale                         Avionics
       Ariane V Test Support                        Lockheed Martin                      Telemetry
       B-2 Flight Testing                           Northrop Grumman                     Telemetry
       C-17 Aircraft Testing                        Boeing                               Telemetry/Avionics
       Communications System                        Department of Defense                CPU
       Crusader                                     UDLP/General Dynamics                I/O
       F-14                                         Northrop Grumman                     Avionics
       F-15, F-16                                   U.S. Government                      Avionics
       F-16                                         TRW                                  Avionics
       F-22                                         Lockheed Martin                      Avionics
       Flight Test/Satellite Integration & Test     Boeing                               Telemetry
       Flight Test/Shuttle Command Launch Control   NASA                                 Telemetry
          System
       Helicopter Systems                           Fugitsu                              Avionics
       Military Radios                              GEC Marconi                          CPU
       Military Satellite Telemetry  Tracking &     Lockheed Martin                      Telemetry
          Control/ Missile Test
       Military Satellite Telemetry Tracking &      Aerojet                              Telemetry
          Control
       Mini-DAMA                                    Titan Linkabit                       I/O
       Missile Systems/ F-18                        Raytheon                             Avionics
       Missile Test                                 Raytheon                             Telemetry
       Missile and Aircraft Test                    NAWC                                 Telemetry
       Missile and Aircraft Test                    McDonnell Douglas                    Telemetry
       Mission Planning & Debriefing                Lockheed-Sanders                     Interconnect
       Rocket Launch Controller                     Orbital Sciences                     CPU
       Satellite Imaging                            TRW                                  Telemetry
       Satellite Telemetry Tracking and & Control/  Real Time Logic                      Telemetry
          Satellite Integration Test
       Satellite Integration & Test                 TRW Space and Electronics            Telemetry
       Space Station Simulator                      Raytheon                             CPU
       TAC-3                                        Hughes Data Systems                  Interconnect
       TAC-4                                        Hewlett Packard                      Interconnect

       TEST AND MEASUREMENT APPLICATIONS
       Automotive Test/ Simulation Systems          Integrated Systems                   I/O
       Particle Collision and Detection System      CERN                                 I/O
       Temperature Control                          Therm-O-Disk                         I/O
       VLSI Tester                                  LTX/Trillium                         Interconnect

       TRANSPORTATION
       Aircraft Flight Testing                      Cessna                               Telemetry
       Aircraft Ground Control                      ARINC                                I/O
       Commercial Avionics System Test              Honeywell                            Avionics
</TABLE>


                                    Page 9

<PAGE>

<TABLE>
       <S>                                          <C>                                  <C>
       Commercial Avionics System Test              Rockwell International               Avionics
       FAA Communication System                     Delta Information Systems            I/O
       Jet Engine Testing                           Pratt & Whitney                      Telemetry
       Lane Controllers                             NYSTA                                I/O
       Maritime Systems                             NEC                                  Avionics
       777 Aircraft Testing                         Boeing                               Telemetry
       Train Track Alignment System                 Fairmont Tamper                      CPU
</TABLE>


SALES AND MARKETING

The Company markets its products both domestically and internationally. As of 
September 1, 1998, excluding the effect of the acquisitions of OR and V-I, 
(see "Management's Discussion and Analysis: Subsequent Events"), the Company 
had 70 employees, who typically hold engineering degrees, in sales, marketing 
and customer relations. During fiscal 1998, the Company realigned its sales 
force into two groups, the aerospace group sales force and the computer group 
sales force and reduced its use of independent manufacturers' representatives 
from 43 at the beginning of fiscal 1998 to 14 at the end of fiscal 1998. The 
aerospace sales force is responsible for sales of the Company's avionics 
interface and telemetry products and the computer group sales force is 
responsible for sales of the Company's CPU, I/O, interconnect and industrial 
computer systems and enclosures products. Employee sales personnel are 
educated about each of the Company's product lines and refer opportunities to 
appropriate product line managers. Primary sales methods vary among the 
Company's product lines. The Company's avionics interface and telemetry 
products generally have the most complex applications and, as a result, leads 
are generally identified by field sales personnel or independent 
manufacturers' representative and closed with the assistance of the 
appropriate product line manager. In the case of the Company's CPU, I/O, 
interconnect and industrial computer systems and enclosure products, sales 
are either closed by the computer group sales force, or independent 
manufacturers' representatives or are the result of catalog sales. In each of 
the Company's product lines, sales employees generally pursue "design in" 
applications where the Company's products are included as part of a system.

The Company sells approximately 16% of its products outside the United States 
(see footnote 4 to the consolidated financial statements). These sales are 
primarily generated by the 41 international distributors which represent the 
Company's products. During the 1999 fiscal year, the Company will add sales 
from its recently acquired German businesses. The Company maintains sales 
offices in Albuquerque, New Mexico for its avionics interface products; in 
Raleigh, North Carolina, for its Intel processor-based CPU boards; in Menlo 
Park, California, for its I/O products; in Carlsbad, California, for its 
telemetry products; in St. Paul, Minnesota for its interconnect products and 
in Vista, California for its industrial computer systems and enclosure 
products. The Company's domestic field sales employees are located throughout 
the United States. The Company also maintains an international sales office 
near London, England to support European sales of its avionics interface 
products. Sales and sales leads are generated through a range of activities 
performed by the Company including identification of participants in key 
defense-related programs, participation in numerous trade shows, direct mail 
catalogs, advertisements in leading trade publications and corporate and 
subsidiary web sites on the Internet.

COMPANY RESEARCH AND DEVELOPMENT

The Company invests 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, 1998, excluding the effect of the 
acquisition of OR and V-I (see "Management's Discussion and Analysis: 
Subsequent Events"), the Company had approximately 86 employees engaged in 
research and development activities. Of these employees, 48 have technical 
degrees and 21 have advanced degrees. The Company seeks to combine 
special-purpose hardware, firmware and software in its products to provide 
its customers with the desired functionality. Approximately


                                    Page 10

<PAGE>

60% of the Company's research and development efforts in fiscal 1998 were 
software related. The Company's research and development expense was $8.0 
million, $4.4 million and $2.8 million in fiscal 1998, 1997 and 1996, 
respectively, corresponding to 10.8%, 8.4% and 9.1% of sales, respectively.

SBS Embedded's current research and development activity is focused on 
evolutionary improvement of its existing product lines. GreenSpring's efforts 
are directed towards broadening the scope of its market by developing new IPs 
and upgrading existing products to state of the art technology. Examples 
include the recent introduction of 16 ruggedized conduction cooled mezzanine 
I/O boards primarily used in military environments. The development of Bit 
3's new products is driven by the emergence of significant new bus 
specifications and applications. For example, Bit 3 recently introduced a 
fiber optic adapter to connect PCI and VME systems. Berg is continuing to 
upgrade its products' performance by increasing the operating bit rates, a 
key performance measure in the telemetry industry. Berg is also continuing to 
expand its offerings of high performance, CCSDS packet switching products for 
the satellite ground station market. The Company is also extending its 
avionics interface product line. For example, the Company is continuing to 
expand development of additional ruggedized avionics product for the 
operational system market. In October 1997, the Company announced its first 
software product development effort with the introduction of DataXpress-TM-, 
a data acquisition software product designed for the Microsoft Windows NT 
operating environment. This product is designed to meet the needs of 
telemetry ground and flight test applications, commercial and military 
avionics test and integration, and industrial automation applications. There 
can be no assurance that the Company will be successful in developing and 
bringing to market any products as a result of its research and development 
efforts.

SUPPLIERS

The Company uses contract manufacturing to produce substantially all of its 
board-level products. The Company obtains parts from large electronics parts 
suppliers and printed circuit boards from printed circuit board manufacturers 
and provides these parts and boards as kits to contract manufacturing 
companies that fabricate the Company's products. Following manufacturing of 
these products, the Company performs test, packaging and support functions 
for the Company's products. The Company reduces dependence on a particular 
contract manufacturer by using multiple contract manufacturers for each of 
the Company's product lines. However, the Company may choose in the future to 
consolidate its contract manufacturing to gain economies of scale and to 
shift its inventory control to the contract manufacturer. If the Company did 
this it would become increasingly dependent on a smaller number of 
manufacturers for the continued timely and efficient production of all of its 
inventory. The Company's industrial computer systems and enclosure business 
purchases all needed components from third party vendors. The Company 
performs all assembly, test, packaging and support functions for these 
products.

Many of the Company's products consist in part of state-of-the-art digital 
electronic components. The Company is dependent upon third parties for the 
continuing supply of many of these components, some of which are obtained 
from a sole supplier such as Xylinx, Inc. or a limited number of suppliers, 
alternative sources for which would be difficult to locate. Moreover, 
suppliers may discontinue or upgrade some of the products incorporated into 
the Company's products, which could require the Company to redesign a product 
to incorporate newer or alternative technology. Although the Company believes 
that it has arranged for an adequate supply of components to meet short-term 
requirements, the Company does not have contracts for the components which 
assure availability and price, however the Company has negotiated cash 
discount terms for prompt payment. Lack of timely availability of components 
could cause delays in shipment of product and affect the Company's revenues 
during certain periods as well as lead to customer dissatisfaction. Limited 
availability of components could also require the Company to pay premiums for 
parts to make shipment deadlines and thus affect the Company's profit margin, 
or cause the Company to increase its inventory of scarce parts and thus 
affect the Company's cash flow. There is no assurance that the Company will 
continue to be able to obtain all of the components it requires or that the 
price of certain components in short supply will not materially and adversely 
affect its business, financial condition or results of operations.


                                    Page 11

<PAGE>

COMPETITION

The standard bus embedded computer industry is highly competitive and 
fragmented, and the Company's competitors differ depending on product type, 
company size, geographic market and application type. The Company faces 
competition in each of its product lines. The Company believes that because 
of the diverse nature of the Company's products and the fragmented nature of 
the embedded computer market, there is little overlap of competitors for each 
product line. Competitive factors across the Company's product lines include 
performance, customer support, product longevity, supplier stability, breadth 
of product offerings and reliability. Many of the Company's existing and 
potential competitors have financial, technological and marketing resources 
significantly greater than those of the Company and may have established 
relationships with customers or potential customers that afford them a 
competitive advantage. There can be no assurance that the Company will be 
able to compete effectively in its current or future markets or that 
competitive pressures will not adversely affect its business, financial 
condition or results of operations.

In the Company's CPU product line, the Company competes with a number of 
other suppliers of CPU boards. The Company's direct competitors include other 
companies that build CPU boards based on Intel microprocessor technology such 
as Force Computers, Inc. (a wholly owned subsidiary of Solectron 
Corporation), Performance Technologies, Inc., RadiSys Corporation, VME 
Microsystems, Inc. and XYCOM, Inc. In addition, with the acquisition of OR 
and VI, the Company also competes with suppliers of CPU boards based on 
Motorola 680x0 and PowerPC architectures.

In the generalized computer I/O product area served by GreenSpring and its IP 
product line, the Company has two classes of competition. The first class 
includes companies that compete directly by selling IP products. The second 
class includes companies that compete with I/O products using a different 
implementation to provide functionally equivalent products. The Company's 
competitors in each of these classes include Acromag, Inc. , Systran, Inc. 
and VME Microsystems, Inc.

In the telemetry market, the Company competes with other suppliers of open 
architecture telemetry solutions. It also indirectly competes with suppliers 
of traditional, closed architecture telemetry systems. The Company's 
competitors include Aydin Vector Division, AVTECH Systems, Inc., L3 
Communications, Inc., Terametrix, Inc. and Veda, Inc.

In the avionics interface market, the Company competes with a number of other 
companies that produce similar avionics interface products. The Company's 
competitors include Ballard Technologies, Inc., Data Devices Corporation, 
Systran, Inc., Excalibur Technologies Corporation, Condor Engineering and 
Gesellschaft Fur Angewandte Informatik und Mikroelekernik, GmbH.

In the Company's interconnect and expansion unit product line, the Company 
competes with personal computer (PC) manufacturers that offer computer 
motherboards with multiple PCI slots and with companies that have similar 
product lines. There is no significant direct competitor in this market.

In the Company's industrial computer systems and enclosure business, the 
Company competes with other suppliers of ISA/PCI systems and enclosures such 
as I-Bus, a subsidiary of Maxwell Technologies, Texas Micro, Inc and 
Industrial Computer Source.

EMPLOYEES

As of September 1, 1998, the Company had, exclusive of recent acquisitions, 
approximately 327 employees at its six locations: Albuquerque, New Mexico; 
Carlsbad, California; Vista, California; Menlo Park, California; Raleigh, 
North Carolina; and St. Paul, Minnesota. Of these employees, 35 were in 
executive and administrative positions; 70 were in sales, marketing and 
customer relations; 86 were in research and development; 29 were clerical, 
and 107 were employed in support of ongoing production.


                                    Page 12

<PAGE>

In July and August 1998 the Company added 98 employees resulting from the 
50.1% acquisition of OR, the 50.2% acquisition of ORTEC, the 100% acquisition 
of OR Computers, Inc. and the acquisition of VI (see "Management's 
Discussion and Analysis: Subsequent Events"). Of these employees, 5 were in 
executive and administrative positions; 22 were in sales, marketing and 
customer relations; 34 were in research and development; 2 were clerical, and 
35 were employed in support of ongoing production.

RISK FACTORS

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

GROWTH THROUGH ACQUISITIONS AND INTEGRATION OF ACQUIRED COMPANIES. SBS has 
increased the scope of its operations through the acquisition of seven 
businesses and product lines acquired since 1992. SBS acquired Berg in fiscal 
1993, GreenSpring in fiscal 1995, SBS Embedded in fiscal 1997, Bit 3 in 
fiscal 1997, Micro Alliance in fiscal 1998, and, in fiscal 1999, OR, ORTEC 
and OR Computer Inc. and VI. SBS' 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 SBS' operations 
as a result of the recent acquisitions or any future acquisitions. In 
addition, SBS' acquisitions might not increase earnings and the companies 
acquired might not continue to perform at their historical levels.

    A major element of SBS' business strategy is to continue to pursue 
acquisitions that either expand or complement its business. In the future, 
SBS might not be able to identify and acquire acceptable acquisition 
candidates on terms favorable to SBS, and in a timely manner. SBS could use a 
substantial portion of its capital resources for these acquisitions. 
Consequently, SBS may require additional debt or equity financing for future 
acquisitions. This financing may not be available on terms favorable to SBS, 
if at all. Also, even if SBS does acquire other businesses, it will continue 
to encounter the risks associated with the integration of the acquisitions 
described above.

    SBS anticipates that one or more potential acquisition opportunities, 
including some that could be material, may become available in the near 
future. If and when appropriate acquisition opportunities become available, 
SBS intends to pursue them actively. An acquisition by SBS might or might 
not, however, occur. An acquisition which does occur could potentially 
materially and adversely affect SBS and might not be successful in enhancing 
SBS' business.

ACQUISITION CHARGES. As part of its strategy for growth, SBS acquires 
compatible businesses. Not infrequently, in accounting for a newly acquired 
business, SBS is required to amortize, over a period of years, intangible 
assets, including goodwill. Although usually the acquired business' current 
operating profit offsets the amortization expense, no one can assure that an 
acquired business' operations will remain at their current levels. A decrease 
in the acquired business' operating profit could reduce SBS' overall net 
income and earnings per share. In addition, no one can assure that changes in 
future markets or technologies will not require faster amortization of 
goodwill in such a way that overall Company financial condition or results of 
operations would be adversely affected. SBS may also be required, under 
generally accepted accounting principles, to charge against earnings the 
value of an acquired business' technology which does not meet the accounting 
definition of "completed technology." When SBS acquired Bit 3 in fiscal 1997, 
it recorded approximately $10.0 million in intangible assets, including 
goodwill. These are being amortized on a straight-line basis over the 
estimated benefit period of ten years. Also, in connection with the Bit 3 
acquisition, SBS recorded an $11.0 million charge against earnings in the 
second fiscal quarter of 1997. The amount of the charge against earnings was 
based on an assessment by SBS, in conjunction with an independent valuation 
firm, of purchased technology of Bit 3. SBS incurred a net loss of $5 million 
(or $1.24 per share) for the second fiscal quarter of 1997 as a result of the 
earnings charge. In connection


                                    Page 13

<PAGE>

with SBS' acquisition of Micro Alliance in fiscal 1998, SBS recorded $4.5 
million of goodwill, which is being amortized over a ten-year period. As a 
result of its recent acquisitions of OR, ORTEC, OR Computers, Inc. and VI, 
SBS expects to amortize goodwill and take a charge against earnings for 
technology which is not completed technology. (see "Fluctuations in Operating 
Results").

FLUCTUATIONS IN OPERATING RESULTS. SBS has experienced fluctuations in its 
operating results in the past and may experience those fluctuations in the 
future. Sales, on both an annual and a quarterly basis, can fluctuate as a 
result of a variety of factors, many of which are beyond SBS' control. These 
factors include the timing of customer orders, manufacturing delays, delays 
in shipment due to component shortages, cancellations of orders, the mix of 
products sold, cyclicality or downturns in the markets served by SBS' 
customers, including significant reductions in defense spending affecting 
certain of SBS' customers, and regulatory changes. Because those fluctuations 
can happen, SBS believes that comparisons of the results of its operations 
for preceding quarters are not necessarily meaningful and that investors 
should not rely on the results for any one quarter as an indication of how 
SBS will perform in the future. Investors should also understand that, if 
SBS' sales or earnings for any quarter are less than the level expected by 
securities analysts or the market in general, the market price for SBS' 
Common Stock could immediately and significantly decline.

RELIANCE ON DEFENSE SPENDING. In each of fiscal 1995, 1996, 1997 and 1998 SBS 
derived a significant portion of its sales directly or indirectly from the 
U.S. Department of Defense. SBS expects that the Department of Defense will 
continue to be a significant source of sales. Changes in the geopolitical 
environment or in national policy might result in significantly reduced 
defense spending. Reduced spending could significantly reduce SBS' marketing 
opportunities and revenues, and, therefore, materially adversely affect its 
financial condition, results of operations, or liquidity. Also, SBS believes 
that many of its potential customers will rely on U.S. government funding for 
the purchase of SBS' products. Sales to these customers may be reduced if 
those funds are unavailable or delayed because of budget constraints or 
bureaucratic processes.

RELIANCE ON INDUSTRY STANDARDS; FUNDAMENTAL TECHNOLOGY CHANGE. Most of SBS' 
products are developed to meet certain industry standards, which define the 
basis of compatibility in operation and communication of a system supported 
by different vendors. Among such standards which SBS' products meet are 
MIL-STD-1553, Telemetry IRIG Standards and various ANSI standards. These 
standards are continuing to develop and can change. If these standards are 
eliminated or changed, the design, manufacture or sale of SBS' products could 
be inappropriate or obsolete and could require costly redesign to meet new or 
emerging standards. SBS also believes that its success will depend in part on 
its ability to develop products that evolve with changing industry standards 
and customer preferences. SBS may or may not be successful in developing 
those products in a timely manner, or in selling the products it develops. 
SBS' delay or failure to adapt to changing industry standards could 
significantly adversely affect its marketing and sales, revenues and 
financial condition.

     Many of SBS' product designs rely on state of the art digital 
technology. Future advances in technology might make obsolete SBS' existing 
product lines, which would require SBS to compete more and to undertake 
costly redesign of its products to maintain its competitive position. SBS 
might not be able to incorporate the new technology into its existing 
products or to redesign its existing products in order to compete effectively.

     SBS' competitors are continually introducing new and enhanced products 
and solutions for business needs. These products and solutions probably will 
affect the competitive environment in the markets in which they are 
introduced. The development of new products and technologies, or the 
adaptation or development of products and technologies in response to them, 
requires commitments of financial resources, personnel and time well in 
advance of sales. Decisions with respect to those commitments must accurately 
anticipate both future demand and the technology that will be available to 
meet that demand. SBS might not be able to adapt to future technological 
changes. If it does not, SBS' business might be materially adversely affected.

PRODUCT MARKET MIGHT NOT DEVELOP. Many of SBS' potential customers design and 
manufacture standard bus embedded computers internally. Increased market 
acceptance of SBS' products and services depends in part on these customers 
relying on SBS instead of themselves to provide embedded computer components. 
SBS believes


                                    Page 14

<PAGE>

that increased market acceptance of its products will also depend on a number 
of factors. These factors include the quality of SBS' 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 
standard bus embedded computers, time-to-market requirements of the Company's 
actual and potential products, the assessment of direct and indirect cost 
savings, and customers' willingness to rely on SBS for mission-critical 
applications. SBS believes that in many customer applications, the cost of 
its products may exceed or be perceived to exceed the cost of internal 
development. SBS will not be able to achieve its business growth objectives 
if market acceptance of its products does not increase.

POTENTIAL YEAR 2000 PROBLEMS. The Year 2000 ("Y2K") issue refers to the 
inability of certain date-sensitive computer chips, software, and systems to 
recognize a two-digit date field as belonging to the 21st century. Mistaking 
"00" for 1900 or any other incorrect year could result in a system failure or 
miscalculations causing disruptions to operations, including manufacturing, a 
temporary inability to process transactions, or send invoices, or engage in 
other normal business activities. This is a significant issue for most, if 
not all companies, with far reaching implications, some of which cannot be 
anticipated or predicted with any degree of certainty. The Y2K issue may 
create unforeseen risks to the Company from its internal computer systems as 
well as from computer systems of third parties with which it deals. Failures 
of the Company's and/or third parties' computer systems could have a material 
adverse impact on the Company's ability to conduct its business (see 
"Management's Discussion and Analysis: Year 2000 Issue").

COMPETITION. The standard bus embedded computer industry is 
highly-competitive and fragmented, and SBS' competitors differ depending on 
product type, company size, geographic market and application type. SBS faces 
competition in each of its product lines. SBS believes that because of the 
diverse nature of SBS' products and the fragmented nature of the embedded 
computer market, there is little overlap of competitors for each product 
line. Competition in all of SBS' product lines is based on: performance, 
customer support, product longevity, supplier stability, breadth of product 
offerings and reliability. At the end of the 1998 fiscal year, SBS had 
revenues of $74.2 and net income of $10.1 million. Many of SBS' existing and 
potential competitors are bigger companies which have financial, 
technological and marketing resources significantly greater than those of 
SBS, which may give them a competitive advantage. They and other competitors 
may have established relationships with customers or potential customers 
which can make it harder for SBS to sell its products to those customers. SBS 
cannot promise that it will be able to compete effectively in its current or 
future markets. Also, competitive pressures might significantly adversely 
affect SBS' marketing and sales, revenues and financial condition.

    In the CPU market in which SBS Embedded's products are marketed, SBS 
competes with a number of other suppliers of CPU boards. SBS' direct 
competitors include other companies that build CPU boards based on Intel 
microprocessor technology, such as Force Computers, Inc. (a wholly-owned 
subsidiary of Solectron Corporation), RadiSys Corporation, VME Microsystems, 
Inc. and XYCOM, Inc. In addition, with the acquisition of OR and VI, SBS also 
competes with suppliers of CPU boards based on Motorola 68OxO, and PowerPC 
architectures.

     In the generalized computer I/0 product area served by GreenSpring and 
its IP product line, SBS has two classes of competition. The first class 
includes companies that compete directly by selling IP products. The second 
class includes companies that compete with I/0 products using a different 
implementation to provide functionally equivalent products. SBS' competitors 
in each of these classes include Acromag, Inc., Systran, Inc. and VME 
Microsystems, Inc.

     In the telemetry market, SBS competes with suppliers such as Aydin 
Vector Division, AVTECH Systems, Inc., L3 Communications, Inc., Terametrix, 
Inc. and Veda, Inc.

     In the avionics interface market in which SBS' MIL-STD 1553 products are 
marketed, SBS competes with a number of other companies that produce similar 
avionics interface products. SBS' competitors include Ballard Technologies, 
Inc., Data Devices Corporation, Excalibur Technologies Corporation, Condor 
Engineering and


                                    Page 15

<PAGE>

Gesellschaft Fur Angewandte Informatik und Mikroelekemik, GmbH.

     In SBS' interconnect and expansion unit product line, SBS competes with 
personal computer (PC) manufacturers that offer computer motherboards with 
multiple PCI slots and with companies that have similar product lines. There 
is no significant direct competitor in this market.

     In SBS' industrial computer systems and enclosure business, SBS competes 
with other suppliers of ISA/PCI systems and enclosures such as I-Bus, a 
subsidiary of Maxwell Technologies, Texas Micro, Inc. and Industrial Computer 
Source.

AVAILABILITY OF COMPONENT MATERIALS. Many of SBS' products contain state of 
the art digital electronic components. SBS is dependent upon third parties 
for the continuing supply of many of these components. Some of the components 
are obtained from a sole supplier, such as Xilinx, Inc., or a limited number 
of suppliers, for which alternate sources may be difficult to locate. 
Moreover, suppliers may discontinue or upgrade some of the products 
incorporated into SBS' products, which could require SBS to redesign a 
product to incorporate newer or alternative technology. Although SBS believes 
that it has arranged for an adequate supply of components to meet its 
short-term requirements, SBS does not have contracts which would assure 
availability and price. If sufficient components are not available when SBS 
needs them, SBS' product shipments could be delayed, which could affect SBS' 
revenues during certain periods as well as lead to customer dissatisfaction. 
If enough components are not available, SBS might have to pay premiums for 
parts in order to make shipment deadlines. Paying premiums for parts would 
lower or eliminate SBS' profit margin and hurt its business and financial 
condition, or cause SBS to increase its inventory of scarce parts, which 
would adversely affect SBS' cash flow.

RETENTION AND RECRUITMENT OF KEY EMPLOYEES. SBS' ability to maintain its 
competitive position and to develop and market new products depends, in part, 
upon its ability to retain key employees and to recruit and retain additional 
qualified personnel, particularly engineers. If SBS is unable to retain and 
recruit key employees, its product development, marketing and sales, 
revenues, and business condition could suffer material adverse effects.

NO PATENT PROTECTION. Although SBS believes that some of its processes and 
equipment may be proprietary, SBS has not sought patent protection for its 
technology. SBS has relied upon trade secret laws, industrial know-how and 
employee confidentiality agreements. SBS' processes and equipment might not 
provide it with a sufficient competitive advantage to overcome its lack of 
patent protection. Others could independently develop equivalent or superior 
products or technology. Also, SBS might not be able to establish trade secret 
protection, and secrecy obligations might not be honored. If consultants, 
employees and other parties apply technological information developed 
independently, by them or others, to Company projects, disputes may arise as 
to the proprietary rights to that information. Those disputes may not be 
resolved in favor of SBS.

SBS could have to litigate to enforce its proprietary rights, protect its 
trade secrets, determine the validity and scope of the intellectual property 
rights of others or defend against claims of infringement. That litigation 
could be very expensive and could divert resources which SBS could otherwise 
use in its business, which could hurt SBS and its business.

Patent applications in the United States are not publicly disclosed until the 
patents issue, so patent applications may have been filed by someone else 
that relate to SBS' products and technology. SBS does not believe that it 
infringes any patents of which it is aware, but someone could make a patent 
infringement claim against SBS. Such a claim might significantly hurt SBS and 
its business. If someone asserts infringement or invalidity claims against 
SBS, SBS might have to litigate to defend itself against those claims. In 
certain circumstances, SBS might try to obtain a license under the claimant's 
intellectual property rights. The claimant might not be willing to give SBS a 
license at all or on terms acceptable to SBS.

PRODUCT LIABILITY. SBS' products and services could be subject to product 
liability or government or commercial warranty claims. SBS maintains primary 
product liability insurance with a general aggregate limit of $2.0


                                    Page 16

<PAGE>

million, $1.0 million per occurrence, and an $9.0 million excess policy. 
While SBS has never been the subject of any significant claims of this kind, 
its products are widely used in a variety of applications and claimants have 
a propensity initially to pursue all possible contributors in a legal action. 
If a claim is made against SBS, SBS' insurance coverage might not be adequate 
to pay for its defense or to pay for any award, in which case SBS would have 
to pay for it. Also, SBS might not be able to continue that insurance in 
effect for premiums acceptable to SBS. If a litigant were successful against 
SBS, a lack or insufficiency of insurance coverage could have a material 
adverse effect upon SBS.

INTERNATIONAL SALES IN GENERAL. SBS sells its products in countries 
throughout the world from its United States and European based offices. These 
sales subject SBS to various governmental regulations, export controls, and 
the normal risks involved in international sales. Sales of products 
internationally are subject to political, economic and other uncertainties, 
including, among others, risk of war, revolution, expropriation, 
renegotiation or modification of existing contracts, standards and tariffs, 
and taxation policies. They are also subject to international monetary 
fluctuations which may make payment in United States dollars more expensive 
for foreign customers (who may, as a result, limit or reduce purchases).

CHANGES IN EXCHANGE RATES. Substantially all of SBS' revenues to date have 
been received in United States dollars. However, some sales in the future may 
be in other currencies. Any decline in the value of other currencies in which 
SBS makes sales against the United States dollar will have the effect of 
decreasing SBS' earnings when stated in United States dollars. SBS does not 
engage in any hedging transactions that might have the effect of minimizing 
the consequences of currency fluctuations, and SBS does not intend to do so 
in the immediate future.

TRADE POLICIES AND DISPUTES. The political and economic policies and concerns 
of countries in which SBS makes or could make sales could result in the 
adoption of new trade policies in those countries or the United States or 
lead to trade disputes between those countries and the United States. These 
could limit, reduce, eliminate or disrupt SBS' sales outside the United 
States, which might adversely affect SBS' total revenues and business 
prospects outside the United States.

POTENTIAL DILUTIVE EFFECT OF OUTSTANDING WARRANTS AND OPTIONS AND 
REGISTRATION RIGHTS. SBS, in connection with its acquisition of GreenSpring 
in August 1995, issued warrants to purchase 400,000 shares of Common Stock at 
an exercise price of $4.50 per share (the "GreenSpring Warrants"). SBS also 
registered the Common Stock underlying the GreenSpring Warrants for sale 
under the Securities Act of 1933 (the "Securities Act"). In April 1996, SBS 
registered under the Securities Act options for 133,333 shares held by SBS' 
Chairman of the Board and Chief Executive Officer, Mr. Amenson. As of June 
30, 1998, 140,236 of the GreenSpring Warrants remained, all of which were 
exercisable. The holders of the GreenSpring Warrants also possess until 
August 2000 the right to sell shares of Common Stock underlying the 
GreenSpring Warrants alongside SBS should SBS file a registration statement 
during this period.

As of June 30, 1998, SBS had 463,933 options and warrants outstanding which 
could be exercised and 944,267 options which were not yet eligible for 
exercise.

LIMITED PUBLIC FLOAT; TRADING; VOLATILITY OF STOCK PRICE. SBS' Common Stock 
is traded on the Nasdaq National Market. While a public market currently 
exists for SBS' Common Stock and the number of shares in the public float as 
of June 30, 1998 was 5,328,512, trading volume in the four weeks ended June 
30, 1998 averaged 25,587 shares traded per day. Thus, trading of relatively 
small blocks of stock can have a significant impact on the price at which the 
stock is traded. In addition, the Nasdaq National Market has experienced, and 
is likely to experience in the future, significant price and volume 
fluctuations which could adversely affect the market price of the Common 
Stock without regard to the operating performance of SBS. SBS believes 
factors such as quarterly fluctuations in financial results, announcements of 
new technologies impacting SBS' products, announcements by competitors or 
changes in securities analysts' recommendations may cause the market price to 
fluctuate, perhaps substantially. These fluctuations, as well as general 
economic conditions, such as recessions or high interest rates, may adversely 
affect the market price of the Common Stock.


                                    Page 17

<PAGE>

ABSENCE OF DIVIDENDS. Since its inception, SBS has not paid cash dividends on 
its Common Stock. SBS intends to retain future earnings, if any, to provide 
funds for business operations and, accordingly, does not anticipate paying 
any cash dividends on its Common Stock in the foreseeable future.

ITEM 2.  FACILITIES

The Company leases office and manufacturing space in Albuquerque, New Mexico, 
Carlsbad, California, Menlo Park, California, Vista, California, Encinitas, 
California, Raleigh, North Carolina, St. Paul, Minnesota and Angsburg and 
Mindelheim, Germany. The Company's standard practice is to obtain all of its
facilities through operating leases. The Company maintains an insurance plan
covering all its facilities and contents.

The Albuquerque, New Mexico leased facility consists of 31,482 square feet 
located in a multi-floor office building which includes adequate assembly and 
test space for the Company's avionics interface product line, as well as 
serving as the Company's corporate headquarters. Management believes that 
this facility is capable of handling projected increases in production for 
the foreseeable future, as the current capacity utilization of the available 
productive floor space is approximately 50%. The lease term for the 
Albuquerque, New Mexico facility runs through June 30, 2000, with an option 
to extend the term for an additional five years.

The Company's general purpose I/O business is located in Menlo Park, 
California. The 16,394 square foot facility, which is leased for a four year 
term expiring May 31, 2000, is a one story multi-tenanted building in a 
business park which consists of 6,000 square feet of office space and 10,394 
square feet of assembly and test areas. Management believes that the facility 
will be sufficient to serve the general purpose I/O business needs through 
the term of the lease.

The Company's CPU products business, located in Raleigh, North Carolina, 
leases a one story multi-tenanted facility consisting of approximately 4,000 
square feet of office space and approximately 7,000 square feet of assembly 
and test areas. The lease expires on November 30, 2002. Management believes 
that the facility is adequate at the Company's current level of business and 
that expansion space is available if required.

The Company's interconnect business relocated during fiscal 1998 from 
Minneapolis, Minnesota to a 39,597 square foot leased facility, located in a 
business park, in St. Paul, Minnesota. This facility, consisting of 14,813 
square feet of office space and 24,784 square feet of production and 
warehouse space, has been leased for a term of five years expiring on 
November 30, 2002. In addition, the Company has an option to extend the term 
of the lease for one consecutive period of twenty-four to thirty-six months. 
Management believes that this facility will be sufficient to serve needs of 
the interconnect business through the term of the lease.

The Company leases, in Carlsbad, California, a one story 12,000 square foot 
building, located in a business park, consisting of approximately 6,000 
square feet of office space and 6,000 square feet of assembly and test areas 
for the Company's telemetry products and development of the Company's data 
acquisition software. The lease term for the Carlsbad, California location 
runs through July 2000. In addition, the Company's industrial computer and 
enclosure business is located in a leased facility in Vista, California 
consisting of approximately 10,661 square feet as part of a multi-tenant 
industrial building. This lease expires on December 31, 1998. Management is 
currently finalizing a seven year lease for a 75,160 square foot one story 
facility located in a business park in Carlsbad, California and will relocate 
the Company's telemetry, data acquisition software development, and 
industrial computer and enclosure operations, as well as the Company's recent 
acquisition, VI, currently located in Encinitas, California (see "Management 
Discussion and Analysis: Subsequent Events"), to this facility. Management 
estimates that the relocation of these activities will be completed by 
January 1999 and will not be disruptive to their operations. Management 
believes that this facility will sufficiently serve the needs of these 
operations through the term of the lease.

The Company leases, in Angsburg, Germany (see "Management's Discussion and 
Analysis: Subsequent Events"), four floors, of a six floor building, 
consisting of approximately 20,000 square feet of office and assembly and 
test areas for its or operations. The lease has a term of ten years expiring 
December 31, 2005 with an option to expand to the additional two floors, 
consisting of 5,000 square feet each, five years from the commencement of the 
lease. Management believes that the facility is sufficient to serve the needs 
of the or operations through the term of the lease. In addition, the Company 
leases approximately 5,000 square feet of manufacturing space in a multi-use 
facility, in Mindelheim, Germany, for its other operations. The lease had a 
five-year term that commenced May 1, 1992 with an option to extend in 
one-year increments open three months written notice. Management believes 
that the facility is sufficient to serve the needs of others for the 
foreseeable future.                                     


                                    Page 18

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

The Company was named as a defendant in Virtual Systems Group, Inc. (VSG) v. 
SBS Technologies, Inc., filed on June 19, 1996 in the Second Judicial 
District Court, County of Bernalillo, State of New Mexico. The plaintiff, a 
company engaged by SBS to market its Judgmental Use of Force Trainers (the 
Company sold this business in June 1997), claimed that the Company failed to 
fulfill all its obligations under an Agreement between the Company and VSG 
whereby VSG would market the Company's Judgmental Use of Force Trainers. The 
Company settled this lawsuit in March 1998 for $40,000.

The Company is subject to various claims which 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 the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.










                                    Page 19

<PAGE>

                                    PART II


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

The following table sets forth the range of closing price of the Company's 
common stock as reported on the NASDAQ National Market System for each full 
fiscal quarter within the last two fiscal years:

<TABLE>
<CAPTION>

                                             High                 Low
                                             ----                 ---
<S>                                   <C>                 <C>
         First Quarter 1997           $    19.750         $    10.625
         Second Quarter 1997               39.000              19.000
         Third Quarter 1997                35.000              15.250
         Fourth Quarter 1997               24.875              10.875
         First Quarter 1998                26.250              20.125
         Second Quarter 1998               31.375              22.125
         Third Quarter 1998                29.250              23.000
         Fourth Quarter 1998               33.375              26.500
</TABLE>


The Company's common stock is traded over the counter on the NASDAQ National 
Market System using the symbol SBSE.

Based on the Company's survey of brokerage houses, management believes that 
as of September 1, 1998, the number of common stockholders of record was 
approximately 250, at which date the closing market value of the Company's 
common stock was $22.50 per share.

The Company has not paid any cash dividends on its common stock. Management's 
current policy is to retain earnings for use in the Company's operations and 
for expansion of the Company's business. No dividend payments are expected to 
be paid in the future.


                                    Page 20

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data for the years ended June 30, 1994 
through June 30, 1998 have been derived from the Company's audited 
consolidated financial statements. This information should be read in 
conjunction with "Management's Discussion and Analysis of Financial Condition 
and Results of Operations" and the audited consolidated financial statements 
and related notes thereto included elsewhere herein.

<TABLE>
<CAPTION>

                                                                                    Year ended June 30
----------------------------------------------------------------------------------------------------------------------------------

                                                        1998             1997              1996            1995            1994
                                                        ----             ----              ----            ----            ----
  <S>                                               <C>                 <C>             <C>             <C>             <C>
  Sales - continuing operations                     $  74,213,901       52,814,568      31,331,793      16,217,648      10,196,568
  Net income - continuing operations                $  10,090,188          461,685       3,580,907       1,844,876         870,750
  Net income per common share                       $        1.81             0.10            1.19            0.66            0.30
  Net income per common share - assuming dilution   $        1.64             0.09            0.97            0.65            0.30
  Total assets                                      $  74,315,187       61,165,014      20,443,672      19,904,922      13,476,737
  Long-term debt, excluding current installments    $          --        2,816,251       5,188,320       5,341,649         273,573
  Total liabilities                                 $  10,051,200       10,838,326      10,392,752      14,855,674       7,611,400
  Total stockholders' equity                        $  64,263,987       50,326,688      10,050,920       5,049,248       5,865,337
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

Note: The Company has not declared any dividends during the periods presented.
      No future dividend payments are expected.

      On November 24, 1997, the Company completed the purchase of Micro 
      Alliance.

      On November 18, 1996, the Company completed the purchase of Bit 3. In 
      connection with the acquisition of Bit 3, the Company recorded an $11.0 
      million in-process R&D charge in the second quarter of fiscal 1997.

      For fiscal 1997, net income excluding the $11.0 million in-process R&D 
      charge would have been $7,061,685 (net of income taxes). Net income per 
      common share excluding the $11.0 million in-process R&D charge would 
      have been $1.56 and net income per common share - assuming dilution 
      would have been $1.34.

      On August 19, 1996, the Company completed a pooling of interests 
      transaction with SBS Embedded, the results of which are included in 
      fiscal 1997 on a prospective basis.

      On April 28, 1995 the Company completed the purchase of GreenSpring.

      On April 26, 1995 the Company sold its flight simulation business to 
      Camber Corporation, which was reported as discontinued operations in 
      the consolidated financial statements.

      The Selected Financial Data for the statements of operations data are 
      for continuing operations only.


                                    Page 21

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL 
         CONDITION AND RESULTS OF OPERATIONS OF SBS TECHNOLOGIES, INC. AND 
         SUBSIDIARIES

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH 
"SELECTED FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS 
AND NOTES THERETO. INFORMATION DISCUSSED HEREIN MAY INCLUDE FORWARD-LOOKING 
STATEMENTS REGARDING FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE 
COMPANY, AND ARE SUBJECT TO A NUMBER OF RISKS AND OTHER FACTORS WHICH COULD 
CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY 
FORWARD LOOKING STATEMENTS. AMONG SUCH FACTORS ARE: GENERAL BUSINESS AND 
ECONOMIC CONDITIONS; CUSTOMER ACCEPTANCE AND DEMAND FOR THE COMPANY'S 
PRODUCTS; THE COMPANY'S OVERALL ABILITY TO DESIGN, TEST AND INTRODUCE NEW 
PRODUCTS ON A TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED BY THE 
COMPANY'S PRODUCTS AND OTHER RISK FACTORS (SEE "ITEM 1. RISK FACTORS").

OVERVIEW

The Company is a leading designer and manufacturer of open-architecture, 
standard bus embedded computer components that system designers can easily 
utilize to create a custom solution specific to the user's unique 
application. The Company's product lines include CPU boards ("CPU"), general 
purpose input/output ("I/O") modules, avionics interface modules and 
analyzers, interconnection and expansion units, telemetry boards, data 
acquisition software and industrial computer systems and enclosures. In 1992, 
the Company added a second embedded computer product line with the 
acquisition of Berg, a developer of telemetry interface circuit boards. In 
1995, the Company added a third embedded computer product line with the 
acquisition of GreenSpring. GreenSpring is engaged in the design, development 
and manufacture of general purpose I/O products. In recent years, the Company 
has discontinued certain of its operations. From its inception in 1986 until 
1995, the Company provided flight simulators for a variety of military 
aircraft to U.S. and foreign entities. In April 1995, following a decline in 
the defense industry, the Company divested this business and recorded a 
related charge of $2.3 million. Additionally, from 1987 through the first 
half of fiscal 1996, the Company provided engineering services that generated 
minimal revenue and profit. The Company subsequently exited this business. 
The Company marketed a Judgmental Use of Force Training System, used to train 
police and military personnel in the appropriate situational use of force, 
from 1993 through fiscal year 1997, when the Company sold this business as 
discussed in "Sale of Judgmental Use of Force Business" below. Since 1995, 
the Company has focused its efforts and investments in the embedded computer 
marketplace, expanding its product offerings and marketing with the 
acquisition of five embedded computer companies as discussed in "Recent 
Acquisitions," "Public Stock Offering," and "Subsequent Events" below.

RECENT ACQUISITIONS

On November 24, 1997, the Company completed the purchase of Micro Alliance, a 
privately held San Diego county-based manufacturer of industrial computer 
systems and enclosures. Micro Alliance specializes in the design and 
manufacture of special-purpose PC-compatible computer systems offering a 
variety of CPU boards and system enclosures, including rack mount, desktop 
and mobile systems. Most systems contain passive backplanes that allow the 
addition of up to 20 ISA and PCI cards. These systems are often customized to 
meet the needs of particular OEM applications. Under the terms of the 
purchase agreement dated November 24, 1997 (the "Agreement") among the 
Company, Micro Alliance, a California corporation, and Jeffrey Huston, Edward 
Larson, and Sherrin W. Larson (together "Shareholders"), the Company acquired 
all of the outstanding capital stock of Micro Alliance for a total purchase 
price of $5.8 million. Of this total purchase price, $250,000 in cash was 
placed in a joint escrow account until the earlier of resolution of certain 
tax issues or the end of any applicable statute of limitations. The financial 
results of Micro Alliance have been included in the Company's Consolidated 
Financial Statements from November 24, 1997. As a result of the acquisition, 
the Company recorded $4.5 million of goodwill, which is being amortized over 
a ten-year period.


                                    Page 22

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

On November 18, 1996, the Company completed the purchase of Bit 3. Bit 3 is a 
St. Paul-based manufacturer of computer networking and interconnection 
hardware for many of the most widely used computer architecture standards in 
the standard bus embedded computer market. Under the terms of the purchase 
agreement dated October 8, 1996 (the "Acquisition Agreement") among the 
Company and the two shareholders of Bit 3 (the "Sellers"), the Company 
acquired all of the outstanding capital stock of Bit 3 for a total purchase 
price of $24.0 million paid or to be paid from the proceeds from the public 
stock offering (see "Public Stock Offering") and cash flow from the Company's 
operations. Of this total purchase price, $20.0 million was paid to the 
Sellers in cash upon closing of the offering. Of the balance of $4.0 million, 
$1.0 million was paid to the Sellers on July 1, 1997 and $3.0 million was 
paid to the Sellers on July 1, 1998, pursuant to secured promissory notes 
according to the terms of the Acquisition Agreement. The financial results of 
Bit 3 have been included in the Company's Consolidated Financial Statements 
from November 18, 1996. In connection with the acquisition of Bit 3, the 
Company recorded an $11.0 million earnings charge based on an assessment by 
the Company, in conjunction with an independent valuation firm, of purchased 
technology of Bit 3. The assessment determined that $11.0 million of Bit 3's 
purchase price represented technology that does not meet the accounting 
definition of "completed technology," and thus should be charged to earnings 
under generally accepted accounting principles. In addition, as a result of 
the acquisition, the Company recorded $10.0 million of goodwill which is 
being amortized over a ten year period.

The following pro forma consolidated results of operations have been prepared 
as if the acquisitions of Bit 3 and Micro Alliance had occurred at July 1, 
1996.

<TABLE>
<CAPTION>

                                                        June 30          June 30
(in thousands except per share amounts)                   1998             1997
                                                          ----             ----
<S>                                                    <C>                <C>
Sales                                                  $  76,437          64,476
Net income                                                10,014           1,862
Net income per common share                                 1.79            0.41
                                                            ----            ----
                                                            ----            ----
Net income per common share - assuming  dilution            1.62            0.35
                                                            ----            ----
                                                            ----            ----
</TABLE>

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 as of that time, nor 
is it intended to be a projection of future results.

On August 19, 1996, the Company completed a pooling of interests transaction 
with SBS Embedded based in Raleigh, North Carolina. SBS Embedded manufactures 
Intel processor-based CPU boards for the standard bus embedded computer 
market. The financial results of SBS Embedded are not included in the 
Company's Consolidated Financial Statements for the periods prior to July 1, 
1996, as historical results did not have a material effect on combined 
consolidated results of operations. For its fiscal year ended March 31, 1996, 
SBS Embedded recorded sales of approximately $4.0 million and income from 
continuing operations of approximately $103,000.

PUBLIC STOCK OFFERING

On November 18, 1996, the Company consummated a fully underwritten public 
offering of 1,500,000 shares of the Company's common stock at a price of 
$25.625 per share. In addition, certain selling shareholders sold an 
additional 300,000 shares in the offering. The proceeds of the sale of the 
300,000 additional shares did not benefit the Company; however, the Company 
did receive the exercise price of $4.80 per share from the exercise of 
warrants covering 100,000 of the shares. The offering was managed by an 
underwriting group led by Cowen & Co. and SoundView Financial Group, Inc. The 
net proceeds to the Company from the public


                                    Page 23

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

stock offering were used to fund the acquisition of Bit 3 (see "Recent 
Acquisitions" above), to repay long-term debt, and the balance has been used 
for general working capital requirements and acquisitions.

SALE OF JUDGMENTAL USE OF FORCE BUSINESS

On June 26, 1997, the Company sold substantially all of the assets of the 
Company's Judgmental Use of Force Business to FATS, Inc. for $2.0 million. 
This Business marketed a Judgmental Use of Force Training System used to 
train police and military personnel in appropriate situational use of force. 
The results of operations of this business were immaterial to the total 
operating results of the Company.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>

                                                                       Year ended June 30
                                                         ----------------------------------------------
                                                                1998            1997           1996
                                                         ------------     -----------     ----------
<S>                                                      <C>              <C>             <C>
Sales                                                          100.0%          100.0%         100.0%
Cost of Sales                                                   42.8            47.2           46.3
                                                         ------------     -----------     ----------
   Gross Profit                                                 57.2            52.8           53.7
Selling, general and administrative  expense                    22.8            19.4           20.1
Research and development expense                                10.8             8.4            9.1
Acquired in-process research and development charge               --            20.8             --
Amortization of intangible assets                                2.6             2.8            2.8
                                                         ------------     -----------     ----------
   Operating income                                             21.0             1.4           21.7
Interest income (expense) (net)                                  1.3             0.1           (2.7)
                                                         ------------     -----------     ----------
   Income before income taxes                                   22.3             1.5           19.0
Income taxes                                                     8.7             0.6            7.6
                                                         ------------     -----------     ----------
Net income                                                      13.6%            0.9%          11.4%
                                                         ------------     -----------     ----------
                                                         ------------     -----------     ----------
</TABLE>


YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997

SALES. In fiscal 1998, sales increased 40.5%, or $21.4 million, from $52.8 
million in fiscal 1997 to $74.2 million. Of this 40.5% increase, sales 
contributed by Micro Alliance, which was acquired on November 24, 1997, 
comprised 9.1%; sales contributed by Bit 3, which was acquired on November 
18, 1996, comprised 14.7%; and 19.8% of this increase was attributable to the 
Company's other product lines, offset by 3.1% due to the sale of the 
Company's Judgmental Use of Force business on June 26, 1997. Throughout 
fiscal 1998, prices for the Company's products remained firm, and unit 
shipments increased across all product lines. Historically, less than 5% of 
the Company's sales were direct sales to Asian-based customers. The Company 
experienced minimal direct effect (less than 2% of sales) on its operations 
due to the current Asian currency and economic crisis. Management believes 
that any future direct effect on the Company from the Asian currency and 
economic crisis will remain minimal; however, it is difficult for the Company 
to predict any indirect effect derived from sales to U.S. based customers 
whose products are sold into Asia. Sales of the Company's products are 
recorded at the time of shipment.


                                    Page 24

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

GROSS PROFIT. In fiscal 1998, gross profit increased 52.0%, or $14.5 million, 
from $27.9 million in fiscal 1997, to $42.4 million. In fiscal 1998, gross 
margin increased to 57.2% of sales from 52.8% in fiscal 1997. This increase 
was primarily due to the acquisition of Micro Alliance and Bit 3, increased 
sales volume over fixed costs, material cost improvements, and a reduction in 
commissionable sales due to the movement from an independent representative 
sales force to a direct sales force, and the sale of the Company's low margin 
Judgmental Use of Force business.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. In fiscal 1998, selling, general 
and administrative expense increased 65.7%, or $6.7 million from $10.2 
million in fiscal 1997, to $16.9 million resulting from the added 
expenditures due to the acquisitions of Bit 3 and Micro Alliance, and 
additional salaried sales personnel as the Company transitioned from an 
independent sales force to a direct sales force, as well as additional 
administrative staffing and promotional costs commensurate with the growth of 
the Company. For the same reasons, selling, general and administrative 
expense increased as a percentage of sales from 19.4% in fiscal 1997 to 22.8% 
in fiscal 1998.

RESEARCH AND DEVELOPMENT EXPENSE. In fiscal 1998, research and development 
expense increased by 81.8%, or $3.6 million, from $4.4 million in fiscal 
1997, to $8.0 million. The increase resulted primarily from the added 
expenditures due to the acquisition of Bit 3 as well as increased investment 
in new products in the Company's other product areas. For the same reasons, 
research and development expense increased as a percentage of sales from 8.4% 
in fiscal 1997, to 10.8% in fiscal 1998.

AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1998, amortization of intangible 
assets increased 26.7%, or $400,000 from $1.5 million in fiscal 1997, to $1.9 
million as a result of goodwill amortization associated with the acquisitions 
of Bit 3 and Micro Alliance.

INTEREST INCOME, NET OF INTEREST EXPENSE. In fiscal 1998, interest income, 
net of interest expense, was $933,000 compared to $14,000 in fiscal 1997. 
This change is attributable to the elimination of all bank debt effective 
November 22, 1996, by application of some of the proceeds of the public stock 
offering, and earnings on surplus cash from operations as well as earnings on 
cash received above the Company's immediate requirements from the public 
offering, offset by imputed interest of $184,000 on notes payable to the 
former owners of Bit 3.

INCOME TAXES. For fiscal 1998 and fiscal 1997 income taxes represent 
effective income tax rates of 39.0% and 40.0%, respectively. The decrease in 
the effective rate is due to tax planning strategies implemented by the 
Company in fiscal 1998, including a research and experimental tax credit.

EARNINGS PER SHARE. For fiscal 1998, net income per common share was $1.81 
compared to $0.10 for fiscal 1997. Net income per common share - assuming 
dilution was $1.64 for fiscal 1998 compared to $0.09 for fiscal 1997. This 
change is primarily due to the $11.0 million charge to earnings associated 
with the acquisition of Bit 3 in November 1996, offset by additional shares 
outstanding. For fiscal 1997, net income per common share-assuming dilution, 
excluding the charge to earnings, net of income taxes, would have been $1.34.

YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996

SALES. In fiscal 1997, sales increased 68.7%, or $21.5 million, from $31.3 
million in fiscal 1996 to $52.8 million. Sales contributed by SBS Embedded, 
which was acquired effective August 9, 1996 and pooled effective July 1, 
1996, and sales contributed by Bit 3, which was acquired on November 18, 
1996, comprised 48.2% of this increase and 20.5% of this increase was 
attributable to the Company's other product lines. The increases in sales for 
1997 resulted from increased sales of existing products, introduction of new 
products, and sales of new and existing products to new customers in all of 
the Company's product lines. Throughout fiscal 1997, prices for the Company's 
products remained firm.


                                    Page 25

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

GROSS PROFIT. In fiscal 1997, gross profit increased 66.1%, or $11.1 million, 
from $16.8 million in fiscal 1996, to $27.9 million, as a result of increased 
sales volume. In fiscal 1997, gross margin decreased to 52.8% of sales from 
53.7% in fiscal 1996, as a result of sales mix. In fiscal 1997, although 
gross margins of each of the Company's product lines remained relatively 
constant with fiscal 1996, total sales were comprised of a higher percentage 
of commercial products (i.e., general purpose I/O, CPU, and interconnect 
products), which generally yield lower gross margins than the Company's 
avionics and telemetry products. Reductions in component material costs in 
each of the Company's product lines partially offset the effect on gross 
margin of this shift in sales mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. In fiscal 1997, selling, general 
and administrative expense increased 61.9%, or $3.9 million from $6.3 million 
in fiscal 1996, to $10.2 million, largely because of the increased staffing 
resulting from the SBS Embedded and Bit 3 acquisitions and subsequent 
augmentation of those staffs in an effort to increase productivity and 
efficiency, as well as additional staffing and promotional costs related to 
the Company's avionics, telemetry, and I/O product lines. However, selling, 
general and administrative expense decreased as a percentage of sales from 
20.1% in fiscal 1996 to 19.4% in fiscal 1997 as the increase in sales more 
than offset the increase in expense.

RESEARCH AND DEVELOPMENT EXPENSE. In fiscal 1997, research and development 
expense increased by 57.1%, or $1.6 million, from $2.8 million in fiscal 
1996, to $4.4 million. The increase resulted primarily from the added 
expenditures resulting from the SBS Embedded and Bit 3 acquisitions, as well 
as additional staffing required for new product development in the avionics, 
telemetry, and I/O product lines. However, research and development expense 
decreased as a percentage of sales from 9.1% in fiscal 1996, to 8.4% in 
fiscal 1997, as a result of sales increasing at a faster rate than the 
expense.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE. In conjunction with the 
acquisition of Bit 3 completed on November 18, 1996, the Company recorded an 
$11.0 million earnings charge based on an assessment by the Company, in 
conjunction with an independent valuation firm, of purchased technology of 
Bit 3. The assessment determined that $11.0 million of Bit 3's purchase price 
represented technology that did not meet the accounting definition of 
completed technology, and thus should be charged to earnings under generally 
accepted accounting principles.

AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1997, amortization of intangible 
assets increased 70.1%, or $620,000, from $884,000 in fiscal 1996, to $1.5 
million as a result of goodwill amortization associated with the acquisition 
of Bit 3.

INTEREST INCOME, NET OF INTEREST EXPENSE. In fiscal 1997, interest income, 
net of interest expense, was $14,000 compared to interest expense, net of 
interest income, of $830,000 in fiscal 1996. This change is attributable to 
the reduction of debt incurred primarily to finance the acquisition of 
GreenSpring in April 1995, the elimination of all bank debt effective 
November 22, 1996, by application of some of the proceeds of the public stock 
offering, and earnings on surplus cash from operations as well as earnings on 
cash received above the Company's immediate requirements from the public 
offering, offset by imputed interest of $144,000 on notes payable to the 
former owners of Bit 3.

INCOME TAXES. For fiscal 1997 and fiscal 1996 income taxes represent an 
effective income tax rate of 40.0%.

EARNINGS PER SHARE. For fiscal 1997, net income per common share was $0.10 
compared to $1.19 for fiscal 1996. Net income per common share - assuming 
dilution was $0.09 for fiscal 1997 compared to $0.97 for fiscal 1996. This 
reduction is due to the $11.0 million charge to earnings associated with the 
acquisition of Bit 3 in November 1996 and due to more shares outstanding. For 
fiscal 1997, net income per common share - assuming dilution excluding the 
charge to earnings, net of income taxes, would have been $1.34.


                                    Page 26

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

The Company uses a combination of the sale of equity securities, internally 
generated funds and bank borrowings to finance its acquisitions, working 
capital requirements, capital expenditures and operations.

Cash totaled $22.9 million at June 30, 1998, an increase of $1.2 million from 
June 30, 1997. This increase is a result of cash flow provided by operations 
of $8.7 million and $2.0 million received from the exercise of stock options 
and warrants, reduced by $5.6 million for the purchase of Micro Alliance, net 
of cash received, $3.0 million for the purchase of property and equipment, 
and $1.0 million for the payments to the former owners of Bit 3, in 
conjunction with the acquisition. The Company's growth during the fiscal year 
caused the Company to increase accounts receivable and inventory. Liabilities 
were in line with the current level of business. The exercise of stock 
options related to the Company's stock option plans reduced the Company's tax 
liability.

In fiscal years ended June 30, 1997 and June 30, 1996, the Company generated 
$10.2 million and $3.4 million, respectively, of positive cash flow from 
operating activities. In fiscal 1997, the positive cash flow from operating 
activities combined with the net proceeds from the sale of common stock (see 
"Public Stock Offering") provided the Company sufficient funds to acquire Bit 
3 in November 1996 and to pay down all existing debt. In fiscal 1996, the 
positive cash flow from operating activities was partially used to pay down 
bank debt, to purchase equipment and to acquire the IndustryPack-Registered 
Trademark- compatible product line from Wavetron Microsystems, Inc. in January 
1996.

On April 26, 1996 and November 15, 1996, the Company amended its bank 
financing agreement with NationsBank, N.A. originally entered into in April 
1995, to provide the Company with a $6.8 million term loan and a $2.5 million 
revolving line of credit. The term loan was completely paid down from the 
proceeds of the public stock offering. The revolving line of credit matured 
on October 30, 1997, and was not renewed. For the entire year ended June 30, 
1998, there were no borrowings drawn on the revolving line of credit. The 
Company is currently negotiating a $15.0 million credit facility with 
NationsBank, N.A. Management believes that financial resources, including its 
internally generated funds, debt capacity, and the remaining net proceeds 
from the public offering, will be sufficient to finance the Company's current 
operations and capital expenditures, excluding acquisitions, for the next 
twelve months.

For the three most recent fiscal years, there has been no significant impact 
from inflation or changing prices on the Company's sales or income from 
continuing operations.

YEAR 2000 ISSUE

DESCRIPTION OF THE ISSUE. The Y2K issue refers to the inability of certain 
date-sensitive computer chips, software, and systems to recognize a two-digit 
date field as belonging to the 21st century. Mistaking "00" for 1900 or any 
other incorrect year could result in a system failure or miscalculations 
causing disruptions to operations, including manufacturing, a temporary 
inability to process transactions, or send invoices, or engage in other 
normal business activities. This is a significant issue for most, if not all 
companies, with far reaching implications, some of which cannot be 
anticipated or predicted with any degree of certainty. The Y2K issue may 
create unforeseen risks to the Company from its internal computer systems as 
well as from computer systems of third parties with which it deals. Failures 
of the Company's and/or third parties' computer systems could have a material 
adverse impact on the Company's ability to conduct its business.

                                    Page 27

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

YEAR 2000 TASK FORCE. The Company assembled, in April 1998, an internal task 
force, chaired by the CEO and comprised of senior managers throughout the 
Company, to review its products, business and engineering applications and 
suppliers and develop contingency plans for Y2K readiness to be completed by 
the end of calendar 1999. The goal of the task force is to minimize the 
effect that Y2K issues will have on the Company and its customers. The CEO of 
the Company updates the Board of Directors on its Y2K readiness at each 
scheduled Board Meeting.

INTERNAL BUSINESS AND ENGINEERING SYSTEMS. The task force is currently 
reviewing all internal business and engineering computer systems to ensure 
that such systems either will be Y2K ready, or will be modified or replaced 
by Y2K ready systems. The Company has already been assured that its business 
information system, installed in 1998 and utilized at most of its locations, 
is Y2K ready as long as the Company adheres to the supplier's Y2K readiness 
guidelines. The Company plans to simulate and test, in a Y2K environment, its 
business information systems to verify its Y2K readiness by the middle of 
calendar 1999. All other internal engineering development applications and 
systems are planned to be modified if necessary, by the middle of calendar 
1999.

SUPPLIERS. The major suppliers to the Company are component parts 
distributors and contract manufacturers. Often the Company sources its 
products and manufacturing services from multiple, competing vendors. The 
Company is conducting reviews of its key suppliers to ensure Y2K readiness of 
as many vendors as possible and has initiated communication with all of its 
key suppliers to determine to what extent the Company may be vulnerable due 
to their failure to be Y2K ready. This communication, including site visits 
by Company personnel, will be ongoing throughout calendar 1999. There can be 
no assurance that the systems of other companies on which the Company relies 
will be Y2K ready on a timely basis and will not have an adverse effect on 
the operations of the Company. In the instances where the Company is unable 
to determine that its vendors have taken appropriate steps to minimize 
disruption due to non-Y2K readiness, the Company will consider contingency 
plans, including moving to currently identified alternate sources, or 
developing new alternate sources.

PRODUCTS. The Company also has a program to assess the capability of its 
existing and legacy products to handle the year 2000. In addition, all 
products under development are also being reviewed to ensure Y2K readiness 
prior to release. Certain of the Company's computer processor board level 
products and integrated computer systems utilize computer chips that include 
built in operating systems ("BIOS") allowing the computer to initialize and 
load software. For many users, software is provided by sources other than the 
Company. As with the typical PC computer, the assessment of whether a 
complete system will operate correctly may depend on the BIOS capability and 
software. To the extent that older BIOS or software are not Y2K ready, they 
may need to be upgraded or replaced.

COSTS. The Company expects the cost of its Y2K assessment, including both 
incremental spending and redeployed resources, will not be material. The 
current assessment does not include potential costs related to any customer 
or other claims or the cost of internal software and hardware replaced in the 
normal course of business. This assessment is subject to change. Since there 
is no uniform definition of "Y2K readiness" and since all customer situations 
cannot be anticipated, particularly those involving third party products, the 
Company may see claims as a result of the Y2K transition. Such claims, if 
successful, could have a material adverse impact on future results.

CUSTOMERS. Since the Company has no customer which comprises more than 5% of 
its sales, the Company believes that the effect of a failure of any single 
customer to continue to purchase goods and services from the Company due to 
non-Y2K readiness will not be material to the operations of the Company. As 
the Company sells its products and services to many hundreds of customers, 
there can be no assurance that some of

                                    Page 28

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

the Company's customers will not become Y2K ready, and in the aggregate, have 
a material effect on the Company's operations.

SUBSEQUENT EVENTS

On July 1, 1998, the Company acquired through its newly formed subsidiary, 
SBS Holdings GmbH, a 50.1% interest in or. Based in Augsburg, Germany, OR 
designs, manufactures, and markets CPU boards utilized in a wide range of 
embedded computer applications. As part of the acquisition, the Company 
acquired, through its newly formed subsidiary, SBS Holdings GmbH, a 50.2% 
interest in ORTEC, a Mindelheim, Germany based related company which 
manufactures OR's commercial products and electronic products for other 
customers. The Company also acquired, through its wholly-owned subsidiary SBS 
Embedded Computers, Inc. based in Raleigh, NC, 100% of the shares of OR 
Computers, Inc, based in Fairfax, Virginia, which is the U.S. marketing 
support organization for the OR product line. In addition, the Company and 
the shareholders of both OR and ORTEC entered into exclusive option 
agreements which means that the Company may acquire the remaining shares of 
both companies on February 28, 1999. The purchase price, excluding 
transaction costs, for the majority interest in the two companies based in 
Germany and 100% of OR Computers Inc. was DM 17.5 million, approximately $9.7 
million, paid in cash and common stock at closing. The purchase price for the 
remaining interest in the two companies based in Germany is DM 17.2 million, 
approximately $9.5 million based on the exchange rate at June 26, 1998. The 
acquisition will be accounted for under the purchase method, whereby the 
purchase price will be allocated to the underlying assets and liabilities 
based upon their estimated fair values. It is expected that a portion of the 
purchase price will be allocated to in-process research and development 
which, under generally accepted accounting principles, will be expensed by 
the Company in the quarter ending September 30, 1998. Goodwill will be 
amortized over 10 years. For the year ended December 31, 1997, combined sales 
and net income of OR, ORTEC, and OR Computers, Inc. were approximately $12.1 
million and $1.8 million, respectively. In fiscal 1999, the Company plans to 
change the name of OR to SBS OR Industrial Computers GmbH; OR Computers, Inc. 
will operate as a wholly-owned subsidiary of SBS Embedded Computers, Inc. for 
the foreseeable future.

On August 12, 1998, the Company completed the acquisition of VI for $5.0 
million, subject to adjustment upon finalizing the closing balance sheet. 
Based in Encinitas, California, VI designs, manufactures and markets CPU 
boards based on the Motorola PowerPC processor for computer applications that 
utilize VME and CompactPCI bus standards. The acquisition will be accounted 
for under the purchase method, which means that the purchase price will be 
allocated to the underlying assets and liabilities based upon their estimated 
fair values. Goodwill will be amortized over 10 years. For the year ended 
December 31, 1997, VoI had sales of approximately $5.6 million and net income 
of approximately $480,000.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued SFAS 130, 
"Reporting Comprehensive Income." SFAS 130 establishes standards for 
reporting and display of comprehensive income and its components (revenues, 
expenses, gains, and losses) in a full set of general purpose financial 
statements. Specifically, SFAS 130 requires that all items that meet the 
definition of components of comprehensive income be reported in a financial 
statement for the period in which they are recognized. However, SFAS 130 does 
not specify when to recognize or how to measure the items that make up 
comprehensive income. SFAS 130 is effective for fiscal years beginning after 
December 15, 1997.


                                    Page 29

<PAGE>

                  SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------

In June 1997, the Financial Accounting Standards Board issued SFAS 131, 
"Disclosures About Segments Of An Enterprise And Related Information." SFAS 
131 supersedes the "industry segment" concept of SFAS 14 with a "management 
approach" concept as the basis for identifying reportable segments. SFAS 131 
is effective for fiscal years beginning after December 15, 1997. The Company 
will adopt SFAS 131 in fiscal 1999, having identified its reportable segments 
as the Computer Group and the Aerospace Group.

In October 1997, the American Institute of Certified Public Accountants 
issued Statement of Position (SOP) 97-2, Software Revenue Recognition, to 
supersede SOP 91-1, the previously released SOP on this topic. SOP 97-2 
provides additional guidance on when revenue should be recognized, and in 
what amounts, for licensing, selling, leasing, or otherwise marketing 
computer software. The provisions of SOP 97-2 are effective for transactions 
entered into in fiscal years beginning after December 15, 1997. Adoption of 
SOP 97-2 is not expected to have a material adverse impact on the Company's 
financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company's liquid investment is cash invested either in money market 
accounts or in overnight repurchase agreements. The Company's long-term debt 
as of June 30, 1998 and 1997 was at a fixed interest rate maturing within one 
year. As a result, the Company believes that the market risk arising from its 
holdings of financial instruments is minimal.

In conjunction with the acquisitions of OR and ORTEC in July 1998, the 
Company entered into an option agreement to acquire the remaining interests 
in OR and ORTEC for DM 17.2 million (see "Management's Discussion and 
Analysis: Subsequent Events"). Accordingly, the Company is subject to 
potentially adverse movements in the foreign currency exchange rates. As of 
September 1998, the Company has not entered into any foreign exchange forward 
contracts to reduce its exposure to changes in the foreign currency exchange 
rate on the purchase option.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                    Page 30

<PAGE>

                          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, 1998 and 1997, 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, 1998. 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 generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the consolidated financial 
statements are free of material misstatement. An audit includes examining, on 
a test basis, evidence supporting the amounts and disclosures in the 
consolidated 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, 1998 and 1997, and the 
results of their operations and their cash flows for each of the years in the 
three-year period ended June 30, 1998 in conformity with generally accepted 
accounting principles.

                                       /S/ KPMG Peat Marwick LLP



Albuquerque, New Mexico
August 4, 1998






                                    Page 31

<PAGE>

                    SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                              ASSETS                                   June 30, 1998          June 30, 1997
                                                                    -------------------    -------------------
<S>                                                                 <C>                    <C>
Current assets:
     Cash and cash equivalents                                      $     22,874,754                21,661,671
     Receivables, net (note 5)                                            13,118,717                 9,244,269
     Inventories                                                          10,661,211                 7,705,470
     Deferred income taxes (note 8)                                        1,600,000                 1,327,000
     Prepaid expenses                                                        288,350                   232,283
     Other current assets                                                    335,694                   128,560
                                                                      ---------------           ---------------
          Total current assets                                            48,878,726                40,299,253
                                                                      ---------------           ---------------

Property and equipment, at cost                                            6,776,965                 4,729,259
     Less accumulated depreciation                                         2,316,689                 2,247,408
                                                                      ---------------           ---------------
          Net property and equipment                                       4,460,276                 2,481,851
                                                                      ---------------           ---------------

Intangible assets, net                                                    16,694,154                14,099,254

Deferred income taxes (note 8)                                             4,230,000                 4,253,000

Other assets                                                                  52,031                    31,656
                                                                      ---------------           ---------------

          Total assets                                                $   74,315,187                61,165,014
                                                                      ---------------           ---------------
                                                                      ---------------           ---------------
                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current installments of long-term debt                           $    3,000,000                 1,013,316
     Accounts payable                                                      2,062,373                 1,541,846
     Accrued representative commissions                                      236,228                   449,699
     Accrued salaries                                                      1,996,431                 1,868,623
     Accrued compensated absences                                            743,944                   560,061
     Income taxes (note 8)                                                   901,909                 1,095,162
     Other current liabilities (note 3)                                    1,110,315                 1,493,368
                                                                      ---------------           ---------------
          Total current liabilities                                       10,051,200                 8,022,075

Long-term liabilities:
     Long-term debt, excluding current installments                                -                 2,816,251
                                                                      ---------------           ---------------
          Total long-term liabilities                                              -                 2,816,251
                                                                      ---------------           ---------------

          Total liabilities                                               10,051,200                10,838,326
                                                                      ---------------           ---------------

Stockholders' equity:
     Common stock, no par value; 100,000,000 shares authorized, 
        5,678,200 issued and outstanding at June 30, 1998 
        5,405,378 issued and outstanding at June 30, 1997                 47,778,033                   43,889,754
     Common stock warrants (note 10)                                          70,118                      111,286
     Retained earnings                                                    16,415,836                    6,325,648
                                                                      ---------------             ----------------
          Total stockholders' equity                                      64,263,987                   50,326,688
                                                                      ---------------             ----------------

          Total liabilities and stockholders' equity                  $   74,315,187                   61,165,014
                                                                      ---------------             ----------------
                                                                      ---------------             ----------------
</TABLE>


          See accompanying notes to consolidated financial statements


                                    Page 32

<PAGE>
                    SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                                         Year Ended June 30
                                                     ----------------------------------------------------------
                                                           1998                1997                1996
                                                     ----------------    ----------------    ----------------
<S>                                                  <C>                 <C>                 <C>
Sales                                                $    74,213,901          52,814,568          31,331,793

Cost of sales                                             31,793,078          24,910,271          14,510,106
                                                     ----------------    ----------------    ----------------
         Gross Profit                                     42,420,823          27,904,297          16,821,687

Selling, general and administrative expense               16,891,907          10,223,374           6,292,954

Research and development expense                           7,983,570           4,422,152           2,846,300

Acquired in-process research and
     development charge                                            -          11,000,000                   -

Amortization of intangible assets                          1,937,353           1,504,524             884,438
                                                     ----------------    ----------------    ----------------
         Operating income                                 15,607,993             754,247           6,797,995
                                                     ----------------    ----------------    ----------------

Interest income                                            1,120,871             523,115               9,210

Interest expense                                            (187,676)           (508,677)           (839,028)
                                                     ----------------    ----------------    ----------------
                                                             933,195              14,438            (829,818)
                                                     ----------------    ----------------    ----------------

Income before income taxes                                16,541,188             768,685           5,968,177

Income taxes (note 8)                                      6,451,000             307,000           2,387,270
                                                     ----------------    ----------------    ----------------

Net income                                           $    10,090,188             461,685           3,580,907
                                                     ----------------    ----------------    ----------------
                                                     ----------------    ----------------    ----------------

Net income per common share                          $          1.81                0.10                1.19
                                                     ----------------    ----------------    ----------------
                                                     ----------------    ----------------    ----------------

Net income per common share -
     assuming dilution                               $          1.64                0.09                0.97
                                                     ----------------    ----------------    ----------------
                                                     ----------------    ----------------    ----------------

</TABLE>





        See accompanying notes to consolidated financial statements


                                    Page 33

<PAGE>

                 SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                   Common                                                     Total
                                                   stock                 Common                              stock-
                                         --------------------------      stock            Retained          holders'
                                           Shares         Amount        warrants          earnings           equity
                                         ----------    ------------    ----------    -------------      -------------
<S>                                      <C>           <C>             <C>           <C>                <C>
Balance at June 30, 1995                  2,893,654    $  3,375,021    $   75,000    $   1,599,227      $   5,049,248

Exercise of stock options and warrants      284,479       1,315,765       (20,000)               -          1,295,765
Warrants issued for business
        acquisition (note 10)                     -               -       125,000                -            125,000
Net income                                        -               -             -        3,580,907          3,580,907
                                         ----------    ------------    ----------    -------------      -------------

Balance at June 30, 1996                  3,178,133       4,690,786       180,000        5,180,134         10,050,920

Exercise of stock options and warrants      527,245       1,960,780       (68,714)               -          1,892,066
Income tax benefit from stock
        options exercised                         -       1,645,740             -                -          1,645,740
Acquisition of
        SBS Embedded (note 2)               200,000          68,000             -          683,829            751,829
Common stock issued in
        public offering                   1,500,000      35,524,448             -                -         35,524,448
Net income                                        -               -             -          461,685            461,685
                                         ----------    ------------    ----------    -------------      -------------

Balance at June 30, 1997                  5,405,378      43,889,754       111,286        6,325,648         50,326,688

Exercise of stock options
        and warrants                        272,822       2,032,675       (41,168)               -          1,991,507
Income tax benefit from stock
        options exercised                         -       1,855,604             -                -          1,855,604
Net income                                        -               -             -       10,090,188         10,090,188
                                         ----------    ------------    ----------    -------------      -------------

Balance at June 30, 1998                  5,678,200    $ 47,778,033    $   70,118    $  16,415,836      $  64,263,987
                                         ----------    ------------    ----------    -------------      -------------
                                         ----------    ------------    ----------    -------------      -------------
</TABLE>

           See accompanying notes to consolidated financial statements

                                    Page 34
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                 Year Ended June 30,
                                                                   ---------------------------------------------
                                                                       1998            1997             1996
                                                                       ----            ----             ----
<S>                                                                <C>              <C>              <C>
Cash flows from operating activities:

     Net income                                                    $ 10,090,188         461,685        3,580,907
                                                                   ------------     -----------      -----------

     Adjustments to reconcile net income to net cash 
         provided by operating activities:

             Depreciation                                               960,943         705,160          316,494
             Amortization of intangible assets                        1,937,353       1,504,524          884,438
             Bad debt expense                                           136,078         223,004           56,933
             Deferred income taxes                                     (250,000)     (5,141,037)         (13,000)
             (Gain) loss on disposition of assets                         7,802        (189,579)          44,218
             Imputed interest                                           183,749         144,072              -
             Acquired in-process research and development charge            -        11,000,000              -
             Changes in assets and liabilities:
                 Receivables                                         (3,066,609)       (888,824)         673,406
                 Inventories                                         (2,480,430)       (541,340)      (1,192,938)
                 Prepaids and other assets                             (262,465)        260,367          144,862
                 Accounts payable                                       343,790        (143,036)        (635,049)
                 Accrued representative commissions                    (253,711)         79,181           27,810
                 Accrued salaries                                        53,870         683,403          562,603
                 Accrued compensated absences                           173,912          65,584           58,270
                 Income taxes                                          (247,290)        873,333         (127,532)
                 Other current liabilities                             (460,937)       (555,158)        (943,359)
                                                                   ------------     -----------      -----------
                     Net adjustments                                 (3,223,945)      8,079,654         (142,844)
                                                                   ------------     -----------      -----------

                     Net cash provided by operating activities        6,866,243       8,541,339        3,438,063
                                                                   ------------     -----------      -----------

Cash flows from investing activities:
     Cash received from sale of assets                                   54,200             -                -
     Business acquisitions, net of cash acquired (note 2)            (5,565,603)    (20,511,319)        (317,746)
     Acquisition of property and equipment                           (2,975,552)     (1,451,643)        (764,191)
     Proceeds from businesses divested and asset sales (note 3)             -         2,000,000              -
                                                                   ------------     -----------      -----------

                     Net cash used by investing activities           (8,486,955)    (19,962,962)      (1,081,937)
                                                                   ------------     -----------      -----------
</TABLE>
                                  (Continued)
                                    Page 35
<PAGE>

                     SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 Year Ended June 30,
                                                                   ---------------------------------------------
                                                                       1998            1997             1996
                                                                       ----            ----             ----
<S>                                                                <C>             <C>               <C>
Cash flows from financing activities:
     Proceeds from notes payable to bank                                    -               -          4,095,000
     Payments on notes payable to bank                                      -               -         (4,717,383)
     Payments on long-term borrowings and capital leases             (1,013,316)     (7,108,990)      (3,332,390)
     Net proceeds from refinancing long-term borrowings                     -               -            549,108
     Proceeds from exercise of stock options and warrants             1,991,507       1,892,066        1,295,765
     Income tax benefit of stock options exercised                    1,855,604       1,645,740              -
     Net proceeds from sale of common stock                                 -        35,524,448              -
                                                                   ------------     -----------      -----------

                     Net cash provided (used) by financing 
                         activities                                   2,833,795      31,953,264       (2,109,900)
                                                                   ------------     -----------      -----------

Net increase in cash and cash equivalents                             1,213,083      20,531,641          246,226

Cash and cash equivalents at beginning of period                     21,661,671       1,130,030          883,804
                                                                   ------------     -----------      -----------

Cash and cash equivalents at end of period                         $ 22,874,754      21,661,671        1,130,030
                                                                   ------------     -----------      -----------
                                                                   ------------     -----------      -----------

Supplemental disclosure of cash flow information:

     Interest paid                                                 $      3,916         275,415          875,736
     Income taxes paid                                                5,092,687       2,922,519        2,431,749

     Noncash financing and investing activities:

     Assets acquired through capital leases                        $        -            70,733              -
     Debt issued for acquisition                                            -         3,672,179              -

     Summary of assets, liabilities, and equity
        acquired through acquisition:

             Cash and cash equivalents                             $    239,021          23,489              -
             Receivables                                                943,917       2,157,225              -
             Inventories                                                475,311       2,412,589              -
             Deferred income tax                                            -            65,963              -
             Prepaid expenses                                            21,111         213,115              -
             Goodwill                                                 4,532,254      10,032,643              -
             Property and equipment                                      25,817       1,065,180              -
             Accumulated depreciation                                       -          (609,322)             -
             Accounts payable                                          (176,737)       (441,134)             -
             Accrued representative commissions                         (40,240)        (17,240)             -
             Accrued salaries                                           (73,938)       (108,099)             -
             Accrued compensated absences                                (9,971)       (154,135)             -
             Debt                                                           -          (404,277)             -
             Income taxes                                               (54,037)          1,552              -
             Other current liabilities                                  (77,884)       (278,733)             -
             Common stock                                                   -           (68,000)             -
             Retained earnings                                     $        -          (683,829)             -
                                                                   ------------     -----------      -----------
                                                                   ------------     -----------      -----------
</TABLE>

           See accompanying notes to consolidated financial statements
                                 Page 36
<PAGE>

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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  GENERAL

          The consolidated financial statements include the accounts of SBS
          Technologies, Inc. and its wholly owned subsidiaries. All significant
          intercompany accounts and transactions have been eliminated.

          The Company is a leading designer and manufacturer of open-
          architecture, standard bus embedded computer components that
          system designers can easily utilize to create a custom solution
          specific to the user's unique application. The Company's product lines
          include CPU boards, general purpose input/output modules, avionics
          interface modules and analyzers, interconnection and expansion units,
          telemetry boards, data acquisition software and industrial computer
          systems and enclosures. The Company has operations in New Mexico,
          Minnesota, North Carolina and California.

     (b)  SALES RECOGNITION

          Sales are recognized when goods are shipped to the customer.

     (c)  CASH AND CASH EQUIVALENTS

          Temporary investments with original maturities of ninety days or less
          are classified as cash and cash equivalents. Substantially all cash is
          held at one financial institution.

     (d)  INVENTORIES

          Inventories are valued at standard cost, which approximates weighted
          average cost, does not exceed market, and consists of the following:

<TABLE>
<CAPTION>

                                                                  June 30
                                                      -----------------------------
                                                           1998             1997
                                                           ----             ----
          <S>                                         <C>               <C>
          Raw materials                               $  4,970,267        3,211,502
          Work in process                                3,709,312        2,953,140
          Finished goods                                 1,981,632        1,540,828
                                                      ------------        ---------

                                                      $ 10,661,211        7,705,470
                                                      ------------        ---------
                                                      ------------        ---------
</TABLE>

          (e) PROPERTY AND EQUIPMENT

              Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                  June 30
                                                      -----------------------------
                                                           1998             1997
                                                           ----             ----
              <S>                                     <C>               <C>
              Computers                               $  2,358,773        1,862,814
              Software                                   1,526,558          946,608
              Furniture and equipment                    2,891,634        1,919,837
                                                      ------------        ---------

                                                      $  6,776,965        4,729,259
                                                      ------------        ---------
                                                      ------------        ---------
</TABLE>
                                 Page 37
<PAGE>

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

          Depreciation of property and equipment is provided over the estimated
          useful lives (three to twelve years) of the respective assets using
          straight-line and accelerated methods.

     (f)  INTANGIBLE ASSETS

          Intangible assets are stated at cost and consist of the following:

<TABLE>
<CAPTION>
                                                                  June 30
                                                      -----------------------------
                                                           1998             1997
                                                           ----             ----
              <S>                                     <C>               <C>
              Noncompete covenants                    $   -               1,290,001
              Goodwill                                 20,868,107        16,584,314
                                                      -----------        ----------
                                                       20,868,107        17,874,315
              Less accumulated amortization            (4,173,953)       (3,775,061)
                                                      -----------        ----------

                                                      $16,694,154        14,099,254
                                                      -----------        ----------
                                                      -----------        ----------
</TABLE>

          Noncompete covenants are amortized over the life of the covenants
          using the straight-line method. Goodwill is amortized over the
          estimated useful lives (three to ten years) of the respective assets
          using the straight-line method. The Company assesses the
          recoverability of goodwill by determining whether the amortization of
          the goodwill balance over its remaining life can be recovered through
          projected undiscounted future results. Impairment would be recognized
          in operating results if a permanent diminution in value were to occur.

     (g)  INCOME TAXES

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

     (h)  EARNINGS PER SHARE

          Effective with the quarter ended December 31, 1997, the Company
          adopted SFAS No. 128, "Earnings Per Share." In accordance with SFAS
          No. 128, all previously reported earnings per share amounts have been
          restated to comply with SFAS No. 128. Net income per common share is
          based on weighted average shares outstanding. Net income per common
          share - assuming dilution includes the dilutive effects of potential
          common shares outstanding during the period.

          A reconciliation of the numerator and denominator of the per share and
          per share - assuming dilution calculation follows:

                                 Page 38
<PAGE>

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

<TABLE>
<CAPTION>


                 YEAR ENDED JUNE 30         ----------------------------------------
                        1998                  Income           Shares      Per-Share
                        ----                (Numerator)    (Denominator)     Amount
                                            ----------------------------------------
         <S>                                <C>            <C>             <C>
         NET INCOME PER COMMON SHARE
           Net Income                       $10,090,188       5,583,429     $ 1.81
                                                                            ------
                                                                            ------
         EFFECT OF DILUTIVE SECURITIES
           Dilutive options and warrants            -           580,012
                                            -----------       ---------
         NET INCOME PER COMMON SHARE
         -ASSUMING DILUTION
           Net Income                       $10,090,188       6,163,441     $ 1.64
                                            -----------       ---------     ------
                                            -----------       ---------     ------

<CAPTION>
                                            ----------------------------------------
                        1997                  Income           Shares      Per-Share
                        ----                (Numerator)    (Denominator)     Amount
                                            ----------------------------------------
         <S>                                <C>            <C>             <C>
         NET INCOME PER COMMON SHARE
           Net Income                       $   461,685       4,535,746     $ 0.10
                                                                            ------
                                                                            ------
         EFFECT OF DILUTIVE SECURITIES
           Dilutive options and warrants            -           494,916
                                            -----------       ---------     ------
         NET INCOME PER COMMON SHARE
         -ASSUMING DILUTION
           Net Income                       $   461,685       5,030,662     $ 0.09
                                            -----------       ---------     ------
                                            -----------       ---------     ------

<CAPTION>
                                            ----------------------------------------
                        1996                  Income           Shares      Per-Share
                        ----                (Numerator)    (Denominator)     Amount
                                            ----------------------------------------
         <S>                                <C>            <C>             <C>

         NET INCOME PER COMMON SHARE
           Net Income                       $ 3,580,907       3,017,575     $ 1.19
                                                                            ------
                                                                            ------
         EFFECT OF DILUTIVE SECURITIES
           Dilutive options and warrants            -           676,233
                                            -----------       ---------
         NET INCOME PER COMMON SHARE
         -ASSUMING DILUTION
           Net Income                       $ 3,580,907       3,693,808     $ 0.97
                                            -----------       ---------     ------
                                            -----------       ---------     ------
</TABLE>

          For the years ended June 30, 1998, 1997 and 1996, options to purchase
          388,267; 279,828 and 210,000 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.

     (i)  FINANCIAL INSTRUMENTS

          SFAS 107, "Disclosures about Fair Values of Financial Instruments,"
          requires the fair value of financial instruments be disclosed. The
          Company's financial instruments are cash and cash equivalents,
          accounts receivable, accounts payable, and long-term debt. The
          carrying amounts of cash and cash equivalents, accounts receivable,
          accounts payable, and long-term debt, because of their nature,
          approximate fair value.

     (j)  RECLASSIFICATIONS

          Certain amounts in the 1997 and 1996 financial statements have been
          reclassified to conform to the 1998 presentation.

                                 Page 39
<PAGE>

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

     (k)  USE OF ESTIMATES

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

     (l)  STOCK OPTION PLANS

          Prior to July 1, 1996, the Company accounted for its stock option
          plans in accordance with the provisions of Accounting Principles Board
          ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and
          related interpretations. As such, compensation expense is recorded on
          the date of grant only if the current market price of the underlying
          stock exceeds the exercise price. On July 1, 1996, the Company adopted
          SFAS 123, "Accounting for Stock-Based Compensation," which permits
          entities to recognize as expense over the vesting period the fair
          value of all stock-based awards on the date of grant. Alternatively,
          SFAS 123 also allows entities to continue to apply the provisions of
          APB Opinion 25 and provide pro forma net income and pro forma earnings
          per share disclosures for employee stock option grants made in fiscal
          1996 and future years as if the fair-value-based method defined in
          SFAS 123 had been applied. The Company has elected to continue to
          apply the provisions of APB Opinion 25 and provide the pro forma
          disclosure provisions of SFAS 123.

     (m)  IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
          OF

          The Company adopted the provisions of SFAS 121, "Accounting for the
          Impairment of Long-Lived Assets and for Long-Lived Assets to Be
          Disposed Of," on July 1, 1996. This Statement requires that long-lived
          assets and certain identifiable intangibles be 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 future net cash flows (undiscounted and without interest
          charges) expected to be generated by the asset. If such assets are
          considered to be impaired, the impairment to be recognized is measured
          by the amount by which the carrying amount of the assets exceed the
          fair value of the assets. Assets to be disposed of are reported at the
          lower of the carrying amount or fair value less costs to sell.
          Adoption of this Statement did not have a material impact on the
          Company's financial position or results of operations.

     (n)  NEW ACCOUNTING STANDARDS

          In June 1997, the Financial Accounting Standards Board issued SFAS
          130, "Reporting Comprehensive Income." SFAS 130 establishes standards
          for reporting and display of comprehensive income and its components
          (revenues, expenses, gains, and losses) in a full set of general
          purpose financial statements. Specifically, SFAS 130 requires that all
          items that meet the definition of components of comprehensive income
          be reported in a financial statement for the period in which they are
          recognized. However, SFAS 130 does not specify when to recognize or
          how to measure the items that make up comprehensive income. SFAS 130
          is effective for fiscal years beginning after December 15, 1997.

                                 Page 40
<PAGE>

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

          In June 1997, the Financial Accounting Standards Board issued SFAS
          131, "Disclosures About Segments Of An Enterprise And Related
          Information." SFAS 131 supersedes the "industry segment" concept of
          SFAS 14 with a "management approach" concept as the basis for
          identifying reportable segments. SFAS 131 is effective for fiscal
          years beginning after December 15, 1997. The Company will adopt SFAS
          131 in fiscal 1999, having identified its reportable segments as the
          Computer Group and the Aerospace Group.

          In October 1997, the American Institute of Certified Public 
          Accountants issued SOP 97-2, Software Revenue Recognition, to 
          supersede SOP 91-1, the previously released SOP on this topic. SOP 
          97-2 provides additional guidance on when revenue should be 
          recognized, and in what amounts, for licensing, selling, leasing, 
          or otherwise marketing computer software. The provisions of SOP 
          97-2 are effective for transactions entered into in fiscal years 
          beginning after December 15, 1997. Adoption of SOP 97-2 is not 
          expected to have a material adverse impact on the Company's 
          financial statements.

(2)  BUSINESS ACQUISITIONS

     On November 24, 1997, the Company completed the purchase of Micro Alliance,
     a privately held San Diego county-based manufacturer of industrial computer
     systems and enclosures. Micro Alliance specializes in the design and
     manufacture of special-purpose PC-compatible computer systems offering a
     variety of CPU boards and system enclosures, including rack mount, desktop
     and mobile systems. The Company acquired all of the outstanding capital
     stock of Micro Alliance for a total purchase price of $5.8 million. The
     acquisition was accounted for using the purchase method of accounting and
     $4.5 million of goodwill is being amortized over 10 years. The financial
     results of Micro Alliance have been included in the Company's Consolidated
     Financial Statements from November 24, 1997.

     The purchase price was paid as follows:

<TABLE>
<CAPTION>
               <S>                                      <C>
               Cash                                     $  5,736,368
               Acquisition costs                              68,256
                                                        ------------
                                                        $  5,804,624
                                                        ------------
                                                        ------------
</TABLE>

     On November 18, 1996, the Company completed the purchase of Bit 3. Bit 3 is
     a St. Paul-based developer and manufacturer of high performance bus
     interconnect hardware and software products. The Company acquired all of
     the outstanding capital stock of Bit 3 for a total purchase price of $24.0
     million. The initial cash payment to the two shareholders of Bit 3 (the
     "Sellers") of $20.0 million was funded by an offering of SBS common stock.
     Subsequent cash payments of $1.0 million and $3.0 million were paid to the
     Sellers on July 1, 1997 and July 1, 1998, respectively. In connection with
     the acquisition, the Company made an assessment, in conjunction with an
     independent valuation firm, of purchased technology of Bit 3. The
     assessment determined that $11.0 million of Bit 3's purchase price
     represented technology that does not meet the accounting definition of
     "completed technology," and thus was charged to earnings under generally
     accepted accounting principles. The acquisition was accounted for using the
     purchase method of accounting, and accordingly, Bit 3's results of
     operations have been included in the consolidated financial statements
     since the date of acquisition. Goodwill is being amortized over 10 years.
     The purchase price was paid as follows:

                                 Page 41
<PAGE>

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

<TABLE>
<CAPTION>

          <S>                                                <C>
          Cash                                               $ 20,000,000
          Notes payable issued                                  4,000,000
          Discount of notes payable                              (327,821)
          Acquisition costs                                       534,808
                                                             ------------

                                                             $ 24,206,987
                                                             ------------
                                                             ------------
</TABLE>

     The following (unaudited) pro forma consolidated results of operations have
     been prepared as if the acquisitions of Bit 3 and Micro Alliance had
     occurred at July 1, 1996:

<TABLE>
<CAPTION>
                                                                        June 30              June 30
         (in thousands except per share amounts)                         1998                 1997
                                                                         ----                 ----
         <S>                                                            <C>                  <C>
         Sales                                                          $76,437              64,476
         Net income                                                      10,014               1,862
         Net income per common share                                       1.79                0.41
                                                                        -------              ------
                                                                        -------              ------
         Net income per common share  -  assuming dilution                 1.62                0.35
                                                                        -------              ------
                                                                        -------              ------
</TABLE>

     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 as of that
     time, nor is it intended to be a projection of future results.

     On August 19, 1996, the Company acquired SBS Embedded, a Raleigh, North
     Carolina-based designer and manufacturer of Intel processor-based CPU
     boards for the standard bus embedded computer market. The acquisition
     qualified as a pooling of interests for accounting purposes and constituted
     a tax-free reorganization for federal income tax purposes. Under the terms
     of the agreement, SBS Embedded shareholders exchanged all outstanding
     shares of SBS Embedded stock for 200,000 shares of the Company's stock. The
     financial position and results of operations of the Company and SBS
     Embedded are combined in fiscal 1997 on a prospective basis. SBS Embedded's
     historical results do not have a material effect on combined financial
     position or results of operations.

     On January 10, 1996, the Company's wholly owned subsidiary, GreenSpring,
     completed an asset purchase of the IndustryPack-compatible product line
     from Wavetron Microsystems, Inc. The purchase price, including
     capitalizable expenses, was $236,626. In conjunction with the acquisition,
     goodwill of $172,559 was recorded and is being amortized over five years.
     The reported net income and net income per common share for fiscal 1996
     would not have been materially different from that reported had the
     acquisition taken place at the beginning of fiscal 1996.

(3)  SALE OF JUDGMENTAL USE OF FORCE BUSINESS

     On June 26, 1997, the Company sold substantially all of the assets of the
     Company's Judgmental Use Of Force Business to FATS, Inc., for $2.0 million.
     This business marketed a Judgmental Use Of Force Training System used to
     train police and military personnel in appropriate situational use of
     force. The results of operations of this business were immaterial to the
     total operating results of the Company. The sale of property, plant, and
     equipment (net) and inventory were recorded at $139,296 and $409,421,
     respectively. The Company recorded estimated future costs associated with
     the sale of $1,262,207 on the date of sale. The balance of $793,677 was
     included in other current liabilities at June 30, 1997 and no liability
     existed at June 30, 1998. The Company recognized a gain on the sale of
     approximately $189,000 in fiscal 1997.

                                 Page 42
<PAGE>

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

(4)  SIGNIFICANT CUSTOMERS AND FOREIGN SALES

     In fiscal 1998, 1997 and 1996, no one customer exceeded 10% of the
     Company's sales. All of the Company's operations were conducted in the
     United States. International sales are denominated in U.S. dollars. During
     the years ended June 30, 1998, 1997 and 1996, export sales with minimal
     attendant risk, all of which were to unaffiliated customers, were
     approximately $11.6 million, $8.6 million and $5.1 million, respectively.
     Export sales were made primarily in the following foreign markets:

<TABLE>
<CAPTION>

                                        1998                1997              1996
                                        ----                ----              ----
                                   Sales      %        Sales      %      Sales      %
            Foreign Market        (000's)             (000's)           (000's)
            --------------       --------   -----     -------   -----   -------   -----
          <S>                    <C>        <C>       <C>       <C>     <C>       <C>
          United Kingdom         $  1,400    12.1       1,100    12.8     1,000    19.6
          Germany                   1,100     9.5         800     9.3       800    15.7
          Korea                       700     6.0       1,000    11.6       500     9.8
          France                    1,150     9.9         700     8.1       400     7.8
          Japan                     2,600    22.4       1,300    15.1       400     7.8
          Canada                    1,700    14.7       1,400    16.3       600    11.8
          Belgium                     200     1.7          50     0.6       300     5.9
          All Others                2,750    23.7       2,250    26.2     1,100    21.6
                                 --------   -----     -------   -----   -------   -----

          Total                  $ 11,600   100.0       8,600   100.0     5,100   100.0
                                 --------   -----     -------   -----   -------   -----
                                 --------   -----     -------   -----   -------   -----

          Sales                  $ 74,200    15.6      52,800    16.3    31,300    16.3
                                 --------   -----     -------   -----   -------   -----
                                 --------   -----     -------   -----   -------   -----

</TABLE>

(5)  RECEIVABLES

       Receivables, net consisted of the following:

<TABLE>
<CAPTION>
                                                                        June 30
                                                                  --------------------
                                                                  1998            1997
                                                                  ----            ----
        <S>                                                   <C>               <C>
        Accounts receivable                                   $ 13,408,656      9,545,264
            Less allowance for doubtful accounts                  (289,939)      (300,995)
                                                              ------------      ---------

                                                              $ 13,118,717      9,244,269
                                                              ------------      ---------
                                                              ------------      ---------
</TABLE>

(6)  FINANCING

     The Company's $2,500,000 line of credit matured on October 30, 1997 and was
     not renewed. No amounts were drawn on this line of credit during the years
     ended June 30, 1998 and 1997.

                                 Page 43
<PAGE>

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

(7)    LONG-TERM DEBT

       Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                          June 30
                                                                   -----------------------
                                                                      1998         1997
                                                                      ----         ----
<S>                                                                <C>           <C>
Notes payable to former shareholders of Bit 3, including
    imputed interest at 6.46% through June 30, 1998, secured
    by all Company assets, due July 1, 1998                        $ 3,000,000   2,816,251
Notes payable to former shareholders of Bit 3,
    including imputed interest at 6.46% through
    June 30, 1997, secured by all Company assets,
    due July 1, 1997                                                       -     1,000,000
Note payable, non-interest-bearing, payable in monthly 
    installments through August 1997                                                13,316
                                                                   -----------  ----------
                                                                     3,000,000   3,829,567
Less current installments                                           (3,000,000) (1,013,316)
                                                                   -----------  ----------

                                                                   $       -     2,816,251
                                                                   -----------  ----------
                                                                   -----------  ----------
</TABLE>

(8)    INCOME TAXES

       Income tax expense is comprised of the following:

<TABLE>
<CAPTION>

                                                                        Year ended June 30
                                                                ----------------------------------
                                                                1998           1997           1996
                                                                ----           ----           ----
         <S>                                               <C>                <C>           <C>
         Current:
            U.S. Federal                                   $  5,447,200       4,432,000     1,916,770
            State                                             1,253,800       1,082,000       483,500

         Deferred:
            U.S. Federal                                       (202,500)     (4,204,000)      (11,000)
            State                                               (47,500)     (1,003,000)       (2,000)
                                                           ------------      ----------    ----------
         Total income tax expense                          $  6,451,000         307,000     2,387,270
                                                           ------------      ----------    ----------
                                                           ------------      ----------    ----------

</TABLE>

     Income tax expense was provided for at an effective rate of 39.0, 40.0 and
     40.0 percent in 1998, 1997 and 1996, respectively. The actual tax expense
     differs from the "expected" tax expense (computed by applying the statutory
     U.S. Federal tax rate to income before income taxes) as follows:

                                 Page 44
<PAGE>

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

<TABLE>
<CAPTION>

                                                                  Year ended June 30
                                                          ----------------------------------
                                                          1998           1997           1996
                                                          ----           ----           ----
         <S>                                          <C>               <C>           <C>
         Computed "expected" tax expense              $ 5,735,651       261,350       2,029,180
         State income tax, net of federal income
            tax benefit                                   933,631        51,050         319,112
         Goodwill amortization                                -             -            21,508
         Nondeductible merger expenses                        -          62,800             -
         Dividend from foreign sales corporation         (102,000)     (102,000)            -
         Research and experimental tax credit            (250,000)          -               -
         Other                                            133,718        33,800          17,470
                                                      -----------      --------       ---------
                                                      $ 6,451,000       307,000       2,387,270
                                                      -----------      --------       ---------
                                                      -----------      --------       ---------
</TABLE>

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

<TABLE>
<CAPTION>
                                                                      Year ended June 30
                                                                     ---------------------
                                                                     1998             1997
                                                                     ----             ----
         <S>                                                      <C>               <C>
         Vacation and severance accruals                          $  297,600          179,200
         Inventory capitalization                                    685,200          519,100
         Acquired in-process R&D charge                            3,924,000        4,217,700
         Accrued expenses                                            197,500          277,900
         Amortization                                                497,500          234,900
         Allowance for uncollectible accounts                        100,000          120,400
         Other                                                       128,200           30,800
                                                                  ----------        ---------
                                                                  $5,830,000        5,580,000
                                                                  ----------        ---------
                                                                  ----------        ---------
</TABLE>

     In assessing the realizability of deferred tax assets, management considers
     whether it is more likely than not that some portion or all of the deferred
     tax assets will not be realized. The ultimate realization of deferred tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible. Management
     considers the scheduled reversal of deferred tax liabilities, projected
     future taxable income, and tax planning strategies in making this
     assessment. Based on the Company's 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 the Company's future taxable income will be sufficient
     to realize the benefit of the deferred tax assets existing at June 30,
     1998. Accordingly, management has no allowance for deferred tax assets at
     June 30, 1998 and 1997.

(9)  LEASES

     The Company leases its main facilities in Albuquerque, New Mexico,
     Carlsbad, California, Menlo Park, California, Vista, California, St. Paul,
     Minnesota, and Raleigh, North Carolina, under noncancelable operating
     leases which expire at various dates through fiscal 2003. The Company also
     leases various items of equipment under noncancelable operating leases
     which expire at various dates through fiscal 2003.

                                 Page 45
<PAGE>

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

<TABLE>
<CAPTION>
                                        Buildings          Equipment
      Year ending                        minimum            minimum
        June 30                       lease payments     lease payments        Total
        -------                       --------------     --------------        -----
      <S>                             <C>                <C>                  <C>
        1999                            $ 1,281,874           99,359          1,381,233
        2000                              1,244,284           87,356          1,331,640
        2001                                446,682           48,215            494,897
        2002                                386,497           12,444            398,941
        2003                                197,772            7,730            205,502
                                        -----------          -------          ---------
                                        $ 3,557,109          255,104          3,812,213
                                        -----------          -------          ---------
                                        -----------          -------          ---------
</TABLE>

     Total rental expense for operating leases for the years ended June 30,
     1998, 1997, and 1996 was $1,289,457, $886,965 and $521,885, respectively.

(10) STOCK OPTION PLANS AND WARRANTS

     (a)  1992, 1993, 1995, 1996 AND 1997 INCENTIVE STOCK OPTION PLANS

          The Company has 1992, 1993, 1995, 1996 and 1997 Incentive Stock Option
          Plans ("Plans") whereby a total of 1,400,000 shares of its common
          stock are reserved for discretionary grant of options by the Board to
          officers and employees who are not directors. The Plans all terminate
          ten years after inception, from the years 2001 to 2006.

          The options are intended to qualify as "incentive stock options"
          within the meaning of Section 422A of the Internal Revenue Code (the
          "Code"). The Plans generally permit options to be granted (i) only to
          employees or officers and not to directors as such; (ii) for a period
          of up to ten years; and (iii) at prices not less than fair market
          value of the underlying common stock at the date of grant. Under the
          Code, holders of more than 10 percent of the Company's 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 the Company. All of these options are
          exercisable at the quoted market value of the Company's common stock
          in effect on the respective dates of the grants.

     (b)  1993 DIRECTOR AND OFFICER STOCK OPTION PLAN

          The Company has a 1993 Director and Officer Stock Option Plan whereby
          a total of 5% of the number of shares outstanding at the first day of
          each fiscal year plus shares not awarded in prior years and underlying
          expired or terminated options, of its common stock are reserved for
          grant of options to all Directors of the Company who are not employees
          and all Executive Officers of the Company. Directors who are not
          employees of the Company receive automatic grants on the anniversary
          date of their service as a Director of the Company. Executive Officers
          receive grants subject to 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.

                                 Page 46
<PAGE>

                   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 provides for the
          grant of options to eligible employees on January 21, 1996, 1997 and
          1998. 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 the Company's 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. On
          September 15, 1997 the Board of Directors approved an extension of
          this plan for an additional five years.


     (d)  1998 LONG-TERM EQUITY INCENTIVE PLAN

          The 1998 Long-Term Equity Incentive Plan ("Plan") was adopted by the
          Board of Directors on September 15, 1997 and subsequently approved at
          the December 1997 reconvened Annual Shareholder Meeting. All full-time
          employees of the Company and its subsidiaries and all non-employee
          Directors of the Company are eligible to be selected 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 1,500,000, subject to adjustment in accordance with the
          provisions of the Plan. The exercise price of each option 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 term of these options cannot exceed ten years from grant
          date. The Plan expires in January, 2008.

     (e)  WARRANTS

          In connection with the acquisition of GreenSpring, warrants to
          purchase 400,000 shares of common stock at $4.50 were issued to the
          former shareholders and option holders of GreenSpring. Of these
          warrants, 150,000 were exercisable immediately upon closing and the
          remaining 250,000 warrants vested during fiscal year 1996. At June 30,
          1998, 213,537 warrants had been exercised and 46,227 were forfeited
          under the net issuance method.

          In connection with the 1992 Initial Public Offering, warrants to
          purchase 100,000 common shares at $4.80 per share were issued to the
          underwriter. All of the warrants issued vested in January 1993 and
          were exercised in fiscal year 1997.

                                 Page 47
<PAGE>

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

         Information regarding the Company's stock option plans and warrants is
summarized below:

<TABLE>
<CAPTION>

                                   1991        ALL         1993        1996      1998
                                   NSOP       ISOPS         D&O        ESPP       LT        WARRANTS    TOTAL
    ------------------------------------------------------------------------------------------------------------
    <S>                           <C>        <C>          <C>        <C>       <C>           <C>       <C>
    OUTSTANDING AT 6/30/95        18,284     659,524       40,000        --         --       500,000   1,217,808
         Granted                      --     360,000      118,500    44,171         --            --     522,671
         Exercised                18,284     234,334        5,000        --         --        26,861     284,479
         Cancelled                    --      36,716           --       672         --        13,139      50,527
    ------------------------------------------------------------------------------------------------------------

    OUTSTANDING AT 6/30/96            --     748,474      153,500    43,499         --       460,000   1,405,473
         Granted                      --     399,997      170,000    25,510         --            --     595,507
         Exercised                    --     294,474       16,500        --         --       216,271     527,245
         Cancelled                    --      56,663           --    10,154         --        21,158      87,975
    ------------------------------------------------------------------------------------------------------------

    OUTSTANDING AT 6/30/97            --     797,334      307,000    58,855         --       222,571   1,385,760
         Granted                      --     105,000       37,000    43,796    283,000            --     468,796
         Exercised                    --      64,886      103,500    34,031         --        70,405     272,822
         Cancelled                    --      38,750      117,500     5,354         --        11,930     173,534
    ------------------------------------------------------------------------------------------------------------

    OUTSTANDING AT 6/30/98            --     798,698      123,000    63,266    283,000       140,236   1,408,200
    ------------------------------------------------------------------------------------------------------------
    ------------------------------------------------------------------------------------------------------------
    EXERCISABLE AT 6/30/96            --     478,474      115,000        --         --       293,334     886,808
    EXERCISABLE AT 6/30/97            --     217,333      108,500        --         --       139,238     465,071
    EXERCISABLE AT 6/30/98            --     246,197       77,500        --         --       140,236     463,933
    ------------------------------------------------------------------------------------------------------------
    ------------------------------------------------------------------------------------------------------------
    AVAILABLE FOR GRANT               --       7,609      227,240   202,709  1,217,000            --   1,654,558
           AT 6/30/98
    ------------------------------------------------------------------------------------------------------------
    ------------------------------------------------------------------------------------------------------------

</TABLE>

         Weighted average option exercise price information for fiscal years
1998, 1997, and 1996 follows:

<TABLE>
<CAPTION>

                                             1998          1997           1996
    ---------------------------------------------------------------------------
    <S>                                    <C>             <C>            <C>
    Outstanding at July 1                  $ 13.53          6.27           4.62
    Granted during the year:
         Price = Market Value                25.51         22.28          11.25
         Price > Market Value                   --            --           5.50
    Exercised during the year                 7.76          4.74           4.65
    Cancelled during the year                17.81          9.37           4.53
    Outstanding at June 30                   18.11         13.53           6.27
    Exercisable at June 30                    9.89          6.71           4.83
    ---------------------------------------------------------------------------
    ---------------------------------------------------------------------------

</TABLE>

                                 Page 48
<PAGE>

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

          Significant option groups outstanding and exercisable at June 30, 1998
          and related weighted average price and life information follows:

<TABLE>
<CAPTION>

    ---------------------------------------------------------------------------------------------
                                          Weighted
                                           Average      Weighted 
                                          Remaining      Average
     Range of Exercise       Number      Contractual    Exercise     Number      Weighted Average
          Prices          Outstanding       Life          Price    Exercisable    Exercise Price
     --------------------------------------------------------------------------------------------
     <S>                  <C>            <C>            <C>        <C>           <C>
      $ 4.50 - $ 6.50       356,433         6.28         $  4.94     326,433         $  4.85
      $ 7.88 - $18.25       353,500         7.84         $ 13.86      60,000         $ 16.04
      $20.25 - $28.25       388,034         7.97         $ 24.29      67,500         $ 25.23
      $28.56 - $34.00       310,233         8.18         $ 30.35      10,000         $ 34.00
     --------------------------------------------------------------------------------------------
      $ 4.50 - $34.00     1,408,200         7.56         $ 18.11     463,933         $  9.89
     --------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------

</TABLE>

          The per share weighted-average fair value of stock options granted at
          a price greater than market value during 1996 was $1.63 on the date of
          grant. The per share weighted-average fair value of stock options
          granted at a price equal to market value during 1998, 1997 and 1996
          was $11.89, $11.49 and $5.99, respectively, on the date of grant. The
          fair value of options at date of grant was estimated using the
          Black-Scholes Model with the following weighted-average assumptions:

<TABLE>
<CAPTION>

                                      1998         1997        1996
     ---------------------------------------------------------------
     <S>                             <C>          <C>          <C>
     Expected life (years)            3.14         2.26         2.58
     Risk free interest rate          5.83%        6.05%        6.25%
     Volatility                      62.59%       63.30%       63.30%
     Dividend yield                     --           --           --
     ---------------------------------------------------------------
     ---------------------------------------------------------------

</TABLE>

     The Company applies APB Opinion 25 accounting for its plans and
     accordingly, no compensation cost has been recognized for its stock options
     in the financial statements. Had the Company determined compensation cost
     based on fair value at grant date for its stock options under SFAS 123, the
     Company's net income and EPS would have been reduced to the pro forma
     amounts indicated below:

<TABLE>
<CAPTION>

                                           1998             1997            1996
     ------------------------------------------------------------------------------
     <S>                                <C>              <C>              <C>
     Net income, as reported            $ 10,090,188        461,685       3,580,907
     Net income (loss), pro forma          6,333,362     (1,694,626)      3,110,685
     EPS, as reported (basic)                   1.81           0.10            1.19
     EPS, pro forma (basic)                     1.13          (0.37)           1.03
     EPS, as reported (diluted)                 1.64           0.09            0.97
     EPS, pro forma (diluted)                   1.09          (0.37)           0.96
     ------------------------------------------------------------------------------
     ------------------------------------------------------------------------------

</TABLE>

     Pro forma net income (loss) reflects only options granted in fiscal 1998,
     1997 and 1996. Therefore, the full impact of calculating compensation cost
     for stock options under SFAS 123 is not reflected in pro forma net income
     amounts presented above because compensation cost is reflected over the
     options' vesting periods and compensation cost for options granted prior to
     July 1, 1995 is not considered.

                                 Page 49
<PAGE>

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

(11) RETIREMENT PLAN

     The Company maintains a retirement plan under Section 401(k) of the Code
     for all employees of the Company. The plan provides for employees to
     selectively defer a percentage of their wages, which the Company 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. Total Company contributions to the plan during the
     years ended June 30, 1998, 1997 and 1996 were $582,488, $342,029 and
     $185,387, respectively.

     Bit 3 and SBS Embedded maintained retirement plans under Section 401(k) of
     the Code for all of their employees. Subsequent to the Company's
     acquisition of Bit 3 and SBS Embedded, these plans were terminated and
     merged into the Company's plan.

     In addition, SBS Embedded maintained a profit sharing plan qualified under
     Section 401(a) of the Code for all of their employees. Subsequent to the
     Company's acquisition of SBS Embedded, this plan was terminated and plan
     participants had the option to take a distribution from the plan or
     rollover their balances into the Company's 401(k) plan.

(12) CONTINGENCIES

     The Company is subject to various claims which 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 the Company.

(13) SUBSEQUENT EVENTS

     On July 1, 1998, the Company acquired through its newly formed subsidiary,
     SBS Holdings GmbH, a 50.1% interest in OR. Based in Augsburg, Germany, OR
     designs, manufactures, and markets CPU boards utilized in a wide range of
     embedded computer applications. As part of the acquisition, the Company
     acquired, through its newly formed subsidiary, SBS Holdings GmbH, a 50.2%
     interest in ORTEC, a Mindelheim, Germany based related company which
     manufactures OR's commercial products and electronic products for other
     customers. The Company also acquired, through its wholly-owned subsidiary
     SBS Embedded Computers, Inc. based in Raleigh, NC, 100% of the shares of OR
     Computers, Inc, based in Fairfax, Virginia, which is the U.S. marketing
     support organization for the OR product line. In addition, the Company and
     the shareholders of both OR and ORTEC entered into exclusive option
     agreements whereby the Company may acquire the remaining shares of both
     companies on February 28, 1999. The purchase price, excluding transaction
     costs, for the majority interest in the two companies based in Germany and
     100% of OR Computers Inc. was DM 17.5 million, approximately $9.7 million,
     paid in cash and common stock at closing. The purchase price for the
     remaining interest in the two companies based in Germany is DM 17.2
     million, approximately $9.5 million based on the exchange rate at June 26,
     1998. The acquisition will be accounted for under the purchase method,
     whereby the purchase price will be allocated to the underlying assets and
     liabilities based upon their estimated fair values. It is expected that a
     portion of the purchase price will be allocated to in-process research and
     development which, under generally accepted accounting principles, will be
     expensed by the Company in the quarter ending September 30, 1998. Goodwill
     will be amortized over 10 years. For the year ended December 31, 1997,
     combined sales and net income of OR, ORTEC, and OR Computers, Inc. were
     approximately $12.1 million and $1.8 million, respectively. In fiscal 1999,
     the Company plans to change the name of OR to SBS OR Industrial Computers
     GmbH, and OR Computers, Inc. will operate as a wholly-owned subsidiary of
     SBS Embedded Computers, Inc. for the foreseeable future.

                                 Page 50
<PAGE>

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


     On August 12, 1998, the Company completed the acquisition of VI for $5.0
     million, subject to adjustment upon finalizing the closing balance sheet.
     Based in Encinitas, California, VoI designs, manufactures and markets CPU
     boards based on the Motorola PowerPC processor for computer applications
     that utilize VME and CompactPCI bus standards. The acquisition will be
     accounted for under the purchase method, whereby the purchase price will be
     allocated to the underlying assets and liabilities based upon their
     estimated fair values. Goodwill will be amortized over 10 years. For the
     year ended December 31, 1997, VoI had sales of approximately $5.6 million
     and net income of approximately $480,000 (unaudited).

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

None.

                                 Page 51
<PAGE>

                                 PART III

Certain information required by Part III is incorporated by reference to the
Company's definitive proxy statement pursuant to Regulation 14A (the "Proxy
Statement") for its annual meeting to be held November 9, 1998.

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF 
          THE REGISTRANT

The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Directors and Executive
Officers".

ITEM 11.  EXECUTIVE COMPENSATION

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT

The information required by this item is incorporated by reference to the
corresponding section of the Company's Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Directors and Executive
Officers".

                                 Page 52
<PAGE>

                                 PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K

(a)  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.

(b)  Financial Statement Schedules. The schedules are omitted inasmuch as the
     required information is not present or not present in amounts sufficient to
     require submission of the respective schedules, or the information is
     included in the financial statements, including the notes thereto.

(c)  Reports on Form 8-K during the fourth quarter.

     None.

                                 Page 53
<PAGE>

                                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.



                                       By:  /S/ Christopher J. Amenson
                                              Christopher J. Amenson
                                              Chairman of the Board and
                                              Chief Executive Officer

Date:  September 25, 1998

                                 Page 54
<PAGE>

                          SBS Technologies, Inc.
                        Annual Report on Form 10-K
                     Fiscal Year Ended June 30, 1998

                             INDEX TO EXHIBITS

<TABLE>
<CAPTION>

Exhibit
  No.              Description                                                 Page
-------    ----------------------------------------------------------------    ----
<S>        <C>                                                                 <C>
3.i(4)     Articles of Incorporation, as amended on February 11, 1998           - -
3.ii(4)    By-laws, as amended on May 8, 1995                                   - -
4.a(5)     Article VI of the Articles of Incorporation, as amended, as 
             included in the Articles of Incorporation of SBS Technologies,
             Inc.                                                               - -
4.b(5)     Articles I, II of the Bylaws of SBS Engineering, Inc., as amended    - -
4.c(5)     Form of certificate evidencing Common Stock                          - -
4.1(10)    Rights Agreement dates as of September 15, 1997 between SBS 
             Technologies, Inc. and First Security Bank, National Association, 
             as Rights Agent, which includes the form of Right Certificate 
             as Exhibit A and the Summary of Rights to Purchase Common Shares 
             as Exhibit B.2                                                     - -
10.a(6)    Employment agreement between Registrant and Dr. Andrew C. Cruce, 
             dated October 1, 1993, as amended                                  - -
10.b(6)    Employment agreement between Registrant and Scott A. Alexander, 
             dated October 1, 1993, as amended
10.c(7)    1997 Employee Incentive Stock Option Plan                            - -
10.d(6)    Employment agreement between Registrant and
             Christopher J. Amenson, dated April 24, 1992,
             as amended                                                         - -
10.e(1)    1991 Key Employee Stock Option Plan                                  - -
10.f(1)(7) 1992 Incentive Stock Option Plan                                     - -
10.g(1)    Stock Bonus Plan                                                     - -
10.h(2)(7) 1993 Incentive Stock Option Plan                                     - -
10.i(2)(7) 1993 Director and Officer Stock Option Plan
10.j(9)    Employment Agreement between Registrant and Stephen D. Cooper
            dated May 13, 1997                                                  - -
10.k(9)    First Amendment to Amended and Restated Credit Agreement
             and Related Loan Documents between Registrant and NationsBank
             of Texas, N.A. dated November 15, 1996                             - -
10.l(8)    Stock Purchase Agreement between Bit 3 Computer Corporation
             and Registrant dated October 8, 1996                               - -
10.m(9)    Asset Purchase between Fats, Inc. and Registrant
            dated June 26, 1997                                                 - -
10.q(3)    Asset Purchase Agreement dated April 26, 1995 between registrant
             and Camber Corporation.                                            - -
10.r(3)    Purchase Agreement dated April 28, 1995 between Registrant and 
             GreenSpring Computers, Inc. et al                                  - -
10.s(3)    Credit Agreement dated April 28, 1995 with NationsBank of 
             Texas, N.A.                                                        - -
10.t(3)    Lease dated May 25, 1995 between Registrant and PARS Asset
             Management Company                                                 - -
10.v(6)(7) 1996 Employee Stock Purchase Plan, adopted January 21, 1996          - -
10.w(6)    Amended and Restated Term Loan and Revolver
             Credit Facility from NationsBank of Texas, N.A.
             dated April 26, 1996.                                              - -

                                 Page 55
<PAGE>

10.x(6)    Lease dated March 5, 1996, between Registrant and
             Bohannon Trust Partnership II.                                     - -
10.y(6)    Pooling Agreement dated August 19, 1996 between
             Registrant and Logical Design Group, Inc. et al                    - -
10.z       Management Incentive Plan                                            Filed herewith electronically
10.aa(11)  Purchase Agreement among Micro Alliance, Jeffrey Huston, 
             Edward Larson, Sherrin W. Larson and the Registrant 
             dated November 24, 1997                                            - -
10.ab(12)  Third Amendment to that Certain Lease Agreement dated 
             May 29, 1995 by and between Firouz D. Memarzedah and 
             Farah R. Memarzadeh, husband and wife dba PARS Asset 
             Management Company and SBS Technologies, Inc., dated 
             December, 1997                                                     - -
10.ac(12)  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.ad(12)  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.ae(13)  Settlement Agreement and Release between SBS Technologies, 
             Inc. and Stephen D. Cooper                                         - -
10.af      Purchase Agreement dated July 1, 1998 between SBS 
             Technologies, Inc. and or Industrial Computers GmbH, 
             et al                                                              Filed herewith electronically
10.ag      Purchase Agreement dated August 12, 1998 between SBS 
             Technologies, Inc. and Themis Computer and the minority 
             shareholders of VI Computer                                       Filed herewith electronically
11(6)      Statement Re:  Computation of Per-Share Income                       - -
21         Subsidiaries of the registrant                                       Filed herewith electronically
23         Consent of KPMG Peat Marwick LLP                                     Filed herewith electronically
25         Power of attorney                                                    Filed herewith electronically
27         Financial Data Schedules                                             Filed herewith electronically
27.1(13)   Financial Data Schedule, restated, Fiscal Years 
             End 1997 and 1998                                                  - -
27.2(13)   Financial Data Schedule, restated, Quarters 1 and 
             2 of Fiscal Year End 1997                                          - -
27.3(13)   Financial Data Schedule, restated, Quarters 1, 2, 
             and 3 of Fiscal Year End 1997                                      - -
99.1a(13)  Agreement to Serve as Rights Agent.  On January 21, 
             1998, pursuant to Section 21 of the Shareholder Rights 
             Agreement dated September 15, 1997, SBS Technologies, 
             Inc. appointed Norwest bank Minnesota N.A. as Successor 
             Rights Agent                                                       - -

</TABLE>
                                 Page 56
<PAGE>

(1)        Incorporated by reference to the exhibit filed with the 
             Registrant's Registration Statement on Form S-18 (No 
             33-43256-D), originally filed October 8, 1991, which 
             Registration Statement became effective January 9, 1992.
(2)        Incorporated by reference to Exhibits "A" & "B" of the 
             Registrant's Proxy Statement for its annual meeting held 
             November 10, 1992.
(3)        Incorporated by reference to Exhibits 10.q, 10.r, 10.s and 10.t of 
             the Registrant's Annual Report on Form 10-K for the fiscal year 
             ended June 30, 1995.
(4)        Incorporated by reference to Exhibit 3.1 of the Registrant's 
             Quarterly Report on Form 10-Q for the quarter ended December 31, 
             1997.
(5)        Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 of 
             Registrant's Registration Statement on Form S-3 originally filed 
             on January 5, 1996 and Amendment No. 1 filed on March 14, 1996.
(6)        Incorporated by reference to Exhibits 10.a, 10.b, 10.d, 10.v, 
             10.w, 10.x, 10.y, and 11 of the Registrants Annual Report on 
             Form 10-K for the fiscal year ended June 30, 1996.
(7)        Incorporated by reference to the Registrant's Registration 
             Statement on Form S-8 originally filed on March 10, 1997 and 
             Amendment No.1 filed on April 4, 1997.
(8)        Incorporated by reference from the Registrant's Registration 
             Statement on Form S-2 dated October 9, 1996 Amendment No.1 dated 
             October 22, 1996 and Amendment No.2 dated November 14, 1996.
(9)        Incorporated by reference to Exhibits 10.j, 10.K, and 10.m of the 
             Registrant's Annual Report on Form 10-K for the fiscal year 
             ended June 30, 1997.
(10)       Incorporated by reference to Exhibit 4.1 to the Registrant's Form 
             8-K filed September 23, 1997
(11)       Incorporated by reference to Exhibit 10.aa to the Registrant's 
             Form 8-K filed December 9, 1997
(12)       Incorporated by reference to Exhibits 10.ab, 10.ac, and 10.ad of 
             the Registrant's Quarterly Report on Form 10-Q for the quarter 
             ended December 31, 1997.
(13)       Incorporated by reference to Exhibits 10.ae, 27.1, 27.2, 27.3 and 
             99.1a of the Registrant's Quarterly Report on Form 10-Q for the 
             quarter ended March 31, 1998

                                 Page 57