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                                  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 October 3, 1998 or

[ ]  Transition  report  pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

                         Commission file number 0-22799
                             BEI TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)

         Delaware                                             94-3274498
-------------------------------                  -------------------------------
(State or other jurisdiction of                          (I.R.S. Employer 
incorporation or organization)                           Identification No.)

                           One Post Street, Suite 2500
                         San Francisco, California 94104
               --------------------------------------------------
               (Address of principal executive offices) (Zip code)

                                 (415) 956-4477
               --------------------------------------------------
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 par value

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 proxy or information statements incorporated
by reference  in Part III of this Form 10-K or any  amendment to this Form 10-K.
[ ]




The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates of the Registrant as of November 27, 1998 was $72,983,150(A). As
of  November 27, 1998,  7,396,556  shares of  Registrant's  Common  Stock were
outstanding.

(A) Based upon the closing  sale price of the Common  Stock on November 27, 1998
as reported on the NASDAQ National Market System.  Excludes  1,557,904 shares of
Common  Stock held by  directors,  executive  officers  and  stockholders  whose
ownership  exceeds ten percent of Common Stock outstanding on November 27, 1998.
Exclusion of shares held by any person  should not be construed to indicate that
such person  possesses  the power,  direct or  indirect,  to direct or cause the
direction of the  management or policies of  Registrant,  or that such person is
controlled by or under common control with Registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant's  Proxy  Statement  with  respect  to its  1999  Annual  Meeting  of
Stockholders  to be  filed  with  the  Securities  and  Exchange  Commission  is
incorporated by reference into Part III, Items 10., 11., 12. and 13. of this
report.

<PAGE>


                                   TABLE OF CONTENTS


PART I

    Item 1.      Business..............................................

    Item 2.      Properties...........................................

    Item 3.      Legal Proceedings....................................

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

PART II

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

    Item 6.      Selected Financial Data..............................

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

    Item 8.      Financial Statements and Supplementary Data..........

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

PART III

    Item 10.     Directors and Executive Officers
                 of the Registrant....................................

    Item 11.     Executive Compensation...............................

    Item 12.     Security Ownership of Certain Beneficial
                 Owners and Management................................

    Item 13.     Certain Relationships and Related Transactions.......

PART IV

    Item 14.     Exhibits, Financial Statement Schedules,
                 and Reports on Form 8-K..............................

Signatures       .....................................................





<PAGE>




Except for the historical information contained herein, the following discussion
contains  forward-looking  statements that involve risks and uncertainties.  The
Company's  actual results could differ  materially  from those  discussed  here.
Factors that could cause or contribute to such differences  include, but are not
limited  to,  those  discussed  in  Item  1,  "Business"  as  well  as  Item  7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

PART I

ITEM 1.  BUSINESS

Introduction

     BEI  Technologies  ("Technologies"  or the "Company") was  incorporated  in
Delaware in June 1997 and became publicly held on September 27, 1997 as a result
of  the  tax-free  distribution  of  all  of the  outstanding  common  stock  of
Technologies  to the holders of record of BEI  Electronics,  Inc. (now named BEI
Medical Systems  Company,  Inc.)  ("Electronics")  common stock on September 24,
1997, on a basis of one share of  Technologies  common stock for every one share
of Electronics common stock outstanding on that date (the  "Distribution".)  For
further  information  including  copies  of  the  agreements  governing  ongoing
relationships between Technologies and Electronics, see the Form 10.

 The principal  business and continuing  operations of Technologies  are carried
out by its 100% owned subsidiary,  BEI Sensors & Systems Company, Inc. ("Sensors
& Systems")  which  designs,  manufactures  and sells  electronic  devices  that
provide vital sensory  input for the control  systems of advanced  machinery and
automation  systems.  These  sensors,  most of which are concerned with physical
motion,  provide  information  that is essential to logical,  safe and efficient
operation of  sophisticated  machinery.  Technologies'  discontinued  operations
consist  of the  operations  of its wholly  owned  subsidiary,  Defense  Systems
Company ("Defense Systems").

     The Company's long-term strategy is to provide, on a global basis, selected
advanced  intelligent  sensors based on  proprietary  technology.  Technologies'
management  believes that  intelligent  sensory input to machine control systems
and computers will be  increasingly  crucial to the productive  functioning of a
modern economy. Accordingly, Sensors & Systems' goal is to maintain, develop and
acquire a diverse offering of advanced sensor products, and manufacture and sell
these with  certain  complimentary  products.  Finally,  the Company will target
proprietary,  high margin niche markets for subsystems and end products in which
its traditional sensors,  micromachined sensors and complementary  products play
an  enabling  role.  The  Company's  near term  initiatives  include:  (a) broad
commercialization  of the "yaw" quartz rate sensor for the  automotive  industry
(as described below); (b) development and  commercialization of other internally
developed technologies that have broad applications and that management believes
to be promising;  and (c) expansion of the product line through  acquisitions of
complementary technologies.

     A key feature of the Company's  strategy is to be widely  recognized as the
most capable source for the sensor  categories it has selected.  Its traditional
emphasis is on highly engineered motion sensing  components and assemblies.  The
Company believes it differentiates itself by offering (a) appropriate technology
to solve a customer problem (including innovative proprietary  technology);  (b)
quality service; and (c) engineering  assistance in recommending and prescribing
technical solutions for its customers'  applications.  Sensors' products are not
sold as commodities.  Its strategy is to provide  technical  advice and customer
service that, together with the products  themselves,  create value and give the
customer confidence that the product has been expertly prescribed and applied.

     By way of more specific examples, the Company's engineers regularly address
the following illustrative machine control requirements of customers:

     (1) A pick and place robot needs to know how far its elbow and wrist joints
have moved in order to control the speed and position of its "hand."

     (2) After a power  outage,  an elevator  system needs to know exactly where
each car is before  permitting  motion to resume.  (Is the car between floors or
not?  Are the  doors  open or  closed?)  In both  the  foregoing  examples,  the
Company's encoders could measure speed, distance, or exact location.

     (3) An antenna on a moving ship needs to be actively stabilized so that the
antenna will  continuously  point at a satellite or another  ship's  pencil beam
laser signal.  For such an application the Company might provide its proprietary
GyroChip(R)  quartz  rate  sensor.  It might  also  provide  motor-encoders  and
actuators to drive the compensating action of such a system.

     (4)  Some  luxury  automobiles  now  have   computer-controlled   stability
enhancement  systems to assist drivers in maintaining  control of the vehicle in
slippery conditions. In some of these systems one of the Company's sensors tells
the computer  system the present  direction  and angle of the  steering  wheels,
while  another of the  Company's  sensors  instantly  measures  and  reports the
presence of "yaw" forces  which--if  not  corrected--could  cause the vehicle to
spin out or "fishtail".  The automation system in this case relies on sensors to
compare the driver's indicated  directions and the actual result. The system can
then take corrective  action  automatically.  Here the Company  provides special
GyroChip quartz sensors as well as encoder and potentiometer combinations.

     (5) Advanced  engine  control  systems in tractors,  trucks,  and materials
handling and construction equipment need to know throttle position data in order
to assure  efficient and clean combustion and safe and reliable gear changes and
other automated functions.  The Company's  potentiometers  provide the necessary
throttle position data.

     (6) Semiconductor production equipment requires extremely fast yet accurate
control of  start-move-stop  action on x-y positioners and tools.  The Company's
magnetic  actuators  provide the energizing  force for such tasks and its linear
encoders can measure travel and location.

     (7) Process  automation  systems and various  medical systems such as those
for cryosurgery  and  respiration  therapy  require  compact,  high  reliability
pressure  measurement  and fast acting  valves,  which are  accommodated  by the
Company's silicon pressure sensors and/or magnetic actuators.

Customers and Markets

     The foregoing examples illustrate a few of the thousands of machine control
situations for which the products of the Company are used. Customers who buy the
Company's products are makers and users of many different kinds of machinery and
systems used in diverse  markets and  industries.  Important  market  categories
include factory automation, process automation,  transportation (including cars,
trucks,  mass  transit,  construction  and  farm  equipment),  health  care  and
scientific equipment, and military, space and telecommunications applications.

     The Company  considers  its large number of customers and the vast scope of
existing  and  potential  applications  for its  products  to be a source of the
Company's  existing  business  strength and an opportunity for substantial  long
term growth.

     The Company's  brands have been well  established in North America for many
years  and were  distributed  during  the past  fiscal  year  through  Sensors &
Systems' direct sales force to more than 8,200 different  commercial  customers,
principally in the United States.  These  customers  included both end users and
original equipment manufacturers. The value of individual orders from commercial
customers--which  account for more than two thirds of total sales--is  typically
less than $100,000.

     Sales  from  continuing   operations  to  the  U.S.  Government  (or  prime
contractors who manage government funded projects) represented approximately 22%
of the  Company's  sales in fiscal  1997,  27% in fiscal  1996 and 32% in fiscal
1995. No commercial customer accounted for more than 10% of sales in fiscal year
1997,  1996 or 1995.  The  Company  sold  approximately  12% of its  products in
international  markets. The Company has initiated actions which it believes will
increase its penetration of international markets in fiscal year 1997.

     The Company also seeks to use its proprietary sensor capabilities to create
value-added  subsystems  or  products.  The  goal is to make  such  high  margin
products, enabled by the Company's proprietary technology, a growing part of the
Company's business.  For example,  the Company's success in providing components
for pointing and stabilizing telecommunications antennae has led to it
exploring the market for a proprietary stabilized platform for optical systems
that the Company may offer as a product.

Products and Proprietary Systems

     The Company's main product groups may be categorized as follows:

     1.  Traditional sensors and complementary products,

     2.  Micromachined sensors, and

     3.  Engineered  Subsystems (such as inertial measurement units,  electronic
         servo control systems, cryocoolers, scanner assemblies and trackballs)

     A  more  detailed   description  of  the  products  and  systems  designed,
manufactured and sold by the Company follows below:

   Traditional Sensors and Complementary Products:

     Shaft  Encoders.  Shaft  encoders  translate the motion of rotating  shafts
directly into digitally coded electronic signals.  These digitally coded signals
facilitate  interpretation of the sensed motion by microcomputer processors that
are used to control the operation of machinery and equipment.  Sensors & Systems
offers a wide array of  encoders  to serve a variety of  applications.  The most
common  applications  are  for  factory  automation,   office  automation,   and
transportation  equipment,  but specialized  versions are also used for military
and space hardware.  Value-added  assemblies which employ shaft encoders include
servo motors and servo drive electronic control systems.

     Brushless  DC  Motors.  Brushless  DC  Motors  give  high  performance  and
efficiency  in  compact,   lightweight  packages  and  ease  of  interface  with
microprocessors.   The  motors,   which   feature  high  energy   magnets,   are
characterized by long life and low acoustic and electrical  noise. They are well
suited to high speed,  high  reliability  applications,  such as in  respiration
therapy equipment where the risk of dust from a brush motor could be troublesome
or  where  electrical  noise  could  disrupt  computers  or  computer-controlled
equipment.

     Precision   Potentiometers.   Similar  in  basic   function  to   encoders,
potentiometers  measure  motion by analog (not  digital)  changes in  electrical
potential.  These changes may sometimes be subsequently  translated into digital
code.  Potentiometers are used as economical motion or position-sensing  devices
for throttle,  steering,  suspension,  and seat and mirror position  controls in
automobiles and in some heavy equipment,  such as earth movers, and construction
and farm machinery.  They are also used as position sensors in such applications
as  actuators  on  molding  presses,  saw  mills  and  numerous  other  types of
industrial equipment and in oil well logging calipers.  Incorporating  Sensors &
Systems' potentiometer  technology with its proprietary shaft encoder technology
has resulted in a highly  engineered  steering  wheel  position  sensor used for
intelligent  stability control systems for automobiles and potentially for other
vehicles in the future.

     Magnetic  Actuators.  Magnetic  actuators  are  used  in  place  of cams or
solenoids to achieve  precise  control of short stroke linear or limited  rotary
motion.  Actuators  using  very  high  energy  magnets  are  also  produced  for
specialized   applications  requiring  intense  force,  torque  or  acceleration
relative to the size of the device.

     Accelerometers.   Accelerometers   and  rate  sensors   using   traditional
mechanical  technology  (e.g.,  a moving  mass  suspended  by a pivot  and jewel
mechanism)  rely on the movement of complex  machined  metallic parts to measure
motion.

     Linear  Encoders.  Linear  encoders  give very high  accuracy,  scale-based
optical  measurement  of  linear  travel  over  distances  ranging  from  a  few
millimeters  to tens of meters.  The Company has  recently  commenced  exclusive
marketing in North America of linear encoders developed by the well known German
optical company, Carl Zeiss.

   Micromachined Sensors:

     Rate  Sensors  and  Accelerometers.  These  products  provide  precise  and
reliable  measurement of minute linear and angular motion for control,  guidance
and instrumentation.  In general,  these devices operate without need for direct
linkage to the driving  mechanisms.  Such  measurements are required for heading
and attitude  reference  instruments in aircraft and missiles,  stabilization of
satellites, pointing and control of antennae on aircraft, ships and other moving
platforms,  navigation  of oil well drill bit  assemblies,  and for  intelligent
vehicle  stability  and  navigation  systems  in  the  automotive  industry.  In
contrast,  Sensors & Systems'  miniature,  solid state  accelerometers  and rate
sensors are based on innovative and proprietary  chemical  micro-machining  of a
single element from crystalline quartz using  photolithographic  methods similar
to those used in the manufacture of silicon  semiconductor chips. The advantages
of quartz rate sensors and accelerometers over traditional  mechanical units are
increased reliability, reduced size, and lower production and life cycle costs.

     BEI  GyroChip(R)  Sensors.  The  Company's  family of GyroChip  quartz rate
sensors,  developed  primarily  to  accommodate  the need for  reliable and high
precision yet economical  gyros,  have found use in such varied  requirements as
navigation of autonomous  (robotic)  guided  vehicles,  ocean buoy and sea-state
monitoring,  and  stabilization  of pointing  systems for  antennas  and optical
systems.  The most frequent use of GyroChip units is as yaw sensors in stability
control or spin-out prevention systems for automobiles. GyroChip sensors provide
performance  suitable for commercial  applications  while  offering  ruggedness,
longer life and smaller  size at a lower cost than  military  versions of quartz
rates sensors.

     Pressure  Sensors.   Pressure  sensors  measure  absolute  or  differential
pressure  from  vacuum to 10,000  psi.  Various  sensing  technologies  are used
including  silicon  micromachined  structures used for commercial and industrial
markets.  The Company provides standard products as well as application specific
solutions to pressure measurement requirements.

     Micro-Electromechanical Structures (MEMS). MEMS are a new category of ultra
small devices,  usually micro-machined from crystalline materials such as quartz
or silicon.  The GyroChip  sensors and other quartz devices  discussed above are
examples of MEMS currently  being sold by  Electronics.  Management  expects the
Company's  MEMS  research  and  development  programs to lead to new devices for
sensing motion, pressure and other physical parameters.

   Engineered Subsystems:

     Inertial  Measurement  Units  (IMU's).  These  subsystems are a fundamental
element of virtually all inertial  navigation and position or attitude reporting
systems.  Even  systems  that rely on the  Global  Positioning  Satellite  (GPS)
network frequently must have an IMU built in to assure a back-up in case the GPS
signal  is  interrupted.   Technologies'  quartz  rate  sensors  have  made  new
breakthroughs  in size,  reliability and cost for the proprietary IMU subsystems
it sells.

     Cryocoolers.  The Company's  proprietary,  compact and lightweight stirling
cycle  refrigerators are designed for cooling advanced electronic vision sensors
to liquid  nitrogen  temperatures.  These  cryocoolers  are utilized in infrared
cameras used in surveillance,  night vision pilotage systems and superconducting
applications.

     Scanner  Assemblies.  Scanner  assemblies are an integral  subsystem of the
optics in military  night vision  systems  that guide the infrared  image to the
focal plane sensor array.  These subsystems consist of spinning or reciprocating
mirrors,  a motor and an encoder in a precision servo loop. The Company's motion
control   know-how   helps  assure  that  the  scanner   delivers   jitter-free,
well-resolved images.

     Servo  Systems.  Servo  Systems are  closed-loop  electronic  systems  that
control the  position or velocity of rotating  shafts or other  moving  parts by
noting a desired rate of movement or position  (usually  input from computers or
keyboards),  monitoring  the  actual  position  or rate of  movement  (using  an
appropriate  encoder or other  sensor) and  constantly  providing  feedback that
indicates  whether further action is required to achieve or maintain the desired
performance has been achieved.

     Trackballs.  BEI's  trackballs  have flexible and rugged designs that allow
them  to be an  integral  part of a  keyboard  as  well  as  stand-alone  cursor
positioners.  They are used in ultra-sound scanning machines, factory automation
and  defense  applications.   The  flexibility  is  provided  by  the  interface
electronics design that accommodates various standard and customized  interfaces
and rugged  performance is provided by a proprietary ball sealing technique that
allows operation in harsh environments.

Backlog

     Backlog  of the  Company's  continuing  business,  Sensors  &  Systems,  at
September 27, 1997 and at September 28, 1996, was $46,696,000  and  $39,832,000,
respectively.

     The Company's commercial operations typically ship standard products within
30 to 90 days  after  receipt  of a purchase  authorization.  Management  of the
Company believes that its competitive position depends in part on minimizing the
time that  elapses  between  receipt  and  shipment of an order.  Products  that
require  special  analysis,  design  or  testing,  such as  those  produced  for
customers in the aviation,  defense or space technology  markets,  are generally
shipped from six to eighteen months after receipt of the purchase authorization.

     Backlog includes  aggregate contract revenues remaining to be earned by the
Company  principally  over the next twelve months of scheduled  deliveries under
existing contracts. Some contracts undertaken by Sensors & Systems extend beyond
one year.  Accordingly,  portions of certain  contracts are carried forward from
one year to the next as part of backlog.  Approximately 88% of the backlog as of
September  27, 1997 is scheduled  for shipment  during  fiscal 1998;  all of the
remainder of the backlog is scheduled for shipment during fiscal 1999.

     In the  case  of U.S.  Government  contracts,  backlog  includes  only  the
applicable portion of contracts that are fully funded by a procuring  Government
agency.  All  U.S.   Government   contracts  and  subcontracts  are  subject  to
termination by the U.S.  Government for  convenience.  There can be no assurance
that all  existing  contract  backlog  will  eventually  result in revenue  and,
accordingly,  the amount of backlog  at any date is not  necessarily  a reliable
indicator of future revenue or profitability trends.

Competition

     Competitors  for  various  products  offered by the Company are found among
certain  divisions  or product  lines of large,  diversified  companies  such as
Allied-Signal, Boeing, Danaher Corp., Honeywell, Litton and Panasonic. There are
smaller or  product-specific  companies,  some of whose products compete include
Axsys Technologies, CTS Corp., Dynamics Research Corp., Heidenhain,  Kollmorgen,
Kulite Semiconductor, Pacific Scientific, and Servo Magnetics Corp.

     In its principal  markets,  the Company  believes that competition is based
primarily on design,  performance,  reliability,  price,  delivery,  service and
support.  The Company believes that it competes  favorably with respect to these
factors.

Manufacturing

     The Company's  manufacturing  operations  provide a mix of standard catalog
products  and  products  designed  to meet  the  specialized  requirements  of a
particular customer.  The Company's products,  whether standard or "custom", are
normally  manufactured  in response to customers'  orders and are in general not
held as finished goods. Most are assembled from parts or subassemblies  that are
proprietary to the Company.

     A special code pattern generator designed by and proprietary to the Company
is used to produce shaft encoder parts. Special quartz micromachining  equipment
is used for the production of QRS units.  Special high  throughput  automated or
semi-automated equipment is used for the production of QRS assemblies, brushless
motors  and   potentiometers.   Some  parts  are  fabricated  under  clean  room
conditions.

     The Company's  production of automotive yaw sensors requires scaling-up its
normal  production to the  quantities  required by the  automobile  market.  The
Company  has   initiated   production   engineering   measures  to  support  the
fabrication, assembly, and testing of new sensors in the appropriate quantities.

Research and Development

     The major research and  development  focus has been to improve  performance
and yield of existing products, with special emphasis on the quartz sensors used
in high  accuracy  IMU's and high  volume yaw rate  sensors  for the  automotive
industry.  Substantial  effort  has also  been  devoted  to the  development  of
manufacturing methods necessary to deliver competitive prices and quality in the
automotive  market.  Other development has focused on expanding  applications of
existing sensors and utilizing the Company's various  complimentary  products to
create the capability to electronically stabilize platforms.

     The Company has also produced  prototypes of future products  incorporating
silicon micro-electromechanical structures (MEMS) geared towards next generation
requirements for automotive, medical, industrial and aerospace markets.

     Management of the Company  believes that its future  success will depend in
part on its ability to continue to enhance its existing products, and to develop
and introduce new products that maintain technological leadership,  meet a wider
range  of  customer  needs  and  achieve  market  acceptance.  Accordingly,  the
Company's  internally  funded  research,  development  and  related  engineering
expenditures were approximately  $4.9 million,  $3.6 million and $4.0 million in
fiscal 1997, 1996, and 1995, respectively. In addition, customer funded research
and development  expenditures  charged to cost of sales were $1.1 million,  $3.0
million and $6.3 million, respectively, for the same periods. Development of the
quartz rate sensor  comprised most of prior years'  customer funded research and
development  expenditures.  As these  sensors  have  gone  from  development  to
production,  there has been a corresponding decrease in customer funded research
and development expenditures.

Employees

     As of  September  27,  1997,  the  units  comprising  Technologies  had 977
employees,  including  122  in  research,  development  and  engineering,  77 in
administration,  72 in marketing and sales,  and 706 in operations.  The Company
believes that its continued success depends on its ability to attract and retain
highly  qualified  personnel.   The  Company's  employees  are  not  covered  by
collective  bargaining  agreements.  The  Company has not  experienced  any work
stoppages and considers its relationship with its employees to be good.

Intellectual Property

     The Company relies primarily upon trade secrets and know-how to develop and
maintain its competitive  position. In addition the Company and its subsidiaries
own 79 U.S.  patents and 45 foreign patents with  expiration  dates ranging from
December  1997  to  October  2014.  Because  many of  these  patents  relate  to
technology that is important to certain of the Company's  products,  the Company
considers these patents to be significant to its business.

     While management believes that the Company's  intellectual  property rights
are  important,  management  also  believes  that  because  of the rapid pace of
technological  change in the industries in which the Company  competes,  factors
such as innovative skills,  technical expertise, the ability to adapt quickly to
technological  change and evolving  customer  requirements,  product support and
customer relations are of equal competitive significance.

Environmental Matters

     The Company uses certain controlled or hazardous  materials in its research
and manufacturing  operations and, as a result, is subject to federal, state and
local  regulations  governing the storage,  use and disposal of such  materials.
Management of the Company  believes that it is currently in compliance with such
laws and regulations.

Government Regulation

     The Company is subject to  significant  regulation  by the U.S.  Government
with  respect to a variety of matters  affecting  its  business,  including  the
matters set forth below and as discussed in the "Risk  Factors--Contracting with
the U.S. Government" below.

Facility Security Clearance

     The  Company  has  several  facility  security  clearances  from  the  U.S.
Government.  A portion of the Company's net sales in fiscal 1997,  1996 and 1995
was derived from work for which this  clearance  was required.  Continuation  of
this  clearance  requires that the Company  remain free from foreign  ownership,
control or influence (FOCI). In addition, the Company is required to comply with
the regulations  promulgated by the Defense  Investigative  Service (DIS), which
relate,  in large part,  to the Company's  control of  classified  documents and
other  information.  Management  does not believe  that there is  presently  any
substantial  risk of FOCI  or DIS  noncompliance  that  would  cause  any of its
security clearances to be revoked.

Regulation of Foreign Sales

     Certain  of Sensors  and  Systems'  exports  are  subject  to  restrictions
contained  in the U.S.  Department  of  State's  International  Traffic  in Arms
Regulations and require export licenses in order to be sold abroad.  Non-defense
related   foreign  sales  are  generally   governed  by  the  Bureau  of  Export
Administration  of the U.S. Commerce  Department which also frequently  requires
export licenses.  The Company's net sales from continuing  operations to foreign
customers  constituted  approximately  11.8%,  11.3% and 11.0% of  revenues  for
fiscal  1997,  1996  and  1995,  respectively.  To  date,  the  Company  has not
experienced any significant difficulties in obtaining the requisite licenses. In
addition,  the Company is subject to the Foreign  Corrupt  Practices  Act, which
prohibits payments or offers of payments to foreign officials for the purpose of
influencing an act or decision by a foreign government,  politician or political
party in order to assist in  obtaining,  retaining or directing  business to any
person.

RISK FACTORS

Competition

     Competitors for various  products  offered by Technologies  are noted above
under  "Business--Competition".  In addition,  the Company also may compete with
manufacturers of competing technologies,  such as resolvers,  inductosyns, laser
and fiber optic gyros and  magnetic  encoders.  Many of the  Company's  existing
competitors in each market,  and also a number of potential  entrants into these
markets,  have  significantly  greater  financial  resources  and  manufacturing
capabilities,   are  more   established,   have  larger   marketing   and  sales
organizations and larger technical staffs.  There can be no assurance that other
companies will not develop more sophisticated,  more cost-effective or otherwise
superior  products  which could have a material  adverse effect on the Company's
business, financial condition and results of operations.

Limited Manufacturing Experience; Scale-Up Risk; Product Recall Risk

     Technologies  is in the process of scaling up production of its  automotive
yaw sensors for the quantities  required by the automobile  market.  The Company
has  relatively  limited  experience in large-scale  manufacturing.  The Company
currently  manufactures  moderate quantities of its automotive yaw sensor in the
Concord, California facility and its steering  sensor in the Tustin, 
California  facility.  Manufacturers  sometimes encounter  difficulties  in
scaling up  production  of new  products,  including problems involving
production yields,  quality control and assurance,  component supply  and 
shortages  of  qualified  personnel.   If  such  difficulties  were encountered
by the Company in manufacturing scale-up, they could have a material adverse
effect on its business,  financial  condition and results of operations. There
can be no  assurance  that future  manufacturing  difficulties  or product
recalls,  either of which could have a material  adverse effect on the
Company's business, financial condition and results of operations, will not
occur.

Research and Development

     The Company depends in part on its research and development  initiatives to
provide new products and product  improvements which will maintain the Company's
favorable reputation in its various markets.  There can be no assurance that the
outcome of its research and development activity will yield the desired results.

Manufacturing Processes and Equipment

     The Company  manufactures  certain products such as quartz rate sensors and
some shaft encoders using highly  complex  proprietary  processes and equipment.
The  possibility  exists  that  equipment  could  be  damaged  or  that  process
disciplines  and controls could be temporarily  lost.  Such events could disrupt
production, which could have a material adverse effect on the Company's business
and results of operations.

Dependence Upon Key Personnel

     The Company is  dependent  upon a number of key  management  and  technical
personnel.  The loss of the services of one or more key  employees  could have a
material adverse effect on the Company.  The Company's  success will also depend
on its ability to attract and retain additional highly qualified  management and
technical  personnel.  The  Company  faces  intense  competition  for  qualified
personnel,  many of whom are often subject to offers from  competing  employers.
There  can be no  assurance  that the  Company  will be able to  retain  its key
employees,  or that it will be able to  attract  or  retain  additional  skilled
personnel  as  required.  The Company  does not  currently  maintain  key person
insurance on any employee. See  "Business--Employees"  and  "Business--Directors
and Executive Officers of the Company."

Dependence Upon Key Suppliers

     Although  the  majority  of the  components  used in Company  products  are
available  from multiple  sources,  several  components are built or provided to
Technologies' specifications. Such components include quartz, supplied by Sawyer
Research Products,  Inc.; scanner motors,  supplied by Litton Industries,  Inc.;
three types of ASIC's, supplied by National Semiconductor Corporation, Honeywell
Inc. and Semtech Corp.;  and two types of LED's,  supplied by Optek  Technology,
Inc. and Opto Diode Corp. While the Company currently relies on single suppliers
for these  components,  in each  instance,  the Company is aware of  alternative
suppliers and believes the components could be manufactured by these alternative
suppliers with minimal supply reduction should the need arise to change vendors.
To date, the Company has not experienced any  significant  interruptions  in the
supply of these components, but there can be no assurance that there will not be
a significant  disruption in the supply of such components in the future,  or in
the  event  of such  disruption,  that  the  Company  will  be  able  to  locate
alternative  suppliers of the components  with the same quality at an acceptable
price.  An  interruption  in the supply of components used in the manufacture of
the Company's products,  particularly as the Company scales up its manufacturing
activities in support of commercial sales,  could have a material adverse effect
on the Company's business, financial condition and results of operations.

Contracting with the U.S. Government

     Approximately  22%,  27% and 32% of the net sales of units  comprising  the
continuing   operations  of   Technologies   in  fiscal  1997,  1996  and  1995,
respectively,  were derived from  contracts  with the U.S.  Government  or under
subcontract to other prime contractors to the Government.  Because a significant
portion of Technologies'  business is derived from contracts with the Department
of Defense or other  agencies  of the  Government,  the  Company's  business  is
sensitive to changes in Government spending policies, which can have significant
variations from year to year. At various times, the  Company's  results have
been  adversely  affected by contract  cutbacks and there can be no assurance
that the Company's  results of operations  will not in the future be 
materially  and  adversely  affected  by  changes  in  Government procurement 
policies or  reductions  in  Government  expenditures  for products furnished
by the Company.

     Under  applicable  regulations,  various audit  agencies of the  Government
conduct regular audits of  contractors'  compliance with a variety of Government
regulations.  The Government also has the right to review retroactively the cost
records under most Government contracts.  Contract prices may be adjusted in the
event the Government determines that the Company submits incomplete,  inaccurate
or  obsolete  cost  or  pricing  data.  Government  contracts  and  subcontracts
generally  provide  for  either  a  fixed  price,   negotiated  fixed  price  or
cost-plus-fixed-fee  basis for remuneration.  The majority of the contracts with
the Government are competitive  fixed price or negotiated fixed price contracts,
although  cost-plus-fixed-fee  contracts were  approximately 3% of the Company's
net sales from continuing  operations in fiscal 1997. For fixed price contracts,
the Company  bears the risk of cost  overruns and derives the benefits from cost
savings.  As a result,  greater risks are involved  under fixed price  contracts
than under cost-plus contracts because failure to anticipate technical problems,
estimate  costs  accurately or control  costs during  contract  performance  may
reduce or eliminate the contemplated profit or may result in a loss.

     All  Government  contracts  contain  termination  clauses  that  allow  the
contract to be terminated  either for contractor  default or for the convenience
of the  Government.  In the  event of  termination  for the  convenience  of the
Government,  the clause  typically  provides  that the  contractor  will receive
payment for work-in-progress,  including profit. To date, termination of Sensors
& Systems' contracts by the Government has not had any significant effect on the
Company's  financial  results.  However,  no  assurance  can be given  that such
terminations will not have a materially  adverse effect on the Company's results
of operations in the future.

     Portions of the Company's government business are sometimes classified.  As
a result,  the Company may be prohibited from disclosing the substance or status
of such business.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The directors  and  executive  officers of the Company and their ages as of
December 1, 1998 are as follows:

               Name                  Age                Position
----------------------------------- ------ ----------------------------------
   Charles Crocker.................    59  President, Chief Executive Officer
                                           and Chairman of the Board of
                                           Directors
   Gary D. Wrench..................    65  Senior Vice President, Chief
                                           Financial Officer and Director
   Dr. Asad Madni..................    51  Vice President and Director
   Richard M. Brooks(1)(2).........    70  Director
   George S. Brown(2)..............    77  Director
   C. Joseph Giroir, Jr.(1)(2).....    59  Director
   Dr. William G. Howard, Jr.(1)...    57  Director
   Dr. Robert Mehrabian(1).........    57  Director
   Dr. Lawrence A. Wan.............    60  Vice  President, Chief Technical
                                           Officer
   Robert R. Corr..................    52  Secretary, Treasurer & Controller

---------
(1)  Member of the Audit Committee
(2)  Member of the Compensation Committee



Directors

Mr. Crocker began serving as a Director in June 1997 prior to the 
Distribution and resulting spin-off of the Company from Electronics in 
September 1997.  He was a founder of Electronics and has served as 
Chairman of the Board of Directors of Electronics since October 1974 and 
Chairman of the Board of Directors of Technologies since October 1997.  
Mr. Crocker assumed the positions of President and Chief Executive Officer 
of Technologies, effective October 1, 1997, after resigning as President 
and CEO of Electronics as a result of the Distribution.  Mr. Crocker 
served as President of Crocker Capital Corporation, a Small Business 
Investment Company, from 1970 to 1985, and as General Partner of Crocker 
Associates, a venture capital investment partnership, from 1970 to 1990. 
He currently serves as a director of Fiduciary Trust Company 
International, Pope & Talbot, Inc. and KeraVision.  Mr. Crocker holds a 
B.S. from Stanford University and a M.B.A. from the University of 
California, Berkeley.

Mr. Wrench began serving as a Director in June 1997 prior to the 
Distribution and resulting spin-off of the Company from Electronics in 
September 1997.  He was Senior Vice President and Chief Financial Officer 
of Electronics from July 1993 until his resignation as a result of the 
Distribution.  He currently holds these same positions with Technologies. 
He served as a Director of Electronics since February 1986, and continues 
to serve as a director of both Electronics (now named BEI Medical Systems 
Company, Inc.) and Technologies.  From April 1985 to July 1993, he served 
as Vice President of Electronics and President and Chief Executive Officer 
of BEI Motion Systems Company, Inc., then a wholly owned subsidiary of 
Electronics that is now a part of Sensors & Systems.  Other experience 
includes twenty years with Hughes Aircraft Company.  Mr. Wrench holds a 
B.A. from Pomona College and a M.B.A. from the University of California, 
Los Angeles.

Dr. Madni began serving as a Director and as a Vice President of the 
Company in June 1997 prior to the Distribution and resulting spin-off of 
the Company from Electronics in September 1997.  Dr. Madni was appointed 
President of Sensors & Systems in October 1993, which was formed by the 
consolidation of BEI Motion Systems Company and the BEI Sensors and 
Controls Group, of which Dr. Madni had been President since October 1992. 
Prior to joining BEI in 1992, he served for 17 years in various executive 
and technical management positions with Systron Donner Corporation, a 
manufacturer of avionics and aerospace sensors and subsystems.  He was 
most recently Chairman, President and CEO of Systron Donner Corporation, 
a subsidiary of Thorn/EMI.  Dr. Madni's degrees include a Bachelor of 
Science and Master of Science in Engineering from the University of 
California, Los Angeles and a Ph.D. in Engineering from California Coast 
University.  He is also a graduate of the Program for Senior Executives 
from the Massachusetts Institute of Technology, Sloan School of 
Management.  He is a fellow of the Institute of Electrical and Electronics 
Engineers.

Mr. Brooks is currently an independent financial consultant.  He began 
serving as a Director in June 1997 prior to the Distribution and resulting 
spin-off of the Company from Electronics in September 1997.  From 1987 
until his resignation as a result of the Distribution, he served as a 
director of Electronics.  From 1987 to 1990 he served as President of SFA 
Management Corporation, the managing general partner of St. Francis 
Associates, an investment partnership.  He currently serves as a director 
of Longs Drug Store Corporation, Granite Construction, Incorporated and 
the Western Farm Credit Bank, a private company.  Mr. Brooks holds a B.S. 
from Yale University and a M.B.A. from the University of California, 
Berkeley.

Mr. Brown began serving as a Director in June 1997 prior to the 
Distribution and resulting spin-off of the Company from Electronics in 
September 1997.  He served as a director of Electronics from October 1974 
until his resignation as a result of the Distribution.  Mr. Brown served 
as President and Chief Executive Officer of Electronics from October 1974 
until July 1990.  Mr. Brown served from 1971 until 1974 as Executive Vice 
President and General Manager of Baldwin Electronics, Inc., a subsidiary 
of D.H. Baldwin Company and the predecessor of Electronics.  Mr. Brown 
holds a B.S.E.E. from the University of Oklahoma.

Mr. Giroir began serving as a Director in June 1997 prior to the 
Distribution and resulting spin-off of the Company from Electronics in 
September 1997.  He was a director of Electronics from 1978 until his 
resignation as a result of the Distribution.  He served as Secretary of 
Electronics from 1974 to early 1995.  He is currently of counsel of the 
law firm of Giroir, Gregory, Holmes & Hoover, PLC.  Mr. Giroir is also 
President of Arkansas International Development Corporation II, LLC.  Mr. 
Giroir holds a B.A. and an L.L.B. from the University of Arkansas and an 
L.L.M. from Georgetown University.

Dr. Howard began serving as a Director in June 1997 prior to the 
Distribution and resulting spin-off of the Company from Electronics in 
September 1997.  He was a director of Electronics from December 1992 until 
his resignation as a result of the Distribution.  He is currently an 
independent consulting engineer in microelectronics and technology-based 
business planning.  From 1987 to 1990, Dr. Howard served as Senior Fellow 
of the National Academy of Engineering and, prior to that time, held 
various technical and management positions with Motorola, Inc., most 
recently as Senior Vice President and Director of Research and 
Development.  He currently serves as Chairman of RAMTRON International 
Corp. and as a director of Credence Systems, Inc., VLSI Technologies, 
Inc., and Xilinx, Inc.  Dr. Howard holds a B.E.E. and a M.S. from Cornell 
University and a Ph.D. in electrical engineering and computer sciences 
from the University of California, Berkeley.

Dr. Mehrabian began serving as a Director in June 1997 prior to the 
Distribution and resulting spin-off of the Company from Electronics in 
September 1997.  He was a director of Electronics from June 1997 until his 
resignation as a result of the Distribution.  He is Executive Vice 
President and Executive in charge of the Aeronautics, Electronic and 
Industrial segments of Allegheny Teledyne, Inc.  From 1990 through June 
1997, he was president of Carnegie Mellon University. He is an 
internationally recognized materials scientist, with numerous awards 
including membership in the National Academy of Engineering. He serves on 
the boards of directors of Allegheny Teledyne, Inc., Mellon Bank 
Corporation, Mellon Bank, N.A., and PPG Industries.  Dr. Mehrabian holds 
B.S. and Sc.D. degrees from Massachusetts Institute of Technology (MIT).


Staggered Board of Directors

The Company has a staggered Board of Directors, which may have the 
effect of deterring hostile takeovers or delaying changes in control of 
management of the Company.  For purposes of determining their term of 
office, directors are divided into three classes, with the term of office 
of the Class II directors to expire at the 1999 annual meeting of 
stockholders, and the term of office of the Class III directors to expire 
at the 2000 annual meeting of stockholders and the term of office of the 
Class I directors to expire at the 2001 annual meeting of stockholders. 
Class II consists of Mr. Giroir, Dr. Madni and Mr. Wrench; Class III 
consists of Mr. Brooks, Dr. Howard and Dr. Mehrabian and Class I consists 
of Mr. Brown and Mr. Crocker.  Directors elected to succeed those 
directors whose terms expire will be elected to a three year term of 
office.  All directors hold office until the next annual meeting of 
stockholders at which their terms expire and until their successors have 
been duly elected and qualified.  Executive officers serve at the 
discretion of the Board. There are no family relationships between any of 
the officers and directors.

Executive Officers

In addition to Messrs. Crocker and Wrench and Dr. Madni, whose 
positions with Technologies, experience and educational background are 
described under Directors above, the following persons are also 
Executive Officers of Technologies:

Dr. Wan is Vice President of Engineering for Sensors & Systems and is 
President of Sensors & Systems subsidiary, SiTek Inc.  Dr. Wan served as 
Vice President, Corporate Technology for Electronics from April 1991 until 
the Distribution in September 1997.  Dr. Wan resigned from his current 
position with Electronics immediately prior to the Distribution and is now 
Vice President, and Chief Technical Officer for Technologies and a 
director of Electronics (now named BEI Medical Systems Company, Inc.).  
From 1984 until 1990, Dr. Wan served as Vice President, Engineering for 
Systron Donner Corporation.  Between 1979 and 1984, he held various 
technical and general management positions with Systron Donner 
Corporation.  From 1968 to 1979, he served as Chief Executive Officer for 
Sycom, Inc. a commercial electronics company which he founded.  From 1964 
to 1968, he worked for Hughes Aircraft Company, where he headed the Radar 
Systems Section of the Hughes Ground Systems Group.  In 1962, Dr. Wan and 
two other professors established an Engineering School at University of 
California, Santa Barbara, where he also taught Engineering.  Dr. Wan 
holds B.S., M.S. and Ph.D. degrees in Engineering and Applied Sciences 
from Yale University.

Mr. Corr became Secretary, Treasurer and Controller of Technologies in 
September 1997 and held these same positions with Electronics prior to the 
Distribution in September 1997.  Mr. Corr resigned from his  positions 
with Electronics immediately prior to the Distribution.  Mr. Corr was 
named Secretary of Electronics in February 1995 and served as Controller 
from November 1989 and as Treasurer from November 1987 until the 
Distribution.   From 1978 to 1987, he was employed by AMPEX Corporation, 
an electronics and magnetic media company, in various financial positions. 
From 1975 to 1978, he was an auditor with Arthur Andersen LLP.  Mr. Corr 
received a B.B.A. from Loyola University and is a Certified Public 
Accountant in the State of California.

<PAGE>
ITEM 2.           PROPERTIES

The Company's  principal executive offices are located in leased office space in
San Francisco, California, under a lease which expires in 1998. The Company owns
or operates  ten other  facilities  that relate to the business and  maintains
office space in various  locations  throughout  the United  States for sales and
technical  support.  None of the owned  principal  properties  is subject to any
encumbrance material to the consolidated  operations of the Company. In addition
to its executive offices, the Company's principal facilities are as follows:


Location                     Description of Facility
---------------------------  ----------------------------------------------
Maumelle, Arkansas           Owned 50,000 square foot manufacturing,
                             engineering, administrative and research and
                             development facility.

Concord, California          Owned 101,000 square foot manufacturing,
                             engineering and administrative facilities.

Sylmar, California           Subleased 83,000 square foot manufacturing,
                             engineering and administrative facility.

Tustin, California           Leased 80,000 square foot manufacturing,
                             engineering and administrative facility.

San Marcos, California       Leased 35,000 square foot manufacturing,
                             engineering and administrative facilities.

Goleta, California           Owned 22,000 square foot manufacturing,
                             engineering and administrative facility.

Campbell, California         Subleased 5,000 square foot manufacturing,
                             administrative and research and development
                             facility.

Hayward, California          Leased 2,330 square foot engineering facility.
                             engineering and administrative facilities.

Euless, Texas                Owned 72,000 square foot manufacturing,
                             engineering and administrative facility and
                             subleased 2,000 square foot warehouse, used
                             primarily for record storage.

Strasbourg, France           Leased and subleased 20,000 square foot
                             manufacturing, engineering and administrative
                             facility.

<PAGE>

ITEM 3.           LEGAL PROCEEDINGS

The Company has pending  various legal  actions  arising in the normal course of
business.  Management believes that none of these legal actions, individually or
in the  aggregate,  will  have a  material  impact  on the  Company's  business,
financial condition, or results of operations.

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

None.

PART II 

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

On September 26, 1997, Technologies issued and sold 7,114,803 shares of 
common stock to Electronics in exchange for those assets of Electronics 
which were not related to Electronics' medical device business, and on 
September 27, 1997, pursuant to Division of Corporation Finance Staff 
Legal Bulletin No. 4 dated September 16, 1997, all of the outstanding 
common stock of Technologies was distributed by Electronics to its 
stockholders, on the basis of one share of Technologies common stock 
received for each share of Electronics common stock held on that date.  
For further discussion of this transaction see the Form 10.

The Company's common stock commenced regular way trading on the NASDAQ 
National Market System under the symbol "BEIQ" on October 8, 1997.  Set 
forth below are the high and low closing sale prices on the National 
Market System for the periods indicated.  Such quotations do not reflect 
retail mark-ups, markdowns or commissions.
<TABLE>
<CAPTION>
1998 Fiscal year                                                  Cash Dividend
(ended 10/03/98)                    High               Low            Declared
--------------------------------------------------------------------------------
<S>                                <C>                 <C>              <C>
Fourth Quarter                    $14.88              $6.00            $0.02
Third Quarter                     $19.63             $14.25            $0.02
Second Quarter                    $18.31             $11.88            $0.02
First Quarter                     $13.75             $11.63            $0.02

</TABLE>

As of November 27, 1998, there were approximately 1,200 holders of record 
of the Company's common stock.  The Board of Directors has declared and 
the Company has paid three cash dividends of $0.02 per share of common 
stock in fiscal 1998.  The Board of directors has declared a dividend of 
$.02 per share of common stock payable to stockholders of record at 
December 4, 1998, on December 22, 1998.  Payment of dividends is within 
the discretion of the Company's Board of Directors, will be subject to 
periodic review and will depend, among other factors, upon the earnings, 
capital requirements, operating results and financial condition of the 
Company from time to time.  There are no restrictions on the Company's 
ability to pay dividends provided the covenants set forth in its bank 
credit agreement and Senior Note Agreement are met (see "Management's 
Discussion and Analysis of Financial Condition and Results of Operations 
- Liquidity and Capital Resources" and Note 5 to the Consolidated 
Financial Statements).  The covenants primarily concern certain operating 
ratios and minimum balances of tangible net worth.

<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

The selected financial data for the five fiscal years presented below is derived
from the audited  Consolidated  Financial  Statements  of the Company.  The data
should be read in conjunction  with the  Consolidated  Financial  Statements and
their related Notes, and the other financial information included therein.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                 Year Ended
                                  -----------------------------------------------------------------------
                                   October 3,   September 27,  September 28,  September 30,   October 1,
                                      1998          1997           1996           1995           1994
--------------------------------  ------------  -------------  -------------  -------------  ------------
                                              (dollars in thousands except per share amounts)
<S>                               <C>           <C>            <C>            <C>            <C>
Statement of Income Data:
Net sales.......................     $124,264       $101,539        $96,746        $90,475       $82,361
Net income(loss) from
    continuing operations.......        2,515          2,997          2,873           (964)          321
Dilute earnings(loss) from 
    continuing operations.......         0.35           0.42           0.40          (0.14)         0.05
Weighted average shares used in
    computing diluted earnings
    per share...................        7,274          7,067          6,978          6,759         6,807

Balance Sheet Data:
Working capital.................      $36,124        $26,967        $27,775        $29,774       $39,179
Total assets....................      109,515         94,855         92,171         92,418        97,852
Long-term debt (excluding
    current portion)............       37,157         27,508         24,137         29,765        29,860
Stockholders' equity............       40,194         36,617         33,246         28,863        30,928
---------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

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

Except for the historical information contained herein, the following 
discussion contains forward-looking statements that involve risks and 
uncertainties.  The Company's actual results could differ materially from 
those discussed in, or implied by, these forward-looking statements.  
Factors that could cause or contribute to such differences include, but 
are not limited to, those discussed in this section and "Business." 

The following table sets forth, for the fiscal periods indicated, the 
percentage of net sales represented by certain items in the Company's 
Consolidated Statements of Operations.  The table and the accompanying 
analysis covers periods in which the businesses now carried on by 
Technologies were operated by Electronics.  However, the table and 
analysis have been prepared as if the Company and its businesses were a 
separate entity for all periods discussed.

<TABLE> 
<CAPTION> 
                                                       Year Ended
                                         ---------------------------------------
                                          October 3,  September 27, September 28,
                                             1998         1997          1996
                                         ------------ ------------  ------------
<S>                                      <C>          <C>           <C>
Net sales...........................           100.0%       100.0%        100.0%
Cost of sales.......................            68.9%        64.3%         62.5%
                                         ------------ ------------  ------------
Gross profit........................            31.1%        35.7%         37.5%

Operating expenses:
  Selling, general and
    administrative expenses.........            20.5%        24.6%         27.0%
  Research, development and
    related expenses................             5.1%         4.8%          3.7%
                                         ------------ ------------  ------------
Income from operations..............             5.5%         6.3%          6.8%
Other income........................             0.4%         0.3%          0.2%
Interest expense....................            -2.4%        -1.9%         -2.4%
                                         ------------ ------------  ------------
Income (loss) before income taxes...             3.5%         4.7%          4.5%
Income taxes (benefit)..............             1.5%         1.9%          1.5%
                                         ------------ ------------  ------------
Income (loss) from continuing
  operations........................             2.0%         2.9%          3.0%
Income (loss) from discontinued
  operations, net of income
  taxes.............................             0.1%         1.6%          1.7%
                                         ------------ ------------  ------------
Net income (loss)...................             2.1%         4.5%          4.7%
                                         ============ ============  ============
</TABLE>

Continuing Operations

Net Sales

In fiscal 1998, net sales from continuing operations increased 22.4% 
to $124.3 million from $101.5 million in fiscal 1997, reflecting increases 
in sales of automotive quartz rate sensors ("AQRS"), and traditional 
motion control products, primarily potentiometers and actuators.

In fiscal 1997, net sales from continuing operations increased 5.0% to 
$101.5 million from $96.7 million in fiscal 1996.  This increase reflects 
the continued growth in sales to commercial customers, including those for 
industrial, automotive and medical markets offset by decreased sales for 
government programs.

The Company's sales to international customers were approximately 
14.0%, 11.8%, and 11.3% of the Company's net sales from continuing 
operations for fiscal 1998, 1997 and 1996, respectively.  A significant 
portion of shipments of automotive quartz rate sensors for Continental 
Teves, which began volume deliveries in the fourth quarter of fiscal 1998, 
are international shipments and are expected to have a significant impact 
on net sales in fiscal 1999.


Cost of Sales and Gross Profit

In fiscal 1998, cost of sales as a percentage of net sales increased 
4.6 percentage points due primarily to start up costs associated with 
increased production needs for AQRS.  Based upon projections of future 
demand for the AQRS product provided by customers, the Company incurred 
significant hiring, training, test production and qualification costs in 
the second half of fiscal 1998 associated with increasing the Company's 
AQRS manufacturing capacity in the fourth quarter of fiscal 1998.  In 
addition, the shut down and start up of AQRS production caused by the 
General Motors strike and a resultant decrease in deliveries for six weeks 
of the fourth quarter 1998 had a negative impact on the quarter.

Fiscal 1997 cost of sales as a percentage of net sales increased 1.8% 
compared with fiscal 1996 due primarily to costs associated with the start 
up of production for new automotive sensors and cryocoolers, as well as 
unfavorable changes in product mix.

Downward pressure on gross profit margins continues for both commercial 
and government contracts.  Management continues to implement measures 
intended to reduce costs and improve average margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of net 
sales from continuing operations were 20.5%, 24.6%, and 27.0% in fiscal 
1998, 1997 and 1996, respectively.

Fiscal 1998 selling, general and administrative expenses increased $0.5 
million from $25.0 million in fiscal 1997 to $25.5 million in fiscal 1998 
due primarily to spending to support all growing product areas, primarily 
AQRS and precision potentiometers.

Fiscal 1997 selling, general and administrative expenses decreased $1.2 
million from $26.2 million in fiscal 1996 to $25.0 million due primarily 
to increased efforts to control corporate costs.

Research, Development and Related Expenses

The Company's internally funded research, development and related 
expenses as a percentage of net sales from continuing operations were 
5.1%, 4.8% and 3.7% for fiscal 1998, 1997 and 1996, respectively.

Research and development expenses in fiscal 1998 increased 31.7% 
reflecting primarily additional funding for micro-electromechanical 
systems (MEMS) product development for a variety of markets.

Research and development expenses increased 34.9% in fiscal 1997 from 
fiscal 1996 reflecting the Company's continued emphasis on developing new 
products for commercial markets.  Product programs included work on 
silicon MEMS, stabilized platforms, and sensors for stability control 
systems.

The Company believes that the continued timely development of new 
products and enhancements to its existing products is essential to 
maintaining its competitive position.  Accordingly, the Company 
anticipates that expenses associated with such efforts will increase in 
absolute amount, but may fluctuate as a percentage of sales depending on 
the Company's success in acquiring customers or, in some cases, U.S. 
Government funding.

Interest Expense and Other Income

Interest expense was $2.9 million, $1.9 million and $2.4 million in 
fiscal 1998, 1997 and 1996, respectively.  In fiscal 1998, interest 
expense primarily related to the Company's line of credit.  In fiscal 1997 
and 1996, interest expense primarily related to the Senior Note debt 
assumed by Technologies from Electronics in the Distribution.

Other income in fiscal 1998, 1997 and 1996 was comprised of royalty 
income and interest income earned on highly liquid investments.  Other 
income as a percentage of sales was approximately 0.4% in fiscal 1998 and 
has remained flat since fiscal 1995.


Income Taxes

The Company's effective tax rate was 41.8%, 37.4% and 33.0% for fiscal 
1998, 1997 and 1996, respectively.  The effective tax rate primarily 
reflects the statutory federal tax rate and the weighted average tax rate 
of the states in which the Company conducts business.  The fiscal 1998 
rate increased from the fiscal 1997 tax rate primarily due to an increase 
in the Company's state taxes subsequent to its spin-off from Electronics. 
 The fiscal 1996 tax rate reflects the realization of federal and state 
tax credits for research and development.  

Deferred Income Taxes

At October 3, 1998, the Company had net current deferred income tax 
assets of $4.8 million and net non-current deferred income tax assets of 
$1.0 million.  Realization of the net deferred tax assets is dependent 
upon the Company generating sufficient taxable income in future years to 
obtain benefit from the reversal of the underlying temporary differences.

Discontinued Operations

Income for Defense Systems was $0.1 million, $1.6 million and $1.7 
million in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 
income reflects the wind-down of rocket operations as a result of 
discontinuing these activities.  The fiscal 1997 income reflects follow-on 
orders for electronics products to support customers' requirements. The 
fiscal 1996 income reflects the receipt of a $3.6 million pre-tax 
settlement for a prior year Hydra 70 rocket manufacturing contract (see 
Note 2 to the Consolidated Financial Statements.)

Liquidity and Capital Resources

In connection with the Distribution in fiscal 1997, the Company assumed 
existing indebtedness of Electronics consisting of $22.4 million of Senior 
Notes.  In order to support its initial funding needs,  Sensors & Systems 
borrowed $9.0 million from a bank on a short-term line of credit which it 
transferred to Electronics prior to the Distribution to repay a portion of 
amounts payable to Electronics.  Subsequent to the Distribution, early in 
fiscal 1998, Technologies established a $25.0 million line of credit with 
the same bank under which it borrowed $13.0 million to repay the $9.0 
million borrowed by Sensors & Systems and make a scheduled payment on the 
Senior Notes. Subsequent to fiscal 1998 year end, on December 16, 1998, 
the Company established a new $12.0 million, two-year line of credit with 
a bank and terminated the borrowings under the $25.0 million line referred 
to above (see Note 5 to the Consolidated Financial Statements).

During fiscal 1998, operations provided $3.1 million in cash, including 
cash provided by discontinued operations of $1.1 million.  Net income of 
$2.7 million plus non-cash charges for depreciation and amortization of 
$4.5 million and $1.8 million, respectively, and net increases in accounts 
payable, accrued expenses and other liabilities of $3.3 million were 
partially offset by increases in trade receivables and deferred tax assets 
of $4.4 million and $1.2 million, respectively, and inventory purchases of 
$5.2 million.

Investing activities in fiscal 1998 consisted primarily of the purchase 
of $6.9 million in capital equipment to support new commercial product 
production, primarily production of automotive sensors.  An additional 
$1.6 million in cash partially funded the acquisition of Ideacod, S.A., a 
French sensor manufacturer, which expands the Company's European presence.

Fiscal 1998 financing activities included proceeds of $22.0 million 
from long-term debt on the line of credit and proceeds of $0.8 million 
from common stock issuances.  Offsetting these proceeds were repayments of 
$9.0 million on the short-term line of credit and $9.1 million of 
scheduled principal payments on long-term debt.  Dividend payments used an 
additional $0.6 million of cash. Subsequent to fiscal year end 1998, on 
November 16, 1998, the Company issued new senior notes, paid off the pre-
existing senior notes and paid down the outstanding borrowings on the 
Company's long-term line of credit as they matured (see Note 5 to the 
Consolidated Financial Statements).

The Company anticipates that its existing capital resources, including 
cash provided by operating activities and available bank borrowings, will 
be adequate to fund the Company's operations for at least the next twelve 
months.


Year 2000 Compliance: Modification of Management Information Systems

        The Company is evaluating the potential impact of what is commonly 
referred to as the "Year 2000" issue, concerning the possible inability of 
certain information systems to properly recognize and process dates 
containing Year 2000 and beyond.  If not corrected, these systems could 
fail or create erroneous results.  The Company has completed an assessment 
of its products and, at this time, does not believe its products present 
any Year 2000 issues.

        The Company's management information systems primarily use software 
products purchased from commercial sources without significant 
modification or customization.  Updates to these products are routinely 
installed by the Company to upgrade its systems and correct known faults 
in the software.  All major systems were reviewed during the fourth 
quarter of fiscal 1998 for Year 2000 issues by an outside consultant and 
a report was issued to the Board.  Where necessary, the requirements for 
upgraded hardware and software are in the process of implementation by all 
operating units and completion is expected by June 1999.  One operating 
unit is in the process of converting its existing manufacturing and 
financial systems, including new hardware, and expects to be finished in 
September 1999.  Approximately $100,000 was incurred for the study and no 
other significant incremental costs were identified with non-routine 
updates that specifically addressed only Year 2000 compliance. Based on 
currently available information, management does not believe the Year 2000 
matters discussed above related to internal systems or products sold to 
customers will have a material adverse impact on the Company's financial 
condition or operations; however, it is uncertain to what extent the 
Company may be affected by such matters.  In addition, there can be no 
assurance that the failure to ensure Year 2000 capability by a supplier or 
another third party would not have a material adverse effect on the 
Company.

Effects of Inflation

Management believes that, for the periods presented, inflation has not 
had a material effect on the Company's operations.

<PAGE>

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company is exposed to market risk in the form of changes in 
foreign exchange rates and changes in the prices of marketable equity 
securities held as part of a deferred compensation plan (a "Rabbi" trust).

        The Company has approximately $1,700,000 (translated from French 
francs at October 3, 1998) permanently invested in the assets of its 
acquisition in Strasbourg, France.  The potential loss in fair value 
resulting from a hypothetical 10% adverse change in the foreign currency 
exchange rate amounts to $170,000, which would not be material to the 
consolidated financial statements.

        The Rabbi trust assets, consisting of cash equivalents and debt and 
equity securities, are offset by an equivalent deferred compensation 
liability to the trust participants.  The liability fluctuates equally 
with changes in the value of the assets.  Since the liability completely 
offsets the assets of the trust, changes in asset value have no effect on 
the Company's results of operations or financial position.

<PAGE>



ITEM  8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                        October 3,  September 27,
dollars in thousands except share amounts                  1998         1997
------------------------------------------------------  ----------- ------------
<S>                                                     <C>         <C>
ASSETS
Current assets
Cash and cash equivalents.............................      $3,557       $5,034
Investments...........................................       5,419        5,446
Trade receivables:
   Commercial customers, less allowance for
      doubtful accounts (1998--$509; 1997--$363)......      18,201       12,917
   United States Government...........................       5,274        4,324
                                                        ----------- ------------
                                                            23,475       17,241

Inventories--Note 3...................................      29,623       22,656
Deferred income taxes--Note 6.........................       4,757        4,579
Other current assets..................................       1,078        1,039
Current assets of discontinued operations--Note 2.....          --        1,418
                                                        ----------- ------------
Total current assets..................................      67,909       57,413
                                                        ----------- ------------

Property, plant and equipment--Notes 5 and 10
Land..................................................       4,588        4,093
Structures............................................      13,290        8,936
Equipment.............................................      50,386       41,611
Leasehold improvements................................       1,316        1,036
                                                        ----------- ------------
                                                            69,580       55,676
Less allowances for depreciation and amortization.....      38,961       30,315
                                                        ----------- ------------
                                                            30,619       25,361
                                                        ----------- ------------
Other assets
Tradenames, patents and related assets, less
  amortization (1998--$2,700; 1997--$2,521)...........       1,583        1,753
Technology acquired under license agreements,
  less amortization (1998--$5,192;
  1997--$4,231).......................................       5,015        5,977
Goodwill, less amortization (1998--$458; 1997--$393)..       1,876          654
Deferred income taxes, non-current....................         993           --
Non-current assets of discontinued operations--Note 2.          --        1,625
Other.................................................       1,520        2,072
                                                        ----------- ------------
                                                            10,987       12,081
                                                        ----------- ------------
                                                          $109,515      $94,855
                                                        =========== ============
</TABLE>
See notes to consolidated financial statements.

<PAGE>




CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                        October 3,  September 27,
dollars in thousands except share amounts                  1998         1997
------------------------------------------------------  ----------- ------------
<S>                                                     <C>         <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable................................     $13,014       $6,317
Accrued expenses and other liabilities--Note 4........      13,125       10,497
Deferred compensation liability.......................       5,419        5,446
Current portion of long-term debt--Note 5.............         227        5,628
Current liabilities of discontinued
  operations--Note 2..................................          --        2,558
                                                        ----------- ------------
Total current liabilities.............................      31,785       30,446

Long-term debt, less current portion--Note 5..........      37,157       27,508

Other liabilities.....................................         379          284

Commitments and contingencies--Notes 2, 9, 10 and 11           --          --

Stockholders' equity--Notes 7 and 8
Preferred stock
    ($.001 par value; authorized 2,000,000 shares;
     none issued).....................................         --          --
Common stock
    ($.001 par value; authorized 20,000,000
     shares; issued and outstanding;
     1998--7,366,556; 1997--7,114,813)..................     2,132            7
Retained earnings.....................................      40,080       38,003
Accumulated other comprehensive income................          39           --
                                                        ----------- ------------
                                                            42,251       38,010
Less:  Unearned restricted stock--Note 8..............      (2,057)      (1,393)
                                                        ----------- ------------
Total stockholders' equity............................      40,194       36,617
                                                        ----------- ------------
                                                          $109,515      $94,855
                                                        =========== ============
</TABLE>
See notes to consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries
<TABLE> 
<CAPTION> 
                                                       Year Ended
--------------------------------------------------------------------------------
dollars in thousands except share and per October 3,  September 27, September 28,
share amounts                                1998         1997          1996
---------------------------------------- ------------ ------------  ------------
<S>                                      <C>          <C>           <C>
Net sales -- Note 2.................        $124,264     $101,539       $96,746
Cost of sales -- Note 2.............          85,562       65,291        60,494
                                         ------------ ------------  ------------
Gross profit........................          38,702       36,248        36,252
                                         ------------ ------------  ------------
  Selling, general and
    administrative expenses.........          25,491       24,959        26,157
  Research, development and
    related expenses................           6,410        4,866         3,608
                                         ------------ ------------  ------------
                                              31,901       29,825        29,765
                                         ------------ ------------  ------------
Income from operations..............           6,801        6,423         6,487
Other income........................             445          304           242
Interest expense....................          (2,924)      (1,942)       (2,444)
                                         ------------ ------------  ------------
Income before income taxes...                  4,322        4,785         4,285
Income taxes -- Note 6....                     1,807        1,788         1,412
                                         ------------ ------------  ------------
Income from continuing
  operations........................           2,515        2,997         2,873
Income from discontinued
  operations, net of income
  taxes -- Note 2...................             142        1,586         1,698
                                         ------------ ------------  ------------
Net income .........................          $2,657       $4,583        $4,571
                                         ============ ============  ============


    Basic Earnings Per Share -- Note 15
Income  from continuing
   operations per common share -- Note 7       $0.36        $0.44         $0.43
Income from discontinued
   operations per common share -- Note 7        0.02         0.23          0.25
                                         ------------ ------------  ------------
Net income per common share -- Note 7          $0.38        $0.67         $0.68
                                         ============ ============  ============
Shares used in computing basic earnings
   per share                               7,012,250    6,816,286     6,737,083
                                         ============ ============  ============


  Diluted Earnings Per Share -- Note 15
Income  from continuing operations per common
   and common equivalent share -- Note 7       $0.35        $0.42         $0.41
Income from discontinued operations per common
   and common equivalent share -- Note 7        0.02         0.22          0.24
                                         ------------ ------------  ------------
Net income per common and common
   equivalent share -- Note 7                  $0.37        $0.64         $0.65
                                         ============ ============  ============
Shares used in computing diluted earnings
   per share -- Note 7                     7,274,035    7,066,560     6,977,788
                                         ============ ============  ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Technologies, Inc. and Subsidiaries
<TABLE> 
<CAPTION> 
                                                      Year Ended
-------------------------------------------------------------------------------
                                         October 3,  September 27, September 28,
dollars in thousands                        1998         1997          1996
---------------------------------------- ----------- ------------  ------------
<S>                                      <C>         <C>           <C>
Cash flows from operating activities:
Net income ............................      $2,657       $4,583        $4,571
Adjustments to reconcile net
    income to net cash provided
    by operating activities:
Discontinued operations................       1,111        3,513         5,954
Depreciation...........................       4,537        4,304         4,204
Amortization...........................       1,789        1,636         1,711
Deferred income taxes..................      (1,171)      (2,727)          675
Other..................................          84         (672)         (121)
Changes in operating assets and
  liabilities:
Trade receivables......................      (4,383)        (604)         (835)
Inventories............................      (5,190)      (3,455)       (2,229)
Other current assets...................          98          886            80
Trade accounts payable, accrued
    expenses and other liabilities.....       3,260       (1,744)         (479)
                                         ----------- ------------  ------------
Net cash provided by operating
    activities.........................       2,792        5,720        13,531
                                         ----------- ------------  ------------
Cash flows from investing activities:
Acquisition of a business, net of cash
   acquired............................      (1,627)         --            --
Purchase of property, plant and
   equipment...........................      (6,890)      (6,761)       (3,624)
Other..................................        (128)          28            44
                                         ----------- ------------  ------------
Net cash used by investing activities..      (8,645)      (6,733)       (3,580)
                                         ----------- ------------  ------------
Cash flows from financing activities:
Borrowings on short-term debt..........          --        9,000           --
Principal payments on short-term debt        (9,000)         --            --
Proceeds from long-term debt                 22,017          --            --
Principal payments on long-term debt
    and other liabilities..............      (9,093)         (26)          (75)
Proceeds from issuance of common stock          768          --            --
Tax benefit from exercised stock options        264          --            --
Payment of cash dividends                      (580)         --            --
Decrease in payable to BEI
    Electronics, Inc...................          --      (11,128)       (4,342)
                                         ----------- ------------  ------------
Net cash used by financing activities..       4,376       (2,154)       (4,417)
                                         ----------- ------------  ------------
Net increase (decrease) in cash and
    cash equivalents...................      (1,477)      (3,167)        5,534
Cash and cash equivalents at beginning
    of year............................       5,034        8,201         2,667
                                         ----------- ------------  ------------
Cash and cash equivalents at end
    of year............................      $3,557       $5,034        $8,201
                                         =========== ============  ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------- ------------ ------------ ---------------------
                                                          Accumulated
                                                             Other                   Unearned
                                     Common    Retained   ComprehensiveComprehensiveRestricted
dollars in thousands                  Stock    Earnings      Income       Income       Stock      Total
----------------------------------- --------- ----------- ------------ ------------ ----------- ---------
<S>                                 <C>       <C>         <C>          <C>          <C>         <C>
Balances at September 30, 1995......  $  --      $29,593    $  --        $  --           ($730)  $28,863
Net income for 1996.................               4,571                                           4,571
Restricted Stock Plan--Note 8.......                                                      (188)     (188)
                                    --------- ----------- ------------ ------------ ----------- ---------
Balances at September 28, 1996......     --       34,164       --           --            (918)   33,246
Net income for 1997.................               4,583                                           4,583
Restricted Stock Plan--Note 8                                                             (475)     (475)
Common stock issued in connection
    with the Distribution...........       7          (7)                                            --
Net equity transactions with BEI
    Electronics, Inc--Note 15.......                (737)                                   --      (737)
                                    --------- ----------- ------------ ------------ ----------- ---------
Balances at September 27, 1997......       7      38,003       --           --          (1,393)   36,617
Comprehensive Income:
    Net income for 1998.............               2,657                     2,657                 2,657
    Other comprehensive income......
      Foreign currency translation
      gain, net of income tax of $27                               39           39                    39
                                                                       ------------
Comprehensive income                                                        $2,696
                                                                       ============
Restricted Stock Plan--Note 8.......   1,093                                              (664)      429
Stock options exercised -- Note 8        768                                                         768
Tax benefit from exercised stock....
    options -- Note 8...............     264                                                         264
Cash dividends                                      (580)                                           (580)
                                    --------- ----------- ------------              ----------- ---------
Balances at October 3, 1998.........  $2,132     $40,080          $39                  ($2,057)  $40,194
                                    ========= =========== ============              =========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>


Notes to Consolidated Financial Statements
BEI Technologies, Inc. and Subsidiaries
October 3, 1998

Note 1--Summary of Significant Accounting Policies

Basis of Presentation:  BEI Technologies, Inc. ("Technologies" or the 
"Company") was incorporated on June 30, 1997 in the State of Delaware, as 
a wholly owned subsidiary of BEI Electronics, Inc. (Electronics).  On 
September 27, 1997, Electronics distributed to holders of Electronics 
common stock one share of common stock of the Company for each share of 
Electronics common stock held on September 24, 1997 (the "Distribution"). 
In connection with the Distribution, Electronics transferred to 
Technologies all of the assets, liabilities and operations of its BEI 
Sensors & Systems Company, Inc. (Sensors & Systems) and Defense Systems 
Company, Inc. (Defense Systems) business segments.  As further described 
in Note 2, on June 30, 1997, the Board of Directors of Electronics also 
approved a formal plan to discontinue the operations of its Defense 
Systems segment.  The remaining operations of Defense Systems were 
discontinued as of July 4, 1998.

The accompanying financial statements present the consolidated 
financial position and results of operations of the Company and its 
wholly-owned subsidiaries.  The financial position and results of 
operations of Sensors & Systems and Defense Systems, former subsidiaries 
of Electronics and predecessor entities to the Company, are presented on 
a combined basis for all dates and periods prior to the Distribution.  All 
intercompany accounts and transactions have been eliminated.  The results 
of operations of the Sensors & Systems business segment are presented as 
continuing operations and those of the Defense Systems business segment 
through the end of the third quarter of fiscal 1998 are presented as 
discontinued operations.

The Sensors & Systems business provides sensors, engineered subsystems 
and associated components which are used for controlled precision 
machinery and equipment in industrial, medical, automotive, aerospace and 
military applications.

Fiscal Year: The Company's fiscal year ends on the Saturday nearest 
September 30.  Fiscal year 1998 contained 53 weeks.  Fiscal years 1997 and 
1996 each contained 52 weeks.

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 amounts 
reported in the financial statements and the accompanying notes.  Actual 
results could differ from these estimates.

Cash and Cash Equivalents:  The Company considers all highly liquid 
investments with a maturity of three months or less when purchased to be 
cash equivalents.

Concentration of Credit Risk:  The Company's products are primarily 
sold to commercial customers throughout the United States and in various 
foreign countries and to the United States government.  Substantially all 
foreign sales are denominated in U.S. dollars.  The Company performs 
ongoing credit evaluations of its commercial customers and generally does 
not require collateral.  The Company maintains reserves for potential 
credit losses.  Historically, such losses have been within the 
expectations of management.

Revenue Recognition:  Revenue is recognized generally as units are 
shipped. 

Inventories:  Inventories are carried principally at the lower of cost 
(first-in, first-out method) or fair value and do not exceed net 
realizable value.

Depreciation and Amortization:  Property, plant and equipment are 
recorded at cost.  Depreciation and amortization are provided in amounts 
sufficient to amortize the cost of such assets over their estimated useful 
lives, which range from 3 to 30 years, using the straight-line method for 
structures and the accelerated or straight-line methods for equipment.

Leasehold improvements are amortized over the shorter of the lease term 
or their estimated useful life.

Other Assets:  Tradenames, patents and related assets are being 
amortized over their remaining lives at the date of acquisition up to a 
period of seventeen years.

Technology acquired under license agreements consists primarily of 
the cost of exclusive rights to make, use and sell products utilizing 
quartz rate sensing technology.  Technology acquired is being amortized 
over thirteen years, which approximates its estimated useful life from the 
date of acquisition.

Goodwill consists of the excess of cost over fair value of net 
tangible assets acquired in purchase acquisitions. Goodwill is amortized 
by the straight-line method over 20 years.

Long-Lived Assets:  The Company accounts for any impairment of its 
long-lived assets using Financial Accounting Standards Board issued 
Statement of Financial Accounting Standard No. 121 ("FAS 121") Accounting 
for the Impairment of Long-Lived Assets and Long-Lived Assets to be 
Disposed Of.  The Company recognizes impairment losses on long-lived 
assets, including property, plant and equipment and other assets, when 
indicators of impairment are present and the undiscounted cash flows 
estimated to be generated by those assets are less than the carrying 
amounts of the assets.

Research and Development:  Costs to develop the Company's products 
are expensed as incurred in accordance with Statement of Financial 
Accounting Standards No. 2 "Accounting for Research and Development 
Costs", which establishes accounting and reporting standards for research 
and development.

Recent Accounting Pronouncements:  Statement of Financial Accounting 
Standards No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation," 
established a fair-value based method of accounting for stock-based 
compensation plans and requires additional disclosures for those companies 
who elect not to adopt the new method of accounting.  The Company has 
adopted the disclosure-only alternative as described in FAS 123 in fiscal 
year 1997.  The Company accounts for employee stock awards using the 
intrinsic value method in accordance with APB Opinion No. 25.

As of December 27, 1997, the Company adopted Statement of Financial 
Accounting Standards No. 128 ("FAS 128"), "Earnings per Share".  All prior 
earnings per share data have been restated to conform to the provisions of 
this statement.  Basic earnings per share is computed using the weighted 
average number of share outstanding.  Diluted earnings per share is 
computed using the weighted average number of shares outstanding, adjusted 
for the incremental shares attributed to unvested stock and outstanding 
options to purchase common stock calculated using the treasury shares 
method.  The impact on the calculation of earnings per share in prior 
periods was not material.

As of October 3, 1998, the Company adopted Statement of Financial 
Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive 
Income."  FAS 130 establishes new rules for the reporting and display of 
comprehensive income and its components; however, the adoption of this 
statement had no impact on the Company's net income or shareholders' 
equity.  FAS 130 requires disclosure of other comprehensive income which 
includes foreign currency translation adjustments, which prior to 
adoption, were reported separately in stockholders' equity. 

In June 1997, the Financial Accounting Standards Board issued 
Statement No. 131 "Disclosure about Segments of an Enterprise and Related 
Information" ("FAS 131").  The Company is required to adopt this Statement 
in fiscal year 1999.  FAS 131 requires disclosure of certain information 
regarding operating segments, products and services, geographic areas of 
operation and major customers.  Adoption of the Statement is expected to 
have no impact on the Company's consolidated financial position, results 
of operations or cash flows.

The Company has a grantor trust to fund deferred compensation for 
certain employees (a "Rabbi Trust".)  The 
assets in the trust, consisting of cash equivalents and debt and equity 
securities, are quoted at current market prices as determined by the 
trustee, principally based upon national exchange and over-the-counter 
markets, and are available to satisfy claims of the Company's general 
creditors in the event of its bankruptcy.  Previously, these assets were 
not consolidated in the Company's financial statements.  During 1998, the 
Emerging Issues Task Force of the Financial Accounting Standards Board 
issued EITF 97-14, "Accounting for Deferred Compensation Arrangements 
Where Amounts Earned Are Held in a Rabbi Trust and Invested."  This 
pronouncement states that assets held by a Rabbi trust and the related 
deferred compensation obligation should be consolidated with those of the 
employer.  The trust's assets and the corresponding deferred compensation 
obligation are included in the accompanying balance sheets at October 3, 
1998 and September 27, 1997.

In February 1998, the Financial Accounting Standards Board issued 
Statement of Financial accounting Standards No. 132, "Employers 
Disclosures about Pensions and other Postretirement Benefits" ("FAS 132"), 
effective for financial statements for periods beginning after December 
15, 1997.  FAS 132 revised employers' disclosures about pension and other 
postretirement benefit plans but does not change measurement or 
recognition of those plans.  Also, FAS 132 requires additional information 
on changes in the benefit obligations and fair values of plan assets.  
Presently, the Company does not offer a postretirement benefit plan.  The 
Company believes the adoption of FAS 132 will have no effect on the 
financial statements.

In June 1998, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 133, "Accounting for 
Derivative Instruments ("FAS 133"), effective for financial statements for 
periods beginning after December 15, 1997.  FAS 133 establishes accounting 
and reporting standards for derivative instruments and for hedging 
activities.  FAS 133 requires that an entity recognize all derivatives as 
either assets or liabilities and measure those instruments at fair market 
value.  Under certain circumstances, a portion of the derivative's gain or 
loss is initially reported as a component of income when the transaction 
affects earnings.  For a derivative not designated as a hedging 
instrument, the gain or loss is recognized in income in the period of 
change.  Presently, the Company does not use derivative instruments either 
in hedging activities or as investments.  Accordingly, the company 
believes that adoption of FAS 133 will have no impact on its financial 
position or results of operations.

Earnings (loss) Per Share:  For periods prior to the Distribution, 
basic and diluted net income per share is based on the weighted average 
number of shares of outstanding Electronics common stock and dilutive 
equivalent shares from unvested stock and stock options (using the 
treasury stock method) based on the distribution of one share of 
Technologies common stock for each share of Electronics common stock. 

Acquisition:  On August 7, 1998, Sensors & Systems acquired Ideacod, 
S.A., a sensor manufacturer located in Strasbourg, France, for $1,627,000 
in cash and the assumption of $3,735,000 in liabilities, in a transaction 
accounted for as a purchase.  The results of Ideacod since the date of 
acquisition are included in the accompanying consolidated financial 
statements.  The impact of the acquisition was not material in relation to 
the Company's results of operations, therefore, no pro forma information 
is presented.

The financial statements of Ideacod, S.A. have been translated into 
U.S. dollars on the acquisition date and at fiscal year-end, using the 
exchange rates on those dates for assets and liabilities and the average 
exchange rates during the period for income and expenses.  The resulting 
unrealized translation adjustments are recorded as a separate component of 
stockholders' equity and of other comprehensive income.

Reclassification:  Certain reclassifications have been made to the 
1997 and 1996 consolidated financial statements to conform with current 
year presentations.

Note 2--Discontinued Operations

On June 30, 1997, the Board of Directors of Electronics announced a 
formal plan to discontinue the operations of the Defense Systems segment. 
Accordingly, the results of operations of the segment have been presented 
as discontinued operations for all periods presented and the assets and 
liabilities of the segment have been segregated in the consolidated 
balance sheets.  Previously, in September 1995, Electronics had reached a 
decision to exit the HYDRA 70 (H 70) rocket manufacturing line of business 
which made up a substantial portion of the Defense Systems segment. 
Additional products of the segment included weapons management systems and 
sales under a cost-plus fee advanced rocket development contract.

As result of the decision to exit the rocket line of business, the 
Company has incurred costs relating to employee severance and the closure 
and withdrawal from the leased facility in Camden, Arkansas and similar 
costs related to its owned facility in Euless, Texas.  At the end of 
fiscal year 1996, the balance in the reserve account consisted of $374,000 
and $500,000 for employee severance and facility closure costs, 
respectively.  During fiscal year 1997, the Company accrued an additional 
$33,000 for employee severance costs.  Costs incurred during the period 
for severance and facilities closure of $362,000 and $362,000, 
respectively, were charged against the reserve.  The balance in the 
reserve at the end of fiscal 1997 consisted of $45,000 for employee 
severance and $138,000 for facilities closure costs.  The remaining 
reserves were used during fiscal 1998.  At the end of fiscal 1998, all 
inventory and equipment assets of the rocket business had been written off 
or disposed of and the operations of the Defense Systems segment had been 
shut down.

     Net sales of the Defense Systems segment were as follows:
<TABLE>
<CAPTION>
                                                       Year Ended
                                          --------------------------------------
                                          October 3,  September 27, September 28,
                                             1998         1997          1996
                                          ----------- ------------  ------------
                                              (dollars in thousands)
<S>                                       <C>         <C>           <C>
Sales--HYDRA 70 ................                $341       $2,160       $37,927
Other ..........................               2,851        6,889         4,708
                                          ----------- ------------  ------------
                                              $3,192       $9,049       $42,635
                                          =========== ============  ============
</TABLE>

Note 3--Inventories
<TABLE>
<CAPTION>
                                                       October 3,   September 27,
                                                          1998          1997
                                                      ------------  ------------

<S>                                                   <C>           <C>
Finished products .................................        $1,460          $557
Work in process ...................................        10,183         7,412
Materials .........................................        16,051        12,302
Costs incurred under long-term contracts,
   including U.S. Government contracts ............         1,929         2,385
                                                      ------------  ------------
Inventories .......................................       $29,623       $22,656
                                                      ============  ============
</TABLE>

Note 4--Accrued Expenses and Other Liabilities
<TABLE>
<CAPTION>
                                                       October 3,   September 27,
                                                          1998          1997
                                                      ------------  ------------
                                                       (dollars in thousands)
<S>                                                   <C>           <C>
Employee compensation ..............................       $2,255        $1,923
Vacation ...........................................        2,003         1,648
Accrued taxes ......................................        1,454         1,166
Contract costs .....................................        1,153           578
Accrued professional fees ..........................        1,003           784
Insurance ..........................................          954           690
Royalties and related costs ........................          950           806
Customer advances                                             893           251
Commissions ........................................          614           700
Other ..............................................        1,846         1,951
                                                      ------------  ------------
Accrued Expenses and Other Liabilities .............      $13,125       $10,497
                                                      ============  ============
</TABLE>

Note 5--Long-Term Debt
<TABLE>
<CAPTION>
                                                       October 3,   September 27,
                                                          1998          1997
                                                      ------------  ------------
                                                       (dollars in thousands)
<S>                                                   <C>           <C>
7.23% Series A Senior Notes; due in annual
   installments of $3,360 from October 1, 1996
   through October 1, 2000 .........................       $6,720       $13,440
7.23% Series B Senior Notes; due in annual
   installments of $2,240 from November 15,
   1996 through November 15, 2000 ..................        6,720         8,960
Borrowings under bank line of credit ...............       22,000         9,000
Mortgage note payable with  interest at 7.96%;
   due in monthly  installments of principal
   and interest of $14 until 1999 when the
   remaining balance of approximately $1,700
   is due; collateralized by certain real
   property ........................................        1,708         1,736
Capitalized equipment lease obligations.............          236          --  
                                                      ------------  ------------
                                                           37,384        33,136
Less current portion ...............................          227         5,628
                                                      ------------  ------------
                                                          $37,157       $27,508
                                                      ============  ============
</TABLE>

The Senior Notes, which were obligations of Electronics, were assumed 
by Technologies in connection with the Distribution at an interest rate of 
7.23% for years subsequent to fiscal year 1997.  The interest expense 
associated with the Senior Notes from periods prior to the Distribution 
was allocated to Technologies in the results of operations for those 
periods.  The Senior Note Agreement contains covenants concerning certain 
financial ratios, dividend payments and minimum balances of net worth.  At 
October 3, 1998, Technologies was in compliance with these covenants.  As 
noted below, these Notes were paid in full subsequent to fiscal year end 
1998 in an early extinguishment of debt.

On September 28, 1997, Technologies entered into an agreement with a 
bank for a $25.0 million unsecured line of credit expiring in September 
2000.  On September 29, 1997, the Company borrowed $13.0 million under the 
line of credit and used the funds to repay the $9.0 million of outstanding 
borrowings and accrued interest on the prior Sensors & Systems' line of 
credit and to make a scheduled principal payment on the Senior Note 
obligations.  Accordingly, the borrowings under the bank line of credit at 
September 27, 1997 in the amount of $9.0 million were classified as a non-
current liability in the accompanying consolidated financial statements 
for fiscal year 1997.

The agreement described in the preceding paragraph also provided that 
up to $3.0 million of the line of credit could be used to fund letters of 
credit issued on behalf of the Company.  At October 3, 1998, the Company 
had four letters of credit in the amount of $1.1 million outstanding.  The 
credit line contained certain financial covenants that require the Company 
to meet certain financial ratios and net worth balances.  At October 3, 
1998, the Company was in compliance with these covenants.  As noted below, 
a new line of credit was established subsequent to fiscal year end 1998 
and terminated the borrowings under the old facility .

On November 16, 1998, the Company sold $35.0 million of senior notes 
in a private placement.  The notes have an interest rate of 6.7% and 
mature in annual installments of $7.0 million beginning November 16, 2001 
up to and including November 16, 2005.  The new note agreement contains 
covenants regarding certain operating ratios, limitations on debt, 
dividend payments and minimum net worth.  The proceeds from the new senior 
notes were used to repay the pre-existing senior notes and pay down 
outstanding borrowings on the Company's line of credit as they matured. 
Accordingly, the current portion of the existing senior notes has been 
reclassified to long-term on the consolidated balance sheet at October 3, 
1998 in accordance with the maturity dates of the new note agreement.  The 
prepayment penalty and the remaining unamortized loan fees of $324,000, 
net of the related tax benefit, were charged to the first quarter of 
fiscal 1999 as an extraordinary loss on the early extinguishment of the 
debt.

On December 13, 1998, the mortgage note payable was refinanced with the 
original lender and the due date extended.  The mortgage now has an 
interest rate of 6.87% and matures December 1, 2003.  Principal and 
interest payments of $14,000 are due monthly through December 13, 2003 
when the remaining balance of unpaid principal is due.  Accordingly, the 
current portion of the existing mortgage note payable has been 
reclassified to long-term on the consolidated balance sheet at October 3, 
1998, in accordance with the maturity dates of the new note agreement.

On December 16, 1998, the Company established a new $12.0 million two 
year line of credit with a bank and terminated the borrowings under the 
$25.0 million facility in place at the end of fiscal 1998.

Maturities of long-term debt, adjusted for the effect of the new senior 
notes and the mortgage refinancing and excluding capitalized equipment 
lease obligation (see Note 10), are as follows: 1999C$145,000; 
2000C$145,000; 2001C$7,585,000; 2002C$7,145,000; 2003C$8,128,000; 
thereafter--$14,000,000.

Interest of approximately $2,535,000, $1,942,000, and $2,202,000 was 
paid during fiscal years 1998, 1997 and 1996, respectively.

Note 6--Income Taxes

The Company was included in the consolidated federal income tax returns 
of Electronics for fiscal years 1997 and prior, in accordance with the tax 
allocation arrangement between the companies.  Income taxes were accrued 
at estimated tax rates by each of the former subsidiaries of Electronics 
and settlement of fiscal year 1997 tax liabilities was estimated using 
these tax rates.  Subsequent to fiscal year 1997, the Company is no longer 
part of Electronics' consolidated group.

Deferred tax assets and liabilities are determined based on the 
differences between financial reporting and the tax basis of assets and 
liabilities and are measured using the enacted tax rates and laws known at 
this time and that will be in effect when the differences are expected to 
reverse.

The provision for income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                       Year Ended
                                          --------------------------------------
                                          October 3,  September 27, September 28,
                                             1998         1997          1996
                                          ----------- ------------  ------------
<S>                                       <C>         <C>           <C>
Current
     Federal ...................              $2,581       $4,688        $1,716
     State .....................                 496          799            47
                                          ----------- ------------  ------------
          Total Current ........               3,077        5,487         1,763
                                          ----------- ------------  ------------
Deferred
     Federal ...................              (1,038)      (2,330)          408
     State .....................                (133)        (397)          267
                                          ----------- ------------  ------------
          Total Deferred .......              (1,171)      (2,727)          675
                                          ----------- ------------  ------------
Total income tax provision                    $1,906       $2,760        $2,438
                                          =========== ============  ============
Income tax expense
  attributable to continuing
  operations ...................              $1,807       $1,788        $1,412
Income tax expense
  attributable to discontinued
  operations ...................                  99          972         1,026
                                          ----------- ------------  ------------
Total income tax provision
  (benefit) ....................              $1,906       $2,760        $2,438
                                          =========== ============  ============
</TABLE>

     Significant  components  of the  Company's  net  deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
                                                       October 3,   September 27,
                                                          1998          1997
                                                      ------------  ------------
<S>                                                   <C>           <C>
                  Deferred tax assets
Accrued expenses ...................................       $4,033        $3,930
Inventory valuation ................................        2,807         1,862
Contract reserves ..................................          455           124
Other ..............................................          390           820
                                                      ------------  ------------
        Total deferred tax assets ..................       $7,685        $6,736
                                                      ------------  ------------
                  Deferred tax liabilities
Depreciation and property basis difference .........       $1,448        $1,694
Other ..............................................          487           463
                                                      ------------  ------------
     Total deferred tax liabilities ................        1,935         2,157
                                                      ------------  ------------
     Net deferred tax assets .......................       $5,750        $4,579
                                                      ============  ============
</TABLE>

The provision  for income taxes  differs from the income tax  determined by
applying the applicable  U.S.  statutory  federal income tax rate as a result of
the following differences (in thousands):
<TABLE>
<CAPTION>
                                                       Year Ended
                                          --------------------------------------
                                          October 3,  September 27, September 28,
                                             1998         1997          1996
                                          ----------- ------------  ------------
<S>                                       <C>         <C>           <C>
Income tax (credit) at the statutory
  rate of 34% .........................         1551       $2,497        $2,383
Federal income tax effect of state
  income taxes ........................          240          265           208
Goodwill amortization .................           18           18            19
Research and development and
  related credits .....................          --          --            (246)
Other .................................           97          (20)           74
                                          ----------- ------------  ------------
Provision (credit) for income taxes ...        1,906        2,760         2,438
                                          =========== ============  ============
</TABLE>


Pursuant to the tax sharing agreement with Electronics, the Company's 
income taxes prior to fiscal year 1998 were paid by Electronics.  Cash 
paid for income taxes in fiscal year 1998 was $3,613,000.

Realization of the net deferred tax assets is dependent upon the 
Company generating sufficient taxable income in future years to obtain 
benefit from the reversal of the underlying temporary differences.

Note 7--Stockholders' Equity

The authorized capital stock of Technologies consists of 2,000,000 
shares of preferred stock ($.001 par value) and 20,000,000 shares of 
common stock ($.001 par value).  In connection with the Distribution, 
7,114,813 shares of Technologies common stock were issued to holders of 
Electronics common stock.  Prior to the incorporation of Technologies and 
the Distribution, all of the capital stock of Sensors & Systems and 
Defense Systems was held by Electronics.

Note 8--Equity Incentive Plans

The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was 
adopted by the Board of Directors in September 1997.  The Incentive Plan 
provides for the granting of incentive stock options to employees and 
nonstatutory stock options, restricted stock purchase awards, and stock 
bonuses (collectively, "Stock Awards") to consultants, employees and 
directors.  The Company has reserved 1,139,445 shares of common stock for 
issuance under the Incentive Plan, including shares for substitute options 
granted to the option holders of Electronics in connection with the 
Distribution.

Under the terms of Distribution, holders of vested stock options to 
purchase Electronics common stock were entitled to exercise such options 
prior to the Distribution and receive an equivalent number of shares of 
the Company's common stock in the Distribution.  Unexercised vested and 
unvested Electronics stock options were converted to options to purchase 
the Company's common stock under the Incentive Plan based on a conversion 
formula that retained the same intrinsic value of the options and the same 
ratio of exercise price per option to market value per share of common 
stock as prior to the Distribution, without any additional benefits to the 
holders.

Option activity under the Electronics' 1987 Incentive Stock Option Plan 
prior to the Distribution and option activity under the Technologies 
Incentive Plan subsequent to the Distribution are summarized below:

<TABLE>
<CAPTION>
                                                                      Weighted
                                                                      Average
                                                         Number       Exercise
                                                       of Common       Price
                                                         Shares      Per Share
                                                      ------------  ------------
<S>                                                   <C>           <C>
Electronics options outstanding at September 30, 1995     610,395         $5.71
               Granted ..............................      11,000         $6.42
               Exercised ............................    (115,922)        $6.27
               Terminated ...........................     (48,511)        $7.80
                                                      ------------  ------------
Electronics options outstanding at September 28, 1996     456,962         $5.36
               Exercised ............................    (137,200)        $5.33
               Terminated ...........................      (3,500)        $7.95
                                                      ------------  ------------
Electronics options outstanding at September 27, 1997
    prior to the Distribution .......................     316,262         $5.35
Distribution adjustment .............................      23,183           --
                                                      ------------  ------------
Technologies adjusted options outstanding
     at September 27,1997............................     339,445         $4.98
               Granted ..............................       2,000        $16.69
               Exercised ............................    (168,293)        $4.33
                                                      ------------  ------------
Technologies options outstanding at October 3, 1998       173,152         $5.61
                                                      ============  ============
</TABLE>


<TABLE>
<CAPTION>
                                                        Weighted      Weighted
                                                        Average       Average
                                                       Remaining      Exercise
                                            Number    Contractual      Price
Exercise Prices                           Outstanding Life (Years)   Per Share
-----------------                         ----------- ------------  ------------
<S>                                       <C>         <C>           <C>
$4.08 .................................       87,502          0.7         $4.08
$4.66 .................................       15,381          6.2         $4.66
$5.71 .................................        1,073          5.5         $5.71
$5.94 .................................       15,992          4.7         $5.94
$6.75 .................................        2,147          4.1         $6.75
$7.92 .................................       39,396          2.7         $7.92
$8.50 .................................        9,661          3.7         $8.50
$16.69.................................        2,000          9.5        $16.69
                                          ----------- ------------  ------------
$4.08 - $16.69 .........................     173,152          3.3         $5.55
                                          =========== ============  ============
</TABLE>

As of October 3, 1998, options for 171,152 shares were vested and 
exercisable.

Under the 1992 Restricted Stock Plan of Electronics, 700,000 shares of 
Electronics common stock were authorized to be issued to certain key 
individuals who have become employees of Technologies, subject to 
forfeiture if employment terminated prior to the end of prescribed vesting 
periods.  The market value at the date of grant of shares is recorded as 
unearned restricted stock.  The market value of shares granted is 
amortized to compensation expense over the vesting periods.  As of October 
3, 1998, 511,326 shares had been granted, of which 435,501 shares are 
outstanding, and 184,618 shares have fully vested.  Compensation expense 
of $429,000, $274,000 and $406,000 was recorded in fiscal years 1998, 1997 
and 1996, respectively.

The impact on the calculation of proforma results of operations and 
earnings (loss) per share required by FAS 123 was determined to be 
immaterial for fiscal years 1998, 1997 and 1996.

Note 9--Employee Benefit Plan

The Company has a defined contribution retirement plan for the benefit 
of all eligible employees.  Matching non-discretionary contributions are 
based on a percentage of employee contributions.  Contributions to the 
plan by the Company for the benefit of its employees for fiscal years 
1998, 1997 and 1996 were approximately $780,000, $626,000, and $622,000 
respectively.

Note 10--Lease Commitments

     Operating  leases  consist  principally  of leases for real  properties and
land. Certain of the operating leases contain various options for renewal and/or
purchase of the related assets for amounts approximating their fair market value
at the date of exercise of the option. Capital leases were assumed as part of
the acquisition of a business.  Assets recorded under capital leases consist
of land, buildings and equipment of $1,121,000, net of accumulated amortization
of $112,000. The future minimum payments for operating and capital leases
consist of the following at October 3, 1998 (in thousands):

<TABLE>
<CAPTION>

                                             Capital    Operating
  Fiscal Year                                 Leases       Leases
<S>                                             <C>          <C>
  
  1999............................              $110       $2,132
  2000............................                91        2,499
  2001............................                82        1,469
  2002............................                20          765
  2003............................                --          601
  Thereafter......................                --          400
                                          ----------- ------------
         Total minimum lease payments            303       $7,866
         Less amounts representing interest       67  ============
                                          -----------
         Amounts included in long-term debt      $236

                                          ===========
</TABLE>

Total rental expense amounted to approximately  $1,694,000,  $1,616,000 and
$1,530,000 for fiscal years 1998, 1997 and 1996, respectively.

Note 11--Contingencies and Litigation

   Claim against U.S. Government

The Company believes that its subsidiary, Defense Systems Company (DSC),
suffered substantial monetary damages due to actions of the U. S.
Government in connection with the parties' H 70 contract in effect during 
the 1992-1996 timeframe.  As a result, DSC filed a substantial claim 
before the Armed Services Board of Contract Appeals.  Due to the 
uncertainties inherent in the formal claims process, the Company has not 
recorded any recovery of these claims in the accompanying financial 
statements.

    Other

The Company has pending various legal actions arising in the normal 
course of business.  Management believes that none of these legal actions 
will have a material impact on the Company's financial condition or 
operating results.

Note 12--Sales

Net sales from continuing operations to customers in foreign countries 
amounted to $17,392,000, $11,998,000 and $10,938,000 in fiscal years 1998, 
1997 and 1996, respectively.  In fiscal years 1998, 1997 and 1996, foreign 
sales did not exceed 10% of consolidated net sales in any individual 
geographic area.

Net sales to the U.S. Government for the Sensors and Systems segment=s 
products amounted to $21,046,000, $22,479,000 and $25,986,000 in fiscal 
years 1998, 1997 and 1996, respectively.  Net sales to the U.S. Government 
for the discontinued Defense Systems segment were $3,153,000, $8,323,000 
and $41,219,000 for fiscal years 1998, 1997 and 1996, respectively.

Note 13--Quarterly Results of Operations (Unaudited)

     The tables below present  unaudited  quarterly  financial  information  for
fiscal years 1998 and 1997:

<TABLE>
<CAPTION>
                                                              Continuing Operations
                                                              Three months ended
                                              ----------------------------------------------------
                                              December 27,   April 4,      July 4,     October 3,
                                                  1997         1998         1998          1998
                                              ------------  -----------  -----------  ------------
                                                 (dollars in thousands except per share amounts)
<S>                                           <C>           <C>          <C>          <C>
Net sales ....................................    $28,256      $30,848      $29,897       $35,263
Gross profit .................................      9,622        9,918        9,403         9,759
Income from continuing operations ............        878          779          704           154
Income from discontinued operations ..........         81           10           50           -- 
Net income ...................................        959          789          754           154

     Basic Earnings Per Share

Earnings from continuing operations per common
  share.......................................      $0.13        $0.11        $0.10         $0.02
Earnings from discontinued operations per common
  share.......................................      $0.01          --         $0.01           -- 
Earnings per common share.....................      $0.14        $0.11        $0.11         $0.02

    Diluted Earnings Per Share

Earnings from continuing operations per
  common and common equivalent share..........      $0.12        $0.11        $0.10         $0.02
Earnings from discontinued operations per
  common and common equivalent share..........      $0.01          --         $0.01           -- 
Earnings per common and common equivalent shar      $0.13        $0.11        $0.11         $0.02

                                              December 28,  March 29,    June 28,     September 27,
                                                  1996         1997         1997          1997
                                              ------------  -----------  -----------  ------------


Net sales ....................................    $22,903      $24,710      $26,824       $27,102
Gross profit .................................      7,767        8,810        9,477        10,194
Income (loss) from continuing operations .....       (359)         957        1,196         1,202
Income from discontinued operations ..........        394          495          500           198
Net income ...................................         35        1,452        1,696         1,400

     Basic Earnings Per Share

Earnings (loss) from continuing operations
  per common share............................     ($0.05)       $0.14        $0.18         $0.18
Earnings from discontinued operations
  per common share............................      $0.06        $0.07        $0.07         $0.03
Earnings per common share.....................      $0.01        $0.21        $0.25         $0.21

    Diluted Earnings Per Share

Earnings (loss) from continuing operations
  per common and common equivalent share......     ($0.05)       $0.13        $0.17         $0.17
Earnings from discontinued operations per
  common and common equivalent share..........      $0.06        $0.07        $0.07         $0.03
Earnings per common and common equivalent share     $0.01        $0.20        $0.24         $0.20



                                              ------------  -----------  -----------  ------------
Net income per common and common
   equivalent share.........................        $0.00        $0.00        $0.00         $0.00
                                              ============  ===========  ===========  ============
</TABLE>

Note 14--Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107 ("FAS 107"), 
"Disclosures about Fair Value of Financial Instruments," requires 
disclosure of fair value information about financial instruments, whether 
or not recognized in the balance sheet, for which it is practicable to 
estimate that value.  Whenever possible, quoted market prices were used to 
develop fair values.  In cases where quoted market prices are not 
available, fair values are based on estimates using present value or other 
valuation techniques.  Those techniques are significantly affected by the 
assumptions used, including the discount rate and estimates of future cash 
flows.  In that regard, the derived fair value estimates cannot be 
substantiated by comparison to independent markets, and, in many cases, 
could not be realized in immediate settlement of the instrument.  FAS 107 
excludes certain financial instruments and all nonfinancial instruments 
from its disclosure requirements.  Accordingly, the aggregate fair value 
amounts presented do not represent the underlying value of the Company. 
The following methods and assumptions were used by the Company in 
estimating its fair value disclosures for financial instruments as of 
October 3, 1998 and as of September 27, 1997.

Cash, Cash Equivalents and Investments:  The carrying amounts 
reported in the balance sheet for cash, cash equivalents and investments 
approximate those assets' fair values.

Long-Term Debt:  The fair value of long-term debt has been estimated 
based upon their discounted future cash flows.  The discount rate used 
included a risk free rate derived from the Treasury yield curve plus a 
risk weighting commensurate with the Company's borrowing position.  The 
fair value of long-term debt is approximately $31,001,000 and $27,570,000 
compared with the carrying amounts of $31,674,000 and $27,508,000 at 
October 3, 1998 and September 27, 1997, respectively.

Note 15--Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per
common share from continuing operations:
<TABLE>
<CAPTION>
                                                       Year Ended
                                         ---------------------------------------
                                          October 3,  September 27, September 28,
                                             1998         1997          1996
                                         ------------ ------------  ------------
<S>                                      <C>          <C>           <C>
                                          (in thousands except per share amounts)

                  Numerator
Income from continuing
   operations, net of income taxes.           $2,515       $2,997        $2,873
                                         ============ ============  ============

                 Denominator
Denominator for basic earnings
per share --
   Weighted average shares, net
    of nonvested shares
    (FY 1998 -- 223 shares;
     FY 1997 -- 164 shares;
     FY 1996 -- 154 shares)........            7,012        6,816         6,737
Effect of dilutive securities:
   Nonvested shares................              108           86            86
   Employee stock options..........              154          165           155
                                         ------------ ------------  ------------
   Denominator for diluted
    earnings per share.............            7,274        7,067         6,978
                                         ============ ============  ============
Basic earnings per share from
    continuing operations..........            $0.36        $0.44         $0.43
Listing of Exhibits
Diluted earnings per share from
    continuing operations..........            $0.35        $0.42         $0.41

</TABLE>
<PAGE>

                Report of Ernst & Young LLP, Independent Auditors


The Board of Directors and Stockholders
BEI Technologies, Inc.

We have audited the accompanying consolidated balance sheets of BEI 
Technologies, Inc. as of October 3, 1998 and September 27, 1997, and the 
related consolidated statements of operations, stockholders' equity and 
cash flows for each of the three years in the period ended October 3, 
1998.  These financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these 
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 financial statements are 
free of material misstatement.  An audit includes examining, on a test 
basis, evidence supporting the amounts and disclosures in the financial 
statements.  An audit also includes assessing the accounting principles 
used and significant estimates made by management, as well as evaluating 
the overall financial statement presentation.  We believe that our audits 
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of BEI Technologies, Inc. 
at October 3, 1998 and September 27, 1997, and the consolidated results of 
its operations and its cash flows for each of the three years in the 
period ended October 3, 1998 in conformity with generally accepted 
accounting principles.



        Ernst & Young LLP


San Francisco, California
November 2, 1998,

except for Note 5 as to which the date is
December 16, 1998

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

None.


PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information with respect to directors and executive 
officers is set forth in Part I of this Report. Additional 
information required by this Item is incorporated herein by 
reference to the section entitled "Compliance with Section 
16(a) of the Securities and Exchange Act of 1934" of the Proxy 
Statement related to the Company's 1999 Annual Meeting of 
Stockholders to be filed by the Company with the Securities 
and Exchange Commission (the "Definitive Proxy Statement").

ITEM 11.        EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein 
by reference to the sections entitled "Executive Compensation" 
and "Certain Transactions" of the Company's Definitive Proxy 
Statement.


ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 

The information required by this Item is incorporated herein 
by reference to the section entitled "Security Ownership of 
Certain Beneficial Owners and Management" of the Company's 
Definitive Proxy Statement. 


ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein 
by reference to the sections entitled "Certain Transactions" 
and "Compensation Committee Interlocks and Insider 
Participation" of the Definitive Proxy Statement. 

<PAGE>
                                     PART IV

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

The following documents are filed as part of this Form 10-K.


(a)(1)      Index to Consolidated Financial Statements. 
            -------------------------------------------
            The following Consolidated Financial Statements of BEI
            Technologies, Inc. and its subsidiaries are filed as part of
            this Form 10-K:

            Report of Ernst & Young LLP, Independent Auditors

            Consolidated Balance Sheets -
               October 3, 1998 and September 27, 1997

            Consolidated Statements of Operations -
               Years ended October 3, 1998, September 27, 1997
               and September 28, 1996

            Consolidated Statements of Cash Flows -
               Years ended October 3, 1998, September 27, 1997
               and September 28, 1996

            Consolidated Statements of Stockholders' Equity -
               Years ended October 3, 1998, September 27, 1997
               and September 28, 1996

            Notes to Consolidated Financial Statements -
               October 3, 1998

(a)(2)      Index to Financial Statement Schedule.
            The following Consolidated Financial Statement Schedule of BEI
            Technologies, Inc. for each of the years in the period ended
            October 3, 1998 is filed as part of this Form 10-K:

            Schedule II    Valuation and Qualifying Accounts

                           Report of Ernst & Young LLP, Independent Auditors
                           as to Schedule

Schedules not listed above have been omitted  because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.



<PAGE>

(a)(3)      Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Numbers                           Description                         Footnote
--------   ---------------------------------------------------------  --------
<S>        <C>                                                        <C>
    2.1    Distribution Agreement between BEI Electronics, Inc.       i
           and BEI Technologies, Inc.
    2.2    Corporate Services Agreement between BEI
           Technologies, Inc. and BEI Electronics, Inc.               i
    2.3    Tax Allocation and Indemnity Agreement between BEI
           Electronics, Inc. and BEI Technologies, Inc.               i
    2.4    Assumption of Liabilities and Indemnity Agreement
           between BEI Electronics, Inc. and BEI Technologies,
           Inc.                                                       i
    2.5    Technology Transfer and License Agreement by and
           between BEI Electronics, Inc. and BEI Technologies,
           Inc.                                                       i
    2.6    Trademark Assignment and Consent Agreement by and
           between BEI Electronics, Inc. and BEI Technologies,
           Inc.                                                       i
    2.7    Agreement Regarding Certain Representations and
           Covenants by and between BEI Electronics, Inc. and
           BEI Technologies, Inc.                                     i
    3.1    Certificate of Incorporation of BEI Technologies, Inc.     i
    3.2    Bylaws of BEI Technologies, Inc.                           i
    3.3    Registrant's Certificate of Designation of Series A
           Junior Participating Preferred Stock (filed as Exhibit
           99.3 hereto)                                               i
    4.1    Specimen Common Share Certificate                          i
    4.2    Certificate of Incorporation of BEI Technologies, Inc.
           (filed as Exhibit 3.1 hereto)                              i
    4.3    Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2
           hereto)                                                    i
    4.4    Registrant's Certificate of Designation of Series A
           Junior Participating Preferred Stock (filed as Exhibit
           99.3 hereto)                                               i
    4.5    Form of Rights Certificate (filed as Exhibit 99.4 hereto)  i
   10.1  * Registrant's 1997 Equity Incentive Plan and forms of
           related agreements                                         i
   10.2  * Executive Change in Control Benefits Agreement
           between BEI Technologies, Inc. and Certain Named
           Executive Officers                                         i
   10.3    Assumption Agreement--Series A and Series B Senior
           Notes dated September 15, 1997 by and between BEI          i
           Technologies, Inc., Principal Mutual Life Insurance
           Company, Berkshire Life Insurance Company and
           TMG Life Insurance Company
   10.4    Credit Agreement dated as of September 27, 1997            i
           among BEI Technologies, Inc., BEI Sensors & Systems
           Company, Inc., Defense Systems Company, Inc., CIBC,
           Inc., Canadian Imperial Bank of Commerce and CIBC
           Wood Gundy Securities Corp.
   10.5    Note Purchase Agreement dated November 16, 1998, by
           and between BEI Technologies, Inc., BEI Sensors &
           Systems Company, Connecticut General Life
           Insurance Company and Allstate Life Insurance
           Company
   10.6    Amendement to Tax Allocation and Indemnity Agreement
           between BEI Electronics, Inc. and BEI Technologies,
           Inc.
   10.7    Credit Agreement dated December 16, 1998, by and
           between BEI Technologies, Inc., BEI Sensors &
           Systems Company, Inc. and Wells Fargo Bank, 
           National Association
   21.1    Subsidiaries of the Registrant
   23.1    Consent of Ernst & Young LLP, Independent Auditors
   24.1    Power of Attorney
   27.1    Financial Data Schedule
   99.1    BEI Technologies, Inc. Information Statement dated
           September 24, 1997                                         i
   99.2    Rights Agreement dated as of September 11, 1997
           among BEI Technologies, Inc. and ChaseMellon
           Shareholder Services, L.L.C.                               i
   99.3    Registrant's Certificate of Designation of Series A
           Junior Participating Preferred Stock                       i
   99.4    Form of Rights Certificate                                 i

<FN>
(i)      Incorporated  by  reference.  Previously  filed  as an  exhibit  to the
         Registrant's  Information  Statement  on Form 10 (File No.  0-22799) as
         filed on September 22, 1997.
i
*        Items  which  are  management   contracts  or  compensatory   plans  or
         arrangements  required to be filed as an exhibit pursuant to Item 14(c)
         of Form 10-K.
</FN>
</TABLE>

(b)      No  reports on Form 8-K were filed by the  Company  during the  quarter
         ended October 3, 1998.

<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.




                                             BEI TECHNOLOGIES, INC.



                                         By: /S/ Robert R. Corr
                                         -----------------------------------
                                          Robert R. Corr
                                          Secretary, Treasurer and Controller
                                          December 22,1998
<PAGE>

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below  constitutes and appoints Charles Crocker and Gary D. Wrench,  and each of
them, as his true and lawful  attorneys-in-fact  and agents,  with full power of
substitution and  resubstitution,  for him and in his name, place, and stead, in
any and all  capacities,  to sign any and all  amendments  to this Report and to
file the same,  with all exhibits  thereto,  and other  documents in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorneys-in-fact  and agents,  and each of them, full power and authority to do
and perform each and every act and thing  requisite  and necessary to be done in
connection therewith,  as fully to all intents and purposes as he might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them,  or their or his  substitute  or  substitutes,  may
lawfully do or cause to be done by virtue hereof.


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

<TABLE>
<CAPTION>
         Signature                            Title                        Date
---------------------------  ---------------------------------------  ---------------
<S>                          <C>                                      <C>
/s/ Charles Crocker          President, Chief Executive               December 22, 1998
---------------------------  Officer and Chairman of the Board of
(Charles Crocker)            Directors (Principal Executive Officer)


/s/ Richard M. Brooks        Director                                 December 22, 1998
---------------------------
(Richard M. Brooks)


/s/ George S. Brown          Director                                 December 22, 1998
---------------------------
(George S. Brown)


/s/ Robert R. Corr           Secretary, Treasurer & Controller        December 22, 1998
---------------------------  (Principal Accounting Officer)
(Robert R. Corr)


/s/ C. Joseph Giroir, Jr.    Director                                 December 22, 1998
---------------------------
(C. Joseph Giroir, Jr.)


/s/ William G. Howard, Jr.   Director                                 December 22, 1998
---------------------------
(William G. Howard, Jr.)


/s/ Asad M. Madni            Director                                 December 22, 1998
---------------------------
(Asad M. Madni)


/s/ Robert Mehrabian         Director                                 December 22, 1998
---------------------------
(Robert Mehrabian)


/s/ Gary D. Wrench           Senior Vice President, Chief             December 22, 1998
---------------------------  Financial Officer and Director
(Gary D. Wrench)
</TABLE>
<PAGE>

                                  SCHEDULE II

                             BEI TECHNOLOGIES, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                  Column A                     Column B             Column C      Column D     Column E
--------------------------------------------- ---------- ---------------------    ---------    ---------
                                                               Additions
                                                         ---------------------
                                                                     Charged to
                                              Balance at Charged to    Other                   Balance at
                 Description                  Beginning   Costs and  Accounts     Deductions    End of
                                              of Period   Expenses   Describe     Describe      Period
                                              ---------- ----------- ---------    ---------    ---------
                                                                     (in thousands)
<S>                                           <C>        <C>         <C>          <C>          <C>
Year ended October 3, 1998: 
Deducted from asset accounts:                          
     Allowance for doubtful accounts ........      $363        $101       $98 (D)      $53 (C)     $509
                                              ========== =========== =========    =========    =========

Year ended September 27, 1997: 
Deducted from asset accounts:                          
     Allowance for doubtful accounts ........      $607         $75      $--          $319 (C)     $363
     Valuation allowance for deferred
        tax assets ..........................        94  --               (94)(B) --           -- 
                                              ---------- ----------- ---------    ---------    ---------
          Total .............................      $701         $75      ($94)        $319         $363
                                              ========== =========== =========    =========    =========
Year ended September 28, 1996:
Deducted from asset accounts:
     Allowance for doubtful accounts .........     $395        $282      $--           $70 (A)     $607

     Valuation allowance for deferred tax
        assets ...............................      143  --               (49)(B) --                 94
                                              ---------- ----------- ---------    ---------    ---------
          Total ..............................     $538        $282      ($49)         $70         $701
                                              ========== =========== =========    =========    =========
<FN>
(A)  Miscellaneous adjustments to the allowance
(B)  Adjustment based on the evaluation of uncertainties in the realization of
     state net operating loss carryovers
(C)  Write-offs of uncollectible accounts
(D)  Received from an acquisition
</FN>
</TABLE>

<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE


The Board of Directors and Shareholders
BEI Technologies, Inc.

We have audited the consolidated financial statements of BEI Technologies, 
Inc. as of October 3, 1998 and September 27, 1997, and for each of the 
three years in the period ended October 3, 1998, and have issued our 
report thereon dated November 2, 1998 except for Note 5 as to which the 
date is December 16, 1998.  Our audits also included the financial 
statement schedule listed in Item 14(a) of this Form 10-K.  This schedule 
is the responsibility of the Company's management.  Our responsibility is 
to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when 
considered in relation to the basic consolidated financial statements 
taken as a whole, presents fairly in all material respects, the 
information set forth therein.




        Ernst & Young LLP


San Francisco, California
November 2, 1998,

except for Note 5, as to which the date is
December 16, 1998



S-2


<PAGE>

INDEX TO EXHIBITS


Exhibit
Number          Description

10.5            Note Purchase Agreement dated November 16, 1998, by and between
                BEI Technologies, Inc., BEI Sensors & Systems Company, Inc.,
                Connecticut General Life Insurance Company, Inc. and Allstate
                Life Insurance Company

10.6            Amendment to Tax Allocation and Indemnity Agreement between 
                BEI Electronics, Inc. and BEI Technologies, Inc.

10.7            Credit Agreement dated December 15, 1998, by and between
                BEI Technologies, Inc., BEI Sensors & Systems Company, Inc. and
                Wells Fargo Bank, National Association

21.1            Subsidiaries of the Registrant

23.1            Consent of Ernst & Young LLP    
                Independent Auditors

24.1            Power of Attorney       

27.1            Financial Data Schedule