SBS TECHNOLOGIES INC, S-2/A, 1996-10-22

SBS TECHNOLOGIES INC
S-2/A, 1996-10-22
INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1996

REGISTRATION NO. 333-13747

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

--------------------------

SBS TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C>
NEW MEXICO 85-0359415
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
</TABLE>

2400 LOUISIANA BOULEVARD NE
AFC BUILDING 5, SUITE 600
ALBUQUERQUE, NEW MEXICO 87110
(505) 875-0600
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)

CHRISTOPHER J. AMENSON, CHIEF EXECUTIVE OFFICER AND PRESIDENT
2400 LOUISIANA BOULEVARD NE
AFC BUILDING 5, SUITE 600
ALBUQUERQUE, NEW MEXICO 87110
(505) 875-0600

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------------

COPIES TO:

ALISON K. SCHULER, ESQ. EDWARD M. LEONARD, ESQ.
Schuler, Messersmith & McNeill Brobeck, Phleger & Harrison LLP
5700 Harper Drive NE, Suite 430 Two Embarcadero Place
Albuquerque, New Mexico 87109 2200 Geng Road
(505) 822-8826 Palo Alto, California 94303
(415) 424-1060

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (Subject to Completion)

Dated October 22, 1996

1,800,000 Shares

[LOGO]

Common Stock
------------------

Of the 1,800,000 shares of common stock, no par value (the "Common Stock"),
offered hereby, 1,500,000 shares are being issued and sold by SBS Technologies,
Inc. ("SBS" or the "Company") and 300,000 shares are being sold by the selling
shareholders (the "Selling Shareholders"). The Company will not receive any
proceeds from the sale of shares by the Selling Shareholders. See "Principal and
Selling Shareholders."

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SBSE." The last sale price for the Common Stock on October 21, 1996, as
reported on the Nasdaq National Market, was $24.50 per share. See "Price Range
of Common Stock."

------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREOF.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
<S> <C> <C> <C> <C>
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Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>

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(1) The Company, the Selling Shareholders and the additional selling
shareholders (the "Additional Selling Shareholders") have agreed to
indemnify the Underwriters against certain liabilities including liabilities
under the Securities Act of 1933. See "Underwriting."

(2) Before deducting expenses, estimated at $427,165 payable by the Company,
which includes underwriting discounts and commissions to be paid by the
Company on behalf of certain Selling Shareholders for 100,000 shares of
Common Stock being sold by such Selling Shareholders. See "Underwriting."

(3) The Additional Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase an aggregate of
up to 270,000 additional shares at the Price to Public less Underwriting
Discounts and Commissions to cover over-allotments, if any. If all such
shares are purchased, the total Price to the Public, Underwriting Discounts
and Commissions, Proceeds to the Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------

The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for the shares will be made at the offices of Cowen &
Company, New York, New York, on or about , 1996.
------------------------

COWEN & COMPANY SOUNDVIEW FINANCIAL GROUP, INC.

, 1996
<PAGE>

[Picture of an AMI, an ABI-V5 and a PCMCIA board arranged from left to right on
the page.]

SBS has continually developed its avionics interface products since their
introduction in 1987. The AMI, pictured above, provided a single channel of full
function MIL-STD-1553 interface capability. The ABI-V5 and PCMCIA boards
introduced in 1995 and 1996, respectively, provide enhanced functionality
including multiple channels of full function MIL-STD-1553 capabilty in smaller
form factors.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL
INFORMATION IN THE PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITER'S
OVER-ALLOTMENT OPTION. AS USED IN THIS PROSPECTUS, UNLESS OTHERWISE INDICATED,
THE TERM FISCAL YEAR SHALL REFER TO THE 12 MONTH PERIOD ENDED OR ENDING JUNE 30
OF A GIVEN YEAR. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS INCLUDING THOSE SET FORTH IN THE "RISK FACTORS"
SECTION AND ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of central processing unit ("CPU"),
general purpose input/output ("I/O") and special purpose I/O interface
functions. The Company capitalizes on its design expertise and customer service
capabilities to enhance product quality and reduce time to market for OEM
customers. The Company is seeking to enhance its product offerings and has
entered into a definitive agreement to acquire Bit 3 Computer Corporation ("Bit
3"), a manufacturer of high-performance bus interconnect hardware that enables
embedded computers of differing standards to communicate. The Company will fund
the $24.0 million acquisition primarily with the net proceeds of this offering.
See "The Acquisition of Bit 3."

The Company's objective is to become a leading supplier of board level
components to the standard bus embedded computer market. The Company intends to
continue its growth through a combination of internal growth and acquisitions.
Internal growth is achieved through expanding its existing product lines through
new product development and through increasing penetration of its existing
customer base. The Company currently participates in a number of attractive
markets, including the Intel-based VME CPU board market, the IndustryPack ("IP")
market in general purpose I/O, the telemetry interface market and the
MIL-STD-1553 standard avionics interface market. The Acquisition of Bit 3 will
add a line of bus interconnect products for a variety of standard bus embedded
computer buses to the Company's current product offerings.

Unlike computers targeted at business computing applications, embedded
computers perform a single function or a closely related group of functions,
such as I/O and data processing, as part of a larger system and with a high
degree of reliability. Embedded computers generally are design-specific
solutions that require substantial engineering expertise, have extended product
lives reflecting the long product cycles of the systems into which they are
incorporated and often must adhere to specific size and operating requirements.
As a result, the Company believes that performance, reliability, supplier
stability and customer support are often the primary factors in the decision to
purchase a particular embedded computer solution.

OEMs requiring embedded computers either construct systems based on standard
bus designs together with off-the-shelf I/O, processor and memory modules, or
they develop custom or proprietary solutions. Standard bus solutions generally
enable product designers to develop systems quickly and with a high degree of
confidence in the reliability of the solution, to capitalize on the lower cost
of industry-standard components and to modify designs easily so that a single
product design can serve multiple applications. As a result of these factors,
standard bus systems today constitute a large and growing portion of the
embedded computer market. According to a recent industry study, BOARD-LEVEL
EMBEDDED COMPUTER MARKETS AND TRENDS, the standard bus embedded computer market
is projected to grow from approximately $2.5 billion in 1995 to approximately
$3.9 billion in 1999.

The most popular embedded computer standard today is VME, which is widely
used in aerospace and military, telecommunications, networking, industrial
automation and control, medical instruments and

3
<PAGE>
automated test and measurement applications. According to BOARD-LEVEL EMBEDDED
COMPUTER MARKETS AND TRENDS, the VME-bus embedded computer market is projected
to grow from approximately $1.2 billion in 1995 to approximately $2.3 billion in
1999. The modular nature of standard bus embedded computers, their wide range of
applications and the variety of bus architectures available have resulted in a
highly fragmented market. The variety of standard bus embedded computer
architectures supports a growing market for products that interconnect various
types of standard bus embedded computers.

The Company sells its products through a combination of direct sales and
independent manufacturers' representatives. The Company's products serve a broad
range of functions including commercial, communications, industrial automation,
medical device, military and space, test and measurement and transportation. The
Company's customers include The Boeing Company, Caterpillar, Inc., Eastman Kodak
Company, General Electric Company and Lockheed Martin Corporation. International
sales constituted approximately 16% of the Company's sales in fiscal 1996.

The Company was incorporated in New Mexico in November 1986. The Company's
executive offices are located at 2400 Louisiana Boulevard, NE, AFC Building 5,
Suite 600, Albuquerque, New Mexico 87110, and its telephone number is (505)
875-0600. References in this Prospectus to the "Company" or "SBS" are to SBS
Technologies, Inc. and its consolidated subsidiaries. The Company has three
subsidiaries, Berg Systems International, Inc. ("BSI"), GreenSpring Computers,
Inc. ("GreenSpring") and Logical Design Group, Inc. ("LDG").
IndustryPack-Registered Trademark- is a registered trademark of the Company. All
other trademarks or tradenames referred to in this Prospectus are the property
of their respective owners.

4
<PAGE>
THE OFFERING

<TABLE>
<CAPTION>
Common Stock offered:
<S> <C>
By the Company................................ 1,500,000 shares
By Selling Shareholders....................... 300,000 shares
Common Stock to be outstanding after the 5,030,657 shares(1)
offering......................................
Use of proceeds................................. To fund the acquisition of Bit 3, to
repay long term debt, and for general
working capital requirements. See "Use of
Proceeds."
Nasdaq National Market symbol................... SBSE
</TABLE>

SUMMARY CONSOLIDATED AND PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
YEAR ENDED JUNE 30,
---------------------------------------------------------- ---------------------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- ------------------------ ------- ------------------------
ACTUAL PRO FORMA(2)(3) ACTUAL PRO FORMA(2)(3)
------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales....................... $2,542 $5,908 $10,197 $16,218 $31,332 $45,519 $ 7,575 $11,263 $15,092
Gross profit................ 1,448 3,002 5,314 9,461 16,822 26,327 3,994 6,017 8,448
Income from continuing
operations................ 73 168 871 1,845 3,582 491 722 1,392 2,313
Income per common and common
equivalent share from
continuing operations..... $ 0.03 $ 0.05 $ 0.30 $ 0.65 $ 0.97 $ 0.10 $ 0.23 $ 0.33 $ 0.41
Weighted average common and
common equivalent shares
outstanding............... 2,363 2,958 2,948 2,859 3,792 5,142 3,116 4,218 5,649
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL PRO FORMA(2)
--------- -----------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................................................... $ 10,146 $ 20,348
Total assets............................................................................ 24,154 49,815
Long term debt, excluding current portion............................................... 4,915 204
Total shareholders' equity.............................................................. 12,434 40,419
</TABLE>

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(1) Based on the number of shares outstanding as of September 30, 1996. Excludes
shares reserved for issuance under the Company's 1992, 1993, 1995 and 1996
Employee Incentive Stock Option Plans ("ISOPs"), the 1993 Director and
Officer Stock Option Plan and the 1996 Employee Stock Purchase Plan, of
which 1,347,886 shares were subject to outstanding unexercised options at
June 30, 1996 (804,283 shares under all ISOPs at an average exercise price
of $8.77 per share, 148,500 shares under the 1993 Director and Officer Stock
Option Plan at an average exercise price of $5.78 per share and 35,103
shares under the 1996 Employee Stock Purchase Plan at an average exercise
price of $7.75 per share) and 360,000 shares at an exercise price of $4.50
per share reserved for issuance under outstanding warrants. Includes 100,000
shares which will be issued upon exercise of warrants, at an exercise price
of $4.80 per share, and sold in this offering. See "Risk Factors--Potential
Dilutive Effect of Outstanding Warrants and Options and Registration Rights"
and "Principal and Selling Shareholders."

(2) Gives Pro Forma effect to the Bit 3 Acquisition and the sale by the Company
of 1,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $24.50 per share, after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company, and
the application of the estimated net proceeds therefrom. See "Acquisition of
Bit 3," "Use of Proceeds" and "Pro Forma Combined Consolidated Financial
Statements."

(3) Earnings per common and common equivalent share are based on the weighted
average shares of common stock and, if dilutive, common equivalent shares
(options and warrants) outstanding during the period. See Note (f) to "Pro
Forma Combined Consolidated Statement of Operations."

5
<PAGE>
ACQUISITION OF BIT 3

Following completion of this offering, the Company will acquire (the
"Acquisition") Bit 3. Bit 3 is a manufacturer of computer networking and
interconnection hardware for many of the most widely used computer architecture
standards in the standard bus embedded computer market. See "Business--Bit 3
Computer Corporation."

Under the terms of the purchase agreement dated October 8, 1996 (the
"Acquisition Agreement") among the Company and the two shareholders of Bit 3
(the "Sellers"), the Company will acquire all of the outstanding capital stock
of Bit 3 for a total purchase price of $24.0 million, to be paid with the net
proceeds of this offering and cash flow from Company operations. See "Use of
Proceeds." Of this total purchase price, $20.0 million will be paid to the
Sellers in cash upon the closing of this offering. Of the balance of $4.0
million, $1.0 million will be paid to the Sellers on July 1, 1997 and $3.0
million will be paid on July 1, 1998, according to the terms of the Acquisition
Agreement.

In the Acquisition Agreement, the Sellers have made certain representations
and warranties regarding the business, affairs and assets of Bit 3, the material
breach of which will entitle the Company to indemnification. The Company has
likewise made certain representations and warranties to the Sellers, who are
also entitled to indemnification for material breaches. The Company is relying
upon certain representations and warranties about Bit 3 made by the Sellers of
Bit 3 in the Acquisition Agreement, as well as the Company's own due diligence
investigation. There can be no assurance that these representations and
warranties are true and correct or that the Company's due diligence
investigation discovered all matters of a material nature relating to the
Acquisition. In addition, there can be no assurance that the indemnifications
provided in the Acquisition Agreement will be adequate if a material breach is
discovered. The Acquisition Agreement also requires the Sellers to enter into
covenants not to compete for five years from the date of the covenant and
one-year employment agreements with the Company.

If the net proceeds to the Company from the sale of 1,500,000 shares of
Common Stock offered by the Company in this offering are insufficient to fully
pay the cash portion of the Bit 3 purchase price, the Company may be required to
use existing cash and additional bank borrowings to fund the Acquisition. As a
result, the Company's available cash reserves following this offering could be
substantially depleted. To the extent the Company borrows amounts under its line
of credit to fund a portion of the Acquisition, amounts available for further
borrowings under the credit facility will be correspondingly reduced. In
addition, if the Company were required to utilize its credit facility to
complete the Acquisition, the Company's interest expense would increase and the
Company's available credit would be limited for other operating requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of SBS Technologies, Inc.--Liquidity and Capital Resources."

As a result of the Acquisition, the Company will record approximately $9.8
million in intangible assets, including goodwill, which will be amortized on a
straight line basis over their estimated benefit period of ten years. Although
Bit 3's current operating profit offsets the amortization expense and the
earnings dilution associated with this offering, there can be no assurance that
Bit 3's operations will continue to perform at current levels. A decrease in Bit
3's operating profit could adversely affect the Company's overall net income and
earnings per share. In addition, there can be no assurance that changes in
future markets or technologies will not require more rapid levels of goodwill
amortization in such a way that overall Company financial condition or results
of operations would be adversely affected. In connection with the Acquisition,
the Company will record an $11.0 million earnings charge expected to be recorded
in the second fiscal quarter of 1996, the anticipated quarter for closing of the
Acquisition. The earnings charge is based on an assessment by the Company, in
conjunction with an independent valuation firm, of purchased technology of Bit
3. The assessment determined that $11.0 million of Bit 3's purchase price
represented technology that does not meet the accounting definitions of
"completed technology," and thus should be charged to earnings under generally
accepted accounting principles. Based on the Company's historical financial
performance and the historical financial performance of Bit 3, the Company
currently expects to incur a significant net loss for the second fiscal quarter
of 1996 as a result of the earnings charge.

6
<PAGE>
See "Risk Factors--Acquisition of Bit 3," "Fluctuations in Operating Results;
Expected Second Quarter Loss" and "Pro Forma Combined Consolidated Financial
Statements."

Achieving the anticipated benefits of the Acquisition will depend in part
upon whether the integration of the two companies' businesses can be
accomplished in an efficient and effective manner, and there can be no assurance
that this will occur. The integration of Bit 3 will require, among other things,
integration of the Company's and Bit 3's respective product offerings and the
coordination of their sales and marketing and research and development efforts.
The difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations. The inability of management
to successfully integrate the operations of the Company and Bit 3 could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Acquisition of Bit 3."

7
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING AN
INVESTMENT IN THE COMPANY AND BEFORE PURCHASING ANY SHARES OF THE COMMON STOCK
OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW.

ACQUISITION OF BIT 3

The Company will use a significant portion of the net proceeds of this
offering to fund the Acquisition. See "Use of Proceeds." The total cash required
to close the Acquisition will be $20.0 million. If the net proceeds to the
Company from this offering are insufficient to close the Acquisition, the
Company may be required to use existing cash and additional bank borrowings to
fund the remaining portion of the Acquisition. As a result, the Company's
available cash reserves following the offering could be substantially depleted.
To the extent the Company borrows amounts under its line of credit to fund a
portion of the Acquisition, amounts available for further borrowings under the
credit facility will be correspondingly reduced. In addition, if the Company
were required to utilize its credit facility to complete the Acquisition, the
Company's interest expense would increase and the Company's available credit
would be limited for other operating requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of SBS
Technologies, Inc.--Liquidity and Capital Resources."

The Acquisition Agreement between the Company and the Sellers, who are the
founders of Bit 3, may be terminated by either party if the offering is not
completed by December 20, 1996. The Acquisition of Bit 3 involves numerous risks
including difficulties in the assimilation of the operations, technologies and
products of Bit 3, diversion of management's attention from other business
concerns, risks of entering markets in which the Company has no or limited
direct prior experience and in which competitors may have stronger market
positions, and the potential loss of key employees of Bit 3. In particular, the
Company anticipates that the Sellers will remain as employees of the Company
under one-year employment agreements. There can be no assurance that the Sellers
will remain with the Company for the period covered by their employment
agreements. In addition, the Company intends to operate Bit 3 in the Minneapolis
metropolitan area with its current employee base. Although the Company will seek
to retain these employees, there can be no assurance that these employees will
continue to remain with Bit 3 after the Acquisition. The Acquisition could
increase the rate of employee turnover, which could have an adverse impact on
Bit 3's performance and the Company's results of operations.

Bit 3 has experienced fluctuations in its operating results in the past and
may experience such fluctuations in the future as a result of factors such as
changes in the marketplace, technology evolution and competition. Given the
possibility of such fluctuations, the Company believes that such comparisons of
the results of its operations for preceding quarters are not necessarily
meaningful and that the results for any one period should not be relied upon as
an indication of future performance.

8
<PAGE>

years. Although Bit 3's current operating profit offsets the amortization
expense and the earnings dilution associated with this offering, there can be no
assurance that Bit 3's operations will remain at their current levels. A
decrease in Bit 3's operating profit could adversely affect the Company's
overall net income and earnings per share. In addition, there can be no
assurance that changes in future markets or technologies will not require more
rapid levels of goodwill amortization in such a way that overall Company
financial condition or results of operations would be adversely affected. In
connection with the Acquisition, the Company will record an $11.0 million
earnings charge expected to be recorded in the second fiscal quarter of 1996,
the anticipated quarter for closing of the Acquisition. The earnings charge is
based on an assessment by the Company, in conjunction with an independent
valuation firm, of purchased technology of Bit 3. The assessment determined that
$11.0 million of Bit 3's purchase price represented technology that does not
meet the accounting definitions of "completed technology," and thus should be
charged to earnings under generally accepted accounting principles. Based on the
Company's historical financial performance and the historical financial
performance of Bit 3, the Company currently expects to incur a significant net
loss for the second fiscal quarter of 1996 as a result of the earnings charge.
See "Acquisition of Bit 3," "--Fluctuations in Operating Results; Expected
Second Quarter Loss" and "Pro Forma Combined Consolidated Financial Statements."

The Company is relying upon certain representations and warranties about Bit
3 made by the Sellers of Bit 3 in the Acquisition Agreement, as well as the
Company's own due diligence investigation. There can be no assurance that these
representations and warranties are true and correct or that the Company's due
diligence investigation discovered all matters of a material nature relating to
the Acquisition. See "Acquisition of Bit 3."

FLUCTUATIONS IN OPERATING RESULTS; EXPECTED SECOND QUARTER LOSS

The Company has experienced fluctuations in its operating results in the
past and may experience such fluctuations in the future. Sales, on both an
annual and a quarterly basis, are subject to fluctuations as a result of a
variety of factors, many of which are beyond the control of the Company. These
factors include the timing of customer orders, manufacturing delays, delays in
shipment due to component shortages, cancellations of orders, the mix of
products sold, cyclicality or downturns in the markets served by the Company's
customers, including significant reductions in defense spending affecting
certain of the Company's customers, and regulatory changes. In addition, the
Company tends to experience an increase in sales during its first fiscal
quarter, which ends on September 30, due to purchases made by United States
("U.S.") government agencies and contractors at the end of the U.S. government's
fiscal year which also ends on September 30. The Company primarily experiences
this effect in its avionics and telemetry product lines. Similarly, the Company
tends to experience little or no growth in sales during its second fiscal
quarter, as sales dependent on U.S. government funding are often delayed during
the start of the U.S. government's new fiscal year. Given the possibility of
such fluctuations, the Company believes that comparisons of the results of its
operations for preceding quarters are not necessarily meaningful and that the
results for any one quarter should not be relied upon as an indication of future
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Quarterly Results." In the event that the Company's
sales or earnings for any quarter are less than the level expected by securities
analysts or the market in general, such shortfalls could have an immediate and
significant adverse impact on the market price of the Company's Common Stock.

In connection with the Acquisition, the Company will record an $11.0 million
earnings charge expected to be recorded in the second fiscal quarter of 1996,
the anticipated quarter for closing of the Acquisition. The earnings charge is
based on an assessment by the Company, in conjunction with an independent
valuation firm, of purchased technology of Bit 3. The assessment determined that
$11.0 million of Bit 3's purchase price represented technology that does not
meet the accounting definitions of "completed technology," and thus should be
charged to earnings under generally accepted accounting principles. Based on the
Company's historical financial performance and the historical financial
performance of Bit 3, the Company currently expects to incur a significant net
loss for the second fiscal quarter of

9
<PAGE>
1996 as a result of the earnings charge. See "Acquisition of Bit 3" and "Pro
Forma Combined Consolidated Financial Statements."

INTEGRATION OF ACQUISITIONS; EXPANSION THROUGH ACQUISITIONS

The Company has increased the scope of its operations primarily through the
addition of three new product lines acquired since 1992. BSI was acquired in
1992, GreenSpring was acquired in 1995 and LDG, was added in August 1996. There
can be no assurance that the Company's management and financial controls,
personnel, and other corporate support systems will be adequate to manage the
increase in the size and the diversity of scope of the Company's operations as a
result of the recent acquisitions, including the Acquisition. In addition, there
can be no assurance that the Company's acquisitions will be accretive to
earnings or that the companies acquired will continue to perform at their
historical levels.

A major element of the Company's business strategy is to continue to pursue
acquisitions that either expand or complement its business. There can be no
assurance that the Company will be able to identify and acquire acceptable
acquisition candidates on terms favorable to the Company and in a timely manner.
A substantial portion of the Company's capital resources could be used for these
acquisitions. Consequently, the Company may require additional debt or equity
financing for future acquisitions, which may not be available on terms favorable
to the Company, if at all. As the Company proceeds with its acquisition
strategy, the Company will continue to encounter the risks associated with the
integration of the acquisitions described above. See "Acquisition of Bit 3" and
"Business--SBS' Strategy."

The Company anticipates that one or more potential acquisition
opportunities, including some that could be material, may become available in
the near future. If and when appropriate acquisition opportunities become
available, the Company intends to pursue them actively. No assurance can be
given that any acquisition by the Company will or will not occur, that if such
an acquisition does occur that it will not materially and adversely affect the
Company or that any such acquisition will be successful in enhancing the
Company's business.

RELIANCE ON DEFENSE SPENDING

In each of fiscal 1994, 1995 and 1996, the majority of the Company's sales
were derived directly or indirectly from the U.S. Department of Defense. The
Company expects that the Department of Defense will continue to be a significant
source of sales. There can be no assurance that changes in the geopolitical
environment or in national policy will not result in significantly reduced
defense spending which could materially and adversely affect the Company's
business, financial condition or results of operations. In addition, the Company
believes that many of its potential customers will rely on U.S. government
funding for the purchase of the Company's products. Accordingly, sales to these
customers may be adversely affected by delays in obtaining, or the
unavailability of, such funds caused by budget constraints or bureaucratic
processes.

RELIANCE ON INDUSTRY STANDARDS; FUNDAMENTAL TECHNOLOGY CHANGE

Most of the Company's products are developed to meet certain industry
standards, including MIL-STD-1553, Telemetry IRIG Standards and various ANSI
standards. These standards are continuing to develop and are subject to change.
Elimination or obsolescence of these standards could materially adversely affect
the design, manufacture and sale of the Company's products and require costly
redesign to meet new or emerging standards. In addition, the Company's success
will depend in part on its ability to develop products that evolve with changing
industry standards and customer preferences. There can be no assurance that the
Company will be successful in developing such products in a timely manner, or
that the Company will be successful in selling the products it develops. The
Company's delay or failure to adapt to changing industry standards could have a
material adverse effect on the Company's business, financial condition and
results of operations.

10
<PAGE>
Many of the Company's product designs rely on state of the art digital
technology. There is no assurance that future advances in technology may not
make obsolete the Company's existing product lines, resulting in increased
competition and requiring the Company to undertake costly redesign of its
products to maintain its competitive position. There can be no assurance that
the Company will be able to incorporate the new technology into its existing
products or redesign its existing products in order to compete effectively.

Moreover, new and enhanced products and solutions affecting the Company's
markets are continually being introduced by the Company's competitors. These
products and solutions can be expected to affect the competitive environment in
the markets in which they are introduced. Because new products and technologies
require commitments well in advance of sales, decisions with respect to those
commitments must accurately anticipate both future demand and the technology
that will be available to meet that demand. There can be no assurance that the
Company will be able to successfully adapt to future technological changes and
failure to do so may materially adversely affect the Company's business,
financial condition or results of operations. See "Business--Research and
Development" and
"--Competition."

UNCERTAINTY OF MARKET DEVELOPMENT

Many of the Company's potential customers design and manufacture standard
bus embedded computer systems internally. Increased market acceptance of the
Company's products and services is dependent in part on these customers relying
on the Company to provide embedded computer system components rather than
designing and manufacturing these products internally. The Company believes that
a number of factors will be important to achieve increased market acceptance of
its products and services. These factors include the quality of the Company's
design and production expertise, the increasing use and complexity of embedded
computer systems in new and traditional products, the expansion of markets that
are served by standard bus embedded computers, time-to-market requirements of
the Company's actual and potential, the assessment of direct and indirect cost
savings and the willingness to rely on the Company for mission-critical
applications by customers. The Company believes that in many customer
applications, the cost of its products may exceed or be perceived to exceed the
cost of internal development. Failure to achieve increased market acceptance of
the Company's products will have a material adverse effect on the Company's
ability to achieve its growth objectives.

COMPETITION

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

In the Company's recently acquired CPU product line, the Company competes
with a number of other suppliers of VME CPU boards. The Company's direct
competitors include other companies that build VME CPU boards based on Intel
microprocessor technology such as Force Computers, Inc. (which has recently
agreed to be acquired by Solectron Corporation), Performance Technologies, Inc.,
RadiSys Corporation, VME Microsystems, Inc. ("VMIC") and XYCOM, Inc. Indirectly,
however, the Company

11
<PAGE>

also competes with suppliers of VME CPU boards based on other microcomputer
architectures such as Motorola 680x0, Sparc and PowerPC.

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

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

In the avionics interface market, the Company competes with a number of
other companies that produce similar avionics interface products. The Company's
competitors include Ballard Technologies, Inc., Data Devices Corporation,
Digital Technology, Inc., DY-4, Inc., Excalibur Technologies Corporation and
Gesellschaft Fur Angewandte Informatik und Mikroelekernik, GmbH.

RELIANCE ON SPECIALIZED MARKETS

Many of the Company's products, including its telemetry and avionics
interface products, target specialized markets that support attractive profit
margins. There can be no assurance that these markets will continue to support
these margins or that these specialized markets will continue to provide the
Company with an environment to support current sales levels or acceptable growth
rates.

AVAILABILITY OF COMPONENT MATERIALS

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

RETENTION AND RECRUITMENT OF KEY EMPLOYEES

The Company's ability to maintain its competitive position and to develop
and market new products depends, in part, upon its ability to retain key
employees and to recruit and retain additional qualified personnel, particularly
engineers. There can be no assurance that the Company will be able to continue
to retain or recruit such personnel. An inability by the Company to retain and
recruit key employees could have a material adverse effect on the Company's
business, financial condition and results of operations.

12
<PAGE>
NO PATENT PROTECTION

Although the Company believes that some of its processes and equipment may
be proprietary, the Company has not sought patent protection for its technology.
The Company has relied upon trade secret laws, industrial know-how and employee
confidentiality agreements. There can be no assurance that the Company's
processes and equipment provide it with a sufficient competitive advantage to
overcome its lack of patent protection, or that others will not independently
develop equivalent or superior products or technology. Furthermore, there can be
no assurance that trade secret protection will be established, or that secrecy
obligations will be honored. Also, to the extent that consultants, employees and
other parties apply technological information developed independently, by them
or others, to Company projects, disputes may arise as to the proprietary rights
to that information, which may not be resolved in favor of the Company.

In addition, litigation may be necessary to enforce the Company's
proprietary rights, to protect the Company's trade secrets, to determine the
validity and scope of the intellectual property rights of others or to defend
against claims of infringement. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and results of operations.

Moreover, because patent applications in the United States are not publicly
disclosed until the patents issue, patent applications may have been filed that
relate to the Company's products and technology. The Company does not believe
that it infringes any patents of which it is aware; however, there can be no
assurance that patent infringement claims will not be asserted against the
Company. If such claims were asserted, such claims might have a material adverse
effect on the Company's business, financial condition or results of operations.
If infringement or invalidity claims are asserted against the Company,
litigation may be necessary to defend the Company against such claims, and in
certain circumstances the Company may choose to seek to obtain a license under
the third-party's intellectual property rights. There can be no assurance that
such licenses will be available on terms acceptable to the Company, if at all.

PRODUCT LIABILITY

The Company's products and services potentially may be subject to product
liability or government or commercial warranty claims. The Company maintains
primary product liability insurance with a general aggregate limit of $2.0
million, $1.0 million per occurrence, and an $8.0 million excess policy. While
the Company has never been the subject of any such claims, considering the wide
use of the Company's products in a variety of applications, as well as the
propensity of claimants initially to pursue all possible contributors in a legal
action, there can be no assurance that such coverage will be adequate to protect
the Company from liability, or that the Company will be able to continue such
insurance in effect for premiums acceptable to the Company. In the event of a
successful lawsuit against the Company, a lack or insufficiency of insurance
coverage could have a material adverse effect upon the Company.

DEPENDENCE UPON CERTAIN OFFICERS

The success of the Company is dependent in part upon the services of certain
executive officers and other key employees. The Company maintains key man
insurance on the lives of each of its executive officers in the amount of $1.0
million. Executive officers also have entered into employment agreements with
the Company for varying lengths of time. Other key employees are retained by a
combination of employment agreements and incentive stock option plans. Loss of
the services of such employees could have a material adverse effect on the
Company's business. See "Management."

CONTROL BY MANAGEMENT

Upon completion of this offering, the Officers and Directors of the Company
will beneficially own approximately 27.2% of the Company's issued and
outstanding Common Stock (approximately 22.8% if the Underwriter's
over-allotment is exercised in full). The Company's Articles of Incorporation do
not

13
<PAGE>
permit cumulative voting. The Officers and Directors ownership if voted together
provides management with the power to influence significantly all matters
requiring approval by the shareholders of the Company, including the election of
directors and approval of stock option and stock purchase plans.

POTENTIAL DILUTIVE EFFECT OF OUTSTANDING WARRANTS AND OPTIONS AND REGISTRATION
RIGHTS

The Company, in connection with its acquisition of GreenSpring in August
1995, issued warrants to purchase 400,000 shares of Common Stock at an exercise
price of $4.50 per share (the "GreenSpring Warrants"). The holders of the
GreenSpring Warrants were also granted the right to sell alongside a Company
registration. The Company is obligated to register the GreenSpring Warrants
under the Securities Act of 1933 (the "Securities Act"). In April 1996, the
Company registered under the Securities Act 150,001 GreenSpring Warrants as well
as certain options held by the Company's Chief Executive Officer, President and
Chief Operating Officer, Mr. Amenson. As of June 30, 1996, 360,000 of the
GreenSpring Warrants remained, of which 193,334 were exercisable and warrants to
purchase 166,666 shares of Common Stock become exercisable over the next two
years. The holders of the GreenSpring Warrants also possess until August 2000
the right to sell shares of Common Stock underlying the GreenSpring Warrants
alongside the Company should the Company file a registration statement during
this period.

Additionally, in connection with the Company's acquisition in August 1996 of
LDG, the Company granted to the two selling shareholders of LDG registration
rights and piggyback rights covering an aggregate of 200,000 shares of the
Company's Common Stock.

Such demand, piggyback and alongside registration rights may negatively
influence the Company's ability to raise additional equity capital in the
future. To the extent that outstanding options or warrants to purchase the
Company's Common Stock are exercised, there will be additional dilution in
excess of that resulting from use of common and common equivalent shares in
earnings calculations.

As of September 30, 1996, the Company had 534,283 vested options and 453,603
options subject to vesting.

LIMITED PUBLIC FLOAT; TRADING; VOLATILITY OF STOCK PRICE

The Company's Common Stock is traded on the Nasdaq National Market. While a
public market currently exists for the Company's Common Stock, the number of
shares in the public market is approximately 68.7% of the 5,030,657 shares of
Common Stock that will be outstanding at the completion of this offering.
Trading volume in the four weeks ended October 18, 1996 averaged 151,167 shares
traded per day. Thus, trading of relatively small blocks of stock can have a
significant impact on the price at which the stock is traded. In addition, the
Nasdaq National Market has experienced, and is likely to experience in the
future, significant price and volume fluctuations which could adversely affect
the market price of the Common Stock without regard to the operating performance
of the Company. The Company believes factors such as quarterly fluctuations in
financial results, announcements of new technologies impacting the Company's
products, announcements by competitors or changes in securities analysts'
recommendations may cause the market price to fluctuate, perhaps substantially.
These fluctuations, as well as general economic conditions, such as recessions
or high interest rates, may adversely affect the market price of the Common
Stock. See "--Fluctuations in Operating Results; Expected Second Quarter Loss"
and "Price Range of Common Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Future sales by existing shareholders could adversely affect the prevailing
market price of the Common Stock. Upon completion of the offering, the Company
will have 5,030,657 shares of Common Stock outstanding. Of these shares,
1,800,000 shares offered hereby (2,070,000 shares if the Underwriters'
overallotment option is exercised in full) will be eligible for immediate sale
in the public market without

14
<PAGE>
restriction under the Securities Act, unless such shares are held by affiliates
of the Company, as that term is defined in the Rule 144 under the Securities
Act. In addition, approximately 186,700 shares will be eligible for sale in the
public market without restriction pursuant to Rule 144(k) or Rule 701 under the
Securities Act. Approximately 1,573,200 additional shares outstanding upon
completion of the offering will be eligible for sale pursuant to Rule 144,
assuming no exercise of the over-allotment option.

The holders of approximately 1,418,188 of the shares of Common Stock
outstanding after the offering and the holders of warrants and options to
purchase approximately 374,783 shares of Common Stock have agreed, subject to
certain exceptions, not to sell or otherwise dispose of any of their shares for
a period of 120 days after the date of the Prospectus. Cowen & Company may, in
its sole discretion, at any time without notice, release all or a portion of the
shares subject to lock-up agreements. Following the closing of the offering, the
holders of approximately 449,999 shares of Common Stock will be entitled to
certain demand and piggyback registration rights with respect to such shares.

ABSENCE OF DIVIDENDS

Since its inception, the Company has not paid cash dividends on its Common
Stock. The Company intends to retain future earnings, if any, to provide funds
for business operations and, accordingly, does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Pursuant to its Credit
Agreement, dated April 28, 1995, as amended, with NationsBank of Texas, N.A.
("NationsBank"), neither the Company nor any of its subsidiaries may, directly
or indirectly, make any cash or other distributions (such as dividends) on or in
respect of any person's interest as a shareholder in the Company.

15
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of 1,500,000 shares of Common
Stock offered by the Company in this offering are estimated to be $34,118,000
assuming a public offering price of $24.50 per share after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Shareholders. The Company intends to use
the net proceeds of the offering first to fund the Acquisition (see "Acquisition
of Bit 3") and then to pay down its long term debt. The total cash required to
close the Acquisition will be $20.0 million. In addition, the Company currently
has approximately $4.9 million of long term debt, excluding the current portion
of that debt, primarily from its acquisition of GreenSpring in April 1995. This
debt, with NationsBank, matures on October 30, 1999 and carries an interest rate
equal to NationsBank's prime rate plus 0.25% or LIBOR plus 2.5% in 30, 60 or 90
day options. In fiscal 1996, the average rate associated with this long term
debt was approximately 10% per annum. The Company anticipates that the balance
of the net proceeds will be added to working capital and used for general
corporate purposes. The Company may also consider using any remaining offering
proceeds for the acquisition of complementary businesses, products or
technologies. However, the Company has no specific plans with respect to any
such acquisition. Pending such uses, the Company intends to invest the net
proceeds from this offering in short term, investment-grade, interest-bearing
securities.

DIVIDEND POLICY

Since its inception, the Company has not paid cash dividends on its Common
Stock. The Company intends to retain future earnings, if any, to provide funds
for business operations and accordingly, does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Pursuant to its Credit
Agreement, dated April 28, 1995, as amended, with NationsBank, neither the
Company nor any of its subsidiaries may, directly or indirectly, make any cash
or other distributions such as dividends on or in respect of any person's
interest as a shareholder in the Company.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SBSE." The following table sets forth for the periods indicated the high
and low closing prices of the Company's Common Stock as reported by the Nasdaq
National Market.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year 1995
Quarter ended September 30, 1994........................................... $ 6.75 $ 4.00
Quarter ended December 31, 1994............................................ 7.13 4.38
Quarter ended March 31, 1995............................................... 5.00 3.75
Quarter ended June 30, 1995................................................ 5.25 4.00
Fiscal Year 1996
Quarter ended September 30, 1995........................................... $ 9.00 $ 5.00
Quarter ended December 31, 1995............................................ 8.94 7.13
Quarter ended March 31, 1996............................................... 10.13 7.63
Quarter ended June 30, 1996................................................ 17.13 8.88
Fiscal Year 1997
Quarter ended September 30, 1996........................................... $ 19.75 $ 10.63
Quarter ending December 31, 1996 (through October 21)...................... 24.50 19.00
</TABLE>

The last sale price of the Company's Common Stock on October 21, 1996 as
reported on the Nasdaq National Market was $24.50 per share. As of September 30,
1996, there were approximately 2,000 beneficial holders of the Company's Common
Stock.

16
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to give effect to the sale by the Company of
the 1,500,000 shares of Common Stock offered hereby, assuming an offering price
of $24.50 per share, use of the estimated net proceeds to complete the
Acquisition, the effect on earnings of the write-off of in-process research and
development related to the Acquisition and the retirement of up to $6.2 million
of the Company's long-term debt with any remaining proceeds retained by the
Company for general corporate purposes. See "Acquisition of Bit 3," "Use of
Proceeds" and "Pro Forma Combined Consolidated Financial Statements."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(1)(2)
---------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long term debt................................................... $ 1,477 $ --
Long term debt, less current portion................................................ 4,915 204
---------- --------
Shareholders' equity:
Common Stock...................................................................... 4,998 39,596
Common Stock warrants............................................................. 180 180
Retained earnings................................................................... 7,256 643
---------- --------
Total shareholders' equity........................................................ 12,434 40,419
---------- --------
Total capitalization................................................................ $ 24,154 $ 49,815
---------- --------
---------- --------
</TABLE>

- ------------

(1) See "Pro Forma Combined Consolidated Financial Statements."

(2) Based on the number of shares outstanding as of September 30, 1996. Excludes
shares reserved for issuance under the Company's 1992, 1993, 1995, and 1996
Employee ISOPs, the 1993 Director and Officer Stock Option Plan and the 1996
Employee Stock Purchase Plan, of which 1,347,886 shares were subject to
outstanding unexercised options at June 30, 1996 (804,283 shares under all
ISOPs at an average exercise price of $8.77 per share, 148,500 shares under
the 1993 Director and Officer Stock Option Plan at an average exercise price
of $5.78 per share and 35,103 shares under the 1996 Employee Stock Purchase
Plan at an average exercise price of $7.75 per share) and 360,000 shares an
an exercise price of $4.50 per share reserved for issuance under outstanding
warrants. Includes 100,000 shares which will be issued upon exercise of
warrants, at an exercise price of $4.80 per share, and sold in this
offering. See "Risk Factors--Potential Dilutive Effect of Outstanding
Warrants and Options and Registration Rights."

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
OF SBS TECHNOLOGIES, INC.

The following selected consolidated statement of operations data for the
years ended June 30, 1994, 1995 and 1996, and consolidated balance sheet data as
of June 30, 1995 and 1996 are derived from the Consolidated Financial Statements
of the Company and Notes thereto, which have been audited by KPMG Peat Marwick
LLP, independent auditors, and are included elsewhere in this Prospectus. The
following selected consolidated statement of operations data for the years ended
June 30, 1992 and 1993 and consolidated balance sheet data as of June 30, 1992,
1993 and 1994 are derived from audited financial statements not included in this
Prospectus. The following selected consolidated statement of operations data for
the three month periods ended September 30, 1995 and 1996 and the balance sheet
data as of September 30, 1996 are derived from the unaudited consolidated
financial statements of the Company included herein. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
financial statements and in the opinion of the Company, include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and operating results for the unaudited
periods. The following selected data should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER
YEAR ENDED JUNE 30, 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales...................................... $ 2,542 $ 5,908 $10,197 $16,218 $31,332 $ 7,575 $11,263
Cost of sales.............................. 1,094 2,906 4,883 6,757 14,510 3,581 5,246
------- ------- ------- ------- ------- ------- -------
Gross profit............................. 1,448 3,002 5,314 9,461 16,822 3,994 6,017
Selling, general and administrative........ 867 1,540 2,221 3,891 6,293 1,549 2,674
Research and development................... 422 750 1,187 1,687 2,846 685 655
Amortization of intangible assets.......... -- 312 383 493 884 233 219
------- ------- ------- ------- ------- ------- -------
Operating income from continuing
operations............................. 159 400 1,523 3,390 6,799 1,527 2,469
Interest expense, net of interest income... -- 12 14 188 830 281 149
------- ------- ------- ------- ------- ------- -------
Income from continuing operations before
income taxes............................. 159 388 1,509 3,202 5,969 1,246 2,320
Income taxes............................... 86 220 638 1,357 2,387 524 928
------- ------- ------- ------- ------- ------- -------
Income from continuing operations........ 73 168 871 1,845 3,582 722 1,392
------- ------- ------- ------- ------- ------- -------
Discontinued operations, net of tax(1)..... (33) (35) 855 (1,781) -- -- --
Loss on disposal of discontinued
operations, net of taxes(1).............. -- -- -- (1,354) -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) from discontinued
operations(1)............................ (33) (35) 855 (3,135) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss).......................... $ 40 $ 133 $ 1,726 $(1,290) $ 3,582 $ 722 $ 1,392
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Income (loss) per common and common
equivalent share:
Continuing operations.................... 0.03 0.05 0.30 0.65 0.97 0.23 0.33
Discontinued operations(1)............... (0.01) (0.01) 0.29 (1.10) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss) per common and common
equivalent share......................... $ 0.02 $ 0.04 $ 0.59 $ (0.45) $ 0.97 $ 0.23 $ 0.33
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Weighted average number of common and
common equivalent shares outstanding..... 2,363 2,958 2,948 2,859 3,792 3,116 4,218
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $ 3,218 $ 2,542 $ 3,188 $ 3,320 $ 8,233 $ 10,146
Intangible assets, net................................... 100 1,589 1,184 6,077 5,571 5,352
Total assets............................................. 5,515 11,732 13,477 19,905 20,443 24,154
Long-term debt, excluding current portion................ 3 330 274 5,342 5,188 4,915
Total shareholders' equity............................... 3,897 4,846 5,865 5,049 10,051 12,434
</TABLE>

- ---------------
(1) In April 1995, the Company divested its flight simulation business and
ceased operation in this line of business. The results of discontinued
operations reflect the performance of this line of business on the Company's
historical results of operations. The Company has exited from this business
and believes there will be no material future charges associated with this
discontinued business line. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of SBS Technologies,
Inc.--Overview."

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF SBS TECHNOLOGIES, INC.

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL
AS THOSE DISCUSSED ELSEWHERE HEREIN.

OVERVIEW

The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of CPU, general purpose I/O and special
purpose I/O interface applications. In 1988, the Company entered the embedded
computing market with the development of its avionics interface board, which is
used in ground-based avionics systems development and test applications. In
1992, the Company added a second embedded computer product line with the
acquisition of BSI, a developer of telemetry interface circuit boards. In recent
years, the Company has discontinued certain of its operations. From its
inception in 1986 until 1995, the Company provided flight simulators for a
variety of military aircraft to U.S. and foreign entities. In April 1995,
following a decline in the defense industry, the Company divested this business
and recorded a related charge of $2.3 million. Additionally, from 1987 through
the first half of fiscal 1996, the Company provided engineering services that
generated minimal revenue and profit. The Company has subsequently exited this
business.

Following completion of this offering, the Company will acquire Bit 3. Bit 3
is a manufacturer of computer networking and interconnection hardware for many
of the most widely used computer architecture standards in the standard bus
embedded computer market. In connection with the Acquisition, the Company will
record an $11.0 million earnings charge expected to be recorded in the second
fiscal quarter of 1996, the anticipated quarter for closing of the Acquisition.
The earnings charge is based on an assessment by the Company, in conjunction
with an independent valuation firm, of purchased technology of Bit 3. The
assessment determined that $11.0 million of Bit 3's purchase price represented
technology that does not meet the accounting definitions of "completed
technology," and thus should be charged to earnings under generally accepted
accounting principles. Based on the Company's historical financial performance
and the historical financial performance of Bit 3, the Company currently expects
to incur a significant net loss for the second fiscal quarter of 1996 as a
result of the earnings charge. See "Acquisition of Bit 3," "Risk
Factors--Acquisition of Bit 3," "Fluctuations in Operating Results; Expected
Second Quarter Loss" and "Pro Forma Combined Consolidated Financial Statements."

RECENT ACQUISITIONS

On April 28, 1995, the Company acquired GreenSpring, based in Menlo Park,
California, for $7.5 million. GreenSpring is engaged in the design, development,
manufacturing and marketing of general purpose I/O products utilized in multiple
segments of the standard bus embedded computer market. The acquisition was
accounted for as a purchase. The Company recorded $5.8 million in goodwill with
$653,000 expensed through June 30, 1996 and the remainder expected to be
expensed through June 30, 2005, the estimated benefit period. Net income and
earnings per common and common equivalent share for fiscal 1994 would have been
approximately $1.7 million and $0.56, respectively, had the acquisition taken
place on July 1, 1993. Had the acquisition taken place on July 1, 1994, the
Company's reported net loss and net loss per common and common equivalent share
for fiscal 1995 would have been decreased by approximately $804,000 and $0.28,
respectively.

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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales....................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 47.9 41.7 46.3 47.3 46.6
----- ----- ----- ----- -----
Gross profit.............................................. 52.1 58.3 53.7 52.7 53.4
Selling, general and administrative......................... 21.8 24.0 20.1 20.4 23.7
Research and development.................................... 11.6 10.4 9.1 9.0 5.8
Amortization of intangible assets........................... 3.8 3.0 2.8 3.1 2.0
----- ----- ----- ----- -----
Operating income from continuing operations................. 14.9 20.9 21.7 20.2 21.9
Interest expense, net of interest income.................... 0.1 1.2 2.7 3.7 1.3
----- ----- ----- ----- -----
Income from continuing operations before income taxes..... 14.8 19.7 19.0 16.5 20.6
Income taxes................................................ 6.3 8.3 7.6 6.9 8.2
----- ----- ----- ----- -----
Income from continuing operations........................... 8.5% 11.4% 11.4% 9.6% 12.4%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

THREE MONTHS ENDED SEPTEMBER 30, 1996 AND THREE MONTHS ENDED SEPTEMBER 30, 1995

SALES. For the three month period ended September 30, 1996, sales increased
48.7%, or $3.7 million, from $7.6 million in the three months ended September
30, 1995 to $11.3 million. This increase was primarily attributable to the
additional sales contributed by LDG which was acquired on August 19, 1996, and
pooled effective July 1, 1996, as well as increases from the Company's avionics
and telemetry products. During the three month period ended September 30, 1996,
prices for the Company's products remained firm and unit shipments increased.

GROSS PROFIT. For the three month period ended September 30, 1996, gross
profit increased 50.0%, or $2.0 million, in the three months ended September 30,
1995 to $6.0 million. For the three month period ended September 30, 1996, gross
margin increased to 53.4% of sales from 52.7% in the three months ended
September 30, 1995. This increase was primarily due to the effects of additional
sales volume and reductions in component material costs.

SELLING, GENERAL AND ADMINISTRATION. For the three month period ended
September 30, 1996, selling, general and administration expense increased 80.0%,
or $1.2 million, from $1.5 million in the three months ended September 30, 1995
to $2.7 million and as a percentage of sales increased to 23.7% from 20.7% in
the three months ended September 30, 1995. This increase was primarily the
result of the inclusion of the results of LDG, management's decision to increase
reserves and accruals due to the higher level of business activity and costs
associated with acquisitions.

RESEARCH AND DEVELOPMENT. For the three month period ended September 30,
1996, research and development expense decreased 4.3%, or $30,000, from $685,000
in the three months ended September 30, 1995 to $655,000 and as a percentage of
sales decreased to 5.8% from 9.0% in the three months ended

20
<PAGE>

September 30, 1995. This decrease was a result of expenditures relating to the
completion of certain development programs during the 1996 fiscal year.

AMORTIZATION OF INTANGIBLE ASSETS. For the period ended September 30, 1996,
amortization of intangible assets decreased 6.0%, or $14,000, from $233,000 in
the three months ended September 30, 1995 to $219,000. This decrease was a
result of completing the amortization of intangible assets relating to the
acquisition of Berg Systems International during the first quarter of fiscal
1996.

INTEREST EXPENSE, NET OF INTEREST INCOME. For the period ended September
30, 1996, interest expense, net of interest income decreased 46.8%, or $131,000,
from $280,000 in the three months ended September 30, 1995 to $149,000. This
decrease was the result of the reduction in debt to finance the acquisition of
Green Spring Computers, Inc.

INCOME TAXES. For the period ended September 30, 1996, income taxes
increased $404,000, or 77.1%, from $524,000 in the three months ended September
30, 1995 to $928,000, representing effective tax rates of 40% and 42%,
respectively.

YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995

SALES. In fiscal 1996, sales increased 93.2%, or $15.1 million, from $16.2
million in fiscal 1995 to $31.3 million. This increase reflects a full year of
sales in fiscal 1996 for GreenSpring, whereas fiscal 1995 sales include only two
months of GreenSpring sales. As a result, $11.1 million in GreenSpring sales
were reflected in fiscal 1996 compared to $1.5 million in fiscal 1995. In
addition, sales of the Company's avionics and telemetry product lines increased
by 37.5%, or $5.5 million, in fiscal 1996. The increases in sales in fiscal 1996
reflected increases in unit volume, new product introductions and the addition
of new customers in all of the Company's product lines.

GROSS PROFIT. In fiscal 1996, gross profit increased 77.8%, or $7.4
million, from $9.5 million in fiscal 1995 to $16.8 million, as a result of
increased sales volume. In fiscal 1996, gross margin decreased to 53.7% of sales
from 58.3% in fiscal 1995 as a result of a change in sales mix. While gross
margins on the Company's avionics and telemetry products remained relatively
constant in fiscal 1996, fiscal 1996 sales were comprised of a higher proportion
of GreenSpring products, which generally yield lower gross margins than sales of
the Company's other products. Reductions in component material costs in each of
the Company's product lines partially offset the effect on gross margin of this
shift in sales mix.

SELLING, GENERAL AND ADMINISTRATIVE. In fiscal 1996, selling, general and
administrative expense increased 61.7%, or $2.4 million, from $3.9 million in
fiscal 1995 to $6.3 million. The increase resulted primarily from the addition
of certain expenses of GreenSpring's operations, and additional staffing and
promotional expenses related to the Company's avionics and telemetry product
lines. However, selling, general and administrative expense decreased as a
percentage of sales from 24.0% in fiscal 1995 to 20.1% in fiscal 1996, primarily
due to a more rapid increase in sales than in selling, general and
administrative expense.

RESEARCH AND DEVELOPMENT. In fiscal 1996, research and development expense
increased by 68.8%, or $1.2 million, from $1.7 million in fiscal 1995 to $2.9
million, reflecting the costs of GreenSpring's operations and the additional
staffing required for new product development in the avionics product line.
However, research and development expense decreased as a percentage of sales
from 10.4% in fiscal 1995 to 9.1% in fiscal 1996, primarily due to a more rapid
increase in sales than in research and development expense.

AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1996, amortization of
intangible assets increased 79.3%, or $391,000, from $493,000 in fiscal 1995 to
$884,000 due to the increase in intangible assets related to the acquisition of
GreenSpring.

21
<PAGE>
INTEREST EXPENSE, NET OF INTEREST INCOME. In fiscal 1996, interest expense,
net of interest income, increased by 342%, or $642,000, from $188,000 in fiscal
1995 to $830,000 as a result of debt assumed late in fiscal 1995 as part of the
acquisition of GreenSpring.

INCOME TAXES. In fiscal 1996, tax expense increased 75.9%, or $1.0 million,
from $1.4 million in fiscal 1995 to $2.4 million representing effective income
tax rates of 40% and 42%, respectively. The lower effective tax rate in fiscal
1996 resulted primarily from the use of a foreign sales corporation.

YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994

SALES. In fiscal 1995, sales increased 59.1%, or $6.0 million, from $10.2
million in fiscal 1994 to $16.2 million. This increase resulted from a number of
factors, including introduction of the PASS 1000 bus analyzer product in
avionics, broader participation in defense-related programs and $1.5 million in
sales of GreenSpring products included for the two months following its
acquisition in April 1995.

GROSS PROFIT. In fiscal 1995, gross profit increased 78.0%, or $4.2
million, from $5.3 million in fiscal 1994 to $9.5 million due to increased sales
volume and improved gross margin. In fiscal 1995, gross margin increased from
52.1% of sales in fiscal 1994 to 58.3% of sales as a result of reductions in per
unit component and labor costs, and more efficient amortization of manufacturing
overheads resulting from increased volume.

SELLING, GENERAL AND ADMINISTRATIVE. In fiscal 1995, selling, general and
administrative expense increased 75.1%, or $1.7 million, from $2.2 million in
fiscal 1994 to $3.9 million. The increase resulted from the addition of
GreenSpring's costs, and increases in staffing and promotional expenses in the
avionics and telemetry product lines. As a percentage of sales, selling, general
and administrative expense increased from 21.8% in fiscal 1994 to 24.0% in
fiscal 1995, reflecting expense incurred in anticipation of increased sales.

RESEARCH AND DEVELOPMENT. In fiscal 1995, research and development expense
increased by 42.1%, or $500,000, from $1.2 million in fiscal 1994 to $1.7
million reflecting the costs of additional staffing required for new product
development in the avionics product line including the ABI V5, ABI V6 and PASS
1000 interface boards. However, research and development expense decreased as a
percentage of sales from 11.6% in fiscal 1994 to 10.4% in fiscal 1995, primarily
due to a more rapid increase in sales than in research and development expense.

AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1995, amortization of
intangible assets increased 28.8%, or $110,000, from $383,000 in fiscal 1994 to
$493,000 due to the increase in intangible assets related to the acquisition of
GreenSpring.

INTEREST EXPENSE, NET OF INTEREST INCOME. In fiscal 1995, interest expense,
net of interest income, increased by $173,000, or 1,183%, from $15,000 in fiscal
1994 to $188,000 as a result of debt assumed late in fiscal 1995 related to the
acquisition of GreenSpring.

INCOME TAXES. In fiscal 1995, tax expense increased 112.7%, or $719,000,
from $638,000 in fiscal 1994 to $1.4 million, representing an effective income
tax rate of 42% in each year.

22
<PAGE>
QUARTERLY RESULTS

The following tables present certain unaudited financial data for each of
the five fiscal quarters ended September 30, 1996. These data have been derived
from unaudited financial statements that, in the opinion of management, have
been prepared on the same basis as the Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus, including all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial results herein. Such statement of operations data
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. The operating results for
any previous quarter are not necessarily indicative of results for any future
period. See "Risk Factors--Fluctuations in Operating Results; Expected Second
Quarter Loss."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................... $ 7,575 $ 7,443 $ 7,896 $ 8,418 $ 11,263
Cost of sales................................... 3,581 3,530 3,683 3,716 5,246
----------- ----------- ----------- ----------- ---------
Gross profit.................................. 3,994 3,913 4,213 4,702 6,017
Selling, general and administrative............. 1,549 1,486 1,560 1,698 2,674
Research and development........................ 685 678 705 778 655
Amortization of intangible assets............... 233 213 222 216 219
----------- ----------- ----------- ----------- ---------
Operating income from continuing operations... 1,547 1,536 1,726 2,010 2,469
Interest expense, net of interest income........ 280 200 200 150 149
----------- ----------- ----------- ----------- ---------
Income from continuing operations before
income taxes................................ 1,247 1,336 1,526 1,860 2,320
Income taxes.................................... 524 560 560 743 928
----------- ----------- ----------- ----------- ---------
Income from continuing operations............. $ 723 $ 776 $ 966 $ 1,117 $ 1,392
----------- ----------- ----------- ----------- ---------
Net income per common and common share
equivalents................................... $ 0.23 $ 0.23 $ 0.26 $ 0.29 $ 0.33
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------

AS A PERCENTAGE OF SALES:
Sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 47.3 47.4 46.6 44.2 46.6
----------- ----------- ----------- ----------- ---------
Gross profit.................................. 52.7 52.6 53.4 55.8 53.4
Selling, general and administrative............. 20.4 20.0 19.8 20.2 23.7
Research and development........................ 9.0 9.1 8.9 9.2 5.8
Amortization of intangible assets............... 3.1 2.9 2.8 2.5 2.0
----------- ----------- ----------- ----------- ---------
Operating income from continuing operations... 20.2 20.6 21.9 23.9 21.9
Interest expense, net of interest income........ 3.7 2.7 2.5 1.8 1.3
----------- ----------- ----------- ----------- ---------
Income from continuing operations before
income taxes................................ 16.5 17.9 19.4 22.1 20.6
Income taxes.................................... 6.9 7.5 7.1 8.8 8.2
----------- ----------- ----------- ----------- ---------
Income from continuing operations............. 9.6% 10.4% 12.3% 13.3% 12.4%
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>

The Company tends to experience an increase in sales during its first fiscal
quarter, which ends September 30, due to purchases made by U.S. government
agencies and contractors at the end of the U.S. government's fiscal year, which
also ends on September 30. The Company primarily experiences this effect

23
<PAGE>
in its avionics and telemetry product lines. Similarly, the Company tends to
experience little or no growth in sales during its second fiscal quarter as
sales dependent on U.S. government funding are often delayed during the start of
the U.S. government's new fiscal year. However, as sales of its non-defense
related product lines continue to grow in proportion to total sales the Company
believes this seasonal effect will diminish.

In connection with the Acquisition, the Company will record an $11.0 million
earnings charge expected to be recorded in the second fiscal quarter of 1996,
the anticipated quarter for the closing of the Acquisition. The earnings charge
is based on an assessment by the Company, in conjunction with an independent
valuation firm, of purchased technology of Bit 3. The assessment determined that
$11.0 million of Bit 3's purchase price represented technology that does not
meet the accounting definitions of "completed technology," and thus should be
charged to earnings under generally accepted accounting principles. Based on the
Company's historical financial performance and the historical financial
performance of Bit 3, the Company currently expects to incur a significant net
loss for the second fiscal quarter of 1996 as a result of the earnings charge.
See "Risk Factors--Acquisition of Bit 3," "Fluctuations in Operating Results;
Expected Second Quarter Loss" and "Pro Forma Combined Consolidated Financial
Statements."

LIQUIDITY AND CAPITAL RESOURCES

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

Cash totaled $2.1 million at September 30, 1996, an increase of $972,000
from June 30, 1996. Net cash provided by operating activities for the three
months ended September 30, 1996 was $1.7 million. Increases in sales volume and
demand for semiconductor parts during the three months ended September 30, 1996
have caused the Company to increase accounts receivable and inventory. In
addition, liabilities increased in line with the current level of business
activity. Net cash used in investing activities for the three months ended
September 30, 1996 of $207,000 was primarily for the purchase of equipment. The
Company utilized cash in financing activities of $491,000 primarily to repay
portions of bank debt.

On April 26, 1996, the Company amended its bank financing agreement with
NationsBank of Texas, N.A. ("NationsBank"), originally entered into in April
1995, to provide the Company with a $6.8 million term loan and a $2.5 million
revolving line of credit. The term loan is a three year note with five year
amortization maturing on October 30, 1999. This note refinanced a majority of
the Company's outstanding debt, including the $1.0 million note previously
payable to the former shareholders and option holders of GreenSpring entered
into in April 1995 at the time the Company acquired GreenSpring. The revolving
line of credit matures on October 30, 1997. The interest rate on the term loan
is NationsBank's prime rate plus 0.25% or LIBOR plus 2.5% in 30, 60, or 90 day
options. The interest rate of the revolving line of credit is NationsBank's
prime rate or LIBOR plus 2.25% in 30, 60, or 90 day options. The amended
financing agreement provides for a security interest by NationsBank in the
Company's receivables, inventories, and equipment and imposes certain
performance ratios on the Company. These ratios include a current maturities
ratio which requires that the Company's net earnings, plus depreciation and
amortization expense for the preceding four quarters from time of measurement
compared to the Company's current portion of its long-term debt, will not be
less than a ratio of 2 to 1; a senior funded debt to EBITDA ratio which requires
that the Company's total debt evidenced by promissory notes, loan agreements,
bonds or similar instruments, but excluding subordinated debt, will not be
greater than a ratio of 1.5 to 1 when compared to the Company's profit before
tax plus interest, depreciation, and amortization expense for the preceding four
quarters from time measurement; and a fixed charge coverage ratio requiring that
the Company's income before tax plus interest expense and operating lease
expense for the preceding four quarters from time of measurement will not be
less than a ratio of 2 to 1 when compared to the Company's interest expense plus
operating lease expense for the same preceding four quarters. The Company is
also prohibited from disposing of or acquiring certain assets and businesses
without the consent of the lender.

24
<PAGE>

At September 30, 1996, the Company was in compliance with all of the covenants
of the amended financing agreement. The outstanding balance on the term loan
with NationsBank at September 30, 1996 was $6.2 million, of which $5.0 million
bears interest at LIBOR plus 2.5% (8.1% at September 30, 1996) and $1.2 million
was at NationsBank's base rate plus 0.25% (8.5% at September 30, 1996). The term
loan is payable in monthly installments of $112,500. As of September 30, 1996,
there were no borrowings drawn on the revolving line of credit.

Management believes that financial resources, including its internally
generated funds, available bank borrowings and the net proceeds from this
offering, will be sufficient to finance the Company's current operations and
capital expenditures, excluding acquisitions, for the next twelve months.

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

ACCOUNTING PRINCIPLES

In October 1995, the FASB issued Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation." Under the provisions of FAS
123, companies may elect to account for stock-based compensation plans using a
fair-value-based method or may continue measuring compensation expense for those
plans using the intrinsic-rate-based method. Companies electing to continue
using the intrinsic-value-based method must provide pro forma disclosures of net
income and earnings per share as if the fair-value-based method had been
applied. Management intends to continue to account for stock-based compensation
using the stock-based method and, as such, does not believe FAS 123 will have an
impact on the Company's results of operations or financial position. FAS 123
becomes effective in fiscal year 1997.

25
<PAGE>
SELECTED FINANCIAL INFORMATION OF
BIT 3 COMPUTER CORPORATION

The following selected statement of operations data for the years ended
December 31, 1993, 1994 and 1995 and balance sheet data as of December 31, 1994
and 1995 are derived from the financial statements of Bit 3, which have been
audited by KPMG Peat Marwick LLP, independent auditors, and are included
elsewhere in this Prospectus. The balance sheet data as of December 31, 1991,
1992 and 1993 and as of September 30, 1996 and the selected statement of
operations data for the years ended December 31, 1991 and 1992 and for the nine
month period ended September 30, 1995 and 1996 have been derived from Bit 3's
unaudited financial statements that have been prepared on the same basis as the
audited financial statements and in the opinion of Bit 3, include all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and operating results for the
unaudited periods. The following selected data should be read in conjunction
with the Financial Statements of Bit 3 and Notes thereto elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $ 6,175 $ 8,042 $ 10,750 $ 11,599 $ 12,530 $ 9,210 $ 11,466
Cost of sales...................... 2,794 3,085 4,151 4,219 4,438 3,310 3,791
--------- --------- --------- --------- --------- --------- -----------
Gross profit..................... 3,381 4,957 6,599 7,380 8,092 5,900 7,675
Selling, general and
administrative................... 1,300 1,321 1,473 1,661 1,857 1,294 1,284
Research and development........... 1,575 1,621 1,596 1,531 1,571 1,118 1,480
--------- --------- --------- --------- --------- --------- -----------
Income from operations............. 506 2,015 3,530 4,188 4,664 3,488 4,911
Interest income.................... 52 46 28 58 66 38 52
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes......... $ 558 $ 2,061 $ 3,558 $ 4,246 $ 4,730 $ 3,526 $ 4,963
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................. $ 1,906 $ 3,360 $ 3,334 $ 3,195 $ 3,426 $ 4,250
Total assets................................ 2,680 3,701 3,680 3,594 3,818 4,698
Total shareholders' equity.................. 2,242 3,599 3,579 3,395 3,590 4,384
</TABLE>

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF BIT 3 COMPUTER CORPORATION

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH BIT
3 FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF BIT 3'S PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS
BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR
IN THIS PROSPECTUS. BIT 3'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED ELSEWHERE
HEREIN.

OVERVIEW

Bit 3 manufactures high performance computer bus interconnect hardware and
software used in a wide variety of applications, including data acquisition,
image and visualization processing, industrial process control, medical
electronics, signal processing and system integration. Bit 3, founded in 1979,
currently provides these interconnect products to a wide variety of commercial
users. Sales to a major customer represented 19.2% of sales in 1995 and 22.1% of
sales in the total first nine months ended September 30, 1996. Sales to a
distributor serving the adapter market in Japan, represented 8.1% of sales in
1995 sales and 10.2% of total first nine months ended September 30, 1996.
International sales accounted for approximately 17.0% of total sales in 1995.

The results of operations for Bit 3 have been prepared using the accounting
policies used by the Company. See Note 2 of "Notes to Bit 3's Financial
Statements". During the period for the financial data contained herein, Bit 3
has elected to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. As a result, no provision has been made for federal or state
income taxes, because the applicable tax liability or benefit is the
responsibility of Bit 3's shareholders.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 38.6 36.4 35.4 35.9 33.1
--------- --------- --------- --------- ---------
Gross profit........................................ 61.4 63.6 64.6 64.1 66.9
Selling, general and administrative................... 13.7 14.3 14.8 14.0 11.2
Research and development.............................. 14.8 13.2 12.5 12.1 12.9
--------- --------- --------- --------- ---------
Income from operations.............................. 32.9 36.1 37.3 38.0 42.8
Interest income....................................... 0.3 0.5 0.5 0.4 0.5
--------- --------- --------- --------- ---------
Income before income taxes.......................... 33.2% 36.6% 37.8% 38.4% 43.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

27
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1995

SALES. For the nine months ended September 30, 1996, sales increased 24.5%,
or $2.3 million, from $9.2 million in the nine months ended September 30, 1995
to $11.5 million. This increase was attributable to increased sales of new
products and increased sales to existing customers.

GROSS PROFIT. For the nine months ended September 30, 1996, gross profit
increased 30.1%, or $1.8 million, from $5.9 million in the nine months ended
September 30, 1995 to $7.7 million as a result of increased sales volume. For
the nine months ended September 30, 1996, gross margin increased to 66.9% of
sales, from 64.1% in the nine months ended September 30, 1995 primarily as a
result of reductions in material costs and improved manufacturing efficiencies.

SELLING, GENERAL AND ADMINISTRATIVE. For the nine months ended September
30, 1996, selling, general and administrative expense was unchanged from the
nine months ended September 30, 1995. However, selling, general and
administrative expense decreased as a percentage of sales from 14.0% in the nine
months ended September 30, 1995 to 11.2% for the nine months ended September 30,
1996, primarily due to improved operating efficiencies achieved by holding
personnel costs constant as sales increased.

RESEARCH AND DEVELOPMENT. For the nine months ended September 30, 1996,
research and development expense increased by 32.4%, or $362,000, from $1.1
million in the nine months ended September 30, 1995 to $1.5 million. Research
and development expense increased as a percentage of sales from 12.1% in the
nine months ended September 30, 1995 to 12.9% in the nine months ended September
30, 1996, primarily due to increased staffing.

OTHER INCOME. For the nine months ended September 30, 1996, other income
increased by 36.8%, or $14,000, from $38,000 in the nine months ended September
30, 1995 to $52,000 as a result increased cash reserves in interest bearing
accounts.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

SALES. In 1995, sales increased 8.0%, or $931,000, from $11.6 million in
1994 to $12.5 million. This increase was attributable to increased sales of new
products, particularly Bit 3's PCI to VME adapter, and increased sales to
existing customers.

GROSS PROFIT. In 1995, gross profit increased 9.6%, or $712,000, from $7.4
million in fiscal 1994 to $8.1 million as a result of increased sales volume. In
1995, gross margin increased to 64.6% of sales, from 63.6% in fiscal 1994
primarily as a result of reductions in material costs.

SELLING, GENERAL AND ADMINISTRATIVE. In 1995, selling, general and
administrative expense increased 11.8%, or $196,000, from $1.7 million in 1994
to $1.9 million. Selling, general and administrative expense increased as a
percentage of sales from 14.3% in 1994 to 14.8% in 1995 primarily due to
increased advertising and trade show expense.

RESEARCH AND DEVELOPMENT. In 1995, research and development expense
increased by 2.6%, or $40,000, from $1.5 million in 1994 to $1.6 million.
Research and development expense decreased as a percentage of sales from 13.2%
in 1994 to 12.5% in 1995 primarily due to a more rapid increase in sales than in
research and development expense.

INTEREST INCOME. In 1995, interest income increased by 13.8%, or $8,000,
from $58,000 in 1994 to $66,000 as a result increased cash reserves in interest
bearing accounts.

28
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

SALES. In 1994, sales increased 7.9%, or $849,000, from $10.8 million in
1993 to $11.6 million. This increase resulted from a number of factors
including, increased sales of existing products, particularly the Sbus to VME
adapter, and increased sales to two major customers.

GROSS PROFIT. In 1994, gross profit increased 11.9%, or $781,000, from $6.6
million in 1993 to $7.4 million due to increased sales volume and improved gross
margin. In 1994, gross margin increased from 61.4% of sales in 1993 to 63.6% of
sales as a result of reductions in material costs.

SELLING, GENERAL AND ADMINISTRATIVE. In 1994, selling, general and
administrative expense increased by 12.8% or $188,000, from $1.5 million in 1993
to $1.7 million. The increase resulted from the addition of increased
promotional and trade show expenses. As a percentage of sales, selling, general
and administrative expense increased from 13.7% in 1993 to 14.3%.

RESEARCH AND DEVELOPMENT. In 1994, research and development expense
decreased by 4.1%, or $65,000, from $1.6 million in 1993 to $1.5 million
reflecting the completion of certain product development programs to the
pre-production stage. Research and development decreased as a percentage of
sales from 14.8% to 13.2% primarily due to a more rapid increase in sales than
in research and development expense.

INTEREST INCOME. In 1994, interest income increased by $30,000, or 107.1%,
from $28,000 in 1993 to $58,000 primarily as a result of increased cash reserves
in interest bearing accounts.

For the three most recent years, there has been no impact from inflation or
changing prices to Bit 3's sales or income from continuing operations.

29
<PAGE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
SBS TECHNOLOGIES, INC. AND BIT 3 COMPUTER CORPORATION
(UNAUDITED)

The Company intends to acquire all the outstanding stock of Bit 3 using the
net proceeds from this offering and, as required, additional debt or cash flow
from Company operations. The unaudited Pro Forma Combined Consolidated Financial
Statements reflect the following: (i) adjustment for the purchase accounting and
estimated fair value allocation of the assets to be acquired and the obligations
to be assumed; (ii) provision for income taxes as if the combined operations had
been taxed as a C corporation for the period presented; (iii) the sale of the
shares offered by the Company and the application of the anticipated net
proceeds therefrom to reduce outstanding long term debt and increase working
capital. The unaudited Pro Forma combined consolidated balance sheet as of
September 30, 1996 was prepared as if the transaction had occurred at that date.
The unaudited Pro Forma Statements of Operations for the 12 month period ended
June 30, 1996 and the three month period ended September 30, 1996 prepared as if
the Acquisition had occurred on July 1, 1995.

In the opinion of Company management, all adjustments necessary to present
fairly such Pro Forma Combined Consolidated Financial Statements have been made
based on the proposed terms and structure of the Acquisition. The Company
anticipates, however, that changes in the composition of the assets to be
acquired and the liabilities to be assumed will occur due to changes in the
ordinary course of the Company's business. The Company believes any related
adjustments will not be material to the Pro Forma Combined Consolidated
Financial Statements. Certain of the Pro Forma adjustments are based on the
price per share of the Company's Common Stock on the date of completing the
offering. The adjustments included in the following Pro Forma Combined
Consolidated Financial Statements are based upon an assumed offering price of
$24.50 per share. To the extent that the actual price per share and net proceeds
after deducting underwriting discounts and commissions and offering expenses
payable by the Company to the Company are not the same as the assumed price, the
related adjustments will differ.

These unaudited Pro Forma Combined Consolidated Financial Statements are not
necessarily indicative of what actual results would have been had the
transactions occurred at the beginning of the respective periods nor do they
purport to indicate the results of future operations of the Company.

These unaudited Pro Forma Combined Consolidated Financial Statements should
be read in conjunction with the accompanying notes and with the financial
statements and notes thereto of the Company and Bit 3, respectively, included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of SBS Technologies, Inc." and
"Management's Discussion and Analysis of Results of Operations of Bit 3 Computer
Corporation."

30
<PAGE>
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET (UNAUDITED)(A)
(IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------- PRO FORMA
SBS BIT 3 ADJUSTMENTS PRO FORMA
--------- --------- ----------- -----------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 2,102 $ 1,210 $ 8,026(b) $ 11,338
Receivables........................................ 7,717 1,743 9,460
Inventories........................................ 6,425 1,593 8,018
Deferred income tax................................ 344 344
Prepaid expenses................................... 224 18 242
Other current assets............................... 138 138
--------- --------- ----------- -----------
Total current assets............................. 16,950 4,564 8,026 29,540

Property and equipment, net.......................... 1,764 134 1,898
Intangible assets:
Pre-acquisition intangible assets, net............. 5,352 5,352
Excess of estimated cost of acquisition over the
estimated fair value of the assets acquired...... 8,531(c) 8,531
--------- --------- ----------- -----------
Intangible assets, net............................. 5,352 8,531 13,883
--------- --------- ----------- -----------
Deferred income taxes................................ 56 4,406(d) 4,462
Other assets......................................... 32 32
--------- --------- ----------- -----------
Total assets..................................... $ 24,154 $ 4,698 $ 20,963 $ 49,815
--------- --------- ----------- -----------
--------- --------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current Liabilities:
Current portion of long term debt.................. $ 1,477 $ (1,477)(e) --
Accounts payable................................... 1,995 $ 115 $ 2,110
Accrued liabilities................................ 1,921 199 3,550(f) 5,670
Income taxes payable............................... 791 791
Other current liabilities.......................... 557 557
Reserve for discontinued operations................ 64 64
--------- --------- ----------- -----------
Total current liabilities........................ 6,805 314 2,073 9,192
Long term debt, less current portion................. 4,915 (4,711)(e) 204
--------- --------- ----------- -----------
Total liabilities................................ 11,720 314 (2,638) 9,396

Stockholders equity:
Common stock....................................... 4,998 20 34,578(g) 39,596
Common stock warrants.............................. 180 180
Retained earnings.................................. 7,256 4,364 (10,977)(h) 643
--------- --------- ----------- -----------
Total stockholders' equity....................... 12,434 4,384 23,602 40,419
--------- --------- ----------- -----------

Total liabilities and stockholders' equity....... $ 24,154 $ 4,698 $ 20,963 $ 49,815
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>

(see accompanying footnotes)

31
<PAGE>

PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(A)

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1996 PRO FORMA
-------------------- ------------------------
SBS BIT 3 ADJUSTMENTS COMBINED
--------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales........................................................... $ 31,332 $ 14,187 $ 45,519
Cost of sales................................................... 14,510 4,682 19,192
--------- --------- -----------
Gross profit................................................ 16,822 9,505 26,327
Selling, general and administrative............................. 6,293 1,837 $ 11,000(d) 19,130
Research and development........................................ 2,846 1,881 4,727
Amortization of intangible assets............................... 884 -- 975(i) 1,859
--------- --------- ----------- -----------
Operating income from continuing operations................... 6,799 5,787 (11,975) 611
Interest expense (income), net.................................. 830 (76) (960)(j) (206)
--------- --------- ----------- -----------
Income from continuing operations before income taxes......... 5,969 5,863 (11,015) 817
Income taxes.................................................... 2,387 2,345(k) (4,406)(d) 326
--------- --------- ----------- -----------
Income from continuing operations............................. $ 3,582 $ 3,518 $ (6,609) $ 491
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Common and common equivalent shares outstanding................. 3,792 5,144
Income per common and common equivalent share from continuing
operations(l).................................................. $ 0.97 $ 0.10
--------- -----------
--------- -----------
</TABLE>

<TABLE>
<CAPTION>
THREE-MONTHS ENDED
SEPTEMBER 30, 1996 PRO FORMA
-------------------- ------------------------
SBS BIT 3 ADJUSTMENTS COMBINED
--------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales........................................................... $ 11,263 $ 3,829 $ 15,092
Cost of sales................................................... (5,246) (1,398) 6,644
--------- --------- -----------
Gross profit................................................ 6,017 2,431 8,448
Selling, general and administrative............................. 2,674 419 3,093
Research and development........................................ 655 488 1,143
Amortization of intangible assets............................... 219 -- $ 244(i) 463
--------- --------- ----------- -----------
Operating income from continuing operations................... 2,469 1,524 244 3,749
Interest expense (income)....................................... 149 (18) (240)(j) (109)
--------- --------- ----------- -----------
Income from continuing operations before income taxes......... 2,320 1,542 (4) 3,858
Income taxes.................................................... 928 617(k) 1,545
--------- --------- ----------- -----------
Income from continuing operations............................. $ 1,392 $ 925 $ (4) $ 2,313
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Common and common equivalent shares outstanding................. 4,218 5,649
Income per common and common equivalent share from continuing
operations(l).................................................. $ 0.33 $ 0.41
--------- -----------
--------- -----------
</TABLE>

(see accompanying footnotes)

32
<PAGE>

NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

(a) See introductory paragraphs under "Pro Forma Combined Consolidated Financial
Statements."

(b) Adjustment to cash consists of the following:

<TABLE>
<S> <C>
Net proceeds from the offering................................................... $ 34,118
Capital adjustment to Bit 3 net equity of $3.25 million.......................... (1,134)
Cash used at closing............................................................. (20,450)
Use of extra cash to eliminate long term debt.................................... (6,188)
Interest adjustment resulting from increased cash and reduced debt............... 1,200
Proceeds from exercise of warrants............................................... 480
---------
Total adjustment $ 8,026
---------
---------
</TABLE>

<TABLE>
<S> <C>
Purchase price....................................................................... $ 24,000
Estimated acquisition costs.......................................................... 450
Less:
In-process research and development................................................ (11,000)
Bit 3 net assets at closing per the acquisition agreement.......................... (3,250)
Discount on notes payable to selling shareholders.................................. (450)
---------
Intangible assets, including goodwill................................................ $ 9,750
---------
Amortization......................................................................... (1,219)
Pro forma intangible assets, including goodwill...................................... $ 8,531
---------
---------
</TABLE>

(d) Change in income tax resulting from income charges due to the net of
increased amortization of intangible assets associated with the Bit 3
purchase, interest income and interest savings resulting from elimination of
long term debt as a result of the offering on a pro forma basis.

(e) Payment of long term debt financed by cash from the net proceeds from this
offering in excess of cash required at closing.

(f) Liability for future payments to Sellers, see "Acquisition of Bit 3."

(g) Increase in Common Stock from the sale by the Company of 1,500,000 shares at
an assumed public offering price of $24.50 per share, less Underwriting
Discounts and Commissions and estimated expenses, proceeds from exercise of
warrants and the elimination of Bit 3 Common Stock.

(h) Adjustment to eliminate the net investment of Sellers in Bit 3 and the
income effects of other pro forma adjustments.

(i) Amortization of assets in (c) above, $975 for the year ended June 30, 1996
and $244 for the three months ended September 30, 1996.

(j) Interest adjustment in (b) above, $960 for the year ended June 30, 1996 and
$240 for the three months ended September 30, 1996.

(k) Bit 3 income tax when taxed as a C Corporation at a 40% effective income tax
rate.

(l) The Company's earnings per common and common equivalent share are based on
the weighted average shares of common stock and, if dilutive, common
equivalent shares (options and warrants) outstanding during the period.

The numbers of shares used in the earnings per share computations for
SBS and pro forma combined consolidated earnings per share are as follows:

<TABLE>
<CAPTION>
JUNE 30, 1996 SEPTEMBER 30, 1996
-------------------------- --------------------------
PRO FORMA PRO FORMA
COMBINED COMBINED
SBS CONSOLIDATED SBS CONSOLIDATED
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Weighted average shares of common stock outstanding during the year.... 3,018 4,516 3,394 4,894
Common equivalent shares--assumed exercise of options and warrants..... 1,378 1,378 1,503 1,503
Shares assumed to be repurchased with proceeds from exercise subject to
20% of average shares outstanding maximum............................. (604) (752) (679) (748)
--------- ----- --------- -----
Total common and common equivalent shares.......................... 3,792 5,142 4,218 5,649
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>

33
<PAGE>
BUSINESS

GENERAL

The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of CPU, general purpose I/O and special
purpose I/O interface functions. The Company capitalizes on its design expertise
and customer service capabilities to enhance product quality and reduce time to
market for OEM customers. The Company is seeking to enhance its product
offerings and has entered into a definitive agreement to acquire Bit 3, a
manufacturer of high-performance bus interconnect hardware that enables embedded
computers of differing standards to communicate. The Company will fund the $24.0
million acquisition primarily with the net proceeds of this offering. See "The
Acquisition of Bit 3."

The Company's objective is to become a leading supplier of board level
components to the standard bus embedded computer market. The Company intends to
continue its growth through a combination of internal growth and acquisitions.
Internal growth is achieved through expanding its existing product lines through
new product development and increasing penetration of its existing customer
base. The Company currently participates in a number of attractive markets,
including the Intel-based VME CPU board market, the IP market in general purpose
I/O, the telemetry interface market and the MIL-STD-1553 avionics interface
market. The Acquisition will add a line of bus interconnect products for a
variety of standard bus embedded computer buses to the Company's current product
offerings.

The Company sells its products through a combination of direct sales and
independent manufacturers' representatives. The Company's products serve a broad
range of functions including commercial, communications, industrial automation,
medical device, military and space, test and measurement and transportation.
Customers include The Boeing Company, Caterpillar, Inc., Eastman Kodak Company,
General Electric Company and Lockheed Martin Corporation. International sales
constituted approximately 16% of the Company's sales in fiscal 1996. Bit 3
currently provides interconnect products to a wide variety of commercial users
including Digital Equipment Corporation, General Electric Company, Lockheed
Martin Corporation and Rockwell International Corporation.

INDUSTRY BACKGROUND

In recent years, development of electronics and semiconductor technology has
fueled rapid growth in sales of electronics products and systems. This growth
has resulted from the emergence of new markets such as cellular telephones and
personal computers, as well as the application of electronics technology in
existing markets such as factory automation, medical instrumentation, test and
measurement systems, telecommunications, transportation and retailing. The rapid
proliferation of increasingly complex electronics applications and the
widespread trend toward outsourcing of electronics subsystems by product
manufacturers have created attractive markets for experienced, highly-focused
developers and manufacturers of electronics subsystems and components.

EMBEDDED COMPUTER MARKET. Embedded computers, which are computers that
comprise part of larger systems and which often perform functions such as data
I/O and system communication and control, represent an important segment of the
electronics market. Examples of embedded computers include the computer board
that operates an automated teller machine and the computer system that operates
a factory. Embedded computers differ from computers targeted at business
applications in several key respects, including the following:

- Embedded computers are integrated into larger systems and perform a single
function or a closely related group of functions, such as I/O and data
processing, with high degrees of repeatability, accuracy and reliability.

34
<PAGE>
- Embedded computers are design-specific solutions that require substantial
engineering expertise and a comprehensive understanding of the individual
product into which they are incorporated.

- Unlike PC products, which have experienced and will likely continue to
experience short product cycles, typical embedded computer solutions have
an extended product life reflecting the long life cycles of the products
into which embedded computers are typically incorporated and the
manufacturer's desire to maintain a stable product configuration.

- Embedded computers must often adhere to specific requirements, including
size, reliability and ability to withstand the demands of extreme
operating environments.

- Embedded computers typically represent only a small portion of the overall
cost of the larger systems into which they are incorporated.

As a result, the Company believes that performance, reliability, supplier
stability and customer support, rather than price, are often the primary factors
in a decision to purchase a particular embedded computer solution.

A typical embedded computer application consists of an element, such as a
machine tool, to be controlled by or interfaced with the embedded computer,
input boards to transfer status data from the element into the embedded
computer, one or more processor boards to take the status data from the input
boards and select an appropriate action for the element to perform and output
boards to send control instructions back to the element. Embedded computers also
often incorporate a user interface through which an operator can control or
monitor the embedded computer manually. Additionally, multiple embedded
computers of similar or differing architectures are often interconnected to
create larger systems. An example is the interconnection of multiple computer
controlled machines to automate an entire factory. A typical embedded computer
architecture is illustrated by the diagram below which illustrates the use of
the Company's products.

[NEW GRAPHIC TO COME]

35
<PAGE>
OEMs requiring embedded computers either construct systems based on standard
bus designs together with off-the-shelf I/O, processor and memory modules, or
they develop custom or proprietary solutions. Standard bus solutions generally
enable product designers to develop systems quickly and with a high degree of
confidence in the reliability of the solution, to capitalize on the lower cost
of industry-standard components and to modify designs easily so that a single
product design can serve multiple applications. As a result of these factors,
standard bus systems today constitute a large and growing portion of the
embedded computer market. According to a recent industry study, BOARD-LEVEL
EMBEDDED COMPUTER MARKETS AND TRENDS, the standard bus embedded computer market
is projected to grow from approximately $2.5 billion in 1995 to approximately
$3.9 billion in 1999.

The most popular embedded computer standard today is VME, which is widely
used in aerospace and military, telecommunications, networking, industrial
automation and control, medical instruments and automated test and measurement
applications. According to BOARD-LEVEL EMBEDDED COMPUTER MARKETS AND TRENDS,
theVME-bus embedded computer market is projected to grow from approximately $1.2
billion in 1995 to approximately $2.3 billion in 1999.The modular nature of
standard bus embedded computers, their wide range of applications and the
variety of bus architectures available have resulted in a highly fragmented
market. The variety of standard bus embedded computer architectures supports a
growing market for products that interconnect various types of standard bus
embedded computers.

The modular nature of standard bus embedded computers, their wide range of
applications and the variety of bus architectures available have resulted in a
highly fragmented market. The variety of standard bus embedded computer
architectures supports a growing market for products that interconnect various
types of standard bus embedded computers. The acceptance of embedded computers
among industrial product OEMs and the fragmentation of embedded computer
standards have also created a need for interconnection equipment between
individually incompatible embedded computer systems. This need has led to the
development of a growing set of products that support interconnection and
networking between various types of standard bus embedded computers.

TREND TOWARD OUTSOURCING. In recent years, the increasing complexity of
electronics subsystems and components, together with a widespread trend in many
companies to focus on core competencies, has led to growth in outsourcing the
design and manufacture of electronic components and subsystems by OEMs. The
increasing complexity of the design and manufacture of electronics components
and subsystems can require extensive research and divert valuable resources away
from the core competencies of an OEM. An OEM that designs and manufactures an
embedded computer internal typically maintains a specialized design staff, an
investment of inventory of components, and a specialized manufacturing
capability. To address the challenges created by the increasing complexity of
key electronics components and subsystems, such as embedded computers, and to
focus on their core areas of competency, a growing number of OEMs are
outsourcing the design and manufacture of complex embedded computer solutions.
As a result, the Company believes there is a significant opportunity to provide
OEMs with cost-effective, reliable and high value-added embedded computer
solutions.

SBS' STRATEGY

The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of CPU, general purpose I/O and special
purpose I/O interface applications. The Company capitalizes on its design
expertise and customer service capabilities to enhance product quality and
reduce time to market for OEM customers. The Company's objective is to become a
leading supplier of board level components to the standard bus embedded computer
market. The Company believes that multiple applications associated with this
market and its fragmented nature provide numerous opportunities for the Company
to expand the scope of its activity. Key elements of the Company's strategy are:

- EXPAND MARKET PENETRATION THROUGH INTERNAL GROWTH. The Company has
achieved internal growth in each of its principal product lines through a
combination of new product development and

36
<PAGE>
increased sales of existing products to new and existing customers. By
increasing the direct sales capability of the companies it has acquired,
cross-selling to its existing customers and to customers gained through
acquisitions, and continuing to update its existing products with state of
the art technology, the Company has been able to expand its available
market and increase penetration of its customer base. For example, after
the Acquisition, the Company intends to expand Bit 3's marketing focus
from catalogue sales to include increased emphasis on direct sales and
thereby offer a wide range of complementary I/O, CPU and interconnect
solutions to both the Company's existing customers and Bit 3's customers.
The Company seeks to expand its product offerings to accommodate popular
embedded computer bus standards. The Company currently has products
serving the VME and ISA bus marketplaces and is developing products
compatible with compact PCI bus formats.

- COMPLEMENT INTERNAL GROWTH THROUGH ACQUISITION. The Company has developed
its business through the acquisition of embedded computer companies with
product lines compatible with its own. As a result, the Company is able to
offer integrated solutions to its customers and to enter a number of
complementary markets. The Company's acquisitions of BSI, GreenSpring and
LDG have enabled the Company to expand from its initial specialized
applications markets into larger and broader markets. The Company views
the Acquisition as a key step in its acquisition growth strategy.

- CONTINUED TECHNOLOGY INTEGRATION. The Company invests in research and
development to improve product performance, extend its product offerings,
serve new applications and develop new products for its existing
customers. Existing products are regularly upgraded to incorporate
advanced digital technology and to maintain state of the art performance.
As a result of its efforts to increase product performance, the Company
has also been able to reduce product size and cost through the use of
state of the art components. The Company seeks to share technology between
its divisions to reduce development costs, development risks and time to
market.

- EMPHASIZE CUSTOMER SUPPORT. Because of the critical nature of many of the
applications for the Company's products and the complex nature of the
systems into which they are incorporated, comprehensive and timely
customer support are important aspects of a customer's purchase decision.
The Company provides extensive customer support to assist in the
integration of its products into customer systems. This support can
include providing on-site, applications engineering assistance at no cost.
The Company believes that this focus on customer support has contributed
to high levels of repeat business and has helped expand sales of the
Company's products throughout its customers' organizations.

- EXPAND INTERNATIONAL SALES. Currently, the Company derives approximately
16% of its revenue from international sales, primarily in Europe, Canada
and the Far East. In 1996, the Company opened its first international
office in Scotland to service the European market. The Company seeks to
extend its sales penetration through a combination of international
distributions and sales representatives' networks, potential international
acquisitions, certifying its products to international standards and
opening additional international Company sales offices.

SBS' PRODUCTS

The Company's primary product lines are divided into two groups: general
purpose products including CPU products and general purpose I/O products, and
special purpose products including telemetry and avionics interface products.
The Acquisition will add bus interface products to the Company's general purpose
product grouping.

GENERAL PURPOSE PRODUCTS

CPU PRODUCTS. The Company entered the standard bus embedded computer CPU
board market with its acquisition of LDG in August 1996. CPU boards contain the
computational functionality of an

37
<PAGE>

embedded computer system. The Company produces CPU boards for the VME segment of
the embedded computer market, the most widely accepted bus standard in the
industry. The VME CPU board market can be segmented by processor type. The
largest segment is made up of boards designed around the Motorola 680x0 series
processors, upon which the VME standard was based. A growing segment is
comprised of boards based on Intel 80x86 and Pentium processors which provide
access to the large base of Windows and Windows NT software available from the
PC market. The CPU boards sold by LDG are based on Intel 80x86 and Pentium
processors and are focused on the market for "Wintel" CPU board products in the
VME marketplace. In August 1996, the Company began shipment of its single-slot
Pentium-based VME board. At present, the Company offers six Intel
processor-based CPU boards ranging in price from approximately $2,500 to
approximately $8,500.

GENERAL PURPOSE I/O PRODUCTS. In April 1995, the Company purchased
GreenSpring, a leading developer and producer of I/O modules known as
IndustryPacks ("IPs"). IPs are small mezzanine boards that plug onto an embedded
computer board and provide specific types of I/O for embedded computer systems.
GreenSpring pioneered the development of the IP as a modular I/O solution for
Motorola's MVME162 processor board, which is becoming the most widely used
processor board in the VME market. The Company has continued to expand the
market for IP products by introducing a line of carrier cards for VME systems
that can accommodate up to four IPs. This allows system designers to use IPs
even if they do not use Motorola MVME162 products. The Company's offerings
currently include VME, PCI, compact PCI and ISA bus carrier cards. GreenSpring's
product line of over 100 I/O products service a wide range of applications in
the embedded computer market including analog I/O, bus interface functions,
digital/ parallel I/O, motion control, telecommunications/serial I/O,
telecommunications products, video/graphics adapters and temperature measurement
with prices ranging from approximately $350 to approximately $3,500.

SPECIAL PURPOSE PRODUCTS

TELEMETRY PRODUCTS. In August 1992, the Company purchased BSI, a major
supplier of telemetry interface equipment for the embedded computer market.
Telemetry is the process used to send and receive digital data via radio waves.
The Company's telemetry interface products allow computers to receive, interpret
and process telemetry data. Telemetry is often used to transmit data from some
object under test, such as an aircraft, to a receiving station while the test is
underway. This allows engineers to monitor test performance in real time, often
decreasing total test costs and enhancing test safety. Use of this technology
has expanded to include continuous monitoring of remote sites and transmission
of digital data from satellites to the earth. BSI pioneered the concept of using
special purpose interface boards for telemetry ground station applications based
on standard bus embedded computers. BSI has expanded its product offerings to
include specialized equipment designed to receive and process satellite data.
The Company's telemetry products serve a specialized market and include a
significant software component. BSI sells approximately 30 products for the VME
and ISA bus telemetry markets at prices ranging from approximately $1,600 to
approximately $41,000.

AVIONICS INTERFACE PRODUCTS. The Company's avionics products interface an
embedded computer system with the MIL-STD-1553 avionics bus used in a wide
variety of military and space applications including aircraft, missiles, ground
vehicles, the International Space Station, the Space Shuttle and naval vessels.
Initial applications for the Company's products were support of system
development, system testing and simulation. Over the past several years, the
Company has expanded its product line to include ruggedized interface products
that are used in operational systems, and monitor and test systems that can be
used as diagnostic tools for operational systems. Like its telemetry products,
the Company's avionics products occupy a niche market and include a significant
software component. The Company offers approximately 20 avionics interface
boards at prices ranging from approximately $4,000 to approximately $20,000.

38
<PAGE>
The Company also produces a judgmental use of force product. This product
utilizes an embedded computer in a device to train police officers and military
personnel in proper responses to crisis situations.

BIT 3 COMPUTER CORPORATION

A significant portion of the net proceeds from this offering will be used to
acquire Bit 3. See "Acquisition of Bit 3" and "Use of Proceeds." Bit 3 was
incorporated in 1980 and its Bit 3's management recognized early on that the
rapid expansion of microprocessor-based industrial computers had resulted in the
proliferation of a number of different computer architecture standards. Bit 3
identified a market for products that interface and network industrial computers
designed around different computer architectures. In 1983, Bit 3 introduced its
first adapter product, an interface device to connect IBM PC equipment with
Multibus architecture computers. Since then, Bit 3 has expanded its product line
to include computer networking and interconnection hardware for many of the
popular computer architecture standards used in the standard bus embedded
computer market, including VME, Sbus, ISA, EISA, Micro Channel, GIO,
TURBOCHANNEL, PCI, Multibus and Qbus. Currently, the majority of Bit 3's new
product development is focused on VME, PCI and compact PCI bus designs. The
development of Bit 3's new products is driven by the emergence of significant
new bus specifications and applications.

Bit 3 produces high performance bus interconnect hardware and software
products that are used in a wide variety of applications, including data
acquisition, image and visualization processing, industrial process control,
medical electronics, signal processing and system integration. Bit 3's typical
customer uses bus adapter products, because of the need for high speed,
low-latency interconnections between computer platforms. This connectivity
cannot be provided at the required performance levels by common local area
networking solutions, such as Ethernet or Token Ring, nor can it in most cases
be provided by higher speed protocols, such as ATM or FDDI. Bit 3 currently
provides interconnect products to a wide variety of commercial users. Bit 3's
customers include Digital Equipment Corporation, General Electric Company,
Lockheed Sanders, Soliton Systems and Westinghouse Electric Corporation. Sales
to General Electric represented approximately 19.2% and 22.1% of Bit 3's sales
for the twelve months ended December 31, 1995 and the nine months ended
September 30, 1996, respectively. A decrease in sales to General Electric could
materially adversely affect Bit 3's business.

The Company believes that Bit 3's products, technology and customers are
synergistic with its existing businesses, particularly its general purpose CPU
and I/O products. As with its other businesses, the Company intends to actively
pursue cross selling opportunities between its existing product lines, including
those acquired with Bit 3. It also believes that the computer interconnect
market will continue to grow as the use of standard bus embedded computers
proliferates and that it can participate in this growth through active marketing
of Bit 3 products. However, there can be no assurance that any synergy will take
place between Bit 3 and the Company's existing product lines or that Bit 3 will
experience future growth or remain at its current level of sales and
profitability in the future. See "Risk Factors--Acquisition of Bit 3."

Achieving the anticipated benefits of the Acquisition will depend upon
whether the integration of the two companies' businesses is accomplished in an
efficient and effective manner, and there can be no assurance that this will
occur. The integration of Bit 3 will require, among other things, integration of
the Company's and Bit 3's respective product offerings and the coordination of
their sales and marketing and research and development efforts. The difficulties
of such integration may be increased by the necessity of coordinating
geographically separated organizations. The inability of management to
successfully integrate the operations of the Company and Bit 3 could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Acquisition of Bit 3."

39
<PAGE>
APPLICATIONS AND CUSTOMERS

The Company's broad range of products support a wide range of applications.
In fiscal 1994, 1995 and 1996, no one customer exceeded 10% of the Company's
sales. The following table highlights some of the Company's representative
customers and their applications utilizing the Company's products.

<TABLE>
<CAPTION>
APPLICATION CUSTOMER COMPANY PRODUCT
- ----------------------------------------------- ------------------------- ----------------
COMMERCIAL AND INDUSTRIAL APPLICATIONS
<S> <C> <C>
Airport Ground Traffic Control Norden/Westinghouse CPU
"C" Size Copier Xerox I/O
Color Proof Copier Eastman Kodak I/O
Currency Inspection System Currency Systems CPU
Document Scanner General Scanning I/O
Heavy Machinery Testing Caterpillar Telemetry
Semiconductor Handler Delta Design I/O
Turbine Control System GE Motors CPU
COMMUNICATIONS
Cellular Telephone Systems ArgoSystems CPU
Commercial Satellite Testing Loral Test & Information Telemetry
Communications Satellite Testing TRW Telemetry
GSP Testing Aerospatiale Telemetry
SS7 Telephone Protocol Undisclosed I/O
Telephone Protocol Undisclosed I/O
Telephone Switch Billing System ACECOM I/O
INDUSTRIAL AUTOMATION
Animatronics Walt Disney I/O
Automotive Brake Tester Burke Porter Machinery CPU
Automotive Wheel Alignment Burke Porter Machinery CPU
Carpet Manufacturer Process Control MOOG I/O
Packaging Machinery Triangle Package I/O
Machinery
PLC Co-processor GE Fanuc CPU
Robot Control Adept Technology I/O
Semiconductor Trim Equipment Control Automation CPU
MEDICAL DEVICES
Blood Analyzer IGEN I/O
Blood Analyzer Helena Laboratories CPU
Ventilators Display NellCor I/O
MILITARY AND SPACE APPLICATIONS
Ariane V System Test and Simulation Aerospatiale Avionics
Ariane V Test Support Lockheed Martin Telemetry
B-2 Flight Testing Northrop Grumman Telemetry
C-17 Aircraft Testing McDonnell Douglas Telemetry
Satellite Imaging TRW Telemetry
TEST AND MEASUREMENT APPLICATIONS
Cyclotron Controller Univ. of Wisconsin I/O
Particle Collision and Detection System CERN I/O
Temperature Control Therm-O-Disk I/O
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
APPLICATION CUSTOMER COMPANY PRODUCT
- ----------------------------------------------- ------------------------- ----------------
TRANSPORTATION
<S> <C> <C>
Aircraft Flight Testing Cessna Telemetry
Commercial Avionics System Test Honeywell Avionics
Commercial Avionics System Test Rockwell International Avionics
Jet Engine Testing Pratt & Whitney Telemetry
Lane Controllers NYSTA I/O
Maritime Systems NEC Avionics
Personal Rapid Transit Raytheon I/O
777 Aircraft Testing Boeing Telemetry
Train Track Alignment System Fairmont Tamper CPU
</TABLE>

SALES AND MARKETING

The Company markets its products both domestically and internationally. As
of September 30, 1996, the Company had 19 employees who typically hold
engineering degrees in sales, marketing and customer relations, over 43
independent manufacturers' representatives and 35 international distributors.
Employee sales personnel are educated on each of the Company's product lines and
refer opportunities to appropriate product line managers. Primary sales methods
vary among the Company's product lines. The Company's avionics interface and
telemetry products generally have the most complex applications and, as a
result, leads are generally identified by independent manufacturers'
representatives and sales are closed by the sales employees. In the case of its
CPU and I/O products, a higher percentage of sales are either closed by
independent manufacturers' representatives or are the result of catalog sales.
In each of the Company's product lines, sales employees generally pursue "design
in" applications where the Company's products are included as part of a system.

The Company sells approximately 16% of its products outside the United
States. It maintains sales offices in Albuquerque for its avionics interface
products, in Raleigh, North Carolina, for its Intel processor-based CPU boards,
in Menlo Park, California, for its I/O products and in Carlsbad, California, for
its telemetry products. The Company also maintains an international sales office
in Glasgow, Scotland to support European sales of its avionics interface
products. Sales and sales leads are generated through a range of activities
performed by the Company including identification of participants in key
defense-related programs, participation in numerous trade shows, direct mail
catalogs, advertisements in leading trade publications and corporate and
subsidiary web sites on the Internet.

RESEARCH AND DEVELOPMENT

The Company invests in research and development programs to develop new
products in related markets and to integrate state of the art technology into
existing products. As of September 1, 1996, the Company had approximately 28
employees engaged in research and development activities. Of these employees, 20
have technical degrees and eight have advanced degrees. The Company seeks to
combine special-purpose hardware, firmware and software in its products to
provide its customers with the desired functionality. Approximately 60% of the
Company's research and development efforts in fiscal year 1996 were software
related. The Company's research and development expense was $2.8 million, $1.7
million and $1.2 million in fiscal 1996, 1995 and 1994, respectively,
corresponding to 9.1%, 10.4% and 11.6% of sales, respectively.

LDG's current research and development activity is focused on evolutionary
improvement of its existing product line. GreenSpring's efforts are directed
towards broadening the scope of its market by developing new IPs and upgrading
existing products to state of the art technology. Examples include a new IP
designed to provide high speed reflective memory for networked computer systems
and an updated set of discrete and digital I/O IPs with increased performance
and functionality. BSI is continuing to upgrade its products' performance by
increasing the operating bit rates, a key performance measure in the

41
<PAGE>
telemetry industry, in its new products. BSI is also continuing to expand its
offerings of high performance, CCSDS packet switching products for the satellite
ground station market. The Company is also extending its avionics interface
product line. For example, the Company has completed development of a new
ruggedized avionics product for the operational system market. Additionally, the
Company has recently introduced a PCMCIA version of its avionics bus analyzer
product. There can be no assurance that the Company will be successful in
developing and bringing to market any products as a result of its research and
development efforts. See "Risk Factors--Reliance on Industry Standards;
Fundamental Technology Change."

COMPETITION

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

In the Company's recently-acquired CPU product line, the Company competes
with a number of other suppliers of VME CPU boards. The Company's direct
competitors include other companies that build VME CPU boards based on Intel
microprocessor technology such as Force Computers, Inc. (which has recently
agreed to be acquired by Solectron Corporation), Performance Technologies, Inc.,
RadiSys Corporation, VME Microsystems, Inc. and XYCOM, Inc. Indirectly, however,
the Company also competes with suppliers of VME CPU boards based on other
microcomputer architectures such as Motorola 680x0, Sparc and PowerPC.

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

MANUFACTURING

The Company uses contract manufacturing to produce substantially all of its
board-level products. The Company obtains parts from large electronics parts
suppliers and printed circuit boards from printed circuit board manufacturers
and provides these parts and boards as kits to contract manufacturing

42
<PAGE>
companies that fabricate the Company's products. Following manufacturing, the
Company performs test, packaging and support functions for the Company's
products. Dependence on a particular contract manufacturer is reduced by using
multiple contract manufacturers for each of the Company's product lines.
However, the Company may choose in the future to consolidate its contract
manufacturing to gain economies of scale and to shift its inventory control to
the contract manufacturer, in which case the Company would become increasingly
dependent on a smaller number of manufacturers for the continued timely and
efficient production of all of its inventory. See "Risk Factors--Availability of
Component Materials."

EMPLOYEES

As of September 30, 1996, the Company had approximately 144 employees at its
four locations: Albuquerque, New Mexico; Carlsbad, California; Menlo Park,
California and Raleigh, North Carolina. Of these employees, 16 were in executive
and administrative positions; 19 were in sales, marketing and customer
relations; 28 are in research and development; 35 were clerical and 46 are
employed in support of ongoing production. As of October 8, 1996, Bit 3 had
approximately 50 employees in Minneapolis, Minnesota.

FACILITIES

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

The Albuquerque, New Mexico leased facility consists of 18,741 square feet
located in a multi-floor office building which includes adequate assembly and
test space for the Company's avionics interface and judgmental use of force
product lines, as well as serving as the Company's corporate headquarters.
Management believes expansion space is available, if required. Currently the
assembly and test operations utilize approximately 50% of the productive floor
space. The lease term for the Albuquerque, New Mexico location is five years
commencing July 1, 1995 with one additional five year option.

The Carlsbad, California leased facility is a one story, approximately
12,000 square foot building, located in a business park, consisting of
approximately 2,000 square feet of office space and 10,000 square feet of
assembly and test areas for the Company's telemetry products. Management
believes that this facility is capable of handling projected increases in
production for the foreseeable future as the current capacity utilization of the
manufacturing area is approximately 35%. The lease term for the Carlsbad,
California location runs through May 1996, and has a one year option for 1997.

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

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

Bit 3's operations are located in an approximately 13,647 square foot
facility in Minneapolis, Minnesota leased on a one year lease that expires
October 1997. The Company intends that within the next 18 months it will move
this business to a different location in the Minneapolis metropolitan area.
Management believes that adequate, alternative space is available.

43
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Executive Officers and Directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Andrew C. Cruce, Ph.D........................ 53 Chairman of the Board of Directors

Christopher J. Amenson....................... 46 Chief Executive Officer, President, Chief Operating Officer
and Director

James E. Dixon, Jr........................... 51 Vice President of Finance and Administration, Treasurer and
Chief Financial Officer

Scott A. Alexander........................... 46 Vice President, Secretary and Director

William J. Becker, Brigadier General,
retired(1)(2)............................... 70 Director

Lawrence A. Bennigson, Ph.D.(1)(2)........... 58 Director

A. Wade Black(1)............................. 31 Director

Joseph N. Najjar, Jr.(3)..................... 52 Director

Warren Andrews............................... 53 Director Nominee
</TABLE>

- ---------------

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

(3) Mr. Najjar will not stand for reelection to the Company's Board of Directors
at the Company's November 1996 annual meeting

Andrew C. Cruce, Ph.D., is a founder of the Company and has served as a
Director since the commencement of its business activity in September 1987, as
President and Chief Operating Officer from November 1987 to April 1992, as
Treasurer from late 1991 to November 1995, and as Chief Executive Officer from
early 1992 to October 1996. From April 1985 to September 1987, Dr. Cruce was a
Senior Principal Staff Member of the BDM Corporation. Before 1985, Dr. Cruce was
the technical director for simulation at the Naval Air Test Center, the Navy's
primary facility for Development, Test and Evaluation of Naval aircraft. Dr.
Cruce holds a Master's Degree in Business Management from the Sloan Fellows
Program at the Massachusetts Institute of Technology, as well as a Doctorate in
Aeronautical Engineering and a Master's Degree in Electrical Engineering.

Christopher J. Amenson became the Chief Executive Officer in October 1996,
President and Chief Operating Officer of the Company in April 1992, and a
Director in August 1992. For five years before joining the Company, Mr. Amenson
was President of Industrial Analytics, Inc., a Boston-based firm engaged in
consulting in support of operations, mergers and acquisitions. Mr. Amenson holds
a Bachelor's Degree in Government from the University of Notre Dame and a
Master's Degree in Business Management from the Sloan Fellows Program at the
Massachusetts Institute of Technology.

James E. Dixon, Jr. was appointed Vice President of Finance and
Administration, Treasurer and Chief Financial Officer of the Company in
September 1995. For eight years before joining the Company, Mr. Dixon held the
position of Director of Finance, Howden Group America, Inc., a wholly owned
subsidiary of Howden Group PLC. Howden Group America's subsidiaries, whose
combined annual revenue exceeds $200 million, specialize in the design and
manufacture of air and gas handling equipment, defense-related products and food
processing equipment. Mr. Dixon held various controller positions at
Westinghouse Electric from 1971 to 1985. Mr. Dixon holds a Bachelor's Degree in
Business Education from Indiana University of Pennsylvania.

44
<PAGE>
Scott A. Alexander is a founder of the Company and has served as Director
since the commencement of its business activity in September 1987, and as
Secretary since November 1987. Mr. Alexander was appointed Vice President in
August 1991. Mr. Alexander served as the Company's Treasurer from November 1987
to late 1991. As Chief Engineer for the Company, Mr. Alexander supports the
design, development and implementation of critical architectural requirements
for the Company's computer interface products. From November 1985 to September
1987, Mr. Alexander was a Senior Principal Staff Member of the BDM Corporation.
During this time he participated in the design of a complete flight test range
for the Republic of China, including the design of the Mission Command Center
(including control consoles), computer architecture, display and control
software. Before November 1985, Mr. Alexander was employed at the Naval Air Test
Center, where he was responsible for the continuing development and use of the
Tactical Avionics Software Test and Evaluation Facility and the Manned Flight
Simulator Facility. Mr. Alexander holds a Master's Degree in Electrical
Engineering from Virginia Polytechnic Institute and a Bachelor of Science Degree
in Physics from Old Dominion University.

William J. Becker, Brigadier General, retired, became a Director in August
1992. Since 1981 he has been self-employed as a senior independent consultant,
advising on international technology, to such organizations as the United States
Department of Energy, EG&G Inc., Mactec, Inc., Raytheon Services Co.,
Westinghouse Electric Corporation and International Technology, Inc. During his
long career in the United States Air Force, General Becker oversaw a number of
logistics and mobility operations and in his last assignment was commander of
the Defense Property Disposal Services. General Becker attended the University
of Southern California and holds a Bachelor's Degree in Management and a
Master's Degree in Logistics from the Air Force Institute of Technology's
Graduate School of Systems & Logistics at Wright Patterson Air Force Base in
Ohio.

Lawrence A. Bennigson, Ph.D., became a Director in November 1995. Dr.
Bennigson has provided consulting services on corporate, business and
manufacturing strategy and related organizational issues to major corporations
and to governments for over 30 years. Dr. Bennigson has been an independent
management consultant since January 1994. He worked extensively in European
countries, as well as on business matters in Russia and China. As Senior Vice
President of the former MAC Group, Inc., Dr. Bennigson helped to lead the
strategic development of the firm resulting in its 1991 acquisition and merger
to become Gemini Consulting. Dr. Bennigson taught executives, graduate students,
and undergraduates as a faculty member of the School of Engineering, Stanford
University, The Harvard University Graduate School of Business and as a visiting
faculty member at the London Business School and the Graduate School of
Business, Lund University, Sweden. Before his academic and consulting career,
Dr. Bennigson served for six years as a U.S. Naval Officer. Dr. Bennigson holds
a Bachelor's Degree in General Engineering from UCLA, as well as Master's and
Doctorate Degrees in Industrial Engineering (with specialization in Human
Factors Engineering and Industrial Organization) from Stanford University.

A. Wade Black became a Director in November 1995. Mr. Black is president and
CEO of Seven Bar Enterprises, Inc., a privately owned holding company. Seven Bar
Enterprises is one of the founding stockholders of SBS Technologies, Inc. Mr.
Black has been president, CEO and a director of Seven Bar Enterprises since 1990
and oversees the company's operations and subsidiaries within the aviation, air
medical, real estate development, and investment businesses. Mr. Black holds a
Bachelor's Degree in Petroleum Engineering from Texas A&M University and a
Master's Degree in Business Administration from Southern Methodist University.

Joseph N. Najjar, Jr. became a Director in November 1995. Mr. Najjar was the
founder and President of Computers and Peripherals Incorporated (a dealer and
lessor of new and used large scale IBM mainframes and peripherals) from 1978 to
1986, when it was sold to a public company. For six years before that time, Mr.
Najjar was vice president of a privately-held computer equipment company. Since
1987, Mr. Najjar has been a private investor and consultant, whose practice is
primarily based upon his research of mass behavior as it relates to securities
prices, corporate strategy and marketing strategy. Mr. Najjar holds a Master of
Science Degree in Management from the Sloan School of Management at the

45
<PAGE>
Massachusetts Institute of Technology. Mr. Najjar will not stand for reelection
to the Company's Board of Directors at the Company's November 1996 annual
meeting.

Warren Andrews, a Director nominee standing for election at the Company's
1996 annual meeting of shareholders, is editor-in-chief of RTC MAGAZINE, the
leading publication in the open-systems, board-level industry. From 1987 to
1994, Mr. Andrews served as a senior editor for COMPUTER DESIGN MAGAZINE while,
at the same time, publishing his own newsletter, EMBEDDED COMPUTER TRENDS. From
1985 to 1987, he served as managing editor of ELECTRONIC DESIGN MAGAZINE. Before
1985, Mr. Andrews was semiconductor editor for ELECTRONIC ENGINEERING TIMES and
owned and operated his own business providing electronic design services and
developing, manufacturing and selling microprocessor-based switching systems for
a variety of audio and video applications in the retail and host industries. In
addition, he holds one U.S. patent and has designed other products for the cable
TV, burglar and fire alarm, and educational communications markets. Mr. Andrews
holds a Bachelor of Science Degree from Fairleigh Dickinson University.

46
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership, as of September 16, 1996, and as adjusted to reflect the sale of the
Common Stock offered hereby (i) each person known to the Company to own
beneficially more than 5% of the Common Stock, (ii) each Director of the
Company, (iii) each of the Company's Executive Officers, (iv) each Selling
Shareholder and (v) all Officers and Directors as a group. Except as otherwise
noted, the Company believes that the persons listed below have sole investment
and voting power with respect to the Common Stock owned by them.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
----------------------- SHARES BEING -----------------------
NUMBER PERCENT OFFERED(2) NUMBER PERCENT
---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Andrew C. Cruce, Ph.D.(3)(4)(5)........................ 516,543 14.2% -- 516,543 10.1%
Christopher J. Amenson(3)(5)(6)........................ 267,392 7.1 -- 267,392 5.1
Scott A. Alexander(3)(4)(5)(7)......................... 452,958 12.5 -- 452,958 8.8
James E. Dixon, Jr.(3)(5).............................. 178 * -- 178 *
William J. Becker(3)(8)................................ 16,000 * -- 16,000 *
Martin Bell(10)(11).................................... 1,000 * 1,000 -- --
Lawrence Bennigson(3).................................. -- -- -- -- --
A. Wade Black(3)(9).................................... 440,117 12.5 -- 240,117 4.8
Alison Brown(10)(11)................................... 300 * 300 -- --
Silvia Coakley(10)(11)................................. 500 * 500 -- --
D.H. Blair Investment Banking Corporation(10)(11)...... 9,000 * 9,000 -- --
J. Morton Davis(10)(11)................................ 20,000 * 20,000 -- --
Richard Maio(10)(11)................................... 1,000 * 1,000 -- --
Stephens Monte(10)(11)................................. 200 * 200 -- --
David Nachamie(10)(11)................................. 500 * 500 -- --
Joseph N. Najjar, Jr.(3)............................... -- -- -- -- --
Kalman Renov(10)(11)................................... 20,000 * 20,000 -- --
Lindsay Rosenwald(10)(11).............................. 25,000 * 25,000 -- --
Seven Bar Enterprises, Inc............................. 437,117 12.4 200,000 237,117 4.7
3860 West Northwest Highway, Suite 406
Dallas, TX 75220
Michael Siciliano(10)(11).............................. 500 * 500 -- --
Alan Stahler(10)(11)................................... 20,000 * 20,000 -- --
Kenton Wood(10)(11).................................... 2,000 * 2,000 -- --
All directors and officers as a group (8 1,693,188 42.5% 200,000 1,493,188 27.2%
persons)(4)(5)(6)(7)(8)(9)...........................
</TABLE>

- ------------

* Less than 1%.

(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus upon
exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person and that are exercisable within 60 days from the date of this
Prospectus have been exercised.

(2) Assumes no exercise of the Underwriter's over-allotment option. If the
over-allotment option is exercised in full, the number of shares being
offered, the number of shares owned after the offering and the percentage of
shares owned after this offering for the following Additional Selling
Shareholders would be: Scott A. Alexander--70,000; 382,958; 7.5%;
Christopher J. Amenson--33,000; 234,392; 4.3%; J. Kenneth Boyette--27,000;
100,047; 2.0%; Andrew C. Cruce, Ph.D.--140,000; 376,543; 7.3%.

47
<PAGE>
(3) The address for the shareholder is in care of the Company at 2400 Louisiana
Blvd, NE, Albuquerque, NM 87110.

(4) Includes options to purchase 100,000 shares of Common Stock currently
exercisable under the Company's stock option plans.

(5) Includes Common Stock owned through the SBS Technologies, Inc. 401(k) Profit
Sharing Plan.

(6) Includes options to purchase 253,116 shares of Common Stock; options to
purchase 119,783 shares of Common Stock are currently exercisable under the
Company's stock option plans and options to purchase 133,333 shares of
Common Stock are currently exercisable under option agreements between Mr.
Amenson and certain other shareholders of the Company.

(7) Includes 27,000 shares of Common Stock held by Mr. Alexander as trustee for
the benefit of his minor children.

(8) Includes options to purchase 5,000 shares of Common Stock currently
exercisable under the Company's stock option plans.

(9) Includes 437,117 shares owned of record by Seven Bar Enterprises, Inc., of
which Mr. Black is president and a director, 200,000 shares of which are
being sold in this offering by Seven Bar Enterprises, Inc.

(10) The address for the shareholder is in care of D.H. Blair & Co., Inc., 44
Wall Street, New York, New York 10005.

(11) Represent shares which will be issued upon exercise of warrants at an
exercise price of $4.80 per share.

48
<PAGE>
DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, each without par value. The following description of the Common
Stock is qualified in all respects by the reference to the Articles of
Incorporation, as amended, and the Bylaws of the Company, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.

The holders of the Common Stock elect all Directors and are entitled to one
vote per share. All shares of Common Stock participate equally in dividends if,
when and as declared by the Board of Directors (See "Dividend Policy") and in
net assets on liquidation. All outstanding shares are, and the shares to be sold
by the Company and the Selling Shareholders pursuant to this offering will be,
duly authorized, validly issued, fully paid and non-assessable. Shares of Common
Stock have no preemptive rights, are not redeemable, are not liable for further
calls and assessments, and do not have cumulative voting rights.

WARRANTS

SHARES ELIGIBLE FOR FUTURE SALE

Future sales by existing shareholders could adversely affect the prevailing
market price of the Common Stock. Upon completion of the offering the Company
will have 5,058,133 shares of Common Stock outstanding. Of these shares,
1,800,000 shares offered hereby (2,070,000 shares if the Underwriters'
over-allotment option is exercised in full) will be eligible for immediate sale
in the public market without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless such shares are held by Affiliates of the
Company, as that term is defined in the Rule 144 under the Securities Act. In
addition, approximately 150,700 shares will be eligible for sale in the public
market without restriction pursuant to Rule 144(k) and Rule 701 under the
Securities Act. Approximately 1,573,200 additional shares outstanding upon
completion of the offering will be eligible for sale pursuant to Rule 144,
assuming no exercise of the over-allotment option.

The holders of approximately 1,418,188 of the shares of Common Stock
outstanding after the offering and the holders of warrants and options to
purchase approximately 374,783 shares of Common Stock have agreed, subject to
certain exceptions, not to sell or otherwise dispose of any of their shares for
a period of 120 days after the effective date of the Registration Statement.
Cowen & Company may, in its sole discretion, at any time without notice, release
all or a portion of the shares subject to lock-up agreements. Following the
closing of the offering, the holders of approximately 449,999 shares of Common
Stock will be entitled to certain demand and piggyback registration rights with
respect to such shares.

TRANSFER AGENT AND REGISTRAR

The transfer agent for the Common Stock is First Security Bank of Utah,
Corporate Trust Department, 79 South Main Street, Salt Lake City, Utah 84111.

49
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, for whom Cowen & Company and SoundView Financial
Group, Inc. are acting as Representatives, and each of the Underwriters has
severally agreed to purchase from the Company and the Selling Shareholders, the
respective number of shares of Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------------------------------------------------------------------------------------------- -----------------

<S> <C>
Cowen & Company................................................................................

SoundView Financial Group, Inc.................................................................

-----------------

Total.................................................................................. 1,800,000
-----------------
-----------------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
closing certificates, opinions and letters from the Company, its counsel, the
Selling Shareholders and independent auditors. The nature of the Underwriter's
obligations is that they are committed to purchase all the shares of the Common
Stock being offered hereby if any such shares are purchased.

The Underwriters propose to offer the share of Common Stock in part directly
to the public at the public offering price set forth on the cover of this
Prospectus and in part to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering prices and other selling terms may from time to time be varied by
the Representatives.

The Additional Selling Shareholders have granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 270,000 shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them as shown in the foregoing table, bears to 1,800,000 shares of Common Stock
offered hereby. The Underwriters may exercise such options only to cover
over-allotments made in connection with the sale of the 1,800,000 shares of
Common Stock offered hereby.

50
<PAGE>
The Company, the Selling Shareholders and the Additional Selling
Shareholders have agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, and contribute to
payments the Underwriters may be required to make in respect thereof.

D.H. Blair Investment Banking Corporation, ("D.H. Blair"), a member of the
National Association of Securities Dealers, served as the Company's underwriter
in the Company's initial public offering (the "IPO") and certain other persons
associated with D.H. Blair (the "Warrantholders") at the time of the IPO
received 100,000 warrants to purchase the Company's Common Stock at an exercise
price of $4.80 per share (the "Warrants"). The Warrants will be exercised in
connection with the offering and the 100,000 shares of Common Stock underlying
the Warrants will be sold in the offering (the "Warrant Shares"). The Company is
paying, on behalf of the Warrantholders a fee which is equal to the underwriting
discounts and commissions covering the Warrant Shares.

The Company and the Company's Officers and Directors who own shares of the
Common Stock, certain of the Selling Shareholders and the Additional Selling
Shareholders, and certain other shareholders and option holders of the Company
have entered into agreements providing that, from the date of the agreement
through 120 days following the date of this Prospectus, they will not, without
the prior written consent of Cowen & Company, directly or indirectly offer,
sell, assign, transfer, encumber, pledge contract to sell, grant an option to
purchase or otherwise dispose of any shares of Common Stock of the Company, any
options or warrants to purchase any shares of Common Stock of the Company or any
securities convertible into, or exchangeable for, Common Stock of the Company.
See "Description of Capital Stock--Shares Eligible for Future Sale."

The Representatives have advised the Company, the Selling Shareholders and
the Additional Selling Shareholders that the Underwriters do not intend to
confirm sales in excess of 5% of the shares offered hereby to any account over
which they exercise discretionary authority.

In conjunction with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock of
the Company or Nasdaq immediately prior to the commencement of sales in the
offering, in accordance with Rule 10b-6A under the Exchange Act. Passive market
making consists of displaying bids on Nasdaq limited by the bid prices of
independent market makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Company's Common
Stock during a specified prior period and must be discontinued when such limit
is reached. Passive market making may stabilize the market price of the Common
Stock of the Company at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Schuler, Messersmith & McNeill, Albuquerque, New
Mexico. Certain legal matters relating to this offering will be passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.

EXPERTS

The Consolidated Financial Statements of SBS Technologies, Inc. as of June
30, 1996 and 1995 and for each of the years in the three-year period ended June
30, 1996, have been included herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

51
<PAGE>
The Financial Statements of Bit 3 Computer Corporation as of December 31,
1994 and 1995 and June 30, 1996 and for each of the years in the three-year
period ended December 31, 1995 and for the six month period ended June 30, 1996,
have been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

A Registration Statement on Form S-2, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to such Registration Statement, and exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. SBS Technologies, Inc. is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance with those requirements files reports
and other information with the Commission. Information, including reports and
proxy and information statements, filed by SBS Technologies, Inc. (and by it
under its previous name of SBS Engineering, Inc.) with the Commission and a copy
of the Registration Statement, including exhibits thereto, can be inspected and
copied at the public reference facilities of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street N. W., in Washington, D.C., 20459, or at its
Regional Office located at 1801 California Street, Suite 4800, Denver, Colorado,
80202-2648. Copies of this material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street N.W., in Washington, D.C., 20549 at
prescribed rates. SBS Technologies, Inc. Common Stock is listed on the National
Association of Securities Dealers, Inc. National Market System. Reports, Proxy
and information statements, and other information concerning the Company can be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a web site that
contains proxy and information statements and other information regarding
registrants, such as the Company, that file electronically with the Commission
and the address of such site is www.sec.gov.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following document, filed by the Company with the Securities and
Exchange Commission (File No. 1-10981), under the Securities Act of 1934, as
amended (the "Exchange Act") is incorporated in this Prospectus by reference and
made a part hereof: The Company's Annual Report on Form 10-K for the year ended
June 30, 1996.

The document incorporated into this Prospectus by reference shall be deemed
to be a part of this Prospectus from the date of the filing of such document
with the Commission. Any statement contained in the document incorporated by
reference, or deemed to be incorporated by reference, herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon request, a copy of any documents
incorporated by reference. Requests for such copies should be directed to the
Company's principal executive offices: SBS Technologies, Inc., 2400 Louisiana
Boulevard NE, AFC Building 5, Suite 600, Albuquerque, New Mexico 87110,
Attention: Chief Financial Officer.

52
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets, June 30, 1995 and 1996 and the unaudited September 30, 1996................. F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994, 1995 and 1996 and the unaudited
Three Month Periods Ended September 30, 1995 and 1996.................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 1994, 1995 and
1996 and the unaudited Three Month Periods Ended September 30, 1995 and 1996........................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and 1996 and the unaudited
Three Month Periods Ended September 30, 1995 and 1996.................................................. F-6
Notes to Consolidated Financial Statements............................................................... F-7

BIT 3 COMPUTER CORPORATION
Independent Auditors' Report............................................................................. F-19
Balance Sheets, December 31, 1994 and 1995, June 30, 1996 and the unaudited September 30, 1996........... F-20
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995, for the Six Months Ended
June 30, 1996 and for the unaudited Nine Months Ended September 30, 1995 and 1996...................... F-21
Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995, for the Six
Months Ended June 30, 1996 and for the unaudited Nine Months Ended September 30, 1995 and 1996......... F-22
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995, for the Six Months Ended
June 30, 1996 and for the unaudited Nine Months Ended September 30, 1995 and 1996...................... F-23
Notes to Financial Statements............................................................................ F-24
</TABLE>

F-1
<PAGE>
KPMG Peat Marwick LLP
6565 Americas Parkway, NE #700
Post Office Box 3939
Albuquerque, NM 87190

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
SBS Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of SBS
Technologies, Inc. and subsidiaries as of June 30, 1995 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SBS
Technologies, Inc. and subsidiaries as of June 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1996 in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Albuquerque, New Mexico

July 30, 1996

F-2
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
---------------------------- SEPTEMBER 30,
1995 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 883,804 $ 1,130,030 $ 2,101,573
Receivables, net (notes 4, 5 and 6)............................... 7,151,563 6,421,224 7,716,642
Inventories (notes 5 and 6)....................................... 3,903,957 5,160,962 6,425,247
Deferred income taxes (note 7).................................... 360,000 317,100 343,600
Prepaid expenses.................................................. 359,083 303,846 223,970
Other current assets.............................................. 175,649 104,249 138,768
------------- ------------- -------------
Total current assets............................................ 12,834,056 13,437,411 16,949,800
------------- ------------- -------------
Property and equipment, at cost (notes 5 and 6)..................... 1,728,764 2,389,289 3,532,581
Less accumulated depreciation..................................... 784,673 1,041,719 1,768,649
------------- ------------- -------------
Net property and equipment...................................... 944,091 1,347,570 1,763,932
------------- ------------- -------------
Intangible assets, net.............................................. 6,076,894 5,571,135 5,351,764
Deferred income taxes (note 7)...................................... -- 55,900 55,900
Other assets........................................................ 49,881 31,656 31,656
------------- ------------- -------------
Total assets.................................................... $ 19,904,922 $ 20,443,672 $ 24,153,052
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 6)........................ $ 1,751,392 $ 1,458,976 $ 1,477,112
Notes payable to bank (note 5).................................... 2,959,920 -- --
Accounts payable.................................................. 1,878,797 1,243,748 1,995,098
Accrued representative commissions................................ 325,468 353,278 503,614
Accrued salaries.................................................. 514,518 1,077,121 931,188
Accrued compensated absences...................................... 282,072 340,342 438,203
Accrued software license fees..................................... 313,000 33,000 48,000
Income taxes (note 7)............................................. 350,913 223,381 790,960
Other current liabilities......................................... 353,877 425,033 556,593
Reserve for discontinued operations (note 3)...................... 784,068 49,553 62,910
------------- ------------- -------------
Total current liabilities....................................... 9,514,025 5,204,432 6,803,678
Long-term liabilities:
Long-term debt, excluding current portion (note 6)................ 5,341,649 5,188,320 4,914,949
------------- ------------- -------------
Total long-term liabilities..................................... 5,341,649 5,188,320 4,914,949
------------- ------------- -------------
Total liabilities............................................... 14,855,674 10,392,752 11,718,627
------------- ------------- -------------
Stockholders' equity:
Common stock, no par value; 30,000,000 shares authorized,
2,893,654 and 3,178,133 issued and outstanding at June 30, 1995
and 1996, respectively.......................................... 3,375,021 4,690,786 4,998,049
Common stock warrants (note 2).................................... 75,000 180,000 180,000
Retained earnings................................................. 1,599,227 5,180,134 7,256,376
------------- ------------- -------------
Total stockholders' equity...................................... 5,049,248 10,050,920 12,434,425
------------- ------------- -------------
Total liabilities and stockholders' equity...................... $ 19,904,922 $ 20,443,672 $ 24,153,052
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------- ---------------------------
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................. $ 10,196,568 $ 16,217,648 $ 31,331,793 $ 7,574,885 $ 11,263,466
Cost of sales......................... 4,881,851 6,756,560 14,510,106 3,580,472 5,245,753
------------- ------------- ------------- ------------ -------------
Gross profit........................ 5,314,717 9,461,088 16,821,687 3,994,413 6,017,713
Selling, general and administrative
expense.............................. 2,221,431 3,891,408 6,292,954 1,549,477 2,673,646
Research and development expense...... 1,186,817 1,686,590 2,846,300 684,724 654,946
Amortization of intangible assets..... 383,085 493,409 884,438 233,376 219,372
------------- ------------- ------------- ------------ -------------
Operating income from continuing
operations........................ 1,523,384 3,389,681 6,797,995 1,526,836 2,469,749
------------- ------------- ------------- ------------ -------------
Interest income....................... 1,761 3,315 9,210 959 14,844
Interest expense...................... (16,395) (191,120) (839,028) (281,360) (163,980)
------------- ------------- ------------- ------------ -------------
(14,634) (187,805) (829,818) (280,401) (149,136)
------------- ------------- ------------- ------------ -------------
Income from continuing operations
before income taxes............... 1,508,750 3,201,876 5,968,177 1,246,435 2,320,613
Income taxes (note 7)................. 638,000 1,357,000 2,387,270 524,000 928,200
------------- ------------- ------------- ------------ -------------
Income from continuing operations... 870,750 1,844,876 3,580,907 722,435 1,392,413
------------- ------------- ------------- ------------ -------------
Discontinued operations (net of tax
benefits (expense) of ($627,000) and
$1,160,000 for 1994 and 1995,
respectively)........................ 855,555 (1,781,235) -- -- --
Loss on disposal of discontinued
operations (net of tax benefits of
$896,000)............................ -- (1,354,000) -- -- --
------------- ------------- ------------- ------------ -------------
Income (loss) from discontinued
operations........................... 855,555 (3,135,235) -- -- --
------------- ------------- ------------- ------------ -------------
Net income (loss)..................... $ 1,726,305 $ (1,290,359) $ 3,580,907 $ 722,435 $ 1,392,413
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Income (loss) per common and common
equivalent share:
Continuing operations............... $ 0.30 $ 0.65 $ 0.97 $ 0.23 $ 0.33
Discontinued operations............. 0.29 (1.10) -- -- --
------------- ------------- ------------- ------------ -------------
Net income (loss) per common and
common equivalent share.............. $ 0.59 $ (0.45) $ 0.97 $ 0.23 $ 0.33
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------------- COMMON STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT WARRANTS EARNINGS EQUITY
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1993........................ 2,964,957 $ 3,683,074 $ -- $ 1,163,281 $ 4,846,355
Common stock repurchased......................... (154,531) (707,323) -- -- (707,323)
Net income....................................... -- -- -- 1,726,305 1,726,305
------------ ------------ ------------ ------------ -------------
Balances at June 30, 1994........................ 2,810,426 2,975,751 -- 2,889,586 5,865,337
Exercise of stock options........................ 8,228 18,020 -- -- 18,020
Common stock issued under employee stock bonus
plan............................................ 75,000 381,250 -- -- 381,250
Warrants issued for business acquisition (note
2).............................................. -- -- 75,000 -- 75,000
Net loss......................................... -- -- -- (1,290,359) (1,290,359)
------------ ------------ ------------ ------------ -------------
Balance at June 30, 1995......................... 2,893,654 3,375,021 75,000 1,599,227 5,049,248
Exercise of stock options........................ 257,618 1,295,765 -- -- 1,295,765
Warrants issued for business acquisition (note
2).............................................. -- -- 125,000 -- 125,000
Exercise of warrants............................. 26,861 20,000 (20,000) -- --
Net income....................................... -- -- -- 3,580,907 3,580,907
------------ ------------ ------------ ------------ -------------
Balance at June 30, 1996......................... 3,178,133 4,690,786 180,000 5,180,134 10,050,920
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Balance of June 30, 1995......................... 2,893,654 3,375,021 75,000 1,599,227 5,049,248
Exercise of stock options (unaudited)............ 36,456 362,990 -- -- 362,990
Net income (unaudited)........................... -- -- -- 722,435 722,435
------------ ------------ ------------ ------------ -------------
Balance at September 30, 1995 (unaudited)........ 2,930,110 3,738,011 75,000 2,321,662 6,134,673
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Balance at June 30, 1995......................... 3,178,133 4,690,786 180,000 5,180,134 10,050,920
Exercise of stock options (unaudited)............ 52,524 239,263 -- -- 239,263
Acquisition of Logical Design Group Inc.
(unaudited)..................................... 200,000 68,000 -- 683,829 751,829
Net income (unaudited)........................... -- -- -- 1,392,413 1,392,413
------------ ------------ ------------ ------------ -------------
Balance at September 30, 1996 (unaudited)........ 3,430,657 $ 4,998,049 $ 180,000 $ 7,256,376 $ 12,434,425
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------- --------------------
1994 1995 1996 1995 1996
---------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $1,726,305 $(1,290,359) $3,580,907 $ 722,435 $1,392,413
---------- --------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation......................................... 340,344 384,057 316,494 67,192 117,608
Amortization of intangible assets.................... 459,467 536,328 884,438 233,378 219,372
Bad debt expense..................................... -- -- 56,933 25,000 167,501
Loss on disposition of assets........................ -- -- 44,218 (6,203) --
Loss from sale of discontinued operations............ -- 2,250,000 -- -- --
Stock issued under employee stock bonus plan......... -- 399,270 -- -- --
Changes in assets and liabilities:
Receivables........................................ (1,459,380) 3,314,458 673,406 (15,656) (1,021,640)
Inventories........................................ (539,916) (1,101,607) (1,192,938) (162,566) (443,144)
Deferred income taxes.............................. -- (360,000) (13,000) -- --
Prepaids and other assets.......................... (54,780) (476,828) 144,862 189,576 51,386
Accounts payable................................... (809,055) 1,172,798 (635,049) 88,338 494,366
Accrued representative commissions................. 54,770 218,669 27,810 134,352 133,096
Accrued salaries................................... 372,972 277,433 562,603 55,707 (165,933)
Accrued compensated absences....................... 85,055 (155,833) 58,270 27,899 31,426
Accrued software license fees...................... 41,000 21,000 (280,000) 3,000 15,000
Income taxes....................................... 615,000 (1,500,209) (127,532) 243,783 569,131
Other current liabilities.......................... (120,213) (2,580,768) (663,359) (491,900) 108,542
---------- --------- --------- --------- ---------
Net adjustments................................. (1,014,736) 2,398,768 (142,844) 391,900 276,711
---------- --------- --------- --------- ---------
Net cash provided by operating activities....... 711,569 1,108,409 3,438,063 1,114,335 1,669,124
Cash flow from investing activities:
Business acquisition (note 2).......................... (95,000) (5,196,815) (317,746) -- 1,351
Refund of down payment on contracts.................... 500,000 -- -- -- --
Acquisition of property and equipment.................. (854,671) (426,769) (764,191) (88,143) (207,949)
Cash received from sale of discontinued operations
(note 3)............................................. -- 400,300 -- -- --
---------- --------- --------- --------- ---------
Net cash used by investing activities........... (449,671) (5,223,284) (1,081,937) (88,143) (206,598)
---------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable to bank.................... 13,501,622 6,950,437 4,095,000 1,395,000 --
Payments on notes payable to bank...................... (12,913,622) (7,690,517) (4,717,383) (1,845,782) --
Payments on liability to stockholder................... (204,166) (116,666) (100,000) (25,000) (25,000)
Proceeds from long-term borrowings..................... -- 7,000,000 -- -- --
Payments on long-term borrowings....................... (55,442) (1,227,901) (3,232,390) (1,471,804) (705,246)
Net proceeds from refinancing long-term borrowings..... -- -- 549,108 -- --
Proceeds from exercise of stock options................ -- -- 1,295,765 362,990 239,263
Repurchase of common stock............................. (707,323) -- -- -- --
---------- --------- --------- --------- ---------
Net cash provided (used) by financing
activities.................................... (378,931) 4,915,353 (2,109,900) (1,584,596) (490,983)
---------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents..... (117,033) 800,478 246,226 (558,404) 971,543
Cash and cash equivalents at beginning of period......... 200,359 83,326 883,804 883,804 1,130,030
---------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............... $ 83,326 $ 883,804 $1,130,030 $ 325,400 $2,101,573
---------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid.......................................... $ (163,953) $(497,002) $(875,736) $ 274,682 $ 165,738
Income taxes paid...................................... $ (700,000) $(700,000) $(2,431,749) $ 280,217 $ 352,624
Noncash financing and investing activities:
Acquisition of GreenSpring Computers, Inc. (note 2):
Common stock warrants issued....................... $ -- $ 75,000 $ 125,000 $ -- $ --
Long term debt issued.............................. -- 1,000,000 -- -- --
---------- --------- --------- --------- ---------
$ -- $1,075,000 $ 125,000 $ -- $ --
---------- --------- --------- --------- ---------
Assets acquired through capital leases............... $ 145,238 $ -- $ -- $ -- $ 70,733
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Summary of assets, liabilities, and equity acquired
through acquisition (note 14):
Cash and cash equivalents........................................................................... $ 1,351
Receivables......................................................................................... 441,279
Inventories......................................................................................... 821,141
Deferred income tax................................................................................. 26,500
Prepaid expenses.................................................................................... 6,029
Net property and equipment.......................................................................... 255,288
Accounts payable.................................................................................... (256,984)
Accrued representative commissions.................................................................. (17,240)
Accrued salaries.................................................................................... (20,000)
Accrued compensated absences........................................................................ (66,435)
Debt................................................................................................ (404,277)
Income taxes........................................................................................ 1,552
Other current liabilities........................................................................... (36,375)
Common stock........................................................................................ (68,000)
Retained Earnings................................................................................... $(683,829)
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) GENERAL

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

SBS Technologies, Inc. and subsidiaries (the Company) is a manufacturer of
standard bus embedded computer components that perform a broad range of central
processing unit, general purpose input/output and special purpose input/output
interface applications.

(B) SALES RECOGNITION

Sales are recognized when goods are delivered to the customer.

Temporary investments with original maturities of ninety days or less are
classified as cash and cash equivalents.

(D) INVENTORIES

Inventories are valued at average cost which does not exceed market:

<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Raw materials............................................................... $ 1,724,307 $ 2,254,788
Work in process............................................................. 757,682 1,546,800
Finished goods.............................................................. 1,421,968 1,359,374
------------ ------------
$ 3,903,957 $ 5,160,962
------------ ------------
------------ ------------
</TABLE>

(E) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Computers................................................................... $ 836,593 $ 1,194,888
Software.................................................................... 226,659 411,839
Furniture and equipment..................................................... 665,512 782,562
------------ ------------
$ 1,728,764 $ 2,389,289
------------ ------------
------------ ------------
</TABLE>

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

F-7
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Noncompete covenants...................................................... $ 1,540,000 $ 1,540,000
Goodwill.................................................................. 6,172,992 6,551,671
------------- -------------
7,712,992 8,091,671
Less accumulated amortization............................................. (1,636,098) (2,520,536)
------------- -------------
$ 6,076,894 $ 5,571,135
------------- -------------
------------- -------------
</TABLE>

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

(G) INCOME TAXES

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

(H) EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

Earnings per common and common equivalent share are based on the weighted
average shares of common stock and, if dilutive, common equivalent shares
(options and warrants) outstanding during the period.

The numbers of shares used in the earnings per share computations are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average shares of common stock outstanding during the
year......................................................... 2,874,058 2,810,426 3,017,575
Common equivalent shares--assumed exercise of options and
warrants..................................................... 74,110 48,514 1,377,923
Shares assumed to be repurchased with proceeds from exercise
subject to 20% of average shares outstanding maximum......... -- -- (603,515)
------------ ------------ ------------
Total common and common equivalent shares................. 2,948,168 2,858,940 3,791,983
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-8
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) FINANCIAL INSTRUMENTS

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107, Disclosures about Fair
Values of Financial Instruments, requires the fair value of financial
instruments be disclosed. The Company's financial instruments are accounts
receivable, accounts payable, and long-term variable rate debt. The carrying
amounts of accounts receivable, accounts payable, and long-term variable rate
debt, because of their nature, approximate fair value.

(J) RECLASSIFICATIONS

Certain amounts in the fiscal 1994 and 1995 financial statements have been
reclassified to conform with the fiscal 1996 presentation.

(K) USE OF ESTIMATES

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

(L) NEW ACCOUNTING STANDARDS

In October 1995, the FASB issued Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation". Under the provisions of FAS
123, companies may elect to account for stock-based compensation plans using a
fair-value-based method or may continue measuring compensation expense for those
plans using the intrinsic-value-based method. Companies electing to continue
using the intrinsic-value-based method must provide pro forma disclosures of net
income and earnings per share as if the fair-value-based method had been
applied. Management intends to continue to account for stock-based compensation
using the intrinsic-value-based method and, as such, FAS 123 will not have an
impact on the company's results of operations or financial position. FAS 123
becomes effective in fiscal 1997.

(2) BUSINESS ACQUISITIONS

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

On April 28, 1995, the Company acquired GreenSpring Computers, Inc.
("GreenSpring"), a corporation based in California, for $7,450,000. GreenSpring
is engaged in the design, development, marketing and manufacturing of industrial
circuit boards and computers. The acquisition was accounted for using the
purchase method of accounting, and goodwill is being amortized over 10 years.

F-9
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) BUSINESS ACQUISITIONS (CONTINUED)
Assets acquired and liabilities assumed in the acquisition are as follows:

<TABLE>
<S> <C>
Cash and equivalents.................................................... $1,053,185
Accounts receivable..................................................... 1,725,641
Inventory............................................................... 1,216,904
Other assets............................................................ 39,908
Property and equipment.................................................. 129,695
Goodwill and other intangible assets.................................... 5,752,440
Accounts payable........................................................ (2,467,773)
----------
$7,450,000
----------
----------
</TABLE>

The purchase price was paid as follows:

<TABLE>
<S> <C>
Notes payable issued.................................................... $1,000,000
Warrants issued......................................................... 200,000
Cash.................................................................... 6,250,000
----------
$7,450,000
----------
----------
</TABLE>

Warrants to purchase 400,000 shares of common stock were issued to the
former shareholders and option holders of GreenSpring, of which 150,000 were
exercisable immediately upon closing and the remaining 250,000 warrants vested
during fiscal 1996. At June 30, 1996, 40,000 warrants were exercised under the
net issuance method with the balance exercisable ratably over the next two
fiscal years.

Net income and net income per common and common equivalent share for the
year ended June 30, 1994, would have been approximately $1,655,000 and $0.56,
respectively, had the acquisition taken place on July 1, 1993. Had the
acquisition taken place on July 1, 1994, the reported net loss and net loss per
common and common equivalent share for the year ended June 30, 1995 would have
been decreased by approximately $804,000 and $0.28, respectively.

(3) SIGNIFICANT CUSTOMERS

Sales to significant customers as a percentage of total sales are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
CUSTOMERS 1994 1995 1996
- ----------------------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
A.................................................................................. 14 -- --
B.................................................................................. 20 -- --
</TABLE>

Sales to significant customers in 1994 were related to the simulation
division which was sold during 1995. All of the Company's operations are
conducted in the United States. International sales are denominated in U.S.
dollars. During the years ended June 30, 1994, 1995 and 1996, export sales from
continuing operations, all of which were to unaffiliated customers, were
approximately $1.2 million, $1.6 million and $5.1 million, respectively. Export
sales from discontinued operations in 1994 and 1995

F-10
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) SIGNIFICANT CUSTOMERS (CONTINUED)
were $6.8 million and $2.4 million, respectively. Export sales from continuing
operations were made primarily in the following foreign markets:

<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
SALES SALES SALES
FOREIGN MARKET (000'S) % (000'S) % (000'S) %
- ------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United Kingdom................................... $ 1,000 19.6%
Germany.......................................... 800 15.7
Korea............................................ 500 9.8
France........................................... $ 600 37.5% 400 7.8
Japan............................................ 400 7.8
Canada........................................... $ 800 66.7% 600 37.5 600 11.8
Belgium.......................................... 300 5.9
All Others....................................... 400 33.3 400 25.0 1,100 21.6
--------- --------- --------- --------- --------- ---------
Total............................................ $ 1,200 100.0% $ 1,600 100.0% $ 5,100 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Sales from continuing operations................. $ 10,200 11.8% $ 16,200 9.9% $ 31,300 16.3%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

(4) RECEIVABLES

Receivables, net consisted of the following:

<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Accounts receivable......................................................... $ 3,276,762 $ 5,527,620
Contract receivables:
Amounts billed............................................................ 2,216,673 721,803
Recoverable costs and accrued profit on progress completed--
not billed.............................................................. 1,665,799 242,038
------------ ------------
3,882,472 963,841
------------ ------------
7,159,234 6,491,461
Less: allowance for doubtful accounts....................................... (7,671) (70,237)
------------ ------------
------------ ------------
$ 7,151,563 $ 6,421,224
------------ ------------
------------ ------------
</TABLE>

Recoverable costs and accrued profit not billed are comprised principally of
amounts of revenue recognized on contracts for which billings had not been
presented to the contract owners since the amounts were not billable at the
balance sheet date, because contract specified milestones had not yet been
reached or because progress billings are restricted by the contract to a
percentage of costs incurred.

(5) FINANCING

The Company has an available bank line of credit of $2,500,000, which
matures October 1997. Interest is payable monthly at LIBOR plus 2.25 percent or
the bank's prime lending rate. The bank's prime lending rate at June 30, 1996
was 8.25 percent. During fiscal 1996, the Company refinanced through long-term
borrowings $2,337,537 previously outstanding on the line of credit. The Company
had no amounts drawn on this line of credit at June 30, 1996. The line of credit
provides for security interests in the Company's

F-11
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) FINANCING (CONTINUED)
receivables, inventories and equipment. Management anticipates that the line of
credit will be renewed at maturity in the normal course of business.

(6) LONG TERM DEBT

Long term debt consisted of the following:

<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Note payable to bank, $5,000,000 at LIBOR plus 2.5% (8.0% at June 30,
1996), $1,525,000 at prime plus 0.25% (8.5% at June 30, 1996), secured by
receivables, inventories and equipment, due in monthly installments of
$112,500................................................................. -- $ 6,525,000

Note payable to bank at prime plus 1.5% (10.5% at June 30, 1995), secured
by receivables, inventories and equipment, due in monthly installments of
$116,667................................................................. $ 5,819,469 --

16% notes payable to former shareholders and option holders of GreenSpring
common stock, secured by receivables but subordinate to the above
described note, due in quarterly installments commencing when the
principal balance of the aforementioned note is less than $3,000,000..... 1,000,000 --

Note payable, non-interest-bearing, payable in monthly installments
through August 1997...................................................... 213,316 113,316

8.24% note due in monthly installments of $2,215 including interest
through August 1996...................................................... 31,470 4,385

8.14% note due in monthly installments of $2,321 including interest
through August 1996...................................................... 28,786 4,595
------------- -------------

7,093,041 6,647,296

Less current portion...................................................... (1,751,392) (1,458,976)
------------- -------------

$ 5,341,649 $ 5,188,320
------------- -------------
------------- -------------
</TABLE>

Principal maturities of long term debt as of June 30, 1996 are as follows:

F-12
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) INCOME TAXES

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

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Current:
U.S. Federal............................................... $ 716,000 $ 1,211,000 $ 1,916,770
State...................................................... 208,000 352,000 483,500

Deferred:
U.S. Federal............................................... (209,000) (145,000) (11,000)
State...................................................... (77,000) (61,000) (2,000)
------------ ------------- ------------

Income tax before discontinued operations.................... 638,000 1,357,000 2,387,270
Income tax expense (benefit) from
Discontinued operations.................................... 627,000 (1,160,000) --
Loss on disposal........................................... -- (896,000) --
------------ ------------- ------------
Total income tax expense..................................... $ 1,265,000 $ (699,000) $ 2,387,270
------------ ------------- ------------
------------ ------------- ------------
</TABLE>

Income tax expense was provided for at an effective rate of 42.2, 42.4 and
40.0 percent in fiscal 1994, 1995 and 1996, respectively. The actual tax expense
differs from the "expected" tax expense (computed by applying the U.S. Federal
corporate tax rate of 34 percent to income before income taxes) as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax expense........................................... $ 513,000 $ 1,089,000 $ 2,029,180
State income tax, net of federal income tax benefit....................... 65,000 212,000 319,112
Goodwill amortization..................................................... 60,000 66,000 21,508
Other..................................................................... -- (10,000) 17,470
---------- ------------ ------------
$ 638,000 $ 1,357,000 $ 2,387,270
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Vacation and severance accruals........................................................... $ 176,274 $ 136,136
Reserve for discontinued operations....................................................... 169,435 --
Inventory capitalization.................................................................. -- 198,792
Other..................................................................................... 14,291 35,072
---------- ----------
$ 360,000 $ 370,000
---------- ----------
---------- ----------
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.

F-13
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) INCOME TAXES (CONTINUED)
Based on the Company's historical taxable transactions, the timing of the
reversal of existing temporary differences, and the evaluation of tax planning
strategies, management believes it is more likely than not that the Company's
future taxable income will be sufficient to realize the benefit of the deferred
tax assets existing at June 30, 1996. Accordingly, management has no allowance
for deferred tax assets at June 30, 1995 or 1996.

(8) LEASES

The Company leases its main facilities in Albuquerque, New Mexico, Carlsbad,
California and Menlo Park, California under noncancelable operating leases which
expire at various dates through 2000. The Company also leases various items of
equipment under noncancelable operating leases which expire at various dates
through the year 2001.

<TABLE>
<CAPTION>
BUILDINGS EQUIPMENT
MINIMUM LEASE MINIMUM LEASE
YEAR ENDING JUNE 30, PAYMENTS PAYMENTS TOTAL
- -------------------------------------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
1997................................................................ $ 542,831 $ 45,710 $ 588,541
1998................................................................ 450,633 43,179 493,812
1999................................................................ 443,932 43,179 487,111
2000................................................................ 436,599 43,179 479,778
2001................................................................ -- 13,929 13,929
-------------- -------------- ------------
$ 1,873,995 $ 189,176 $ 2,063,171
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>

Total rental expense for operating leases for the years ended June 30, 1994,
1995, 1996 was $569,188, $511,150 and $521,885, respectively.

(9) STOCK OPTION PLANS

(A) 1991 KEY EMPLOYEE STOCK OPTION PLAN

The Company has a 1991 Key Employee Stock Option Plan (Key Employee Plan)
whereby 42,908 shares of its common stock are reserved for discretionary
issuance by the Board to certain key employees to encourage them to continue to
promote the growth of the Company.

The Key Employee Plan is not intended to be tax-qualified under the Internal
Revenue Code. Options granted under the Key Employee Plan must (i) be
accompanied by an agreement signed by each grantee setting forth the terms of
the option; (ii) may not equal more than $100,000 aggregate purchase price;
(iii) may be transferable by grantees only in accordance with applicable
securities laws; and (iv) have a price per share that will be equal to fair
market value at the time of the decision to grant the option as determined by
the Board of Directors.

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

The Company has 1992, 1993, 1995 and 1996 Incentive Stock Option Plans
(Plans) whereby a total of 1,100,000 shares of its common stock are reserved for
discretionary grant of options by the Board to officers and employees who are
not directors. The Plans all terminate ten years after inception, from 2001 to
2005.

F-14
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) STOCK OPTION PLANS (CONTINUED)
The options are intended to qualify as "incentive stock options" within the
meaning of Section 422A of the Internal Revenue Code (the Code). The option plan
generally permits options to be granted (i) only to employees or officers and
not to directors as such; (ii) for a period of up to ten years; and (iii) at
prices not less than fair market value at the date of grant. Under the Code,
holders of more than 10 percent of the Company's Common stock cannot be granted
options with a duration of more than five years or exercisable at a price less
than 110 percent of the fair market value on the date of grant. Options granted
under the plan may be exercised as provided by the administering committee or
Board of Directors of the Company. All options granted prior to the Company's
initial public offering are exercisable at $4.00 per share, the presumed market
value at that time. All other options are exercisable at the quoted market value
of the Company's stock in effect on the respective dates of the grants.

The 1993 Director and Officer Stock Option Plan permits options to be
granted to all Directors of the Company who are not employees and all Executive
Officers of the Company. Directors who are not employees of the Company receive
automatic grants on the anniversary date of their service as a director of the
Company. Executive Officers receive grants subject to the discretion of the
Board.

(D) 1996 EMPLOYEE STOCK PURCHASE PLAN

The 1996 Employee Stock Purchase Plan was adopted by the Board of Directors
on January 21, 1996, but is subject to shareholder approval at the November 1996
annual meeting. Those eligible to participate in the plan are full-time
employees of the Company who are not participants in any Incentive Stock Option
Plans provided by the Company. The plan provides for the grant of options to
eligible employees on January 21, 1996, 1997 and 1998. Individual grants are
issued for a percentage of the employee's annual base salary, (as determined
each year by the Board of Directors, up to 10%), divided by the fair market
value of one share of the Company's stock on the date of grant. Options are
eligible to be exercised beginning 18 months after the date of grant for a
period of nine months at which time they will expire.

F-15
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) STOCK OPTION PLANS (CONTINUED)
Information regarding the Company's stock option plans is summarized below:

<TABLE>
<CAPTION>
ALL 1993
1991 NSOP ISOP'S D & O 1996 ESPP
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPTIONS OUTSTANDING--JUNE 30, 1993................. 26,512 318,533 20,000 --

Granted.......................................... -- 520,000 10,000 --
Exercised........................................ -- -- -- --
Canceled......................................... -- 75,725 -- --
--------- --------- --------- ---------

OPTIONS OUTSTANDING--JUNE 30, 1994................. 26,512 762,808 30,000 --

Granted.......................................... -- 140,000 10,000 --
Exercised........................................ 8,228 -- -- --
Canceled......................................... -- 236,667 -- --
--------- --------- --------- ---------

OPTIONS OUTSTANDING--JUNE 30, 1995................. 18,284 666,141 40,000 --

Granted.......................................... -- 360,000 118,500 42,894
Exercised........................................ 18,284 234,334 5,000 --
Canceled......................................... -- 60,000 -- 4,889
--------- --------- --------- ---------

OPTIONS OUTSTANDING--JUNE 30, 1996................. -- 731,807 153,500 38,005
--------- --------- --------- ---------
--------- --------- --------- ---------

OPTIONS AVAILABLE TO GRANT--JUNE 30, 1996.......... -- 133,859 157,833 261,995

AVERAGE OPTION PRICE PER SHARE:
at June 30, 1994................................. $ 2.190 $4.600 $5.375 --
at June 30, 1995................................. 2.190 5.102 5.438 --
at June 30, 1996................................. -- 7.047 5.773 $7.750

OPTIONS EXERCISABLE:
at June 30, 1994................................. 26,512 297,546 -- --
at June 30, 1995................................. 18,284 347,807 -- --
at June 30, 1996................................. -- 471,807 115,000 --

AVERAGE PRICE OF OPTIONS EXERCISED:
at June 30, 1995................................. $2.190 -- -- --
at June 30, 1996................................. 2.190 $4.620 $5.500 --
</TABLE>

F-16
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) RETIREMENT PLAN

The Company maintains a retirement plan under Section 401(k) of the Internal
Revenue Code for all employees of the Company. The plan provides for employees
to selectively defer a percentage of their wages, which the Company matches at a
predetermined rate not to exceed 4 percent of the employee's wages. The plan
also provides for additional contributions at the discretion of the Board of
Directors. Total Company contributions to the plan during the years ended June
30, 1994, 1995 and 1996 were $273,373, $251,493 and $185,387, respectively.

(11) INITIAL PUBLIC OFFERING

In connection with the Company's initial public offering in 1992, warrants
to purchase 100,000 common shares at $4.80 per share were issued to the
underwriter. The warrants are exercisable from January 9, 1993 through January
8, 1997.

(12) DISCONTINUED OPERATIONS

On April 26, 1995, the company sold its flight simulation business for
$400,300. Included in the sale were net assets of approximately $1,225,000. The
purchaser has agreed to complete simulation contracts in progress at the time of
the sale on a time and material and fixed price basis. The Company is
responsible for completion of these contracts, until novation of the contracts
by the customer, to the purchaser of the simulation operations. As of June 30,
1996, the majority of these contracts have been substantially completed.

The disposition of the flight simulation business has been accounted for as
a discontinued operation and prior years consolidated statements of operations
have been restated accordingly. Revenue of the discontinued operations were
approximately $18,560,00 and $8,700,000 in fiscal 1994 and 1995, respectively.

(13) CONTINGENCIES

The New Mexico Department of Taxation and Revenue is currently auditing the
Company's compliance with applicable New Mexico gross receipts tax laws and
regulations. Certain compliance issues have been identified during the audit
which may result in an assessment of additional tax, penalties and interest. The
Company intends to contest any proposed adjustments vigorously and expects that
the ultimate resolution of this matter will not have a material adverse effect
on the Company's consolidated financial position or results of operations.

Direct and allocable indirect costs charged to government contracts are
subject to audit by the Company's customers or their principal agent, the
Defense Contract Audit Agency. As of June 30, 1996, as a result of past audits,
no significant adjustments were required. Disallowed costs, if any, resulting
from future audits will be recognized in the period of the disallowance.
Management estimates that any such disallowed cost would not be material to the
consolidated financial statements.

The Company has been named as a defendant in a lawsuit filed on June 19,
1996. The Company is vigorously defending the lawsuit and has filed a counter
suit. Management does not believe that the outcome of the litigation will have a
material affect on the Company's financial condition or results of operations.

F-17
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(14) SUBSEQUENT EVENT

On August 19, 1996, the Company acquired Logical Design Group, Inc. ("LDG"),
a Raleigh, North Carolina based designer and manufacturer of Intel-based VME
central processing unit boards. The acquisition qualifies as a pooling of
interests for accounting purposes and will constitute a tax-free reorganization
for federal income tax purposes. Under the terms of the agreement, LDG
shareholders exchanged all outstanding shares of LDG stock for 200,000 shares of
the Company's stock.

The financial position and results of operations of the Company and LDG will
be combined in fiscal 1997 on a prospective basis. LDG's historical results do
not have a material affect on combined results of operations or results of
operations.

EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE
INDEPENDENT AUDITORS' REPORT

On October 8, 1996, the Company entered an agreement to acquire all of the
outstanding shares of Bit 3 Computer Corporation for a total cash purchase price
of $24 million, subject to the successful completion of a public offering of
1,500,000 shares of the Company's common stock with estimated net proceeds to
the Company of approximately $34 million. In connection with the acquisition,
the Company has made an assessment, in conjunction with an independent valuation
firm, of purchased assets and technology. The assessment determined that $11
million of the purchase price represents technology that does not meet the
accounting definitions of "completed technology," and thus should be charged to
earnings under generally accepted accounting principles. Had the acquisition and
the offering of stock occurred at July 1, 1995, reported net income and net
income per common and common equivalent share for the year ended June 30, 1996
would have been approximately $503,000 and $0.10, respectively.

F-18
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Bit 3 Computer Corporation:

We have audited the accompanying balance sheets of Bit 3 Computer
Corporation (the Company) as of December 31, 1994 and 1995 and June 30, 1996,
and the related statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1995 and for
the six-month period ended June 30, 1996. 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 Bit 3 Computer Corporation
as of December 31, 1994 and 1995 and June 30, 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995 and for the six-month period ended June 30, 1996, in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Minneapolis, Minnesota

September 27, 1996

F-19
<PAGE>
BIT 3 COMPUTER CORPORATION
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 845,026 $ 836,691 $ 887,023 $1,209,835
Accounts receivable, net................... 957,704 1,264,154 1,582,743 1,743,074
Inventory.................................. 1,577,918 1,527,290 1,932,443 1,593,255
Prepaid expenses........................... 12,854 25,993 21,934 18,231
---------- ---------- ---------- -------------
Total current assets..................... 3,393,502 3,654,128 4,424,143 4,564,395
---------- ---------- ---------- -------------
Property and equipment:
Equipment.................................. 786,641 843,430 884,672 899,701
Software................................... 143,279 147,666 151,722 152,756
Furniture and fixtures..................... 22,041 22,041 22,041 22,041
---------- ---------- ---------- -------------
951,961 1,013,137 1,058,435 1,074,498
Less accumulated depreciation.............. (751,856) (849,602) (910,354) (940,730)
---------- ---------- ---------- -------------
Total property and equipment............. 200,105 163,535 148,081 133,768
---------- ---------- ---------- -------------
Total assets............................. $3,593,607 $3,817,663 $4,572,224 $4,698,163
---------- ---------- ---------- -------------
---------- ---------- ---------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 43,312 $ 45,134 $ 191,115 $ 115,358
Accrued payroll and related costs.......... 111,555 121,484 158,564 135,378
Accrued warranty........................... 26,427 50,976 40,000 45,000
Other accrued liabilities.................. 17,502 10,395 23,917 18,598
---------- ---------- ---------- -------------
Total current liabilities................ 198,796 227,989 413,596 314,334
---------- ---------- ---------- -------------
Stockholders' equity:
Common stock, no par value, 2,500 shares
authorized, 500 issued and outstanding... 20,400 20,400 20,400 20,400
Retained earnings.......................... 3,374,411 3,569,274 4,138,228 4,363,429
---------- ---------- ---------- -------------
Total stockholders' equity............... 3,394,811 3,589,674 4,158,628 4,383,829
---------- ---------- ---------- -------------
Total liabilities and stockholders'
equity................................. $3,593,607 $3,817,663 $4,572,224 $4,698,163
---------- ---------- ---------- -------------
---------- ---------- ---------- -------------
</TABLE>

See accompanying notes to financial statements.

F-20
<PAGE>
BIT 3 COMPUTER CORPORATION
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ENDED JUNE ----------------------------
1993 1994 1995 30, 1996 1995 1996
------------- ------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Hardware.................... $ 10,516,609 $ 11,298,950 $ 12,220,614 $ 7,460,612 $ 8,980,152 $ 11,122,133
Software.................... 233,530 299,788 309,138 176,592 229,834 343,982
------------- ------------- ------------- ------------- ------------- -------------
Total sales............... 10,750,139 11,598,738 12,529,752 7,637,204 9,209,986 11,466,115
Cost of sales................. 4,151,451 4,218,957 4,437,909 2,392,914 3,309 610 3,791,118
------------- ------------- ------------- ------------- ------------- -------------
Gross profit.............. 6,598,688 7,379,781 8,091,843 5,244,290 5,900,376 7,674,997
------------- ------------- ------------- ------------- ------------- -------------
Operating expenses:
Selling, general and
administrative
expense................... 1,472,835 1,660,787 1,856,689 864,507 1,294,425 1,283,812
Research and development.... 1,595,887 1,531,302 1,570,502 992,390 1,117,912 1,479,597
------------- ------------- ------------- ------------- ------------- -------------
Total operating
expenses................ 3,068,722 3,192,089 3,427,191 1,856,897 2,412,337 2,763,409
------------- ------------- ------------- ------------- ------------- -------------
Income from operations.... 3,529,966 4,187,692 4,664,652 3,387,393 3,488,039 4,911,588
------------- ------------- ------------- ------------- ------------- -------------
Interest income............. 27,609 58,468 65,727 33,561 37,843 51,679
------------- ------------- ------------- ------------- ------------- -------------
Net income................ $ 3,557,575 $ 4,246,160 $ 4,730,379 $ 3,420,954 $ 3,525,882 $ 4,963,267
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>

See accompanying notes to financial statements.

F-21
<PAGE>
BIT 3 COMPUTER CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
--------- ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1992............................................... $ 20,400 $ 3,474,676 $ 3,495,076
Net income for the year.................................................. -- 3,557,575 3,557,575
Distributions to stockholders............................................ -- (3,500,000) (3,500,000)
--------- ------------- -------------
Balance, December 31, 1993............................................... 20,400 3,532,251 3,552,651
Net income for the year.................................................. -- 4,246,160 4,246,160
Distributions to stockholders............................................ -- (4,404,000) (4,404,000)
--------- ------------- -------------
Balance, December 31, 1994............................................... 20,400 3,374,411 3,394,811
Net income for the year.................................................. -- 4,730,379 4,730,379
Distributions to stockholders............................................ -- (4,535,516) (4,535,516)
--------- ------------- -------------
Balance, December 31, 1995............................................... 20,400 3,569,274 3,589,674
Net income for the six month period...................................... -- 3,420,954 3,420,954
Distributions to stockholders............................................ -- (2,852,000) (2,852,000)
--------- ------------- -------------
Balance, June 30, 1996................................................... $ 20,400 $ 4,138,228 $ 4,158,628
--------- ------------- -------------
--------- ------------- -------------
Balance, December 31, 1994............................................... 20,400 3,374,411 3,394,811
Net income for the nine month period (unaudited)......................... -- 3,525,882 3,525,882
Distributions to stockholders (unaudited)................................ -- (3,226,000) (3,226,000)
--------- ------------- -------------
Balance, September 30, 1995 (unaudited).................................. 20,400 3,674,293 3,364,693
--------- ------------- -------------
--------- ------------- -------------
Balance, December 31, 1995............................................... $ 20,400 $ 3,569,274 $ 3,589,674
Net income for the nine month period (unaudited)......................... -- 4,963,267 4,963,267
Distribution to stockholders (unaudited)................................. -- (4,169,112) (4,169,112)
--------- ------------- -------------
Balance, September 30, 1996 (unaudited).................................. $ 20,400 $ 4,363,429 $ 4,383,829
--------- ------------- -------------
--------- ------------- -------------
</TABLE>

See accompanying notes to financial statements.

F-22
<PAGE>
BIT 3 COMPUTER CORPORATION
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED SEPT. 30,
------------------------------------- ENDED JUNE -------------------------------
1993 1994 1995 30, 1996 1995 1996
----------- ----------- ----------- ----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income................................. $ 3,557,575 $ 4,246,160 $ 4,730,379 $ 3,420,954 $ 3,525,882 $ 4,963,267
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation........................... 134,854 128,390 97,746 60,752 69,288 91,128
Increase in receivables................ (28,205) (71,661) (306,450) (318,589) (198,077) (478,920)
(Increase) decrease in inventory....... (162,368) (95,185) 50,628 (405,153) 112,178 (65,965)
(Increase) decrease in prepaid
expenses............................. (3,381) 7,247 (13,139) 4,059 (1,490) 7,762
Increase (decrease) in accounts
payable.............................. (3,179) (7,970) 1,822 145,981 113,936 70,224
Increase in accrued liabilities........ 32,512 4,835 27,371 39,626 21,359 16,121
----------- ----------- ----------- ----------- -------------- --------------
Net cash provided by operating
activities......................... 3,527,808 4,211,816 4,588,357 2,947,630 3,643,076 4,603,617
Cash flow from investing activities--purchase
of equipment, software, and furniture...... (140,340) (83,692) (61,176) (45,298) (27,575) (61,361)
Cash flow from financing
activities--distributions to
stockholders............................... (3,500,000) (4,404,000) (4,535,516) (2,852,000) (3,226,000) (4,169,112)
----------- ----------- ----------- ----------- -------------- --------------
Net increase (decrease) in cash...... (112,532) (275,876) (8,335) 50,332 389,501 373,144
Cash and cash equivalents at the beginning of
period..................................... 1,233,434 1,120,902 845,026 836,691 845,026 836,691
----------- ----------- ----------- ----------- -------------- --------------
Cash and cash equivalents at the end of
period..................................... $ 1,120,902 $ 845,026 $ 836,691 $ 887,023 $ 1,234,527 $ 1,209,835
----------- ----------- ----------- ----------- -------------- --------------
----------- ----------- ----------- ----------- -------------- --------------
</TABLE>

See accompanying notes to financial statements.

F-23
<PAGE>
BIT 3 COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS

(1) NATURE OF BUSINESS

Bit 3 Computer Corporation (a Minnesota corporation) is in the business of
designing and selling computer connectivity equipment. Products consist
primarily of printed circuit card hardware and software designed to support
hardware products. Product users are primarily large manufacturing companies,
the aerospace industry, defense agencies and their subcontractors, and the
automaker industry.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

REVENUE RECOGNITION

Revenue on hardware sales and software licenses is recognized upon product
shipment.

INVENTORIES

Inventories are carried at the lower of cost or market.

CAPITALIZED SOFTWARE COSTS

Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED. Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility, are
classified as research and development and expensed as incurred. Once
technological feasibility has been determined, additional costs incurred in
development, including coding, testing, and product quality assurance, are
capitalized when material. During the years ended December 31, 1993, 1994, and
1995 and the six-month period ended June 30, 1996, software development costs
subject to capitalization were not material and, accordingly, were not
capitalized.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided
utilizing the accelerated and straight line methods.

Estimated useful lives are as follows:

<TABLE>
<S> <C>
Equipment......................................................... 3-7 years
Software.......................................................... 5 years
Furniture and fixtures............................................ 5-7 years
</TABLE>

F-24
<PAGE>
BIT 3 COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. As a result, no provision has been made for federal
or state income taxes, since the applicable tax liability or benefit is the
responsibility of the Company's stockholders.

CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.

WARRANTY COSTS

Estimated product warranty costs are accrued at date of shipment.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair value of all
financial instruments to which the Company is a party. All financial instruments
are carried at amounts that approximate estimated fair value.

(3) INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials....................................... $ 458,848 $ 455,504 $ 770,081
Work-in-process..................................... 442,260 309,079 282,697
Finished goods...................................... 676,810 762,707 879,665
------------ ------------ ------------
$ 1,577,918 $ 1,527,290 $ 1,932,443
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

(4) EMPLOYEE BENEFIT PLANS

The Company has adopted a savings plan (the Plan) in compliance with Section
401(k) of the Internal Revenue Code. Employees are eligible to participate in
the Plan the day subsequent to the first day of service. The Plan is primarily
funded by employee contributions but the Company is permitted to make
discretionary contributions to the Plan. The Company did not make a contribution
to the Plan during the three-year period ended December 31, 1995 or the
six-month period ended June 30, 1996.

(5) OPERATING LEASE

The Company conducts its operations from facilities that are leased under a
month-to-month operating lease. Rent expense was $157,000, $175,000, $167,000,
and $91,000 for the years ended December 31, 1993, 1994, and 1995 and the
six-month period ended June 30, 1996, respectively.

(6) SIGNIFICANT CUSTOMERS

The Company had sales to one customer that represented 17%, 14%, 16%, and
22% of the Company's net sales for the years ended December 31, 1993, 1994, and
1995 and the six-month period

F-25
<PAGE>
BIT 3 COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(6) SIGNIFICANT CUSTOMERS (CONTINUED)
ended June 30, 1996, respectively, and had sales to a different customer that
represented 10% and 12% of the Company's net sales for the year ended December
31, 1994 and the six-month period ended June 30, 1996, respectively.

(7) SUBSEQUENT EVENT

The Company is currently negotiating an agreement with a third party to sell
all the stock of the Company. The sale is contingent upon the acquiring company
successfully completing a public offering.

F-26
<PAGE>

[Picture of an AMI, an ABI-V5 and a PCMCIA board arranged from left to right on
the page.]

Many of SBS' products have a substantial software component. SBS provides
real-time data analysis and display software to accompany its telemetry
products. The software SBS supplies provides graphical display of real time
data. Displays like those shown above allow engineers to monitor a test while it
is in progress, decreasing total test costs and enhancing test efficiency. The
telemetry interface board products shown above install in a standard bus
embedded computer and transform it into a self-contained PCM telemetry ground
station.

SBS' IndustryPack I/O products can be
installed either on CPU boards, such as
the Motorola MVME162, or on
GreenSpring-designed carrier cards for [Picture of a monitor displaying
use on non-VME systems. IndustryPacks real-time T-mate displays with several
such as those shown include standard I/O BSI boards beside the monitor.]
products and communications-related
products such as the T1/E1 interface and
the Comm 360 IndustryPacks.

<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------

No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations not contained herein must
not be relied upon as having been authorized by the Company, the Selling
Shareholders, any of the Underwriters or by any other person. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the shares of Common Stock offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby, to any person in any jurisdiction in which it is
unlawful to make such offer or solicitation to such person. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as of
any date subsequent to the date hereof.

--------------------------

CONTENTS

<TABLE>
<CAPTION>
Page
---
<S> <C>
Prospectus Summary.................................... 3
Acquisition of Bit 3.................................. 6
Risk Factors.......................................... 8
Use of Proceeds....................................... 16
Dividend Policy....................................... 16
Price Range of Common Stock........................... 16
Capitalization........................................ 17
Selected Consolidated Financial Information of
SBS Technologies, Inc................................ 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations of
SBS Technologies, Inc................................ 19
Selected Financial Information of Bit 3 Computer
Corporation.......................................... 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Bit 3 Computer
Corporation.......................................... 27
Pro Forma Combined Consolidated Financial
Statements........................................... 30
Business.............................................. 34
Management............................................ 44
Principal and Selling Shareholders.................... 47
Description of Capital Stock.......................... 49
Underwriting.......................................... 50
Legal Matters......................................... 51
Experts............................................... 51
Additional Information................................ 52
Incorporation of Certain Documents by Reference....... 52
Consolidated Financial Statements..................... F-1
</TABLE>

1,800,000 Shares

[LOGO]

Common Stock

------------------

PROSPECTUS

------------------------

COWEN & COMPANY

SOUNDVIEW FINANCIAL
GROUP, INC.

, 1996

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses incurred or to be incurred by
the Registrant. Underwriting commissions payable by the Registrant, the Selling
Shareholders and the Additional Selling Shareholders are not reflected in the
listed expenses. The Registrant will pay all expenses on behalf of the Selling
Shareholders and the Additional Selling Shareholders except for underwriting
commissions, if any, which will be paid by the Selling Shareholders and the
Additional Selling Shareholders. D.H. Blair Investment Banking Corporation,
("D.H. Blair"), a member of the National Association of Securities Dealers,
served as the Company's underwriter in the Company's initial public offering
(the "IPO") and certain other persons associated with D.H. Blair (the
"Warrantholders") at the time of the IPO received 100,000 warrants to purchase
the Company's Common Stock at an exercise price of $4.80 per share (the
"Warrants"). The Warrants will be exercised in connection with the offering and
the 100,000 shares of Common Stock underlying the Warrants will be sold in the
offering (the "Warrant Shares"). The Company is paying, on behalf of the
Warrantholders, a fee which is equal to the underwriting discounts and
commissions covering the Warrant Shares. All amounts are estimated except the
Registration Fee, the NASD Filing Fee and the Nasdaq Listing Fee.

<TABLE>
<CAPTION>
ITEM AMOUNT OF MONEY
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Registration Fee............................................................ $ 12,703
NASD Filing Fee............................................................. 4,692
Nasdaq Listing Fee.......................................................... 17,500
Blue Sky Fees and Expenses.................................................. 7,000
Printing Expenses........................................................... 85,000
Legal Fees and Expenses..................................................... 90,000
Accountants Fees and Expenses............................................... 40,000
Transfer Agent and Registrar Fees........................................... 4,000
Miscellaneous............................................................... 19,270
--------
Total................................................................... $ 280,165
--------
--------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Amended Articles of Incorporation provide that the directors
of the Company will not be personally liable to the Company or its shareholders
for monetary damages for any breach of a director's fiduciary duty as a
director, except for liability for breach or for failure to perform the duties
of the office of director in compliance with the New Mexico Business Corporation
Act, as amended, ("Corporation Act") if that breach or failure constitutes
wilful misconduct or recklessness (or, in the case of an ownership interest in
the Company, if the breach or failure constitutes negligence, willful misconduct
or recklessness).

The Bylaws of the Company provide for indemnification, in accordance with
the Corporation Act of directors and officers of the Company for certain
expenses (including attorney's fees), judgments, fines and settlement amounts
incurred by that person in any action or proceeding, on account of services as a
director or officer of the Company, as a director or officer of any subsidiary
of the Company, or as a director or officer of any other company or enterprise
for which the person provides services at the request of the Company. The
Company believes that these provisions and agreements are necessary to attract
and retain qualified persons as directors and officers. The Corporation Act
currently provides that if the proceeding was by or in the right of the
corporation, indemnification may be made only against reasonable expenses and
may not be made for proceedings in which the person is adjudged to be liable to
the

II-1
<PAGE>
corporation. No indemnification is permitted for any proceeding charging
improper personal benefit to the person, whether or not involving action in the
person's official capacity, if the person is adjudged to be liable on the basis
that personal benefit was improperly received by the person.

Reference is made to Section 6 of the Underwriting Agreement filed as
Exhibit 1.1 hereto for certain provisions as to the indemnification of the
Underwriters by the Company and the Selling Shareholders and as to
indemnification by the Underwriters of the Company and the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.

ITEM 16. EXHIBITS.

The following exhibits are filed with this Registration Statement:

4.1 Article VI of the Articles of Incorporation, as amended, as included in the Articles of
Incorporation of SBS Technologies, Inc. filed as Exhibit 3.1 of the Registrant's Form 10-Q
for the quarter ended December 31, 1995.*

4.2 Articles I, II of the Bylaws of SBS Engineering, Inc., as amended, as included in the Bylaws
filed as Exhibit 3.2 of the Registrant's Form 10-Q for the quarter ended December 31, 1995.*

4.3 Form of certificate evidencing Common Stock, filed as Exhibit 4.3 of the Registrant's
Registration Statement on Form S-3 (No. 333-58), effective April 16, 1996.*

5 Opinion of Schuler, Messersmith & McNeill.**

10.1 Employment Agreement between Registrant and Dr. Andrew C. Cruce, dated October 1, 1993, as
amended, filed as Exhibit 10(a) of the Registrant's Form 10-K for the fiscal year ended June
30, 1996.*

10.2 Employment Agreement between Registrant and Scott A. Alexander, dated October 1, 1993, as
amended, filed as Exhibit 10(b) of the Registrant's Form 10-K for the fiscal year ended June
30, 1996.*

10.3 Employment Agreement between Registrant and Christopher J. Amenson, dated August 24, 1992, as
amended, filed as Exhibit 10(d) of the Registrant's Form 10-K for the fiscal year ended June
30, 1996.*

10.4 1991 Key Employee Stock Option Plan, filed as Exhibit 10(d) of the Registrant's Registration
Statement on Form S-18 (No. 33-43256-D), effective January 9, 1992.*

10.5 1992 Incentive Stock Option Plan, filed as Exhibit 10(e) of the Registrant's Registration
Statement on Form S-18 (No. 33-43256-D), effective January 9, 1992.*

10.6 Stock Bonus Plan, filed as Exhibit 10(f) of the Registrant's Registration Statement on Form
S-18 (No. 33-43256-D), effective January 9, 1992.*

10.7 1993 Incentive Stock Option Plan, filed as Exhibit A of the Registrant's Proxy Statement for
its annual meeting held November 10, 1992.*

10.8 1993 Director and Officer Stock Option Plan, filed as Exhibit B of the Registrant's Proxy
Statement for its annual meeting held November 10, 1992.*
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------
10.9 Asset Purchase Agreement dated April 26, 1995 between Registrant and Camber Corporation, filed
as Exhibit 10(q) of the Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995.*
<C> <S>

10.10 Purchase Agreement dated April 28, 1995 between Registrant and GreenSpring Computers, Inc.,
filed as Exhibit 10(r) of the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.*

10.11 Credit Agreement dated April 28, 1995 with NationsBank of Texas, N.A., filed as Exhibit 10(s)
of the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.*

10.12 Lease dated May 25, 1995 between the Registrant and PARS Asset Management Company, filed as
Exhibit 10(t) of the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1995.*

10.13 1996 Employee Stock Purchase Plan adopted January 21, 1996, as amended, subject to shareholder
approval, filed as Exhibit 10(v) of the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996.*

10.14 Amended and Restated Term Loan and Revolver Credit Facility from NationsBank of Texas, N.A.
dated April 26, 1996, filed as Exhibit 10.w of the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996.*

10.15 Lease dated March 5, 1996, between the Registrant and Bohannon Trust Partnership II, filed as
Exhibit 10(x) of the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1996.*

10.16 Pooling Agreement dated August 19, 1996 between the Registrant and Logical Design Group, Inc.
et al, filed as Exhibit 10(y) of the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996.*

10.17 Management Incentive Plans, filed as Exhibit 10.2 of the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1996.*

10.18 Stock Purchase Agreement dated October 8, 1996 between the Registrant and Philip M. Vukovic and
Larry L. Larsen.

11 Statement Re Computation of Per-Share Income.*

23.1 Consent of Schuler, Messersmith & McNeill (included in Exhibit 5).**

23.2 Consent of KPMG Peat Marwick LLP.

23.3 Consent of Warren Andrews.+

24 Power of Attorney (included in signature page forming a part hereof).+

27 Financial Data Schedule.
</TABLE>

- ------------------------

* Incorporated by reference.
** To be filed by amendment.
+ Previously filed.

II-3
<PAGE>
ITEM 17. UNDERTAKINGS.

(a) Undertaking Concerning Claim for Indemnification Against Certain
Liabilities

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification against liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(b) Undertakings For a Registration Statement Permitted by Rule 430A:

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Albuquerque, State of New Mexico, on October 21,
1996.

SBS TECHNOLOGIES, INC.

By: /S/ CHRISTOPHER J. AMENSON
-----------------------------------------
Christopher J. Amenson
CHIEF EXECUTIVE OFFICER, PRESIDENT,
CHIEF OPERATING OFFICER AND DIRECTOR

Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ ------------------- ----------------
<C> <S> <C>

/S/ ANDREW C. CRUCE,
PH.D.* Chairman of the
- ------------------------------ Board of Directors October 21, 1996
Andrew C. Cruce, Ph.D.

Vice President of
/S/ JAMES E. Finance and
DIXON Administration October 21, 1996
- ------------------------------ Treasurer and Chief
James E. Dixon Financial Officer

Chief Executive
/S/ CHRISTOPHER J. Officer, President,
AMENSON Chief Operating October 21, 1996
- ------------------------------ Officer and
Christopher J. Amenson Director

/S/ SCOTT A.
ALEXANDER* Vice President,
- ------------------------------ Secretary and October 21, 1996
Scott A. Alexander Director

/S/ WILLIAM J.
BECKER*
- ------------------------------ Director October 21, 1996
William J. Becker

/S/ LAWRENCE A.
BENNIGSON*
- ------------------------------ Director October 21, 1996
Lawrence A. Bennigson

/S/ A. WADE BLACK*
- ------------------------------ Director October 21, 1996
A. Wade Black

/S/ JOSEPH N. NAJJAR,
JR.*
- ------------------------------ Director October 21, 1996
Joseph N. Najjar, Jr.

*By: /S/ CHRISTOPHER J.
AMENSON
---------------------------- October 21, 1996
Attorney-in-fact
</TABLE>

II-5

<PAGE>

EXHIBIT 10.18

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement ("Agreement"), dated as of
October 8, 1996, is by and between Philip M. Vukovic and Larry L.
Larsen ("Sellers"), and Bit 3 Computer Corporation, a Minnesota
corporation, the address of which is 8120 Penn Avenue South,
Minneapolis, MN 55431-1393, ("Bit 3"), and SBS Technologies,
Inc., a New Mexico corporation, the address of which is 2400
Louisiana Boulevard, NE, AFC Building 5, Suite 600, Albuquerque,
NM 87110, ("SBS" or "Buyer").

I. RECITALS.

A. Sellers together own all of the outstanding capital
stock of Bit 3 and wish to sell that stock to Buyer
under the terms and conditions of this Agreement.

B. Buyer wishes to acquire Bit 3 by the purchase of all of
the issued and outstanding shares of capital stock of
Bit 3 under the terms and conditions of this Agreement.

C. Sellers and Buyer desire to make a Section 338(h)(10)
election under the Internal Revenue Code of 1986, as
amended from time to time, as further provided in this
Agreement.

D. The parties hereto wish to make certain
representations, warranties, covenants and agreements
in connection with that acquisition of stock.

The parties, intending to be legally bound, agree as
follows:

II. DEFINITIONS.

For purposes of this Agreement, the following terms, when used
with an initial capital letter, shall have the meanings specified
or referred to in this Section II:

A. "Accredited Investor" has the meaning set forth in Rule
501 of Regulation D promulgated under the Securities
Act.

B. "Additional Tax Liability" means the additional
liability for all income taxes, federal, state and
local, which may be due from or assessed to the Sellers
solely as a result of the election to be made under
Section 338(h)(10) of the Code as provided in Section
VI.H below.

C. "Affiliate" has the meaning set forth in Rule 12b-2 of
the regulations promulgated under the Securities
Exchange Act.
<PAGE>

D. "Bit 3 Shares" means any and all shares of the Common
Stock, no par value, of Bit 3.

E. "Blue Sky Laws" means the applicable state securities
laws and regulations promulgated thereunder.

F. "Buyer" has the meaning set forth in the preface above.

G. "Change in Control" means any of the following: (i)
the sale, lease, exchange or other transfer, directly
or indirectly, of all or substantially all of the
assets of the Buyer or Bit 3, in one transaction or in
a series of related transactions, to any corporation,
person or other entity that is not controlled by the
Buyer or Bit 3; (ii) the approval by the shareholders
of the Buyer or Bit 3 of any plan or proposal for the
liquidation or dissolution of the Buyer or Bit 3, as
the case may be; (iii) any person is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act")),
directly or indirectly, of more than 50% of the
combined voting power of the outstanding securities of
the Buyer or Bit 3 ordinarily having the right to vote
at elections of directors; (iv) a merger or
consolidation to which the Buyer is a party if the
shareholders of the Buyer immediately prior to the
effective date of such merger or consolidation have,
solely on account of ownership of securities of the
Buyer at such time, "beneficial ownership" (as defined
in Rule 13d-3 under the Exchange Act) immediately
following the effective date of such merger or
consolidation of securities of the surviving company
representing less than 50% of the combined voting power
of the surviving corporation's then outstanding
securities ordinarily having the right to vote at
elections of directors (regardless of any approval by
the Board of Directors); (v) a merger or consolidation
to which Bit 3 is a party with any person (other than
for the purposes of reincorporation in a different
state); or (vi) a change in control of a nature that
would be required to be reported (assuming such event
has not been "previously reported") pursuant to section
13 or 15(d) of the Exchange Act, whether or not the
Buyer is then subject to such reporting requirement, as
of the effective date of such change in control.

H. "Closing Consideration Balance Sheet" means the balance
sheet of Bit 3 prepared as of the Closing Consideration
Adjustment Date pursuant to Section III.B.3 below.

I. "Closing Date" means the date on which the Transactions
are closed, as provided in Section III.C below.

J. "Code" means the Internal Revenue Code of 1986, as
<PAGE>

amended.

K. "Confidential Information" means any information
concerning the business and affairs of Bit 3, except
for information concerning Bit 3 that the Party alleged
to have impermissibly disclosed such information (the
"Disclosing Party") can show: (i) to have been in its
possession before its receipt from another Party
hereto; (ii) to be now or at the time of the disclosure
by the recipient generally available to the public
through no fault of the Disclosing Party; (iii) to have
been available to the public at the time of its receipt
by the Disclosing Party; (iv) to have been received
separately by the Disclosing Party in an unrestricted
manner from a person entitled to disclose such
information; or (v) to have been developed
independently by the Disclosing Party without regard to
any information received in connection with the
Transactions.

L. "Damages" means all damages, dues, penalties, fines,
costs, amounts paid in settlement, obligations, Taxes,
liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees, incurred by any
Party as a result of any action.

M. "Disclosure Schedule" means the schedules of exceptions
to the representations and warranties set forth in
Sections IV.A, IV.B, and IV.C, each of which is divided
into sections which correspond to the subsections of
Sections IV.A, IV.B, and IV.C of this Agreement.

N. "Employee Benefit Plan" means an employee benefit plan
within the meaning of Section 3(3) of ERISA.

O. "Employee Pension Benefit Plan" means an employee
pension benefit plan within the meaning of Section 3(2)
of ERISA.

P. "Employee Welfare Benefit Plan" means an employee
welfare benefit plan within the meaning of Section 3(1)
of ERISA.

Q. "Environmental, Health and Safety Laws" means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, and the Occupational Safely and
Health Act of 1970, each as amended, together with all
other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local and
foreign governments (and all agencies thereof)
concerning pollution or protection of the environment,
public health and safety, or employee health and
<PAGE>

safety, including laws relating to emissions,
discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient
air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes in
effect on the Closing Date.

R. "Extremely Hazardous Substance" has the meaning set
forth in Section 302 of the Emergency Planning and
Community Right-to-Know Act of 1986, as amended.

S. "Fairness Opinion" means the opinion as provided in
Section VIII.A.8 below.

T. "Financial Statements" means the financial statements,
including balance sheets, income statements and all
notes thereto, of Bit 3 for the period or periods
specified in Section IV.C.7 below.

U. "GAAP" means United States generally accepted
accounting principles applied consistently with the
principles, practices and procedures used in the
preparation of the most recent audited financial
statement of the entity as to which such term is being
used.

V. "GE" means GE Medical Systems.

W. "Indemnified Party" means the Party seeking
indemnification pursuant to the provisions of this
Agreement.

X. "Indemnifying Party" means the Party from whom
indemnification is being sought pursuant to the
provisions of this Agreement.

Y. "Intellectual Property" means (i) all patents, patent
applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations, thereof,
(ii) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all
translations, adaptations, derivations, and combination
thereof and including all goodwill associated
therewith, and all applications, registrations, and
renewals in connection therewith, (iii) all copyrights,
and all applications, registrations, and renewals in
connection therewith, (iv) all mask works and all
applications, registrations, and renewals in connection
therewith, (v) all trade secrets and confidential
<PAGE>

business information (including research and
development, know-how, formulas, compositions,
manufacturing and production processes and techniques,
technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost
information, and business and marketing plans and
proposals), (vi) all computer software (including data
and related documentation), (vii) all other proprietary
rights, and (viii) all copies and tangible embodiments
thereof (in whatever form or medium).

Z. "Knowledge" means actual knowledge of the Party of the
relevant subject matter to which it relates, and such
knowledge as would have come to the attention of any
such Party in the course of due inquiry in the course
of discharging such Party's duties as an officer or
director of the relevant entity in a reasonable and
prudent manner consistent with sound business
practices.

AA. "Liability" means, as of any date, any liability
(whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes.

BB. "Material" means as to any financial matter, a matter
involving $10,000 per occurrence, or two or more
matters aggregating $25,000 or more, and for any
financial matter or otherwise, a matter which impedes
the ability to conduct Bit 3's business as then
conducted.

CC. "Material Adverse Effect" in the case of Bit 3 or the
Sellers, means any event, change or occurrence which
has or could reasonably be expected (in light of known
circumstances) to have a Material negative impact on
the condition (financial or otherwise), business,
results of operations, prospects or going concern value
of Bit 3, or the ability of Bit 3 to consummate the
transactions contemplated hereby. In the case of SBS,
Material Adverse Effect means any event, change or
occurrence which has or could reasonably be expected
(in light of known circumstances) to have a Material
adverse impact on the ability of SBS to consummate the
transactions contemplated hereby.

DD. "Most Recent Audited Financial Statements" means the
audited balance sheet of Bit 3 of June 30, 1996 and the
audited statements of income, changes in stockholders'
equity, and cash flow of Bit 3 for the six months ended
June 30, 1996, audited by Peat Marwick.

EE. "Most Recent Audited Balance Sheet" means the balance
<PAGE>

sheet included within the Most Recent Audited Financial
Statements.

FF. "Net Worth" means the difference between the net
tangible assets and the liabilities of Bit 3,
determined in accordance with GAAP consistently applied
or otherwise as provided pursuant to Section III.B.3 of
this Agreement.

GG. "Ordinary Course of Business" means the ordinary course
of business consistent with past custom and practice
(including with respect to quantity and frequency) of
the Party to whom such term is applied.

HH. "Party" or "Parties" means, either individually or
collectively, Sellers and/or either of them, Bit 3,
and/or SBS.

II. "Peat Marwick" means the accounting firm of KPMG Peat
Marwick LLP.

JJ. "Person" means an individual, a partnership, a
corporation, an association, a joint stock company, a
trust, a joint venture, a limited liability company or
limited liability partnership, an unincorporated
organization, or a governmental entity (or any
department, agency, or political subdivision thereof).

KK. "Public Offering" means the offering of a certain
number of the shares of the Common Stock of the Buyer
which will be registered pursuant to the provisions of
the Securities Act, and the net proceeds of which will
be used to fund all or part of the Transactions.

LL. "Purchase Price" means the amount of consideration to
be paid by the Buyer to the Sellers in exchange for the
Bit 3 Shares purchased pursuant to this Agreement, as
provided in Section III.B below.

MM. "Securities Act" means the Securities Act of 1933, as
amended.

NN. "Securities Exchange Act" means the Securities Exchange
Act of 1934, as amended.

OO. "Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other
than (i) mechanic's, materialmen's, and similar liens,
(ii) liens for Taxes or special assessments not yet due
and payable or for Taxes or special assessments that
the taxpayer is contesting in good faith through
appropriate proceedings and for which an adequate
reserve has been set aside, (iii) purchase money liens
and liens securing rental payments under capital lease
<PAGE>

arrangements, (iv) other liens arising in the Ordinary
Course of Business and not incurred in connection with
the borrowing of money, (v) security interests
reflected in the Most Recent Audited Financial
Statement, and (vi) statutory security interests
arising or incurred in the Ordinary Course of Business
with respect to which the underlying obligations are
not delinquent.

PP. "Subsidiary" means any corporation with respect to
which a specified Person (or a Subsidiary thereof) owns
a majority of the common stock or has the power to vote
or direct the voting of sufficient securities to elect
a majority of the directors.

QQ. "Tax" means any federal, state, local or foreign
income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar),
unemployment, disability, real property, personal
property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether
disputed or not.

RR. "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.

SS. "Transactions" means the transactions contemplated to
take place pursuant to this Agreement.

Other capitalized terms used in this Agreement shall have the
meanings ascribed to them as set forth in other provisions of
this Agreement.

III. PURCHASE AND SALE OF BIT 3 SHARES.

A. BASIC TRANSACTION. Subject to the terms and conditions
of this Agreement, the Buyer agrees to purchase from
each of the Sellers at the Closing, and each of the
Sellers agrees to sell to the Buyer at the Closing, all
of the Sellers' Bit 3 Shares.
<PAGE>

B. PURCHASE PRICE AND METHOD OF PAYMENT.

1. TOTAL PURCHASE PRICE. The total consideration to
be paid by the Buyer to the Sellers for the Bit 3
Shares (the "Purchase Price") will be an amount
equal to the sum of the following (allocated in
the percentages set forth on Exhibit III.B.1
hereto):

a. Twenty-Four Million Dollars ($24,000,000) in
cash less, on a dollar-for-dollar basis, the
amount, if any, by which the Net Worth of Bit
3 as of the Closing Consideration Adjustment
Date (as defined in Section III.C below), as
shown on the Closing Consideration Balance
Sheet (determined as set forth in Section
III.B.3 below), is less than $3,250,000,
plus, on a dollar-for-dollar basis, the
amount, if any, by which the Net Worth of Bit
3 as of the Closing Consideration Adjustment
Date, as shown on the Closing Consideration
Balance Sheet, is greater than $3,250,000
(the "Basic Purchase Price"); plus

b. up to $250,000 pursuant to Section VI.H
hereto; plus

c. an amount equal to the out of pocket fees and
expenses incurred by or on behalf of the
Sellers or Bit 3 to Peat Marwick in
connection with the audit of the Financial
Statements, and not previously reimbursed by
the Buyer.

2. METHOD OF PAYMENT. At the Closing the Buyer will:

a. Pay the Sellers, by wire transfer,
immediately available funds aggregating
Twenty Million Dollars ($20,000,000)
(allocated in the percentages set forth on
Exhibit III.B.1 hereto) to a bank account of
each of the Sellers pursuant to written
instructions of the Sellers given to the
Buyer at least 48 hours prior to the Closing;
and

b. Execute and deliver to the Sellers the
Buyer's promissory notes in the aggregate
amount of One Million Five Hundred Thousand
Dollars ($1,500,000) (allocated in the
percentages set forth on Exhibit III.B.1
hereto), pursuant to which One Million
Dollars ($1,000,000) will be due on July 1,
<PAGE>

1997, and Five Hundred Thousand Dollars
($500,000) will be due on July 1, 1998. Such
promissory notes shall be senior to all other
indebtedness of the Buyer other than the debt
of the Buyer to NationsBank existing on the
Closing Date and shall be secured by the
assets of the Buyer (and senior to all other
security interests other than the security
interest of NationsBank on such debt).

c. Execute and deliver to the Sellers the
Buyer's promissory notes in the aggregate
amount of Two Million Five Hundred Thousand
Dollars ($2,500,000) allocated in the
percentages set forth on Exhibit III.B.1
hereto), which will be due on July 1, 1998.
Such promissory notes shall be senior to all
other indebtedness of the Buyer other than
the debt of the Buyer to NationsBank or any
successor lender (regardless of the amount of
such debt) and shall be secured by the assets
of the Buyer (and senior to all other
security interests other than the security
interest of NationsBank or any such successor
lender). Payments pursuant to the Promissory
Notes shall be deemed to include imputed
interest compounded semiannually at the
applicable federal short-term interest rate,
as determined in accordance with the
provisions of section 1274(d) of the Code.

d. The promissory notes provided for in the
preceding paragraphs shall be in the forms
mutually agreed to by the parties and are
herein referred to as the "Promissory Notes".
The Promissory Notes shall be due and
payable in full at their face amount upon the
occurrence of any Change in Control.

3. PURCHASE PRICE ADJUSTMENT. The Basic Purchase
Price set forth in Section III.B.1 hereof will be
subject to adjustment as follows:

a. The Buyer will prepare and deliver to the
Sellers within 45 days following the Closing
Date a balance sheet for Bit 3 as of the
close of business on the Closing
Consideration Adjustment Date (the "Closing
Consideration Balance Sheet"). The Closing
Consideration Balance Sheet shall be used to
determine the amount of the adjustments to
the Basic Purchase Price set forth in Section
III.B.1.a above.
<PAGE>

b. The Closing Consideration Balance Sheet shall
be prepared from the books and records of Bit
3 in accordance with GAAP and applied
consistently with the principles, practices
and procedures used in preparation of the
Most Recent Audited Balance Sheet. All
inventory and supplies reflected on the
Closing Consideration Balance Sheet shall be
so reflected on the basis of a complete
physical count taken on the Closing Date,
adjusted for receipts and shipments through
the Closing Consideration Date, and shall be
valued in accordance with Bit 3's prior
practices as reflected in the Most Recent
Audited Balance Sheet. Representatives of
both the Buyer and the Sellers shall have the
right to participate in the taking of such
physical inventory and the valuation thereof.
Peat Marwick will apply certain procedures
agreed upon by the Parties to specific
accounts and/or items on the Closing
Consideration Balance Sheet. Bit 3, the
Buyer and the Sellers will provide each other
with full cooperation in connection with the
preparation of the Closing Consideration
Balance Sheet, and each shall have the right
to review Peat Marwick's work papers in
connection with the agreed upon procedures
performed on the Closing Consideration
Balance Sheet.

c. The Closing Consideration Balance Sheet will
not include (i) the costs associated with the
audit of Bit 3's financial statements as of
December 31, 1993, 1994 and 1995 and for the
years ended December 31, 1994 and 1995, and
as of and for the six months ended June 30,
1996, or (ii) attorneys' fees incurred by Bit
3 in connection with corporate "clean up"
matters necessary in connection with the
Transactions. Bit 3 shall pay all of its
attorneys' fees relating to the Transactions
at or prior to the Closing Date, or in the
case of Bit 3 shall accrue any such
attorneys' fees as shall not have been so
paid. It is contemplated by the Parties that
the Buyer shall not be responsible for the
payment of the Sellers' and Bit 3's
attorneys' fees incurred in connection with
this Agreement and the Transactions.

d. Within 30 days after receipt of the Closing
Consideration Balance Sheet, the Sellers will
<PAGE>

notify the Buyer if they disagree with any of
the amounts included in the Closing
Consideration Balance Sheet. If such notice
is not given, the Closing Consideration
Balance Sheet will be final and conclusive
for all purposes. If the parties are unable
to resolve the differences within 60 days of
the receipt of the Closing Consideration
Balance Sheet, the Buyer and the Sellers
agree to retain the accounting firm of
Coopers & Lybrand, through its Minneapolis
office, to arbitrate the dispute and render a
decision within 30 days of such retention,
which decision shall be final and binding for
all purposes. Any award pursuant to this
Subsection III.B.3.d may be entered in and
enforced by any court having jurisdiction
over the matter and the parties hereby
consent and commit themselves to the
jurisdiction of the courts of New Mexico for
the purposes of the enforcement of any such
award. The Buyer and the Sellers will each
pay one-half of the costs of services
rendered by said accounting firm.

e. Within five days after the expiration of the
30-day period for giving notice of
disagreement with Peat Marwick's finding, if
no such notice is given, or within five days
after the resolution of disputes, if any,
pursuant to Section III.B.3.d above, the
Basic Purchase Price shall be adjusted (using
the formula set forth in Section III.B.1.a
based on the amounts shown in the Closing
Consideration Balance Sheet) (the "Adjusted
Purchase Price"). The Buyer or the Sellers,
as appropriate, will by wire transfer in
immediately available funds, make payment to
the other of any adjustment of the Purchase
Price pursuant to Section III.B.1.a.

4. The amount of the Purchase Price will be reduced
on a dollar-for-dollar basis by the amount of any
uncollected accounts receivable of Bit 3 as
provided in Section VI.J below.

C. CLOSING. Unless this Agreement has been terminated and
the Transactions have been abandoned pursuant to the
terms of this Agreement, the closing of the
Transactions (the "Closing") will take place at such
location as the Parties may mutually agree, on the date
of, and simultaneously with, the execution of the firm
commitment underwriting agreement between the Buyer and
<PAGE>

the underwriters (the "Underwriters") of the Public
Offering (the "Closing Date"). At such time, the
documents prepared in connection with such Closing,
including the stock certificates and assignment
documents for the Bit 3 Shares, will be fully executed
by the Parties and placed in escrow with an escrow
agent mutually acceptable to the Buyer and the Sellers
(the "Escrow Agent"), all conditions to the obligations
of the Parties to consummate the Transactions shall
thereafter be deemed to be satisfied without exception,
and this Agreement shall be a binding and unconditional
agreement between the Parties subject only to delivery
by the Buyer of the portion of the Purchase Price to be
paid at Closing pursuant to Section III.B.2.a (the
"Closing Consideration"). The Buyer will deliver to
the Sellers the Closing Consideration simultaneously
with the receipt by the Buyer from the Underwriters of
the proceeds of the Public Offering. The date on which
the Closing Consideration is delivered by the Buyer to
the Sellers hereunder is herein referred to as the
"Closing Consideration Adjustment Date." In the event
that the Sellers do not receive the Closing
Consideration within eight (8) business days of the
Closing, this Agreement shall terminate effective as of
the Closing Date; provided, however, that the Closing
Date shall be no later than December 6, 1996, unless
extended as provided in this Agreement. The Escrow
Agent shall deliver the documents prepared for the
Closing to the respective Parties upon receipt of
confirmation from the Sellers that the Closing
Consideration has been delivered to the Sellers, and
such delivery of the Closing Proceeds to the Sellers
shall be the only condition to release of such
documents to the appropriate Parties.

D. DELIVERIES AT THE CLOSING. At the Closing the
Parties shall deliver the following:

1. The Sellers will deliver to the Buyer:

a. the various certificates, instruments, and
documents referred to in this Agreement, and

b. stock certificates representing all of the
Sellers' Bit 3 Shares, endorsed in blank or
accompanied by duly executed assignment
documents.

2. The Buyer shall deliver to each of the Sellers:

a. the various certificates, instruments, and
documents referred to in this Agreement, and
<PAGE>

b. the Closing Consideration specified in
Section II.B.2.a above.

IV. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTIONS.

A. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of
the Sellers, jointly and severally, represents and
warrants to the Buyer, as of the date hereof, except as
set forth in the Disclosure Schedule, as follows:

1. AUTHORIZATION OF TRANSACTIONS. Each of the
Sellers has all requisite power and authority to
execute and deliver this Agreement and to perform
Sellers' obligations under this Agreement. This
Agreement constitutes the valid and legally
binding obligation of the Sellers, enforceable
against the Sellers in accordance with its terms
and conditions (subject as to enforcement of
remedies, to the discretion of courts in awarding
equitable relief to applicable bankruptcy,
reorganization, insolvency, moratorium and similar
laws relating to or affecting the rights of
creditors generally and to general principles of
equity).

2. REQUIRED NOTICES, FILINGS AND APPROVALS. Except
for notices, filings or approvals required under
the Blue Sky Laws, to Sellers' Knowledge the
Sellers need not give any notice to, make any
filing with, or obtain any authorization, consent
or approval of any government or governmental
agency or any other Person, in order for the
Sellers to consummate the Transactions.

3. NONCONTRAVENTION. Except as set forth in the
Disclosure Schedule, neither the execution and
delivery of this Agreement, nor the consummation
of the Transactions will (i) to Sellers' Knowledge
violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government,
governmental agency, or court to which the Sellers
are or either is subject or (ii) conflict with,
result in a breach of, constitute a default under,
result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other
arrangement to which the Sellers are or either is
a party or by which the Sellers are or either is
bound or to which any of the Sellers' assets are
subject.
<PAGE>

4. BROKERS' FEES. The Sellers have no Liability or
obligation to pay any brokerage fees, commissions,
finders' fees or financial advisory fees to any
Person with respect to the Transactions, except
those owed to Broadview Associates, LLP.

5. BIT 3 SHARES. Each of the Sellers holds of record
and owns beneficially the number of Bit 3 Shares
as set forth in the Disclosure Schedule, free and
clear of any restrictions on transfer (other than
any restrictions under the Securities Act and Blue
Sky Laws), Taxes (other than income or other Taxes
as may be owed by the Sellers as a result of the
Transactions), Security Interests, options,
warrants, rights, contracts, commitments,
equities, claims, and demands. The Sellers are
not and neither of them is a party to any option,
warrant, right, or other contract or commitment
that could require the Sellers or either of them
to sell, transfer, or otherwise dispose of any
capital stock of Bit 3 (other than pursuant to
this Agreement). The Sellers and each of them are
not parties to any voting trust, proxy, or other
written agreement or understanding with respect to
the voting of any capital stock of Bit 3.

B. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Sellers, as of the date
hereof, and except as set forth in the Disclosure
Schedule, as follows:

1. ORGANIZATION OF BUYER. Buyer is a corporation
duly organized, validly existing, and in good
standing under the laws of the State of New
Mexico, with requisite corporate power and
authority to carry on its business as it is now
being conducted, and to own, operate and lease its
properties and assets. Buyer has only three
subsidiaries, GreenSpring Computers, Inc., Berg
Systems International, Inc. and Logical Design
Group, Inc. Buyer, and each of its subsidiaries,
is duly licensed or qualified to transact business
as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the
business transacted by it or the character or
location of the properties owned, leased or
operated by it requires that licensing or
qualification, except where the failure to be so
licensed or qualified would not have a Material
Adverse Effect on the business, operations or
financial condition of Buyer and its subsidiaries,
taken as a whole.
<PAGE>

2. AUTHORIZATION OF TRANSACTIONS. Subject to
stockholder approval and completion of the Public
Offering, Buyer has full power and authority
(including full corporate power and authority) to
execute and deliver this Agreement and to perform
its obligations under it. The Board of Directors
of the Buyer has taken all action required by law,
the Buyer's Articles of Incorporation and Bylaws
to authorize the execution, delivery and
performance of this Agreement and consummation of
the Transactions. This Agreement has been duly
and validly executed and delivered by the Buyer
and no other action is necessary, other than
shareholder approval as set forth below. This
Agreement constitutes the valid and legally
binding obligation of Buyer, enforceable in
accordance with its terms and conditions (subject
as to enforcement of remedies, to the discretion
of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights
of creditors generally, and general principles of
equity).

3. REQUIRED NOTICES, FILINGS AND APPROVALS. Except
for notices, filings or approvals under the
Securities Act, the Securities Exchange Act, the
Rules of the NASD, and the Blue Sky Laws required
to effect the Public Offering, and notification to
NationsBank, Buyer need not give any notice to,
make any filing with, or obtain any authorization,
consent, or approval of any government or
governmental agency or any other Person in order
for the Buyer to consummate the Transactions.

4. NONCONTRAVENTION. Except as set forth in Exhibit
IV.B, neither the execution and delivery of this
Agreement, nor the consummation of the
Transactions will (i) violate any constitution,
statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other
restriction of any government, governmental
agency, or court to which the Buyer is subject or
(ii) conflict with, result in a breach of,
constitute a default under, result in the
acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract,
lease, license, instrument, or other arrangement
to which the Buyer is a party or by which the
Buyer is bound or to which any of the Buyer's
assets are subject.
<PAGE>

5. BROKERS' FEES. The Buyer has no Liability or
obligation to pay any brokerage fees, commissions,
finders' fees or financial advisory fees to any
Person with respect to the Transactions, except
those owed to its investment bankers and
underwriters pursuant to the Public Offering
(which fees and commissions will be solely the
responsibility of the Buyer).

6. FILINGS WITH SEC. Buyer has made all filings with
the SEC that it has been required to make within
the past 12 months under the Securities Act and
the Securities Exchange Act (collectively the
"Public Reports"). Each of the Public Reports has
materially complied with the Securities Act and
the Securities Exchange Act. None of the Public
Reports, as of their respective dates, contained
any untrue statement of a material fact or
omitted to state a material fact necessary in
order to make the statements made in it, in light
of the circumstances under which they were made,
not misleading. Buyer has delivered to Sellers
and Bit 3 a correct and complete copy of each
Public Report, together with all exhibits and
schedules thereto and as amended to date.

7. INVESTMENT. The Buyer is an Accredited Investor
and acknowledges that the Bit 3 Shares purchased
by the Buyer pursuant to this Agreement are being
acquired for investment only and not with a view
to any public distribution thereof, within the
meaning of the Securities Act. Buyer will not
offer to sell or otherwise dispose of the Bit 3
Shares so acquired by it in violation of any of
the registration requirements of the Securities
Act or of any applicable Blue Sky Laws.

8. ABILITY TO COMPLETE THE PUBLIC OFFERING. Subject
to the price of the Buyer's Common Stock in the
Public Offering being acceptable to the Buyer's
Board of Directors, the Buyer does not know of any
fact or circumstance that would cause it to
believe that it will not be able to complete, on
or before December 6, 1996, a Public Offering
with net proceeds sufficient to complete the
Transactions, as determined in Buyer's sole
discretion.

9. EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END.
Except as set forth in Exhibit IV.B, since the
most recent fiscal year end audit of the Buyer,
there have not been any changes in the business,
financial condition, operations, results of
<PAGE>

operations, or future prospects of the Buyer and
its subsidiaries, taken as a whole, which have had
a Material Adverse Effect on the Buyer and its
subsidiaries, taken as a whole.

C. REPRESENTATIONS CONCERNING BIT 3. Sellers and each of
them, jointly and severally, represent and warrant to
Buyer, as of the date hereof, except as set forth in
the Disclosure Schedule, as follows:

1. ORGANIZATION, QUALIFICATION, AND CORPORATE POWER.
Bit 3 is a corporation duly organized, validly
existing, and in good standing under the laws of
the State of Minnesota, with requisite corporate
power and authority to carry on its business as it
is now being conducted, and to own, operate and
lease its properties and assets. Bit 3 has no
subsidiaries. Bit 3 is duly licensed or qualified
to transact business as a foreign corporation and
is in good standing in each jurisdiction in which
the nature of the business transacted by it or the
character or location of the properties owned,
leased or operated by it requires that licensing
or qualification, except where the failure to be
so licensed or qualified would not have a Material
Adverse Effect on the business, operations or
financial condition of Bit 3. The Disclosure
Schedule lists the directors and officers of Bit
3. The Sellers have delivered to Buyer correct
and complete copies of the charter and bylaws of
Bit 3 (as amended to date). The minute books
(containing records of meetings of the
shareholders, the board of directors, and any
committee of the board of directors), the stock
certificate books, and the stock record book of
Bit 3 are correct and complete. Bit 3 is not in
default under or in violation of any provision of
its Articles of Incorporation and Bylaws.

2. CAPITALIZATION. The entire authorized capital
stock of Bit 3 consists of 2,500 Bit 3 Shares, of
which 500 Bit 3 Shares are issued and outstanding
and -0- Bit 3 Shares are held in treasury. All of
the issued and outstanding Bit 3 shares have been
duly authorized, are validly issued, fully paid,
and nonassessable, and are held of record by the
respective Sellers as set forth in the Disclosure
Schedule. There are no outstanding or authorized
options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or
other contracts or commitments that could require
Bit 3 to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are
<PAGE>

no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar
rights with respect to Bit 3, other than normal
dividends paid to its shareholders from time-to-
time. There are no voting trusts, proxies, or
other agreements or understandings with respect to
the voting of the capital stock of Bit 3.

3. NONCONTRAVENTION. Except as set forth in the
Disclosure Schedule, neither the execution and
delivery of this Agreement, nor the consummation
of the Transactions will (i) to Sellers' Knowledge
violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government,
governmental agency, or court to which Bit 3 is
subject or (ii) conflict with, result in a breach
of, constitute a default under, result in the
acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract,
lease, license, instrument, or other arrangement
to which Bit 3 is a party or by which Bit 3 is
bound or to which any of Bit 3's assets are
subject.

4. REQUIRED NOTICES, FILINGS AND APPROVALS. Except
for notices, filings and approvals required under
the Blue Sky Laws, to Sellers' Knowledge Bit 3
does not need to give any notice to, make any
filing with, or obtain any authorization, consent,
or approval of any government or governmental
agency in order for Bit 3 to consummate the
Transactions.

5. BROKERS' FEES. Bit 3 has no Liability or
obligation to pay any brokerage fees, commissions,
finders' fees or financial advisory fees to any
Person with respect to the Transactions, except
those owed to Broadview Associates, LLP, as to
which Bit 3 will have no Liability after the
Closing Date (and as to which Sellers will hold
Buyer and Bit 3 harmless for any such liability
after Closing).

6. TITLE TO ASSETS. Bit 3 has good and marketable
title to, or a valid leasehold interest in, the
properties and assets used by it, located on its
premises, or shown on the Most Recent Audited
Balance Sheet or acquired after the date of the
Most Recent Audited Balance Sheet, free and clear
of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of
<PAGE>

Business since the date of the Most Recent Audited
Balance Sheet.

7. FINANCIAL STATEMENTS. The Disclosure Schedule
contains the following financial statements of Bit
3 (collectively the "Financial Statements"): (i)
audited balance sheets as of December 31, 1994 and
1995 and audited statements of income, changes in
stockholders' equity, and cash flow for the fiscal
years ended December 31, 1993, 1994 and 1995; (ii)
the Most Recent Audited Financial Statements; and
(iii) unaudited balance sheets and statements of
income as of and for each of the three months
ended September 30, 1996. The audited financial
statements referred to above (including the notes
thereto), have been prepared in accordance with
GAAP applied on a consistent basis throughout the
periods covered thereby, and present fairly the
financial condition of Bit 3 as of such dates and
the results of operations of Bit 3 for such
periods.

8. EVENTS SUBSEQUENT TO MOST RECENT AUDITED FINANCIAL
STATEMENT. Except as set forth in the Disclosure
Schedule, since June 30, 1996, there have not been
any changes in the business, financial condition,
operations, or results of operations, of Bit 3
which have had a Material Adverse Effect on Bit 3.
Without limiting the generality of the foregoing,
since June 30, 1996, other than as contemplated by
this Agreement:

a. Bit 3 has not sold, leased, transferred, or
assigned any of its assets, tangible or
intangible, other than in the Ordinary Course
of Business;

b. Bit 3 has not entered into any agreement,
contract, lease, or license (or series of
related agreements, contracts, leases, and
licenses) either involving more than $10,000
or not used in Bit 3's business;

c. To Sellers' Knowledge no party (including Bit
3) has accelerated, terminated, modified, or
canceled any agreement, contract, lease, or
license (or series of related agreements,
contracts, leases, and licenses) involving
more than $10,000 to which Bit 3 is a party
or by which it is bound, other than such
terminations, modifications or cancellations
pursuant to and consistent with the terms of
such agreements, contracts, leases or
<PAGE>

licenses which are effected for reasons other
than cause or convenience;

d. Bit 3 has not imposed any Security Interest
upon any of its assets, tangible or
intangible;

e. Bit 3 has not made any capital expenditure
(or series of related capital expenditures)
either involving more than $10,000 or not
used in Bit 3's business;

f. Bit 3 has not made any capital investment in,
any loan to, or any acquisition of the
securities or assets of, any other Person (or
series of related capital investments, loans,
and acquisitions);

g. Bit 3 has not issued any note, bond, or other
debt security or created, incurred, assumed,
or guaranteed any indebtedness for borrowed
money or capitalized lease obligations;

h. Bit 3 has not delayed or postponed the
payment of accounts payable and other
Liabilities outside the Ordinary Course of
Business;

i. Bit 3 has not accelerated the shipment of
products in advance of the customer's
requested delivery schedule;

j. Bit 3 has not canceled, compromised, waived,
or released any right or claim (or series of
related rights and claims) either involving
more than $10,000 or outside the Ordinary
Course of Business;

k. Bit 3 has not granted any license or
sublicense of any rights under or with
respect to any Intellectual Property to
manufacture or produce any of Bit 3's
products;

1. There has been no change made or authorized
in the Articles of Incorporation or Bylaws of
Bit 3;

m. Bit 3 has not experienced any damage,
destruction, or loss (whether or not covered
by insurance) to its property;

n. Bit 3 has not made any loan to any of its
directors, officers, and employees outside
<PAGE>

the Ordinary Course of Business;

o. Bit 3 has not entered into any employment
contract or collective bargaining agreement,
written or oral, or modified the terms of any
existing such contract or agreement;

p. Bit 3 has not granted any increase in the
base compensation of any of its directors,
officers, and employees outside the Ordinary
Course of Business;

q. Bit 3 has not adopted, amended, modified, or
terminated any bonus, profit-sharing,
incentive, severance, or other plan,
contract, or commitment for the benefit of
any of its directors, officer, and employees
(or taken any such action with respect to any
other Employee Benefit Plan);

r. Bit 3 has not made any other change in
employment terms for any of its directors,
officers, and employees outside the Ordinary
Course of Business;

s. Bit 3 has not made or pledged to make any
charitable or other capital contribution
outside the Ordinary Course of Business;

t. to Sellers' actual knowledge there has not
been any other material occurrence, event,
incident, action, failure to act, or
transaction outside the Ordinary Course of
Business involving Bit 3; and

u. Bit 3 has not committed to any of the
foregoing.

9. UNDISCLOSED LIABILITIES. To Sellers' actual
knowledge, Bit 3 has no Material Liability, and
there are no occurrences or circumstances of which
Sellers have actual knowledge which would give
Sellers reasonable grounds to believe that Bit 3
would likely have such Material Liability in the
foreseeable future, except for (i) Liabilities
reflected on the face of the Most Recent Audited
Balance Sheet, including any notes, (ii)
Liabilities that are set forth on the Disclosure
Schedule, (iii) Liabilities which have arisen
after June 30, 1996 in the Ordinary Course of
Business (none of which results from, arises out
of, relates to, is in the nature of, or was caused
by any breach of contract, breach of warranty,
<PAGE>

tort, infringement, or violation of law), (iv)
Liabilities for executory obligations to be
performed under the contracts described in Section
IV.C.17 below, and (v) Liabilities in connection
with or as a result of the Transactions.

10. LEGAL COMPLIANCE. To Sellers' Knowledge Bit 3 is
in compliance in all material respects with all
applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments
(and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed
or commenced against any of them alleging any
failure so to comply.

11. TAX MATTERS.

a. Bit 3 is an "S Corporation" as defined under
1361 of the Code, and has been an S
Corporation since its election as of June 1,
1990. All Tax Returns required to be filed
with respect to Bit 3 or its operations by
Bit 3 with any taxing authority as of the
Closing Date have been filed, or if after the
Closing Date will be filed promptly when due,
and all Taxes required to be paid with
respect to the periods covered by those Tax
Returns have been paid or accrued or adequate
reserves for the payment thereof have been
established, except where such failure to
file such Tax Returns or pay such Taxes would
not have a Material Adverse Effect on Bit 3.
Bit 3 is not delinquent in the payment of
any Tax, assessment or governmental charge.

b. Sellers shall be responsible for the payment
of all personal Taxes imposed on them with
respect to the S Corporation earnings of Bit
3 or distributions and dividends paid to them
by Bit 3 before Closing, as well as any other
personal Taxes resulting from the
Transactions. Sellers and Bit 3,
individually and jointly, shall be
responsible for the preparation and timely
filing of all Tax Returns and related reports
which are required for the short period up to
the Closing Date. Any additional Tax caused
by reason of 1363(d), 1374, or 1375 of the
Code have been paid or will be paid by Bit 3,
and Sellers agree that such Tax Liability is
<PAGE>

a liability existing before the Closing Date
and is not an Additional Tax Liability.

c. Bit 3 has withheld and paid all Taxes legally
required to have been withheld and paid in
connection with amounts paid to any employee,
independent contractor, creditor,
stockholder, or other third party.

d. The Sellers are not aware that any authority
intends to assess any additional Taxes for
any period for which Tax Returns have been
filed. Except as set forth on the Disclosure
Schedule, there is no dispute or claim
concerning any Tax Liability of or relating
to Bit 3 either (i) claimed or raised by any
authority in writing or (ii) as to which any
of the Sellers has actual knowledge based
upon personal contact with any agent of that
authority. The Disclosure Schedule lists all
federal, state, local, and foreign income Tax
Returns filed with respect to Bit 3 for
taxable periods ended on or after December
31, 1989 through the present, indicates those
Tax Returns that have been audited and those
Tax Returns that currently are the subject of
audit.

12. REAL PROPERTY LEASED OR SUBLEASED. The Disclosure
Schedule lists all real property leased or
subleased to Bit 3. The Sellers have delivered to
the Buyer correct and complete copies of the
leases and subleases listed in the Disclosure
Schedule. With respect to each lease and sublease
listed in the Disclosure Schedule:

a. to Sellers' Knowledge the lease or sublease
is legal, valid, binding and enforceable;

b. to Sellers' Knowledge Bit 3 is not in
material breach or default, and no event has
occurred which, with notice or lapse of time,
would constitute a breach or default or
permit termination, modification, or
acceleration, of any lease or sublease;

c. Bit 3 has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold or
subleasehold;

d. all facilities leased or subleased thereunder
by Bit 3 are supplied with utilities and
<PAGE>

other services necessary for the operation of
said facilities as currently operated by Bit
3; and

e. Sellers have received written notice from all
lessors or sublessors of such leased or
subleased real property, to the effect that
the terms and conditions of the leases and
subleases will be continued uninterrupted and
without modification from the current terms
and conditions as a result of the
Transactions, for a period ending October 31,
1997.

13. COMPLIANCE WITH BUILDING AND ZONING CODES. To
Sellers' Knowledge, all of Bit 3's operations and
activities as conducted as of the date hereof,
comply in all Material respects with all
applicable building and zoning codes.

14. INTELLECTUAL PROPERTY.

a. Bit 3 owns or has the right to use pursuant
to license, sublicense, agreement, or
permission all Intellectual Property
necessary or desirable to design, manufacture
and sell its current products and for office
administration, the failure to possess which
would have a Material Adverse Effect on Bit
3. Each Material item of Intellectual
Property owned or used by Bit 3 immediately
before the Closing will be owned or available
for use by Bit 3 on identical terms and
conditions immediately after the Closing.
Bit 3 has taken appropriate action to
maintain and protect as a trade secret each
Material item of Intellectual Property that
it owns or uses.

b. To Sellers' Knowledge, none of the products
manufactured by Bit 3 infringes upon any
Intellectual Property rights of third
parties, and none of the Sellers has since
July 1, 1993, received any written charge,
complaint, claim, demand, or notice alleging
any such infringement (including any claim
that Bit 3 must license or refrain from using
any Intellectual Property rights of any third
party).

c. No patents are owned by Bit 3 and Bit 3 has
made no patent applications. Bit 3 has not
granted to any third party any license with
<PAGE>

respect to any of its Intellectual Property
to manufacture or produce any product.

d. The Disclosure Schedule identifies each item
of Intellectual Property that any third party
owns and that Bit 3 embodies or incorporates
in Bit 3's products, pursuant to license,
sublicense, agreement, or permission. The
Sellers have delivered to the Buyer correct
and complete copies of all such licenses,
sublicenses, agreements, and permissions (as
amended to date). With respect to each item
of Intellectual Property required to be
identified in the Disclosure Schedule, the
license, sublicense, agreement, or permission
covering the item is, to the Sellers' actual
knowledge, the legal, valid and binding
obligation of Bit 3, enforceable in
accordance with its terms, and in full force
and effect, and Sellers have no reason to
believe that such will not stay in effect
following the Closing Date.

15. TANGIBLE ASSETS. Bit 3 owns or leases all
buildings, machinery, equipment, and other
tangible assets necessary for the conduct of its
businesses as currently conducted. To the
Sellers' Knowledge, each of those tangible assets
is free from defects (patent and latent), has been
maintained in accordance with normal industry
practice, is in good operating condition and
repair (subject to normal wear and tear), and is
suitable for the purposes for which it currently
is used.

16. INVENTORY. Inventories reflected on Bit 3's Most
Recent Audited Balance Sheet are properly stated
in accordance with GAAP.

17. CONTRACTS. The Disclosure Schedule lists the
following written contracts and other agreements
to which Bit 3 is a party:

a. any agreement (or group of related
agreements) for the lease of personal
property to or from any Person providing for
lease payments;

b. any agreement for the sale of Bit 3 products
or the purchase of raw materials by Bit 3
which involve currently open sales or
purchase orders;
<PAGE>

c. any agreement concerning a partnership or
joint venture;

d. any agreement (or group of related
agreements) under which it has created,
incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any
capitalized lease obligation;

e. any profit sharing, stock option, stock
purchase, stock appreciation, deferred
compensation, severance, or other material
plan or arrangement for the benefit of its
current or former directors, officers, and
employees;

f. any collective bargaining agreement;

g. any written agreement for the employment of
any individual on a full or part-time basis
in which the consideration to be paid is more
than $75,000 per year, or for the performance
of consulting services in which Bit 3's
future obligation exceeds $25,000;

h. any agreement under which it has been
advanced or loaned any amount to any of its
directors, officers, and employees outside
the Ordinary Course of Business; or

i. any agreement which is currently in default,
the consequences of which could have a
Material Adverse Effect on the business,
financial condition, operations, results of
operations, or future prospects of Bit 3.

The Sellers have delivered to the Buyer a correct and
complete copy of each written agreement listed in the
Disclosure Schedule. With respect to each such
agreement, to Sellers' Knowledge : (i) the agreement
is the legal, valid and binding obligation of Bit 3,
enforceable in accordance with its terms, and in full
force and effect; (ii) the agreement will continue to
be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the
consummation of the transactions; (iii) Bit 3 is not,
to Sellers' Knowledge, in breach or default, and no
event has occurred which with notice or lapse of time
would constitute a breach or default, or permit
termination, modification, or acceleration, under the
agreement; and (iv) to Sellers' actual knowledge no
party to any such agreement has notified Sellers or Bit
3 that they do not intend to perform under the
agreement, for any reason.
<PAGE>

18. NOTES AND ACCOUNTS RECEIVABLE. All notes and
accounts receivable of Bit 3 as shown on the Most
Recent Audited Balance Sheet are reflected
properly on such balance sheet as of the date of
such balance sheet, are valid receivables subject
to no setoffs or counterclaims, subject only to a
reasonable reserve for bad debts set forth on the
face of the Most Recent Audited Balance Sheet,
including the notes thereto.

19. POWERS OF ATTORNEY. There are no outstanding
powers of attorney executed on behalf of Bit 3.

20. INSURANCE. The Disclosure Schedule contains an
accurate and complete list of all policies of fire
and other casualty, general liability, theft,
life, workers' compensation, health, directors and
officers, business interruption and other forms of
insurance owned or held by Bit 3, specifying the
insurer, the policy number, the term of the
coverage, and in the case of any "claims made"
coverage, the same information as to predecessor
policies for the previous three years. To
Sellers' Knowledge, all present policies are in
full force and effect, and will not terminate or
be violated as a result of the Transactions. To
Sellers's Knowledge, neither Sellers or Bit 3
have done anything which will cause such policies
to be cancelled.

21. LITIGATION. The Disclosure Schedule sets forth
each instance in which Bit 3 (i) is subject to any
outstanding injunction, judgment, order, decree or
ruling, or (ii) is a party or, to the Knowledge of
the Sellers, has been threatened in writing to be
made a party to any action, suit, proceeding,
hearing, or investigation, of, in, or before any
court or quasi-judicial or administrative agency
of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, which
would cause a Material Adverse Effect on Bit 3.
There are no occurrences or circumstances of which
Sellers have actual knowledge, which would give
Sellers reasonable grounds to believe that there
would be a high likelihood that any such action,
suit, proceeding, hearing, or investigation may be
brought or threatened against Bit 3 in the
foreseeable future.

22. CUSTOMERS. As of the date of this Agreement, GE
has designed certain of Bit 3's products into
certain of GE's products. The Sellers have no
<PAGE>

actual knowledge that GE intends to discontinue to
use such Bit 3 products in those GE products in
the immediately foreseeable future, or that the
change in ownership of Bit 3 effected by the
Transactions will itself cause a substantial
diminution or termination of Bit 3's business
relationship with GE.

23. EMPLOYEES. To the Sellers' actual knowledge, no
executive, key employee, or group of employees has
any plans to terminate employment with Bit 3. Bit
3 is not a party to or bound by any collective
bargaining agreement, nor, to Sellers' Knowledge,
has it experienced any strikes, grievances, claims
of unfair labor practices, or other collective
bargaining disputes. To Sellers' Knowledge, Bit 3
has not committed any unfair labor practice. The
Sellers' have no actual knowledge of any
organizational effort currently being made or
threatened by or on behalf of any labor union with
respect to employees of Bit 3.

24. EMPLOYEE BENEFITS.

a. Except as set forth in the Disclosure
Schedule, Bit 3 has complied in all material
respects with all applicable laws relating to
the providing of employee benefits to its
employees, including, but not limited to, the
granting of leave time, the providing of
health, disability and workers compensation
insurance, and the providing of pension
benefits.

b. The Disclosure Schedule lists each Employee
Benefit Plan that Bit 3 maintains or to which
Bit 3 contributes. Except as set forth in
the Disclosure Schedule:

(1) Each such Employee Benefit Plan (and
each related trust, insurance contract,
or fund) complies in form and in
operation in all material respects with
the applicable requirements of ERISA,
the Code, the laws of the State of
Minnesota, and any other applicable
laws.

(2) All required Form 5500 Annual Reports
have been filed with respect to each
such Employee Benefit Plan. The
requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Section
<PAGE>

4980B have been met in all material
respects with respect to each such
Employee Benefit Plan subject thereto.

(3) All contributions (including all
employer contributions and employee
salary reduction contributions) which
are due on or before the Closing Date
have been paid to each such Employee
Benefit Plan which is an Employee
Pension Benefit Plan and all
contributions for any period ending on
or before the Closing Date which are not
yet due have been paid to each such
Employee Pension Benefit Plan or
accrued. All premiums or other payments
which are due on or before the Closing
Date for all periods ending on or before
the Closing Date, have been paid or
accrued with respect to each such
Employee Benefit Plan which is an
Employee Welfare Benefit Plan.

(4) Each such Employee Benefit Plan which is
an Employee Pension Benefit Plan
complies in all material respects with
the requirements of a "qualified plan"
under Code Section 401(a).

(5) The Sellers have delivered to the Buyer
correct and complete copies of the plan
documents and summary plan descriptions,
the most recent determination letter
received from the Internal Revenue
Service, the most recent Form 5500
Annual Report, and all related trust
agreements, insurance contracts, and
other funding agreements which implement
each such Employee Benefit Plan.

c. With respect to each Employee Benefit Plan
that Bit 3 maintains or ever has maintained
or to which it contributes, ever has
contributed, or ever has been required to
contribute:

(1) No such Employee Benefit Plan is subject
to Title IV of ERISA.

(2) There have been no Prohibited
Transactions (as defined in Section 406
of ERISA) with respect to any such
Employee Benefit Plan which could
reasonably be expected to have a
<PAGE>

Material Adverse Effect on Bit 3. To
Sellers' Knowledge no fiduciary has any
Liability for breach of fiduciary duty
or any other failure to act or comply in
connection with the administration or
investment of the assets of any such
Employee Benefit Plan. No action, suit,
proceeding, hearing, or investigation
with respect to the administration or
the investment of the assets of any such
Employee Benefit Plan (other than
routine claims for benefits) is pending,
or, to the Knowledge of the Sellers, is
threatened. None of the Sellers has
actual knowledge of any basis for any
such action, suit, proceeding, hearing,
or investigation.

d. No Employee Welfare Benefit Plan with respect
to which Bit 3 could reasonably be expected
to have any liability, provides medical,
health, or life insurance or other welfare-
type benefits for current or future retired
or terminated employees, their spouses, or
their dependents (other than in accordance
with Code section 4980B and comparable
provisions of state law).

e. Liabilities associated with any Employee
Benefit Plan, Employee Pension Benefit Plan
or Employee Welfare Plan to which Bit 3 is
subject, have been properly reflected and
represented on the Most Recent Audited
Financial Statement for Bit 3, to the extent
required by and in accordance with GAAP.

25. GUARANTIES. Bit 3 is not a guarantor or otherwise
is liable for any Liability or obligation
(including indebtedness) of any other Person.

26. ENVIRONMENT, HEALTH, AND SAFETY.

a. Bit 3 has complied in all material respects
with all Environmental, Health, and Safety
Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or
commenced against any of them alleging any
failure so to comply. Without limiting the
generality of the preceding sentence, Bit 3
has obtained and been in material compliance
with all of the terms and conditions of all
permits, licenses, and other authorizations
<PAGE>

which are required under, and has complied
with all other limitations, restrictions,
conditions, standards, prohibitions,
requirements, obligations, schedules, and
timetables which are contained in, all
Environmental, Health, and Safety Laws.

b. Bit 3 has no Material Liability (and Bit 3
has not handled or disposed of any substance,
arranged for the disposal of any substance,
exposed any employee or other individual to
any substance or condition, or owned or
operated any property or facility in any
manner that would give the Sellers reasonable
grounds to believe that Bit 3 would likely
have such Material Liability) for damage to
any site, location, or body of water (surface
or subsurface), for any illness of or
personal injury to any employee or other
individual, or for any reason under any
Environmental, Health, and Safety Law.

c. All properties and equipment used in the
business of Bit 3 have been free of asbestos,
PCB's, methylene chloride, trichloroethylene,
1,2-transdichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous
Substances.

27. CERTAIN BUSINESS RELATIONSHIPS WITH BIT 3. None
of the Sellers or their Affiliates has any written
agreement with Bit 3 within the past twelve (12)
months or which are currently in effect, and none
of the Sellers and their Affiliates owns any
assets, tangible or intangible, which are used in
the business of Bit 3.

28. DISCLOSURE. To the Sellers' Knowledge, the
representations and warranties contained in this
Subsection C do not contain any untrue statement
of a material fact or omit to state any material
fact necessary in order to make the statements and
information not misleading, as of the date of such
representation or warranty.

V. PRE-CLOSING COVENANTS. The Parties agree as follows with
respect to the period between the execution of this
Agreement and the Closing.

A. GENERAL. Each of the Parties will use his or its
commercially reasonable efforts to take all action and
to do all things necessary, proper, or advisable in
order to consummate and make effective the Transactions
<PAGE>

(including satisfaction, but not waiver, of the closing
conditions set forth in Section VII below). However,
the taking of any such action, or the failure to take
such action, by any Party shall not affect the
representations and warranties of the Parties contained
in this Agreement.

B. NOTICES AND CONSENTS. The Sellers will cause Bit 3 to
give any notices to third parties, and will cause Bit 3
to use commercially reasonable efforts to obtain any
third-party consents, that the Buyer reasonably may
request in connection with the matters referred to in
Section IV.C.4 above. Each of the Parties will (and
the Sellers will cause Bit 3 to) give any notices to,
make any filings with, and use its commercially
reasonable efforts to obtain any authorizations,
consents, and approvals of governments and governmental
agencies in connection with the matters referred to in
Sections IV.A.2, IV.B.3 and IV.C.4 above. However, the
giving of any such notices, the making of any such
filings, or the obtaining of any such approvals, or the
failure to give such notices, to make any such filings,
or to obtain any such approvals, by any Party shall not
affect the representations and warranties of the
Parties contained in this Agreement.

C. OPERATION OF BUSINESS. The Sellers will not cause or
permit Bit 3 to engage in any practice, take any
action, or enter into any transaction outside the
Ordinary Course of Business.

D. PRESERVATION OF BUSINESS. The Sellers will cause Bit 3
to use its commercially reasonable efforts to keep its
business and properties substantially intact, including
its present operations, physical facilities, working
conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.

E. FULL ACCESS. Each of the Sellers will permit, and the
Sellers will cause Bit 3 to permit, representatives of
the Buyer to have full access at all reasonable times,
and in a manner so as not to interfere with the normal
business operations of Bit 3, to all premises,
properties, books, records (including Tax records of
Bit 3, but not including the personal tax records of
Sellers), contracts, and documents of or pertaining to
Bit 3. Buyer shall not contact, approach, confer with
or otherwise engage in any discussions or
communications with any employee, independent
contractor, agent, vendor or customer of Bit 3 without
the prior written consent of the Sellers. The Buyer
will provide to the Sellers copies of the results of
any searches authorized or conducted by or on behalf of
<PAGE>

the Buyer with respect to the Intellectual Property of
Bit 3, or possible infringement by the products of Bit
3 on the Intellectual Property of any third party.
Upon termination of this Agreement, the Buyer will
return any and all information provided by the Sellers
or Bit 3 pursuant to this Section.

F. EXCLUSIVITY. From the date of this Agreement through
either the Closing Date or the date of termination of
this Agreement as provided in Article IX below, none of
the Sellers will (and the Sellers will not cause or
permit Bit 3 to) (i) solicit, initiate, or encourage
the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or
other voting securities, or any substantial portion of
the assets, of Bit 3 (including any acquisition
structured as a merger, consolidation, or share
exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in
any other manner any effort or attempt by any Person to
do or seek any of the foregoing. None of the Sellers
will vote their Bit 3 Shares in favor of any such
acquisition structured as a merger, consolidation, or
share exchange. The Sellers will notify the Buyer
immediately if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the
foregoing.

G. PUBLIC OFFERING. The Buyer agrees to use commercially
reasonable efforts to prepare and file a registration
statement under the Securities Act for a Public
Offering covering sufficient shares of Common Stock of
the Buyer to raise proceeds, net of underwriting
discounts and commissions, and offering expenses, which
are sufficient to enable the Buyer to close the
Transactions (the "Registration Statement"), and shall
use its commercially reasonable efforts to cause such
Registration Statement to become effective as soon as
possible and to effect and close the Public Offering as
soon as possible. The Sellers shall provide to the
Buyer such information concerning Bit 3 as the Buyer
may reasonably request for the inclusion by the Buyer
in the Registration Statement (subject to Sellers'
concerns concerning the confidentiality of such
information); provided, however, that the Buyer agrees
and acknowledges that the Sellers and Bit 3 are not and
will not be participants in the preparation of the
Registration Statement or otherwise involved in
connection with the Public Offering process.

H. SHAREHOLDER APPROVAL. The Buyer shall promptly, after
the execution of this Agreement, take all actions
<PAGE>

necessary in accordance with the laws of the State of
New Mexico, its Articles of Incorporation and Bylaws,
federal law, the rules of the NASD and any securities
exchange in which Buyer's securities are or may be
listed, to convene a meeting of the shareholders to
consider and vote on an authorization to increase in
the number of shares of Common Stock issued and the
Public Offering in order to effect the Transactions.
The Board of Directors will recommend that the Buyer's
shareholders vote to approve the increase in the number
of shares of Common Stock issued and the Public
Offering in order to effect the Transactions, and shall
use all reasonable efforts to solicit from the
shareholders of the Buyer proxies in favor of such
action, and shall take all other actions in its
judgment reasonably necessary and appropriate to secure
the approval of the shareholders required to approve
the increase in the number of shares of Common Stock
authorized for issuance and the Public Offering in
order to effect the Transactions.

I. NOTICE OF DEVELOPMENTS; SUPPLEMENTS TO AND AMENDMENT OF
THE DISCLOSURE SCHEDULE. Prior to the Closing, and
from time-to-time at the request of the Buyer (and,
upon receiving notice from the Buyer of the Buyer's
intent to accelerate the effectiveness of the
Registration Statement, within 24 hours after receiving
such notice), the Sellers, Bit 3 and the Buyer will
each supplement or amend its respective Disclosure
Schedule, with respect to any event or development (the
"Events") which, if existing or occurring at or before
the date of this Agreement, would have been required to
be set forth on such Disclosure Schedule, or which is
necessary to correct any information set forth on such
Disclosure Schedule or in any representation or
warranty of the Sellers, Bit 3 or the Buyers which has
been rendered inaccurate by reason of such Event (the
Party giving any such notice is herein referred to as
the "Notice Giving Party"). If any such Event as
supplemented or amended shall be of such nature to
cause a Material Adverse Effect on the Party to whom it
applies, or on the ability of the Party receiving
notice of such Event to close the Transactions (the
"Notice Receiving Party"), then the Notice Receiving
Party shall have a right to terminate this Agreement
within the shorter of two (2) weeks of receipt of such
notice or a period ending on the Closing Date. The
Notice Giving Party shall provide additional detail or
information as reasonably requested by the Notice
Receiving Party, as to any Events disclosed to the
Notice Receiving Party as a supplement or amendment to
the Disclosure Schedule. If the Notice Receiving Party
does not object to the disclosing of the Events within
<PAGE>

the shorter of two (2) weeks of the disclosure of such
Events to the Notice Receiving Party or a period ending
on the Closing Date, then the Notice Receiving Party
will be deemed to have waived any rights (including
without limitation any claim for indemnification, any
right to terminate the Agreement or any rights not to
Close the Transactions) arising as a result of the
failure of the Buyer to fulfill any condition contained
in Article VII of this Agreement or for materially
breaching a representation or warranty of the Notice
Giving Party.

VI. POST-CLOSING COVENANTS. The Parties agree as follows with
respect to the period following the Closing.

A. GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out
the purposes of this Agreement, each of the Parties
will take such further action (including the execution
and delivery of such further instruments and documents)
as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless
the requesting Party is entitled to indemnification
therefor under Section VIII below). The Sellers
acknowledge and agree that from and after the Closing
the Buyer will be entitled to possession of all
documents, books, records (including Tax records of Bit
3, but not the personal Tax records of the Sellers),
agreements, and financial data of any sort relating to
Bit 3.

B. EMPLOYEE BENEFITS. The Buyer will offer to the
employees of Bit 3 (other than the Sellers), effective
as of the first calendar day of the month immediately
following Closing, employment in capacities and at base
rates of pay identical to those in effect as of the
Closing Date. The Buyer will provide to such employees
(the "Bit 3 Employees"), the same benefit plans,
policies and practices, whether or not subject to
ERISA, provided by the Buyer to similarly situated
employees of the Buyer, at the same cost borne by such
employees of the Buyer, except that the Bit 3 Employees
will not become eligible for the Buyer's medical
flexible spending account pursuant to Code Section 125
until January 1, 1997. The Buyer shall cause each
benefit plan, policy and practice in which Bit 3
Employees are eligible to participate to be amended to
take into account all service with Bit 3 before the
Closing Date for all purposes other than (i) accrual of
benefits under any defined benefit pension plan
intended to be qualified under Code Section 401(a), or
(ii) the Buyer's Employee Stock Purchase Plan. During
the 1996 plan year, neither Buyer nor Bit 3 shall
<PAGE>

terminate any Bit 3 plan providing for a medical
flexible spending account pursuant to Code Section 125
or amend the provisions of the plan dealing with such
accounts in a manner that adversely affects any
participant. No group health plan maintained by the
Buyer or any Affiliate of the Buyer shall impose on any
Bit 3 Employee as of the Closing Date (or any spouse or
dependent of any such employee) any preexisting
condition limitation or restriction other than (x) such
a limitation or restriction which is generally
applicable under the plan and which applies in the case
of an employee (or any spouse or dependent of any such
employee) who fails to enroll in the plan when he or
she first becomes eligible, or (y) to the extent that
such preexisting limitation or restriction is not
covered under Bit 3's group health plan as of the
Closing Date.

C. LITIGATION SUPPORT. If and for as long as any Party
actively is contesting or defending against any action,
suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with (i) any
Transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or before the
Closing Date involving Bit 3, each of the other Parties
will cooperate with him or it and his or its counsel in
the contest of defense, make available their personnel,
and provide such testimony and access to their books
and records as shall be necessary in connection with
the contest or defense, all at the sole cost and
expense of the contesting or defending Party,
including, without limitation, the reasonable costs and
expenses related to airfare, lodging and meals of such
cooperating Party (unless the contesting or defending
Party is entitled to indemnification therefor under
Section VIII below); provided, however, that the
obligations of the Sellers pursuant to this Section for
any matter will terminate ten (10) years after the
Closing Date.

D. TRANSITION. Neither of the Sellers will take any
action that is designed or intended to have the effect
of discouraging any lessor, licensor, customer,
supplier, or other business associate of Bit 3 from
maintaining the same business relationships with Bit 3
after the Closing as it maintained with Bit 3 before
the Closing. Each of the Sellers will refer all
customer inquiries relating to the businesses of Bit 3
to the Buyer from and after the Closing.

E. CONFIDENTIALITY. Each of the Sellers shall treat and

<PAGE>

hold as confidential, and the Buyer shall treat and
hold as confidential prior to Closing, (and in the
event this Agreement shall be terminated and the
Transactions shall not Close, thereafter), all of the
Confidential Information, and in such event shall
refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver
promptly to the Buyer or Sellers, as the case may be,
or destroy, at the request and option of the Buyer or
the Sellers, as the case may be, all tangible
embodiments (and all copies) of the Confidential
Information which are in his, their or its possession.
If any of the Sellers or the Buyer is requested or
required (by oral question or request for information
or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, that
Party will notify the others promptly of the request or
requirement so that the Buyer or the Sellers, as the
case may be, may seek an appropriate protective order
or waive compliance with the provisions of this
section. If, in the absence of a protective order or
the receipt of a waiver hereunder, any of the Sellers
or the Buyer is/are, on the advice of counsel,
compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, that
Seller or the Buyer may disclose the Confidential
Information to the tribunal; provided, however, that
the disclosing Seller or the Buyer, as the case may be,
shall use his, their or its reasonable best efforts to
obtain, at the reasonable request of the Buyer or the
Sellers, as the case may be, an order or other
assurance that confidential treatment will be accorded
to that portion of the Confidential Information
required to be disclosed as the Buyer or the Sellers,
as the case may be, shall designate. The foregoing
provisions shall not apply to any Confidential
Information included in the Registration Statement as
to which the Sellers have consented to disclosure.

F. EMPLOYMENT AGREEMENT. At Closing, each of the Sellers
will enter into an Employment Agreement, substantially
in the form attached as Exhibit VI.F, by which each of
the Sellers will be employed by Buyer under the terms
and conditions set forth in that Employment Agreement.

G. COVENANT NOT TO COMPETE. At Closing, each of the
Sellers will enter into a Covenant Not to Compete
substantially in the form attached as Exhibit VI.G.

H. SECTION 338(h)(10) ELECTION.

1. With respect to the purchase by Buyer of the Bit 3

<PAGE>

Shares from the Seller, (1) Buyer and Sellers
shall jointly make an election pursuant to Section
338(h)(10) of the Code and any comparable election
made under applicable state and local tax law
(together the "Election"), (2) Buyer and Sellers
shall, as promptly as reasonably practicable
following the Closing Date, cooperate with each
other to take all actions necessary and
appropriate (including filing such forms, Tax
Returns, schedules and other documents as may be
required) to effect and preserve a timely Election
in accordance with the provisions of Treasury
Regulation 1.338(h)(10)-1 (or any comparable
provision of state or local tax law) or any
successor provisions, and (3) Buyer and Sellers
shall report the purchase of the Bit 3 Shares by
Buyer consistent with the Election (and any
comparable elections under state or local tax law)
and shall take no position to the contrary thereto
in any Tax Return, any proceeding before any
taxing authority or otherwise.

2. In connection with the Election, Buyer and Sellers
shall act together in good faith to agree on the
"aggregate deemed sales price" (as defined under
applicable Treasury Regulations) and the
allocation of such aggregate deemed sales price
among Bit 3's assets. Such allocation of the
aggregate deemed sales price shall be made in
accordance with Section 338(b) of the Code and any
applicable Treasury Regulations. Buyer and
Sellers (1) shall be bound by such allocation for
purposes of determining any Taxes, (2) shall
prepare and file all Tax Returns to be filed with
any taxing authority in a manner consistent with
such allocation, and (3) shall take no position
inconsistent with such allocation in any Tax
Return, any proceeding before any taxing authority
or otherwise. If that allocation is disputed by
any taxing authority, the Party receiving notice
of such dispute shall promptly notify and consult
with the other Party concerning resolution of such
dispute.

3. Buyer shall reimburse Sellers up to $250,000 for
any Additional Tax Liability that may be due from
the Sellers as a result of the Election. The
calculation of the Additional Tax Liability shall
be prepared by the Sellers' accountant and
provided to the Buyer for review and audit by the
Buyer's accountant, as soon as the calculation can
be made. The reimbursement shall be made to
Sellers within ten (10) days after proof of
payment by the Sellers of the Additional Tax

<PAGE>

Liability has been delivered to Buyer. The
Sellers shall provide Buyer with copies of the Tax
Returns which resulted in the payment by them of
any Additional Tax Liability.

I. FILING OF TAX RETURNS AND PAYMENT OF TAX LIABILITY.
Sellers shall file, or shall cause Bit 3 to file, all
Bit 3 federal and state income Tax Returns as required
by Section IV.C.11 above, for the period of Bit 3's
operation up to and including the Closing Date, to the
extent not previously filed, and the Buyer shall
provide full cooperation to the Sellers with respect to
such filings. Sellers shall provide to Buyer copies of
all such Bit 3 Tax Returns and evidence of payment of
such Taxes. All Bit 3 Taxes due as a result of Bit 3's
operation up to and including the Closing Date shall be
paid or accrued as of the Closing Date.

J. ADJUSTMENT FOR UNCOLLECTED RECEIVABLES. The Buyer will
use its commercially reasonable efforts in accordance
with Bit 3's prior collection practices within one-
hundred twenty (120) days of the Closing Date to
collect all accounts receivable of Bit 3 which are
reflected on the balance sheet prepared as of the close
of business on the Closing Date, which will be prepared
using procedures substantially identical to those set
forth in Section III.B.3 above used for the Closing
Consideration Balance Sheet (the "Closing Balance
Sheet") (the Guaranteed Receivables"). The Buyer may
in its discretion, reasonably exercised, resort to
litigation or the use of collection agencies or similar
efforts to collect the Guaranteed Receivables;
provided, however, that all costs and expenses
(including without limitation legal fees and fees
charged by collection agencies) incurred by the Buyer
in connection with such efforts will not be deemed for
purposes of this Section VI.K to reduce the amount of
any Guaranteed Receivable collected pursuant to such
efforts. Any payment made to the Buyer or any
Affiliate of the Buyer by an account debtor will be
applied by the Buyer to the receivable to which such
payment relates. The Purchase Price will be reduced by
the amount, if any, by which the amount of the
Guaranteed Receivables not collected on or before the
120th day after the Closing Date (the "Uncollected
Receivables") exceeds the bad debt reserve reflected on
the Closing Balance Sheet (such excess is hereinafter
referred to as the "Guaranteed Receivables Shortfall").
The amount of the Guaranteed Receivables Shortfall may
be applied against the amounts owed to the Sellers
pursuant to the Promissory Notes under Section
III.B.2.a above, or if the amount of the unpaid amounts
under the Promissory Notes is insufficient, shall be

<PAGE>

promptly paid by Sellers to Buyer in immediately
available funds, within five (5) business days of
receipt by Sellers of notice and demand for such
payment by Buyer. The Buyer agrees that upon
application by the Buyer of the Guaranteed Receivables
Shortfall to the Promissory Notes or collection of any
such Guaranteed Receivables Shortfall from the Sellers
it will immediately thereafter, transfer all rights,
title and interest in and to the Uncollected
Receivables to the Sellers for collection. Seller will
thereafter be entitled to utilize any means to collect
such Uncollected Receivables and will further be
entitled to retain any proceeds from such collection.

K. PAYMENT OF AUDIT EXPENSES. Buyer shall reimburse
Sellers and Bit 3 for any out-of-pocket amounts paid by
Sellers or Bit 3 to Peat Marwick in connection with the
audit by Peat Marwick of Bit 3's financial statements
as of and for the years ended December 31, 1993, 1994,
1995 and the six months ended June 30, 1996. Buyer
shall promptly pay such amounts upon submission of
invoices received from Peat Marwick.

VII. CONDITIONS TO OBLIGATION TO CLOSE.

A. CONDITIONS TO OBLIGATION OF THE BUYER. The obligation
of the Buyer to consummate the Transactions to be
performed by it in connection with the Closing is
subject to satisfaction of the following conditions:

1. the representations and warranties set forth in
Sections IV.A and IV.C above shall be true and
correct in all material respects at and as of the
Closing Date;

2. the Sellers shall have performed and complied with
all of the covenants hereunder in all material
respects through the Closing;

3. the Sellers shall have procured all of the third
party consents specified in Section V.B above;

4. no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state,
local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would
(i) prevent consummation of any of the
Transactions, (ii) cause any of the Transactions
to be rescinded following consummation, (iii)
affect adversely the right of the Buyer to own Bit
3 Shares and to control Bit 3, or (iv) materially

<PAGE>

adversely affect the right of Bit 3 to own its
assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or
charge shall be in effect);

5. the Sellers shall have delivered to the Buyer a
certificate to the effect that each of the
conditions specified above in Sections VII.A.1-4
is satisfied in all material respects;

6. the Parties shall have received all
authorizations, consents, and approvals of
governments and governmental agencies referred to
in Sections IV.A.2, IV.B.3, and IV.C.4 above;

7. the Buyer shall have received from counsel to the
Sellers an opinion in form and substance mutually
agreed to by the parties, addressed to the Buyer,
and dated as of the Closing Date;

8. the Buyer shall have received from Cowen and
Company or its other advisers, a Fairness Opinion
in form and substance satisfactory to the Buyer in
its sole discretion, to the effect that the
Transactions will be fair and reasonable to the
Buyer, and that the consideration to be granted
and received by the Buyer in the Transactions is
fair and reasonable to the Buyer under the
circumstances of the Transactions;

9. the Buyer shall have obtained on terms and
conditions commercially satisfactory to it, all of
the financing it needs in order to consummate the
Transactions and fund the working capital
requirements of Bit 3 after the Closing. Buyer
intends to acquire some or all of that financing
through the Public Offering;

10. all actions to be taken by the Sellers in
connection with consummation of the Transactions
and all certificates, opinions, instruments, and
other documents required to effect the
Transactions will be reasonably satisfactory in
form and substance to the Buyer;

11. the Buyer has received any legally required
approvals of its shareholders for the necessary
increase in the number of shares of the Common
Stock to be issued in the Public Offering, to
finance, in whole or in part, the Transactions;
and

12. the Buyer has received written notice from the
lessors and sublessors of all real property leased

<PAGE>

or subleased by Bit 3 as provided in Section
IV.C.12.e above, in form and substance reasonably
satisfactory to Buyer.

B. CONDITIONS TO OBLIGATION OF THE SELLERS. The
obligation of the Sellers to consummate the
Transactions to be performed by them in connection with
the Closing is subject to satisfaction of the following
conditions:

1. the representations and warranties set forth in
Section IV.B above shall be true and correct in
all material respects at and as of the Closing
Date;

2. the Buyer shall have performed and complied with
all of its covenants hereunder in all material
respects through the Closing;

3. no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state,
local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would
(i) prevent consummation of any of the
Transactions, (ii) cause any of the Transactions
to be rescinded following consummation, (iii)
affect adversely the right of the Buyer to own Bit
3 Shares and to control Bit 3, or (iv) materially
adversely affect the right of Bit 3 to own its
assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or
charge shall be in effect);

4. the Buyer shall have delivered to the Sellers a
certificate to the effect that each of the
conditions specified above in Sections VII.B.1-3
is satisfied in all respects;

5. the Parties shall have received all other
authorizations, consents, and approvals of
governments and governmental agencies referred to
in Sections IV.A.2, IV.B.3, and IV.C.4 above;

6. the Sellers shall have received from counsel to
the Buyer an opinion in form and substance
mutaully agreed to by the parties, addressed to
the Sellers, and dated as of the Closing Date; and

7. all actions to be taken by the Buyer in connection
with consummation of the Transactions and all
certificates, opinions, instruments, and other

<PAGE>

documents required to effect the Transactions will
be reasonably satisfactory in form and substance
to the Sellers.

VIII. REMEDIES FOR BREACHES OF THIS AGREEMENT.

A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Buyer and the
Sellers contained in Sections IV.A, IV.B and IV.C, and
as may be otherwise contained in this Agreement, shall
survive the Closing (even if the damaged party knew or
had reason to know of any misrepresentation or breach
of warranty at the time of Closing) and continue in
full force and effect for a period after the Closing
Date (the "Survival Period") as follows: (i) in the
case of the Sellers' representations and warranties
pertaining to Intellectual Property as contained in
Section IV.C.14, for a period of three (3) years
following the Closing Date, and (ii) in the case of all
other representations and warranties of the Buyer and
the Sellers for a period of eighteen (18) months
following the Closing Date.

B. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.

1. If any of the Sellers breaches any of the Sellers'
representations, warranties, and covenants
contained in this Agreement, and if the Buyer
makes a written claim for indemnification against
the Sellers as provided in this Agreement within
the relevant Survival Period, then the Sellers
agree, jointly and severally, to indemnify the
Buyer from and against any Damages the Buyer may
suffer, whether such Damages occured during or
after the Survival Period, resulting from, arising
out of, relating to, in the nature of, or caused
by the breach.

2. The aggregate amount payable by the Sellers to the
Buyer hereunder shall not exceed four million
dollars ($4,000,000); provided, however, that in
the case of any breach of a representation or
warranty contained in this Agreement as to which,
notwithstanding the language of such
representation or warranty (or subpart thereof),
the Sellers had actual knowledge that such
representation or warranty was breached as of the
date such representation or warranty was made, or
in the case of an intentional breach of any
covenant contained in this Agreement, the
aggregate amount payable by the Sellers hereunder

<PAGE>

shall not exceed an amount equal to the lesser of
(a) one-half (1/2) of the total consideration paid
to the Sellers under this Agreement, or (b) the
aggregate amount realized by the Sellers from the
consideration paid to them under this Agreement,
net of personal taxes (federal, state and local)
paid by the Sellers on the consideration and
expenses directly related to the Transactions paid
by the Sellers.

3. The Sellers, jointly and severally, hereby
indemnify and hold harmless the Buyers and Bit 3
from any and all Liability for Taxes imposed or
assessed on the Buyer or on Bit 3 after the
Closing Date, resulting from the operation of Bit
3 prior to the Closing Date, that have not been
paid or accrued as of the Closing Date or from
Taxes imposed or assessed on Bit 3 as a result of
the Transactions and the Election (except to the
extent provided in Section VI.H above), without
regard to the limits set forth in the preceding
paragraph and for the period of the applicable
statute of limitation.

4. Notwithstanding anything in Section VIII.B.1 to
the contrary, the Buyer will not be entitled to
any indemnification under Section VIII.B.1 if the
aggregate amount of all claims thereunder is less
than one hundred thousand dollars ($100,000);
provided, however, that if the aggregate amount of
all claims equals or exceeds such amount, then the
Buyer will be entitled to full indemnification of
all claims under Section VIII.B.1 in excess of
such amount. The Parties do not intend that such
exception amount shall be deemed to be a
definition or limitation of what is "material" for
any purpose under this Agreement.

C. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS.

1. If the Buyer breaches any of the Buyer's
representations, warranties, and covenants
contained in this Agreement, and if the Sellers
make a written claim for indemnification against
the Buyer as provided in this Agreement within the
Survival Period, then the Buyer agrees to
indemnify the Sellers from and against any Damages
the Sellers may suffer, whether such Damages
occured during or after the Survival Period,
resulting from, arising out of, relating to, in
the nature of, or caused by the breach.

2. The Buyer agrees to indemnify the Sellers from and

<PAGE>

against any Damages (resulting from any claim from
any other Person) the Sellers may suffer resulting
from, arising out of, related to, in the nature
of, or caused in any way from the Public Offering,
except to the extent that such Damages directly
result from the inclusion in the Registration
Statement of written material supplied by the
Sellers for inclusion in the Registration
Statement.

3. Notwithstanding anything in Section VIII.C.1 to
the contrary, the Sellers will not be entitled to
any indemnification under Section VIII.C.1 if the
aggregate amount of all claims thereunder is less
than one hundred thousand dollars ($100,000);
provided, however, that if the aggregate amount of
all claims equals or exceeds such amount, then the
Sellers will be entitled to full indemnification
of all claims under Section VIII.C.1 in excess of
such amount. The Parties do not intend that such
exception amount shall be deemed to be a
definition or limitation of what is "material" for
any purpose under this Agreement.

D. MATTER INVOLVING THIRD PARTIES.

1. If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a
"Third Party Claim") which may give rise to a
claim for indemnification against any other Party
(the "Indemnifying Party") under this Section,
then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of
the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party
thereby is prejudiced.

2. Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third
Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as
(i) the Indemnifying Party notifies the
Indemnified Party in writing within 15 days after
the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against
the entirety of any Damages the Indemnified Party
may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the
Third Party Claim, (ii) the Indemnifying Party

<PAGE>

provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the
financial resources to defend against the Third
Party Claim and fulfill its indemnification
obligations hereunder, (iii) the Third Party Claim
involves only money damages and does not seek an
injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice
materially adverse to the continuing business
interests of the Indemnified Party, and (v) the
Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.

3. As long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance
with Section VIII.D.2 above, (i) the Indemnified
Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of
the Third Party Claim, (ii) the Indemnified Party
will not consent to the entry of any judgment or
enter into any settlement with respect to the
Third Party Claim without the prior written
consent of the Indemnifying Party (not to be
withheld unreasonably), and (iii) the Indemnifying
Party will not consent to the entry of any
judgment or enter into any settlement with respect
to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be
withheld unreasonably).

4. In the event any of the conditions in Section
VIII.D.2 above is or becomes unsatisfied, however
(i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into
any settlement with respect to the Third Party
Claim, with the prior written consent of the
Indemnifying Party, which consent shall not be
unreasonably withheld, in any manner it reasonably
may deem appropriate, (ii) the Indemnifying
Parties will reimburse the Indemnified Party
promptly and periodically for the costs of
defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and
(iii) provided that consent of the Indemnifying
Party is received, the Indemnifying Party will
remain responsible for any Damages the Indemnified
Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided
in this Section VIII.

<PAGE>

E. TREATMENT OF INDEMNIFICATION PAYMENTS. All
indemnification payments under this Section VIII shall
be deemed adjustments to the Purchase Price, and must
first be used to offset future payments due or to
become due under the Promissory Notes.

F. OTHER INDEMNIFICATION PROVISION. Each of the Sellers
hereby agrees that he will not make any claim for
indemnification against Bit 3 by reason of the fact
that he was a director, officer, employee, or agent of
such entity or was serving at the request of that
entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether that
claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses, or
otherwise and whether that claim is pursuant to any
statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by the
Buyer against such Seller for indemnification under
this Agreement based on a breach of a representation or
warranty contained herein.

G. NO OTHER REMEDIES. Notwithstanding anything in this
Agreement to the contrary, the Parties' rights to bring
a claim for Damages against any other Party to this
Agreement shall be limited to Section III, Section
IX.B.2 or an indemnification claim pursuant to this
Article VIII, except for claims for Damages based on a
willful and material breach of any covenant or
agreement set forth in this Agreement performed or to
be performed at or prior to Closing. For purposes of
this provision, a party will be deemed to have
willfully breached any of its covenants or agreement
set forth in this Agreement if such party has
intentionally and knowingly taken, or intentionally
and knowingly failed to take, any action which causes a
breach of any of its covenants or agreements set forth
in this Agreement. Except as set forth in Section
III.C. above, no party hereto will be able to rescind
this Agreement after Closing.

IX. TERMINATION.

A. TERMINATION OF AGREEMENT. Certain Parties may
terminate this Agreement as provided below:

1. the Buyer and the Sellers may terminate this
Agreement by mutual written consent at any time
before the Closing;

2. the Buyer may terminate this Agreement by giving

<PAGE>

written notice to the Sellers at any time before
the Closing if (i) any of the Sellers or Bit 3 has
breached any material representation, warranty, or
covenant contained in this Agreement in any
material respect, the Buyer has notified the
Sellers of the Breach, and the breach has
continued without cure for a period of the shorter
of 30 days after the notice of breach or the
period ending on the Closing Date, (ii) the
Closing shall not have occurred on or before
December 6, 1996, unless extended pursuant to
Section IX.C below, by reason of the failure of
any condition precedent under Section VII.A hereof
(unless the failure results primarily from the
Buyer itself breaching any representation,
warranty, or covenant contained in this
Agreement), or (iii) any of the supplements or
amendments to the Disclosure Schedule submitted by
the Sellers prior to the Closing are not accepted
by the Buyer, as provided in Section V.I above;

3. the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time before the
Closing if (i) the Buyer has breached any material
representation, warranty, or covenant contained in
this Agreement in any material respect, any of the
Sellers has notified the Buyer of the breach, and
the breach has continued without cure for a period
the shorter of 30 days after the notice of breach
or the period ending on the Closing Date, (ii) the
Closing shall not have occurred on or before
December 6, 1996, unless extended pursuant to
Section IX.C below, or (iii) any of the
supplements or amendments to the Disclosure
Schedule submitted by the Buyer prior to the
Closing are not accepted by the Sellers, as
provided in Section V.I above;

4. the Sellers may terminate this Agreement if (i)
the Buyer has not filed a Registration Statement
for the Public Offering covering sufficient shares
of Common Stock of the Buyer to raise proceeds,
net of underwriting discounts and commissions, and
estimated offering expenses, sufficient for the
Transactions, within forty-five (45) days of
receipt of the audited financial statements of Bit
3, or (ii) such Registration Statement has not
become effective under the Securities Act by
December 6, 1996, unless extended pursuant to
Section IX.C below.

5. the Sellers may terminate this Agreement if the
portion of the Purchase Price to be delivered to
them at Closing is not delivered to them within

<PAGE>

eight (8) business days of the Closing Date,
pursuant to Section III.C above.

B. EFFECT OF TERMINATION.

1. In the event of a termination of this Agreement
pursuant to Section IX.A above, written notice
will be given to the other Party and the
provisions of this Agreement (except to the extent
provided in Section VI.E, VI.L, IX.B.3 and IX.B.4)
will terminate and the Transactions will be
abandoned, without further action by any Party.

2. In the event of a termination of this Agreement by
the Buyer other than pursuant to Section IX.A.2
above, or if the Closing does not occur on or
before December 6, 1996 (unless extended pursuant
to Section IX.C below), unless the failure to
Close is due to market conditions adversely
affecting the Public Offering, regulatory delays
caused by the Securities and Exchange Commission
or the administrators under any applicable Blue
Sky Laws, delays in obtaining any other necessary
approvals or consents required in order to
consummate the Transactions, or other causes
beyond the control of the Buyer, the Buyer shall
promptly pay the Sellers, in immediately available
funds within five (5) business days after
termination, (i) an amount equal to all of the
reasonable out-of-pocket fees and expenses
incurred by or on behalf of the Sellers or Bit 3
in connection with the audit of the Financial
Statements by Peat Marwick, and (ii) a termination
fee of five hundred thousand dollars ($500,000).

3. If this Agreement is terminated for any reason,
each Party will, upon request of the others,
redeliver all documents, work papers and other
material of any other Party (including all copies
thereof) relating to the Transactions, whether so
obtained before or after the execution of this
Agreement, to the Party furnishing the same, and
the confidentiality obligations of Section VI.E
will continue to be applicable to and enforceable
against the Parties.

4. If this Agreement terminates for any reason, the
Parties and their directors, officers, employees
or agents, and any Affiliate of the Parties, their
Affiliates, directors, officers, employees or
agents, shall not directly or indirectly, either
for its own benefit or for the benefit of any
other person, firm or corporation whatsoever, for

<PAGE>

a three (3) year period thereafter, employ or
attempt to employ any of the then employees of the
other Parties. The Parties acknowledge that if
any of them breaches this covenant, the non-
breaching Parties will be irreparably and
immeasurably injured. Therefore, the Parties
agree that in addition to any other remedies
available to the non-breaching Parties, the non-
breaching Parties may apply to a court of
competent jurisdiction for a temporary and/or
permanent injunction and that such court may grant
such injunction to restrain and prohibit such
breach by any of the Parties or their Affiliates.

C. EXTENSIONS. This Agreement, and the various deadlines
for performance of obligations and for consummation of
the Transactions as provided herein, may be extended
with the mutual consent of the Parties, in which event
the obligations of the Parties shall be modified
accordingly, and all deadlines for performance shall be
modified in accordance with any such extension. In the
event that the Parties agree to any such extension, the
Sellers shall not be entitled to the payment of a
termination fee, as provided above, solely as a
consequence of such extension. The Sellers shall agree
to an extension in the Closing Date to a date no later
than December 20, 1996, in the event that the
Registration Statement has not been declared effective
as of December 6, 1996, and the Buyer is then awaiting
receipt of, or has submitted responses to, comments
from the Securities and Exchange Commission on the
Registration Statement. In no event will the Closing
Date be extended beyond December 20, 1996.

X. MISCELLANEOUS.

A. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party
shall issue any press release or make any public
announcement relating to the subject matter of this
Agreement before the Closing without first notifying
the other Parties of the notifying Party's intent to
issue such a press release or make such a public
announcement, and receiving prior approval of the other
Parties, which approval shall not be unreasonably
withheld and which approval, in the case of the Sellers
and Bit 3, shall be deemed to have been given if
Sellers and Bit 3 do not otherwise notify Buyer within
twenty-four (24) hours of such notice; provided,
however, that any Party may make any public disclosure
that is required by applicable law or any listing or
trading agreement concerning its publicly-traded
securities, so long as the Party so required to make an
announcement promptly upon learning of such requirement

<PAGE>

notifies the other Parties of such requirement and
discusses with the other Parties, in good faith, the
exact proposed wording of any such announcement.

B. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other
than the Parties and their respective successors and
permitted assigns.

C. ENTIRE AGREEMENT. This Agreement (including the
documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.

D. SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties
named herein and their respective successors and
permitted assigns. No Party may assign either this
Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written
approval of the Buyer and the Sellers; provided,
however, that the Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any
or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its
obligations hereunder).

E. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an
original but all of which together will constitute one
and the same instrument.

F. HEADINGS. The Section headings contained in this
Agreement are inserted for convenience only and shall
not affect in any way the meaning or interpretation of
this Agreement.

G. NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any
notice, request, demand, claim, or other communication
hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or
certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set
forth below:

<PAGE>

If to the Sellers or Bit 3 Copy to:
prior to Closing:

Mr. Philip M. Vukovic Bruce A. Machmeier, Esq.
Mr. Larry L. Larsen Oppenheimer Wolff
8120 Penn Avenue South & Donnelly
Suite 548 Plaza VII
Minneapolis, MN 55431-1393 45 South Seventh St.
Suite 3400
Minneapolis, MN 55402

If to the Buyer or Bit 3
after Closing:

SBS Technologies, Inc. Alison K. Schuler, Esq.
Attn: Christopher J. Amenson, President Schuler, Messersmith
2400 Louisiana Blvd., NE & McNeill
AFC Building 5, Suite 600 5700 Harper Dr., NE
Albuquerque, New Mexico 87110 Suite 430
Albuquerque, NM 87109

Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address
set forth above using any other means (including personal
delivery, expedited courier, messenger service, facsimile,
telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.

H. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of
New Mexico without giving effect to any choice or
conflict of law provision or rule (whether of the State
of New Mexico or any other jurisdiction) that would
cause the application of the laws of any jurisdiction
other than the State of New Mexico.

I. AMENDMENTS AND WAIVERS. No amendment of any provision
of this Agreement shall be valid unless the same shall
be in writing and signed by the Buyer and the Sellers.
No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant

<PAGE>

hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.

J. SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in
any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the
offending term or provision in any other situation or
in any other jurisdiction.

K. EXPENSES. Each of the Parties and Bit 3 will bear his
or its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement
and the Transactions. The Sellers agree that Bit 3
will fully discharge and not have any undischarged
Liabilities as of the Closing Date for any costs and
expenses in connection with this Agreement and the
Transactions (including for any legal fees and expenses
in connection with this Agreement or any of the
Transactions).

L. INCORPORATION OF EXHIBITS AND DISCLOSURE SCHEDULE. The
Exhibits and Disclosure Schedule identified in this
Agreement are incorporated herein by reference and made
a part hereof.

M. SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged
irreparably if any of the provisions of Sections V.E,
V.F, VI.B, VI.E and IX.B.4 of this Agreement are not
performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled
to an injunction or injunctions to prevent breaches of
such provisions of this Agreement and to enforce
specifically such provisions of this Agreement in any
action instituted in any court of the United States or
any state thereof having jurisdiction over the Parties
and the matter (subject to the provisions set forth in
Section X.N below).

N. DISPUTES.

1. Except for matters which are subject to mediation
and arbitration as provided below, each of the
Parties submits to the jurisdiction of any state
or federal court sitting in Albuquerque, New
Mexico, in any action or proceeding arising out of
or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may
be heard and determined in any such court. Each
Party also agrees not to bring any action or

<PAGE>

proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties
waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought
and waives any bond, surety, or other security
that might be required of any other Party with
respect thereto. Any Party may make service on
any other Party by sending or delivering a copy of
the process to the Party to be served at the
address and in the manner provided for the giving
of notices in Section X.G above. Nothing in this
Section X.N, however, shall affect the right of
any Party to bring any action or proceeding
arising out of or relating to this Agreement in
any other court or to serve legal process in any
other manner permitted by law or at equity. Each
Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and
may be enforced by suit on the judgment or in any
other manner provided by law or at equity.

2. The Parties agree that any claim or dispute
arising out of or relating to this Agreement or
the formation, breach, termination or validity
thereof, which involves in the aggregate an amount
not exceeding one hundred thousand dollars
($100,000), and except for injunctive relief as
contemplated by Section X.M above ("Dispute"),
will be resolved in the manner provided below. If
the Dispute cannot be settled by direct
discussions, the Parties will first try to settle
the Dispute in an amicable manner by mediation
under the Commercial Mediation Rules of the
American Arbitration Association, before resorting
to arbitration. Any Dispute which has not been
resolved within sixty (60) days of the initiation
of the mediation procedure (the "Mediation
Deadline") will be settled by binding arbitration
by a panel of three (3) arbitrators, selected in
the manner provided below, in accordance with the
Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"). In the
event that a Party seeks mediation or arbitration
of a Dispute, the proceeding will be held in
Albuquerque, New Mexico. Judgment upon any
arbitration award may be entered in any court
having jurisdiction thereof, and the Parties
consent to the jurisdiction of the courts in the
state in which the arbitration occurred for this
purpose. The Parties agree that service of
process and of any notices required in connection
with any arbitration hereunder or any related
court proceedings may be given in the manner
provided for the giving of notices under this

<PAGE>

Agreement as set forth in Section X.G. Within
twenty (20) days of the Mediation Deadline, the
Sellers will collectively nominate one arbitrator
and the Buyer will nominate one arbitrator.
Within thirty (30) days of the nomination and
appointment of the two arbitrators, the two
arbitrators shall select a third arbitrator, and
if they fail to do so, a neutral arbitrator shall
be chosen in accordance with the Rules.

<PAGE>

The Parties have executed this Agreement as of the date set
forth above.

SBS TECHNOLOGIES, INC.

By: /s/ Christopher J. Amenson
------------------------------------
Christopher J. Amenson
Title: President and
Chief Operating Officer

SELLERS:

/s/ Philip M. Vukovic
---------------------------------------
Philip M. Vukovic

/s/ Larry L. Larsen
---------------------------------------
Larry L. Larsen

BIT 3 COMPUTER CORPORATION

By: /s/ Philip M. Vukavic
------------------------------------
Philip M. Vukavic
Title: President and
Co-Chief Executive Officer

<PAGE>

KPMG Peat Marwick LLP
6565 Americas Parkway, NE Suite 700
Post Office Box 3939
Albuquerque, New Mexico 87190

The Board of Directors
SBS Technologies, Inc. and
Bit 3 Computer Corporation:

We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.

KPMG Peat Marwick LLP

Albuquerque, New Mexico
October 21, 1996

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN
THE COMPANY'S 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 2,101,573
<SECURITIES> 0
<RECEIVABLES> 7,716,642
<ALLOWANCES> (237,738)
<INVENTORY> 6,425,247
<CURRENT-ASSETS> 16,949,800
<PP&E> 3,532,581
<DEPRECIATION> 1,768,649
<TOTAL-ASSETS> 24,153,052
<CURRENT-LIABILITIES> 6,803,678
<BONDS> 0
0
0
<COMMON> 4,998,049
<OTHER-SE> 7,436,376
<TOTAL-LIABILITY-AND-EQUITY> 24,153,052
<SALES> 11,263,466
<TOTAL-REVENUES> 11,263,466
<CGS> 5,245,753
<TOTAL-COSTS> 8,793,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 167,501
<INTEREST-EXPENSE> 163,980
<INCOME-PRETAX> 2,320,613
<INCOME-TAX> 928,200
<INCOME-CONTINUING> 1,392,413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,392,413
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.00

</TABLE>