<PAGE>   1
                                       `
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

  X                Quarterly Report Under Section 13 or 15 (d)
-----                of the Securities Exchange Act of 1934

-----             For quarterly period ended December 31, 1996

                                       or

                Transition Report Pursuant To Section 13 or 15(d)
                   of The Securities and Exchange Act of 1934

                 For the transition period from _____ to ______.


                           Commission File No. 0-16227


                              IMPACT SYSTEMS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          California                                        94-2672923
-------------------------------                  -------------------------------
(State or other jurisdiction of                  (I.R.S. Employer Identification
incorporation or organization)                              Number)



14600 Winchester Boulevard, Los Gatos, California                       95030
                                                                        -----
(Address of principal executive offices)                              (Zip Code)


Registrant's telephone number,
including area code:                                            (408) 379-0910
                                                                --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                                     Yes   X    No
                                                         ----      ----

At December 31, 1996 there were 10,440,826 shares of the Company's common stock
outstanding.


                                                                               1
<PAGE>   2
                              IMPACT SYSTEMS, INC.




                          Quarterly Report on Form 10-Q




                                      INDEX

<TABLE>
<CAPTION>

Part I:           Financial Information                                            Page Number
                                                                                   ----------- 
<S>                                                                                 <C>
         Item 1.           Financial Statements

                           Condensed Consolidated Balance Sheets                        3

                           Condensed Consolidated Statements of Operations              4

                           Condensed Consolidated Statements of Cash Flows              5

                           Notes to Condensed Consolidated Financial Statements         6


         Item 2.           Management's Discussion and Analysis of Financial
                           Condition and Results of Operations                          8


Part II:          Other Information


         Item 1.                    Legal Proceedings                                  10


         Item 5.                    Other Information                                  11


         Item 6.                    Exhibits and Reports on Form 8-K                  12


                           Signature                                                  13


                                    Exhibit 27 - Financial Data Schedule              14

                                                                                       
</TABLE>


                                                                               2

<PAGE>   3

                         PART I - FINANCIAL INFORMATION

                      IMPACT SYSTEMS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                    (In Thousands, Except Share Information)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                     December 31      March 31
ASSETS                                                                     1996           1996
                                                                     -----------   -----------
<S>                                                                  <C>           <C>
Current assets:
   Cash and cash equivalents                                            $  2,050    $  2,736
   Short-term investments                                                  4,672       3,752
   Trade and other accounts receivable                                     6,508       6,203
   Inventories                                                             3,679       3,536
   Prepaid expenses and other                                                 42          38
                                                                        --------    --------
 Total current assets                                                     16,951      16,265

Property and equipment, net of accumulated depreciation and                  515         224
     amortization of $4,505 ($4,373 at March 31, 1996)
Non-current trade receivables                                                840         810
Minority equity investment in and advances to foreign affiliates             566         608
Other assets                                                                 258         213
                                                                        --------    --------
                                                                        $ 19,130    $ 18,120
                                                                        ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                     $  1,497    $  1,029
   Accrued installation and warranty costs                                 1,319         957
   Accrued salaries, wages and employee benefits                             209         481
   Accrued commissions                                                       388         236
   Other liabilities                                                         684       1,442
                                                                        --------    --------
      Total current liabilities                                            4,097       4,145
                                                                        --------    --------



Stockholders' equity:
    Preferred stock, no par: 2,000,000 shares authorized;
    none outstanding
    Common stock, no par value; 20,000,000 shares authorized;
    10,440,826 and 10,328,976 shares issued and outstanding               24,940      24,850
    Accumulated deficit                                                   (9,601)    (10,587)
    Cumulative translation adjustments                                      (306)       (288)
                                                                        --------    --------
       Total stockholders' equity                                         15,033      13,975

                                                                        $ 19,130    $ 18,120
                                                                        ========    ========
</TABLE>

                                                                          3
<PAGE>   4
                      IMPACT SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)



<TABLE>
<CAPTION>

                                               Three Months Ended                  Nine Months Ended
                                               ------------------                  -----------------
                                                  December 31,                        December 31,
                                               ------------------                  -----------------
                                               1996            1995                1996          1995
                                               ----            ----                ----          ----
<S>                                          <C>             <C>                 <C>           <C>
Net revenues                                 $ 5,152         $ 4,441             $14,802       $12,133

Cost of goods sold                             2,949           2,020               8,089         5,859
                                             -------         -------             -------       -------
Gross margin                                   2,203           2,421               6,713         6,274
                                             -------         -------             -------       -------

Operating expenses:
   Research and development                      495             427               1,426         1,248
   Selling,general and administrative          1,512           1,544               4,581         4,223
                                             -------         -------             -------       -------
      Total operating expenses                 2,007           1,971               6,007         5,471

Operating income                                 196             450                 706           803
Interest income, net                             101              84                 261           269
Foreign currency gain (loss), net                 22             (17)                 29           (21)
Equity in net income (loss) of investee          (39)             90                 (10)          363
                                             -------         -------             -------       -------
Net income before income taxes                   280             607                 986         1,414
Income taxes                                      --              --                  --            --
                                             -------         -------             -------       -------
Net income                                   $   280         $   607             $   986       $ 1,414
                                             =======         =======             =======       =======

Net income per common share and equivalent:
         Net income per common share         $   .03         $   .06             $   .09       $   .13
                                             =======         =======             =======       =======

       Common and common equivalent
       shares used in calculating income
       per share                              10,721          11,008              10,943        10,937
                                             =======         =======             =======       =======
</TABLE>


                                                                               4
<PAGE>   5
                              IMPACT SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                          NINE MONTHS ENDED DECEMBER 31,
                                                                          ------------------------------
                                                                          1996              1995
                                                                          ----              -----
<S>                                                                     <C>              <C>
Cash Flows From Operating Activities:
Net income                                                              $   986          $ 1,414
                                                                                      
Adjustments to reconcile net income to net cash provided by operating                 
activities:                                                                           
   Depreciation and amortization                                            127              135
   Equity in net (income) loss of investee                                   10             (363)
   Cumulative translation effects                                           (18)              18
   Changes in assets and liabilities:                                                 
           Trade and other accounts receivable                             (335)          (1,334)
           Inventories                                                     (143)            (787)
           Prepaid expenses and other                                       (49)             (55)
           Accrued installation and warranty costs                          362              249
           Accounts payable                                                 468              514
           Accrued salaries, wages and employee benefits                   (272)            (172)
           Accrued commissions                                              152             (105)
           Other liabilities                                               (758)              86
                                                                        -------          -------
                                                                                      
           Cash Provided (Used) By Operating Activities                     530             (400)
                                                                        -------          -------
                                                                                      
           Cash Provided (Used) By Investing Activities:                              
           Purchase of short-term investments                              (920)            (761)
           Capital expenditures, net                                       (418)            (135)
           Minority equity investment in and advances to affiliate           32              (21)
                                                                        -------          -------
                                                                                      
           Cash (Used) by Investing Activities                           (1,306)            (917)
                                                                        -------          -------
                                                                                      
           Cash Provided (Used) by Financing Activities:                              
           Issuance of capital stock, net of expenses                        90               81
           Repurchase of capital stock                                       --              (56)
                                                                        -------          -------
                                                                                      
           Cash Provided By Financing Activities                             90               25
                                                                        -------          -------
                                                                                      
           Net (Decrease) in Cash and Cash Equivalents                     (686)          (1,292)
                                                                                      
           Cash and Cash Equivalents At Beginning of Period               2,736            3,247
                                                                        -------          -------
                                                                                      
           Cash and Cash Equivalents at End of Period                   $ 2,050          $ 1,955
                                                                        =======          =======
                                                                                   
</TABLE>


                                                                               5
<PAGE>   6
                              IMPACT SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996
                     (In Thousands, Unless Otherwise Noted)
                                   (Unaudited)

NOTE 1 - Basis of Presentation

         In the opinion of management, the consolidated financial statements
         contain all adjustments necessary to present fairly the financial
         position as of December 31, 1996, the results of operations for the
         three months and nine months ended December 31, 1996 and December 31,
         1995 and cash flows for the nine months ended December 31, 1996 and
         December 31, 1995. These statements should be read in conjunction with
         the March 31, 1996 financial statements and notes thereto incorporated
         in the Company's Annual Report for the year ending March 31, 1996 (Form
         10-K) previously filed with the Securities and Exchange Commission.

         The interim financial results are not necessarily indicative of the
         results to be expected for the full fiscal year.

NOTE 2 - Receivables From Affiliate

         Trade and other accounts receivable include trade receivables from the
         Company's minority owned affiliate - Impact Systems Asia KK - in the
         amount of $318 and $311 at December 31, 1996 and March 31, 1996,
         respectively. Such receivables arose from the sale of systems and spare
         parts to the affiliate.

NOTE 3 - Balance Sheet Details

         Inventories
         Inventories include material, labor, and overhead costs; are stated at
         the lower of first-in, first-out cost or market; and consist of the
         following components.

<TABLE>
<CAPTION>

                                                       December 31, 1996    March 31, 1996
                                                       -----------------    ---------------
<S>                                                    <C>                  <C>
          Raw materials and components                            $2,257            $2,964
          Work-in-process                                          1,245               530
          Finished goods                                              98                42
          Systems at customer sites for evaluation                    79                --
                                                                  ------            ------
                                                                  $3,679            $3,536
                                                                  ======            ======
</TABLE>

         Minority Equity Investments in and Advances to Affiliates

         The Company has a 40% interest in Impact Systems Asia, KK. Advances to
         the affiliate were $264 at December 31, 1996 and $269 at March 31,
         1996.


                                                                               6
<PAGE>   7
<TABLE>
<CAPTION>

                                                       December 31, 1996    March 31, 1996
                                                       -----------------    ---------------
<S>                                                    <C>                  <C>
Other Assets
Building rent deposits and other                                    $258             $  213

Other Liabilities
Accrued liabilities and other reserves                              $314             $  585
Customer deposits                                                    370                857
                                                                    ----             ------
                                                                    $684             $1,442
                                                                    ====             ======
</TABLE>


Note 4 - Income Taxes

         The Company accounts for income taxes using the liability method. Under
         this method, deferred taxes are determined by applying current tax
         rates to the differences between the financial reporting and tax bases
         of the Company's assets and liabilities. The Company has provided a
         valuation reserve for its net deferred tax assets at December 31, 1996
         and March 31, 1996 due to uncertainty as to the realization of such
         assets. The Company provides U.S. and foreign income taxes on the
         portion of the accumulated earnings of the Company's foreign
         subsidiaries which are intended to be remitted to the parent company
         within the foreseeable future.

Note 5 - Earnings Per Share

         Primary earnings per common and common equivalent share is computed
         using the weighted average number of common stock shares outstanding
         during the period and for incremental shares assumed issued for
         dilutive common stock equivalents.


                                                                               7
<PAGE>   8
                                     ITEM 2

                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS





                              Results of Operations



Introduction

The following discussion contains forward-looking statements that are subject to
certain 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 without limitation, those described in this
section, in the Company's Annual Report on Form 10-K for the year ended March
31, 1996, and in other documents the Company files from time-to-time with the
Securities and Exchange Commission.

The Company's results are highly dependent upon economic conditions effecting
the paper industry and, consequently, orders tend to reflect the cyclical demand
for paper products and related paper prices. The paper industry is subject to
substantial cyclicality and economic cycles which affects the Company's order
rate and results of operations. Although the Company benefited from a
short-lived recovery of the paper industry in its fiscal 1996, the industry is
currently experiencing lower demand and paper prices.

Net Revenues

Net revenues for the current quarter (ended December 31, 1996), were $5.2
million compared to $4.4 million in the year ago quarter (ended December 31,
1995) and previous quarter (ended September 30, 1996). The increase in revenue
over both prior fiscal periods is attributable to significant growth in the
Company's Asian market, particularly with respect to newer product
introductions. Over the past three fiscal years, the Company's Asian operations
have been the focus of these newer products such as AdvantagePlus(TM),
UnityPlus(TM), and InfraPacPlus(TM). In addition to a shift in geographical
focus, the Company has directed its marketing and development efforts toward
total system integration versus standalone actuator, measurement, and control
systems. The Company believes that it is now positioned to expand as a system
integrator in the large North American market building upon its experience in
the Asian market.

Gross Margins

Gross margins, as a percentage of net revenues, were 42.8% for the current
quarter versus 54.5% in the year ago quarter and 47.5% for the previous quarter.
The aforementioned shift in product mix affected margins as a significant
portion of current quarter's revenues were related to newer products which
traditionally are more costly early in the product life cycles. On a year to
date basis, gross margins were 45.4% for the first nine months of fiscal 1997
compared to 51.7% for the same period of fiscal 1996 reflecting the trend toward
a mix of newer products.

Operating Expenses

Operating expenses were $2.0 million in the current quarter as well as prior
year's quarter as higher variable selling expenses associated with the increased
revenue level were offset by lower fixed costs 



                                                                               8
<PAGE>   9
associated with the Company's European operations. Research and development
costs were 9.6% of net revenues for both quarters as spending reflected system
integration enhancements. On a year to date basis, operating expenses were $6.0
million for the first nine months of fiscal 1997 compared to $5.5 million for
the same period of fiscal 1996 primarily as the result of increased variable
selling expenses on a higher revenue base and more resources in the system
integration area.

Other Income and Expense

The Company recorded a loss of $39,000 in the current quarter on its 40%
investment in Impact Systems Asia KK compared to an income of $90,000 for the
prior year quarter as the result of the anticipated decline in shipment levels
due to lower system orders. On a year to date basis, the Company recorded a loss
of $10,000 for the first nine months of fiscal 1997 compared to net income of
$363,000 for the same period of fiscal 1996 as fiscal 1996 included several
large system orders.


                         Liquidity and Capital Resources



The Company had cash balances and short-term investments of approximately $6.7
million at December 31, 1996 compared to $6.5 million at March 31, 1996 and
$6.1 million at prior quarter's end of September 30, 1996. There are no
outstanding borrowings under the Company's $6.0 million domestic credit facility
and the Company expects that existing cash balances together with cash flow from
operations and borrowings, if necessary, will be adequate to meet its working
capital requirements through at least the next several fiscal quarters.

Non-current trade receivables are expected to increase considerably over the
next several quarters as systems sold under longer term interest bearing notes
are shipped. Trade and other receivables increased $.3 million for the first
nine months of fiscal 1997 primarily the result of shipment timing. Property and
equipment increased by approximately $.3 million reflecting Company paid for
tenant improvements for its new corporate facility in Los Gatos, CA. Total
Company tenant improvements will be at approximately $.5 million.

Accrued installation and warranty costs increased $.4 million due to the payment
timing of certain turnkey installations. Accounts payable increased by
approximately $.5 million for the nine months year to date as the result of
payment timing differences and other liabilities decreased by almost $.8 million
principally as the result of the shipment of systems with customer deposits at
March 31, 1996.



                                                                               9
<PAGE>   10
                           PART II - OTHER INFORMATION

                                     ITEM 1

                                LEGAL PROCEEDINGS





On June 7, 1996, the Company filed a patent infringement action against ABB
Industrial Systems, Inc. in federal court in San Jose, California. In its suit,
the Company has alleged that ABB has infringed and continues to infringe an
Impact Systems, Inc. patent covering the manufacture, use, and sale of a caliper
control system and method. Among other things, the Company seeks to enjoin the
manufacture and sale of ABB's MICROSET Thermo-Profiler and ABB's Smart Calendar
Profiler and to recover damages resulting from ABB's earlier sales of the
product. This action is still in the early stages of discovery.

In December 1996, ABB filed a patent infringement action against the Company in
federal court in Columbus, Ohio, alleging that the Company's four-channel
moisture sensor infringes one of ABB's patents covering the manufacture, use and
sale of a moisture sensing system and method. ABB has not yet served the Company
with ABB's complaint in this new action. The Company believes that ABB's claims
are without merit, and intends to vigorously defend itself against such claims.

 
                                                                              10
<PAGE>   11
                           PART II - OTHER INFORMATION

                                     ITEM 5

                                OTHER INFORMATION





Recent Developments-Properties

On January 6, 1997, the Company moved its corporate offices, research and
development facilities and primary manufacturing facilities from San Jose,
California to Los Gatos, California. The new facilities are located at 14600
Winchester Boulevard, Los Gatos, California, 95030 and consist of 23,975 square
feet of offices and manufacturing area which is leased for a seven year term
commencing on November 16, 1996. The lease allows for expansion in adjacent
existing facilities of up to an additional 36,000 square feet. The lease term on
the Company's San Jose facility expired on January 15, 1997.

                                                                              11
<PAGE>   12
                           PART II - OTHER INFORMATION

                                     ITEM 6

                        EXHIBITS AND REPORTS ON FORM 8-K





a)       Exhibit 27   -   Financial Data Schedule


                                                                              12
<PAGE>   13
                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                                   IMPACT SYSTEMS, INC.
                                   Registrant






Date:   February 13, 1997         By:  /s/   Robert M. Gorski
                                      -----------------------------------------
                                      Robert M. Gorski
                                      Vice President, Finance &
                                      Chief Financial Officer
                                      (Principal Financial & Accounting Officer)


                                      February 13, 1997


                                                                              13
<PAGE>   14
                                EXHIBIT INDEX


       Exhibit 27   -   Financial Data Schedule