SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549


                                  FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                     THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] Annual report  pursuant to section 13 or 15 (d) of the Securities Exchange
    Act of 1934
    For the fiscal year ended December 31, 1997

[_] Transition report pursuant to section 13 or 15(d) of the Securities
    Exchange Act of 1934
    For the  transition period from______ to ______

Commission file number 0-12254

                    SCIENTIFIC TECHNOLOGIES INCORPORATED

Incorporated in Oregon             IRS Employer Identification Number:77-0170363

Address of principal executive offices:                Telephone: (510) 608-3400
6550 Dumbarton Circle, Fremont, CA 94555

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

                                                      Name of each exchange on 
       Title of Class                                     which registered
-----------------------------                      ----------------------------
Common Stock, $.001 Par Value                     NASDAQ National Market System

Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Securities Exchange Act during the past 12 
months,  and (2) has been subject to such filing requirements for the past 
90 days. Yes   [X]   No [_]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [X]

The issuer's revenue for the most recent fiscal year was $44,859,000.




The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the closing sales price of Common Stock on February 28,
1998 as reported by the NASDAQ Market System , was approximately $18,213,000.
Such amount excludes shares held by registrant's current directors and officers
and by each person who owns 5% or more of the outstanding Common Stock in that
such persons may be deemed to be "affiliates" as that term is defined pursuant
to the Rules and Regulations of the Securities Exchange Act of 1934.  This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1998 was 9,634,570 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy statement to be filed with the
Commission in connection with the Company's 1998 Annual Meeting of Shareholders
("the Proxy Statement") are incorporated by reference in Part III of this Form
10K.


<PAGE>


































                                    PART I

Item 1. BUSINESS

        Scientific Technologies Incorporated (the "Company" or "STI" 
designs, manufactures and distributes electrical and electronic 
industrial controls. The Company's products include safety light guards, 
profiling scanners, factory automation sensors, controls, components, 
microcomputers, fiber optics, optical and radio frequency data 
communications, power monitoring, safety mats, and other electronic 
equipment supplied to industrial automation, commercial and defense 
customers. 

        Eighty-six percent of the Company's capital stock is currently 
held by Scientific Technology Inc., a California corporation (the 
"Parent").

Products

1. Safety Automation Products, Optical Sensors, Wireless Communications. 

        STI designs, manufactures and markets a wide variety 
of safety light guards, photoelectric sensors, fiberoptic 
sensors, optical data links, and optical profiling 
scanners. STI employs patented technology under eleven 
registered trade names and also markets and distributes 
several products manufactured by others.

a. Safety Light Guards. The Company's leading product 
group, which accounted for a significant majority of the 
Company's sales in 1997, 1996 and 1995, is a family of 
safety light guards, also called presence sensing devices 
or safety light curtains, used to safeguard personnel in 
manufacturing environments near robots and moving 
machinery. STI offers several product variations, 
providing customers with a complete line of optical 
guarding solutions.

        The Company manufactures and markets a miniaturized 
light guard called the MiniSafe, designed for inclusion in 
systems offered by original equipment manufacturers 
("OEM") and other small guarding needs where limited space 
precludes using larger light curtains. The MiniSafe 4300 
is available in four-inch increments ranging from four 
inches in coverage height to 64 inches. The operating 
distance, the distance between the transmitter and 
receiver, is up to 30 feet.


_____________
Scientific Technology, Scientific Technologies, Datricon, 
STI, The STI logo, OptoSwitch, OptoData, OptoSafe and 
Fiberlens, are registered trademarks of Scientific 
Technology Incorporated. Aegis, MiniSafe, FlexSafe, 
MicroSafe, BeamSafe, FastScan, SpectraData, PartScan and 
ValuScan are trademarks of Scientific Technologies 
Incorporated, This Annual Report on Form 10-K also refers 
to trademarks and service marks of other companies and 
entities.


The MiniSafe MS4400 Series offers a longer range product, 
up to 50 feet, in a larger, more robust package. The 
MS4400 series and the more recently introduced MS4500 
series include Individual Beam Indicators, an STI patented 
feature,  which provide the customer with a visual 
indicator of the status of each individual beam in the 
sensing array. The Individual Beam Indicators assist in 
both the installation and operation of the MiniSafe.

        The FlexSafe is a segmented safety light curtain 
that offers greater flexibility and machine guarding for 
unusually shaped applications. Instead of a single head 
comprising the transmitter and a single head comprising 
the receiver, the FlexSafe is offered with two or more 
segments comprising each transmitter and receiver. The 
respective transmitter and receiver segments are connected 
with flexible cables to facilitate fitting to the 
machinery.

        The Company also offers the MicroSafe safety light 
curtain, which is more compact than the MiniSafe but has 
comparable features. Designed for use in locations in 
which space is limited, the small size of the MicroSafe 
allows it to be easily integrated with the support framing 
used on many automated industrial machines.   

        The PA4400 and PA4500 Perimeter Access Systems are 
safety light curtains specifically designed for perimeter 
protection around the boundaries of large automated 
machining centers and robotic work cells.

        Introduced in 1997, the DuoSafe controller allows 
the customer to configure two independent safety light 
curtains to achieve common or discrete output. DuoSafe 
works with seven different versions of STI light curtains.

        Selected models of the safety light curtain products 
are certified by independent laboratories to comply with 
one or more of the following safety and electrical 
standards: UL, CSA and British Standards BS6491. The 
newest MicroSafe and MiniSafe models are European 
certified by independent test agencies and carry the CE 
test mark.

b.  Other Safety Automation Products. The Company has a 
strategic relationship with Guardmaster, Ltd., a 
manufacturer of mechanical safety interlocks based in the 
United Kingdom. Guardmaster safety interlock switches are  
utilized on hinged, sliding, or lift-off guards and 
barriers that are often installed with STI safety light 
curtains. When the guard is opened, the power supply to 
the machine is disconnected. The function and design of 
Guardmaster interlocks are complementary to the STI range 
of safety products. An affiliate of Guardmaster is the 
distributor for the STI product line in the United 
Kingdom.

        STI safety mats are designed for use in industrial 
environments where safety enhancements or zone detection 
is required. The mats are sensitive to foot or vehicular 
traffic. TouchStart capacitive palm switches for two hand 
control applications actuate with a soft touch.

c. Optical Profiling Scanners. In today's industrial 
environment, non-contact, on-the-move sensing is vital to 
control automated processes and improve industrial 
productivity. STI has developed a diverse line of optical 
profiling scanner products. These scanners (ValuScan and 
PartScan) provide non-contact sensing for a wide variety 
of customer applications. 

        The ValuScan is a family of high speed, 
microprocessor-based profiling scanners designed to 
provide an economical way to measure the physical size of 
various objects. The modular design of the ValuScan 
enables the user to select among various infrared beam 
spacings, size of the scanned area, single or multiple 
axes and many output and programming functions.

        PartScan is designed to detect parts as they 
are ejected from a stamping machine. Objects as small as 
0.5mm can be detected at rates up to 3,600 per minute.

        ValuScan and PartScan, among other applications, 
verify part presence, measure products in both X and Y 
axes, scan for package sorting applications, detect flaws 
caused by holes or tears in moving webs of material and 
control slack loops in rolled material.

        The ValuScan and PartScan are microprocessor-based 
products which greatly simplify configuring an object 
measurement system. Software is included for a variety of 
scanning applications. STI can customize the software for 
a customer's specific needs.

        In 1995 the Company introduced the STI VSS6600 
vehicle scanner series of high speed, profiling scanners 
utilized in highway toll collection systems. These 
scanners are used for both detection and vehicle 
classification, providing imaging information to a host 
computer which determines the appropriate toll to be 
charged in a automatic fare collection application.

d. Photoelectric Sensors. STI also manufactures and/or 
markets a variety of photoelectric and fiberoptic sensors 
used for detecting the presence or absence of objects in a 
wide selection of factory automation applications.

        Fiberoptic sensors utilize flexible glass or 
plastic fiberoptic cable to traverse the light beam from 
the solid state light source to the receiving electronics. 
This cable is very small, and depending upon its design, 
can provide resistance against high temperatures, 
corrosive chemicals or repeated flexing. Fiberoptic 
sensors are often used in confined spaces and in 
environments in which standard photoelectric sensors 
typically would not survive.

        Typical uses and applications for 
photoelectric and fiberoptic sensors include canning and 
bottling lines, conveyor warehousing, palletizing, 
printing, food processing, plastic molding, wood and 
forest products manufacturing, automotive manufacturing, 
material handling and a variety of other applications in 
an array of industries.

e. Other Products. STI also manufactures and/or markets a 
line of optical communications data links (OptoData) and 
spread spectrum radio frequency modems (SpectraData). 

        STI product users include companies in the 
automotive, machine tool, metal forming, robotics, 
electronics, material handling, packaging, food 
processing, pulp and paper, forest products, personal care 
products, printing, chemical, defense and textile  
industries.

        To cover this diversified industrial market, these 
products are marketed primarily to end-users and original 
equipment manufacturers, through more than 195 US 
distributors and sales representatives and 27 foreign 
distributors. Customers include end-users and original 
equipment manufacturers. 

2. Control Components, Power Monitoring and Defense Electronics.

        The Company manufactures and markets a wide variety 
of sensors and relays for commercial and defense 
customers. Such products include custom magnetic 
components, current sensors, RPM sensors, voltage sensors, 
current monitors, time delay relays, flashers, phase 
sequence relays and indicators, DC to DC converters, and 
isolation transformers. STI also manufactures and markets 
a line of power supplies for lasers. 

        STI is qualified as a supplier of a variety of 
military-specified sensors and controls. Many of the these 
products are selected for use on military and general 
aviation aircraft and ground support systems. Products are 
sold to original equipment manufacturers, government 
agencies and end users. 


        Marketing of these products is accomplished 
primarily through direct sales.

3. Industrial Control Microcomputers, Peripherals and Software. 

        The Company also designs and produces modular, 
board-level, computer products under the Datricon label. 

        This product line consists of a series of single 
printed circuit board microcomputers and related 
peripheral boards for industrial applications and use by 
original equipment manufacturers, and printed circuit pre-
packaged systems. Most of the Datricon microcomputers are 
constructed on a single circuit board and are designed 
using a set of electrical and mechanical connections known 
as "STD-Bus". STD-Bus is one of several competing 
electronic bus structures used for microcomputers and 
peripherals in the industrial automation control 
marketplace. 

        Datricon products can be used in a range of customer 
applications, including remote-controlled robots, process 
control equipment, measuring instrumentation, plastics 
manufacturing, lighting controls, semiconductor processing 
equipment, photographic processing and automatic test 
equipment. Datricon products are marketed directly to 
customers, which include end-users and original equipment 
manufacturers.



4. Level and Flow Sensors

        In addition to its three primary product groups, STI 
markets a wide variety of level and flow sensing products 
imported from several manufacturers. The principal 
provider of these products is Nohken, the largest level 
control manufacturer in Japan. STI is the exclusive US 
distributor of the Nohken products. These products provide 
point level detection of solids, liquids and 
solids/liquids, as well as contiguous measurement of 
continuous flow of solids and liquids, in a wide variety 
of environments. 

Sources and availability of components

        The Company maintains an inventory of components and parts for 
its manufacturing activities. There are many sources for most of the 
components needed; however, some products, components and sub-
assemblies are obtained from sole sources which may be the only 
supplier or in order to obtain pricing or supply efficiencies. In 
the event of supply interruptions from these vendors, the Company 
believes most sole source components could be obtained from 
alternate suppliers, but this would require the transfer of tooling 
or designs or the redesign of the Company's product to facilitate 
use of alternate source components. Delays would be incurred by 
switching to an alternate source which could have an adverse effect 
on the Company's business, financial condition and results of 
operations.

        The Company also derives revenue from the distribution of 
products from third party manufacturers. In the event such 
arrangements are terminated or third party products otherwise become 
unavailable, the Company's results of operations could be adversely 
affected.

Research and development

        In order to meet the changing needs of its customers, the 
Company continuously engages in research and development both to 
introduce new products and to improve existing products. In 
addition, the Company modifies products as necessary to meet 
original equipment manufacturers' requirements. At December 31, 
1997, there were approximately 23 employees engaged in research and 
development activities. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations - Business Factors - 
Rapid Technological Change and New Product Development."

        In 1997, 1996, and 1995, the Company spent $3,135,000, 
$2,482,000, and $1,598,000, respectively, on engineering, research 
and development. In addition to new products such as DuoSafe and 
enhancements to existing products, the Company's research and 
development efforts are directed towards qualifying the Company's 
light curtains, scanners and sensors for sale in foreign countries 
and qualifying products the Company imports for sales in the U.S. 
The Company anticipates that its level of research and development 
expenditures may be higher in 1998.

Patents and trademarks

        The Company holds seven US patents and nine US registered 
trademarks. In addition, the Company has been licensed by its Parent 
to use three patents for its products and six US registered 
trademarks, including the use of the Parent's logo "STI". Products 
are marketed under the following US registered trademarks: 
"DUOSAFE," "OPTOFENCE," "MINISAFE," "OPTOSAFE," "FIBERLENS," 
"BEAMSAFE," "SPECTRADATA," "FLEXSAFE" and "MICROSAFE". The Company 
has filed for additional patent protection on certain of its 
technologies.

        There can be no assurance that these patents or trademarks or 
other steps taken by the Company to protect its intellectual 
property will prove sufficient to prevent misappropriation of the 
Company's technology. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations - Business Factors - 
Protection and Enforcement of Intellectual Property Rights." Because 
of the rapid rate of technology change in the electronics industry, 
the Company believes its success in the future depends on the 
quality of its products and services and the technical skills of its 
personnel to adapt to technological developments, rather than solely 
on its patents. 

Backlog

        Because many customers place large orders for delivery 
throughout the year and because of the possibility of customer 
changes and cancellation of orders, the Company's backlog as of any 
particular date may not be representative of the Company's sales for 
any succeeding fiscal period. At March 9, 1998, the Company's 
backlog was $1,654,000, compared to $1,974,000 at March 13, 1997. Of 
this total, $186,000 is scheduled at customer's request, to be 
filled during periods after 1998.

Competition

        The industry in which the Company operates is competitive and 
subject to rapid technological change.  Many of the Company's 
competitors are significantly larger and possess greater financial 
and other resources. 

        Competitors of STI include, among others, Honeywell, Rockwell 
Automation, Eaton Corporation, Banner Engineering, Sick Optic-
Electronic, Inc., Cutler Hammer, Danaher Controls, Data Instruments, 
Link Controls  and Omron. Competitors of the control components 
power monitoring and defense product lines include several of the 
above-mentioned firms and also SCI Systems, Inc., Technitrol, 
Logitek, Hi-G and Xentek. The Datricon line's competitors include 
Mizar, Pro-Log, and Ziatech. In addition, the Company faces indirect 
competition from present and potential end users who from time to 
time evaluate  the "make or buy" decision of whether to manufacture 
their own components or purchase them from outside sources.

        Competition is based primarily upon product quality, 
performance and price. The Company believes that it generally 
competes favorably with respect to these factors. To maintain its 
competitive position, the Company will continue to devote 
substantial resources to the development of new products. See 
"Business - Research and development."

Foreign operations

        The Company has no foreign manufacturing operations. STI 
Scientific Technologies GmbH, a wholly owned German subsidiary, was 
established in 1995 as the Company's European sales office. The 
Company's products are also sold in foreign countries by 
distributors and independent sales representatives. Foreign sales 
represented less than 10% of sales in each of 1997, 1996 and 1995.

Customers

        NCC Electronics, an independent distributor, represented 18% 
of sales in 1997 and 19% of sales in 1996 and 1995. No other 
customer represented more than 10% of sales. Aggregate sales to both 
government agencies and government contractors represented less than 
5% of sales in 1997, 1996 and 1995.



Costs and effects of compliance with environmental laws

        Compliance with environmental protection laws or similar 
ordinances is not expected to have any material affect on the 
business of the Company. 

Employees

        At December 31, 1997, the Company employed approximately 254 
full time employees. Included in this total was the common 
manufacturing, support and administrative staff that the Company 
shares with the Parent and other subsidiaries of the Parent at the 
Dumbarton Circle facility, in Fremont, California.

        None of the employees are represented by unions, and there has 
never been a disruption of operations due to a labor dispute.

        Many of the Company's employees are skilled in technical and 
engineering disciplines and the future success of the Company will 
depend, in part, upon its ability to attract and retain such 
employees. The Company believes that its relations with its 
employees are good.

Item 2. PROPERTIES 

        The Company owns no real estate. The Company's manufacturing 
operations, corporate headquarters, administrative, engineering and 
sales offices are located a 95,000 square foot facility located at 
6550 Dumbarton Circle, Fremont, California. The facility is owned by 
an affiliate of the Parent and the Company leases approximately 
85,000 square feet, 89% of the total, for its use. The Company 
believes its current facilities will be adequate for the foreseeable 
future. See Note 7 of Notes to Consolidated Financial Statements for 
information regarding lease commitments. 

        The Company maintains insurance policies for property, 
casualty, fire, business interruption, workers compensation, general 
liability and product liability. There can be no assurance that in 
the future, the Company will continue to be able to obtain such 
insurance on commercially and economically feasible terms. In the 
event the Company were to suffer a claim not covered by insurance or 
if insurance coverage is insufficient, such claim could have an 
adverse effect on the Company's operations or financial condition.

Item 3. LEGAL PROCEEDINGS. 

     None.

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

     None.





PART II

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


Market Information

     The Company's common stock is traded on the Nasdaq Stock Market 
under the symbol STIZ.  The stock tables in most daily newspapers list 
the Company as "SciTech".


Price of Common Stock
----------------------
1997              High      Low      1996              High      Low
--------------- --------- ---------  --------------- --------- ---------
1st Quarter      $ 8-7/8  $ 7-1/8    1st Quarter      $16-3/4  $10-1/2
2nd Quarter        9-3/4    7-1/4    2nd Quarter       17-3/4   10-1/2
3rd Quarter       13-7/8    8-3/4    3rd Quarter       11-3/4    7-1/2
4th Quarter       13-3/4    9-7/16   4th Quarter       10-1/4    7-1/2

The closing sales price on February 27, 1998 was $14.25 per share.

Holders
     There were 746 stockholders of record on February 27, 1998.

Dividends
        In 1997, regular quarterly dividends of $.0425 per share were 
paid on April 1, July 1, September 9, and December 2. In 1996, 
regular quarterly dividends of $.04 per share were paid on April 1, 
July 1, September 3, and December 3. On March 5, 1998, the Company 
declared a regular quarterly dividend of $.045 per share, payable on 
April 1, 1998 to shareholders of record on March 20, 1998.


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

                      SCIENTIFIC TECHNOLOGIES INCORPORATED
                      SELECTED CONSOLIDATED FINANCIAL DATA
                     (In thousands, except per share data)
<TABLE>
<CAPTION>
                                    For the Years Ended December 31,
                           ------------------------------------------------
                             1997      1996      1995      1994      1993
                           --------  --------  --------  --------  --------
<S>                        <C>       <C>       <C>       <C>       <C>
Income statement data
---------------------------
Net sales                  $44,859   $38,294   $36,006   $26,115   $18,617
Income from operations       9,266     7,798    10,247     6,063     3,995
Net income                   6,070     5,168     6,336     3,698     2,476
Basic income per common
  share                      $0.63     $0.54     $0.66     $0.38     $0.26
Diluted income per common
  share                      $0.62     $0.53     $0.66     $0.38     $0.26

                                             December 31,
                           ------------------------------------------------
                             1997      1996      1995      1994      1993
                           --------  --------  --------  --------  --------
Balance sheet data
-------------------
Total assets               $26,119   $21,713   $18,097   $12,284    $8,310
Long-term obligations           --        --        14        58        86
Stockholders' equity        22,518    17,871    14,336     9,249     6,504
Dividends declared per
  share                      $0.17     $0.16     $0.13     $0.10     $0.09

</TABLE>










































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

The discussion and analysis below contains trend analysis and other 
forward looking statements within the meaning of Section 27A of the 
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 
1934. Actual results could differ materially from those projected in the 
forward looking statements as a result of the risk factors set forth 
under "Business Factors" and elsewhere in this report. The following 
discussion should be read in conjunction with the Company's consolidated 
financial statements and notes thereto. All references to years are to 
fiscal years unless otherwise noted.

Results of Operations

Sales

Sales in 1997 grew 17% to $44.9 million from $38.3 million in 1996. 
Sales in 1996 grew 6% to $38.3 million from $36.0 million in 1995. The 
most significant factor driving the growth in both periods was an 
overall increase in units shipped. Also contributing to this growth was 
the strong customer acceptance of new products such as DuoSafe. Sales in 
1997 were positively affected by an improvement in the Company's overall 
sales discount rate. The Company believes that competitive conditions 
could have an impact on its distributor discount and future sales growth 
rates. The table below summarizes operating performance as a percent of 
sales for the most recent three years.

                                                 1997       1996       1995
                                              ---------- ---------- ----------
Sales                                               100%       100%       100%
                                              ---------- ---------- ----------
Gross margin                                         52%        51%        55%
                                              ---------- ---------- ----------
Operating expenses
  Selling, general and administrative                24%        24%        22%
  Research and development                            7%         6%         4%
                                              ---------- ---------- ----------
   Total operating expenses                          31%        30%        26%
                                              ---------- ---------- ----------
Income from operations                               21%        21%        29%
Interest income, net                                  1%         1%         1%
                                              ---------- ---------- ----------
Income before income taxes                           22%        22%        30%
Provision for income taxes                            8%         8%        12%
                                              ---------- ---------- ----------
Net income                                           14%        14%        18%
                                              ========== ========== ==========

Gross profit

                            1997 = $23.3 million
                            1996 = $19.6 million
                            1995 = $19.9 million
                            Increase in 1997 = 19%
                            Decrease in 1996 = 2%

STI's gross margin was 52% of sales in 1997, 51% in 1996 and 55% in 
1995. The increase in gross profit in 1997 compared to 1996 was due 
primarily to continued improvements in manufacturing techniques and 
processes and economies of scale associated with higher volume, 
resulting in decreased cost per unit. The decline in gross profit and 
gross margin in 1996 compared to 1995 was attributable to: a more 
competitive market which resulted in greater sales discounts and a 
product mix change consisting of increased proportionate sales of lower 
margin products. Gross margin in 1996 was also impacted by higher sales 
of products manufactured by other companies and distributed by STI, 
which generally have lower gross margins. In addition, during the latter 
part of 1995, the Company relocated to a new and larger facility and 
increased its manufacturing support staff. During 1996, the Company 
experienced a 36% increase in manufacturing overhead expenses which was 
the result of the full year effect of the new facilities expenses, and 
to a lesser extent, manufacturing staff increases. The Company believes 
that increased sales helped to offset the higher fixed costs associated 
with relocation to a larger facility and had a positive impact on gross 
margin.

Selling, general and administrative expenses

                         1997 = $10.9 million
                         1996 = $9.4 million
                         1995 = $8.0 million
                       Increase in 1997 = 16%
                       Increase in 1996 = 18%

For 1997, selling, general and administrative expenses as a percent of 
sales remained constant at 24%. Total expenditures increased 16%, 
compared to sales growth of 17%. During 1997, the Company continued the 
expansion of its advertising and promotional expenditures, completed an 
extensive revision to its product data book and expanded its sales 
staff. Economies of scale allowed it to keep the growth rate of selling, 
general and administrative expenses below the sales growth rate. In 
1996, the Company increased its promotional expenditures, continued to 
expand its sales and information systems staff and incurred the full 
year effect of expenses associated the new facilities and German sales 
and marketing operations. These were the primary reasons that the growth 
in selling, general and administrative expenses exceeded sales growth 
when compared to 1995. The Company also translated its product 
literature into other languages as required for sales activity in the 
European market. The Company anticipates that selling, general and 
administrative expenses will increase in the future but will remain 
constant or be slightly lower as a percent of sales.

Research and development expenses

                             1997 = $3.1 million
                             1996 = $2.5 million
                             1995 = $1.6 million
                            Increase in 1997 = 26%
                            Increase in 1996 = 55%


Product creation, development and enhancement have been and continue to 
be an important factor in STI's long-term success. Investments in this 
area enable the Company to serve the factory automation market with 
increasingly sophisticated sensors, manufacturing controls and data 
communication products. In 1997 and 1996, STI introduced a number of 
product advancements that have helped the Company to maintain its 
position in a highly competitive marketplace. The Company anticipates 
that the level of research and development expenses will increase in the 
future, although the Company expects such expenses to remain constant as 
a percentage of sales. To date, all product development costs have been 
expensed as incurred.

Income Tax 

The Company's effective income tax rate was 38% in 1997 and 1996 and 40% 
in 1995. The Company expects that its effective tax rate for 1998 will 
be reasonably consistent with 1997 as the Company will continue to earn 
research and development tax credits through June 1998, in addition to 
the mix of foreign and domestic income. See Notes 1 and 5 of Notes to 
Consolidated Financial Statements.

New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board (FASB) issued 
SFAS No. 130, "Reporting on Comprehensive Income." SFAS No. 130 
establishes standards for reporting and display of comprehensive income 
and its components in a financial statement that is displayed with the 
same prominence as other financial statements  for periods beginning 
after December 15, 1997. Comprehensive income, as defined, includes all 
changes in equity  (net assets) during a period from non-owner sources 
including unrealized gains and losses from available-for-sale 
securities. Reclassification of financial statements for earlier periods 
for comparative purposes is required. The Company will adopt SFAS No. 
130 beginning in 1998 and does not expect such adoption will have a 
material effect on the consolidated financial statements.

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments 
of an Enterprise and Related Information." This statement establishes 
standards for the way companies report information about operating 
segments in annual financial statements for periods beginning after 
December 15, 1997. It also establishes standards for related disclosures 
about products and services, geographic areas, and major customers. It 
is not expected that adoption of SFAS No. 131 will have material impact 
on the consolidated financial statements.

Liquidity and Capital Resources

STI's working capital needs have been met through funds generated from 
operating activities. During 1997, operating funds were provided by net 
income, adjusted for depreciation, an increase in accrued expenses and, 
to a lesser extent, the issuance of common stock. These operating funds 
were used to finance increased accounts receivable, inventories and 
other assets, to purchase short-term investments and fixed assets and to 
pay dividends. Working capital amounted to $19.8 million at December 31, 
1997. The bank line of credit with Bank of the West, consisting of a one 
year $2.5 million revolving line and term loan commitment was extended 
in 1997 to May 31, 1998. Secured by qualified receivables, fixed assets 
and inventories, borrowing under this credit line bears interest at the 
bank's prime rate. At December 31, 1997, none of the revolving line of 
credit had been utilized. The Company has the option to convert up to 
$500,000 of the credit line into a five year term note. See Notes 4 and 
6 of Notes to Consolidated Financial Statements.

The Company made certain capital expenditures during 1997, primarily for 
production, quality assurance, research and development equipment, 
information systems and software. Consistent with its customary 
operations and plans for growth, the Company plans to make certain 
capital expenditures during 1998, primarily for production, quality 
assurance and research and development equipment. While the Company had 
no formal commitments at December 31, 1997, it is anticipated that 
capital expenditures in 1998 will be approximately $1,000,000. See Note 
7 of Notes to Consolidated Financial Statements.

STI believes that its cash flow from operations and available bank 
borrowings will be sufficient to meet anticipated working capital 
requirements through at least 1998. While the Company continues to 
evaluate its financing alternatives from time to time, it has no current 
plans to raise additional outside capital. 

Relationship with Parent

The Parent manages cash for the Company. Cash collected by the Parent on 
the Company's behalf is reflected as a decrease to the Payable to Parent 
account or as an increase to the Receivable from Parent account. Cash 
transfers, management service, interest and rent charges from the Parent 
to the Company, charges for income taxes and the Parent's share of 
dividends are reflected as increases to the payable account or as 
decreases to the receivable account. The Parent files consolidated 
returns, including the accounts of the Company, for federal and state 
income taxes. See Note 2 of Notes to Consolidated Financial Statements.

Year 2000

The Company has completed upgrading its information systems to Year 2000 
compliant versions, and therefore does not anticipate any internal Year 
2000 issues from its own information systems. However, the Company could 
be adversely impacted by Year 2000 issues faced by major distributors, 
suppliers, customers, vendors and financial service organizations. 
Management has not yet completed an assessment of the impact that third 
parties who are not Year 2000 compliant may have on the operations of 
the Company.

Business Factors

Because of the variety of factors and uncertainties affecting the 
Company's operating results, past financial performance and historic 
trends may not be a reliable indicator of future performance. These 
factors, as well as other factors affecting the Company's operating 
performance, may result in significant volatility in the Company's 
common stock price. Among the factors which could affect the Company's 
future business, financial condition or operating results are the 
following:

Variability of operating results

The Company has experienced fluctuations in annual and quarterly 
operating results and anticipates that these fluctuations will continue. 
These fluctuations are caused by a number of factors, including the 
level and timing of customer orders, fluctuations in complementary third 
party products with which STI products are sold, the mix of products 
sold and the timing of operating expenditures.

Seasonality

The industrial manufacturing equipment industry can be subject to 
seasonality. This is also true with respect to European markets where 
business activity declines due to vacations taken in the summer months.

Competition

The market for industrial sensors is highly competitive. Many 
competitors have substantially greater name recognition and technical, 
marketing and financial resources than the Company. Competitive 
pressures could reduce market acceptance of the Company's products and 
result in price reductions and increases in expenses.

Rapid technological change and new product development

The market for the Company's products is characterized by rapidly 
changing technology, evolving industry standards, changes in customer 
needs and frequent new product introductions. The Company's future 
success will depend on its ability to enhance its current products, 
develop new products and respond to emerging industry standards, all on 
a timely and cost-effective basis. The introduction of new products also 
requires the Company to manage the transition from older products in 
order to minimize disruption of customer orders, avoid excessive levels 
of older product inventories and ensure that adequate supplies of new 
products can be delivered to meet customer demands.

Dependence on indirect distribution channel

A majority of the Company's sales are sold through third party 
distributors, system integrators and original equipment manufacturers. 
These resellers are not required to offer the Company's products 
exclusively. There can be no assurance that a reseller will continue to 
offer the Company's products. In addition many of the Company's 
resellers are privately owned firms and some may not be well 
capitalized.

International sales

The Company's international sales may be disrupted by currency 
fluctuations or other events beyond the Company's control, including 
political or regulatory changes.




Protection and Enforcement of Intellectual Property Rights

The Company relies on a combination of patent, trademark and trade 
secret laws and contractual restrictions to establish and protect 
certain proprietary rights in its products and services. There can be no 
assurance that the Company's patents, trademarks, or contractual 
arrangements or other steps taken by the Company to protect its 
intellectual property will prove sufficient to prevent misappropriation 
of the Company's technology or defer independent third party development 
of similar technologies. Moreover, there can be no assurance that the 
technology licenses granted to the Company from its Parent will continue 
to be available. The loss of any of the Company's proprietary technology 
could require the Company to obtain technology of lower quality or 
performance standards or at greater cost, which could materially 
adversely affect the Company's business, results of operations and 
financial condition. Furthermore, the laws of certain foreign countries 
may not protect the Company's products, services or intellectual 
property rights to the same extent as do the laws of the United States.

To date, the Company has not been notified that any of its products 
infringe the proprietary rights of third parties, but there can be no 
assurance that third parties will not claim infringement by the Company 
with respect to current or future products. Any such claim, whether 
meritorious or not, could be time-consuming, result in costly litigation 
or require the Company to enter into royalty or licensing agreements. 
Such royalty or licensing agreements might not be available on terms 
acceptable to the Company or at all. As a result, any such claim could 
have a material adverse affect upon the Company's business, results and 
financial condition. See " Business - Patents and Trademarks".

<PAGE>

























Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 (a) The following documents are filed as a part of this Report:

  (1) Financial Statements

        Consolidated Balance Sheet - December 31, 1997 and 1996                 

        Consolidated Statement of Operations - Years ended December 31, 1997,
           1996 and 1995

        Consolidated Statement of Cash Flows - Years ended December 31, 1997,
          1996 and 1995

        Consolidated Statement of Changes in Stockholders' Equity - Years 
          ended December 31, 1997, 1996 and 1995                              

        Notes to Consolidated Financial Statements

        Report of Independent Accountants

  (2) Financial Statement Schedules

Financial Statement Schedules have been omitted because they are not 
required or applicable, or the information required to be set forth 
therein is included in the Financial Statements or notes thereto.       










<PAGE>



















                      SCIENTIFIC TECHNOLOGIES INCORPORATED
                           CONSOLIDATED BALANCE SHEET
                     (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                          December 31,
                                                      --------------------
                                                        1997       1996
                                                      ---------  ---------
<S>                                                   <C>        <C>
ASSETS

Current assets:
    Cash and cash equivalents                           $4,559     $2,371
    Short-term investments                               4,973      4,989
    Accounts receivable, net                             7,474      6,692
    Inventories                                          5,113      4,066
    Deferred income taxes                                1,020        840
Other assets                                               294        278
                                                      ---------  ---------
          Total current assets                          23,433     19,236

Property and equipment, net                              2,686      2,477
                                                      ---------  ---------
          Total assets                                 $26,119    $21,713
                                                      =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
    Trade accounts payable                              $1,934     $2,385
    Accrued expenses                                     1,667      1,457
                                                      ---------  ---------
          Total current liabilities                      3,601      3,842
                                                      ---------  ---------
Commitments and contingencies (Notes 4 and 7)

Stockholders' Equity
    Voting Preferred stock; shares authorized -
       10,000; shares issued and outstanding -
       none; $.10 par value                                --         --
    Non-voting Preferred stock; shares authorized -
       10,000; shares issued and outstanding -
       none; $.10 par value                                --         --
    Common stock; shares authorized - 100,000;
       shares issued and outstanding - 9,635 and
       9,602, respectively; $.001 par value                 10         10
    Capital in excess of par value                       5,532      5,319
    Retained earnings                                   16,976     12,542
                                                      ---------  ---------
          Total stockholders' equity                    22,518     17,871
                                                      ---------  ---------
          Total liabilities and stockholders' equity   $26,119    $21,713
                                                      =========  =========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>

                      SCIENTIFIC TECHNOLOGIES INCORPORATED
                      CONSOLIDATED STATEMENT OF OPERATIONS
                     (In thousands, except per share data)
<TABLE> 
<CAPTION> 
                                              For the Years Ended December 31, 
                                              --------------------------------
                                                 1997       1996       1995
                                              ---------- ---------- ----------
<S>                                           <C>        <C>        <C>
Sales                                           $44,859    $38,294    $36,006
Cost of goods sold                               21,510     18,661     16,139
                                              ---------- ---------- ----------
  Gross profit                                   23,349     19,633     19,867
Operating expenses
  Selling, general and administrative            10,948      9,353      8,022
  Research and development                        3,135      2,482      1,598
                                              ---------- ---------- ----------
   Total operating expenses                      14,083     11,835      9,620
                                              ---------- ---------- ----------

   Income from operations                         9,266      7,798     10,247

Interest income, net                                524        537        312
                                              ---------- ---------- ----------

   Income before income taxes                     9,790      8,335     10,559
Provision for income taxes                        3,720      3,167      4,223
                                              ---------- ---------- ----------

        Net income                               $6,070     $5,168     $6,336
                                              ========== ========== ==========

   Basic net income per common share              $0.63      $0.54      $0.66
                                              ========== ========== ==========
   Shares used to compute basic
     net income per common share                  9,615      9,606      9,607
                                              ========== ========== ==========

   Diluted net income per common share            $0.62      $0.53      $0.66
                                              ========== ========== ==========
   Shares used to compute diluted
     net income per common share                  9,777      9,733      9,607
                                              ========== ========== ==========
</TABLE>
  The accompanying notes are an integral part of these financial statements.
<PAGE>








                      SCIENTIFIC TECHNOLOGIES INCORPORATED
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                 (In thousands)
<TABLE>
<CAPTION>
                                            For the Years Ended December 31, 
                                            --------------------------------
                                               1997       1996       1995
                                            ---------- ---------- ----------
<S>                                         <C>        <C>        <C>
Cash flows from operating activities:
  Net income                                   $6,070     $5,168     $6,336
  Adjustments to reconcile net income to
    cash provided by (used in)
     operating activities:
    Depreciation and amortization                 833        649        465
    Changes in assets and liabilities:
       Accounts receivable, net                  (782)    (1,439)      (467)
       Inventories                             (1,047)      (579)    (1,120)
       Trade accounts payable                    (451)       167        651
       Accrued expenses                           210        (22)        97
       Other                                     (196)      (523)      (344)
                                            ---------- ---------- ----------
  Cash flows provided by operating
   activities                                   4,637      3,421      5,618
                                            ---------- ---------- ----------
Cash flows from investing activities:
       Purchases of property  and
        equipment                              (1,042)    (1,228)      (863)
       Sale (purchase) of short-term
        investments, net                           16     (1,602)    (2,254)
                                            ---------- ---------- ----------
  Cash flows used in investing activities      (1,026)    (2,830)    (3,117)
                                            ---------- ---------- ----------

Cash flows from financing activities:
   Payments on debt                               --         (64)       (22)
   Issuance (repurchase) of common stock          213        (96)       --
   Dividends                                   (1,636)    (1,537)    (1,249)
                                            ---------- ---------- ----------
  Cash flows used in financing activities      (1,423)    (1,697)    (1,271)
                                            ---------- ---------- ----------
Change in cash and cash equivalents             2,188     (1,106)     1,230
Cash and cash equivalents at beginning
 of year                                        2,371      3,477      2,247
                                            ---------- ---------- ----------
Cash and cash equivalents at end of year       $4,559     $2,371     $3,477
                                            ========== ========== ==========

Supplemental disclosure of cash flow
 information:
            Cash paid to Parent for
             income taxes                      $3,720     $3,167     $4,223
                                            ========== ========== ==========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>

                      SCIENTIFIC TECHNOLOGIES INCORPORATED
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
                       DECEMBER 31, 1997, 1996 AND 1995
                                 (In thousands)
<TABLE>
<CAPTION>
                                         Common Stock
                               ----------------------------
                                                   Capital
                                                  in excess
                                           Par     of par   Retained
                                Shares    Value     Value   Earnings   Total
                               --------- -------- --------- -------- ---------
<S>                            <C>       <C>      <C>       <C>      <C>
Balances December 31, 1994        9,607      $10    $5,415   $3,824    $9,249
   Net income for the year           --      --          --   6,336     6,336
   Dividends paid                    --      --          --  (1,249)   (1,249)
                               --------- -------- --------- -------- ---------
Balances December 31, 1995        9,607       10     5,415    8,911    14,336
   Repurchase of common stock        (5)     --        (96)      --       (96)
   Net income for the year           --      --          --   5,168     5,168
   Dividends paid                    --      --          --  (1,537)   (1,537)
                               --------- -------- --------- -------- ---------
Balances December 31, 1996        9,602       10     5,319   12,542    17,871
   Issuance of common stock          33      --        213       --       213
   Net income for the year           --      --          --   6,070     6,070
   Dividends paid                    --      --          --  (1,636)   (1,636)
                               --------- -------- --------- -------- ---------
Balances December 31, 1997        9,635      $10    $5,532  $16,976   $22,518
                               ========= ======== ========= ======== =========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>




















Scientific Technologies Incorporated
Notes to Consolidated Financial Statements

NOTE 1-OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

Description of Operations
Scientific Technologies Incorporated (the "Company") develops, 
manufactures and markets safety light curtains, industrial sensors, 
optical profilers, microcomputers, power monitoring devices and data 
communications products for factory automation applications. A majority 
of the Company's outstanding  common stock is held by Scientific 
Technology Incorporated (the "Parent"). 

The Company operates in one business segment - the development, 
manufacture and marketing  of  electronic products. Sales to foreign 
customers represented less than 10% of total sales in 1997, 1996 and 
1995. One customer, a distributor, accounted for 18% of total sales in 
1997 and 19% of total sales in 1996 and 1995.

Basis of Presentation

The consolidated financial statements include the accounts of the 
Company and its subsidiaries after elimination of all significant 
intercompany accounts and transactions.

Revenues

Revenues from product sales are recognized when products are shipped. 
The Company warranties its products for 12 months from date of 
installation and provides for warranty upon shipment.

Cash and Cash Equivalents and Short-Term Investments
The Company invests primarily in money market accounts and short-term 
investments held at financial institutions and considers all highly 
liquid investments with an original maturity of less than 90 days to be 
cash equivalents.

Short-term investments consist of highly rated mutual funds and Treasury 
bonds which generally mature in less than one year and are classified as 
"available for sale". Interest income is accrued as earned. The 
investments are carried at cost plus accrued interest, which 
approximates market value.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or 
market.

Property and Equipment

Property and equipment, including furniture and fixtures, are recorded 
at cost. Depreciation is provided using the straight-line method over 
the estimated useful lives, which range from three to ten years. 
Leasehold improvements are amortized over the shorter of the term of the 
lease or the estimated life of the improvement.

Income Taxes

Deferred income taxes are provided for the temporary differences between 
the financial reporting basis and the tax basis of the Company's assets 
and liabilities.

The Company is included in the consolidated tax return of the Parent, 
but provides for income taxes on a separate return basis pursuant to a 
tax sharing arrangement, which limits the Company's tax liability to the 
amount payable to the Parent. Income taxes payable are recorded as a 
reduction to the receivable from Parent account or as an increase to the 
payable to Parent account.


Concentration of Credit Risk

Financial instruments that potentially subject the Company to 
significant concentrations of credit risk consist principally of cash, 
cash equivalents, short-term investments and trade accounts receivable. 
The Company places its cash and cash equivalents in a variety of money 
market accounts. The Company further limits its exposure to these 
investments by placing such investments with various high quality 
financial institutions. The Company routinely performs evaluations of 
these financial institutions. The Company's short-term investments are 
primarily composed of highly rated mutual funds and Treasury bonds. The 
Company offers credit terms on the sale of its products to its 
customers. The Company performs ongoing credit evaluations of its 
customers' financial condition and, generally, requires no collateral 
from its customers. The Company maintains an allowance for uncollectable 
accounts receivable based upon the expected collectability of all 
accounts receivable.

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities in accordance 
with generally accepted accounting principles. For certain of the 
Company's financial instruments, including cash, cash equivalents, 
short-term investments, trade accounts receivable, accounts payable and 
accrued expenses, the carrying amounts approximate fair value due to the 
short maturities.

Foreign currency

The Company's German subsidiary generally transacts its business in 
German Marks. Translation and transaction gains and losses to date have 
been immaterial.

Income per Share

The Company has adopted Statement of Financial Accounting Standards No. 
128 ("SFAS 128"). SFAS 128 requires presentation of both Basic and 
Diluted income per share on the face of the Statement of Operations. All 
prior period net income per share data has been restated in accordance 
with SFAS 128. Basic income per common share is computed based on the 
weighted average number of shares outstanding during the period. Diluted 
income per share is computed based on the weighted average number of 
shares outstanding during the period plus the weighted average of stock 
options outstanding during the period. In computing diluted net income 
per common share, the average stock price for the period is used in 
determining the number of shares assumed to be repurchased from the 
proceeds of the stock options. A reconciliation of the numerators and 
denominators of the basic and diluted income per common share 
computations is provided below.

                                                       In Thousands      Per
                                               ----------------------   Share
                                                 Income      Shares     Amunt
                                               ----------  ---------- ----------
    1997
    Earnings per share of common stock            $6,070       9,615      $0.63
    Effect of dilutive securities
         Stock options                              --           162     ($0.01)
                                               ----------  ---------- ----------
    Earnings per share of common stock-
      assuming dilution                           $6,070       9,777      $0.62
                                               ==========  ========== ==========
    1996
    Earnings per share of common stock            $5,168       9,606      $0.54
    Effect of dilutive securities
         Stock options                              --           127     ($0.01)
                                               ----------  ---------- ----------
    Earnings per share of common stock-
      assuming dilution                           $5,168       9,733      $0.53
                                               ==========  ========== ==========
    1995
    Earnings per share of common stock            $6,336       9,607      $0.66
    Effect of dilutive securities
                                                    --           --         --
    Earnings per share of common stock-        ----------  ---------- ----------
      assuming dilution
                                                  $6,336       9,607      $0.66
                                               ==========  ========== ==========

Management Estimates

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

Stock Based Compensation Plans

The employees of the Company are eligible to participate in  stock 
option and stock purchase plans of the Parent. The Company applied the 
provisions of Statement of Accounting Standards No. 123 ("SFAS 123") to 
the stock option and stock purchase plans for 1997, 1996 and 1995, and 
found that the allocated pro forma effects of applying SFAS 123 were 
immaterial to the Company's financial position and results of 
operations.

NOTE 2 - RELATED PARTY TRANSACTIONS 

The Parent provides certain management, marketing and sales services to 
the Company. The costs are allocated to the Company based on the 
percentage of the Company's sales to total sales of the Parent and its 
subsidiaries. The amounts  allocated to the Company for 1997, 1996 and 
1995 were $824,000, $949,000 and $890,000, respectively. 

The Company leases approximately 85,000 square feet in a 95,000 square 
foot facility owned by an affiliate of the Parent. The lease term is ten 
years. Overhead costs are allocated primarily on the basis of square 
footage utilized.

Additionally, the Parent manages the Company's cash. The Company 
utilizes a payable to Parent account to record activity including cash 
received, cash disbursed and amounts owed to the Parent for allocated 
charges and dividends. The net effect of transactions with the Parent 
resulted in a zero balance at December 31, 1997 and 1996. The Company 
charges interest on the receivables from the Parent and pays interest on 
payables to Parent at the Company's average interest rate on bank 
borrowings. Interest expense amounted to $34,000 in 1997 and $42,000 in 
1996. There was no interest income or expense in 1995.

NOTE 3-PRODUCT LINE ACQUISITION

In January 1997, the Company reached an agreement with the Parent to 
acquire the distribution rights to certain level and flow control products 
manufactured by outside sources. As compensation for this agreement, the 
Company will pay a royalty on sales of the product to the Parent for a 
number of years. The acquisition had an immaterial impact on revenues, 
gross margin and net income for the year ended December 31, 1997.

NOTE 4 - BALANCE SHEET DATA

                                                      December 31,
                                               ----------------------
                                                  1997        1996
                                               ----------  ----------
  ACCOUNTS RECEIVABLE:
   Trade accounts receivable                      $7,612      $6,806
   Less: Allowance for doubtful accounts            (138)       (114)
                                               ----------  ----------
   Accounts receivable, net                       $7,474      $6,692
                                               ==========  ==========

  INVENTORIES:
   Finished goods                                 $1,496      $1,449
   Work in process                                   624         509
   Subassemblies                                     613         493
   Raw materials                                   2,380       1,615
                                               ----------  ----------
                                                  $5,113      $4,066
                                               ==========  ==========



  PROPERTY AND EQUIPMENT:
   Equipment                                      $4,445      $3,659
   Furniture and fixtures                            907         651
   Leasehold improvements                             21          20
                                               ----------  ----------
                                                   5,373       4,330
   Less: accumulated depreciation                 (2,687)     (1,853)
                                               ----------  ----------
                                                  $2,686      $2,477
                                               ==========  ==========
  ACCRUED EXPENSES:
   Accrued compensation and benefits                $944        $666
   Accrued commissions                               247         222
   Warranty reserve                                  262         229
   Other                                             214         340
                                               ----------  ----------
                                                  $1,667      $1,457
                                               ==========  ==========


The Company has a  $2,500,000 line of credit with Bank of The 
West, of which no amount was outstanding at December 31, 1997 and 
1996. The credit line, which is subject to certain financial 
statement covenants, bears interest at the bank's prime rate (8.5% 
at December 31,1997), expires on May 31, 1998, and is secured by 
accounts receivable, inventories and fixed assets.

NOTE 5 - INCOME TAXES

The provision for income taxes was as follows:

                                           Year Ended December 31, 
                                   ----------------------------------
                                      1997        1996        1995
                                   ----------  ----------  ----------
                                             (In thousands) 
  Current tax expense:
   Federal                            $3,142      $2,691      $3,578
   State, net of federal benefit         758         876       1,085
                                   ----------  ----------  ----------
   Sub total                           3,900       3,567       4,663
   Deferred tax benefit                 (180)       (400)       (440)
                                   ----------  ----------  ----------
   Total                              $3,720      $3,167      $4,223
                                   ==========  ==========  ==========

Deferred income taxes are provided for the temporary differences between the 
financial reporting basis and the tax basis of the Company's assets and 
liabilities. At December 31, 1997 and 1996, the Company's deferred tax 
assets of  $1,020,000 and $840,000, respectively, were comprised primarily 
of the following items: $417,000 and $425,000, respectively, of inventory 
reserves and $603,000 and $415,000, respectively, of other accruals and 
reserves not currently deductible.



The provision for income taxes differs from the amount of tax determined by
applying the applicable U.S. statutory income tax rate to pretax income as a
result of the following differences:

                                           Year Ended December 31, 
                                   ----------------------------------
                                      1997        1996        1995
                                   ----------  ----------  ----------
Percentage of pretax income:                                           
   Statutory U.S. tax rate                34%         34%         34%
   State income taxes, net of
     federal benefit                       6%          6%          6%
   Research and development
     and other credits                    (2%)        (2%)        --
                                   ----------  ----------  ----------
Effective tax rate                        38%         38%         40%
                                   ==========  ==========  ==========

NOTE 6-DIVIDENDS

On March 5, 1998, the Company declared a regular quarterly dividend of 
$.045 per share on all of its common shares, payable on April 1, 1998 to 
shareholders of record on March 21, 1998. During 1997, the Company paid 
quarterly dividends of $.0425 per share. During 1996, the Company paid 
quarterly dividends of $.04 per share. During 1995, the Company paid 
regular quarterly dividends of $.03 per share on April 3 and July 5, and 
$.035 per share on September 1, and December 1.

NOTE 7-COMMITMENTS AND CONTINGENCIES

The Company leases certain office and manufacturing space and other 
equipment under noncancellable operating leases. At December 31, 1997, 
future minimum payments under these leases due in the years 1998 through 
2005 were approximately $630,000 per year. 

Rent expense under operating lease agreements was approximately $630,000 
in 1997 and 1996 and $261,000 in 1995.














<PAGE>




NOTE 8 - UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
                     (In thousands, except per share data)

1997                        First    Second   Third    Fourth
                           Quarter  Quarter  Quarter  Quarter       Total
                           -------- -------- -------- --------     --------
Sales                      $10,110  $11,577  $11,491  $11,681      $44,859
Gross Profit                 5,287    5,945    5,962    6,155       23,349
Net Income                   1,272    1,650    1,534    1,614        6,070
Basic income per common
  share                      $0.13    $0.17    $0.16    $0.17        $0.63
Diluted income per common
  share                      $0.13    $0.17    $0.16   $16.00        $0.62



1996                        First    Second   Third    Fourth
                           Quarter  Quarter  Quarter  Quarter       Total
                           -------- -------- -------- --------     --------
Sales                       $9,351   $9,254   $9,713   $9,976      $38,294
Gross Profit                 5,069    4,484    4,897    5,183       19,633
Net Income                   1,507      948    1,204    1,509  (1)   5,168
Basic income per common
  share                      $0.16    $0.10    $0.13    $0.16  (1)   $0.54
Diluted income per common
  share                      $0.16    $0.10    $0.13    $0.15  (1)   $0.53

(1) Includes a $167 benefit from a change in the Company's effective tax rate.

<PAGE>


























                         REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Stockholders of Scientific Technologies Incorporated

In our opinion, the consolidated financial statements listed in the 
index appearing under Item 8(a)(1) present fairly, in all material 
respects, the financial position of Scientific Technologies 
Incorporated (a subsidiary of Scientific Technology Incorporated) 
and its subsidiaries at December 31, 1997 and 1996, and the results 
of their operations and their cash flows for each of the three years 
in the period ended December 31, 1997, in conformity with generally 
accepted accounting principles. 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 of these statements in accordance 
with generally accepted auditing standards which 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, assessing 
the accounting principles used and significant estimates made by 
management, and evaluating the overall financial statement 
presentation. We believe that our audits provide a reasonable basis 
for the opinion expressed above.




PRICE WATERHOUSE LLP
San Jose, California
March 3, 1998

<PAGE>





















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

        None.


                               PART III

Certain information required by Part III is omitted from this Report in
that the registrant will file a definitive Proxy Statement for its 1998
Annual Meeting of Stockholders pursuant to Regulation 14A (the "Proxy
Statement") no later than 120 days after the end of the fiscal year covered
by this Report, and certain information included therein is incorporated
herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item concerning the Company's 
directors and the Company's executive officers is incorporated by 
reference to the sections entitled "Nominees" and "Management", 
respectively, appearing in the Company's Proxy Statement for its 
1998 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference 
to the sections entitled "Executive Compensation" and "Report of 
the Compensation Committee" appearing in the Proxy Statement for 
its 1998 Annual Meeting of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference 
to the sections entitled "Security Ownership of Certain Beneficial 
Owners and Management" appearing in the Proxy Statement for its 
1998 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference 
to the sections entitled "Certain Relationships and Related 
Transactions" appearing in the Proxy Statement for its 1998 Annual 
Meeting of Stockholders.


<PAGE>










                                PART IV


ITEM 14. EXHIBITS LIST AND REPORTS ON FORM 8-K.


(a)  The following documents are filed as a part of this Report:

     1.   FINANCIAL STATEMENTS
          Reference is made to the index appearing in Item 8(a) of this report.

     2.   FINANCIAL STATEMENT SCHEDULES
          Reference is made to the index appearing in Item 8(a) of this report.

     3.   EXHIBITS AND EXHIBIT INDEX:

     Exhibit 3.1 -  Articles of Incorporation, as amended, are incorporated by
                    reference to the Registrant's Form 10-K for the year ended
                    December 31, 1988, Exhibit 3.1.

     Exhibit 3.3 -  By-Laws are incorporated by reference to the Registrant's
                    Form 10-K for the year ended December 31, 1985, Exhibit 3.

     Exhibit 4.1 -  1987 Employee Stock Purchase Plan is incorporated by
                    reference to the Registrant's Registration Statement on Form
                    S-8 dated May 13, 1988.

     Exhibit 4.2 -  1987 Stock Option Plan is incorporated by reference to the
                    Registrant's Registration Statement on Form S-8 dated May
                    13, 1988.

     Exhibit 10.1 - Lease agreement dated February 21, 1995 for 6550 Dumbarton
                    Circle, Fremont, California 94555, is incorporated by
                    reference to the Registrant's Form 10-KSB for the year ended
                    December 31, 1994, Exhibit 10.4.

     Exhibit 10.2 - Bank agreement dated November 29, 1994 with Bank of The West
                    is incorporated by reference to the Registrant's Form 10-KSB
                    for the year ended December 31, 1994, Exhibit 10.3.

     Exhibit 10.3 - Amendment dated May 31, 1996 to Bank Agreement dated
                    November 29, 1994 with Bank of The West.

     Exhibit 10.4 - Lease agreement dated November 21, 1995 for 1,835 square
                    feet of space in Menlo Park California is incorporated by
                    reference to the Registrant's Form 10-KSB for the year ended
                    December 31, 1995, Exhibit 10.4.

     Exhibit 21.1 - Subsidiaries of the Registrant.

     Exhibit 23.1 - Consent of Price Waterhouse LLP, Independent Accountants.

     Exhibit 24.1 - Power of Attorney

     Exhibit 27.1 - Financial Data Schedule.

     All other exhibits for which provision is made in Regulation S-K of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.

(b)  No Reports on Form 8-K were filed during the last quarter of 1997.
<PAGE>


















































                                  SIGNATURES

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

                                 SCIENTIFIC TECHNOLOGIES INCORPORATED

Dated: March 24, 1998            By /s/ Anthony R. Lazzara
       --------------              ---------------------------------
                                        Anthony R. Lazzara
                                        Chairman

                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Anthony R. Lazzara and Joseph J. Lazzara, jointly
and severally, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form 10-
K and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

  In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
        Signature                         Title                      Dste
-------------------------  -----------------------------------  ---------------
<S>                        <C>                                  <C>
/s/ Anthony R. Lazzara     Chairman of the Board and            March 24, 1998
------------------------     Director                           ---------------
Anthony R. Lazzara

/s/ Joseph J. Lazzara      President, Chief Executive Officer,  March 24, 1998
------------------------     Treasurer, Director (Principal     ---------------
Joseph J. Lazzara          Executive and Financial Officer)

/s/ James A. Lazzara       Vice President, Secretary and        March 24, 1998
------------------------     Director                           ---------------
James A. Lazzara

/s/ James A. Ashford       Vice President and Director          March 24, 1998
------------------------                                        ---------------
James A. Ashford

/s/ Carl H. Frei           Director                             March 24, 1998
------------------------                                        ---------------
Carl H. Frei

/s/ Bernard J. Ploshay     Director                             March 24, 1998
------------------------                                        ---------------
Bernard J. Ploshay

/s/ Richard O. Faria       Vice President, Finance and          March 24, 1998
------------------------   Administration (Principal Accounting ---------------
Richard O. Faria           Officer)
</TABLE>

<PAGE>


















































                     SCIENTIFIC TECHNOLOGIES INCORPORATED

                                   EXHIBITS

                                      TO


                          ANNUAL REPORT ON FORM 10-K
                         YEAR ENDED DECEMBER 31, 1997


                         EXHIBITS - TABLE OF CONTENTS

Exhibit 10.3 - Amendment dated May 31, 1997 to Bank Agreement 
                      dated November 29, 1994

Exhibit 21.1 - Subsidiaries of the Registrant

Exhibit 23.1 - Consent of Independent Accountants

Exhibit 24.1 - Power of Attorney (included above)

Exhibit 27.1 - Financial Data Schedule