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, 1998

[_] 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 $43,465,000.




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 26,
1999 as reported by the NASDAQ Market System , was approximately $8,272,000.
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 26, 1999 was 9,671,432 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

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


<PAGE>


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, power monitoring, safety mats, and other 
electronic equipment supplied to industrial automation, commercial and 
defense customers. 

        Eighty-six percent (86%) 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, Optical Vehicle 
Profiling Scanners. 

        STI designs, manufactures and markets a 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 1998, 1997 and 1996, is a family of 
safety light guards, also called presence sensing devices 
or safety light curtains, used to safeguard personnel in 
manufacturing environments against injury caused by robots 
and moving machinery. STI offers several product 
variations, providing customers with a complete line of 
optical guarding solutions.
        Safety light curtains are devices that emit a 
"curtain" of harmless infrared light beams in front of the 
hazard area. When any of the beams are blocked, the light 
curtain sends a stop signal to the guarded machine. Light 
curtains are extremely versatile and can guard areas that 
are more than 100 feet wide. By the use of mirrors the 
light beams can be diverted around corners to enclose a 
machine. These light are available with different light 
beam spacings, which makes them suitable for many 
applications, including totally enclosing perimeter guards 
for industrial robots, and as point of access guard for 
certain types of presses.
        The Company manufactures and markets a miniaturized 
light guard called the MiniSafe, designed for inclusion in 
systems offered by original equipment manufacturers 
("OEM's") 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 to 64 inches in coverage height. 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 and MS4500 series include Individual Beam 
Indicators, an STI-patented feature, which provides 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 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 outputs. DuoSafe 
works with seven different versions of STI light curtains, 
and provides further application flexibility for customers 
when selecting their safeguarding solution.
        Selected models of the safety light curtain products 
are certified by independent laboratories to comply with 
safety and electrical standards; including those standards 
required in the European Union. Products which pass the 
stringent European safety certifications carry the CE test 
mark.

b. Mechanical Safety Interlocks and Safety Relays. The 
Company has had a relationship with EJA Engineering, Ltd. 
(EJA), a manufacturer of Guardmaster 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. Safety relays 
are electromechanical devices which often serve as a 
safety interface between the mechanical safety interlocks 
and the machine's control system. The function and design 
of Guardmaster interlocks are complementary to the STI 
range of safety products. Since 1993, STI has been the 
exclusive distributor of Guardmaster products in the 
United States and Canada, and an affiliate of EJA has been 
the distributor for the STI product line in the United 
Kingdom. 
        In the first quarter 1999, EJA Engineering, Ltd. was 
acquired by Rockwell International. The current agreement 
between EJA and STI will terminate in September 1999. The 
companies are currently negotiating a new agreement, 
pursuant to which EJA/Rockwell will have the non-exclusive 
right to distribute the Guardmaster product worldwide and 
STI will have right to distribute the products on a 
private label basis under the STI brand. STI currently 
expects to sign the new agreement in the second quarter of 
1999. However, there can be no assurance that the parties 
will enter into the new agreement on these terms or any 
other terms that are favorable to STI.

c. Safety Mats and Controllers. 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. Safety mats are 
used with a mat controller, which is the interface between 
the safety mat and the control system of the guarded 
machine.
        During 1998, STI commenced limited deliveries of a 
new safety mat, the STI Universal Safety Mat ("UM 
Series"). The UM Series is the first vinyl mat 
manufactured by STI and will be used to replace a previous 
safety mat, the OM Series, which was a product 
manufactured by other suppliers.
        In the first quarter of 999, the UM Series mat and a 
new safety mat controller were tested and certified by an 
independent test agency to a new international safety mat 
standard. Theses products carry the European CE test mark. 
The UM Series and the associated controller will be 
introduced to STI's sales channel during 1999.

d. 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 line of optical 
profiling scanner products, called ValuScan. These 
scanners 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 output and 
programming functions, including infrared beam spacings, 
size of the scanned area and single or multiple axes. 
Software is included for a variety of scanning 
applications. STI can customize the software for a 
customer's specific needs.
        ValuScan can, among other applications, verify part 
presence, measure products in both the 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 Company also manufactures and sells the STI 
Vehicle Scanner series of high speed, profiling scanners 
utilized in automated highway toll collection systems. 
These scanners are used for vehicle detection, separation 
and vehicle classification, providing imaging information 
to a host computer, which determines the appropriate toll 
to be charged in an automatic fare collection application.
        STI Vehicle Scanners have been selected or installed 
on a number of bridges and toll roads both in the United 
States and internationally. Locations include the 
Triborough and Verrazano Narrows bridges in New York, a 
number of bridges in the San Francisco Bay Area, including 
the Golden Gate Bridge and the Oakland-San Francisco Bay 
Bridge, and toll roads in Colorado, Florida, Maine, New 
Jersey and Kansas domestically, as well as locations in 
France, Belgium, Singapore and Brazil.

e. 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 range 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, 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.
        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 275 US 
distributors and sales representatives and 33 foreign 
distributors. Customers include end-users and original 
equipment manufacturers. 

2. Control Components, Power Monitoring and Defense Electronics.

        The Company manufactures and markets a 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 is qualified as a supplier of a variety of 
military-specified sensors and controls. Many of 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. 
        STI markets and sells these products primarily 
through its direct sales force.

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 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. STI markets its Datricon products directly to 
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 STI purchases some products, components 
and sub-assemblies from sole sources, which may be the only 
available supplier or may enable the Company to obtain pricing or 
supply efficiencies. In the event of supply interruptions from these 
vendors, the Company believes it could obtain most sole source 
components from alternate suppliers, but this would require the 
Company to transfer tooling or designs or redesign its products to 
facilitate use of alternate source components. STI could incur 
delays by switching to an alternate source, which could have an 
adverse effect on the its business, financial condition and results 
of operations.
                The Company also derives revenue from the distribution 
of products from third party manufacturers, including pursuant to 
its relationship with EJA (See "Business - Products - Safety 
Automation Products. Optical Sensors, Optical Vehicle Profiling 
Scanners - Mechanical Safety Interlocks and Safety Relays"). 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 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, 1998, there were 
approximately 21 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 1998, 1997, and 1996, the Company spent $3,314,000, 
$3,135,000 and $2,482,000, 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 1999.

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 19, 1999, the Company's 
backlog was $5,135,000 compared to $1,654,000 at March 9, 1998. Of 
this total, $5,000 is scheduled at customer's request, to be filled 
during periods after 1999. This total includes a $3.5 million 
contract for vehicle scanner systems in New Jersey and Delaware.

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. Certain of the Company's suppliers 
(including Rockwell/EJA) also compete with the Company. 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 and 
improvements to current 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 1998, 1997 and 1996.

Customers

        NCC Electronics, an independent distributor, represented 14% 
of sales in 1998, 18% of sales in 1997 and 19% of sales in 1996. No 
other customer represented more than 10% of sales in such periods. 
Aggregate sales to both government agencies and government 
contractors represented less than 5% of sales in 1998, 1997 and 
1996.

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, 1998, the Company employed approximately 245 
full time employees. Included in this total were 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 in 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. 

        From time to time the Company can become involved in disputes 
which could lead to litigation.

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 Common Stock of the Company is traded on the Nasdaq 
National Market under the symbol STIZ.  The stock tables in most 
daily newspapers list the Common Stock of the Company under 
"SciTech".

Price of Common Stock
----------------------
1998              High      Low      1997              High      Low
--------------- --------- ---------  --------------- --------- ---------
1st Quarter      $ 16     $ 9-3/4    1st Quarter      $ 8-7/8  $ 7-1/8
2nd Quarter       12-1/2    8-1/4    2nd Quarter        9-3/4    7-1/4
3rd Quarter       10-5/8    6-1/4    3rd Quarter       13-7/8    8-3/4
4th Quarter        7-1/2    4-3/4    4th Quarter       13-3/4    9-7/16

The closing sales price of the Common Stock on February 26, 1999 was 
$6.25 per share.

Holders

     There were 782 stockholders of record on February 26, 1999.

Dividends

        In 1998, regular quarterly dividends of $.045 per share were 
paid on April 1, July 1, September 9, and December 2. In 1997, 
regular quarterly dividends of $.0425 per share were paid on April 
1, July 1, September 9, and December 2. On March 3, 1999, the 
Company declared a regular quarterly dividend of $.0475 per share, 
payable on April 1, 1999 to shareholders of record on March 19, 

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,
                           ------------------------------------------------
                             1998      1997      1996      1995      1994
                           --------  --------  --------  --------  --------
<S>                        <C>       <C>       <C>       <C>       <C>
Income statement data
---------------------------
Net sales                  $43,465   $44,859   $38,294   $36,006   $26,115
Income from operations       6,340     9,266     7,798    10,247     6,063
Net income                   4,422     6,070     5,168     6,336     3,698
Basic income per common
  share                      $0.46     $0.63     $0.54     $0.00     $0.38
Diluted income per common
  share                      $0.46     $0.62     $0.53     $0.00     $0.38

                                             December 31,
                           ------------------------------------------------
                             1997      1997      1996      1995      1994
                           --------  --------  --------  --------  --------
Balance sheet data
-------------------
Total assets               $29,821   $26,119   $21,713   $18,097   $12,284
Long-term obligations           --        --        --        14        58
Stockholders equity         25,458    22,518    17,871    14,336     9,249
Dividends declared per
  share                      $0.18     $0.17     $0.16     $0.13     $0.10

</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. Such statements include statements regarding 
anticipated future sales, margin and expense levels, future tax 
rates, future cash flow and working capital requirements and Year 
2000 requirements. 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 1998 declined 3% to $43.5 million from $44.9 million in 
1997. Sales in 1997 grew 17% to $44.9 million from $38.3 million in 
1996. During the latter half of 1998, the General Motors labor 
dispute and the Asia economic situation had an adverse impact on the 
Company's customers doing business in those sectors, which in turn 
negatively impacted the Company's sales in 1998. The most 
significant factor driving the growth in 1997 was an overall 
increase in units shipped, and strong customer acceptance of new 
products such as DuoSafe. Sales in 1998 and 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.

                                                 1998       1997       1996
                                              ---------- ---------- ----------
Sales                                               100%       100%       100%
                                              ---------- ---------- ----------
Gross margin                                         51%        52%        51%
                                              ---------- ---------- ----------
Operating expenses
  Selling, general and administrative                29%        24%        24%
  Research and development                            8%         7%         6%
                                              ---------- ---------- ----------
   Total operating expenses                          37%        31%        30%
                                              ---------- ---------- ----------
Income from operations                               14%        21%        21%
Interest income, net                                  2%         1%         1%
                                              ---------- ---------- ----------
Income before income taxes                           16%        22%        22%
Provision for income taxes                            6%         8%         8%
                                              ---------- ---------- ----------
Net income                                           10%        14%        14%
                                              ========== ========== ==========


Gross profit
1998 = $22.0 million
1997 = $23.3 million
1996 = $19.6 million
Decrease in 1998 = (6%)
Increase in 1997 = 19%

STI's gross margin was 51% of sales in 1998, 52% in 1997 and 51% in 
1996. The decline in gross profit and gross margin in 1998 compared 
to 1997 was attributable to a product mix change consisting of 
increased sales of lower margin products as a percentage of total 
sales. Gross margin in 1998 was also impacted by higher sales of 
products manufactured by other companies and distributed by STI, 
which generally have lower gross margins. 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. 

Selling, general and administrative expenses
1998 = $12.4 million
1997 = $10.9 million
1996 = $9.4 million
Increase in 1998 = 14%
Increase in 1997 = 16%

During 1998 selling, general and administrative expenses increased 
to 29% of sales compared to 24% in 1997 and 1996. Total expenditures 
increased 14%, compared to 1997, which increased 16% over 1996. For 
1997 and 1996, selling, general and administrative expenses as a 
percent of sales remained constant at 24%. During 1998, the Company 
continued to expand its sales force and began distributing a product 
data book completed in 1997. During 1997, the Company continued to 
expand its advertising and promotional activities, 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 during 1997. The Company anticipates that selling, general and 
administrative expenses will increase in the future but may 
fluctuate as a percent of sales.                                   

Research and development expenses
1998 = $3.3 million
1997 = $3.1 million
1996 = $2.5 million
Increase in 1998 = 6%
Increase in 1997 = 26%

Product creation, development and enhancement have always 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 and 
manufacturing control products. In 1998 and 1997, 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 such expenses may 
fluctuate 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 1998, 1997 and 
1996. The Company expects that its effective tax rate for 1999 will 
be reasonably consistent with 1998 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.

Liquidity and Capital Resources

STI's working capital needs have been met through funds generated 
from operating activities. During 1998, operating funds were 
provided by net income adjusted for depreciation, increases in 
accounts payable and accrued expenses, the issuance of common stock 
and the reduction in accounts receivable. These operating funds were 
used to finance increased other assets, to purchase short-term 
investments and fixed assets and to pay dividends. Working capital 
amounted to $22.9 million at December 31, 1998. The bank line of 
credit with Bank of the West, consisting of a one year revolving 
line and term loan commitment was increased to $6.1 million in 1998 
and extended to May 31, 1999. Secured by qualified receivables, 
fixed assets and inventories, borrowing under this credit line bears 
interest at the bank's prime rate. At December 31, 1998, none of the 
revolving line of credit had been utilized. The Company has the 
option to convert up to $1,000,000 of the credit line into a five-
year term note. See Note 4 of Notes to Consolidated Financial 
Statements.

The Company made certain capital expenditures during 1998, 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 1999, primarily for production, 
quality assurance and research and development equipment. While the 
Company had no formal commitments at December 31, 1998, it is 
anticipated that capital expenditures in 1999 will be approximately 
$1,500,000. 

STI believes that its cash flow from operations and available bank 
borrowings will be sufficient to meet anticipated working capital 
requirements through at least 1999. 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 and  interest 
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's products are not affected by dates. The Company has 
established a committee to address Year 2000 issues associated with 
the Company's (1) business application systems, (2) embedded 
systems, including equipment that operates the Company's 
telecommunications and facilities, (3) vendor and supplier 
relationships and (4) contingency planning.  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. The Company did not incur 
and does not expect to incur material costs associated with Year 
2000 compliance. The Company is still in the process of 
investigating the Year 2000-compliance status of its major 
distributors, suppliers, customers, vendors and financial service 
organizations. Preliminary assessments from certain major suppliers 
indicate that they are Year 2000 compliant and do not anticipate any 
major impact. Management has not yet completed an assessment of the 
impact that the remaining third parties that may not be Year 2000 
compliant may have on the operations of the Company. The Company 
expects to have its assessment completed and contingency plans in 
place by the end of the third quarter of 1999.

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. 
Although STI conducts only a small amount of business with Asian 
companies, a number of our original equipment manufacturer (OEM) 
customers, primarily in the semiconductor equipment market, were 
adversely affected by the Asian situation.

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, 1998 and 1997                 

        Consolidated Statement of Operations - Years ended December 31, 1998,
           1997 and 1996

        Consolidated Statement of Cash Flows - Years ended December 31, 1998,
          1997 and 1996

        Consolidated Statement of Changes in Stockholders' Equity - Years 
          ended December 31, 1998, 1997 and 1996                              

        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,
                                                      --------------------
                                                        1998       1997
                                                      ---------  ---------
<S>                                                   <C>        <C>
                            ASSETS
Current assets:
    Cash and cash equivalents                           $2,577     $4,559
    Short-term investments                              10,798      4,973
    Accounts receivable, net                             6,612      7,474
    Inventories                                          5,812      5,113
    Deferred income taxes                                1,132      1,020
Other assets                                               345        294
                                                      ---------  ---------
          Total current assets                          27,276     23,433

Property and equipment, net                              2,545      2,686
                                                      ---------  ---------
          Total assets                                 $29,821    $26,119
                                                      =========  =========

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
    Trade accounts payable                              $2,391     $1,934
    Accrued expenses                                     1,972      1,667
                                                      ---------  ---------
          Total current liabilities                      4,363      3,601
                                                      ---------  ---------
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 - 9,671 and
       9,635, respectively; $.001 par value                 10         10
    Capital in excess of par value                       5,787      5,532
    Retained earnings                                   19,661     16,976
                                                      ---------  ---------
          Total stockholders' equity                    25,458     22,518
                                                      ---------  ---------
          Total liabilities and stockholders' equity   $29,821    $26,119
                                                      =========  =========
</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, 
                                              --------------------------------
                                                 1998       1997       1996
                                              ---------- ---------- ----------
<S>                                           <C>        <C>        <C>
Sales                                           $43,465    $44,859    $38,294
Cost of goods sold                               21,444     21,510     18,661
                                              ---------- ---------- ----------
  Gross profit                                   22,021     23,349     19,633
Operating expenses
  Selling, general and administrative            12,367     10,948      9,353
  Research and development                        3,314      3,135      2,482
                                              ---------- ---------- ----------
   Total operating expenses                      15,681     14,083     11,835
                                              ---------- ---------- ----------

   Income from operations                         6,340      9,266      7,798

Interest income, net                                794        524        537
                                              ---------- ---------- ----------

   Income before income taxes                     7,134      9,790      8,335
Provision for income taxes                        2,712      3,720      3,167
                                              ---------- ---------- ----------

        Net income                               $4,422     $6,070     $5,168
                                              ========== ========== ==========

   Basic net income per common share              $0.46      $0.63      $0.54
                                              ========== ========== ==========
   Shares used to compure basic
     net income per common share                  9,650      9,615      9,606
                                              ========== ========== ==========

   Diluted net income per common share            $0.46      $0.62      $0.53
                                              ========== ========== ==========
   Shares used to compure diluted
     net income per common share                  9,721      9,777      9,733
                                              ========== ========== ==========
</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, 
                                            --------------------------------
                                               1998       1997       1996
                                            ---------- ---------- ----------
<S>                                         <C>        <C>        <C>
Cash flows from operating activities:
  Net income                                   $4,422     $6,070     $5,168
  Adjustments to reconcile net income to
    cash provided by (used in)
     operating activities:
    Depreciation and amortization                 921        833        649
    Changes in assets and liabilities:
       Accounts receivable, net                   862       (782)    (1,439)
       Inventories                               (699)    (1,047)      (579)
       Trade accounts payable                    (163)      (451)       167
       Accrued expenses                           457        210        (22)
       Other                                      305       (196)      (523)
                                            ---------- ---------- ----------
  Cash flows provided by operating
   activities                                   6,105      4,637      3,421
                                            ---------- ---------- ----------
Cash flows from investing activities:
       Purchases of property  and
        equipment                                (780)    (1,042)    (1,228)
       Sale (purchase) of short-term
        investments, net                       (5,825)        16     (1,602)
                                            ---------- ---------- ----------
  Cash flows used in investing activities      (6,605)    (1,026)    (2,830)
                                            ---------- ---------- ----------

Cash flows from financing activities:
   Payments on debt                               --         --         (64)
   Issuance (repurchase) of common stock          255        213        (96)
   Dividends                                   (1,737)    (1,636)    (1,537)
                                            ---------- ---------- ----------
  Cash flows used in financing activities      (1,482)    (1,423)    (1,697)
                                            ---------- ---------- ----------
Change in cash and cash equivalents            (1,982)     2,188     (1,106)
Cash and cash equivalents at beginning
 of year                                        4,559      2,371      3,477
                                            ---------- ---------- ----------
Cash and cash equivalents at end of year       $2,577     $4,559     $2,371
                                            ========== ========== ==========

Supplemental disclosure of cash flow
 information:
            Cash paid to Parent for
             income taxes                      $2,712     $3,720     $3,167
                                            ========== ========== ==========
</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, 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
   Issuance of common stock          36      --        255       --       255
   Net income for the year           --      --          --   4,422     4,422
   Dividends paid                    --      --          --  (1,737)   (1,737)
                               --------- -------- --------- -------- ---------
Balances December 31, 1998        9,671      $10    $5,787  $19,661   $25,458
                               ========= ======== ========= ======== =========
</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 and power monitoring devices 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 and infrared safety light 
curtains, sensors and scanning products. Sales to foreign customers 
represented less than 10% of total sales in 1998, 1997 and 1996. One 
customer, a distributor,  accounted for 14% of total sales in 1998, 18% 
of sales in 1997 and 19% of total sales in 1996.

The Company operates principally in the United States. The Company's 
operations in Germany are insignificant to the Company as a whole.

Management Estimates
The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities 
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.

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 liquid investments 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.

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

Stock Based Compensation Plans
The Company accounts for its employee stock option plans and employee 
stock purchase plan in accordance with provisions of the Accounting 
Principles Board Opinion No. 25, "Accounting for Stock Issued to 
Employees" ("APB 25"), but has made the disclosures required under 
Statement of Financial Accounting Standards No. 123, "Accounting for 
Stock-Based Compensation" ("FAS 123") in these notes to financial 
statements.

Comprehensive Income
For both 1998, 1997 and 1996, there is no difference between net income 
and comprehensive income.

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.

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.

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 1998, 1997 and 
1996 were $908, 000, $824,000 and $949,000, 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 for 
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, 1998, 1997 and 1996. The 
Company charges interest on the receivable from the Parent and pays 
interest on payables to Parent at the Company's average interest rate on 
bank borrowings. Interest expense amounted to $20,000 in 1998, $34,000 
in 1997 and $42,000 in 1996

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 pays 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 years ended December 
31, 1998 and 1997.             

NOTE 4-BALANCE SHEET DATA 

                                                      December 31,
                                               ----------------------
                                                  1998        1997
                                               ----------  ----------
  ACCOUNTS RECEIVABLE:
   Trade accounts receivable                      $7,001      $7,612
   Less: Allowance for doubtful accounts
            and sales returns                       (389)       (138)
                                               ----------  ----------
   Accounts receivable, net                       $6,612      $7,474
                                               ==========  ==========

  INVENTORIES:
   Finished goods                                 $2,421      $1,496
   Work in process                                   482         624
   Subassemblies                                     541         613
   Raw materials                                   2,368       2,380
                                               ----------  ----------
                                                  $5,812      $5,113
                                               ==========  ==========

  PROPERTY AND EQUIPMENT:
   Equipment                                      $5,106      $4,445
   Furniture and fixtures                           1030         907
   Leasehold improvements                             53          21
                                               ----------  ----------
                                                   6,189       5,373
   Less: accumulated depreciation                 (3,644)     (2,687)
                                               ----------  ----------
                                                  $2,545      $2,686
                                               ==========  ==========
  ACCRUED EXPENSES:
   Accrued compensation and benefits                $937        $944
   Accrued commissions                               230         247
   Warranty reserve                                  298         262
   Other                                             507         214
                                               ----------  ----------
                                                  $1,972      $1,667
                                               ==========  ==========
Debt:     

The Company has a  $6,100,000 line of credit with a bank, of which 
no amount was outstanding at December 31, 1998 and December 31, 
1997. The line, which is subject to certain financial statement 
covenants, bears interest at the bank's prime rate (7.75% at 
December 31, 1998), is secured by accounts receivable, inventories 
and fixed assets, and expires on May 31, 1999. 

NOTE 5 - INCOME TAXES

The provision for income taxes was as follows:

                                           Year Ended December 31, 
                                   ----------------------------------
                                      1998        1997        1996
                                   ----------  ----------  ----------
                                             (In thousands) 
  Current tax expense:
   Federal                            $2,224      $3,142      $2,691
   State, net of federal benefit         600         758         876
                                   ----------  ----------  ----------
   Sub total                           2,824       3,900       3,567
   Deferred tax benefit                 (112)       (180)       (400)
                                   ----------  ----------  ----------
   Total                              $2,712      $3,720      $3,167
                                   ==========  ==========  ==========

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, 1998 and 1997, the Company's deferred tax 
assets of  $1,132,000 and $1,020,000, respectively, were comprised primarily 
of the following items: $507,000 and $417,000, respectively, of inventory 
reserves and $625,000 and $603,000, 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, 
                                   ----------------------------------
                                      1998        1997        1996
                                   ----------  ----------  ----------
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%         -2%
                                   ----------  ----------  ----------
Effective tax rate                        38%         38%         38%
                                   ==========  ==========  ==========

NOTE 6 - INCOME PER SHARE

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
                                               ----------  ---------- ----------
    1998
    Earnings per share of common stock            $4,422       9,650      $0.46
    Effect of dilutive securities
         Stock options                              --            71       --
                                               ----------  ---------- ----------
    Earnings per share of common stock-
      assuming dilution                           $4,422       9,721      $0.46
                                               ==========  ========== ==========
    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
                                               ==========  ========== ==========



NOTE 7 - DIVIDENDS

On March 3, 1999, the Company declared a regular quarterly dividend of 
$.0475 per share on all of its common shares, payable on April 1, 1999 
to shareholders of record on March 21, 1999. During 1998, the Company 
paid quarterly dividends of $.045 per share. During 1997, the Company 
paid quarterly dividends of $.0425 per share. During 1996, the Company 
paid regular quarterly dividends of $.04 per share.

NOTE 8 - COMMITMENTS

The Company leases certain office and manufacturing space and other 
equipment under noncancellable operating leases. At December 31, 1998, 
future minimum payments under these leases due in the years 1999 through 
2005 were approximately $690,000 per year. 

Rent expense under operating lease agreements was approximately $685,000 
in 1998 and $630,000 in both 1997 and 1996, respectively.













<PAGE>
























REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Shareholders of Scientific Technologies Incorporated

In our opinion, the accompanying consolidated balance sheet and the 
related consolidated statements of operations, of cash flows and of 
changes in stockholders' equity 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, 1998 and 1997, and the results 
of their operations and their cash flows for each of the three years 
in the period ended December 31, 1998, 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.





PricewaterhouseCoopers LLP
San Jose, California
March 3, 1999

















<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 1999
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 
1999 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 1999 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 
1999 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 1999 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, 1998 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 PricewaterhouseCoopers 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 1998.
<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, 1999            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                      Date
-------------------------  -----------------------------------  ---------------
<S>                        <C>                                  <C>
/s/ Anthony R. Lazzara     Chairman of the Board and            March 24, 1999
------------------------     Director                           ---------------
Anthony R. Lazzara

/s/ Joseph J. Lazzara      President, Chief Executive Officer,  March 24, 1999
------------------------     Treasurer, Director (Principal     ---------------
Joseph J. Lazzara          Executive and Financial Officer)

/s/ James A. Lazzara       Vice President, Secretary and        March 24, 1999
------------------------     Director                           ---------------
James A. Lazzara

/s/ James A. Ashford       Vice President and Director          March 24, 1999
------------------------                                        ---------------
James A. Ashford

/s/ Carl H. Frei           Director                             March 24, 1999
------------------------                                        ---------------
Carl H. Frei

/s/ Bernard J. Ploshay     Director                             March 24, 1999
------------------------                                        ---------------
Bernard J. Ploshay

/s/ Richard O. Faria       Vice President, Finance and          March 24, 1999
------------------------   Administration (Principal Accounting ---------------
Richard O. Faria           Officer)
</TABLE>

<PAGE>


















































                     SCIENTIFIC TECHNOLOGIES INCORPORATED

                                   EXHIBITS

                                      TO


                          ANNUAL REPORT ON FORM 10-K
                         YEAR ENDED DECEMBER 31, 1998


                         EXHIBITS - TABLE OF CONTENTS

Exhibit 10.3 - Amendment dated May 31, 1998 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