UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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(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, 2002

OR

[   ]  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(Exact name of Registrant as Specified in its Charter)



|Oregon                                                         | 77-0170363                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

6550 Dumbarton CircleFremont, CA     94555

(510) 608-3400

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

Securities registered pursuant to Section 12(g) of the Act:Title of Class
Name of each exchange on which registeredCommon Stock, $.001 Par Value
NASDAQ National Market SystemIndicate by check mark 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
 ̈

Indicate by check mark if 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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
    Yes  
 ̈    No

The aggregate market value of voting stock held by non-affiliates of the Registrant, based on
the closing sales price of Common Stock on June 30, 2002 as reported by the NASDAQ Market
System, was approximately $4,779,356. 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
March 3, 2003 was 9,692,327 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 2003 Annual
Annual Meeting of Shareholders ("the Proxy Statement") are incorporated by
reference in Part III of this Form 10K.









SCIENTIFIC TECHNOLOGIES INCORPORATED
                        2002 ANNUAL REPORT ON FORM 10-K
                               INDEX



|Part I.        |                                                                                       | Page
|-------------- | ------------------------------------------------------------------------------------- | ----
|Item 1.        | Business                                                                              | **  
|Item 2.        | Properties                                                                            | **  
|Item 3.        | Legal Proceedings                                                                     | **  
|Item 4.        | Submission of Matters to a Vote of Security Holders                                   | **  
|Part II.       |                                                                                       |     
|Item 5.        | Market for the Registrant's Common Equity and Related Shareholder Matters             | **  
|Item 6.        | Selected Financial Data                                                               | **  
|Item 7.        | Management's Discussion and Analysis of Financial Condition and Results of Operations | **  
|Item 7a.       | Quantitative and Qualitative Disclosures About Market Risks                           | **  
|Item 8.        | Financial Statements and Supplementary Data                                           | **  
|Item 9.        | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | **  
|Part III.      |                                                                                       |     
|Item 10.       | Directors and Executive Officers of the Registrant                                    | **  
|Item 11.       | Executive Compensation                                                                | **  
|Item 12.       | Security Ownership of Certain Beneficial Owners and Management                        | **  
|Item 13.       | Certain Relationships and Related Transactions                                        | **  
|Item 14.       | Controls and Procedures                                                               | **  
|Part IV.       |                                                                                       |     
|Item 15.       | Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K          | **  
|Signatures     |                                                                                       | **  
|Exhibits Index |                                                                                       | **  

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PART I

Item 1. BUSINESS

This Annual Report contains forward-looking
statements that involve risks and uncertainties. The statements contained in
this Annual Report that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
are not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict. Factors that could
affect our actual results include the level and timing of customer orders, the
mix of products sold, fluctuations in sales of complementary third party
products with which our products are sold, the timing of operating expenditures,
general economic conditions in the U.S. and abroad, particularly in Asia and
Europe, competition, our ability to introduce successful new products and other
factors. You should carefully read the factors discussed in this Annual Report
under the caption "Factors That May Affect Future Results."

These forward-looking statements reflect management's
view only as of the date of this Annual Report. You should also carefully
consider the risk factors described in other documents that we file from time to
time with the Securities and Exchange Commission.

Overview

Scientific Technologies Incorporated designs,
manufactures and distributes electrical and electronic industrial controls such
as machine safety and automation sensing products. Our product lines include
safety light curtains, safety interlock switches, safety relays, profiling
scanners, factory automation sensors, controls, fiber optics, power monitoring,
safety mats, safety contact strips, non-contact ultrasonic sensors and
controllers, pressure transducers and other electronic equipment supplied to
industrial automation, commercial and defense customers. We were incorporated in
Oregon in 1979.

Eighty-six percent (86%) of our capital stock is
currently held by our parent corporation, Scientific Technology Incorporated, a
California corporation.

We are organized into two product groups, Safety Products
and Automation Products, within two business segments. This structure was
initiated in 2000 to allow us to better target our products based on each
group's area of specialization, customer-focused applications and products. This
organization is intended to facilitate more efficient integration of new
products and acquisitions.

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

Our corporate Internet address is
www.sti.com. At this website, we make
available free of charge our annual report on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, and any amendments to those reports,
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission. The information
found on our website is not part of this Form 10-K. In addition to our website,
the SEC maintains an Internet site at
www.sec.gov that contains reports, proxy
and information statements, and other information regarding us and other issuers
that file electronically with the SEC.

Products

1.Safety Products Group:

a. Safety Light Curtains. Our leading product
group, which accounted for over 80% of our sales in 2002, 2001 and 2000, is a
family of optical guarding products, also called presence sensing devices or
safety light curtains, used to safeguard personnel in manufacturing environments
against injury caused by robots and moving machinery. We offer 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. Safety light curtains are available with different light beam
spacings, which makes them suitable for many applications.

We manufacture and market a family of miniaturized light
guards called the MiniSafe, designed for inclusion in systems offered by
original equipment manufacturers, or OEMs, and other applications where space is
limited. MiniSafe light curtains are available in four-inch increments ranging
from four inches to 82.6 inches in coverage height. The operating distance, the
distance between the transmitter and receiver, is up to 100 feet. These products
are offered in various configurations with many optional features to meet a wide
variety of machine guarding applications

Applications for safety light curtains are found in a variety
of manufacturing environments. Our customers use safety light curtains to guard
a wide variety of hazardous applications including automotive assembly lines,
robot work cells, semiconductor production equipment, metal stamping and
forming, food processing, aircraft manufacturing, photographic film production,
tire manufacturing and home appliance production.

The MicroSafe MC4700 series light curtain was
introduced in 2001. This product features an ultra-compact transmitter and
receiver that offers protected heights from 100 to 1,798 millimeters. Superior
response time and excellent resolution, allow the MC4700 to be mounted closer to
the danger points of hazardous operation. The MC4700 includes individual beam
indicators, adjustable mounting brackets, exact channel select, floating
blanking, auxiliary outputs, restart interlocks, two digit display diagnostic,
and a simple 3-box design. 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 MegaSafe MG4600 series was introduced in 2001. The MG4600
Series comes with a complete features set, and is designed to meet the stringent
safeguarding requirements for automotive applications. The MG4600 is available
in 20 mm, 30 mm and 50 mm resolution, provides protected heights from 17.13
inches (435 mm) to 82.52 inches (2086 mm) depending on system resolution, and
offers a 65 foot (20 meter) sensing range. Control reliable circuitry eliminates
the need for a separate controller, and patented individual beam indicators
simplify alignment. Additional features include field-replaceable safety relays
and weld shield, floating blanking to block up to two beams anywhere in the
zone, and exact channel select to permanently block selected beams where machine
parts will obstruct a portion of the zone.

The FlexSafe is a segmented safety light curtain that offers
greater flexibility and machine guarding for unusually shaped applications.
Instead of a single transmitter and 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 DuoSafe controller allows the customer to configure two
independent safety light curtains to achieve common or discrete outputs. The
DuoSafe 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. We
have a relationship with EJA Engineering, Ltd., a manufacturer of mechanical
safety interlocks based in the United Kingdom. EJA is a subsidiary of Rockwell
International. STI distributes these products under the STI brand on a private
label arrangement. Safety interlock switches are utilized on hinged, sliding, or
lift-off guards and barriers that are often installed with our 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 application of safety interlocks are
complementary to our range of safety products. STI has been distributing
interlock switch products manufactured by EJA since 1993. EJA is a distributor
of our product line in the United Kingdom.

c. Safety Mats and Controllers. Our 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.

Our UM Series mat and safety mat controller were tested and
certified by an independent test agency to an international safety mat standard.
These products carry the European CE test mark. The UM Series and the associated
controller was introduced to our sales channel during 2000.

Also during 2000, shipments commenced on two new safety mat
controllers, the MC3 and MC4. These products offer selection of either an
industry standard DIN enclosure (MC3) or a rugged industrial style metal
enclosure (MC4) with auto selection input voltages. Both controllers are third
party certified and CE marked to international standards for safety mat systems.

In 2001, we introduced and commenced shipments of the MC6
Safety Mat Controller, capable of providing up to six individual mat zones.

d. Safety Contact Strips. Safety contact strips are
used in edges of guards, doors and gates at possible pinch, crushing or shear
points. The contact strips are pressure sensitive devices and operate similar to
safety mats, and use an appropriate controller. The system, comprised of the
contact strips and controller are also third party certified to international
standards and carry the CE mark.

e. Optical Profiling Scanners. In today's industrial
environment, non-contact, on-the-move sensing is vital to control automated
processes and improve industrial productivity. To meet this need, we have
developed a line of optical profiling scanner products. These scanners provide
non-contact sensing for a variety of customer applications.

We manufacture a family of high speed, microprocessor-
based profiling scanners designed to provide an economical way to measurethe physical size of various objects. The modular
design of these scanners 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 and can be customized to meet a customer's
specific needs.

We also manufacture and sell the Vehicle Scanner Series
of high speed, profiling scanners utilized in automated highway toll collection
systems. These scanners are used for vehicle detection, separation and
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. Domestic
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 Pennsylvania,
Colorado, Florida, Maine, New Jersey and Kansas. International locations include
France, Belgium, Singapore and Brazil.

f. Dunn Sales, Inc. We acquired Dunn Sales, Inc.
("DSI") in June 2001 for $4.0 million and accounted for the acquisition using
the purchase method of accounting. DSI is located in Anaheim, California, and
offers both safety and machinery services. DSI provides safety services such as:
safeguarding equipment installations, machine safety assessments, and the design
and custom fabrication of guarding solutions. Furthermore, DSI specializes in
machinery services including the repair, rebuilding, relocation, sales,
installation and service of fabricating machinery. Over the past decade, DSI has
become one of the largest and most recognized independent fabricating machinery
service, sales and maintenance companies domiciled in the western United States.
DSI serves customers in a variety of industries, including metal fabrication,
aerospace, electronics and food processing.

To cover this diversified industrial market, we market
these products primarily to end-users and original equipment manufacturers
through more than 575 worldwide distributor locations. STI Safety Product Group
distributors are primarily in two groups, Automation Safety Partners ("ASP") and
Automation Safety Distributors ("ASD"). We created the ASP program to meet the
rising expectations of our customers and the demands required for STI to be a
single source safety solution provider. In order to become an ASP, an
organization must commit to a number of requirements, including an extensive
training program for their STI product specialists, joint marketing programs,
demonstration equipment and safety seminars for their local customers. A smaller
number of distributors that do not meet the requirements of the ASP program are
classified as ASDs and have a different discount structure for the purchase of
STI products.

2. Automation Products Group:

a. Photoelectric and Fiberoptic Sensors. We
manufacture and/or market 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 is resistant to 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.

b. Control Components, Power Monitoring and Defense
Electronics. We manufacture and market 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.

We are 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.

We market and sell these products directly to end customers
or specialty resellers.

c. Level and Flow Sensors. We market a variety of
level and flow sensing products imported from several manufacturers. The
principal provider of these products is Nohken, one of the largest level control
manufacturers in Japan. We are the 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.

d. Non-contact Ultrasonic Sensors and Controllers. Our
Automation Sensors Division produces over 75 types of specialized ultrasonic
sensors and controller systems as well as custom designed products. These
products fall into two categories: Sensor/Controller Systems, which are used for
monitoring, displaying or controlling level in tanks or bins, open channel flow,
tank volume, obstacle avoidance and product dimensioning; Self-Contained Sensor
Systems, in which all electronics are located within the sensor, requiring no
separate controller or transmitting unit. These products are used for linear
position measurements in industrial and level applications, as well as
dimensioning and sorting, measurement of roll diameter, loop control, monitoring
liquids and bulk solids and level gauging.

e. Pressure Transducers, Digital Pressure Gauges,
Displacement and Velocity Transducers, and Pressure Comparators. In March
2000, we acquired substantially all of the assets and assumed some liabilities
of PSI-Tronix, Inc., a privately-held company located in Tulare, California. We
paid approximately $8.7 million in cash and accounted for this acquisition using
the purchase method of accounting. PSI-Tronix products are used in a variety of
factory automation, aerospace, medical, semiconductor, oil and gas markets and
applications.PSI-Tronix's engineering, manufacturing, administration and
sales operations are located in a 25,000 square foot facility in Tulare. In
November, 2002, we announced our intention to relocate the Tulare operation to
Logan, Utah, where it will be combined with the Automation Sensors Division. We
anticipate this relocation taking place in the first half of 2003. A small
assembly operation will remain in Tulare, to be relocated at a later time.

Our mission to provide tailored solutions for measurement
applications is reflected in the structure, operations, and channels to market
of our Automation Products Group. Rather than utilizing a traditional geography-based
sales channel, for this product group we define sales territories by
vertical markets in order to develop intimate application, market, and product
knowledge within these markets. The current market focus includes semiconductor
manufacturing, textiles, aerospace industries, hydraulic equipment OEMs, petro-
chemical, and water/waste-water management. In order to satisfy another
important step in maximizing resource utilization in our Automation Products
Group, we focus our product development efforts in custom and modified products
for specific volume OEM customers. This is in sharp contrast to a more
traditional, capital intensive effort to cover every possible product range.

Sources and availability of components

We maintain an inventory of components and parts
for our manufacturing activities. Although there are many sources for most of
the components needed, we purchase some products, components and sub-assemblies
from sole sources, which may be the only available supplier or may enable us to
obtain pricing or supply efficiencies. In the event of supply interruptions from
these vendors, we believe that we could obtain most sole source components from
alternate suppliers; however, this would require us to transfer tooling or
designs, or to redesign our products to facilitate use of alternate source
components. We could incur delays by switching to an alternate source, which
could have an adverse effect on our business, financial condition and results of
operations.

We also derive revenue from the distribution of products from
third party manufacturers, including revenues pursuant to our relationship with
EJA (See "Business - Products - Safety Automation Products - Mechanical Safety
Interlocks and Safety Relays"). In the event such arrangements are terminated or
third party products otherwise become unavailable, our results of operations
could be adversely affected.

Research and development

In order to meet the changing needs of our customers,
we engage in research and development both to introduce new products and to
improve existing products. In addition, we modify products as necessary to meet
original equipment manufacturers' requirements. At December 31, 2002, there were
approximately 29 employees engaged in research and development activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That May Affect Future Results - Technological Change and
New Product Development."

In 2002, 2001, and 2000, we spent $4,653,000, $5,429,000, and
$5,159,000, respectively, on engineering, research and development. In addition
to new products and enhancements to existing products, our research and
development efforts are directed towards qualifying our light curtains, scanners
and sensors for sale in foreign countries and qualifying products that we import
for sale in the U.S. We anticipate that the level of research and development
expenditures may be higher in 2003.

Patents and trademarks

We hold fourteen US patents and nine US registered
trademarks. In addition, we have been licensed by our parent company to use
three patents for its products and six US registered trademarks, including the
use of its logo "STI". Products are marketed under the following US registered
trademarks: "DUOSAFE," "OPTOFENCE," "MINISAFE," "OPTOSAFE," "FIBERLENS,"
"BEAMSAFE," "SPECTRADATA," "FLEXSAFE" and "MICROSAFE". We have filed for
additional patent protection on certain of our technologies.

We cannot assure you that these patents or trademarks or
other steps taken by us to protect our intellectual property will prove
sufficient to prevent misappropriation of our technology. Because of the rapid
rate of technology change in the electronics industry, we believe our success in
the future depends on the quality of our products and services and the technical
skills of our personnel to adapt to technological developments, rather than
solely on our patents.

Because many customers place large orders for delivery
throughout the year and because of the possibility of customer changes and
cancellation of orders, our backlog as of any particular date may not be
representative of our sales for any succeeding fiscal period. At February 28,
2003, our backlog was $895,000 compared to $819,000 at February 28, 2002.

Competition

The industry in which we operate is competitive
and subject to rapid technological change. Many of our competitors are
significantly larger and possess greater financial and other resources.

Our competitors include, among others, Honeywell,
Rockwell Automation, Eaton Corporation, Banner Engineering, Sick Optic-
Electronic, Inc., Cutler Hammer, Danaher Controls, 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 our suppliers, including
Rockwell/EJA, also compete with us. The Datricon line's competitors include
Mizar, Pro-Log, and Ziatech. In addition, we face 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. We believe that we generally compete favorably with
respect to these factors. To maintain our competitive position, we will continue
to devote substantial resources to the development of new products and
improvements to current products. See "Business - Research and Development."

Foreign operations

We have no foreign manufacturing operations. STI
Scientific Technologies GmbH, a wholly owned German subsidiary, was established
in 1995 as our European sales office. Our products are also sold in foreign
countries by distributors and independent sales representatives. Foreign sales
represented less than 10% of sales in each of 2002, 2001 and 2000.

Customers

No customer represented more than 10% of sales in
2002 or 2001. NCC Electronics, an independent distributor, represented 10% of
sales in 2000. Aggregate sales to both government agencies and government
contractors represented less than 5% of sales in 2002, 2001 and 2000.

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 our business.

Employees

At December 31, 2002, we employed approximately
356 full time employees. Included in this total were the common manufacturing,
support and administrative staff that we share with our parent and its other
subsidiaries 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 our employees are skilled in technical and
engineering disciplines and our future success will depend, in part, upon our
ability to attract and retain such employees. We believe that relations with our
employees are good.



Item 2. PROPERTIES

We own no real estate. Our manufacturing
operations, corporate headquarters, administrative, engineering and sales
offices are located in a 95,000 square foot facility in Fremont, California. The
facility is owned by an affiliate of our parent and we lease approximately
85,000 square feet, 89% of the total.

The Automation Sensors Division is located in a 25,000 square
foot in Logan, Utah. This facility is owned by our parent company.

PSI-Tronix is located in a 25,000 square foot facility in
Tulare, California.

Dunn Sales is located in an 8,585 square foot facility in
Anaheim, California.

See Note 12 of Notes to Consolidated Financial Statements for
information regarding lease commitments.





Item 3. LEGAL PROCEEDINGS

From time to time, we are subject to various
legal proceedings that arise in the ordinary course of our business. Although we
cannot predict the outcomes of these proceedings with certainty, our management
does not believe that the disposition of these matters will have a material
adverse effect on our financial position, results of operations or cash
flows.



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

None.

PART II



Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
	SHAREHOLDER MATTERS

Market Information

Our Common Stock is traded on the NASDAQ National
Market under the symbol STIZ. The stock tables in most daily newspapers list our
Common Stock under "SciTech".



|2002                                            | High                           | Low                            | 2001                                            | High                           | Low                           
|----------------------------------------------- | ------------------------------ | ------------------------------ | ----------------------------------------------- | ------------------------------ | ------------------------------
|1st Quarter
2nd Quarter
3rd Quarter
4th Quarter | $ 4.90
   4.75
   4.45
   6.55 | $ 3.65
   3.10
   2.25
   3.90 | 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter | $ 9.83
   6.63
   6.32
   6.37 | $ 5.04
   4.96
   2.90
   3.45

The closing sales price of our Common Stock on March 3, 2003 was $4.11 per
share.

Holders

There were 871shareholders of record on
March 21, 2003.

Dividends

In 2001, regular annual dividends of $.0525 per
share were paid on April 2 and July 5. No dividends were paid in 2002. We cannot
assure you that the Company's financial performance or cash requirements will
allow it to pay dividends to its shareholders in the future.

Equity Compensation Plan

Please see Item 12 of this Annual Report on Form
10-K for disclosure relating to our equity compensation plans. Such information
is incorporated by reference to our 2003 proxy statement.



Item 6. SELECTED FINANCIAL DATA

i) FIVE YEAR CONSOLIDATED FINANCIAL DATA



|                                       | Year Ended December 31, 
               (In thousands except per share data)
|-------------------------------------- | ----------------------------------------------------------------------------
|Statement of operations data           | 2002                                                                        
|Net sales                              | $51,207                                                                     
|Income (loss) from operations          | 744                                                                         
|Net income (loss)                      | 472                                                                         
|Basic income (loss) per common share   | $ .05                                                                       
|Diluted income (loss) per common share | $ .05                                                                       
|                                       |                                                                             
|                                       |                                                                             
|Balance sheet data                     |                                                                             
|Cash and cash equivalents              | $ 2,620                                                                     
|Total assets                           | 37,892                                                                      
|Shareholders' equity                   | 29,750                                                                      
|Dividends declared per share           | --                                                                          

ii) QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)                  (In thousands, except per share data)



|2002                                       | First    | Second   | Third   | Fourth 
|------------------------------------------ | -------- | -------- | ------- | -------
|                                           | Quarter  | Quarter  | Quarter | Quarter
|Sales                                      | $ 11,229 | $12,829  | $13,034 | $14,115
|Gross profit                               | 4,854    | 5,606    | 5,783   | 5,964  
|Net income (loss)                          | (207)    | 143      | 348     | 188    
|Basic net income (loss) per common share   | $ (.02)  | $ .02    | $ .04   | $ .02  
|Diluted net income (loss) per common share | $ (.02)  | $ .02    | $ .04   | $ .02  
|                                           |          |          |         |        
|2001                                       | First    | Second   | Third   | Fourth 
|                                           | Quarter  | Quarter  | Quarter | Quarter
|Sales                                      | $14,554  | $ 11,788 | $11,987 | $10,724
|Gross profit                               | 6,471    | 4,089    | 5,301   | 3,863  
|Net income (loss)                          | 580      | (959)    | 167     | (1,213)
|Basic net income (loss) per common share   | $ .06    | $ (.10)  | $ .02   | $ (.13)
|Diluted net income (loss) per common share | $ .06    | $ (.10)  | $ .02   | $ (.13)



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 including statements regarding
anticipated future sales, margin and expense levels, future tax rates, future
cash flow and working capital requirements. Actual results could differ
materially from those projected in the forward looking statements as a result of
the risk factors set forth under "Factors that May Affect Future Results" and
elsewhere in this report. The following discussion should be read in conjunction
with our consolidated financial statements and notes thereto. All references to
years are to fiscal years unless otherwise noted.



Results of Operations

Sales

Sales in 2002 increased 4% to $51.2 million from
$49.1 million in 2001. Sales by our Safety Products Group increased 9% over
2001. This was the result of increased unit sales as well as the full year
effect of sales by Dunn Sales, Inc., which was acquired in June 2001. The full
year effect of sales by DSI accounted for 3% of the 9% growth in sales by the
Safety Products Group. The Automation Products Group continued to be negatively
impacted by economic conditions in the semiconductor industry and as a result
reported a 14% decline in its sales.

Sales in 2001 declined 18% to $49.1 million from $60.1
million recorded in 2000. Unit shipments of both the Safety and Automation
Products Groups were negatively impacted by the economic downturn in the first
half of 2001 and the economic impact of the events of September 11. The Safety
Products Group's lower sales were partially offset by the sales associated with
Dunn Sales.

The Company is organized into two product groups - the Safety
Products Group ("SPG") and the Automation Products Group ("APG"). Group sales
for the years ended December 31, 2002, 2001 and 2000 were:



|        | 2002              | %       | 2001              | %       | 2000              | %      
|------- | ----------------- | ------- | ----------------- | ------- | ----------------- | -------
|SPG
APG | $ 43,493
$  7,714 | 85%
15% | $ 40,085
$  8,968 | 82%
18% | $ 49,569
$ 10,577 | 82%
18%

The table below summarizes operating costs and expenses as a percentage of
sales for the most recent three years.



|                                     | 2002 | 2001 | 2000
|------------------------------------ | ---- | ---- | ----
|Sales                                | 100% | 100% | 100%
|Gross margin                         | 43   | 40   | 50  
|Operating expenses:                  |      |      |     
|Selling, general and administrative  | 31   | 33   | 25  
|Research and development             | 9    | 11   | 9   
|Amortization of intangibles          | 1    | 1    | 1   
|Total operating expenses             | 41   | 45   | 35  
|Income (loss) from operations        | 2    | (5)  | 15  
|Interest and other income, net       | --   | --   | --  
|Income (loss) before taxes           | 2    | (5)  | 15  
|Provision (benefit) for income taxes | 1    | (2)  | 6   
|Net income (loss)                    | 1%   | (3)% | 9%  

Gross profit

2002 = $22.2 million
                  2001 = $19.7 million
                  2000 = $29.9 million
                  Increase in 2002 = 13%
                  Decrease in 2001 = 34%

Our gross margin was 43% of sales in 2002, 40% of sales in
2001 and 50% of sales in 2000. As a result of the higher level of shipments in
2002, which reflected less fixed cost per unit, our gross profit increased 13%
over 2001.

Our Gross profit declined 34% in 2001 from 2000. While we
experienced sales declines in all of our product lines during 2001, higher
margin products suffered proportionately greater losses than our lower margin
products. Also in 2001, reduced factory activity resulted in underabsorbed
manufacturing overhead. Gross margin in 2001 was positively influenced by the
addition of PSI-Tronix's products, which carry a relatively lower cost of sales.

Selling, general and administrative expenses

2002 = $16.1 million
                  2001 = $16.1 million
                  2000 = $15.4 million
                  Change in 2002 = 0%
                  Increase in 2001 = 5%

As a result of the cost reduction measures initiated in 2001
and continued in 2002, we were able to keep our selling, general and
administrative expenses at 2001 levels in absolute dollars in spite of a 4%
increase in sales. Selling, general and administrative expenses were 31% and 33%
of sales in 2002 and 2001 compared to 25% of sales in 2000. Total selling,
general and administrative expenses were higher in 2001 due to increased costs
associated with the DSI operations and bad debt expense resulting from the
failure of two of our distributors. We anticipate that selling, general and
administrative expenses will increase in the foreseeable future but may
fluctuate as a percentage of sales.

Research and development expenses

2002 = $4.7 million
                  2001 = $5.4 million
                  2000 = $5.2 million
                  Decrease in 2002 = 13%
                  Increase in 2001 = 4%

Product creation, development and enhancement have always
been and continue to be an important factor in our long-term success.
Investments in this area enable us to serve the factory automation market with
increasingly sophisticated sensors and manufacturing control products. As a
result of the above mentioned cost reduction measures and a lowering of our
reliance on outside contractors, we were able to reduce our research and
development expenditures by 13% from the 2001 level. During 2001, we made a
concerted effort to maintain our research and development efforts in spite of
the reduced revenue and profit levels we experienced in that year. During 2001,
we increased our development efforts with the acquisition of PSI-Tronix. In 2002
and 2001, we introduced a number of new products and product enhancements.
Consistent with our dedication to the development of new products, we anticipate
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 Taxes

Our effective income tax rate was 38% in 2002 and
2000. As a result of the losses sustained in 2001, we recorded an income tax
benefit of 38% of the loss for the year. We expect that our effective tax rate
for 2003 will be reasonably consistent with 2002 and 2000. See Notes 1 and 5 of
Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

Our working capital needs have been met through funds
generated from operating activities. During 2002, operating funds were provided
by net income adjusted for depreciation and amortization, increased accounts
payable and accrued expenses and decreased inventories. These operating funds
were used to offset increases in accounts receivable and for the acquisition of
fixed assets. Working capital amounted to $16.7 million at December 31, 2002, a
14% increase from the $14.7 million at December 31, 2001. The bank line of
credit of $6.1 million was renewed in 2002 and extended to June 30, 2003. We
have the option to convert up to $1.0 million of the credit line into a five-
year term note. Secured by qualified receivables, fixed assets and inventories,
borrowing under this credit line bears interest at the bank's prime rate. At
December 31, 2002, none of the line of credit had been utilized.

We made certain capital expenditures during 2002, primarily
for production, quality assurance, research and development equipment,
information systems and software. Consistent with our operations historically
and our current plans for growth, we plan to make additional capital
expenditures during 2003, primarily for production, quality assurance and
research and development equipment. While we had no formal commitments at
December 31, 2002, it is anticipated that capital expenditures in 2003 will be
in excess of $1.5 million, predicated on our profitability and cash resources.

We believe that cash flow from operations and available bank
borrowings will be sufficient to meet anticipated working capital requirements
through at least 2003. While we continue to evaluate financing alternatives from
time to time, we have no current plans to raise additional outside capital. At
December 31, 2002, future minimum payments under our leases due in the years
2003 through 2007 were approximately $1,260,000, $1,192,000 $1,124,000,
$1,031,000 and $1,075,000, respectively.



Relationship with Parent

Intercompany transactions between us and our parent
company include charges by our parent for management services provided to us,
dividend payments to our parent and other cash transfers. Our parent files a
consolidated tax return including our accounts. Our tax provision or benefit is
calculated on a stand-alone basis. Our income taxes payable or receivable
calculated on that basis are paid to or received from our parent.

Critical Accounting Policies

Revenue Recognition

Revenue from product sales to customers is recognized
upon shipment if a signed purchase order exists, the price is fixed or
determinable, collection of the resulting receivable is considered probable and
product returns can be reasonably estimated. Subsequent to the sale of the
products, we have no obligation to provide any modification or customization,
upgrades, enhancements or postcontract customer support. Upon shipment, we
provide for the estimated costs that may be incurred for product warranties. We
estimate sales returns and warranty costs based on historical experience and the
best information we have at the time we report our financial statements. Actual
results could differ from these estimates.

Installation and engineering service revenue is recognized
when services are rendered, or an identifiable portion of the contract is
completed, no significant post-delivery obligations exist and collection is
probable.

Inventories

We value our inventory at the lower of the actual
cost to purchase and/or manufacture the inventory or the current estimated
market value of the inventory. We regularly review inventory quantities on hand
and record a provision for excess and obsolete inventory based primarily on our
historical consumption and our estimated forecast of product demand and
production requirements. As demonstrated during 2001, demand for our products
can fluctuate significantly. In addition, our industry is characterized by
technological change, new product development, and product obsolescence that
could result in an increase in the amount of obsolete inventory quantities on
hand. Additionally, our estimates of future product demand may prove to be
inaccurate, in which case we may have misstated the provision required for
excess and obsolete inventory. In the future, if our inventory is determined to
be overvalued, we would be required to recognize such costs in our cost of goods
sold at the time of such determination. Likewise, if our inventory is determined
to be undervalued, we may have over-reported our costs of goods sold in previous
periods and would be required to recognize such additional operating income at
the time of sale. Therefore, although we make every effort to ensure the
accuracy of our forecasts of future product demand, any significant
unanticipated changes in demand or technological developments could have a
significant impact on the value of our inventory and our reported operating
results.

Accounts Receivable

We perform ongoing credit evaluations of our
customers and adjust credit limits based upon payment history and the customer's
current credit worthiness, as determined by our review of their current credit
information. We continuously monitor collections and payments from our customers
and maintain a provision for estimated credit losses based upon our historical
experience and any specific customer collection issues that we have identified.
While such credit losses have historically been within our expectations and the
provisions established, we cannot guarantee that we will continue to experience
the same credit loss rates that we had in the past. A significant change in the
liquidity or financial position of any one of our customers could have an
adverse impact on the collectability of our accounts receivable and our future
operating results.

Valuation of Long-Lived Assets

We review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. We review the recoverability of our long-lived assets,
such as fixed assets, goodwill, intangible assets and investments, when events
or changes in circumstances indicate that the carrying amount of the asset or
asset group may not be recoverable. The assessment of possible impairment is
based on our ability to recover the carrying value of the asset or asset group
from the expected future pre-tax cash flows (undiscounted and without interest
charges) of the related operations. If these cash flows are less than the
carrying value of such asset, an impairment loss is recognized for the
difference between the estimated fair value and carrying value. The measurement
of impairment requires management to estimate future cash flows and the fair
value of long-termed assets.

Factors that May Affect Future Results

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

Our operating results may fluctuate.

We have experienced fluctuations in annual and quarterly
operating results and anticipate 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 our products are sold, the mix of products sold and the timing of
operating expenditures. Our operating results are also negatively impacted by
generally adverse economic conditions throughout the high technology sector. In
particular, our PSI-Tronix subsidiary continues to experience low sales volume
due to the recent market conditions in the semiconductor industry.

The seasonality inherent in our business could cause our
operating results to fluctuate.

The industrial manufacturing equipment industry in which we
compete has historically been subject to seasonality. This is also true with
respect to European markets in which we compete where business activity declines
due to vacations taken in the summer months. This seasonality, combined with
other factors such as the variability in our operating results described above,
renders quarter-to-quarter comparisons of our results of operations unreliable
as indicia of our overall performance.

The market for our products is highly competitive.

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

Our business could suffer if we do not respond to
technological change and new product development demands of our
customers.

The market for our products is characterized by changing
technology, evolving industry standards, changes in customer needs and new
product introductions. Our future success will depend on our ability to respond
to emerging industry standards, enhance current products, develop new products,
and achieve market acceptance of those products, all on a timely and cost-
effective basis. The introduction of new products also requires that we 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.

Our sales are dependent on independent distributors.

A majority of our sales are through third party
distributors, system integrators and original equipment manufacturers. These
resellers are not required to offer our products exclusively. We cannot assure
you that a reseller will continue to offer our products. In addition many of our
resellers are privately owned firms which may not be well capitalized, as was
demonstrated by the failure of two of our distributors during 2001. If our
ability to sell products through these third parties is impaired, our results of
operations would likely suffer.

Our international sales are subject to risks.

Our international sales may be disrupted by currency
fluctuations or other events beyond our control, including political or
regulatory changes. If our international sales were disrupted for any reason,
our revenue levels would decline.

Our business could suffer if we are unable to protect and
enforce our intellectual property rights.

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

Our operations may be negatively impacted as a result of
deteriorating global economic and political conditions.

Our business may suffer as a result of general economic and political
conditions in the U.S. and abroad. Over the past two years, there has been a
rapid and severe downturn in the U.S. market and global economy. We expect that
this negative trend will continue, however, the duration and future severity are
uncertain. This uncertainty has significantly increased due to recent terrorist
activity, such as the attacks in the U.S. on September 11, 2001, and the recent
military activity in Afghanistan, Iraq and the Middle East. Additional terrorist
acts or acts of war could cause damage or disruption to us or to our suppliers
and our customers. Fears of global recession, war, and terrorism may continue to
have seriously detrimental effects on the U.S. and global economies. Such
conditions could further dampen consumer confidence and cause our customers to
slow or cease spending on our products. If these events continue, our operations
may be negatively impacted.



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.

The market risk inherent in our investments represents the potential
loss arising from adverse changes in interest rates. We are exposed to market
risk in the area of interest rate changes impacting the fair value of our
investment securities. Our policy is to invest primarily in money market
accounts and short-term investments held at financial institutions. We do not
have any derivative instruments in our investment portfolio. Due to their highly
liquid nature, our investments are subject to minimal credit and market
risk.



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.

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

(1) Financial Statements



|                                                                                                     | Page
|---------------------------------------------------------------------------------------------------- | ----
|Report of Independent Accountants                                                                    | **  
|Consolidated Balance Sheets - December 31, 2002 and 2001                                             | **  
|Consolidated Statement of Operations - Years ended
  
    December 31, 2002, 2001 and 2000           | **  
|Consolidated Statement of Cash Flows - Years ended
  
    December 31, 2002, 2001 and 2000           | **  
|Consolidated Statement of Stockholders' Equity - Years
  
    ended December 31, 2002, 2001 and 2000 | **  
|Notes to Consolidated Financial Statements                                                           | **  

(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.

---



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
shareholders' 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, 2002 and 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits 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 our opinion.





PricewaterhouseCoopers LLP

San Jose, California
   March 12, 2003

---



Scientific Technologies Incorporated

                            Consolidated Balance Sheet
(In thousands, except per share data)

`December 31,
                                                           ------------------
                                                             2002      2001
                                                           --------  --------
Assets
Current assets:
    Cash and cash equivalents............................ $  2,620  $  1,033
    Accounts receivable, net.............................    7,636     6,454
    Receivable from Parent...............................      384        --
    Inventories..........................................    8,719     9,125
    Deferred income taxes................................    2,380     2,081
    Other assets.........................................      835       581
                                                           --------  --------
          Total current assets...........................   22,574    19,274

Property and equipment, net..............................    3,725     3,537
Goodwill and other intangible assets, net................   11,593    11,389
                                                           --------  --------
          Total assets................................... $ 37,892  $ 34,200
                                                           ========  ========
                                                                             
Liabilities and Shareholders' Equity
Current liabilities
    Trade accounts payable............................... $  2,942  $  1,886
    Accrued expenses.....................................    2,836     2,648
    Current portion of capital lease with Parent.........       60        --
                                                           --------  --------
          Total current liabilities......................    5,838     4,534

Capital lease with Parent................................      240        --
Deferred income taxes ...................................    2,064       432
                                                           --------  --------
          Total liabilities..............................    8,142     4,966

Commitments and contingencies (Note 9)

Shareholders' equity
    Common stock; $.001 par value; 100,000
       shares authorized; shares issued and
       outstanding - 9,687 and 9,676.....................       10        10
    Capital in excess of par value.......................    5,681     5,637
    Retained earnings....................................   24,059    23,587
                                                           --------  --------
          Total shareholders' equity.....................   29,750    29,234
                                                           --------  --------
          Total liabilities and shareholders' equity..... $ 37,892  $ 34,200
                                                           ========  ========`

The accompanying notes are an integral part of these financial statements.

---



Scientific Technologies Incorporated

                      Consolidated Statement of Operations
(In thousands, except per share data)

`Year Ended December 31,
                                                     ----------------------------
                                                       2002      2001      2000
                                                     --------  --------  --------
Sales.............................................. $ 51,207  $ 49,053  $ 60,146
Cost of goods sold.................................   29,000    29,329    30,214
                                                     --------  --------  --------
  Gross profit.....................................   22,207    19,724    29,932
                                                     --------  --------  --------

Operating expenses:
  Selling, general and administrative..............   16,110    16,111    15,387
  Research and development.........................    4,653     5,429     5,159
  Amortization of acquired intangibles.............      700       658       641
                                                     --------  --------  --------
   Total operating expenses........................   21,463    22,198    21,187
                                                     --------  --------  --------
Income (loss) from operations......................      744    (2,474)    8,745

Interest and other income, net.....................       17       176       337
                                                     --------  --------  --------

Income (loss) before income taxes..................      761    (2,298)    9,082
Provision (benefit) for income taxes...............      289      (873)    3,451
                                                     --------  --------  --------

Net income (loss).................................. $    472  $ (1,425) $  5,631
                                                     ========  ========  ========

Basic and diluted net income (loss) per share...... $   0.05  $  (0.15) $   0.58
                                                     ========  ========  ========

Shares used to compure net income (loss) per share.    9,698     9,659     9,667
                                                     ========  ========  ========`

The accompanying notes are an integral part of these financial statements.

---



Scientific Technologies Incorporated

                   Consolidated Statement of Cash Flows
(In thousands)

`Year Ended December 31,
                                                        -------------------------
                                                         2002     2001     2000
                                                        -------  -------  -------
Cash flows from operating activities:
  Net income (loss)................................... $   472  $(1,425) $ 5,631
  Adjustments to reconcile net income (loss) to
    cash provided by operating activities:
    Depreciation and amortization.....................   2,631    2,266    1,766
    Changes in assets and liabilities:
       Accounts receivable, net.......................  (1,182)   2,727    1,136
       Receivable from Parent.........................    (384)      --       --
       Inventories....................................     406      369     (305)
       Other assets...................................    (254)    (170)     238
       Trade accounts payable.........................   1,056   (1,020)     (45)
       Deferred income taxes..........................    (167)    (209)    (588)
       Accrued expenses...............................     188      (25)     301
                                                        -------  -------  -------
Cash flows provided by operating activities...........   2,766    2,513    8,134
                                                        -------  -------  -------
Cash flows from investing activities:
   Purchases of property  and equipment...............  (1,223)  (1,010)  (1,620)
   Acquisition of PSI-Tronix..........................      --       --   (8,742)
   Acquisition of Dunn Sales..........................      --   (3,992)      --
   Sale of short-term investments, net................      --      406    4,803
                                                        -------  -------  -------
Cash flows used in investing activities...............  (1,223)  (4,596)  (5,559)
                                                        -------  -------  -------

Cash flows from financing activities:
   Issuance (repurchase) of common stock, net.........      44       84       44
   Dividends..........................................      --   (1,016)  (1,933)
                                                        -------  -------  -------
Cash flows provided by (used in) financing activities.      44     (932)  (1,889)
                                                        -------  -------  -------
Change in cash and cash equivalents...................   1,587   (3,015)     686
Cash and cash equivalents at beginning of year........   1,033    4,048    3,362
                                                        -------  -------  -------
Cash and cash equivalents at end of year.............. $ 2,620  $ 1,033  $ 4,048
                                                        =======  =======  =======

Supplemental disclosure of cash flow information:
   Cash paid to (received from) Parent for
      income taxes.................................... $   289  $  (873) $ 3,451
                                                        =======  =======  =======

Supplemental disclosure of non-cash activities:
   Capital lease with Parent.......................... $   300  $    --  $    --
                                                        =======  =======  =======

   Deferred tax liability related to acquisition of
      Dunn Sales...................................... $ 1,500  $    --  $    --
                                                        =======  =======  =======`

The accompanying notes are an integral part of these financial statements.

---

Scientific Technologies Incorporated

              Consolidated Statement of Changes in Shareholders' Equity
(In thousands)

`Common Stock
                                ---------------------------
                                                   Capital
                                                  in Excess
                                           Par     of Par    Retained
                                Shares    Value     Value    Earnings    Total
                                -------  -------  ---------  ---------  --------
Balances December 31, 1999.....  9,633  $    10  $   5,509  $  22,330  $ 27,849
   Issuance of common stock....     36       --        160         --       160
   Repurchase of common stock..    (19)      --       (116)        --      (116)
   Net income for the year.....     --       --         --      5,631     5,631
   Dividends paid..............     --       --         --     (1,933)   (1,933)
                                -------  -------  ---------  ---------  --------
Balances December 31, 2000.....  9,650       10      5,553     26,028    31,591
   Issuance of common stock....     33       --        116         --       116
   Repurchase of common stock..     (7)      --        (32)        --       (32)
   Net loss for the year.......     --       --         --     (1,425)   (1,425)
   Dividends paid..............     --       --         --     (1,016)   (1,016)
                                -------  -------  ---------  ---------  --------
Balances December 31, 2001.....  9,676       10      5,637     23,587    29,234
   Issuance of common stock....     22       --         69         --        69
   Repurchase of common stock..    (11)      --        (25)        --       (25)
   Net income for the year.....     --       --         --        472       472
                                -------  -------  ---------  ---------  --------
Balances December 31, 2002.....  9,687  $    10  $   5,681  $  24,059  $ 29,750
                                =======  =======  =========  =========  ========`

The accompanying notes are an integral part of these financial statements.

---



Scientific Technologies Incorporated

Notes to Consolidated Financial Statements

NOTE 1-THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

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. In addition, the Company provides safeguarding
equipment installation, rebuilding, repair and maintenance of fabricating
machinery. A majority of the Company's outstanding common stock is held by
Scientific Technology Incorporated, a California corporation (the "Parent").

The Company operates in two business segments - the
development, manufacture and marketing of industrial safety products and the
development, manufacture and marketing of industrial automation products. The
Company operates in an industry characterized by significant competition.

Use of Estimates

The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the 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.

Cash and Cash Equivalents and Short-Term Investments

The Company invests primarily in money market accounts
held at financial institutions and considers all highly liquid investments with
an original maturity of less than 90 days to be cash equivalents. Accordingly,
these investments are subject to minimal credit and market risk.

Short-term investments consist of highly liquid investments,
which mature in less than one year and are classified as "held-to-maturity."
Interest income is accrued as earned.

Inventories

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

Property and Equipment

Property and equipment are recorded at cost less
accumulated depreciation and amortization. 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 improvements.

Goodwill and Other Intangible Assets

Intangible assets include tradenames, customer
relationships, product lines, technologies and a covenant not to compete
acquired as part of the acquisitions of Dunn Sales, Inc., PSI-Tronix, Inc. and
Lundahl Instruments, Inc. Intangible assets are generally amortized on a
straight-line basis over a period of two to fifteen years. Goodwill is not
amortized and is subject to impairment testing at the reporting unit level at
least annually and more frequently upon the occurrence of certain events. A
reporting unit is the same level as or one level below an operating segment.

Long-Lived Assets

The Company periodically evaluates the recoverability of
its long-lived assets based upon the expected undiscounted cash flows
attributable to such assets, and recognizes impairment from the carrying value
of long-lived assets, if any, based on the fair value of such assets. No losses
from impairment have been recognized for any of the periods presented.

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.

Revenue Recognition

Revenue from product sales to customers is recognized
upon shipment if a signed purchase order exists, the price is fixed or
determinable, collection of the resulting receivable is considered probable and
product returns can be reasonably estimated. Subsequent to the sale of the
products, the Company has no obligation to provide any modification or
customization, upgrades, enhancements or postcontract customer support. Upon
shipment, the Company provides for the estimated costs that may be incurred for
product warranties.

Installation and engineering service revenue is recognized
when services are rendered or when an identifiable portion of the contract is
completed, no significant post-delivery obligations exist and collection is
probable.

Shipping and Handling

All amounts billed to a customer in a sale transaction
related to shipping and handling, if any, represent revenues earned for the
goods provided and are classified as revenue. Costs incurred for shipping and
handling are included in cost of sales.

Research and Development

Research and development costs are expensed as
incurred.

Advertising Costs

Advertising costs are recorded as expenses when incurred.
Advertising costs for the years ended December 31, 2002, 2001 and 2000 were
$590,000, $609,000 and $707,000.

Stock-based compensation

The Company accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, or APB No. 25, "Accounting for Stock Issued to Employees."
Under APB No. 25, compensation cost is measured as the excess, if any, of
the quoted market price of its stock at the date of grant over the exercise
price of the option granted. Compensation cost for stock options, if any, is
recognized ratably over the vesting period. The Company provides additional pro
forma disclosures as required under SFAS No. 123, "Accounting for Stock-Based
Compensation" and SFAS No. 148, "Accounting for Stock-Based
Compensation, Transition and Disclosure".

SFAS No. 148, issued in December 2002, amends SFAS
No. 123 in December 2002 to require that disclosures of the pro forma
effect of using the fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular format. The
following table sets forth the effect on the Company's net income (loss) and net
income (loss) per share as if the Company had recorded compensation costs based
on the estimated grant date fair value as defined by SFAS No. 123 for all
granted stock-based awards (in thousands, except per share amounts).



|                                                                                                          |                          |  |          |  |        | 
|--------------------------------------------------------------------------------------------------------- | ------------------------ |  | -------- |  | ------ | 
|                                                                                                          | Years Ended December 31, | 
|                                                                                                          | 2002                     |  | 2001     |  | 2000   | 
|                                                                                                          |                          |  |          |  |        | 
|Net income (loss), as reported                                                                            | $ 472                    |  | $(1,425) |  | $5,631 | 
|                                                                                                          |                          |  |          |  |        | 
|Add: Stock-based employee compensation expense included in reported net
income  (loss)                    | -                        |  | -        |  | -      | 
|Deduct: Stock-based employee compensation expense determined under fair value
based method for all awards | 81                       |  | 205      |  | 111    | 
|Pro forma net income (loss)                                                                               | $391                     |  | $(1,630) |  | $5,520 | 
|                                                                                                          |                          |  |          |  |        | 
|Net income (loss) per share - basic and diluted:                                                          |                          |  |          |  |        | 
|As reported                                                                                               | $0.05                    |  | $(0.15)  |  | $0.58  | 
|Pro forma                                                                                                 | $0.04                    |  | $(0.17)  |  | $0.57  | 
|                                                                                                          |                          |  |          |  |        | 

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.

Comprehensive Income

Comprehensive income is defined to include all changes in
shareholders' equity during a period from non-owner sources. There were no
significant differences between the Company's net income (loss) and its total
comprehensive income (loss) for any of the periods presented.

Reclassifications

The Company has reclassified certain prior years' information to conform
to the current financial statements.

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board,
or FASB, issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This Statement requires that a liability
for costs associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred. SFAS
No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. The Company does not expect adoption of SFAS No. 146 to
have a material effect on its consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45,
("FIN No. 45") "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN
No. 45 requires that a liability be recorded in the guarantor's balance
sheet upon issuance of a guarantee. In addition, FIN No. 45 requires
disclosures about the guarantees that an entity has issued, including a
reconciliation of changes in the entity's product warranty liabilities. The
initial recognition and initial measurement provisions of FIN No. 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of FIN No. 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
Company does not expect its adoption of FIN 45 to have a material impact on
its consolidated financial statements.

In December 2002, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation, Transition and Disclosure." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS No. 148 also
requires that disclosures of the pro forma effect of using the fair value method
of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS No. 148 requires
disclosure of the pro forma effect in interim financial statements. The
transition and annual disclosure requirements of SFAS No. 148 are effective for
fiscal years ended after December 15, 2002. The interim disclosure requirements
are effective for interim periods beginning after December 15, 2002. The Company
has adopted the disclosure requirements and believes that the adoption of the
remaining provisions of this standard will have no material impact on its
financial statements.

In January 2003, the FASB issued Interpretation No. 46
("FIN No. 46") "Consolidation of Variable Interest Entities." Until this
interpretation, a company generally included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
FIN No. 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns. The Company does not expect its adoption of
FIN 46 to have a material impact on its consolidation financial
statements.

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 2002, 2001 and 2000 were
$806,000, $1,005,000, and $1,071,000, respectively.

The Company leases approximately 85,000 square feet in a
95,000 square foot facility owned by an affiliate of the Parent. The Company
also leases another 25,000 square feet in another facility owned by the Parent.
The lease terms are for ten years. Overhead costs are allocated primarily on the
basis of square footage utilized.

The Company utilizes a receivable from/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 receivable from Parent of $384,000 at
December 31, 2002 and a zero balance at December 31, 2001. In addition, the
Company is party to a capital lease of $300,000 at December 31, 2002 under which
the Parent is the lessor. At December 31, 2002, future minimum payments under
this lease due in the years 2003 through 2006 were approximately $60,000 each
and $22,000 in 2007.

NOTE 3 - ACQUISITIONS

Dunn Sales, Inc.

On June 8, 2001, the Company acquired all of the
outstanding common stock of Dunn Sales, Inc. ("DSI"), for a cash payment of
$3,992,000. DSI is a leading provider of safeguarding equipment installation,
rebuilding, repair and maintenance of fabricating machinery. The transaction was
accounted for as a purchase and accordingly, the results of DSI operations are
included in the Company's financial statements from the date of acquisition. In
2002, based on a reassessment of deferred tax liabilities related to the
acquisition, $1,500,000 was recorded to deferred tax liabilities and goodwill.
The total purchase price was allocated to the tangible and intangible assets
acquired and liabilities assumed based on their respective fair values on the
date of acquisition as follows (in thousands):

`Amortization
                                        Amount      period
                                      ----------  ----------
Working capital..................... $      140
Equipment...........................         96
Technology..........................      1,985     15 years
Customer relationships..............      1,061      7
Tradename...........................        710      5
                                      ----------
                                          3,992
Goodwill/deferred tax liability.....      1,500
                                      ----------
                                     $    5,492
                                      ==========`

PSI-Tronix, Inc.

On March 16, 2000, the Company acquired substantially all
of the assets of PSI-Tronix, Inc. for a cash payment of $8,742,000. PSI-Tronix
designs, develops and manufactures pressure transducers, digital pressure
gauges, displacement and velocity transducers and pressure comparators for use
in a variety of factory, aerospace, medical, semiconductor and oil and gas
market applications. The acquisition was accounted for by the Company using the
purchase method and, accordingly, the results of operations of PSI-Tronix are
included in the Company's financial statements from the date of acquisition. The
total purchase price was allocated to the tangible and intangible assets
acquired and liabilities assumed based on their respective fair values on the
date of acquisition as follows (in thousands):

`Amortization
                                        Amount      period
                                      ----------  ----------
Working capital..................... $    1,402
Equipment...........................        478
Technology..........................      3,631     15 years
Customer relationships..............      1,953      7
Product lines.......................      1,278     12
                                      ----------
                                     $    8,742
                                      ==========`

Pro-forma consolidated amounts

The following unaudited pro-forma consolidated amounts give effect to the
acquisition of DSI as if the acquisition had occurred on January 1, 2001 and the
acquisition of PSI-Tronix as if the acquisition had occurred on January 1, 2000
(in thousands, except per share data):



|                                              | 2001      |  | 2000   
|--------------------------------------------- | --------- |  | -------
|Sales                                         | $50,322   |  | $64,805
|Net income (loss)                             | $ (1,025) |  | $ 5,485
|Basic and diluted net income (loss) per share | $ (.11)   |  | $ 0.62 
|Shares used to compute net income per share   | 9,659     |  | 9,667  

NOTE 4 - BALANCE SHEET DATA

`December 31,
                                                  ----------------------
                                                     2002        2001
                                                  ----------  ----------
                                                     (In thousands)`

Accounts receivable:

`Accounts receivable........................ $    8,181  $    7,115
     Less: allowance for doubtful accounts......       (545)       (661)
                                                  ----------  ----------
                                                 $    7,636  $    6,454
                                                  ==========  ==========`

Allowance for doubtful accounts:

`Balance at beginning of year............... $      661  $      545
     Addition...................................        409         577
     Utilized...................................       (525)       (461)
                                                  ----------  ----------
     Balance at end of year..................... $      545  $      661
                                                  ==========  ==========`

`Finished goods............................. $    2,159  $    1,943
     Work in process............................      1,043         475
     Subassemblies..............................      1,016       1,042
     Raw materials..............................      4,501       5,665
                                                  ----------  ----------
                                                 $    8,719  $    9,125
                                                  ==========  ==========`

Property and equipment:

`Equipment.................................. $    9,995  $    9,045
     Furniture and fixtures.....................      1,686       1,234
     Leasehold improvements.....................        523         402
                                                  ----------  ----------
                                                     12,204      10,681
     Less: accumulated depreciation.............     (8,479)     (7,144)
                                                  ----------  ----------
                                                 $    3,725  $    3,537
                                                  ==========  ==========`

Accrued expenses:

`Accrued compensation....................... $    1,610  $    1,345
     Accrued commissions........................        194         146
     Warranty reserve...........................        241         278
     Accrued income tax.........................        227         270
     Accrued marketing expenses.................         --         284
     Other......................................        564         325
                                                  ----------  ----------
                                                 $    2,836  $    2,648
                                                  ==========  ==========`

Goodwill and other intangible assets:



|                                  |              | December 31, 2002                       | December 31, 2001                         
|--------------------------------- | ------------ | --------------------------------------- | ------------------------------------------
|                                  | Life
(Years) | Gross Carrying
                  Amount | Accumulated
                  Amortization
|                                  |              |                                         |                                           
|Technology                        | 15           | $ 7,146                                 | (1,252)                                   
|Customer relationships            | 7            | 3,476                                   | (1,152)                                   
|Tradename                         | 5            | 710                                     | (156)                                     
|Product lines                     | 12           | 1,596                                   | (275)                                     
|Covenant not to compete           | 2            | 50                                      | (50)                                      
|Total amortized intangible assets |              | 12,978                                  | $(2,885)                                  
|Goodwill                          |              | 1,500                                   |                                           
|Total                             |              | $14,478                                 |                                           

The Company incurred amortization expense of $1,296,000 and
$948,000 in 2002 and 2001 respectively, of which $596,000 and $290,000 were included in
cost of goods sold. The Company will incur amortization expense of approximately
$1,257,000 each in 2003, 2004 and 2005, $1,193,000 in 2006 and $820,000 in
2007.

Debt:

The Company has a $6,100,000 line of credit with a bank, of
which no amount was outstanding at December 31, 2002 or 2001. The line bears
interest at the bank's prime rate (4.25% at December 31, 2002), is secured by
accounts receivable, inventories and fixed assets, and expires on June 30, 2003.
The Company's Bank line of credit as amended, contains covenants which require
the Company to meet specific financial tests. The financial tests for 2002 were
as follows: (1) a requirement of profitably on an annual basis and (2) a minimum
tangible net worth requirement of $16,500,000. At December 31, 2002, the Company
was in compliance with the covenants.

NOTE 5 - INCOME TAXES

The provision (benefit) for income taxes was as follows:



|                                 | Year Ended December 31
|-------------------------------- | ----------------------
|                                 | 2002                  
|Current tax expense (benefit)    | (In thousands)        
|Federal                          | $ 451                 
|State                            | 8                     
|                                 | 459                   
|Deferred tax expense (benefit)   |                       
|Federal                          | (36)                  
|State                            | (134)                 
|                                 | (170)                 
|Total provision for income taxes | $289                  
|                                 |                       

The provision (benefit) for income taxes differs from the
amount of tax determined by applying the applicable federal statutory income tax
rate to pretax income as a result of the following differences:



|                                           | 2002 | 2001  | 2000
|------------------------------------------ | ---- | ----- | ----
|Statutory U.S. tax rate                    | 34%  | (34)% | 34% 
|State income taxes, net of federal benefit | 6    | (1)   | 6   
|Research and development and other credits | (27) | (7)   | (2) 
|Nondeductible expenses                     | 25   | 4     | --  
|Effective tax rate                         | 38%  | (38)% | 38% 

Deferred tax assets (liabilities) consist of the
following: (In thousands)



|                                             | December 31,
|-------------------------------------------- | ------------
|                                             | 2002        
|Short-term deferred tax asset                |             
|Inventory reserve                            | $ 964       
|Other reserves and accruals                  | 739         
|Net operating loss                           | 35          
|Research & development tax credit and others | 642         
|Gross deferred tax assets                    | 2,380       
|                                             |             
|Long-term deferred tax liability             |             
|Depreciation and amortization                | (734)       
|Gross up of goodwill                         | (1,330)     
|Gross deferred tax liability                 | (2,064)     
|Net deferred tax assets                      | $316        

NOTE 6 - INCOME ( LOSS) PER SHARE

A reconciliation of the numerators and denominators of the basic and
diluted income (loss) per common share computations is provided below.

`(In thousands)     (Per
                                            ------------------   Share)
                                             Income    Shares    Amount
                                            --------  --------  --------
2002:
Basic earnings per share calculation...... $    472     9,683  $   0.05
Effect of dilutive securities:
  Stock options...........................       --        15        --
                                            --------  --------  --------
Diluted earnings per share calculation.... $    472     9,698  $   0.05
                                            ========  ========  ========

2001:
Basic earnings per share calculation...... $ (1,425)    9,659  $  (0.15)
Effect of dilutive securities:
  Stock options...........................       --        --        --
                                            --------  --------  --------
Diluted earnings per share calculation.... $ (1,425)    9,659  $  (0.15)
                                            ========  ========  ========

2000:
Basic earnings per share calculation...... $  5,631     9,640  $   0.58
Effect of dilutive securities:
  Stock options...........................       --        27        --
                                            --------  --------  --------
Diluted earnings per share calculation.... $  5,631     9,667  $   0.58
                                            ========  ========  ========`

The number of common stock equivalents excluded from the earnings per share
calculation because they would be antidilutive total to 657,000 in 2002, 523,000
in 2001 and 461,000 in 2000.

NOTE 7 - DIVIDENDS

During 2002, the Company paid no dividends. During 2001,
the Company paid quarterly dividends of $.0525 per share for the first two
quarters of the year on April 3 and July 5. During 2000, the Company paid
quarterly dividends of $.05 per share.

NOTE 8 - STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN

Stock Option Plan

The 1997 Stock Option Plan (the "Plan") provides for the
granting of stock options to employees and consultants of the Company. Options
granted under the Plan may be either incentive stock options or nonqualified
stock options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") and stock purchase rights may be granted to
Company employees and consultants. The Company has reserved 1,000,000 shares of
common stock for issuance under the Plan. No person will be eligible to receive
more than 250,000 shares in any fiscal year.

Options under the Plan may be granted for periods of up to
ten years and at prices no less than 85% of the estimated fair market value of
the shares on the date of grant, provided, however, that (i) the exercise price
of an ISO shall not be less than 100% of the estimated fair market value of the
shares on the date of grant, and (ii) the exercise price of an ISO granted to a
10% or more Shareholder shall not be less than 110% of the estimated fair value
of the shares on the date of grant. Most options granted under the Plan through
December 31, 2002 vest over a five-year period.

Activity under the Plan is set forth below:



| |                              | Available for Grant | Number of Shares
                  Outstanding | Weighted Average Exercise
                  Price
| | ---------------------------- | ------------------- | ---------------------------------------------- | -------------------------------------------------
| | Balance at December 31, 1999 | 641,476             | 230,898                                        | $6.43                                            
| | Granted                      | (345,600)           | 345,600                                        | $6.07                                            
| | Exercised                    | --                  | (1,334)                                        | $4.36                                            
| | Cancelled                    | 88,732              | (88,732)                                       | $5.42                                            
| | Balance at December 31, 2000 | 384,608             | 486,432                                        | $6.36                                            
| | Granted                      | (67,566)            | 67,566                                         | $4.73                                            
| | Exercised                    | --                  | (6,200)                                        | $1.21                                            
| | Cancelled                    | 24,800              | (24,800)                                       | $6.20                                            
| | Balance at December 31, 2001 | 341,842             | 522,998                                        | $6.17                                            
| | Granted                      | (203,900)           | 203,900                                        | $3.99                                            
| | Exercised                    | --                  | (4,000)                                        | $1.28                                            
| | Cancelled                    | 51,000              | (51,000)                                       | $1.94                                            
| | Balance at December 31, 2002 | 188,942             | 671,898                                        | $5.87                                            

Information relating to stock options outstanding and exercisable at December
31, 2002 is as follows:

`Options Outstanding
                     ----------------------------------    Options Vested and
                                  Weighted                     Exercisable
                                   Average               -------------------------
                                  Remaining   Weighted                  Weighted
                                 Contractual   Average      Number       Average
                       Number       Life      Exercise    of Shares     Exercise
     Exercise Price  outstanding   (Years)      Price    Exercisable      Price
   ----------------- ----------- -----------  ---------  ------------  -----------
  $  2.75 - $  3.99     218,400         9.0  $    3.94        12,500  $      3.25
     4.10 -    5.74      74,500         7.0       4.72        56,325         4.64
     6.00 -    6.80     264,000         7.5       6.04       165,600         6.06
     7.01      7.87     103,998         4.6       8.02        98,432         7.55
  $  8.61   $ 11.48      11,000         3.6      10.00        11,000        10.00
                     -----------                         ------------
                        671,898                              343,857
                     ===========                         ============`

Employee Stock Purchase Plan

The Company has reserved 600,000 shares of Common Stock
for issuance under the 1997 Employee Stock Purchase Plan (the "Purchase Plan").
Employees generally will be eligible to participate in the Purchase Plan if they
are customarily employed by the Company for more than 20 hours per week and more
than five months in a calendar year and are not (and would not become as a
result of being granted an option under the Purchase Plan) 5% Shareholders of
the Company. Under the Purchase Plan, eligible employees may choose each year to
have up to 15% of their eligible annual compensation withheld to purchase our
common stock. Each offering period commences on the first trading day of each
calendar quarter, or on such other date as the Board shall determine. The price
at which the common stock is purchased under the Purchase Plan is 85% of the
lesser of the closing price of the Company's common stock on the first day of
the applicable offering period or on the last day of that purchase period. The
Purchase Plan will terminate after a period of ten years unless terminated
earlier as permitted by the Purchase Plan. During the years ended December 31,
2002, 2001 and 2000, 15,091, 22,958 and 23,082 shares of common stock were
purchased under this plan at a weighted-average price of $2.68, $5.77 and $5.03,
respectively.

Fair Value Disclosures

This information is required to be determined as if the
Company had accounted for its employee stock options (including shares issued
under the Employee Stock Purchase Plan, collectively called options) as defined
by SFAS No. 123. The fair value of options reported below has been estimated at
the date of grant using the Black-Scholes option-pricing model for 2002, 2001
and 2000 using the following assumptions:



|                                | Stock Options | Stock Purchase Plan
|------------------------------- | ------------- | -------------------
|                                | 2002          | 2001               
|                                |               |                    
|Risk-free interest rates        | 4.3 - 5.1%    | 4.0 - 4.9%         
|Expected lives (in years)       | 5             | 5                  
|Expected dividend yield         | 1.9%          | 1.0%               
|Expected stock price volatility | 43.1%         | 47.8%              

The weighted-average estimated fair value of options granted
during the year 2002, 2001 and 2000 were $1.43, $1.78 and $2.29, respectively.
The weighted-average estimated fair value of employee stock purchase rights
granted under the Employee Stock Purchase Plan were $0.57, $1.10 and $1.31 in
2002, 2001 and 2000, respectively. The effect on earnings per share of using the
fair value of options is disclosed in Note 1 above.

NOTE 9 - RETIREMENT SAVINGS PLAN

The Company adopted a defined contribution retirement
savings plan under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees who meet minimum age and service requirements and
allows participants to defer a portion of their annual compensation on a pre-tax
basis. The plan allows employer's matching contributions equal to 50% of
employees' contributions subject to a maximum of 6% of employees' compensation.
Contributions to the plan may be made at the discretion of the Board of
Directors. The Company made no contributions in 2002 and contributed $219,000
and $313,000 in 2001 and 2000, respectively.

NOTE 10 - SEGMENT INFORMATION

In 2000, with the acquisition of PSI-Tronix, the Company
organized itself into two business segments: Safety Products Group, whose
products include safety light curtains, safety interlocks and relays, safety
mats and controllers, safety contact strips, and optical profiling scanners, and
installation services, and Automation Products Group, whose products include
photoelectric and fiberoptic sensors, control components, power monitoring
electronics, defense electronics, industrial control microcomputers, peripherals
and software, level and flow sensors, non-contact ultrasonic sensors and
controllers, pressure transducers, digital pressure gauges, displacement and
velocity transducers and pressure comparators.

Financial information for each product group for the years
ended December 31, 2002, 2001 and 2000 follows:

`2002                                   Safety Products   Automation Products
-------------------------------------  ----------------  -------------------
Sales................................ $         43,493  $             7,714
Group operating profit (loss)........ $          2,419  $            (1,675)
Total assets......................... $         28,646  $             9,246
Capital expenditures................. $          1,101  $               122
Depreciation and amortization........ $          1,517  $             1,114

2001
-------------------------------------
Sales................................ $         40,085  $             8,968
Group operating profit (loss)........ $           (846) $            (1,628)
Total assets......................... $         25,526  $             8,674
Capital expenditures................. $            859  $               151
Depreciation and amortization........ $          1,920  $               346

2000
-------------------------------------
Sales................................ $         49,569  $            10,577
Group operating profit............... $          6,311  $             2,434
Total assets......................... $         27,602  $             9,426
Capital expenditures................. $          1,436  $               184
Depreciation and amortization........ $          1,063  $               703`

NOTE 11 - 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 offers credit terms on the sale of its products to its customers in the
normal course of business. 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 uncollectible accounts
receivable based upon the expected collectibility of all accounts receivable. No
customer accounted for more than 10% of accounts receivable at December 31,
2002, 2001 or 2000.

The Company operates principally in the United States. The
Company's operations in Germany are insignificant to the Company as a whole.
Sales to foreign customers represented less than 10% of total sales in 2002,
2001 and 2000.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Company leases certain office and manufacturing space
and other equipment under noncancellable operating leases. At December 31, 2002,
future minimum payments under these leases due in the years 2003 through 2007
were approximately $1,260,000, $1,192,000 $1,124,000, $1,031,000 and $1,075,000
respectively. Of these amounts $1,026,000 in each year was related to lease
agreements with the Parent or an affiliate of the Parent.

Rent expense under operating lease agreements was
approximately $1,123,000 in 2002, $1,007,000 in 2001, and $997,000 in 2000. Of
these amounts, $974,000, $900,000 and $853,000 were related to lease agreements
with the Parent or an affiliate of the Parent.

From time to time, the Company is involved in litigation in
the normal course of business. Management believes that the outcome of matters
to date will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

The Company offers warranties on certain products and records a liability for
the estimated future costs associated with warranty claims, which is based upon
historical experience and the Company's estimate of the level of futute costs. A
reconciliation of the changes in the Company's warranty liability for the year
ended December 31, 2002 follows (in thousands):



|Warranty accrual at the beginning of the year
Accruals for warranties issued durung the year
Expenses incurred during the year
Warranty accrual at the end of the year | $  278
122(159)$ 241
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------

As permitted under Oregon law the Company has agreements
whereby the Company indemnifies its officers and directors for certain events or
occurrences while the officer or director is, or was serving at the Company's
request in such capacity. The indemnification term is for the period that the
officer or director is serving in such capacity or is subject to any possible
claim or action by reason of the fact that the Indemnitee was serving in that
capacity. The maximum potential amount of future payments the Company could be
unlimited; however the Company has a director and officer insurance policy that
limits the Company's exposure and enables the Company to recover a portion of
any future amounts paid. As a result of the insurance policy coverage, the
Company believes that the estimated fair value of these agreements is
minimal.



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 2002 Annual Meeting of Shareholders 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 2002 Annual Meeting of
Shareholders.



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 2002 Annual
Meeting of Shareholders.



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 2002 Annual
Meeting of Shareholders.



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 2002 Annual Meeting of
Shareholders.



Item 14.    CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and
procedures.    Based on their evaluation as of a date within
90 days of the filing date of this Annual Report on Form 10-K, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934) are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.



(b) Changes in internal controls.   
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

PART IV



Item 15 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. EXHIBITS AND EXHIBIT INDEX:



|Exhibit Number | Exhibit Title                                                                                                                                                                                                                                                                                                                                    
|-------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 2.1    | -  Asset Purchase Agreement by and among PSI-Tronix Technologies, Inc.,
Scientific Technologies Incorporated, PSI-Tronix, Inc. and Melvin R. Heier and
Donna Mae Heier, Trustees of  the Heier Family Trust Dated 6/27/89 dated as of
March 16, 2000 is incorporated by reference to the Registrant's Form 8-K/A dated
May 30, 2000, Exhibit 2.1.
|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    | -  1997 Employee Stock Purchase Plan is incorporated by reference to the
Registrant's Registration Statement on Form S-8 dated October 2, 1998.                                                                                                                                                                                                  
|Exhibit 4.2    | -  1997 Stock Plan is incorporated by reference to the Registrant's Registration
Statement on Form S-8 dated October 2, 1998.                                                                                                                                                                                                                    
|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 June 28, 2002 to Bank Agreement dated November 29, 1994 with
Bank of The West.                                                                                                                                                                                                                                                 
|Exhibit 10.4   | - Lease agreement dated June 1, 2002 with Scientific Technology
 Incorporated for 1025 W. 1700 N., Logan Utah 84321                                                                                                                                                                                                                              
|Exhibit 21.1   | - Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                
|Exhibit 23.1   | - Consent of PricewaterhouseCoopers LLP, Independent Accountants.                                                                                                                                                                                                                                                                                
|Exhibit 24.1   | - Power of Attorney (included on page 40).                                                                                                                                                                                                                                                                                                       
|Exhibit 99.1   | - Certification Of Chief Executive Officer And Chief Financial
    Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant
    To Section 906 Of The Sarbanes-Oxley Act Of 2002                                                                                                                                                          

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 2002.

---



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.

Dated:  March 31, 2003



| |                                     
| | ------------------------------------
| | SCIENTIFIC TECHNOLOGIES INCORPORATED



| |     |                       
| | --- | ----------------------
| | By: | /s/ Anthony R. Lazzara

| |                                          
| | -----------------------------------------
| |                                          
| | Anthony R. Lazzara, Chairman of the Board

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.



|Signature                                       | Title                                                                                           | Date          
|----------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------
|/s/ Anthony R. Lazzara
Anthony R. Lazzara       | Chairman of the Board and Director                                                              | March 31, 2003
|/s/ Joseph J. Lazzara
Joseph J. Lazzara         | President, Chief Executive Officer,
     Treasurer, Director (Principal
     Executive Officer) | March 31, 2003
|/s/ James A. Lazzara
James A. Lazzara           | Vice President, Secretary and
     Director                                                     | March 31, 2003
|/s/ James A. Ashford
James A. Ashford           | Vice President and Director                                                                     | March 31, 2003
|/s/ Richard S. Baldwinson
Richard S. Baldwinson | Director                                                                                        | March 31, 2003
|/s/ Carl H. Frei
Carl H. Frei                   | Director                                                                                        | March 31, 2003
|/s/ Bernard J. Ploshay
Bernard J. Ploshay       | Director                                                                                        | March 31, 2003
|/s/ Richard O. Faria
Richard O. Faria           | Vice President and Chief Financial Officer
     (Principal Financial Officer)                   | March 31, 2003

---



I, Joseph J. Lazzara certify that:

1.	I have reviewed this annual report on Form 10-K of Scientific
Technologies Incorporated;

2.	Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.	Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.	The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b)	evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) 	presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.	The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a)	all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b)	any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6.	The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: March 31, 2003

/s/ Joseph J. LazzaraPresident
and Chief Executive Officer

---



I, Richard O. Faria certify that:

1.	I have reviewed this annual report on Form 10-K of Scientific
Technologies Incorporated;

2.	Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.	Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.	The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b)	evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) 	presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.	The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a)	all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b)	any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6.	The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: March 31, 2003

/s/ Richard O. FariaVice
President and Chief Financial Officer

---

SCIENTIFIC TECHNOLOGIES
INCORPORATED

EXHIBITS

TO



Annual Report on Form 10-K
                   Year ended December 31, 2002





EXHIBITS - TABLE OF CONTENTS



|Exhibit Number | Exhibit Title                                                                                                                                                                          
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.3   | - Amendment dated June 28, 2002 to Bank Agreement dated November 29, 1994                                                                                                              
|Exhibit 10.4   | - Lease agreement dated June 1, 2002 with Scientific Technology
 Incorporated for 1025 W. 1700 N., Logan Utah 84321                                                                    
|Exhibit 21.1   | - Subsidiaries of the Registrant                                                                                                                                                       
|Exhibit 23.1   | - Consent of Independent Accountants                                                                                                                                                   
|Exhibit 24.1   | - Power of Attorney (included on page 40)                                                                                                                                              
|Exhibit 99.1   | - Certification Of Chief Executive Officer And Chief Financial
    Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant
    To Section 906 Of The Sarbanes-Oxley Act Of 2002

---