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

                                  FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
                                                        -------------


[ ] TRANSITION REPORT UNDER 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
                    ------------------------------------
                                  (Issuer)


                 Oregon                           77-0170363
         ------------------------          ------------------------             
         (State of incorporation)               (I.R.S. Employer
                                             Identification Number)


 6550 Dumbarton Circle, Fremont, California                94555
--------------------------------------------          ----------------
  (Address of principal executive offices)               (Zip Code)


                               (510) 608-3400
                               --------------    
                         (Issuers telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 OR 15(d) of the Securities Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.   
Yes  X     No
   -----     -----


Common stock outstanding as of July 31, 1997 was 9,615,205 shares.

                                       1
<PAGE>
 
                       PART 1 - FINANCIAL INFORMATION


ITEM 1 - FINANCIAL STATEMENTS
-----------------------------

                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                    ------------------------------------
                                        
                         CONSOLIDATED BALANCE SHEET
                         --------------------------
                                 (Unaudited)
                                 

<TABLE>
<CAPTION>
                 Assets                  Jun. 30, 1997  Dec. 31, 1996
                                         -------------  -------------
<S>                                     <C>            <C>
Current assets:
  Cash and cash equivalents               $ 4,108,000    $ 2,371,000
  Short-term investments                    4,898,000      4,989,000
  Accounts and notes receivable, net        7,466,000      6,692,000
  Inventories                               4,379,000      4,066,000
  Deferred income taxes                       840,000        840,000
  Other assets                                307,000        278,000
                                          -----------    -----------
      Total current assets                 21,998,000     19,236,000
Property and equipment, net                 2,936,000      2,477,000
                                          -----------    -----------
       Total assets                       $24,934,000    $21,713,000
                                          ===========    ===========
 

                      Liabilities and Shareholders' Equity
                      ------------------------------------
Current liabilities
  Trade accounts payable                  $ 2,244,000    $ 2,385,000
  Payable to Parent                           381,000             --
  Accrued expenses                          1,899,000      1,457,000
                                          -----------    -----------
      Total current liabilities             4,524,000      3,842,000
                                          -----------    -----------
      Total liabilities                     4,524,000      3,842,000
                                          -----------    -----------
                                                      
Shareholders' equity                                  
  Common stock: shares authorized                     
   20,000,000 issued and outstanding;                 
   9,607,000 ($.001 par value)                 10,000         10,000
  Capital in excess of par value            5,343,000      5,319,000
  Retained earnings                        15,057,000     12,542,000
                                          -----------    -----------
      Total shareholders' equity           20,410,000     17,871,000
                                          -----------    -----------
      Total liabilities and                           
       shareholders' equity               $24,934,000    $21,713,000
                                          ===========    =========== 
 
</TABLE>

                                       2
<PAGE>
 
                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                    ------------------------------------
                                        
                    CONSOLIDATED STATEMENT OF OPERATIONS
                    -------------------------------------
                                 (Unaudited)
                                 -----------
<TABLE>
<CAPTION>
 
                                          For the three months ended
 
                                         Jun. 30, 1997  Jun. 30, 1996
                                         -------------  -------------
<S>                                      <C>            <C> 
Sales                                      $11,577,000     $9,255,000
 
Cost of goods sold                           5,632,000      4,771,000
                                           -----------     ----------
 
      Gross profit                           5,945,000      4,484,000
 
 Operating Expenses:
  Selling, general and administrative        2,731,000      2,334,000
  Research and development                     704,000        707,000
                                           -----------     ----------
      Total operating expenses               3,435,000      3,041,000
                                           -----------     ----------
 
      Income from operations                 2,510,000      1,443,000
                                           -----------     ----------
 
Interest income, net                           152,000        137,000
                                           -----------     ----------
 
      Income before income taxes             2,662,000      1,580,000
 
Provision for taxes on income                1,012,000        632,000
                                           -----------     ----------
 
Net income                                 $ 1,650,000     $  948,000
                                           ===========     ==========
 
   Net income per share                    $       .17     $      .10
                                           ===========     ==========
 
   Weighted average common and common
        equivalent shares                    9,606,000      9,607,000
                                           ===========     ==========
</TABLE>

                                       3
<PAGE>
 
                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                    ------------------------------------
                                        
                    CONSOLIDATED STATEMENT OF OPERATIONS
                    -------------------------------------
                                 (Unaudited)
                                 -----------
<TABLE>
<CAPTION>
 
                                           For the six months ended
 
                                         Jun. 30, 1997   Jun. 30, 1996
                                         -------------   -------------
<S>                                      <C>             <C> 
Sales                                      $21,687,000    $18,606,000
 
Cost of goods sold                          10,455,000      9,054,000
                                           -----------    -----------
 
      Gross profit                          11,232,000      9,552,000
 
 Operating Expenses:
  Selling, general and administrative        5,249,000      4,531,000
  Research and development                   1,532,000      1,281,000
                                           -----------    -----------
      Total operating expenses               6,781,000      5,812,000
                                           -----------    -----------
 
      Income from operations                 4,451,000      3,740,000
                                           -----------    -----------
 
Interest income, net                           263,000        352,000
                                           -----------    -----------
 
      Income before income taxes             4,714,000      4,092,000
 
Provision for taxes on income                1,792,000      1,637,000
                                           -----------    -----------
 
Net income                                 $ 2,922,000    $ 2,455,000
                                           ===========    ===========
 
   Net income per share                    $       .30    $       .26
                                           ===========    ===========
 
   Weighted average common and common
        equivalent shares                    9,606,000      9,607,000
                                           ===========    ===========
</TABLE>

                                       4
<PAGE>
 
                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                    ------------------------------------
                                        
                    CONSOLIDATED STATEMENT OF CASH FLOWS
                    ------------------------------------
                                 (Unaudited)
                                 -----------                            
<TABLE>
<CAPTION>
                                             For the six months ended

                                          Jun. 30, 1997   Jun. 30, 1996
                                          --------------  --------------
<S>                                       <C>             <C> 
Cash flows from operating activities
  Net income                                 $2,922,000      $2,455,000
  Adjustments to reconcile net income
   to cash provided by operating 
   activities:
    Depreciation and amortization               397,000         240,000
 
    Changes in assets and liabilities:
      Accounts receivable, net                 (774,000)       (450,000)
      Inventories                              (313,000)       (497,000)
      Payable to Parent                         381,000       1,290,000
      Trade accounts payable                   (141,000)       (319,000)
      Accrued expenses                          442,000         (92,000)
      Other                                     (29,000)       (224,000)
                                             ----------      ----------
        Cash flows provided by               
         operating activities                 2,885,000       2,403,000
                                             ----------      ---------- 

Cash flows from investing activities
  Investment in intangibles and fixed          
   assets                                      (856,000)       (688,000) 
  Sale (purchase) of short-term             
   investments                                   91,000         517,000
        Cash flows used in investing         ----------      ----------
         activities                            (765,000)       (171,000)
                                             ----------      ---------- 

Cash flows from financing activities
  Increase (decrease) in debt                        --         (10,000)
  Dividends                                    (407,000)       (384,000)
  (Repurchase) issuance of common stock          24,000        (106,000)
                                             ----------      ----------
        Cash flows used in financing         
         activities                            (383,000)       (500,000)
                                             ----------      ---------- 

Change in cash and cash equivalents           1,737,000       1,732,000
 
Cash and cash equivalents at beginning       
 of period                                    2,371,000       3,477,000
Cash and cash equivalents at end of          ----------      ----------
 period                                      $4,108,000      $5,209,000
                                             ==========      ========== 
Supplemental disclosure of cash flow
 information:
  Cash paid to the Parent for income         
   taxes                                     $1,792,000      $1,637,000 
</TABLE>

                                       5
<PAGE>
 
                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                    ------------------------------------
                                        
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                                        
  The consolidated financial statements as of June 30, 1997 and for the three
and six months ended June 30, 1997 and 1996 are unaudited. In the opinion of
management, they reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results of these periods but
may not necessarily be indicative of the results to be expected for the full
fiscal year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been consolidated or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in Scientific Technologies
Incorporated's Annual Report to Shareholders on Form 10-K for the year ended
December 31, 1996.

<TABLE>
<CAPTION>
 
      1. INVENTORIES
         Inventories consist of the following:

                                          Jun. 30, 1997  Dec. 31, 1996
                                          -------------  -------------
            <S>                           <C>            <C>   
            Raw Materials                  $1,883,000     $1,615,000
            Subassemblies                     518,000        493,000
            Work in Process                   648,000        509,000
            Finished Goods                  1,330,000      1,449,000
                                           ----------     ----------
                                           $4,379,000     $4,066,000
                                           ==========     ==========
</TABLE> 
 
      2. NET INCOME PER SHARE
         Statement of Financial Accounting Standards no. 128 (FAS 128),
"Earnings Per Share (EPS)", was issued in February 1997. Under FAS 128, the
Company will be required to disclose basic EPS and diluted EPS for all periods
for which an income statement is presented, which will replace disclosure
currently being made for primary EPS and fully-diluted EPS. FAS 128 requires
adoption for fiscal periods ending after December 15, 1997. Pro forma
disclosure of basic EPS and diluted EPS for the current reporting and
comparable periods in the prior year is as follows:

<TABLE>
<CAPTION>
 
                       Three months ended June 30,  Six months ended June 30,
Earnings Per Share:        1997           1996          1997         1996
                       -------------  ------------  ------------  -----------
<S>                    <C>            <C>           <C>           <C>
    Basic                 $ .17          $ .10         $ .30         $ .26
    Diluted               $ .17          $ .10         $ .30         $ .26
</TABLE>

      3. DIVIDEND DECLARED
         On May 22, 1997, the Company declared a cash dividend of $.0425 per
share on all its common shares, payable on July 1, 1997 to shareholders of
record on June 20, 1997. A dividend of $.0425 per share was paid on April 1,
1997 to shareholders of record on March 21, 1997. Approximately 87% of the
outstanding shares of common stock of the Company are beneficially owned by
Scientific Technology Incorporated, a California corporation under common
control with the Company. Dividends paid to Scientific Technology Incorporated
were applied to the Payable to Parent account.

      4. PRODUCT LINE ACQUISITION
         In January 1997, the Company reached an agreement with the Parent to
acquire the distribution rights to certain level and flow control products
manufactured by outside sources. As compensation for this agreement, the Company
will pay a royalty to the Parent for a number of years. The addition of these
sales did not have a material impact on the second quarter or six month results.

                                       6
<PAGE>
 
ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
-------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------

 The following section contains certain forward looking statements based on
current expectations. Actual results may differ materially. Among the factors
 which could effect actual results are those listed under "Business Factors"
below and those listed under "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" in the Company's Annual Report on Form 10K
                    for the year ended December 31, 1996.


                            Results of Operations
                            ---------------------

  Sales for the three and six months ended June 30, 1997 increased 25% and 17%
to $11,577,000 and $21,687,000 from $9,255,000 and $18,606,000 in the comparable
1996 periods. This increase was primarily the result of continued acceptance of
the Company's existing  products, sales of new products introduced in the latter
part of 1996 and early 1997, a more favorable overall pricing discount rate and
sales from the level sensor product line, which was purchased from the Parent in
the first quarter of 1997.

  Gross profit as a percent of sales increased to 51% and 52% during the second
quarter and first six months of 1997 compared to 48% and 51% in the comparable
1996 periods. This resulted from a product mix change in the second quarter to
lower cost products and economies of scale associated with increased sales in
both periods.

  Selling, general and administrative costs increased 17% and 16% respectively
to $2,731,000 and $5,249,000 in the quarter and six months ended June 30, 1997
compared to $2,334,000 and $4,531,000 during the same periods in 1996. Selling,
general and  administrative expenses as a percent of sales declined to 24% in
the second quarter of 1997 from 25% in the comparable 1996 quarter and remained
constant at 24% for the first six months of each year. The increase in absolute
dollars was attributable to higher costs associated with the Company's new
building, increased commissions resulting from higher revenue levels and an
increased investment in the selling infrastructure of the Company.

  Research and development expenses declined slightly in the second quarter of
1997 to $704,000 from $707,000 in the same 1996 quarter, and increased 20% to
$1,532,000 from $1,281,000 in the first six months. Research and development
expenses were 6% of sales for the three months ended June 30, 1997 compared to
8% for the comparable 1996 period, and remained constant at 7% for the first six
months of 1997 compared to 1996. The increase in absolute dollars was chiefly
the result of continued expansion of the Company's product development efforts.
The Company anticipates that it will continue to make substantial investments in
research and development  in subsequent quarters.

  Interest income, net increased to $152,000 for the three months ended June 30,
1997 compared to $137,000 for the same period in the prior year. The increase
was primarily caused by higher income from short-term investments. Interest
income, net declined to $263,000 in the six months ended June 30, 1997 from
$352,000 in the same period in 1996, primarily as a result of the effect of the
recognition of a non recurring gain resulting from the sale of a short-term
investment in the first quarter of 1996.

  The Company's provision for income taxes was $1,012,000 and $1,792,000 for the
three and six  months June 30, 1997 compared to $632,000 and $1,637,000 for the
comparable 1996 periods.

                                       7
<PAGE>
 
  As a result of the above, net income for the three and six months ended June
30, 1997 increased 74% and 19% respectively to $1,650,000 and $2,922,000 as
compared to $948,000 and $2,455,000 in the comparable periods in 1996.
  In light of the significant growth of the Company's operations in past years,
the Company believes that period to period comparisons of its financial results
should not be relied upon as an indication of future performance.


                       Liquidity and Capital Resources
                       -------------------------------
                                        
  At June 30, 1997 the Company's working capital was $17,474,000, a 14% increase
from the $15,394,000 reported at December 31, 1996. This was due to cash flows
from operations resulting in increased accounts receivable and inventory, which
offset increased trade accounts payable, payable to Parent, accrued expenses and
slightly lower short-term investments.

  Available bank borrowings were $2,500,000 at June 30, 1997. The Company
believes that cash from operations, together with its cash resources and
available bank borrowings, should be adequate to fund its working capital
requirements through at least the remainder of 1997.

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

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

Seasonality
-----------
The industrial manufacturing equipment industry can be subject to seasonality.

Competition
-----------
The market for industrial sensors is highly competitive. Competitive pressures
have in the past and could in the future result in increased distributor, OEM
and system integrator discounts, price reductions, increased expenses and
reduced market acceptance of the Company's products.

Rapid technological change and new product development
------------------------------------------------------
The Company's future success will depend on its ability to enhance its current
products, develop new products and respond to emerging industry standards, all
on a timely and cost-effective basis. The introduction of new products also
requires the Company to manage the transition from older products in order to
minimize disruption of customer orders, avoid excessive levels of older product
inventories and ensure that adequate supplies of new products can be delivered
to meet customer demands.

Dependence on indirect distribution channel
-------------------------------------------
A majority of the Company's sales are sold through third party distributors,
system integrators and original equipment manufacturers. These resellers are not
required to offer the Company's products exclusively and there can be no
assurance that a reseller will continue to offer the Company's products.

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

                                       8
<PAGE>
 
                         PART II - OTHER INFORMATION

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
At the Annual Meeting of shareholders held on May 22, 1997, the shareholders
reelected the following to the Board of Directors, Anthony R. Lazzara: 9,450,499
shares for, Joseph J. Lazzara: 9,450,499 shares for, James A. Lazzara: 9,450,499
shares for, James A. Ashford: 9,449,799 shares for, Carl H. Frei: 9,449,499
shares for, and Bernard L. Ploshay: 9,449,499 shares for. The shareholders also
approved the selection of Price Waterhouse as the Company's independent
accountants by a vote of 9,455,595 shares for and 2,652 shares against.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
-----------------------------------------
(a)  The following documents are filed as a part of this Report:

     Exhibit 3.1 -  Articles of Incorporation, as amended, are incorporated by
                    reference to the Registrant's Form 10-K for the year ended
                    December 31, 1988, Exhibit 3.1.
                  
     Exhibit 3.3 -  By-Laws are incorporated by reference to the Registrant's
                    Form 10-K for the year ended December 31, 1985, Exhibit 3.
                  
     Exhibit 4.1 -  1987 Employee Stock Purchase Plan is incorporated by
                    reference to the Registrant's Registration Statement on
                    Form S-8 dated May 13, 1988.
                  
     Exhibit 4.2 -  1987 Stock Option Plan is incorporated by reference to the
                    Registrant's Registration Statement on Form S-8 dated May
                    13, 1988.

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

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

     Exhibit 10.3 - Amendment dated May 31, 1996 to Bank Agreement dated
                    November 29, 1994 is incorporated by reference to the
                    Registrant's Form 10-K for the year ended December 31,
                    1996, Exhibit 10.3.
 
     Exhibit 10.4 - Lease agreement dated November 21, 1995 is incorporated by
                    reference to the Registrant's Form 10-KSB for the year
                    ended December 31, 1995, Exhibit 10.4.
 
     Exhibit 10.5 - Agreement dated January 1, 1997 with Scientific Technology
                    Inc. for the purchase of the level sensor product line
                    Registrant's Form 10-Q for the three Exhibit 10.5. is
                    incorporated by reference to the months ended March 31,
                    1996, Exhibit 10.5.
 
     Exhibit 21.1 - Subsidiaries of the Registrant is incorporated by
                    reference to the Registrant's Form 10-K for the year
                    ended December 31, 1996, Exhibit 21.1.
                      
     Exhibit 23.1 - Consent of Independent Accountants is incorporated by
                    reference to the Registrant's Form 10-K for the year ended
                    December 31, 1996, Exhibit 23.1.

     Exhibit 24.1 - Power of Attorney is incorporated by reference to the
                    Registrant's Form 10-K for the year ended December 31, 1996,
                    Exhibit 24.1.

     Exhibit 27.0 - Financial Data Schedule.

(b)  No Reports on Form 8-K were filed during the second quarter of 1997.

                                       9
<PAGE>
 
SIGNATURES
----------

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



                                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                                    ------------------------------------
                                                 Registrant

 
Date:  August 11, 1997                          /s/ Joseph J. Lazzara       
       ---------------               -------------------------------------------
                                                  Joseph J. Lazzara
                                        President and Chief Executive Officer
                                     (Principal Executive and Financial officer)
 
 
 
 
 
Date: August 11, 1997                           /s/ Richard O. Faria       
      ---------------                 ------------------------------------------
                                                  Richard O. Faria
                                      Vice-President, Finance & Administration
                                           (Principal Accounting Officer)
 

                                       10