<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 MARCH 31, 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            94544
     ------------------------------------------          ----------
      (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 April 30, 1997 was 9,607,758 shares.

                                       1
<PAGE>
 
                       PART 1 - FINANCIAL INFORMATION


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

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

                         CONSOLIDATED BALANCE SHEET
                         --------------------------
                                 (Unaudited)



              Assets                              Mar. 31, 1997  Dec. 31, 1996
                                                  -------------  -------------
Current assets:
  Cash and cash equivalents ....................   $ 3,243,000   $ 2,371,000
  Short-term investments .......................     5,491,000     4,989,000
  Accounts and notes receivable, net............     6,706,000     6,692,000
  Inventories ..................................     4,258,000     4,066,000
  Deferred income taxes ........................       840,000       840,000
  Other assets .................................       377,000       278,000
                                                   -----------   -----------
      Total current assets .....................    20,915,000    19,236,000
Property and equipment, net ....................     2,865,000     2,477,000
                                                   -----------   -----------
       Total assets ............................   $23,780,000   $21,713,000
                                                   ===========   ===========



       Liabilities and Shareholders' Equity
       ------------------------------------

Current liabilities
  Trade accounts payable .......................   $ 2,124,000   $ 2,385,000
  Payable to Parent ............................       762,000            --
  Accrued expenses .............................     1,769,000     1,457,000
                                                   -----------   -----------
      Total current liabilities ................     4,655,000     3,842,000
                                                   -----------   -----------
      Total liabilities ........................     4,655,000     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 ...............     5,300,000     5,319,000
  Retained earnings ............................    13,815,000    12,542,000
                                                   -----------   -----------
      Total shareholders' equity ...............    19,125,000    17,871,000
                                                   -----------   -----------
      Total liabilities and shareholders' equity   $23,780,000   $21,713,000
                                                   ===========   ===========

                                       2
<PAGE>
 
                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                    ------------------------------------

                    CONSOLIDATED STATEMENT OF OPERATIONS
                    ------------------------------------
                                 (Unaudited)


                                       For the three months ended

                                       Mar. 31, 1997 Mar. 31, 1996
                                       ------------- -------------

Sales ...............................   $10,110,000   $ 9,352,000

Cost of goods sold ..................     4,823,000     4,283,000
                                        -----------   -----------

      Gross profit ..................     5,287,000     5,069,000

 Operating Expenses:
  Selling, general and administrative     2,519,000     2,197,000
  Research and development ..........       827,000       574,000
                                        -----------   -----------
      Total operating expenses ......     3,346,000     2,771,000
                                        -----------   -----------

      Income from operations ........     1,941,000     2,298,000
                                        -----------   -----------

Interest income, net ................       111,000       214,000
                                        -----------   -----------

      Income before income taxes ....     2,052,000     2,512,000

Provision for taxes on income .......       780,000     1,005,000
                                        -----------   -----------

Net income ..........................   $ 1,272,000   $ 1,507,000
                                        ===========   ===========

   Net income per share .............   $       .13   $       .16
                                        ===========   ===========

   Weighted average common and common
        equivalent shares ...........     9,601,000     9,607,000
                                        ===========   ===========

                                       3
<PAGE>
 
                    SCIENTIFIC TECHNOLOGIES INCORPORATED
                    ------------------------------------

                    CONSOLIDATED STATEMENT OF CASH FLOWS
                    ------------------------------------
                                 (Unaudited)

<TABLE> 
<CAPTION> 
                                                       For the three months ended

                                                      Mar. 31, 1997  Mar. 31, 1996
                                                      -------------  -------------
<S>                                                   <C>            <C> 
Cash flows from operating activities
  Net income ......................................   $ 1,272,000    $ 1,507,000
  Adjustments to reconcile net income to cash
    provided by operating activities:
    Depreciation and amortization .................       194,000        145,000

    Changes in assets and liabilities:
      Accounts receivable, net ....................       (14,000)    (1,055,000)
      Inventories .................................      (192,000)      (759,000)
      Payable to Parent ...........................       762,000        443,000
      Trade accounts payable ......................      (261,000)       383,000
      Accrued expenses ............................       312,000        (70,000)
      Other .......................................       (98,000)      (289,000)
                                                      -----------    -----------
        Cash flows provided by operating activities     1,975,000        305,000
                                                      -----------    -----------

Cash flows from investing activities
  Investment in intangibles and fixed assets ......      (582,000)      (420,000)
  Sale (purchase) of short-term investments .......      (502,000)     1,203,000
                                                      -----------    -----------
        Cash flows used in investing activities ...    (1,084,000)       783,000
                                                      -----------    -----------

Cash flows from financing activities
  Increase (decrease) in debt .....................            --         (4,000)
  Repurchase of common stock ......................       (19,000)       
                                                      -----------    -----------
        Cash flows used in financing activities ...       (19,000)        (4,000)
                                                      -----------    -----------

Change in cash and cash equivalents ...............       872,000      1,084,000

Cash and cash equivalents at beginning of period ..     2,371,000      3,477,000
                                                      -----------    -----------
Cash and cash equivalents at end of period ........   $ 3,243,000    $ 4,561,000
                                                      ===========    ===========

Supplemental disclosure of cash flow information:
  Cash paid to the Parent for income taxes ........   $   780,000    $ 1,005,000
</TABLE> 

                                       4
<PAGE>
 
                     SCIENTIFIC TECHNOLOGIES INCORPORATED
                     ------------------------------------

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                ----------------------------------------------

   The consolidated financial statements as of March 31, 1997 and the three
months ended March 31, 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.

      1. INVENTORIES

         Inventories consist of the following:
 
                                              Mar. 31, 1997     Dec. 31, 1996
                                              -------------     -------------
                         Raw Materials .....  $   1,841,000     $   1,615,000
                         Subassemblies .....        463,000           493,000
                         Work in Process ...        599,000           509,000
                         Finished Goods ....      1,355,000         1,449,000
                                              -------------     -------------
                                              $   4,258,000     $   4,066,000
                                              =============     =============

      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 period in
the prior year is as follows:

                              Three months ended March 31,
Earnings Per Share:           1997                   1996
                             -----------------------------
        Basic                 $.13                   $.15
        Diluted               $.13                   $.15

      3. DIVIDEND PAID

         On March 3, 1997, the Company declared a cash dividend of $.0425 per
share on all its common shares. This dividend was paid on April 1, 1997 to
shareholders of record on March 21, 1997. Approximately 87% of the outstanding
common stock of the Company is 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 first quarter results.

                                       5
<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 months ended March 31, 1997 increased 8% to $10,110,000
from $9,352,000 in the first quarter of 1996. This was primarily the result of
continued acceptance of the Company' products, a lower overall discount rate and
sales from the level sensor product line, which was purchased from the Parent in
the first quarter of 1997.

    Gross margin as a percent of sales declined to 52% during the first quarter
of 1997 compared to 54% in the comparable 1996 quarter. This resulted from
faster growing new products, which carry a higher relative cost of sales.

    Selling, general and administrative costs increased 15% to $2,519,000 in the
first quarter of 1997 from $2,197,000 in 1996. Selling, general and
administrative expenses as a percent of sales increased to 25% in the first
quarter of 1997 from 24% in the comparable 1996 quarter. This was the result of
increased selling expenses associated with the higher levels of revenue and
increased investment in the selling infrastructure of the Company.

     Research and development expenses rose 44% to $827,000 in 1997 from $574,
000 in 1996. Research and development expenses were 8% of sales for the three
months ended March 31, 1997 compared to 6% for the comparable 1996 period. This
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 declined to $111,000 for the three months ended March
31, 1997 compared to $214,000 for the same period in the prior year. This was
primarily caused by increased income from short-term investments offset by 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 $780,000 for the three months
ended March 31, 1997 compared to $1,005,000 for the comparable 1996 period.

     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 March 31, 1997 the Company's working capital was $16,260,000, a 6%
increase from the $15,394,000 reported at December 31, 1996. This was due to
cash flows from operations resulting in increased short-term investments,
accounts receivable and inventory, which offset increased trade accounts
payable, payable to Parent and accrued expenses.

   Available bank borrowings were $2,500,000 at March 31, 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.

                                       6
<PAGE>
 
                               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:

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 STI 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.

                                       7
<PAGE>
 
                          PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
-------------------------
        Not Applicable

Item 5. OTHER INFORMATION
-------------------------
        Not Applicable

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.

         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 first quarter of 1997.

                                       8
<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:  May 13, 1997                             /s/Joseph J. Lazzara
       ------------                      ------------------------------------
                                                  Joseph J. Lazzara
                                         President and Chief Executive Officer
                                           (Principal Executive and Financial
                                                        officer)





Date:  May 13, 1997                             /s/ Richard O. Faria
       ------------                     -------------------------------------
                                                    Richard O. Faria
                                        Vice-President, Finance & Administration
                                              (Principal Accounting Officer)

                                       9