Financial information for each product group is as follows: (in thousands)

The Company operates principally in the United States. The Company's operations in Germany are less than 10% of total operations. Sales to foreign customers represented less than 10% of total sales in the three and nine month periods ended September 30, 2002.

This interim report on Form 10-Q contains trend analysis and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Such statements include expectations, beliefs, intentions or strategies regarding future operating results, future expenditures, future cash requirements, future impact of relocation the relocation of the PSI-Tronix division and future industry conditions that involve risks and uncertainties. The Company's actual results could differ materially from those projected in such forward-looking statements as a result of many factors, including, without limitation, those set forth under this section, the section entitled "Business Factors" below and elsewhere in this report on Form 10-Q.

Results of Operations
(Amounts in thousands, except percentages)

Scientific Technologies Incorporated designs, manufactures and distributes automation safeguarding and specialty sensor products for the industrial control market. The Company's products include safety light guards, profiling scanners, factory automation sensors, controls, components, microcomputers, fiber optics, power monitoring devices, safety mats, pressure, displacement and velocity transducers, digital pressure gauges and comparators and other electronic equipment supplied to industrial automation, commercial and defense customers.

Sales for the three months ended September 30, 2002 increased 9% to $12,836 from $11,821 in the comparable period in 2001. This was primarily the result of increased unit sales by the Safety Products Group, specifically light curtains and vehicle scanners, offsetting lower sales by the PSI-Tronix operation of the Automation Products Group, which continues to be negatively impacted by slow semiconductor manufacturing markets. Sales for the nine months ended September 30, 2002 declined 3% to $36,538 from $37,725 in the same period in 2001. This was the result of the softness of all our markets in the first quarter of 2002 and the continuing slowness at PSI-Tronix.

Gross margin as a percentage of sales for the three and nine months ended September 30, 2002 was 45% in both periods compared to 45% and 42% for the comparable periods in 2001. The improved margin for the nine months ended September 30, 2002 was generally the result of cost reductions begun in the second quarter of 2001, an improvement in the mix of products sold in the second quarter to products with a lower relative cost of sales, when compared to the comparable period in 2001.

Selling, general and administrative expenses for the three months ended September 30, 2002 increased 10% to $3,986 from $3,622, somewhat consistent with the sales growth. Selling, general and administrative expenses, which declined 1% to $11,716 for the first nine months of 2002 compared to $11,859 for the comparable 2001 period, was positively impacted by the continuing cost reduction measures initiated in April 2001. These reductions offset increased selling, general and administrative expenses associated with the DSI operations, acquired in the second quarter of 2001. In addition, nine- month selling, general and administrative expenses were negatively impacted in 2001 by a non-recurring adjustment to the reserve for doubtful accounts. As a percent of sales for the three and nine month periods ended September 30, 2002, selling, general and administrative expenses were 31% and 32% respectively compared to 31% for the comparable 2001 periods.

Research and development expenses for the third quarter and first nine months of 2002 were reduced 14% and 12% to $1,058 and $3,548 from $1,235 and $4,015 in the 2001 comparable periods. This also was the result of continuing cost reductions. As a percent of sales for the three and nine months ended September 30, 2002, research and development expenses were 8% and 10% compared to 10% and 11% in the same periods in 2001. We do not expect that research and development expenses as a percent of sales will continue to decline.

At September 30, 2002, our working capital increased 6% to $15,519 compared to $14,690 reported at December 31, 2001. This was primarily due to the improved operating results for the first nine months of 2002.

Available bank credit lines were $6,100, all of which were unused at September 30, 2002. The Company believes that cash from operations, together with its cash resources and available bank borrowings, will be sufficient to fund its working capital requirements for the next twelve months.

In a continuing effort to improve the efficiency and profitability of the Automation Products Group (APG), the Company has decided to relocate its Tulare, California operations to the new facility in Logan, Utah and combine the PSI-Tronix division with the Automation Sensors Division. We anticipate that this relocation will result in improved margins for the Automation Products Group, and will be completed in the second quarter of 2003. In addition, we expect the move will improve the overall responsiveness of APG to its customer base. While still in the planning stages, we anticipate that the costs associated with this move will be principally expensed in the first six months of 2003.

A discussion of our critical accounting policies is set forth in our 2001 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 1, 2002, as amended. There were no material changes in any of our critical accounting estimates or judgments during the three and nine months ended September 30, 2002.

Because of the variety of factors and uncertainties affecting our 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 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 purchases of complementary third party products with which our products are sold, the mix of products sold and the timing of operating expenditures. Our operating results have been, and could continue to be negatively impacted by generally adverse economic conditions throughout the high technology sector. In particular, the relocation of our PSI-Tronix subsidiary may prove to be more costly than anticipated or may not result in the expected benefits, and its continuing decreases in sales due to the current market conditions in the semiconductor industry could negatively effect our operating results.

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 indicators of our overall performance.

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.

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 enhance 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 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.

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 be assured 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. If our ability to sell products through these third parties is impaired, our results of operations would likely suffer.

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.

We rely on a combination of patent, trademark and 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.

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.

(a) Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of senior management, including the Company's officers performing the functions of Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation, the Company's officers performing the functions Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures are effective for gathering, analyzing and disclosing the information that the Company is required to disclose in reports filed under the Securities Exchange Act of 1934.

(b) There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out this evaluation.