SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549
                                    Form 10-K


[x]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1996

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED].


For the transition period from_____________________ to_________________________

Commission file number 0-27316

                          Molecular Devices Corporation
             (Exact name of Registrant as specified in its charter)

           Delaware                                       94-2914362
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                          Identification Number)

                               1311 Orleans Drive
                           Sunnyvale, California 94089
          (Address of principal executive offices, including zip code)
                                 (408) 747-1700
              (Registrant's telephone number, including area code)

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

                          COMMON STOCK, $.001 Par Value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for 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 [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained,  to the best of registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [x]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  as of March 20,  1997,  based upon the last sale price  reported for
such date on the Nasdaq National Market, was $126,533,736.

The number of outstanding  shares of the  Registrant's  Common Stock as of March
20, 1997 was 9,038,124.

                       DOCUMENTS INCORPORATED BY REFERENCE

Specified  portions of the Proxy Statement for Registrant's  1997 Annual Meeting
of Stockholders (the "Proxy  Statement") are incorporated by reference into Part
III of this Form 10-K Report.


<PAGE>


<TABLE>

TABLE OF CONTENTS
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
Molecular Devices Corporation
<S>                        <C>              <C>                                                                   <C>
PART I                     Item  1.         Business..........................................................     3
                                                              The Company.....................................     3
                                                              Industry Background.............................     3
                                                              The Molecular Devices Solution..................     4
                                                              Business Strategy ..............................     4
                                                              Core Technologies ..............................     5
                                                              Products........................................     8
                                                              Business Risks..................................    13
                                                              Research and Development........................    14
                                                              Marketing and Customers.........................    15
                                                              Manufacturing...................................    16
                                                              Patents and Proprietary Technologies............    16
                                                              Competition.....................................    17
                                                              Government Regulations..........................    18
                                                              Human Resources.................................    19
                           Item  2.         Properties........................................................    19
                           Item  3.         Legal Proceedings.................................................    19
                           Item  4.         Submission of Matters to a Vote of Security Holders...............    19

--------------------------------------------------------------------------------------------------------------------

PART II                    Item  5.         Market for the Registrant's Common Equity and
                                            Related Stockholder Matters.......................................    20
                           Item  6.         Selected Consolidated Financial Data..............................    20
                           Item  7.         Management's Discussion and Analysis of
                                            Financial Condition and Results of Operations.....................    21
                           Item  8.         Financial Statements and Supplementary Data.......................    24
                           Item  9.         Changes in and Disagreements with Accountants
                                            on Accounting and Financial Disclosure............................    24

--------------------------------------------------------------------------------------------------------------------

PART III                   Item 10.         Directors and Executive Officers of the Registrant................    25
                           Item 11.         Executive Compensation............................................    25
                           Item 12.         Security Ownership of Certain Beneficial Owners
                                            and Management....................................................    25
                           Item 13.         Certain Relationships and Related Transactions....................    25

--------------------------------------------------------------------------------------------------------------------

PART IV                    Item 14.         Exhibits, Financial Statement Schedules and
                                            Reports on Form 8-K...............................................    26
                                                              (a)  Documents Filed with Report
                                                              (b)  Reports on Form 8-K
                                                              (c)  Exhibits
                                                              (d)  Financial Statement Schedules
</TABLE>
                                       2

<PAGE>


                                     PART 1

--------------------------------------------------------------------------------

Item 1 - Business

The Company

         Except for the historical  information  contained herein, the following
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  The Company's actual results could differ  materially from those
discussed  here.  Factors  that could cause or  contribute  to such  differences
include, but are not limited to, those discussed in this section under "Business
Risks" as well as in the section entitled "Item 7.  Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

       Molecular  Devices  Corporation  ("Molecular  Devices" or the  "Company")
designs,  develops,  manufactures  and markets  proprietary,  high  performance,
bioanalytical measurement systems, including consumables, designed to accelerate
and  improve  the  cost-effectiveness  of the  drug  discovery  and  development
process. The Company integrates its expertise in engineering, molecular and cell
biology  and  chemistry  to  develop  proprietary  core  technologies  which  it
incorporates into its  sophisticated  bioanalytical  systems,  including MAXline
Microplate Readers,  Threshold System and Cell Analysis Systems1.  The Company's
innovative   bioanalytical  systems  are  designed  to  provide  greater  speed,
sensitivity and reproducibility than traditional instruments or methods. As part
of its strategy to provide complete customer solutions,  the Company also offers
a broad range of consumables, including ultraviolet-transparent  microplates for
certain of the MAXline Microplate  Readers,  assay kits for the Threshold System
and  disposable  capsules for certain of the Cell  Analysis  System,  as well as
software  upgrades,  and service on a contract basis. The Company's systems have
applications in many aspects of the therapeutic  development process,  from drug
discovery and clinical development through manufacturing and quality control.

Industry Background

       During the past decade,  significant  advances in life sciences  research
and a growing  complexity of the biological  problems under  investigation  have
highlighted  the  limitations  of  traditional  approaches to drug discovery and
development.  These  limitations,  together with  heightened  competition in the
biotechnology  and   pharmaceutical   industries,   have  fueled  the  need  for
increasingly advanced  bioanalytical tools that increase productivity and reduce
product development time and costs. To date, traditional instruments and methods
have not fully addressed the  complexities  of modern drug  discovery.  However,
advances in biology,  chemistry and engineering  are providing the  technologies
necessary for the development of advanced bioanalytical tools.

       The  research,   development,   manufacture  and   commercialization   of
biotechnology  and  pharmaceutical  products involves a sequence of interrelated
activities.  In the  research  phase,  scientists  identify and  characterize  a
candidate  molecule  that has  potential  therapeutic  benefit.  In  preclinical
development,  relatively small,  highly purified quantities of the lead compound
are  produced  and the  compound  is  tested  in  vitro  and in  animals.  After
establishing  the  therapeutic  potential  of the lead  compound  and  receiving
approval from the regulatory agencies, multi-phase clinical trials are conducted
to establish  the safety and  efficacy of the  potential  product in humans.  In
addition,  an approved  manufacturing  process to produce clinical quantities of
the purified  therapeutic must be established.  If the drug receives  regulatory
approval,  commercial-scale  manufacturing  capacity must be developed  with the
required quality control to ensure a commercial product of sufficient purity and
consistent quality.  The entire drug discovery and development process typically
requires  five to ten years to  complete  and can cost  hundreds  of millions of
dollars.

       Industry sources estimate that  approximately  50,000 research groups are
engaged in life  sciences  research  activities  worldwide,  including  academic
institutions,  government  laboratories  and  private  foundations,  as  well as
biotechnology,

------------------------
SPECTRAmax(TM), Vmax(R), SOFTmax(R), Threshold(R),  Cytosensor(R),  Cytosoft(R),
Liveware(TM),  FLIPR(TM), ROBOmax(TM) and Molecular Devices(R) are trademarks of
the Company. This Form 10-K also includes trademarks of companies other than the
Company.

                                       3
<PAGE>


pharmaceutical and chemical companies.  The increased emphasis on reducing costs
and optimizing  resources in the life sciences is forcing these organizations to
be more selective in the  allocation of their research  budgets by embracing new
technologies  which  accelerate and improve the  cost-effectiveness  of the drug
discovery and development process. As a result, research groups are increasingly
relying on a variety of advanced  techniques to develop novel  therapeutics that
address  complex  biological  problems  in fields  such as  oncology,  virology,
neurology and auto-immune diseases. Through combinatorial chemistry (the process
of assembling  chemical  molecules to rapidly produce many ordered  sequences of
such  molecules),  scientists  are creating  large  libraries of novel  compound
structures,  thereby  dramatically  augmenting  compound libraries  historically
limited  to  natural  molecule  sources,  such as plant  extracts  or  microbial
fermentation  broths.  The  worldwide  effort to  sequence  the human  genome is
beginning to identify  novel  molecules  that will likely become targets for new
therapeutic  products.  Molecular biology continues to provide the capability to
manipulate  living systems through an enhanced  understanding of the role played
by DNA, proteins and RNA in cellular processes.

       The volume of new genetic discoveries  arising out of these efforts,  the
need to analyze more subtle biological events and the enormous costs involved in
the  development  process have  increased the need for a selection  process that
effectively  eliminates  unpromising  leads  at  an  early  stage  of  research.
Traditional  bioanalytical  instruments and methods were not designed to rapidly
analyze  subtle  biological  events and process  large  volumes of complex  data
necessary  to  evaluate  biological  functions  of  genetic  discoveries  and to
understand and quantify biological mechanisms and interactions.


The Molecular Devices Solution

       Molecular   Devices   designs,   develops,   manufactures   and   markets
proprietary,  high-performance,  bioanalytical  measurement  systems,  including
consumables,  designed to accelerate and improve the  cost-effectiveness  of the
drug discovery and development process. The Company has integrated its expertise
in  engineering,  molecular  and cell biology and  chemistry  to couple  silicon
semiconductor technology with biological systems to measure subtle molecular and
cellular events. The Company has also developed advanced optical technology that
permits  high-throughput,  multisample detection of biochemical  reactions,  and
object-oriented  software  applications  that rapidly  convert  large amounts of
complex data into meaningful  information.  The Company has  incorporated  these
technologies  into  sophisticated  yet  easy-to-use   bioanalytical  tools  that
accurately  measure,  analyze,  quantify  and  record  large  volumes of complex
biological  data.  As  a  result  of  the  Company's  fully-integrated  systems,
researchers are able to address  increasingly  complex biological  problems that
could not previously be addressed fully by traditional technologies.

       The Company's current systems,  including the MAXline Microplate Readers,
Threshold System and Cell Analysis Systems, have applications in many aspects of
the  therapeutic   development   process,   from  drug  discovery  and  clinical
development  through  manufacturing  and quality control.  The Company is widely
perceived as a leader in microplate  technology and believes it was the first to
introduce microplate readers that allowed  high-throughput  kinetic analysis and
the direct  quantitation  of DNA,  proteins,  and RNA in a 96-well  format.  The
Company believes that the Threshold System is the only  commercially  available,
fully-integrated system with picogram level sensitivity that rapidly quantitates
complex  biological  molecules,  such as DNA,  proteins and mRNA, with accuracy,
precision and  reproducibility.  The Company also  believes that the  Cytosensor
System,  a Cell Analysis  product,  is the only  single-assay  system capable of
measuring multiple cellular  mechanisms in a real-time,  noninvasive manner. The
Fluorescent  Imaging  Plate Reader  System  ("FLIPR"),  introduced  in 1996 as a
member  of the  Cell  Analysis  product  family,  is  believed  to be the  first
instrument  of its kind which bridges the gap between high  throughput  and high
sensitivity  screening.  As part of its goal of providing complete solutions for
its  customers,  the  Company  offers a broad  range of  consumables,  including
easy-to-use,   highly  sensitive   reagent  kits  and   sophisticated   software
applications  for use in its systems.  The Company also provides service for all
of its systems on a contract basis.

Business Strategy

       The Company's mission is (i) to identify attractive market  opportunities
for sophisticated bioanalytical systems arising out of the rapid and fundamental
changes occurring in the life sciences  industry,  and (ii) to offer a portfolio
of easy-to-use, value-added products and services based on enabling technologies
in engineering and molecular and cell biology. The key elements of the Company's
business strategy include the following:

                                       4
<PAGE>

       Enhance  Core  Technology  Base.  The Company  has  developed a number of
proprietary  core  technologies  in vertical beam  photometry,  limited depth of
field fluorometry,  object-oriented software, biosensors, chemical complexes and
microphysiometry  that it has  incorporated  into three  commercialized  product
families.  The  Company  has a  portfolio  of United  States  patents and patent
applications and corresponding foreign patents and applications.  The Company is
dedicated to maintaining a leading technological position.

       Lead Through  Innovation.  The Company intends to continue leveraging its
core  technologies  to  develop  and  provide   innovative   solutions  for  the
increasingly complex biological problems under  investigation.  For example, the
Company  developed  the  Cytosensor  System in  response to the need for a fast,
reliable,  single assay system to  investigate  multiple  cellular  functions in
numerous  cell types  without  destroying  the cells.  The Company will focus on
developing  novel  bioanalytical   systems  which  accelerate  and  improve  the
cost-effectiveness  of the drug discovery and development process. This strategy
also includes  potential  acquisition of technologies  that are complimentary to
our existing core technologies.

       Leverage Installed  Customer Base and Reputation.  The Company intends to
leverage its installed  base of over 8,600 units as well as its  reputation  for
developing innovative  bioanalytical systems of superior quality and reliability
to build new markets for its  products  and to  accelerate  the adoption of new,
more  sophisticated  technologies  and  products.  The Company  also  intends to
leverage its current product  platforms by introducing  enhancements to existing
products that increase their functionality,  speed and performance.  The Company
intends to continue to develop and market  consumables,  including  easy-to-use,
highly sensitive reagent kits and sophisticated software applications for use in
their  bioanalytical  systems.  Consumables  enable  the  Company  to  deliver a
complete  solution to its  customers  and  provide the Company  with a recurring
revenue stream.

       Expand Applications for Existing Products.  The Company believes that its
products and technologies have potential  applications in a variety of settings,
including environmental and clinical diagnostic settings, particularly in fields
such as immunology, microbiology and oncology. For example, the Threshold System
was selected by the U.S. Army as part of a mobile  biological  warfare detection
unit.  There are  significant  risks  involved in  developing  and marketing new
applications  of the Company's  products and there can be no assurance  that the
Company will be successful in expanding applications of its products.

       Implementation of the Company's strategy is subject to numerous risks and
 uncertainties.  See "Business Risks."

Core Technologies

       The  Company has  established  a  multi-disciplinary  approach to product
development  based  on core  competencies  in  advanced  technologies  including
vertical beam photometry,  limited depth-of-field  fluorometry,  object-oriented
software, biosensors, chemical complexes and microphysiometry.

       Vertical Beam  Photometry.  The Company has a patented  technology  using
vertical beam  photometry,  which has become the basis for the  Company's  entry
into  the  high-throughput   spectrophotometer   market.  This  core  technology
incorporates  flashlamp UV light sources,  monochromator  design,  fiber optics,
array optics and low-level signal detection.

       Limited depth-of-field fluorometry.  The Company has an exclusive license
to the patented technology used in FLIPR to capture fluorescence from live cells
on the  bottom  of the  microplate  wells,  and  exclude  most of that  from the
solution above the cells, so greatly increasing the measurement sensitivity.

       Object-Oriented  Software. The Company develops software applications for
instrument   control  of  its   bioanalysis   systems  and  for  data  analysis.
Applications are developed in-house by software engineers using  object-oriented
technology  and an advanced  porting  technology  that allows near  simultaneous
release on both Microsoft Windows and the Apple Macintosh OS platforms,  as well
as  common   interface,   file   formats  and   documentation.   The   Company's
object-oriented software is a leader in its class for features and usability.

                                       5

<PAGE>

       Biosensor  Technology.  The Company's  Light  Addressable  Potentiometric
Sensor  ("LAPS")  technology is a detection  system  capable of measuring a wide
variety of chemical  reactions  as they occur on the surface of a silicon  based
sensor.  The LAPS technology is a key element in the Company's  Threshold System
and Cytosensor Systems.

       The  sensor  consists  of  a  flat  silicon  semiconductor  chip  with  a
proprietary  insulating  layer.  This  insulating  layer allows the sensor to be
placed in contact with electrolyte  solutions or biological samples. The silicon
sensor  measures  at  discrete  test sites on the chip's  surface  reactions  of
chemistries  such as ions,  enzymes or living  cells as they  occur.  The sensor
works by converting a chemical reaction,  such as a change in acidity (or "pH"),
into an  electronic  signal  using  light from  light-emitting  diodes  ("LEDs")
focused  against  the  back of the  silicon  chip,  to  create  a  photoelectric
response.

       Molecular  Devices believes that its LAPS technology offers a combination
of speed,  sensitivity and flexibility not available in other detection systems.
The  primary  attributes  of  LAPS  are  (i)  multiple  detection  sites  can be
fabricated  on the  surface  of the  silicon  chip,  permitting  measurement  of
multiple samples on a single chip; (ii) responses are provided in real-time with
reduced  complexity,  cost and error rate and at increased  speeds  because LAPS
measures the biochemical reaction directly,  rather than by linking the reaction
to changes in color, fluorescence or radioactivity; (iii) the entire chip can be
read in  approximately  one second and may be reused  for  numerous  measurement
cycles;  and (iv) the small size and  optical  flatness of LAPS  permits  highly
accurate measurements in volumes as low as 700 nanoliters.

       Chemical  Complexes.  Molecular  Devices  develops  proprietary  chemical
reagents and application protocols for its consumables which, when used with the
LAPS  technology,   help  its  customers   rapidly  and  accurately   quantitate
biomolecules, such as DNA, proteins and mRNA. Chemical research, development and
production   is  performed   in-house  in  the  areas  of  enzyme   conjugation,
purification,  analytical methods, physical chemistry and organic chemistry. The
Company  has  developed  patented  reagent  kits  for DNA  detection  as well as
labeling of antibodies by using a proprietary  chromophore (a chemical  compound
that,  when attached to a molecule to be  identified,  produces a specific color
upon detection of that molecule) and a general format  Immuno-Ligand Assay (ILA)
Kit with  application-specific  protocols to assure customers'  success with new
assays.

         Microphysiometry.  The Company  maintains a core  expertise in cell and
molecular biology, including cell and tissue culture facilities, that is applied
toward research,  development and product application activities.  The Company's
capabilities   include   molecular   pharmacology,   the  analysis  of  cellular
signal-transduction  mechanisms  and the use of  recombinant  DNA  technology to
express receptors and other proteins in living cells. This expertise in cell and
molecular   biology   has   allowed   the   Company  to   configure   LAPS-based
instrumentation and other proprietary technologies with living cells and tissues
to develop  "microphysiometry,"  the  monitoring of cell  reactions to different
chemicals  in  real-time   without   destruction   or  invasion  of  the  cells.
Microphysiometry,  which was developed by scientists  at Molecular  Devices,  is
based on the underlying  biological principle that the responses of cells to the
introduction of different  chemical agents are reflected in changes in metabolic
rates.

                                       6
<PAGE>

       The  diagram  below  depicts  certain  aspects of the process of cellular
metabolism:


[GRAPHIC OMITTED][GRAPHIC OMITTED]
[GRAPHIC OMITTED]


       As  indicated  above,  cells take up glucose  and oxygen  and,  through a
series of  metabolic  steps,  "burn" the  glucose to form lactic acid and carbon
dioxide.  Through this  process,  cells  produce the energy  required for normal
cellular  maintenance.  When a ligand (a  receptor  binding  molecule  such as a
hormone,  neurotransmitter or cytokine) binds to a receptor on the cell surface,
the receptor  becomes  activated and triggers a  biochemical  cascade of "second
messengers"  within the cell. These  transformations  are the normal  biological
response  of the  cell  to the  ligand  and  cause  a  change  in  extracellular
acidification rate that is measured by the Company's LAPS technology.

       The  Company  believes  that  its   microphysiometry   technology  offers
advantages over conventional  bioassay  techniques.  With conventional  bioassay
techniques,  not only must the  second  messenger  pathway  be known,  but these
techniques can only measure a limited number of second  messenger  events.  With
microphysiometry,  because  intracellular  communication  typically results in a
change in the rate of cellular acid production,  cellular events can be measured
even without knowledge of the second messenger pathway.



                                       7
<PAGE>


Products
<TABLE>

       The  following  table  identifies,  for  each  of the  Company's  product
families,  the year of  initial  introduction,  list  price  range  and  primary
applications. Sales of MAXline, Threshold and Cell Analysis products represented
54%, 16% and 30%,  respectively,  of the Company's product revenues for the year
ended December 31, 1996.
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                                                               Worldwide List
                                           Year of Initial         Prices
                 Products                    Introduction                              Primary Applications
-----------------------------------------------------------------------------------------------------------------
                                               Microplate Readers
-----------------------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>                   <C>    
MAXline
     Instrument Platform:
        Vmax                                     1987       $9,495-$10,800        High-throughput detection and
        Emax                                     1988       $7,695-$7,900         analysis of biochemical
        THERMOmax                                1989       $11,895-$15,600       reactions in immunoassays
        SPECTRAmax 250                           1994       $17,525-$21,900       such as ELISA, evaluation of
        SPECTRAmax 340                           1995       $12,895-$16,250       enzyme activity, detection of
        fMAX                                     1996       $24,575-$25,965       cell growth, testing for
        ROBOmax                                  1996       $9,850-$12,500        endotoxins, and measurement
     Software:                                                                    of DNA, proteins and RNA.  
        SOFTmax                                  1987       $1,295-$1,600
        SOFTmax PRO                              1994       $1,975-$2,500
     Consumables:
        UV-Transparent Microplates               1994       $375-$495

-----------------------------------------------------------------------------------------------------------------

                                          High Sensitivity Assay System
-----------------------------------------------------------------------------------------------------------------
Threshold
     Instrument Platform:                        
        Threshold                                1989       $49,500-$55,000       High sensitivity detection of
     Software:                                                                    trace contaminants in
        THS Software                             1989                 *           biopharmaceuticals  and
     Consumables:                                                                 analysis of biomolecules such
        Total DNA Assay Kit                      1989       $750-$1,295           as DNA, proteins and mRNA.
        Immuno-Ligand Assay Kit                  1990       $480-$875
-----------------------------------------------------------------------------------------------------------------

                                             Cell Analysis Systems
-----------------------------------------------------------------------------------------------------------------
Cytosensor   
     Instrument Platform:                                                         Ultrasensitive single-assay
        Cytosensor                               1992       $59,500-$120,000      system capable of detecting
        Cytosampler                              1995       $19,500-$24,500       receptor activation and
        Cystosoft                                1992                 *           signal transduction events in
     Consumables:                                                                 real-time
        Capsule Kit                              1992       $370-$465
Fluorescent Imaging Plate Reader
        FLIPR                                    1996       $250,000-$275,000
                                                                                  High throughput, high
                                                                                  sensitivity optical screening
                                                                                  instrument
-----------------------------------------------------------------------------------------------------------------
<FN>
* Bundled with instrument platforms
</FN>
</TABLE>
                                       8

<PAGE>

MAXline Products

       Microplate  readers have become one of the most fundamental tools used in
life sciences research by addressing the increasing need for the acquisition and
processing of large  quantities of biochemical and biological  data.  Microplate
readers  provide  scientists  the  benefit  of  high-throughput  analysis  in  a
standardized,  multi-sample  format.  Because of the productivity  gains using a
multi-sample  format,  microplates have largely replaced test tubes and cuvettes
for many life sciences applications.

       A  microplate  is a  disposable  plastic  vessel  that  is  used  with  a
microplate  reader  to  measure  light  absorbance.   The  basic  principles  of
microplate  readers are that light from an  appropriate  source is directed to a
wavelength  selection  device,  such as a  monochromator,  and its  intensity is
measured  prior to, and  after,  passing  through  each of the 96 samples in the
wells of the  microplate.  Application  of a  mathematical  formula to the light
intensity  measurements,  before and after passage through each well, provides a
measure of the absorbance of the sample.  The absorbance,  also known as optical
density, is generally proportional to the concentration of the substance that is
being measured.

       Until 1987,  microplate  readers  were limited  primarily  to  performing
immunoassays  (ELISA) (methods of determining the amount of a specific  molecule
present in a sample  through its binding to an  antibody  containing  a detector
enzyme,  which is a protein  that causes a specific  change,  for the purpose of
measuring the amount of the molecule present).  As a result,  microplate readers
had  only  limited  application  in  the  life  sciences  research  market.  The
introduction in 1987 of Vmax, the Company's first  microplate  reader,  expanded
the utility of  microplate  readers by increasing  the number and  complexity of
assays that could be rapidly and accurately  analyzed in the 96-well  microplate
format.  The Company believes that the Vmax was the first commercial  microplate
reader  product  capable  of  performing  kinetic  analysis,   by  incorporating
technologies  that ensure uniform  temperature of the reading  chamber and allow
the entire microplate to be read in approximately  five seconds.  These features
have  enabled  assays  previously  analyzed  with slow,  single-sample-at-a-time
spectrophotometers to now be analyzed with a rapid 96-well microplate format.

       Since the  introduction  of Vmax,  the Company has continued to introduce
innovative  capabilities in a microplate  format,  thereby  expanding the assays
that can be analyzed in a microplate  reader.  The Company's  new  generation of
microplate   readers,   SPECTRAmax,   has   incorporated   features  such  as  a
monochromator-based  grating system for continuous  wavelength selection so that
researchers  for the  first  time  can  spectrally  scan a sample  in a  96-well
microplate  format to help  identify  the  compound by  determining  its optimal
absorbance  wavelength.  This  capability  also allows  researchers to instantly
access 501 wavelengths through software control, a significant  improvement over
conventional  microplate  readers  which  are  typically  limited  to  only  six
wavelength   selections   using   manually   installed   interference   filters.
Additionally,  for the first time DNA, RNA and proteins can be assayed  directly
in a  high-throughput,  multi-sample  format,  as a result of  SPECTRAmax  250's
capability  to read at  wavelengths  as short  as those in the true  ultraviolet
range.

       The Company's Vmax, Emax and THERMOmax microplate readers have in certain
instances been used in clinical or diagnostic applications. Under applicable FDA
regulations,  to the  extent  that an  analytical  instrument  will be used in a
clinical or diagnostic  application,  the  manufacturer  of that instrument must
submit to the FDA, prior to commercial distribution of that instrument, a 510(k)
or PMA  application.  The Company has obtained 510(k)  clearance with respect to
the clinical  applications of its MAXline  microplate  readers.  There can be no
assurance  that 510(k)  clearance for any future product or  modification  of an
existing product will be granted.

       Vmax.  The Company's  first  microplate  reader,  launched in 1987,  with
kinetic  read  capability  was  primarily  designed  to  address  the  needs  of
biochemists.  The Company believes that this innovation, along with its powerful
analytical  software  program,   SOFTmax,   was  instrumental  in  significantly
expanding the market for microplate readers.

       Emax.  Unlike Vmax,  this product is aimed at the market for  traditional
microplate readers that do not use kinetic capability.  It was introduced by the
Company to provide a microplate  reader,  compatible with the SOFTmax  software,
for customers in academia with restricted capital budgets.

       THERMOmax.  This  reader  provides  high-quality  thermal  control of the
microplate at elevated temperatures, usually body temperature. Offering superior
thermal and kinetic  capabilities,  THERMOmax is primarily designed to work with
living cells, and for the study of clot formation and lysis. This latter type of
application  includes  endotoxin testing via the

                                       9

<PAGE>

various Limulus  Amebocyte Lysis (LAL) methods,  a type of testing  required for
all batches of injectable  drugs and other injectable  products,  such as saline
for intravenous drips.

       SPECTRAmax  250.  The  SPECTRAmax  250  represents  the  first  of a  new
generation of microplate  readers  incorporating a monochromator  for continuous
wavelength selection over a wide range, rather than a set of six optical filters
each with a fixed wavelength.  This capability provides for enhanced convenience
and flexibility in assay design. A second major feature of SPECTRAmax 250 is the
ability to read wavelengths as short as 250 nanometers,  thus addressing  direct
quantitation  of DNA, RNA and protein  samples.  In addition,  SPECTRAmax 250 is
capable of scanning  absorbance as a function of  wavelength  over 96 samples in
high-throughput spectral analysis.

       SPECTRAmax 340.  Similar to the SPECTRAmax 250, this product was designed
to address the needs of researchers for continuous  wavelength  selection in the
near ultraviolet and visible range.

       fMAX. The Company's first fluorescence  microplate reader, fMAX is one of
the fastest  fluorescence  microplate readers available and is ideal for kinetic
reactions.

       ROBOmax. The Company's first robotic microplate handling system that will
interface with the Maxline microplate readers.

       SOFTmax PRO. This software platform, introduced along with the SPECTRAmax
250, has greater  power and  flexibility  than  SOFTmax.  SOFTmax PRO provides a
comprehensive  set of features to display the data collected in various formats,
define standard correction schemes, quantify the data, generate summary reports,
analyze the data and export data to other  applications  such as Microsoft Excel
and Prism Graphpad.  All the MAXline software  products are compatible with both
Microsoft  Windows  and  Apple  Macintosh  OS  systems  and can be used with the
Company's microplate readers.

       Disposables.  Spectraplates are proprietary  96-well  microplates for use
with the SPECTRAmax 250. The Spectraplate is made with plastic transparent to UV
light as short as 250  nanometers  and  represents  the Company's  first MAXline
disposable product.

Threshold System Products

       The Company's  Threshold System is a high  sensitivity  assay system that
incorporates the Company's LAPS technology to rapidly and accurately  quantitate
a variety of biomolecules such as DNA, proteins and mRNA. The demand for systems
which can quantitate  contaminants in the  manufacturing  and quality control of
bioengineered  products  has  increased  in response  to the  growing  number of
therapeutics both entering clinical trials and receiving regulatory approval for
commercial sale. The Threshold System emerged from a demand by biopharmaceutical
companies for more sensitive and reproducible  methods to detect contaminants in
biopharmaceuticals   during  the  manufacturing  and  quality  control  process.
Traditional  detection  methods,  such as DNA hybridization (a method of binding
DNA to a membrane  for the  purpose of  determining  if a specific  sequence  is
present),  are slow, difficult to use in a manner that provides reproducible and
transferable  results,  and often require the use of  radioactive  materials for
detection.

       A typical assay using the Threshold System occurs in multiple stages.  In
the reaction stage, certain binding agents, such as antibodies, binding proteins
or nucleic acid probes,  interact in solution with the specific  biomolecule  of
interest  creating what is termed a "sandwich."  In the  separation  stage,  the
sandwich  complex is filtered  through a membrane  under a controlled  vacuum to
allow the sandwich complex to become tightly bound to the membrane. The captured
reaction  complex on the membrane is then placed into the Threshold Reader which
contains  the  LAPS  and  a  detector  enzyme  substrate.  Proprietary  software
developed by the Company then collects and analyzes the data.

       The Threshold  family of products  includes a  workstation,  software and
consumable reagent kits. The Total DNA Assay Kit allows for the detection of any
DNA without sequence specificity at levels as low as two picograms.  The ILA Kit
is a  flexible  format  that  can be  used to  detect  and  quantitate  numerous
contaminants,  such as host cell  proteins  and  bovine  serum  albumin,  in the
manufacturing of bioengineered products. In addition,  using labeled probes, the
ILA Kit allows for the accurate and sensitive quantitation of specific sequences
of DNA or mRNA,  which is essential for solving complex  biological  problems at
the  genetic  level,  such as  quantitating  gene  expression  in gene  therapy.
Typically,  the Threshold's  sensitivity is equal to or better than  traditional
detection methods, but without their limitations.

                                       10
<PAGE>

       The Threshold System incorporates several important features:

          o   The interaction between binding agents and the antigen of interest
              occurs in solution  where the  molecules  are  maintained in their
              native  conformation  and  retain  100% of their  activity.  Other
              methods  such as ELISA  require  binding  agents to be coated onto
              microplate  wells or beads resulting in  denaturation  and loss of
              activity.

          o   The LAPS  technology,  which converts minute changes in pH into an
              electronic  signal,  produces very low electronic noise to provide
              accurate quantitation at low signal levels.

          o   Typical  Threshold  System assays have a dynamic range of two logs
              or  greater,  thereby  reducing  the  number of  sample  dilutions
              required to  accurately  quantitate  from the standard  curve with
              precision and reproducibility.

          o   New assays are rapidly developed using complete, optimized reagent
              kits,  which can  reduce  the time  required  for  development  of
              traditional ELISA assay methods by weeks or months.

       The Company believes that the Threshold  System is the only  commercially
available,   fully-integrated   system   capable  of  rapidly   and   accurately
quantitating DNA with picogram-level sensitivity.

       Biopharmaceuticals. The Threshold System was developed in response to the
growing number of  biopharmaceuticals  entering clinical trials and the need for
more sensitive and reproducible  methods to detect  contaminants in therapeutics
during the  manufacturing  and quality control  process.  Traditional  detection
methods, such as DNA hybridization,  are slow, difficult to use in a manner that
provide  reproducible  and  transferable  results,  and often require the use of
radioactive materials for detection.

       Environmental Testing. The Threshold System was selected by the U.S. Army
for  incorporation  into  mobile  detection  stations  for the early  warning of
biological warfare agents.

Cell Analysis Systems

       Many therapeutic drugs are targeted to cell membrane  receptors:  special
proteins that  function as control  switches for cell activity and are triggered
by the  specific  binding of soluble  natural  substances  (such as hormones and
neurotransmitters)  to relay  messages  to the cell  via  "signal  transduction"
mechanisms.  Therapeutic  drugs which act on receptors either mimic or block the
action of the natural receptor-specific  substance. The therapeutic potential of
such drugs is, therefore,  most  appropriately  studied using live cell systems.
These studies are inherently  challenging,  but a high value is placed upon them
by the  pharmaceutical  industry  and the  research  community.  A focus  of the
Company is the  provision  of tools for  studying  the response of live cells to
different compounds, both for research and for drug screening purposes. Examples
of these tools are the Company's Cytosensor and FLIPR Systems.

Cytosensor Products

       The  Cytosensor  System was introduced in 1992 in response to the growing
market need for bioanalytical tools that increase  productivity,  reduce product
development  time and improve the  cost-effectiveness  of the drug discovery and
development  process.  Prior  to  the  introduction  of the  Cytosensor  System,
researchers   were   required   to  utilize   multiple   instruments   and  test
methodologies,  each with its set of limitations, to investigate certain complex
biological  events.  The use of traditional  instruments  and  methodologies  is
time-consuming and expensive as many tasks are performed manually.

       In response to these limitations,  and the corresponding need for a fast,
reliable,  single assay system to  investigate  multiple  cellular  functions in
numerous cell types, the Company developed the Cytosensor System. The Cytosensor
System  incorporates  the Company's core LAPS  technology into a patented system
that permits  researchers  to conduct  microphysiometry,  the  monitoring of the
metabolic  state of living  cells in  real-time  without  destroying  the cells.
Cellular  metabolism is the most fundamental and essential of all  physiological
processes,  and  allows  for the  monitoring  of cell  activation,  stimulation,
growth,  toxicity and other biochemical events crucial to the development of new
therapeutics.

                                       11



<PAGE>

       In the Cytosensor  System,  living cells are maintained in a chamber near
the LAPS  surface.  The  compound  to be tested is pumped  through a chamber and
cellular  waste products are flushed away. As long as the flow of culture medium
continues,  the pH measured by the LAPS remains steady at a normal physiological
value. When the flow is interrupted at regular  intervals,  the concentration of
acid metabolites in the sensor chamber increases.  The Cytosensor System detects
this acidification  change within seconds and calculates its rate of increase in
response to stimulation (or decrease in response to toxic  compounds) over time.
The rate of  acidification  of the medium  correlates with the metabolic rate of
the  cells.  Unless the  biochemical  state of the cells is  altered,  the rates
remain consistent from one measurement to the next. The LAPS technology  permits
the  measurement  of small  amounts of sample  compounds,  which is an important
feature  for   researchers   working  with  synthetic   chemical   libraries  or
natural-compound isolates where sample quantities are often in short supply.

       The Company  offers a range of Cytosensor  products for varying  customer
needs.  These  products  include a 4-chamber  system  targeting  customers  with
relatively low throughput requirements and an 8-chamber system for customers who
require higher throughput. In addition, in November 1995, the Company introduced
the Cytosampler  Automated  Delivery  System to be used in combination  with the
4-chamber  and  8-chamber  systems.  In addition to allowing for the  unattended
operation  of  the  Cytosensor  System  platform,   the  Cytosampler   increases
throughput  as a result  of  incorporating  the  industry  standardized  96-well
microplate format.

       The Company  believes that the Cytosensor  System has a number of current
pharmacological and microbiological applications, including:

       Receptor  Characterization.  Companies are continually searching for more
reliable  ways to  increase  the  success  rate of  drug  discovery.  Successful
compound  screening  is highly  dependent  on  understanding  the  activity  and
function of  receptors.  Prior to the  introduction  of the  Cytosensor  System,
multiple  instruments and test methodologies were needed to investigate  certain
biological  events,  resulting in a significant  investment  of  resources.  The
Cytosensor  System provides this biological  information in a single platform in
less time and at a lower cost than traditional  equipment and methods.  Receptor
responses to drug  compounds  can be detected in minutes,  producing  functional
dose response information in hours rather than days.

       Orphan  Receptor  Identification.  Cellular  receptors are most often the
targets for drugs. While known receptors are well-characterized,  a large number
of new and incompletely identified receptor subtypes, known as orphan receptors,
are  becoming of great  interest  to the  pharmaceutical  industry.  Traditional
functional assays are of limited use in identifying orphan receptors because the
secondary signal mechanisms,  and,  therefore,  the appropriate second messenger
systems for such receptors are not known.  In contrast,  the  Cytosensor  System
does not require extensive  knowledge of the receptor  signaling  mechanism and,
therefore, may be utilized for orphan receptor screening and identification.

       Microbiology.  The Company believes that a substantial opportunity exists
for  application  of  the  Cytosensor   System  to   microbiological   analysis,
particularly  in  the  area  of  determining   antibiotic   susceptibility   and
sensitivity in slow-growing microorganisms. The Company has already demonstrated
that the  Cytosensor  System  can  perform  those  assays  in less time and with
greater  sensitivity  than  existing  instrumentation.  For example,  one of the
Company's customers is using the Cytosensor System to detect inhibitory response
of H. pylori,  the bacterium  responsible  for stomach and duodenal  ulcers,  to
certain antibiotics.

       In Vitro  Toxicology.  Several consumer  product  companies are currently
conducting  research to develop  alternatives  to animal testing for toxicology.
The Cytosensor  System has been used to test specific cell lines,  such as human
and animal skin cells, with potential  consumer  products.  Toxic effects can be
quickly  determined  through monitoring changes in the metabolic activity of the
cells. In published  independent  studies,  the Cytosensor System demonstrated a
high correlation with the Draize ocular irritancy test, a widely used measure of
toxicity in consumer  products.  The Cytosensor System has further  demonstrated
the  ability  to  detect  neurotoxic   events  with  greater   sensitivity  than
traditional assays.

       Clinical Research  Applications.  By detecting minute changes in cellular
metabolic  activity,  the  Cytosensor  System  provides the  potential to tailor
patient-specific  therapeutic  regimes  based  on  the  patient's  own  cellular
response to  individual  drugs.  Patient-derived  tumors  could  potentially  be
evaluated against a variety of chemotherapeutic  agents to quickly determine the
best course of treatment. This could reduce or eliminate the need to subject the
patient to various  chemotherapies  and their  resulting side effects during the
clinician's  efforts to determine the most  effective  therapy.  Changes in cell
function can be the earliest  changes  associated  with a disease  process.  The
Cytosensor System may provide clinical

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<PAGE>

diagnostic value in assessing a patient's damage from myocardial  infarction and
progress  of   therapeutic   regime.   The  Company   currently   has   research
collaborations  with several  university  medical  centers to investigate  these
clinical applications.

FLIPR System Product

       The  Company  acquired   NovelTech  in  June  of  1996  and  subsequently
integrated  its  FLIPR  system  with the  other  Cell  Analysis  systems.  FLIPR
satisfies a demand from  pharmaceutical  companies  for live cell  analysis at a
throughput  rate  compatible  with  current  screening  needs (up to one hundred
96-well  microplates  per day). The cellular  signals  measured by FLIPR at this
time are intracellular  calcium ion flux and membrane  potential  change.  These
measurements provide information on the activation of cells by test compounds.

       The FLIPR limited depth-of-field  fluorometry optical design is patented.
Cells,  along with appropriate  fluorescent dyes, are maintained in open 96-well
plates in a humidified,  thermally-controlled  compartment  together with either
one, or two,  96-well  compound-addition  plates.  A laser  provides  excitation
illumination,  and fluorescence  from cells growing on, or centrifuged onto, the
bottom of the wells is passed  through one or two optical  filters and monitored
continuously  by a CCD  camera,  at  intervals  of less than 1 second for all 96
wells.  During the reading cycle, an inbuilt  96-channel  pipettor  transfers 96
samples from a  compound-addition  plate to the cell plate. This strategy allows
for  real-time  monitoring  of cells  before  and after  compound  addition,  so
allowing the measurement of rapid  non-linear,  response  kinetics and providing
correction for variation such as cell number and dye-loading, among others.

       The  Company  believes  that the FLIPR  system  has a number  of  current
pharmacological applications including:

       Drug  screening.  Over $1  billion is spent  annually  on  screening  new
compounds.  The Company  believes  that  fluorescence  technology  is key to new
methodology  in this field  because  it offers  high  sensitivity  and hence the
promise of further  miniaturization and increased throughput.  Live cell targets
have been challenging and are of particularly  high value to the  pharmaceutical
industry because more than half of all drug targets are cell membrane  receptors
that are best studied when incorporated in functional cells.

       Orphan receptor identification.  While not as comprehensive as Cytosensor
in its ability to detect  intracellular  signaling events,  FLIPR has utility in
this  field.  As cells are  engineered  to  broaden  their  ability  to  provide
intracellular  signaling  support  to a  wider  range  of  receptors  (e.g.,  by
inclusion  of G alpha 16 or  chimeric G  proteins)  then FLIPR will  become more
useful in this field.

Business Risks

       The Company's business, financial condition and results of operations are
subject to various risk factors,  including  those described below and elsewhere
in this report.

         o     Uncertainty of Future Operating Results. Future operating results
               will depend on many factors,  including  demand for the Company's
               products,  the levels and timing of government and private sector
               funding of life sciences research  activities,  the timing of the
               introduction  of new  products  by the  Company  or by  competing
               companies,  the  integration of acquired  products and technology
               into  manufacturing  and  distribution  processes,  the Company's
               ability to control  costs and its  ability to attract  and retain
               highly  qualified  personnel.  Furthermore,  the Company's  gross
               margins can be significantly affected by many factors,  including
               shifts in product mix,  the mix of direct sales as compared  with
               sales  through  distributors,   competitive  price  pressures  or
               quarterly fluctuations in sales levels relative to fixed costs.

         o     Fluctuations in Quarterly Operating Results; Lack of Backlog. The
               Company  manufactures  its  products to  forecast  rather than to
               outstanding  orders, and products are typically shipped within 30
               to 60 days of purchase  order receipt.  As a result,  the Company
               does not believe the amount of backlog at any particular  date is
               indicative   of  its  future  level  of  sales.   The   Company's
               manufacturing  procedures may in certain  instances create a risk
               of excess or inadequate  inventory  levels if orders do not match
               forecasts.  The Company's  expense levels are based,  in part, on
               expected future sales. If sales levels in a particular quarter do
               not meet  expectations,  the  Company  may not be able to  adjust
               operating  expenses  sufficiently  quickly to compensate 

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<PAGE>

               for the shortfall, and the Company's results of operations may be
               materially adversely affected. Many of the Company's products are
               subject to long customer procurement processes.  Accordingly, the
               timing of capital equipment purchases by customers is expected to
               be uneven and  difficult to predict.  In addition,  a significant
               portion of the Company's revenues is typically derived from sales
               of a small number of relatively high-priced systems, and sales of
               such  products  may  increase as a  percentage  of revenue in the
               future.  Delays in receipt of anticipated orders or such products
               could lead to substantial variability from quarter to quarter. In
               addition,  the Company has historically  received purchase orders
               and  made  a  significant   portion  of  each  quarter's  product
               shipments near the end of the quarter. If that pattern continues,
               even  short  delays  in the  receipt  of orders  or  shipment  of
               products  at the end of a quarter  could have a material  adverse
               effect on results of  operations  for that  quarter.  The Company
               typically  experiences  a  decrease  in the level of sales in the
               first  calendar  quarter as compared to the fourth quarter of the
               preceding  year  because  of  budgetary  and  capital   equipment
               purchasing  patterns in the life sciences industry.  In 1995, the
               Company also  experienced  a decrease in product  revenues in the
               third  quarter  compared  to  the  second  quarter,   related  to
               seasonality primarily associated with lower European and academic
               sales during the summer months.  The Company's  product  revenues
               increased  in the third  quarter of 1996  compared  to the second
               quarter of 1996 primarily due to the  introduction  of a new Cell
               Analysis product. The Company, however, expects the third quarter
               seasonality  trend to  continue  in future  years as the  Company
               increases  its  efforts  to  penetrate   international   markets.
               Operating   results  in  any  period  should  not  be  considered
               indicative of the results to be expected for any future period.

         o     Dependency on New Products;  Rapid Technological Change. The life
               sciences   instrumentation   market  is  characterized  by  rapid
               technological change and frequent new product introductions.  The
               Company's  future  success  will depend on its ability to enhance
               its current  products and to develop and  introduce,  on a timely
               basis,  new  products  that  address  the  evolving  needs of its
               customers.

         o     Other  Factors.  The  Company's  business  is  affected  by other
               factors,  including: (i) the possibility that the introduction or
               announcement  of new  products  would  render  existing  products
               obsolete or result in a delay or decrease in purchase  orders for
               existing  products;  (ii) the  extent to which and the  timing in
               which the Company's products achieve market acceptance; (iii) the
               capital  spending  policies  of the  Company's  customers  (which
               depend on various factors,  including the resources  available to
               such customers,  the spending  priorities  among various types of
               research   equipment   and   the   policies   regarding   capital
               expenditures  during  recessionary   periods),   including  those
               policies of universities,  government  research  laboratories and
               other  institutions  whose  funding is  dependent  on grants from
               government agencies; (iv) competition;  (v) the Company's ability
               to obtain and  maintain  patent and other  intellectual  property
               protection  for its products and  technology;  (vi) the Company's
               ability to obtain in a timely manner certain  components  used in
               its products  which are currently  obtained from single  sources;
               (vii) compliance with governmental  regulations,  including those
               promulgated by the United Sates Food and Drug  Administration and
               similar state and foreign agencies;  and (viii) the extent of the
               Company's sales outside the United States,  which involve certain
               specific risks, including risks related to currency fluctuations,
               imposition of government controls,  export license  requirements,
               restrictions  on export of  critical  technology,  political  and
               economic instability or conflicts, trade restrictions, changes in
               tariffs  and  taxes,   difficulties   in  staffing  and  managing
               international    operations   and    international    distributor
               relationships and general economic conditions.

Research and Development

       The  Company's  research and  development  activities  are focused on (i)
providing  more  sensitive  quantitation  of biological  events;  (ii) providing
greater  throughput  capability,  especially with smaller sample volumes;  (iii)
developing biological  capability to broaden its technology solution,  including
developing   "liveware"    (genetically   engineered   cells)   for   use   with
microphysiometry; and (iv) developing increasingly sophisticated data management
and analysis capability.

       The  Company is  currently  developing  a  microplate  reader  technology
designed to replace  spectrophotometers  capable of analyzing  assays in the far
ultraviolet through the visible  wavelength.  The Company believes that this new
system  will  have  the  accuracy  of a  spectrophotometer  but  with  the  high
throughput of the industry  standardized 96-well microplate format. In addition,
the Company is developing a limited-featured,  lower-priced  Cytosensor targeted
toward research  organizations with restricted capital budgets. This system will
possess  reduced  throughput and less  flexibility  than the

                                       14
<PAGE>

Company's existing Cytosensor System. There can be no assurance that the Company
will not  experience  difficulties  that could delay or prevent  the  successful
development, introduction and marketing of new products or product enhancements.
The Company has  experienced,  and may in the future  experience,  delays in the
development and introduction of new products and product enhancements, and there
can be no assurance  that the Company will not experience  additional  delays in
the future.  In  addition,  there can be no  assurance  that new  products  will
adequately  meet  the   requirements  of  the  marketplace  and  achieve  market
acceptance.  If the Company is unable,  for  technological or other reasons,  to
develop and introduce products in a timely manner in response to changing market
environments or customer requirements,  there could be a material adverse effect
on the Company's business, financial condition and results of operations.

       The  Company's  future  success will depend on its ability to enhance its
current  products and to develop and introduce,  on a timely basis, new products
that keep pace with technological developments and address the evolving needs of
its customers.  The Company pursues active development  programs in the areas of
spectroscopy,  molecular  and cell  biology,  electronic  systems  and  computer
software.    Company-funded   research   and   development   expenditures   were
approximately $4,637,000,  $3,639,000 and $2,676,000 during 1996, 1995 and 1994,
respectively.  The Company  expects to continue to increase  its  Company-funded
research and development expenditures, as contract research revenues and related
expenditures   become  less  significant  to  the  Company.   See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Marketing and Customers

       The Company markets and sells high performance  bioanalytical  systems to
technically   sophisticated   customers.  To  access  and  support  this  market
appropriately,  the Company is continuing  to make a  significant  investment in
building a direct sales, service and technical support  organization  worldwide.
The Company  believes  that  providing  high  quality  technical  assistance  to
customers is critical to its long-term success.

       The Company has an installed base of approximately  8,600 units worldwide
and has sold multiple systems to many of its customers.

       The Company  distributes  its  products  primarily  through  direct sales
representatives  in the United  States and Europe,  as well as through  multiple
distributors in certain geographic markets. The Company also distributes certain
of its MAXline  products  through a national  scientific  products  distribution
company in the United States. The sales effort in the United States is supported
by a team of service,  technical and  applications  specialists  employed by the
Company.

       The  Company  has   subsidiaries   in  the  United  Kingdom  and  Germany
responsible  for selling and  servicing the  Company's  products.  The Company's
products are also sold through international  distributors,  most of which enter
into  distribution  agreements  with the  Company  that  provide  for  exclusive
distribution  arrangements  and minimum purchase  targets.  Such agreements also
generally prohibit the distributors from designing, manufacturing,  promoting or
selling any products that are competitive with the Company's  products.  The use
of distributors  involves certain risks,  including the risks that  distributors
will be unable to satisfy  financial  obligations  to the  Company or will cease
operations. The Company also does not currently have distributors in a number of
significant  international  markets  that  it has  targeted  and  will  need  to
establish additional international distribution  relationships.  There can be no
assurance  that the  Company  will  engage  qualified  distributors  in a timely
manner,  and the  failure to do so could have a material  adverse  effect on the
Company's business, financial condition and results of operations.

       Product  sales to customers  outside of the United  States  accounted for
approximately  40%, 37% and 38% of the Company's  product revenues in 1996, 1995
and 1994,  respectively.  International  sales are anticipated to account for an
increasing percentage of revenues in the future. The Company expects to continue
expanding its international  operations in order to take advantage of increasing
international market  opportunities  resulting from worldwide growth in the life
sciences  industry.  The  Company  faces a number of risks in its  international
sales  and   operations.   Although   currently  a  majority  of  the  Company's
international  sales are denominated in U.S. dollars, as the Company expands its
international  operations it may be required to invoice a greater  proportion of
its  sales in  local  currencies.  Consequently,  fluctuations  in the  value of
foreign  currencies  relative  to the  U.S.  dollar  may  adversely  affect  the
Company's results of operations because of currency  translation  adjustments or
adversely  impact  sales and  profitability  if the value of foreign  currencies
declines  relative to the U.S.  dollar.  International  sales and operations may
also be materially  adversely affected by the imposition of government controls,
export license requirements,  restrictions of the export of critical technology,
political and economic instability or 

                                       15
<PAGE>

conflicts,  trade  restrictions,  changes in tariffs and taxes,  difficulties in
staffing and managing  international  operations,  problems in  establishing  or
managing distributor relationships and general economic conditions.

       The Company believes that, to a significant  extent, its growth prospects
depend on capital  spending  policies  of its  customers,  levels of  government
research  funding,  and the  Company's  ability to gain  acceptance by a broader
group of customers of the  efficiency  and efficacy of the Company's  innovative
technologies, including the Cell Analysis Systems.

Manufacturing

       Molecular Devices manufactures its products at its facility in Sunnyvale,
California.  The Company  manufactures  its own components  where it believes it
adds significant  value, but relies on suppliers for the manufacture of selected
components  and   subassemblies,   which  are   manufactured  to  the  Company's
specifications.  The Company  conducts all final  testing and  inspection of its
products. The Company has established a quality control program, including a set
of standard manufacturing and documentation  procedures intended to ensure that,
where required,  the Company's  instruments are  manufactured in accordance with
Good Manufacturing Practices ("GMP").

       Certain components used in the Company's products are currently purchased
from single  sources.  Any delay in the  manufacture  of such  components  could
materially  adversely  affect the Company's  business,  financial  condition and
results of operations.  Additional components,  such as optical,  electronic and
pneumatic  devices,  are currently  purchased in configurations  specific to the
Company's  requirements  and,  together with certain other  components,  such as
computers,  are  integrated  into the Company's  products.  Although the Company
believes that most of the  components  used in its products are  available  from
alternate  sources,  any  unanticipated  interruption  in the  supply  of  these
components or other supplies,  or changes to the  specifications or interface of
standard  components or supplies  adopted  unilaterally by their  manufacturers,
could  require the Company to redesign  its products to utilize  alternative  or
modified  components or supplies.  The Company's reliance on sole-source vendors
involves several risks in addition to potential  shortages of supply,  including
reduced  control over  delivery  schedules,  and risks of adverse  manufacturing
yields,  reduced  quality  and  higher  costs.  In the event of yield,  quality,
delivery or supply  problems,  the Company could be forced to delay  shipment of
products,  which could have a material adverse effect on the Company's business,
financial condition and results of operations.

       The  Company  manufactures  its  products  to  forecast  rather  than  to
outstanding  orders,  and products are typically shipped within 30 to 60 days of
purchase  order  receipt.  As a result,  the Company  does not have  substantial
backlog,  and the amount of  backlog at any  particular  date is  generally  not
indicative of its future level of sales.

       The Company typically  warrants its products for one year.  Historically,
the Company's warranty repairs and returns have been immaterial.

Patents and Proprietary Technologies

       The Company  relies on patents and other  proprietary  rights,  including
trade secrets,  to protect its competitive  position.  There can be no assurance
that any applications will result in the issuance of a patent or that any issued
patent will afford the Company any significant protection from competition.

       The patent positions of life sciences  instrumentation  firms,  including
the Company,  are uncertain and involve complex legal and factual questions.  In
addition,  the coverage  claimed in a patent  application  can be  significantly
reduced  before the patent is issued.  Consequently,  the Company  does not know
whether any of its  applications  will result in the  issuance of patents or, if
any  patents are  issued,  whether  they will  provide  significant  proprietary
protection or will be  challenged,  circumvented  or  invalidated.  Since patent
applications in the United States are maintained in secrecy until patents issue,
and since  publication of  discoveries  in the  scientific or patent  literature
often lags behind actual discoveries,  the Company cannot be certain that it was
the first creator of inventions  covered by its pending patent  applications  or
that it was the first to file patent applications for such inventions. Moreover,
the Company may have to participate in interference  proceedings declared by the
U.S. Patent and Trademark Office to determine priority of invention, which could
result in  substantial  cost to the  Company,  even if the  eventual  outcome is
favorable to the Company.  There can be no assurance that the Company's patents,
if issued,  would be held valid. Because many holders of patents in the field of
life sciences  instrumentation  have  substantially  greater  resources than the
Company and because patent  litigation is very expensive,  Molecular Devices may
not have the resources necessary to successfully  challenge the validity of such
patents  or

                                       16
<PAGE>

withstand  claims of  infringement  in cases where the  Company's  position  has
merit. Even if the Company is successful in prevailing in such actions, the cost
of such  litigation  could  have a  material  adverse  effect  on the  Company's
financial condition and results of operations.  An adverse outcome in any future
patent  dispute could subject the Company to  significant  liabilities  to third
parties,  require  disputed  rights to be licensed from third parties or require
the Company to cease using the infringed  technology.  No assurance can be given
that  the  Company  would  be  able to  obtain  licenses  to  these  patents  on
commercially  reasonable  terms,  if at all,  or develop  or obtain  alternative
technology.

       The Company also relies on trade secret and copyright  law,  employee and
third-party  nondisclosure  agreements and other protective  measures to protect
its  intellectual  property  rights  pertaining to its products and  technology.
There can be no  assurance  that these  agreements  and  measures  will  provide
meaningful  protection  of the  Company's  trade  secrets,  know-how,  or  other
proprietary  information in the event of any unauthorized use,  misappropriation
or  disclosure  or that  others  will not  independently  develop  substantially
equivalent  proprietary  technologies.  In addition, the laws of certain foreign
countries do not protect the Company's  intellectual property rights to the same
extent as do the laws of the United  States.  There can be no assurance that the
Company will be able to protect its intellectual property successfully.

Competition

       The market for life sciences  instrumentation is highly competitive,  and
the Company expects  competition to increase.  There are three principal sources
of competition for the Company's  products.  First, the Company competes for the
allocation of customer capital funds with many other companies marketing capital
equipment,  including those not directly  competitive  with any of the Company's
products.

       Second,  some of the  Company's  products  compete  directly with similar
products from other  companies.  Since their  introduction  in 1987, the MAXline
microplate readers have been the Company's primary product,  accounting for 54%,
56% and 60% of product revenues in 1996, 1995 and 1994, respectively. The market
for  microplate  readers is divided  into three  general  segments:  inexpensive
microplate   readers  for  customers  that  require  relatively  low  levels  of
quantitative  accuracy;  higher  performance  microplate  readers;  and  premium
performance  microplate  readers.  The  Company  does not  compete  in the first
segment of this market.  The second segment of the  microplate  reader market is
characterized  by  intense  competition  from a number  of  companies  including
Bio-Rad   Laboratories,   Inc.,  Thermo  Bioanalysis   Corporation  and  Bio-Tek
Instruments,  Inc.,  that  offer,  or may in the  future  offer,  products  with
performance  capabilities  generally  similar to those  offered by the Company's
products.  The  Company  currently  experiences  less  competition  in the third
segment of the  microplate  reader  market,  although  the Company  expects that
competition  is likely  to  increase  in the  future,  as  several  current  and
potential competitors have the technological and financial ability to enter this
segment of the market.  Some of the  Company's  competitors  have  substantially
greater  financial,  technical,  marketing,  sales and other  resources than the
Company,  and certain of these  companies have a larger market share  worldwide.
The  Company's  MAXline  products  are  generally  priced at a premium  to other
microplate  readers.  The  Company  competes  in the  microplate  reader  market
primarily  on the basis of  performance  and  productivity,  and there can be no
assurance that the Company can continue to compete successfully in this market.

       Third, many companies, research institutions and government organizations
that might otherwise be customers for the Company's  products employ methods for
bioanalytical  analysis that are internally  developed.  Many of these companies
also have significantly greater financial, technical, marketing, sales and other
resources than does the Company.  In addition,  these companies and institutions
compete with the Company in recruiting and retaining highly qualified scientific
and management personnel.

       Although  the  Company  is not aware of  fully-integrated  systems on the
market that  compete  directly  with its  Threshold or Cell  Analysis  products,
competitive products using new technologies may be introduced. While the Company
believes  that most methods  developed  internally  are manual,  there can be no
assurance that other  organizations will not succeed in developing  technologies
and  products  that are more  effective  than those of the Company or that would
render the Company's products obsolete or  noncompetitive.  The Company believes
that the primary  competitive  factors in the market for the Company's  products
are breadth of applications, ease-of-use, productivity enhancement, quantitative
accuracy,  quality, support and price/performance.  The Company believes that it
competes favorably with respect to these factors.

                                       17
<PAGE>

Government Regulations

       Government   regulations   play  a  significant  role  in  the  research,
development,  production and commercialization of health care products,  such as
pharmaceuticals,  diagnostics and certain instrumentation. None of the Company's
products  currently  requires FDA approval  except for certain of the  Company's
MAXline Microplate Readers that are used in clinical or diagnostic applications.
FDA regulations  apply not only to therapeutics  and other health care products,
but  also to the  processes  and  production  facilities  used to  produce  such
products.

       Clinical  diagnostic  applications of the Company's products are and will
continue  to be  subject to FDA device and  reagent  approval  and  regulations.
Before a medical device can be commercially  distributed,  the manufacturer must
submit to the FDA either a  premarket  notification  ("510(k)")  or a  premarket
approval ("PMA")  application.  A 510(k)  notification can be submitted when the
device is substantially equivalent to another device currently being marketed in
the classes of devices eligible for marketing pursuant to 510(k)  notifications.
Receipt  of 510(k)  clearance  takes at least  three  months,  but may take much
longer and may require the  submission  of clinical  safety and efficacy data to
the FDA. There can be no assurance that the use of a 510(k) notification will be
available for any clinical  application of the Company's  products or for any of
the Company's potential diagnostic products.

       A PMA, which is required for medical  devices not eligible to be marketed
under a 510(k)  notification,  must  demonstrate  that the  product  is safe and
effective and thus  requires more time to prepare and a more complex  submission
to  the  FDA.  Following  completion  of  laboratory  evaluations  and  adequate
controlled  clinical trials to establish  safety and efficacy of the product for
its intended use, the Company would be required to file a PMA application, which
includes the results of all research and product  development,  clinical studies
and  related  information.   Among  the  conditions  for  FDA  approval  is  the
requirement   that  the   prospective   manufacturer's   quality   control   and
manufacturing   and   documentation   procedures   conform   to  GMP.   Domestic
manufacturing  facilities  are subject to biennial FDA  inspections  and foreign
manufacturing facilities are subject to periodic FDA inspections, or inspections
by the foreign regulatory authorities with reciprocal inspection agreements with
the FDA. FDA review and approval of a PMA  application  often  requires 12 to 18
months, or even longer, and must be completed before the product may be sold for
clinical diagnostic use in the United States. The process of obtaining PMAs from
the FDA and other  regulatory  authorities  can be costly,  time  consuming  and
subject to unanticipated delays.

       The Company has limited experience in obtaining regulatory approvals. The
Company has, to date,  been required to obtain 510(k)  clearance with respect to
certain clinical applications of its MAXline Microplate Readers. There can be no
assurance  that 510(k)  clearance for any future product or  modification  of an
existing  product will be granted by the FDA within a reasonable  time frame, or
at all, or that in the future the FDA will not require  manufacturers of certain
medical devices to engage in a more thorough and time consuming approval process
than the 510(k)  process,  or that the FDA or certain  corresponding  government
agencies  will permit  marketing of the  Company's  systems in their  respective
jurisdictions.  There can be no assurance that the approvals of the Company's or
its customers' products, processes or facilities will be granted. Any failure to
obtain, or delay in obtaining, any such required approval could adversely affect
the Company's marketing efforts.

       As a result of the  clinical  applications  of certain  of the  Company's
MAXline Microplate Readers,  the Company is registered with the FDA as a medical
device manufacturer. As such, the Company may be inspected on a routine basis by
the FDA for  compliance  with the FDA's GMP and  other  applicable  regulations.
These regulations require that the Company manufacture its products and maintain
related  documentation  in a prescribed  manner with  respect to  manufacturing,
testing  and quality  control  activities.  Further,  the Company is required to
comply with various FDA requirements  for reporting of product  malfunctions and
other matters.  The regulatory  standards for  manufacturing are currently being
applied stringently by the FDA and state regulatory agencies. Noncompliance with
FDA or applicable  state agency  regulations or discovery of previously  unknown
problems with a product,  manufacturer or facility may result in restrictions on
such product or  manufacturer,  including fines,  costly recalls,  injunction or
seizure of  products,  refusal  of the  government  to approve or clear  product
approval  applications or to allow the Company to enter into  government  supply
contracts  or even  withdrawal  of the  product  from  the  market  or  criminal
prosecution,  all of which could have a material adverse effect on the Company's
business, financial condition and results of operations.

       A significant  percentage of the Company's  product  revenues are derived
from sales outside of the United States.  International  regulatory bodies often
establish   varying   regulations   governing   product   standards,   packaging
requirements,

                                       18
<PAGE>

labeling requirements,  import restrictions,  tariff regulations, duties and tax
requirements.  As a result of the Company's sales in Europe,  the Company may be
required  to  obtain  ISO 9000  certification  and has had to obtain a "CE" mark
certification  for  its  products,   an  international  symbol  of  quality  and
compliance with applicable European medical device and instrument  manufacturing
directives.  While the  Company  expects  to  institute  an ISO 9000  compliance
program once  regulations  are  finalized,  there can be no  assurance  that the
Company will be successful in meeting certification requirements.

       The Company is also subject to numerous environmental and safety laws and
regulations, including those governing use of hazardous materials. Any violation
of, and the cost of compliance  with, these  regulations  could adversely impact
the Company's operations.

Human Resources

       As of December  31,  1996,  Molecular  Devices  employed 134 persons full
time,  including  32 in research and  development,  36 in  manufacturing,  50 in
marketing  and sales and 16 in  general  administration  and  finance.  Of these
employees,  36 hold  Ph.D.  or other  advanced  degrees.  None of the  Company's
employees  is covered  by  collective  bargaining  agreements,  and the  Company
considers relations with its employees to be good.


Item 2 - Properties

       Molecular Devices leases  approximately 60,000 square feet of laboratory,
manufacturing and administrative space in Sunnyvale,  California.  The Company's
lease expires in August 2001. The Company  believes that its facilities  will be
sufficient  for its  operations  for the  indefinite  future.  The Company  also
maintains  a sales and  service  office in the  United  Kingdom  and a sales and
technical office in Germany.


Item 3 - Legal Proceedings

       The Company is not currently a party to any material legal proceedings.


Item 4 - Submission of Matters to a Vote of Security Holders

         None.

                                       19
<PAGE>

                                     PART II

-------------------------------------------------------------------------------

Item 5 - Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

        The Company's  common stock is traded on the Nasdaq National Market tier
of the Nasdaq Stock Market under the symbol "MDCC." Public trading of the common
stock  commenced on December 13, 1995.  Prior to that date,  there was no public
market for the common stock.

        The prices per share reflected on the table below represent the range of
high and low closing prices of the common stock on the Nasdaq  National  Market,
for the period indicated.

                               1996                           1995
                  -----------------------------    -----------------------------
                       High            Low               High            Low
                       ----            ---               ----            ---
First Quarter         13 1/4          8 5/8               --             --
Second Quarter        13 3/4          8 3/8               --             --
Third Quarter         11 1/2          7 1/4               --             --
Fourth Quarter        16 1/8           11               11 3/8           10

        Historically,  the  Company  has not paid cash  dividends  on its common
stock and does not intend to pay any cash dividends in the  foreseeable  future.
Any future cash dividends will be determined by the Board of Directors

        As of March 20,  1997,  there were  approximately 1,855 stockholders  of
record of the Company.

Item 6 - Selected Consolidated Financial Data

<TABLE>

         The  following   table  sets  forth   selected   historical   financial
information  for the Company certain of which is based on, and should be read in
conjunction  with, the Company's  audited  financial  statements  that are being
filed as a part of this report.
<CAPTION>
                                                                Years Ended December 31,
                                              ---------------------------------------------------------
                                                1996       1995         1994        1993         1992
                                                ----       ----         ----        ----         ----
                                                       (In thousands, except per share data)
<S>                                           <C>         <C>         <C>         <C>         <C>     
Consolidated Statement of        
Operations Data:
Revenues
   Product revenues                           $ 30,596    $ 23,116    $ 18,516    $ 14,872    $ 12,671
   Contract revenues                               330       2,499       3,944       3,761       3,388
                                              --------    --------    --------    --------    --------
     Total revenues                             30,926      25,615      22,460      18,633      16,059
                                              --------    --------    --------    --------    --------

Income (loss) from operations                       47       3,011       1,763         636        (522)
Other income (expense), net                      1,079         (33)       (201)       (124)       (136)
                                              --------    --------    --------    --------    --------

Income (loss) before income taxes                1,126       2,978       1,562         512        (658)
Income tax benefit (provision)                   1,126       1,081         (43)       --          --
                                              --------    --------    --------    --------    --------

Net income (loss)                             $  2,252    $  4,059    $  1,519    $    512    $   (658)
                                              ========    ========    ========    ========    ======== 
Net income (loss) per share                   $   0.24    $   0.52    $   0.20    $   0.07    $  (0.09)
                                              ========    ========    ========    ========    ======== 

Shares used in computing net
   income (loss) per share                       9,524       7,851       7,586       7,635       7,181

                                       20
<PAGE>

Consolidated Balance Sheet Data:
Cash and cash equivalents                     $ 23,727    $ 20,379    $  2,201    $  2,976    $  2,461
Working capital                                 27,395      22,786       3,681       2,990       3,096
Total Assets                                    36,833      28,800       9,020       7,272       7,175
Long-term obligations, less current portion       --          --         1,582       1,635       2,290
Accumulated deficit                             (7,848)    (10,100)    (14,159)    (15,678)    (16,190)
Total stockholders' equity                      29,277      24,525       3,757       2,233       1,715
</TABLE>


       Note that the income from  operations  for the fiscal year ended December
31,  1996,  includes a $4.6 million  charge for the  acquisition  of  in-process
technology  and  acquisition  costs  related  to the  Company's  acquisition  of
NovelTech Systems, Inc.

Item 7 - Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

       Except for the historical  information  contained  herein,  the following
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  The Company's actual results could differ  materially from those
discussed  here.  Factors  that could cause or  contribute  to such  differences
include,  but are not limited to,  those  discussed  in this  section as well as
under "Item I. Business - Business Risks."

       Molecular  Devices  was  founded  in  1983  to  address  new  fundamental
scientific  discoveries and develop  bioanalytical  tools in order to accelerate
and  improve  the cost  effectiveness  of the  drug  discovery  and  development
process.  The Company has made significant  investment in developing a portfolio
of proprietary  core  technologies.  The Company's first product,  the Vmax, was
introduced in 1987. Vmax was the first in a series of products  establishing the
Company's   MAXline  family  of  microplate   readers.   In  1989,  the  Company
commercialized   its  first  biosensor   product  using  its  proprietary  Light
Addressable  Potentiometric  Sensor ("LAPS") technology with the introduction of
the Threshold product family. In 1992, the second biosensor product, Cytosensor,
was   introduced,   thus  broadening  the  application  of  the  Company's  LAPS
technology.  In 1994, the Company  launched the first in a new generation of the
MAXline product  family,  SPECTRAmax 250 followed by the SPECTRAmax 340 in 1995.
In November 1995,  the Company  introduced the  Cytosampler  Automated  Delivery
System,  which allows unattended  continuous operation of the Company's existing
4- and  8-chamber  Cytosensor  Systems.  In the second  half of 1996 the Company
launched the first MAXline product with  fluorescence  reading  capability,  the
fMAX, and a robotics device that  compliments the entire MAXline product family,
the ROBOmax.

       On June 7, 1996,  the Company  acquired all of the  outstanding  stock of
NovelTech Systems, Inc. ("NovelTech").  The purchase price of approximately $4.7
million consisted of a cash payment at closing of $1.5 million,  issuance of two
promissory  notes  valued at $750,000  each,  issuance of 146,342  shares of the
Company's  Common Stock valued at approximately  $1.48 million,  and acquisition
related  costs of $210,000.  The second  quarter of 1996 included a $4.6 million
one-time charge for acquired in-process technology related to the acquisition of
NovelTech. See "Charge for Acquired In-Process Research and Development" below.

       Subsequent to the  acquisition of NovelTech,  the Company  introduced its
first high throughput  optical screening tool, the FLIPR  (Flourometric  Imaging
Plate  Reader)  system.  The FLIPR  system joins  Cytosensor  as a member of the
Company's Cell Analysis product family.

       The Company's  revenues have historically been generated by bioanalytical
instrument and consumable  sales and contract  research  revenues.  Sales of the
Company's MAXline  Microplate  Readers accounted for 54%, 56% and 60% of product
revenues in 1996, 1995 and 1994,  respectively.  The Company believes that sales
of MAXline  products will  continue to account for a significant  portion of its
product  revenues.  Both the Threshold and Cell Analysis  Systems are subject to
long  customer  procurement  processes  as a result of the  significant  capital
commitments  required by customers.  For example, the Company estimates that the
sales cycle for a Cell  Analysis  System  typically  ranges from three to twelve
months  from  initial  inquiry to  purchase  order.  Consequently,  the  Company
believes  that any  significant  sales  increase for these  products  would take
longer to materialize than that seen with MAXline.

                                       21
<PAGE>

       The Company also develops and markets a broad range of services, software
and consumables  including  ultraviolet-transparent  microplates for the MAXline
Microplate Readers,  assay kits for the Threshold System and disposable capsules
for the Cytosensor System. Sales of service,  software and consumables accounted
for 17%, 23% and 24% of product revenues in 1996, 1995 and 1994, respectively.

       The Company's  contract  revenues since 1990 have consisted  primarily of
research  funding  from the United  States  Advanced  Research  Projects  Agency
("ARPA")  pursuant to a research  contract  that  concluded  in early  1996.  In
connection  with the completion of the ARPA contract,  the Company  restructured
its  research  and  development  activities  to  increase  focus  on  commercial
opportunities.  As  a  result,  the  development  and  engineering  groups  have
increased in size,  while the  research  group has been  reduced,  leading to an
overall  reduction  in research and  development  spending but to an increase in
spending for Company-funded research and development.  The Company believes that
contract research revenues will be less significant in future periods,  and that
product revenues will be its primary source of revenues.

       The  Company's  revenues  tend to  exhibit a seasonal  pattern,  with the
Company  typically  experiencing  a  decrease  in sales in the first  quarter as
compared  to the fourth  quarter  because of  budgetary  and  capital  equipment
purchasing  patterns  in the  life  sciences  industry.  The  Company  has  also
typically  experienced  a decrease  in  product  revenues  in the third  quarter
compared to the second quarter, related to seasonality primarily associated with
lower  European  and  academic  sales during the summer  months.  The  Company's
product  revenues  increased in the third quarter of 1996 compared to the second
quarter of 1996 primarily due to the introduction of new Cell Analysis products.
The Company, however, expects the third quarter seasonality trend to continue in
future years as the Company  increases  its efforts to  penetrate  international
markets.  Product sales to customers  outside of the United States accounted for
approximately  40%, 37% and 38% of the Company's  product revenues in 1996, 1995
and 1994, respectively.

       During 1994, 1995 and 1996, the Company had not provided for income taxes
outside of some minor federal, state and foreign taxes. As of December 31, 1996,
the  Company  had  federal  and  state  net  operating  loss   carryforwards  of
approximately  $3.4  million and  $940,000,  respectively.  The Company also had
federal  research and  development  tax credit  carryforwards  of  approximately
$672,000.  The federal  net  operating  loss and credits  will expire at various
dates  beginning in 2004 through 2007, if not utilized.  The state net operating
loss and credits will expire at various dates beginning in 1997 through 1998, if
not utilized. For the year ended December 31, 1996, the tax provision reflects a
benefit of approximately 100% of income before taxes,  relating primarily to net
deferred  tax assets  which have been  recorded  (by way of a reduced  valuation
allowance).  The net deferred tax assets  recorded  represent  the Company's net
operating  loss  carryforwards  expected to be utilized in 1997.  Based upon the
results of operations over the last several years,  the Company believes that it
is more  likely  than not that these tax  benefits  will be  realized.  However,
realization  of the net  deferred  tax  assets  will  depend on future  earnings
resulting from continued success from the Company's operations. Once the Company
utilizes its net operating loss  carryforwards  and tax credits,  it expects its
tax liability to reflect  effective tax rates of 37% to 39%,  absent  changes in
tax rates.

       Although the Company has been  profitable  in each of the last  seventeen
quarters,  excluding the $4.6 million  charge for the  acquisition of in-process
technology and acquisition  costs in the second quarter of 1996, the Company had
an accumulated deficit of approximately $7.8 million at December 31, 1996.

Results of Operations

Years ended December 31, 1996, 1995 and 1994

       Product  revenues.   Product  revenues  for  1996  increased  by  32%  to
approximately  $30.6  million  from  approximately  $23.1  million in 1995.  The
MAXline and Cell Analysis  product  families showed increased levels of revenue.
MAXline product revenues increased  primarily due to greater sales of SPECTRAmax
products  worldwide.  Cell  Analysis  product  revenues  increased  due  to  the
introduction of new products and increased  international  instrument shipments.
Threshold product family revenues decreased  primarily due to lower shipments to
the US Army  and  decreased  revenues  from  the  sale of  commercial  Threshold
products worldwide.

       Product revenues for 1995 increased by 25% to approximately $23.1 million
from approximately  $18.5 million in 1994. All of the Company's product families
showed increased levels of revenues both in the US and internationally. 

                                       22
<PAGE>

MAXline product revenues increased  primarily due to sales of the SPECTRAmax 250
and 340. Threshold product revenues increased primarily as a result of growth in
US Government orders.  Cell Analysis product revenues  increased  primarily as a
result of the Company's Academic Grant Placement  Program,  which had the effect
of increasing instrument unit sales. This program targeted academic institutions
for placement of  Cytosensors  utilizing a matching  grant by the Company to the
institution  for use in  purchasing  the  Company's  products.  The  increase in
instrument  unit sales was offset  partially  by a decrease  in average  selling
price.

       Contract  revenues.  Contract  revenues  for  1996  decreased  by  87% to
approximately  $330,000  from $2.5 million in 1995.  Contract  revenues for 1995
decreased by 37% to approximately  $2.5 million from  approximately $3.9 million
in 1994. The reduction in the contract revenue for both periods is due primarily
to the substantial completion of the Company's ARPA contract in late 1995.

       Gross  margin on  product  revenues.  In 1996,  gross  margin on  product
revenues  decreased to 62.1% from 63.3% in 1995.  The decrease was primarily due
to the  introduction  of new lower margin Cell  Analysis  products and decreased
Threshold product shipments.

       In 1995, gross margin on product  revenues  increased to 63.3% from 62.5%
in 1994.  The  increase  in gross  margin on product  revenues in 1995 over 1994
primarily  resulted from  volume-related  cost improvements which were partially
offset by lower margins due to the Company's Academic Grant Placement Program.

       Cost of  contract  revenues.  The  cost of  contract  revenues  for  1996
decreased by 92% to approximately  $160,000 from  approximately  $1.9 million in
1995. The cost of contract  revenues for 1995 decreased by 41% to  approximately
$1.9 million from  approximately  $3.3 million in 1994. The reduction in cost of
contract revenues for both periods is in line with the  corresponding  reduction
in contract revenues.

       Company-funded  research  and  development.  Company-funded  research and
development  expenses for 1996  increased by 26% to  approximately  $4.6 million
from  approximately  $3.6 million for 1995 and by 36% in 1995 from approximately
$2.7 million in 1994. These increases were both due to the continued  buildup of
research and development  projects focused on commercial products independent of
government-funded  research  projects.  Company-funded  research and development
expenses as a percentage  of product  revenues  were 15.0%,  15.7% and 14.4% for
1996, 1995 and 1994, respectively.

       Charge for  acquired  in-process  research and  development.  The Company
recorded a charge of  approximately  $4.6 million  during the second  quarter of
1996 due to the write-off of acquired  in-process  research and  development and
acquisition  related  costs related to the  Company's  acquisition  of NovelTech
Systems, Inc. on June 7, 1996. The acquired in-process technology represents the
appraised value of technology in the development  stage that had not yet reached
economic and  technological  feasibility  and does not have  alternative  future
uses.  The  Company  determined  this  amount  to  be  in-process  research  and
development and recorded the charge based on, among other factors,  the stage of
development of each product acquired,  the time and resources needed to complete
product  development,  expected income and associated risks. A total of $150,000
of the purchase price was capitalized as completed  research and development and
is being  amortized  over two years,  the estimated  useful life of the acquired
technology.  See Note 4 of "Notes to Consolidated Financial Statements" included
in Part IV.

       Selling, general and administrative.  Selling, general and administrative
expenses  for  1996  increased  by  16%  to  approximately   $9.9  million  from
approximately $8.5 million in 1995 and by 9% in 1995 compared to $7.8 million in
1994.  The  increased  spending  for both  periods  is  primarily  the result of
additional  spending on marketing  and sales  related  activities as the Company
continued  to  expand  market  coverage.  Selling,  general  and  administrative
expenses as a percentage of product  revenues were 32.4%, 37% and 42.2% in 1996,
1995 and 1994, respectively.

       Interest income (expense) net. Net interest and other income for 1996 was
approximately  $1.1  million as compared to net  interest  and other  expense of
approximately  $33,000  and  $201,000  for  1995  and  1994,  respectively.  The
increased  net interest and other income for both periods  relates  primarily to
interest income earned on the proceeds of the Company's  initial public offering
completed in December  1995.  In  addition,  interest  expense  decreased as the
proceeds  of the  offering  were  used to repay  certain  interest-bearing  debt
instruments in December 1995.

                                       23
<PAGE>

       Provision for taxes.  For the years ended December 31, 1996 and 1995, the
Company  recorded  income tax  benefits of  approximately  $1.1 million for both
periods relating primarily to a reduced valuation allowance on the Company's net
deferred  tax assets.  The income tax benefit had the effect of  increasing  net
income for that period.

Liquidity and Capital Resources

       Since 1993, the Company has financed its  operations  primarily from cash
flow provided by operations,  which  contributed $4.6 million,  $4.5 million and
$758,000  in 1996,  1995 and  1994,  respectively.  Net cash  used in  investing
activities  was $1.9  million,  $562,000  and  $978,000 in 1996,  1995 and 1994,
respectively,  primarily for capital expenditures, and, in 1996, $1.2 million of
cash was used in investing  activities  related to the acquisition of NovelTech.
The larger capital  expenditure  use in 1994 reflected  expenditures  associated
with  the  Company's  relocation  into new  facilities.  Net  cash  provided  by
financing activities was $535,000 and $14.3 million,  respectively, for 1996 and
1995,  while net cash used in financing  activities  was $547,000 for 1994.  The
larger proceeds in 1995 reflected primarily the proceeds from the initial public
offering as offset by repayment of various debt instruments from the proceeds of
the offering.  The 1996 proceeds relate  primarily to stock option exercises and
issuance  of stock  under the 1995 Stock  Purchase  Plan.  The 1994 use of funds
reflected primarily repayments of credit arrangements.

       The Company believes that existing  capital  resources will be sufficient
to fund its  operations  through at least 1998.  However,  the Company's  future
liquidity and capital requirements will depend upon numerous factors,  including
the resources the Company devotes to developing, manufacturing and marketing its
products,  the extent to which the Company's products generate market acceptance
and demand  and other  factors.  As such,  there can be no  assurances  that the
Company  will not  require  additional  financing  within  this time  frame and,
therefore,  the Company may in the future seek to raise additional funds through
bank  facilities,  debt  or  equity  offerings  or  other  sources  of  capital.
Additional  funding may not be available  when needed or on terms  acceptable to
the  Company,  which  could  have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.


Item 8 - Financial Statements and Supplementary Data

       The  following  consolidated  financial  statements  of the  Company  and
financial  statement  schedules are attached to this report as pages F-1 through
F-15.

         Financial Statements:

               o    Report of Ernst & Young LLP, Independent Auditors
               o    Consolidated Balance Sheets at December 31, 1996 and 1995
               o    Consolidated  Statements  of  Income  for each of the  three
                    years in the period ended December 31, 1996
               o    Consolidated Statement of Stockholders' Equity for the three
                    years in the period ended December 31, 1996
               o    Consolidated  Statements of Cash Flows for each of the three
                    years in the period ended December 31, 1996
               o    Notes to Consolidated Financial Statements

        Financial Statement Schedules:

               Schedule II - Valuation and Qualifying Accounts

       All other  schedules are omitted  because they are not  applicable or the
required information is shown in the financial statements or notes thereto.

Item 9 - Changes In and Disagreements with Accountants on Accounting Financial 
         Disclosures

         Not applicable.

                                       24
<PAGE>

                                    PART III

--------------------------------------------------------------------------------
Item 10 - Directors and Executive Officers of the Registrant

       Information with respect to Directors and Executive Officers may be found
in the Sections  entitled  "Proposal 1 -- Election of Directors," and "Executive
Officers  of the  Company",  respectively,  appearing  in the  definitive  Proxy
Statement to be delivered to  Stockholders in connection with the Annual Meeting
of  Stockholders  to be held on May 16, 1997.  Such  information is incorporated
herein by reference.

Item 11 - Executive Compensation

       The information required by this item is set forth in the Proxy Statement
under the heading  "Executive  Compensation,"  which information is incorporated
herein by reference.


Item 12 - Security Ownership of Certain Beneficial Owners and Management

       The information required by this item is set forth in the Proxy Statement
under  the  heading  "Security   Ownership  of  Certain  Beneficial  Owners  and
Management," which information is incorporated herein by reference.


Item 13 - Certain Relationships and Related Transactions

        None.


                                       25
<PAGE>

                                     PART IV

--------------------------------------------------------------------------------


Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

     1.   Financial Statements - See Index to Consolidated  Financial Statements
          as Item 8 on page 24 of this report.

     2.   Financial  Statement  Schedules - See Index to Consolidated  Financial
          Statements as Item 8 on page 24 of this report.

     3.   Exhibits

     Exhibit                           Description of Document
     Number

     2.1  (1) Form of Agreement and Plan of Merger  between the  Registrant  and
              Molecular Devices Corporation, a California Corporation ..........

     3.1  (1) Amended and Restated  Certificate of Incorporation of Registrant .

     3.2  (1) Bylaws of the Registrant .........................................

     4.1  (1) Specimen Certificate of Common Stock of Registrant ...............

     4.2  (1) Reference is made to Exhibits 3.1 through 3.2 ....................

     10.1 (1) 1988 Stock Option Plan ...........................................

     10.2 (1) Form of Incentive Stock Option under the 1988 Stock Option Plan ..

     10.3 (1) Form of Supplemental Stock Option under the 1988 Stock Option Plan

     10.4 (1) 1995 Employee  Stock Purchase Plan ...............................

     10.5 (1) 1995 Non-Employee  Directors' Stock Option Plan ..................

     10.6 (1) Form of  Nonstatutory  Stock  Option  under the 1995  Non-Empolyee
              Directors' Stock Option Plan .....................................

     10.7 (1) 1995 Stock Option Plan ...........................................

     10.8 (1) Form of Incentive  Stock Option under the 1995 Stock Option Plan..

     10.9 (1) Form of Nonstatutory Stock Option under the 1995 Stock Option Plan

     10.10(1) Form of Early  Exercise Stock  Purchase  Agreement  under the 1995
              Stock Option Plan ................................................

     10.11(1) Form  of  Indemnity  Agreement  between  the  Registrant  and  its
              Directors and Executive Officers .................................

     10.12(1) Consulting  Agreement  dated  July  20,  1988 by and  between  the
              Registrant and Harden M. McConnell, Ph.D. ........................

     10.13(1) Lease  Agreement  dated January 17, 1994 by and between Aetna Life
              Insurance Company and the Registrant .............................

     10.14(1) Business  Loan  Agreement  dated March 26, 1991 by and between the
              Registrant  and Silicon Valley Bank with related  Promissory  Note
              dated April 17, 1995. Loan Modification  Agreement dated April 17,
              1995 and Security Agreement dated November 22, 1989 ..............

     10.15(1) Series E Preferred  Stock  Purchase  Agreement  dated December 12,
              1989 of the Registrant ...........................................

     10.16(2) Stock  Purchase  Agreement  dated June 7, 1996, by and between the
              Registrant  and  NovelTech  Systems,  Inc.,  Brad  Neagle and Kirk
              Schroeder (with Exhibit A. Certain Definitions) ..................

     11.1     Computation  of Net Income Per Share .............................

     21.1 (1) Subsidiaries of the Registrant ...................................

     23.1     Consent of Independent Auditors, Ernst & Young LLP ...............

--------------------
          (1)  Incorporated by reference to the similarly  described  exhibit in
               the  Company's  Registration  statement  on Form  S-1  (File  No.
               33-98926), as amended.

          (2)  Incorporated by reference to the similarly  described  exhibit in
               the  Company's  Form 8-K Current  Report dated June 7, 1996,  and
               filed June 21, 1996 (as amended August 31, 1996).

                                       26
<PAGE>

          (b)  Reports on Form 8-K 

               A report on Form 8-K dated  June 7,  1996,  was filed on June 21,
               1996. An amended report on Form 8-K dated June 7, 1996, was filed
               on August 13, 1996.

          (c)  Exhibits 

               See Item 14(a) above.

          (d)  Financial Statement Schedule 

               See Item 14(a) above.


                                       27
<PAGE>


                                   SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to
be signed on its behalf by the  undersigned,  thereunto duly authorized on March
26, 1996.

                                      MOLECULAR DEVICES CORPORATION

                                     By:      James P. Iuliano 
                                        ----------------------------------
                                     President and Chief Executive Officer
<TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.
<CAPTION>

         Signature                                   Title                                       Date
         ---------                                   -----                                       ----

<S>                                                  <C>                                         <C> 
         James P. Iuliano                            President, Chief Executive Officer and      March 27, 1997
--------------------------------------------         Director (Principal Executive Officer)
         James P. Iuliano                            


         Andrew H. Galligan                          Vice President, Finance and Chief           March 27, 1997
--------------------------------------------         Financial Officer  (Principal    
         Andrew H. Galligan                          Financial and Accounting Officer)
                                                     


         Moshe H. Alafi                                                                          March 27, 1997
--------------------------------------------
         Moshe H. Alafi                              Director


         David L. Anderson                                                                       March 27, 1997
--------------------------------------------
         David L. Anderson                           Director


         A. Blaine Bowman                                                                        March 27, 1997
--------------------------------------------
         A. Blaine Bowman                            Director


         Paul Goddard, Ph.D.                                                                     March 27, 1997
--------------------------------------------
         Paul Goddard, Ph.D.                         Director


         Andre F. Marion                                                                         March 27, 1997
--------------------------------------------
         Andre F. Marion                             Director


         Harden M. McConnell, Ph.D.                                                              March 27, 1997
--------------------------------------------
         Harden M. McConnell, Ph.D.                 Director


         J. Allan Waitz, Ph.D.                                                                   March 27, 1997
--------------------------------------------
         J. Allan Waitz, Ph.D.                       Director
</TABLE>

                                       28
<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Molecular Devices Corporation

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Molecular Devices  Corporation as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three  years in the  period  ended  December  31,  1996.  Our audit  also
included the  financial  statement  schedule  listed in the Index at Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Molecular   Devices   Corporation  at  December  31,  1995  and  1996,  and  the
consolidated  results of its operations and its cash flows for each of the three
years in the period ended  December  31,  1996,  in  conformity  with  generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

                                                 ERNST & YOUNG LLP


Palo Alto, California
January 14, 1997


                                      F-1
<PAGE>

<TABLE>

                                             MOLECULAR DEVICES CORPORATION
                                              CONSOLIDATED BALANCE SHEETS
                                   (In thousands, except share and per share amounts)

<CAPTION>
                                                                                          December 31,
                                                                                   --------------------------
                                                                                      1996            1995
                                                                                   ------------    ----------
<S>                                                                                <C>            <C>        
Assets:
Current assets:
   Cash and cash equivalents                                                       $    23,727    $    20,379
   Accounts receivable including contract
     receivables, net of allowance for doubtful
     accounts of $196 and $168 at
     December 31, 1996 and 1995, respectively                                            5,396          3,987
   Inventories                                                                           2,470          1,393
   Deferred tax asset                                                                    3,216          1,161
   Other current assets                                                                    142            141
                                                                                   -----------    -----------
        Total current assets                                                            34,951         27,061
Equipment and leasehold  improvements, net                                               1,632          1,588
Other assets                                                                               250            151
                                                                                   -----------    -----------
                                                                                   $    36,833    $    28,800
                                                                                   ===========    ===========

Liabilities and stockholders' equity:
Current liabilities:
   Accounts payable                                                                $     1,933    $       932
   Accrued compensation                                                                  1,027            876
   Other accrued liabilities                                                             2,500          1,915
   Deferred revenue                                                                        596            476
   Current obligations under credit arrangements                                          --               76
   Current obligations under promissory notes                                            1,500           --
                                                                                   -----------    -----------
        Total current liabilities                                                        7,556          4,275

Commitments

Stockholders' equity:
   Preferred stock, no par value, issuable in series; 
     3,000,000 shares authorized, no shares issued 
     and outstanding at December 31, 1996 and 1995,
     respectively                                                                         --             --
   Common stock, $.001 par value; 30,000,000
     shares authorized; 8,988,094 and
     8,687,791 shares issued and outstanding,
     respectively, at December 31, 1996 and 1995                                             9              8
   Additional paid-in capital                                                           37,462         35,159
   Accumulated deficit                                                                  (7,848)       (10,100)
   Deferred compensation                                                                  (401)          (537)
   Accumulated translation adjustment                                                       55             (5)
                                                                                   -----------    -----------
        Total stockholders' equity                                                      29,277         24,525
                                                                                   -----------    -----------
                                                                                   $    36,833    $    28,800
                                                                                   ===========    ===========
<FN>

                                                See accompanying notes.
</FN>
</TABLE>

                                      F-2
<PAGE>
                          MOLECULAR DEVICES CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                    (In thousands, except per share amounts)


                                                    Years ended December 31,
                                                --------------------------------
                                                  1996        1995       1994
                                                --------    --------   --------

Revenues:
   Product revenues                             $ 30,596    $ 23,116   $ 18,516
   Contract revenues                                 330       2,499      3,944
                                                --------    --------   --------
     Total revenues                               30,926      25,615     22,460
                                                --------    --------   --------

Cost of revenues:
   Cost of product revenues                       11,581       8,482      6,939
   Cost of contract revenues                         160       1,934      3,260
                                                --------    --------   --------
     Total cost of revenues                       11,741      10,416     10,199
                                                --------    --------   --------

     Gross margin                                 19,185      15,199     12,261
                                                --------    --------   --------

Operating expenses:
   Company-funded research and development         4,581       3,639      2,676
   Charge for acquired in-process research
     and development                               4,637        --         --
   Selling, general and administrative             9,920       8,549      7,822
                                                --------    --------   --------
     Total operating expenses                     19,138      12,188     10,498
                                                --------    --------   --------

Income from operations                                47       3,011      1,763
Interest income                                    1,071         188         57
Interest expense                                      (6)       (221)      (256)
Other expense, net                                    14        --           (2)
                                                --------    --------   --------
Income before income taxes                         1,126       2,978      1,562
Income tax benefit (provision)                     1,126       1,081        (43)
                                                --------    --------   --------

Net income                                      $  2,252    $  4,059   $  1,519
                                                ========    ========   ========

Net income per share (fully diluted for 1995)   $   0.24    $   0.52   $   0.20
                                                ========    ========   ========

Shares used in computing net income per share      9,524       7,851      7,586
                                                ========    ========   ========


                             See accompanying notes.

                                      F-3
<PAGE>
<TABLE>
                                                     MOLECULAR DEVICES CORPORATION
                                            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                          (In thousands, except share and per share amounts)

<CAPTION>
                                                              Additional                         Accumulated    Total
                                      Preferred     Common     Paid-in   Accumulated  Deferred   Translation Stockholders'
                                        Stock       Stock      Capital     Deficit  Compensation  Adjustment   Equity
                                      ------------------------------------------------------------------------------------

<S>                                     <C>       <C>         <C>        <C>         <C>         <C>         <C>     
Balance at December 31, 1993          $ 17,672    $    250    $   --     $(15,678)   $   --      $    (11)   $  2,233
 Issuance of 8,472 shares of common
  stock for options exercised             --            13        --         --          --          --            13
 Currenency translations adjustment       --          --          --         --          --            (8)         (8)
 Net income                               --          --          --        1,519        --          --         1,519
                                      --------    --------    --------   --------    --------    --------    --------

Balance at December 31, 1994            17,672         263        --      (14,159)       --           (19)      3,757
  Issuance of 63,459 shares of
   common stock for options
   exercised                              --           114        --         --          --          --           114
  Deferred compensation                   --           578        --         --          (578)       --          --
  Establishment of $.001 per
    share par value                       --          (954)        954       --          --          --          --
  Conversion of 2,243,378 shares of
    preferred stock                    (17,672)          5      17,667       --          --          --          --
  Issuance of 1,700,000 shares of
    common stock, net of issuance
    costs                                 --             2      16,538       --          --          --        16,540
  Amortization of deferred
    compensation                          --          --          --         --            41        --            41
 Currency translation adjustment          --          --          --         --          --            14          14
 Net income                               --          --          --        4,059        --          --         4,059
                                      --------    --------    --------   --------    --------    --------    --------

Balance at December 31, 1995              --             8      35,159    (10,100)       (537)         (5)     24,525
 Issuance of 112,864 shares of
    common stock for options
    exercised                             --          --           273       --          --          --           273
 Issuance of 41,097 shares of
    common stock under employee
    stock purchase plan                   --          --           337       --          --          --           337
 Issuance of 146,342 shares of
    common stock in connection
    with acquisition                      --             1       1,482       --          --          --         1,483
 Tax benefits from employee stock
    transactions                          --          --           211       --          --          --           211
 Amortization of deferred
    compensation                          --          --          --         --           136        --           136
 Currency translation adjustment          --          --          --         --          --            60          60
 Net income                               --          --          --        2,252        --          --         2,252
                                      --------    --------    --------   --------    --------    --------    --------

Balance at December 31, 1996          $   --      $      9    $ 37,462   $ (7,848)   $   (401)   $     55    $ 29,277
                                      ========    ========    ========   ========    ========    ========    ========
<FN>
                                                             See accompanying notes.
</FN>
</TABLE>

                                      F-4
<PAGE>
<TABLE>
                          MOLECULAR DEVICES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<CAPTION>
                                                     Years Ended December 31,
                                                 --------------------------------
                                                   1996       1995        1994
                                                 --------    --------    --------
<S>                                               <C>         <C>         <C>     
Cash flows from operating activities:
Net income                                        $  2,252    $  4,059    $  1,519
Adjustments to  reconcile  net  income
  to net cash used in operating activities:
    Depreciation and amortization                      636         671         588
    Loss on disposal of fixed assets                    40          26        --
    Charge for acquired in-process research
      and development                                4,425        --          --
    Amortization of deferred compensation              136          41        --
    (Increase) decrease in assets:
      Accounts receivable                           (1,160)       (372)     (1,463)
      Inventories                                     (817)         37        (220)
      Deferred tax  asset                           (2,055)     (1,161)       --
      Other current assets                              (1)        (25)        (60)
    Increase (decrease) in liabilities:
      Accounts payable                                 916         (87)        386
      Accrued compensation                             151         178          (6)
      Other accrued liabilities                        (31)        882        (259)
      Deferred revenue                                 120         203         273
                                                  --------    --------    --------
 Net cash provided by operating activities           4,612       4,452         758
                                                  --------    --------    --------
 Cash flows from investing activities:
 Capital expenditures                                 (711)       (495)       (985)
 Acquisition of NovelTech Systems, Inc. 
   net of cash on hand                              (1,198)       --          --
 Other assets                                           51         (67)          7
                                                  --------    --------    --------
 Net cash used in investing activities              (1,858)       (562)       (978)
                                                  --------    --------    --------
 Cash flows from financing activities:
 Borrowings under credit arrangements                 --          --           209
 Repayments on credit arrangements                     (76)     (2,379)       (769)
 Issuance of common stock, net                         610      16,654          13
                                                  --------    --------    --------
 Net cash provided by (used in)
   financing activities                                534      14,275        (547)
                                                  --------    --------    --------
 Effect of exchange rate changes on cash                60          13          (8)
                                                  --------    --------    --------
 Net increase (decrease) in cash and cash                                          
   equivalents                                       3,348      18,178        (775)
 Cash and cash equivalents at beginning of year     20,379       2,201       2,976
                                                  --------    --------    --------
 Cash and cash equivalents at end of year         $ 23,727    $ 20,379    $  2,201
                                                  ========    ========    ========
 Supplemental  cash  flow  information:
 Cash paid during the year for:
   Interest                                       $      6    $    218    $    249
                                                  ========    ========    ========
   Income taxes                                   $    360    $     40    $     12
                                                  ========    ========    ========
 Supplemental schedule of noncash
   investing and financing activities:
 Equipment and leasehold improvements financed
   under secured credit agreements                $   --      $    215    $    390
                                                  ========    ========    ========
 Disposals of fully depreciated equipment
   and  leasehold improvements                    $    465    $    383    $    736
                                                  ========    ========    ========
 Conversion of 2,243,378 shares of
   preferred stock                                $   --      $ 17,672    $   --
                                                  ========    ========    ========
 Issuance of 146,342 shares of common stock
   in connection with acquisition                 $  1,483    $   --      $   --
                                                  ========    ========    ========
 Issuance of promissory notes in connection
   with acquisition                               $  1,500    $   --      $   --
                                                  ========    ========    ========
<FN>

                             See accompanying notes.
</FN>
</TABLE>

                                      F-5
<PAGE>

                          MOLECULAR DEVICES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies

Basis of Presentation

       Molecular  Devices  Corporation  (the  "Company") was  reincorporated  in
Delaware in December  1995. It was founded as a California  Corporation  in 1983
and is principally involved in the design,  development,  manufacture,  sale and
service of bioanalytical measurement systems for life sciences applications. The
principal   markets  for  the   Company's   products   include   pharmaceutical,
biotechnology  and industrial  companies,  as well as  universities,  government
research laboratories and other institutions.

       The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiaries in Germany and the United Kingdom. All
significant intercompany balances and transactions have been eliminated.

Use of Estimates

       The  preparation  of financial  statements in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Cash Equivalents

       The Company  invests its excess cash  primarily in demand  deposits  with
United States banks and money market accounts and short-term  securities.  These
securities,  consisting of commercial paper and U.S.  government treasury bills,
are carried at market value (which approximates  cost),  typically mature or are
redeemable  within  90  days,  and  bear  minimal  risk.  The  Company  has  not
experienced any significant losses on the investments.

       The Company  considers all highly liquid  investments  purchased  with an
original maturity of 90 days or less to be cash equivalents.

       The  Company's   investments  at  December  31,  1996  are  comprised  of
short-term  corporate and government and nongovernment debt instruments that are
classified as cash equivalents. Due to the highly liquid nature of the Company's
investments,  the adjusted cost basis of the investments approximates fair value
at December 31, 1996, and therefore  unrealized gains or losses at this date are
immaterial.

Concentration of Credit Risk

       The  Company  sells its  products  primarily  to  corporations,  academic
institutions,  government  entities and  distributors  within the life  sciences
research  market.  The  Company  performs  ongoing  credit  evaluations  of  its
customers  and  generally  does not require  collateral.  The Company  maintains
reserves  for  potential   credit  losses  and  such  losses  have  been  within
management's expectations.

Inventories

       Inventories  are stated on a  first-in,  first-out  basis at the lower of
cost or market.  Demonstration equipment,  included in inventories, is amortized
over two years.

Equipment and Leasehold Improvements

       Equipment  is recorded at cost and  depreciated  using the  straight-line
method over the estimated useful lives of the assets (ranging from three to five
years).  Leasehold  improvements  are amortized  over the remaining  term of the
lease.

                                      F-6
<PAGE>

Note 1.  Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation

       The  Company  translates  the  assets  and  liabilities  of  its  foreign
subsidiaries  into  dollars at the rates of exchange in effect at the end of the
period and  translates  revenues and expenses  using rates in effect  during the
period.  Gains and losses from these  translations are accumulated as a separate
component  of  stockholders'  equity.  Gains and losses  resulting  from foreign
currency  transactions  are  immaterial  and are included in the  statements  of
income.

Revenue Recognition and Warranty

       The Company  recognizes  product revenue at the time of product  shipment
directly  either to a customer or to a  distributor  and provides for  estimated
warranty  expense  at the  time  of  sale.  There  are no  significant  customer
acceptance requirements or post shipment obligations on the part of the Company.
Service contract revenue is deferred at the time of sale and recognized  ratably
over the period of performance.

       Contract  revenue  consists  of revenue  from  collaboration  agreements,
substantially  all of which  have been  with the U.S.  government.  The  Company
recognizes revenues as costs are incurred for cost reimbursement  contracts. The
costs incurred under these contracts are included in cost of contract revenues.

Advertising Costs

       The Company  expenses the cost of  advertising  as incurred.  The Company
incurred advertising costs of approximately $680,000,  $611,000 and $443,000 for
1996, 1995, and 1994, respectively.

Per Share Data

       Except  as noted  below,  net  income  per  share is  computed  using the
weighted  average  number  of  common  and  dilutive  common  equivalent  shares
outstanding  during  the  period.   Common  equivalent  shares  consist  of  the
incremental common shares issuable upon conversion of the convertible  preferred
stock (using the  if-converted  method) and shares issuable upon the exercise of
stock options  (using the treasury  stock method) when their effect is dilutive.
In addition,  pursuant to Securities and Exchange  Commission  Staff  Accounting
Bulletins and Staff policy,  common and common  equivalent  shares issued by the
Company  during the  twelve-month  period prior to the Company's  initial public
offering have been included in the  calculation of common and common  equivalent
shares through September 30, 1995 using the treasury stock method and the public
offering price as if they were  outstanding for all periods prior to the initial
public offering.

Stock Based Compensation

       Effective  January  1,  1996,  the  Company  adopted  the  provisions  of
Statement of Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company applies APB
Opinion 25 and related  Interpretations in accounting for its Stock Option Plans
and,  accordingly,  recognizes no  compensation  expense for stock option grants
with an exercise  price equal to the fair market value of the shares at the date
of grant. Note 5 to the Consolidated  Financial Statements contains a summary of
the pro forma effects to reported net income and earnings per share for 1996 and
1995 if the Company had elected to recognize compensation cost based on the fair
value of the options granted as prescribed by SFAS No. 123.

Reclassifications

       Certain reclassifications have been made to the 1995 financial statements
to conform with the 1996 presentation.

                                      F-7
<PAGE>

Note 2.  Balance Sheet Amounts

                                                              December 31,
                                                          ---------------------
                                                          1996            1995
                                                          ----            ----
                                                             (In thousands)

Inventories:
    Raw materials                                        $  895          $  558
    Work-in process                                         488             368
    Finished goods and demonstration equipment            1,087             467
                                                         ------          ------
                                                         $2,470          $1,393
                                                         ======          ======
                                                                        
Equipment and leasehold improvements:                                   
    Machinery and equipment                              $4,343          $3,965
    Machinery and equipment under capital lease            --               253
    Furniture and fixtures                                  685             628
    Leasehold improvements                                  488             452
                                                         ------          ------
                                                          5,516           5,298
Less accumulated depreciation and amortization            3,884           3,710
                                                         ------          ------
Net equipment and leasehold improvements                 $1,632          $1,588
                                                         ======          ======
                                                                        
Other accrued liabilities:                                              
    Accrued income tax                                   $  440          $   42
    Warranty                                                278             302
    Customer deposits                                       379               8
    Sales tax payable                                       307             391
    Initial public offering costs                          --               300
    Other                                                 1,096             872
                                                         ------          ------
                                                         $2,500          $1,915
                                                         ======          ======
                                                                        
                                                                 
Note 3. Commitments

       The Company  occupies a facility under an operating lease which commenced
on  September  1, 1994 and  expires on August 31,  2001.  Future  minimum  lease
payments under the operating lease at December 31, 1996 are $541,000 for each of
the next  four  years and  $360,000  for the first  eight  months of 2001.  Rent
expense under operating leases was approximately $541,000, $541,000 and $612,000
for 1996, 1995 and 1994,  respectively  (net of sublease income of approximately
$41,000 in 1994).

       The  company  has  contractual  commitments  for the  purchase of certain
resale products with two different  vendors.  Minimum purchase  commitments,  at
current prices,  are  approximately  $750,000 and $695,000 through  September of
1997  and  April of  1998,  respectively.  These  purchase  commitments  are not
expected to result in losses.

Note 4.  Acquisition of NovelTech Systems, Inc.

       On June 7, 1996,  the Company  acquired all of the  outstanding  stock of
NovelTech  Systems,  Inc.  ("NovelTech")  for  a  cash  payment  at  closing  of
$1,500,000,  issuance  of two  promissory  notes  valued  at  $750,000  each and
issuance of 146,342 shares of the Company's common stock valued at $1,482,444 as
of the closing date. The  promissory  notes were due and payable on the later of
January 2, 1997, or upon completion of "Technology  Transfer." In the event that
payment was not made on the defined  payment date,  interest  would  commence to
accrue from the payment date on the unpaid  principal  balance at an annual rate
of 2% above prime rate charged by the United  States major  commercial  banks in
effect at that  time.  The notes were  repaid in full on  January  2, 1997.  The
acquisition was accounted for as a

                                      F-8
<PAGE>

purchase  and the total  purchase  price of  $4,692,391,  including  $209,947 of
acquisition  related costs,  was allocated based on an independent  appraisal as
follows:

  Excess of liabilities over tangible assets                      $   (94,389)
  Acquired developed technology                                        150,000
  Acquired in-process technology and acquisition related costs       4,636,780
                                                                   -----------
          Total purchase price                                    $  4,692,391
                                                                   ===========


       The purchase  price  allocation  has  resulted in a $4,636,780  charge to
acquired  in-process  technology  and  acquisition  related  costs in the second
quarter  of 1996.  This  charge  is not  deductible  for  federal  or state  tax
purposes.  The acquired in-process  technology represents the appraised value of
technology  in the  development  stage  that had not yet  reached  technological
feasibility  and  does  not have  alternative  future  uses.  In  reaching  this
determination,  the  Company  considered,  among  other  factors,  the  stage of
development  of each  product,  the time and  resources  needed to complete each
product,  and expected income and associated risks. The results of NovelTech are
consolidated from June 8, 1996.

       Pro forma consolidated  results for the Company as if the acquisition had
been consummated  January 1, 1996, are as follows (in thousands except per share
amounts):

                                                             Year ended
                                                      December 31, 1996
                                                      -----------------
               Revenue                                $          31,647
               Net income                                         6,741
               Net income per share                                 .70

       The pro  forma  information  does not  purport  to be  indicative  of the
results that actually would have occurred had the acquisition  been  consummated
January  1,  1996,  or of results  which may occur in the  future.  Nonrecurring
charges,  such as the charge for acquired in-process  technology and acquisition
related costs resulting from the acquisition, are not reflected in the pro forma
financial summary.


Note 5.  Stockholders' Equity

Capital Stock

       In December  1995, the Company  completed the initial public  offering of
its common  stock.  The  Company  issued  1,700,000  shares for net  proceeds of
$16,540,000.  Concurrent  with  the  closing  of the  initial  public  offering,
previously  outstanding  shares of Series A, B, C, D and E preferred  stock were
converted  into shares of common stock at a rate of  one-for-two.  Additionally,
the  previously  outstanding  shares of common stock were reverse split 2-for-3.
All the share and per share data in the  accompanying  financial  statements has
been adjusted retroactively to give effect to the reverse stock split.

       Concurrent  with the  reincorporation  of the Company in Delaware,  a par
value of $.001 per  share was  established  by the  Board of  Directors  and the
number of authorized  shares of common stock was  increased to  30,000,000  from
8,000,000.

Stock Options

       Under the  Company's  1995 Stock  Option Plan ("1995  Plan"),  a total of
750,000 shares of the Company's  common stock have been reserved for issuance as
either incentive or nonqualified stock options to officers, directors, employees
and consultants of the Company.  Option grants expire in ten years and generally
become  exercisable  in increments  over a period of five years from the date of
grant. Options may be granted with different vesting terms from time to time.

                                      F-9
<PAGE>

Note 5.  Stockholders' Equity (continued)

       Under the Company's 1988 Stock Option Plan ("1988 Plan"), the Company was
authorized to grant stock options for up to 1,000,000  shares with terms similar
to those of the  1995  Plan.  The 1988  Plan was  terminated  subsequent  to the
establishment  of the 1995  Plan.  Options  that are not  exercised  which  were
outstanding  under the 1988 Plan are reserved for future issuance under the 1995
Plan.

       In  September  1995,  the  Company   established  the  1995  Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). Under the Directors' Plan,
the Company is authorized to grant  nonqualified stock options to purchase up to
247,500  shares of common stock at the fair market value of the common shares at
the date of grant.  Options  granted under the  Directors'  Plan vest and become
exercisable in three equal annual installments commencing one year from the date
of the grant.

       Effective  January  1,  1996,  the  Company  adopted  the  provisions  of
Statement of Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company applies APB
Opinion 25 and related  Interpretations in accounting for its stock option plans
and,  accordingly,  recognizes no  compensation  expense for stock option grants
with an exercise  price equal to the fair market value of the shares at the date
of grant. If the Company had elected to recognize compensation cost based on the
fair value of the options  granted at grant date as  prescribed by SFAS No. 123,
net  income and  earnings  per share  would  have been  reduced to the pro forma
amounts indicated in the table below (in thousands except for per share amount):

                                                         1996            1995
                                                         ----            ----
                 Net income as reported             $   2,252        $  4,059
                 Net income pro forma                   1,901           4,010
                 Earnings per share as reported          0.24            0.52
                 Earnings per share pro forma            0.20            0.52

       The fair value of each  option  grant is  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

                 Expected dividend yield                        0%
                 Expected stock price volatility             61.7%
                 Risk-free interest rate             5.38% - 7.56%
                 Expected life of options                  5 years
<TABLE>

       Stock  activity  under  the 1988  and 1995  Stock  Option  Plans  and the
Directors' Plan was as follows:
<CAPTION>

                                                      Shares                                     Weighted
                                                   Available for            Options              Average
                                                   Future Grant           Outstanding         Exercise Price
                                                --------------------   -----------------    -------------------

<S>                                                       <C>                 <C>                      <C>  
Balance, December 31, 1993                                  155,524             821,658                  $3.04
   Granted                                                (315,970)             315,970                   3.31
   Exercised                                                   --               (8,472)                   1.56
   Canceled                                                 395,422           (395,422)                   4.71
                                                --------------------   -----------------
Balance, December 31, 1994                                  234,976             733,734                   2.27
   Authorized                                               997,500                --                     --
   Granted                                                (418,554)             418,554                   5.00
   Exercised                                                   --              (63,459)                   1.81
   Canceled                                                  77,490            (77,490)                   2.75
                                                --------------------   -----------------
Balance December 31, 1995                                   891,412           1,011,339                   3.39
   Granted                                                 (74,000)              74,000                  10.62
   Exercised                                                   --             (112,864)                   2.41
   Canceled                                                  40,647            (40,647)                   3.66
                                                --------------------   -----------------
Balance December 31, 1996                                   858,059             931,828                   4.14
                                                ====================   =================
</TABLE>
                                      F-10
<PAGE>

Note 5.  Stockholders' Equity (continued)
<TABLE>

       The  following  table   summarizes   information   concerning   currently
outstanding and exercisable options:

<CAPTION>
                                       Options Outstanding                             Options Exercisable
                       ---------------------------------------------------       --------------------------------
                                            Weighted
                                            Average            Weighted                                Weighted
                                           Remaining           Average                                 Average
     Range of              Number         Contractual          Exercise              Number            Exercise
  Exercise Price        Outstanding           Life              Price              Exercisable          Price
-------------------    --------------    --------------     --------------       ---------------     ------------
<S>                           <C>                  <C>              <C>                 <C>                <C>  
   $0.75 -  1.73              257,851              5.1               $1.73               225,998            $1.72
   $3.00 -  5.25              599,977              8.35              $4.28               184,827             3.85
   $8.00 - 12.00               42,500              9.59              $8.09                   --               --
  $13.50 - 14.38               31,500              9.70             $14.03                   --               --
                       --------------                                            ---------------
                              931,828                                                    410,825
                       ==============                                            ===============

</TABLE>

       In September 1995, nonqualified options for 56,223 shares were granted at
an  exercise  price of $5.25  outside of the plans.  These  options  will become
exercisable  in  increments  over a period of five years from the date of grant.
These options are not included in the tables above.

       In December  1994,  the Company's  Board of Directors  approved a plan to
reprice  options on 271,480  shares granted during the period from December 1993
through  September 1994.  Under the plan,  employees had the option to amend the
terms of their  outstanding  options to (i) reset the vesting  schedule and (ii)
lower the  original  exercise  price of $6.00 per share to $3.00 per share.  The
restated option exercise price represents the estimated fair value of the common
shares  at the date of the  approved  plan  change.  The  repriced  options  are
included  as both  grants  and  cancellations  during  1994 in the  above  stock
activity table.

Deferred Compensation

       For options granted in September 1995, the Company recognized $578,000 as
deferred compensation for the excess of the deemed value for accounting purposes
of the common  stock  issuable on exercise of such  options  over the  aggregate
exercise  price of such  options.  The  deferred  compensation  expense is being
amortized ratably over the vesting period of the options.

Employee Stock Purchase Plan

       Under the Employee  Stock  Purchase Plan (the  "Purchase  Plan")  200,000
shares  of common  stock  have  been  authorized  for  issuance.  Shares  may be
purchased  under the Purchase Plan at 85% of the lesser of the fair market value
of the common  stock on the grant or purchase  date.  As of December  31,  1996,
158,903 shares remained available for purchase.

Note 6.  Research and Development Contracts

       Through  December 31, 1996,  the Company  performed  research  under cost
reimbursement  contracts with the U.S.  government.  In 1994,  contract  revenue
included  approximately  $286,000  related to the  reimbursement of cancellation
costs recognized in 1993 for a fixed price U.S. government subcontract.

       The Company's most significant  government  contract was a $12.4 million,
five-year,  cost-reimbursement  type contract with the Advanced Research Project
Administration (ARPA) which was substantially completed in late 1995. Under this
contract, revenues of approximately $2,259,000 and $3,375,000 were recognized in
1995 and 1994, respectively.  All significant research activity was completed in
December  1995 and  remaining  funding  approved and unbilled as of December 31,
1996 was $120,000.

                                      F-11
<PAGE>


Note 7.  Income Taxes

           The components of the (provisions)  benefits for income taxes consist
of the following:

                                               Years ended December 31,
                                      -----------------------------------------
                                        1996             1995            1994
                                      -------          -------          -------
                                                      (In thousands)
Current:
  Federal                             $  (524)         $   (33)         $    (7)
  State                                  (340)              (9)              (3)
  Foreign                                 (65)             (38)             (33)
                                      -------          -------          -------
                                         (929)             (80)             (43)
Deferred:
  Federal                               1,645            1,018             --
  State                                   410              143             --
  Foreign                                --               --               --
                                      -------          -------          -------
                                        2,055            1,161             --
                                      -------          -------          -------
                                      $ 1,126          $ 1,081          $   (43)
                                      =======          =======          =======



       The  (provisions)  benefits  for income  taxes  differ  from the  amounts
computed by applying  the  statutory  federal  income tax rate to income  before
income taxes. The source and tax effects of the differences are as follows:


                                                     Years ended December 31,
                                                  -----------------------------
                                                   1996       1995        1994
                                                  -------    -------    -------
                                                          (In thousands)

Income before provision for income taxes          $ 1,126    $ 2,978    $ 1,562
                                                  -------    -------    -------

Income tax at statutory federal rate
   (34% for 1995, 35% for 1996)                   $  (394)   $(1,013)   $  (531)
State income tax, net of federal benefit               46         (9)        (2)
Net operating loss carry forwards                   1,748        980        523
Foreign income taxes                                  (65)       (38)       (33)
Change in valuation allowance                       1,289      1,161       --
Foreign sales corp                                    136       --         --
Charge for acquired in-process research
  and development                                  (1,623)      --         --
Other                                                 (11)      --         --
                                                  -------    -------    -------
                                                  $ 1,126    $ 1,081    $   (43)
                                                  =======    =======    =======


       Foreign  pretax  income  was  $72,000  and  $197,000  in 1996  and  1994,
respectively, while foreign pretax loss was $158,000 in 1995.

       As of December 31, 1996,  the company had federal and state net operating
loss carryforwards of approximately  $3,400,000 and $940,000  respectively.  The
Company also had federal  research and development tax credit  carryforwards  of
approximately  $672,000. The federal net operating loss and credit carryforwards
will expire at various  dates  beginning in 2004 through  2007, if not utilized.
The  California net operating  losses will expire at various dates  beginning in
1997 through 1998, if not utilized.

                                      F-12
<PAGE>

Note 7.  Income Taxes (Continued)

       Deferred   income  taxes   reflect  the  net  tax  effects  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  and the  amount  used for  income  tax  purposes.  For the year ended
December 31,  1996,  management  has  concluded  that no valuation  allowance is
required based on its  assessment  that current levels of taxable income will be
sufficient  to realize the tax  benefit.  Previously,  based upon the  Company's
earnings  history,  a valuation  allowance for deferred tax assets of $3,600,000
and  $5,790,000 at December 31, 1995, and December 31, 1994,  respectively,  was
required to reduce the  Company's net deferred  assets to the amount  management
determined  more likely than not to be realized.  Significant  components of the
Company's deferred tax assets and liabilities for federal and state income taxes
are as follows:


                                                          December 31,
                                                   -----------------------------
                                                     1996      1995      1994
                                                     ----      ----      ----
                                                          (In thousands)
Deferred tax assets:
Net operating loss carryforwards                   $ 1,247   $ 2,979    $ 3,773
Research and development credit carryforwards          836       836        752
Non-deductible reserves                                370      --         --
Warranty and accrued expenses                          450      --         --
Other                                                  313       946      1,265
                                                   -------   -------    -------
Total deferred tax assets                            3,216     4,761      5,790
Valuation allowance                                   --      (3,600)    (5,790)
                                                   -------   -------    -------
Net deferred tax asset                             $ 3,216   $ 1,161    $  --
                                                   =======   =======    =======



       The net  valuation  allowance  decreased by  $3,600,000,  $2,190,000  and
$571,000 for the years ended December 31, 1996, 1995, and 1994 respectively.


Note 8.  Industry Segment, Geographic and Customer Information

       The  Company  operates  in  a  single  industry   segment;   the  design,
development,  manufacture, sale and service of bioanalytical measurement systems
for life sciences applications.

       One of the Company's  research contract  customers  accounted for 10% and
16% of total revenue in 1995 and 1994, respectively.

       Foreign operations of European subsidiaries consist of sales, service and
distribution.  Intercompany transfers between geographic areas are accounted for
at prices that approximate arm's-length  transactions.  In addition, U.S. export
sales  approximated  $7,828,000,  $5,043,000 and  $4,840,000 in 1996,  1995, and
1994,   respectively.   This  included  revenue  from  Europe  of  approximately
$3,394,000,  $2,239,000 and $2,827,000 in 1996, 1995 and 1994, respectively.  In
1996 U.S. export sales included revenue from Asia of approximately $3,470,000.

                                      F-13
<PAGE>

Note 8.  Industry Segment, Geographic and Customer Information (Continued)

<TABLE>
 
       Summarized data for the Company's  domestic and international  operations
are as follows:

<CAPTION>
                                                                                              Adjustments
                                                          United                                  and
                                                          States             Europe           Eliminations         Total
                                                      ----------------    --------------   ------------------  --------------
                                                                                  (In thousands)
       <S>                                                    <C>                <C>              <C>                <C>    
       Year Ended
          December 31, 1996
          Revenues                                            $29,102            $4,494           $ (2,670)          $30,926
          Income from operations                                  (38)               56                 29                47
          Identifiable Assets                                  37,291             2,359             (2,817)           36,833
                                                                                                                    
       Year Ended                                                                                                   
          December 31, 1995                                                                                         
          Revenues                                            $23,810            $3,590           $ (1,785)          $25,615
          Income from operations                                3,086              (175)               100             3,011
          Identifiable assets                                  29,231             1,787             (2,218)           28,800
                                                                                                                    
       Year Ended                                                                                                   
          December 31, 1994                                                                                         
          Revenues                                            $21,757            $2,111           $ (1,408)          $22,460
          Income from operations                                1,651               219               (107)            1,763
          Identifiable assets                                  10,282             2,008             (3,270)            9,020
                                                                                                            
</TABLE>


Note 9.  Comparative Quarterly Financial Data (unaudited)
<TABLE>

       Summarized quarterly financial data is as follows:
<CAPTION>
                                                         First             Second             Third             Fourth
                                                         -----             ------             -----             ------
                                                                   (In thousands, except per share amounts)
       Fiscal 1996
    <S>                                                  <C>              <C>                 <C>              <C>   
    Net revenues                                         $6,102           $  7,647            $8,217           $8,960
    Gross profits                                         3,860              4,788             5,042            5,495
    Net income (loss)                                     1,093             (3,143)            1,758            2,544
    Net income per share                                 $  .12           $   (.36)           $  .18           $  .26
                                                                                                             
       Fiscal 1995                                                                                           
                                                                                                             
    Net revenues                                         $6,010           $  6,537            $6,366           $6,702
    Gross profits                                         3,383              3,926             3,747            4,143
    Net income                                              687              1,080               882            1,410
    Net income per share                                 $  .09           $    .14            $  .12           $  .17
                                                                                                                 
</TABLE>
                                      F-14   
<PAGE>                       
<TABLE>

                                                                                                           SCHEDULE II

----------------------------------------------------------------------------------------------------------------------

                                                    MOLECULAR DEVICES CORPORATION
                                                  VALUATION AND QUALIFYING ACCOUNTS
                                                            (In thousands)

<CAPTION>
                                                                   Balance at                               Balance at
                           Description                            Beginning of   Charged to                     End
                                                                     Period        Costs        Deductions   of Period
                                                                  -----------------------------------------------------
<S>                                                               <C>                <C>          <C>           <C>
Balance for the year ended December 31, 1994:
   Allowance for doubtful accounts receivable                     $ 376             $  --       $  (82)       $  294
Balance for the year ended December 31, 1995:                                       
   Allowance for doubtful accounts receivable                       294                --         (126)          168
Balance for the year ended December 31, 1996:                                       
   Allowance for doubtful accounts receivable                       168                 35          (7)          196
</TABLE>
                                                                              
                                      F-15