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, 1997

                                       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:
                            

                                                   Name of Exchange on which
        Title of Each Class                               Registered
------------------------------------             ------------------------------
   Common Stock, $.001 Par Value                    NASDAQ National Market

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 15,  1998,  based upon the last sale price  reported for
such date on the NASDAQ National Market, was $177,955,444.

The number of outstanding  shares of the  Registrant's  Common Stock as of March
15, 1998 was 9,366,076.

                       DOCUMENTS INCORPORATED BY REFERENCE

Specified  portions of the Proxy Statement for Registrant's  1998 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 ..............................     5
                                                              Core Technologies .............................      5
                                                              Products........................................     7
                                                              Business Risks..................................    12
                                                              Research and Development........................    13
                                                              Marketing and Customers.........................    14
                                                              Manufacturing...................................    15
                                                              Patents and Proprietary Technologies............    15
                                                              Competition.....................................    16
                                                              Government Regulations..........................    16
                                                              Human Resources.................................    18
                           Item  2.         Properties........................................................    18
                           Item  3.         Legal Proceedings.................................................    18
                           Item  4.         Submission of Matters to a Vote of Security Holders...............    18
____________________________________________________________________________________________________________________

PART II                    Item  5.         Market for Registrant's Common Equity and
                                            Related Stockholder Matters.......................................    19
                           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 software and 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,  Cell  Analysis  Systems and  Threshold
System.* 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  validation
microplates for certain of the MAXline Microplate  Readers,  disposable capsules
for  certain  of the Cell  Analysis  Systems  and assay  kits for the  Threshold
System,  as well as  software  upgrades,  and service on a contract  basis.  The
Company's  systems have  applications in many aspects of life science  including
the therapeutic  development process,  from drug discovery and clinical research
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.

----------------
*SPECTRAmax(TM),     Vmas(R),    SOFTmax(R),    PathCheck(TM),     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>

       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,  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
software   and   consumables,   designed   to   accelerate   and   improve   the
cost-effectiveness  of the drug discovery and development  process.  The Company
has integrated its expertise in engineering, biology and chemistry with 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. The Company has also incorporated  research
and  development  expertise  to couple  silicon  semiconductor  technology  with
biological  systems to measure subtle molecular and cellular events. 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,
Cell Analysis Systems and Threshold System have  applications in many aspects of
life science including 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's  SPECTRAmax PLUS microplate  reader is believed to be the
industry's  only   spectrophotometer  that  offers  the  high  throughput  of  a
microplate  reader.  The  Fluorometric  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.  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 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.  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.

                                       4
<PAGE>

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:

       Enhance  Core  Technology  Base.  The Company  has  developed a number of
proprietary core technologies in vertical beam photometry,  PathCheck detection,
object-oriented software, biosensors, chemical complexes,  microphysiometry, and
limited  depth  of  field  fluorometry  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 10,000 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.  In a further  expansion  of  applications,  the  Company  has shown  that
G-protein  technology may be successfully used to render  representatives of all
classes of G-protein coupled receptors amenable to screening on FLIPR. 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,   PathCheck  detection,   object-oriented  software,
biosensors,  chemical complexes,  microphysiometry,  and limited  depth-of-field
fluorometry.

       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.

       PathCheck  detection.  PathCheck  detection,  for which the  Company  was
awarded a U.S. patent in 1997, enables the Company's  SPECTRAmax PLUS microplate
reader to employ the efficient, high-throughput vertical light path used

                                       5
<PAGE>

by microplate readers for biological absorbance measurements,  but still achieve
the   performance   associated   with  the  fixed   horizontal   light  path  of
spectrophotometers for life science applications.

       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.

       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  instrumentation  with
living cells and tissues to develop  "microphysiometry,"  the monitoring of cell
reactions to different  chemicals in real-time without destruction of the cells.
Microphysiometry,  using  Cytosensor,  was  developed by scientists at Molecular
Devices,  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.

       Limited  depth-of-field  Fluorometry.  The  Company  has a 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.

                                       6
<PAGE>

<TABLE>
Products

       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, Cell Analysis products and Threshold represented
55%, 33%, and 12%, respectively,  of the Company's product revenues for the year
ended December 31, 1997.
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                           Year of Initial   Worldwide List
                 Products                    Introduction        Prices                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  
        SPECTRAmax PLUS                          1997       $22,500-$26,100       of DNA, proteins and RNA.    
     Software:                                                                                                 
        SOFTmax                                  1987       $1,295-$1,600                                      
        SOFTmax PRO                              1994       $1,975-$2,500                                      
     Consumables:                                                                                              
        SPECTRAtest                              1997       $2,495                                             
                                                                                                               
-----------------------------------------------------------------------------------------------------------------
                                                 
                                             Cell Analysis Systems

-----------------------------------------------------------------------------------------------------------------
Fluorometric Imaging Plate Reader                
        FLIPR                                    1996       $250,000-$275,000     High throughput, high        
                                                                                  sensitivity optical screening
                                                                                  instrument.                  
Cytosensor                                       
     Instrument Platform:
        Cytosensor                               1992       $59,500-$120,000      Ultrasensitive single-assay           
        Cytosampler                              1995       $19,500-$24,500       system capable of detecting  
        Cystosoft                                1992                 *           receptor activation and      
                                                                                  signal transduction events in
                                                                                  real-time.                   
     Consumables:
        Capsule Kit                              1992       $370-$465 

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

                                          High Sensitivity Assay System

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

                                       7
<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 next  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  newest  generation of microplate  readers,  the SPECTRAmax
PLUS, is the  industry's  only  spectrophotometer  to offer the high  throughput
traditionally  associated with microplate  readers.  This competitive  advantage
stems from the PathCheck detection  technology which enables the SPECTRAmax PLUS
to employ the efficient,  high-throughput vertical light path used by microplate
readers  for  biological   absorbance   measurements,   but  still  achieve  the
performance    associated   with   the   fixed    horizontal   light   path   of
spectrophotometers for life sciences applications.

       The Company's Vmax, Emax and THERMOmax microplate readers have in certain
instances  been used in clinical or diagnostic  applications.  Under  applicable
United States Food and Drug Administration  ("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  "premarket  notification
("510(k)") or a premarket approval ("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,  however,  that 510(k) clearance
for any future product or modification of an existing product will be granted.

       Vmax. The Company's first microplate reader,  which was 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.

                                       8
<PAGE>


       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 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  represented  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.

       SPECTRAmax  PLUS.  The  Company's  first  microplate  reader aimed at the
spectrophotometer  market. It is the industry's only  spectrophotometer to offer
the high throughput  traditionally associated with microplate readers, but still
achieve  the  performance  associated  with  fixed  pathlength  horizontal  beam
spectrophotometers as a result of the patented PathCheck technology developed by
the Company. The SPECTRAmax PLUS is the first microplate reader with the ability
to read wavelengths as short as 190 nanometers and as long as 1,000  nanometers,
the equivalent range to a spectrophotometer.

       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

       SPECTRAtest is a comprehensive validation package for optical performance
verification of the Company's SPECTRAmax systems.

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 FLIPR and Cytosensor Systems.

                                       9
<PAGE>

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
high  throughput  rate (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 in-built  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,  thus
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  because of its high  throughput.  Cells can be engineered to broaden
their  ability to provide  intracellular  signaling  support to a wider range of
receptors  (e.g.,  by  inclusion  of  proteins  such as G alpha 16 or chimeric G
proteins).

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.  For example, in the evaluation of pharmacological effects on live
human cells, Cytosensor offers unique enabling capabilities.

       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

                                       10
<PAGE>

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.  The Cytosensor System provides 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 interest to the pharmaceutical  industry.  The Cytosensor System
does not require extensive  knowledge of the receptor  signaling  mechanism and,
therefore, may be utilized for orphan receptor screening and identification.

       Pharmacological  Profiling  of Primary  Human  Cells.  Cytosensor  offers
unique  capabilities  for  evaluating the effects of  pharmacological  agents on
primary human cells.

       In Vitro 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 great sensitivity.

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 is 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 need 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),  can be 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

                                       11
<PAGE>

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.

       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.

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 90 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  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 of 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

                                       12
<PAGE>

              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 and
              1997, 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  Reliance on Sole Source Suppliers.  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.

           o  Year 2000 Compliance.  There can be no assurances that the vendors
              of the  Company  will be in  compliance,  and the  Company  has no
              control over whether such vendors will be in compliance, with year
              2000  requirements.  Any  failure  on the  part  of the  Company's
              vendors could materially  adversely effect the Company's business,
              financial condition and results of operations.

           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 in the life sciences  instrumentation  market which is
              highly  competitive  and expected by the Company to increase  (see
              "Competition" on page 16); (v) the Company's ability to obtain and
              maintain patent and other intellectual property protection for its
              products  and  technology;   (vi)  compliance  with   governmental
              regulations,  including those promulgated by the United Sates Food
              and Drug  Administration  and similar state and foreign  agencies;
              and (vii) 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.

       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

                                       13
<PAGE>


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 $4,721,000,  $4,581,000 and $3,639,000 during 1997, 1996 and 1995,
respectively.  The Company  expects to continue to increase  its  Company-funded
research and development expenditures,  as new products are developed to address
the evolving needs of its customers.  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 10,000 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 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  38%, 40% and 37% of the Company's  product revenues in 1997, 1996
and 1995,  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 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.

                                       14
<PAGE>

       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 90 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  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

                                       15
<PAGE>

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 55%,
54% and 56% of product revenues in 1997, 1996 and 1995, 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.

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

                                       16
<PAGE>

currently  require  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 510(k) or a 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,  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

                                       17
<PAGE>

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,  1997,  Molecular  Devices  employed 146 persons full
time,  including  37 in research and  development,  43 in  manufacturing,  52 in
marketing  and sales and 14 in  general  administration  and  finance.  Of these
employees,  32 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.

                                       18
<PAGE>

                                     PART II
________________________________________________________________________________

Item 5 - Market for 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."

        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.

                                1997                            1996
                   -----------------------------   -----------------------------
                        High            Low             High            Low
                        ----            ---             ----            ---
First Quarter          16 3/4         13 3/8           13 1/4          8 5/8
Second Quarter         17 5/8         12 1/2           13 3/4          8 3/8
Third Quarter          21 7/8         16 1/2           11 1/2          7 1/4
Fourth Quarter         23 3/4         14 7/8           16 1/8           11

        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 15, 1998, there were approximately 2,130 stockholders of the
Company.

        On March 15, 1998, the last sale price  reported on the Nasdaq  National
Market for the Company's common stock was $19.00 per share.

                                       19
<PAGE>

<TABLE>
Item 6 - Selected Consolidated Financial Data

         The  following   table  sets  forth   selected   historical   financial
information for the Company  certain  portions of which are 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,
                                                          -------------------------------------------------------------
                                                            1997         1996          1995         1994         1993
                                                            ----         ----          ----         ----         ----
Consolidated Statements of Income Data:                         (In thousand, except per share data)
<S>                                                       <C>           <C>          <C>          <C>          <C>
Revenues
     Product Revenues                                     $ 38,245      $ 30,596     $ 23,116     $ 18,516     $ 14,872
     Contract Revenues                                          41           330        2,499        3,944        3,761
                                                          --------      --------     --------     --------     --------
          Total Revenues                                    38,286        30,926       25,615       22,460       18,633
                                                          --------      --------     --------     --------     --------
     Income from operations                                  7,256            47        3,011        1,763          636
     Other income (expense), net                             1,220         1,079          (33)        (201)        (124)
                                                          --------      --------     --------     --------     --------
     Income before income taxes                              8,476         1,126        2,978        1,562          512
     Income tax (provision) benefit                         (3,174)        1,126        1,081          (43)         -
                                                          --------      --------     --------     --------     --------
     Net income                                           $  5,302      $  2,252     $  4,059     $  1,519     $    512
                                                          ========      ========     ========     ========     ========

Basic net income per share                                $   0.58      $   0.26     $   0.58     $   0.22     $   0.07
                                                          ========      ========     ========     ========     ========

Diluted income per share                                  $   0.55      $   0.24     $   0.53     $   0.21     $   0.07
                                                          ========      ========     ========     ========     ========


Shares used in computing basic net
income per share                                             9,137         8,828        7,031        6,920        6,909
                                                          ========      ========     ========     ========     ========
Shares used in computing diluted net
income per share                                             9,721         9,524        7,644        7,310        7,359
                                                          ========      ========     ========     ========     ========



Consolidated Balance Sheet Data:
Cash and cash equivalents                                 $ 26,773      $ 23,727     $ 20,379     $  2,201     $  2,976
Working capital                                             35,752        27,395       22,786        3,681        2,990
Total assets                                                42,791        36,833       28,800        9,020        7,272
Long-term obligations, less current portion                      -             -            -        1,582        1,635
Accumulated deficit                                         (2,546)       (7,848)     (10,100)     (14,159)     (15,678)
Total stockholders' equity                                  37,417        29,277       24,525        3,757        2,233
<FN>
         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.
</FN>
</TABLE>
                                       20
<PAGE>


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 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.  In 1997, the Company launched its next generation
MAXline  product,  the SPECTRAmax  PLUS, which is the Company's first microplate
reader that offers the same precision and accuracy as a spectrophotometer.

         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  (Fluorometric  Imaging Plate
Reader) system.  The FLIPR system joined 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 55%, 54% and 56%
of product revenues in 1997, 1996 and 1995,  respectively.  The Company believes
that sales of MAXline  products  will  continue  to  account  for a  significant
portion of its product  revenues.  Both the Cell Analysis and Threshold  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.

         The  Company  also  develops  and  markets a broad  range of  services,
software  and  consumables  including  validation  microplates  for the  MAXline
Microplate  Readers,  disposable  capsules for the Cytosensor  System, and assay
kits for the  Threshold  System.  Sales of  service,  software  and  consumables
accounted  for 15%,  17% and 23% of  product  revenues  in 1997,  1996 and 1995,
respectively.

         The Company's  contract  revenues  between 1990 and 1996 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
1995,  the Company  restructured  its research  and  development  activities  to
increase focus on commercial  opportunities.  As a result,  the  development and
engineering  groups  increased in size,  while the  research  group was reduced,
leading to an overall  reduction in research and development  spending but to an
increase in spending for Company-funded research and

                                       21
<PAGE>

development.  The Company believes that contract research revenues will continue
to be insignificant  in future periods,  and that product revenues will continue
to 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  38%, 40% and 37% of the Company's  product revenues in 1997, 1996
and 1995, respectively.

         During 1996 and 1995, the Company  recorded income tax benefits (by way
of a  reduced  valuation  allowance)  related  primarily  to the  Company's  net
operating  loss carry  forwards  expected to be utilized in future years.  As of
December 31, 1996, management concluded that no valuation allowance was required
based  on its  assessment  that  current  levels  of  taxable  income  would  be
sufficient  to  realize  the  tax  benefit.  During  1997,  a tax  provision  of
approximately $3.2 million was recorded.

         Although  the  Company  has been  profitable  in each of the last  five
years, the Company had an accumulated  deficit of approximately  $2.5 million at
December 31, 1997.

Results of Operations

Years ended December 31, 1997, 1996 and 1995

         Product  revenues.  Product  revenues  for  1997  increased  by  25% to
approximately  $38.2  million  from  approximately  $30.6  million in 1996.  The
MAXline and Cell Analysis  product  families showed increased levels of revenue.
MAXline  product  revenues  increased  primarily  due to  greater  sales  of new
products  and  increased  penetration  of MAXline  products  into  international
distribution channels. Cell Analysis product revenues increased primarily due to
greater sales of new products worldwide.  Threshold revenues decreased primarily
due to lower  shipments to the U.S. Army and  decreased  shipments of commercial
Threshold products internationally.

       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.

         Contract  revenues.  Contract  revenues  for 1997  decreased  by 88% to
approximately $41,000 from approximately $330,000 in 1996. Contract revenues for
1996 decreased by 87% to approximately  $330,000 from approximately $2.5 million
in 1995.  The  reduction in the contract  revenue for both periods is due to the
substantial  completion of the Company's ARPA contract in late 1995. The Company
believes that contract  research  revenues will continue to be  insignificant in
future periods.

         Gross  margin on product  revenues.  In 1997,  gross  margin on product
revenues increased  nominally from 62.1% in 1996 to 62.3% in 1997. This increase
relates  primarily to increased sales of new higher margin MAXline  products and
improved margins on sales of Cell Analysis products.

         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.

                                       22
<PAGE>

         Cost of  contract  revenues.  Consistent  with the  decreased  contract
revenues due to the  substantial  completion of the  Company's  ARPA contract in
late 1995, cost of contract revenues declined to approximately  $160,000 in 1996
(a 92% decrease compared to 1995) and zero in 1997.

         Company-funded  research and development.  Company-funded  research and
development  expenses for 1997 increased  nominally by 3% to approximately  $4.7
million  from  approximately  $4.6  million  for  1996  and by 26% in 1996  from
approximately  $3.6 million in 1995.  The increased  spending in 1996 was due to
the building of research and development projects focused on commercial products
independent of government-funded research products. The relatively flat spending
in 1997  as  compared  to 1996 is due to  increased  spending  on  headcount  as
partially offset by decreased  development  costs.  Company-funded  research and
development  expenses as a percentage of product revenues were 12.3%,  15.0% and
15.7% for 1997, 1996 and 1995, 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 1997 increased by 20% to approximately $11.9 million
from  approximately  $9.9  million  in  1996  and  by 16% in  1996  compared  to
approximately  $8.5 million in 1995. The increased  spending for both periods is
primarily  the result of  additional  spending on  marketing,  sales and service
related activities  (including  increased headcount) as the Company continued to
expand  worldwide market coverage and introduce new products.  Selling,  general
and  administrative  expenses as a percentage  of product  revenues  were 31.1%,
32.4% and 37.0% in 1997, 1996 and 1995, respectively.

         Interest  income  (expense) net. Net interest and other income was $1.2
million  and $1.1  million,  respectively,  in 1997 and 1996 as  compared to net
interest and other expense of approximately  $33,000 for 1995. 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 and cash generated from  operations in 1996 and 1997. In addition,
interest expense  decreased in 1996 as the proceeds of the offering were used to
repay certain debt instruments in December 1995.

         Provision  for taxes.  The Company  recorded an income tax provision of
approximately  $3.2  million  in 1997 as  compared  to income  tax  benefits  of
approximately  $1.1 million recorded in 1996 and 1995. The benefits  recorded in
1996 and 1995, which had the effect of increasing net income,  related primarily
to a reduced valuation  allowance on the Company's net deferred tax asset. As of
December 31, 1996, management concluded that no valuation allowance was required
on the net deferred  tax asset based on its  assessment  that current  levels of
income would be sufficient to realize the tax benefit.

Liquidity and Capital Resources

         Since 1993, the Company has financed its operations primarily from cash
flows provided by operations, which contributed approximately $4.4 million, $4.6
million and $4.5 million in 1997, 1996 and 1995, respectively.  Net cash used in
investing  activities was approximately  $543,000,  $1.9 million and $562,000 in
1997, 1996 and 1995, respectively,  primarily for capital expenditures,  and, in
1996,  approximately  $1.2  million  of cash  was used in  investing  activities
related  to the  acquisition  of  NovelTech.  Net  cash  provided  by  financing
activities was approximately $534,000 and $14.3 million,  respectively, for 1996
and 1995, while net cash used in financing activities was approximately $567,000
for 1997. The larger cash provided 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.

                                       23
<PAGE>

The 1997 use of funds  reflects  repayment of the $1.5 million  promissory  note
related to the 1996  acquisition  of NovelTech  as partially  offset by proceeds
from stock option exercises.

         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. There can
be no assurance  that  additional  funding  will 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-17.

         Financial Statements:

               o   Report of Ernst & Young LLP, Independent Auditors
               o   Consolidated Balance Sheets at December 31, 1997 and 1996
               o   Consolidated Statements of Income for each of the three years
                   in the period ended December 31, 1997
               o   Consolidated  Statement of Stockholders' Equity for the three
                   years in the period ended December 31, 1997
               o   Consolidated  Statements  of Cash  Flow for each of the three
                   years  in  the  period  ended  December  31,  1997
               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  and
         Financial Disclosure

         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 solicitation of
proxies for the Company's  Annual Meeting of  Stockholders to be held on May 22,
1998  (the  "Proxy  Statement").  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

        The  information  required  by  this  item  is set  forth  in the  Proxy
Statement under the heading "Certain  Relationships  and Related  Transactions,"
which information is incorporated herein by reference.

                                       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
Number                              Description of Document

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-Employee
          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).................................

                                       26
<PAGE>

10.17*    Chief Executive Officer Separation Agreement..........................

10.18*    Chief Financial Officer Employment Agreement..........................

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

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

27        Financial Data Schedule...............................................

-------------------
     (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).
      *  Management Contract

(b) Reports on Form 8-K 

    None.

(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, 1998.


                                      MOLECULAR DEVICES CORPORATION

                                      By:    Andre F. Marion
                                             -----------------------------------
                                             Andre F. Marion

<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>
      Andre F. Marion                  Interim President, Chief Executive Officer  March 26, 1998
----------------------------------     and Director (Principal Executive Officer)
      Andre F. Marion


      Andrew H. Galligan               Vice President, Finance and                 March 26, 1998
----------------------------------     Chief Financial Officer (Principal
      Andrew H. Galligan               Financial and Accounting Officer)


      Moshe H. Alafi                                                               March 26, 1998
----------------------------------
      Moshe H. Alafi                   Director


      David L. Anderson                                                            March 26, 1998
----------------------------------
      David L. Anderson                Director


      A. Blaine Bowman                                                             March 26, 1998
----------------------------------
      A. Blaine Bowman                 Director


      Paul Goddard, Ph.D.                                                          March 26, 1998
----------------------------------
      Paul Goddard, Ph.D.              Director


      Harden M. McConnell, Ph.D.                                                   March 26, 1998
----------------------------------
      Harden M. McConnell, Ph.D.       Director


      J. Allan Waitz, Ph.D.                                                        March 26, 1998
----------------------------------
      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, 1997 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,  1997.  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,  1997  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,  1997,  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.

                                                          /s/  ERNST & YOUNG LLP


Palo Alto, California
January 14, 1998

                                      F-1

<PAGE>

<TABLE>
                               MOLECULAR DEVICES CORPORATION
                                CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share and per share amounts)
<CAPTION>
                                                                      December 31,
                                                               --------------------------
                                                                  1997            1996
                                                               --------------------------
<S>                                                             <C>              <C>
Assets:
Current assets:
     Cash and cash equivalents                                  $ 26,773         $ 23,727
     Accounts receivable,
        net of allowance for doubtful
        accounts of $180 and $196 at
        December 31, 1997 and 1996, respectively                   8,899            5,396
     Inventories                                                   3,465            2,470
     Deferred tax asset                                            1,867            3,216
     Other current assets                                            122              142
                                                                --------         --------
        Total current assets                                      41,126           34,951
Equipment and leasehold  improvements, net                         1,497            1,632
Other assets                                                         168              250
                                                                --------         --------
                                                                $ 42,791         $ 36,833
                                                                ========         ========
Liabilities and stockholders' equity:
Current liabilities:
     Accounts payable                                              1,316            1,933
     Accrued compensation                                          1,252            1,027
     Other accrued liabilities                                     1,798            2,500
     Deferred revenue                                              1,008              596
     Current obligations under promissory notes                        -            1,500
                                                                --------         --------
        Total current liabilities                                  5,374            7,556

Commitments

Stockholders' equity:
     Preferred stock, no par value, issuable in series;
        3,000,000 shares authorized, no shares issued and
        outstanding at December 31, 1997 and 1996,
        respectively                                                   -                -
     Common stock, $.001 par value; 30,000,000
        shares authorized; 9,331,599 and
        8,988,094 shares issued and outstanding,
        respectively, at December 31, 1997 and 1996                    9                9
     Additional paid-in capital                                   40,302           37,462
     Accumulated deficit                                          (2,546)          (7,848)
     Deferred compensation                                          (148)            (401)
     Accumulated translation adjustment                             (200)              55
                                                                --------         --------
          Total stockholders' equity                              37,417           29,277
                                                                --------         --------
                                                                $ 42,791         $ 36,833
                                                                ========         ========
<FN>
                            See accompanying notes.
</FN>
</TABLE>

                                      F-2
<PAGE>

<TABLE>
                                         MOLECULAR DEVICES CORPORATION
                                       CONSOLIDATED STATEMENTS OF INCOME
                                    (In thousands, except per share amounts)
<CAPTION>
                                                                              Years ended December 31,
                                                                    -----------------------------------------
                                                                      1997            1996             1995
                                                                    --------         --------        --------
<S>                                                                 <C>              <C>             <C>
Revenues:
Product revenues                                                    $ 38,245         $ 30,596        $ 23,116
Contract revenues                                                         41              330           2,499
                                                                    --------         --------        --------
     Total revenues                                                   38,286           30,926          25,615
                                                                    --------         --------        --------

Cost of revenues:
     Cost of product revenues                                         14,426           11,581           8,482
     Cost of contract revenues                                             -              160           1,934
                                                                    --------         --------        --------
          Total cost of revenues                                      14,426           11,741          10,416
                                                                    --------         --------        --------

     Gross margin                                                     23,860           19,185          15,199
                                                                    --------         --------        --------

Operating expenses:
     Company-funded research and development                           4,721            4,581           3,639
     Charge for acquired in-process research
          and development                                                  -            4,637               -
     Selling, general and administrative                              11,883            9,920           8,549
                                                                    --------         --------        --------
          Total operating expenses                                    16,604           19,138          12,188
                                                                    --------         --------        --------

Income from operations                                                 7,256               47           3,011
Interest income                                                        1,240            1,071             188
Interest expense                                                           -               (6)           (221)
Other expense, net                                                       (20)              14               -
                                                                    --------         --------        --------
Income before income taxes                                             8,476            1,126           2,978
Income tax (provision) benefit                                        (3,174)           1,126           1,081
                                                                    --------         --------        --------

Net income                                                          $  5,302         $  2,252        $  4,059
                                                                    ========         ========        ========

Basic net income per share                                          $   0.58         $   0.26        $   0.58
                                                                    ========         ========        ========

Diluted net income per share                                        $   0.55         $   0.24        $   0.53
                                                                    ========         ========        ========
<FN>
                            See accompanying notes.
</FN>
</TABLE>

                                      F-3

<PAGE>

                          MOLECULAR DEVICES CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
               (In thousands, except share and per share amounts)

<TABLE>
<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, 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  
  Issuance of 318,370 shares of                                                                                              
       common stock for options                                                                                              
       exercised                             --          --            933       --          --           --            933  
  Issuance of 25,135 shares of common                                                                                        
       stock under Employee Stock                                                                                            
       Purchase Plan                         --          --            332       --          --           --            332  
  Tax benefits from employee stock                                                                                           
       transactions                          --          --          1,706       --          --           --          1,706  
  Amortization of deferred                                                                                                   
       compensation                          --          --           --         --           122         --            122  
  Reversal of deferred compensation                                                                                          
       for terminated employees              --          --           (131)      --           131         --           --    
  Currency translation adjustment            --          --           --         --          --           (255)        (255) 
  Net income                                 --          --           --        5,302        --           --          5,302  
                                         --------    --------     --------   --------    --------     --------     --------  
Balance at December 31, 1997             $   --      $      9     $ 40,302   $ (2,546)   $   (148)    $   (200)    $ 37,417  
                                         ========    ========     ========   ========    ========     ========     ========  
                                                                                                                  
</TABLE>
                                      F-4

<PAGE>

<TABLE>
                                           MOLECULAR DEVICES CORPORATION
                                       CONSOLIDATED STATEMENTS OF CASH FLOW
                                       (In thousands, except share amounts)
<CAPTION>
                                                                                Years Ended December 31,
                                                                        -----------------------------------------
                                                                           1997            1996            1995
                                                                        ----------      ----------      ---------
<S>                                                                     <C>             <C>             <C>     
Cash flows from operating activities:
Net income                                                              $  5,302        $  2,252        $  4,059
Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation and amortization                                           729             636             671
     Loss on disposal of fixed assets                                         31              40              26
     Charge for acquired in-process research and development                   -           4,425               -
     Amortization of deferred compensation                                   122             136              41
     (Increase) decrease in assets:
          Accounts receivable                                             (3,503)         (1,160)           (372)
          Inventories                                                       (995)           (817)             37
          Deferred tax asset                                               1,349          (2,055)         (1,161)
          Other current assets                                                20              (1)            (25)
     Increase (decrease) in liabilities:
          Accounts payable                                                  (617)            916             (87)
          Accrued compensation                                               225             151             178
          Other accrued liabilities                                        1,336            (31)             882
          Deferred revenue                                                   412             120             203
                                                                        ----------      ----------      ---------
     Net cash provided by operating activities                             4,411           4,612           4,452
                                                                        ----------      ----------      ---------

Cash flows from investing activities:
Capital expenditures                                                        (625)           (711)           (495)
Acquisition of NovelTech Systems, Inc. net of cash on hand                     -          (1,198)              -
Other assets                                                                  82              51             (67)
                                                                        ----------      ----------      ---------
Net cash used in investing activities                                       (543)         (1,858)           (562)
                                                                        ----------      ----------      ---------

Cash flows from financing activities:
Repayments on credit arrangements                                              -             (76)         (2,379)
Repayment of promissory notes                                             (1,500)              -               -
Issuance of common stock, net                                                933             610          16,654
                                                                        ----------      ----------      ---------
Net cash (used in) provided by financing activities                         (567)            534          14,275
                                                                        ----------      ----------      ---------

Effect of exchange rate changes on cash                                     (255)             60              13
                                                                        ----------      ----------      ---------

Net increase in cash and cash equivalents                                  3,046           3,348          18,178
Cash and cash equivalents at beginning of year                            23,727          20,379           2,201
                                                                        ----------      ----------      ---------
Cash and cash equivalents at end of year                                  26,773          23,727          20,379
                                                                        ==========      ==========      =========

Supplemental cash flow information:
Cash paid during the year for:
     Interest                                                           $      -        $      6        $    218
 Income taxes                                                           $    472        $    360        $     40
                                                                        ==========      ==========      =========

Supplemental schedule of noncash
     investing and financing activities:
Equipment and leasehold improvements financed
     under secured credit agreements                                    $      -        $      -        $    215
                                                                        ==========      ==========      =========

Disposals of fully depreciated equipment
     and leasehold improvements                                         $     85        $    465        $    385
                                                                        ==========      ==========      =========
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, 1997 are  comprised  of  short-term
corporate and government and non-government 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, 1997, 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 $641,000,  $680,000 and $611,000 for
1997, 1996, and 1995, respectively.

Per Share Data

       Effective  December  31,  1997,  the Company  adopted the  provisions  of
Statement of Financial  Accounting  Standards No. 128 (SFAS 128),  "Earnings per
Share." As required by SFAS 128, all prior periods presented have been restated.
The impact of SFAS 128 on the Company's reported EPS was not material.

       Under the new  requirements  for calculating  EPS, the dilutive effect of
stock  options is excluded  from a new EPS measure,  Basic EPS.  Except as noted
below,  diluted EPS 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.

       Basic and diluted EPS for 1995 have been retroactively  restated to apply
the  requirements  of Staff  Accounting  Bulletin  No. 98,  issued by the SEC in
February 1998 (SAB 98). Under SAB 98, certain shares of common stock and options
and warrants to purchase  shares of common stock issued at prices  substantially
below  the per  share  price of  shares  sold in the  Company's  initial  public
offering previously  included in the computation of shares outstanding  pursuant
to the Staff  Accounting  Bulletins No.s 55, 64 and 83 are now excluded from the
computation.

                                      F-7
<PAGE>

Note 1.  Summary of Significant Accounting Policies (Continued)
<TABLE>
Computation of Earnings Per Share is as follows:
(in thousands except per share amounts)
<CAPTION>
BASIC                                                                           Years Ended December 31,
                                                                      --------------------------------------------
                                                                         1997             1996             1995
                                                                      -----------     ------------     -----------
<S>                                                                   <C>             <C>              <C>
Weighted average common shares outstanding for
the period                                                                 9,137           8,828            7,031
                                                                      ===========     ============     ===========

Net income                                                                 5,302      $    2,252       $    4,059
                                                                      ===========     ============     ===========

Net income per share                                                  $     0.58      $     0.26       $     0.58
                                                                      ===========     ============     ===========


DILUTED                                                                         Years Ended December 31,
                                                                      --------------------------------------------
                                                                         1997             1996             1995
                                                                      -----------     ------------     -----------

Weighted average common shares outstanding for
     the period                                                            9,137           8,828            7,031

Common equivalent shares assuming exercise of
     stock options under the treasury stock method                           584             696              613
                                                                      -----------     ------------     -----------

Shares used in per share calculation                                       9,721           9,524            7,644
                                                                      ===========     ============     ===========

Net income                                                            $    5,302      $    2,252       $    4,059
                                                                      ===========     ============     ===========

Net income per share                                                  $     0.55      $     0.24       $     0.53
                                                                      ===========     ============     ===========
</TABLE>



       Options to  purchase  48,500  shares of common  stock at $19.50 per share
were  outstanding  during  1997,  but were not  included in the  computation  of
diluted earnings per share because the options'  exercise price was greater than
the average market price of the common shares and,  therefore,  the effect would
be antidilutive.

Stock Based Compensation

       As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," 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 each of the
three years in the period ended December 31, 1997, if the Company had elected to
recognize  compensation  cost based on the fair value of the options  granted as
prescribed by SFAS 123.

                                      F-8
<PAGE>



Note 1.  Summary of Significant Accounting Policies (Continued)



Reclassifications

       Certain reclassifications have been made to the 1996 financial statements
to conform with the 1997 presentation.


New Accounting Pronouncements.

       In June 1997, the Financial  Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130 (SFAS 130),  "Reporting  Comprehensive
Income," and Financial  Accounting  Standards  No. 131 (SFAS 131),  "Disclosures
About Segments of an Enterprise and Related Information," which will be required
to be adopted by the Company in fiscal 1998. Adoption of these statements is not
expected to have a significant  impact on the Company's  consolidated  financial
position, results of operations or cashflow.

Note 2.  Balance Sheet Amounts

                                                             December 31,
                                                        -----------------------
                                                          1997            1996
                                                        ---------       --------
                                                             (In thousands)
Inventories:
     Raw materials                                      $     849       $    895
     Work-in-process                                          565            488
     Finished goods and demonstration equipment             2,051          1,087
                                                        ---------       --------
                                                        $   3,465       $  2,470
                                                        =========       ========


Equipment and leasehold improvements:
     Machinery and equipment                            $   4,815       $  4,343
     Furniture and fixtures                                   701            685
     Leasehold improvements                                   509            488
                                                        ---------       --------
                                                            6,025          5,516
Less accumulated depreciation and amortization              4,528          3,884
                                                        ---------       --------
Net equipment and leasehold improvements                $   1,497       $  1,632
                                                        =========       ========


Other accrued liabilities:
     Accrued income tax                                 $     213       $    440
     Warranty                                                 249            278
     Customer deposits                                          3            379
     Sales tax payable                                        352            307
     Other                                                    981          1,096
                                                        ---------       --------
                                                        $   1,798       $  2,500
                                                        =========       ========

Note 3. Commitments

       Net rental  expense  under  operating  leases  related  to the  Company's
facilities was approximately $541,000, for each of the three years in the period
ended December 31, 1997.

       Annual  future  minimum  lease  payments  under  operating  leases  as of
December  31, 1997 are as  follows:  1998 -  $613,000;  1999 - $608,000;  2000 -
$595,000; 2001 - $405,000.

                                      F-9
<PAGE>

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 notes were  repaid in full on  January 2, 1997.  The
acquisition  was  accounted  for as a 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 (in  thousands):

Excess of liabilities over tangible assets                      $          (95)
Acquired developed technology                                              150
Acquired in-process technology and acquisition related costs             4,637
                                                                ===============
     Total purchase price                                       $        4,692
                                                                ===============

       The purchase price allocation 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                                               0.70

       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.

                                      F-10
<PAGE>

Note 5.  Stockholders' Equity (continued)

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.

       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.

       As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," 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 123, net
income and earnings  per share would have been reduced to the pro forma  amounts
indicated in the table below (in thousands, except per share amounts):

                                                  1997         1996        1995
                                                  ----         ----        ----
  Net income as reported                    $    5,302   $    2,252   $   4,059
  Pro forma                                 $    4,887   $    1,901   $   4,010

  Basic earnings per share as reported      $     0.58   $     0.26   $    0.58
  Pro forma                                 $     0.53   $     0.22   $    0.57

  Diluted earnings per share as reported    $     0.55   $     0.24   $    0.53
  Pro forma                                 $     0.51   $     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                                51.4-61.7%
  Risk-free interest rate                                      5.38%- 7.56%
  Expected life of options                                          5 years

                                      F-11
<PAGE>


Note 5.  Stockholders' Equity (continued)

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

                                      Shares          Options           Weighted
                               Available for      Outstanding            Average
                                Future Grant                      Exercise Price
                              --------------------------------------------------
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
     Cancelled                        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
     Cancelled                        40,647         (40,647)            3.66
                                    --------        ---------          ------
Balance December 31, 1996            858,059          931,828            4.14
     Granted                        (323,250)         323,250           14.68
     Exercised                             -         (295,554)           2.94
     Cancelled                       165,790         (165,790)           7.55
                                    --------        ---------          ------
Balance December 31, 1997            700,599          793,734          $ 8.08
                                    ========        =========          ======

<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               82,093               3.8              $1.73               80,973            $1.72
       $3.00                 149,011               6.9              $3.00               89,107             3.00
       $5.25                 240,030               7.7              $5.25              118,471             5.25
       $8.00                  37,850               8.6              $8.00                5,250             8.00
  $12.00 - 13.38             143,500               9.2             $13.37                  200            12.00
  $13.50 - 15.38              92,750               9.4             $14.88                2,800            14.13
      $19.50                  48,500               9.8            $19.50                  ---              ---
                       --------------                                            ---------------
                             793,734                                                   296,801
                       ==============                                            ===============
</TABLE>

       In September 1995, nonqualified options for 56,223 shares were granted at
an exercise price of $5.25 outside of the plans.  During 1997, options on 22,816
shares were exercised and the remaining options on 33,407 shares were cancelled.
These options are not included in the tables above.

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. Additionally, $131,000
of  unvested  deferred  compensation  was  reversed  in  1997  due  to  employee
terminations.

                                      F-12
<PAGE>



Note 5.  Stockholders' Equity (continued)

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,  1997,
133,768 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.

       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  were  recognized in 1995. All
significant research activity was completed in December 1995.

Note 7.  Income Taxes

           The components of the (provisions)  benefits for income taxes consist
of the following:
                                     Years ended December 31,
                          ---------------------------------------------
                              1997              1996             1995
                          ----------         ---------       ----------
                                       (In thousands)

Current:
  Federal                 $   (1,227)        $    (524)      $      (33)
  State                         (350)             (340)              (9)
  Foreign                       (248)              (65)             (38)
                          ----------         ---------       ----------
                              (1,825)             (929)             (80)

Deferred:
  Federal                       (969)            1,645            1,018
  State                         (380)              410              143
  Foreign                          -                 -                -
                          ----------         ---------       ----------
                              (1,349)            2,055            1,161
                          ----------         ---------       ----------
                          $   (3,174)        $   1,126       $    1,081
                          ==========         =========       ==========

                                      F-13

<PAGE>

Note 7.  Income Taxes (Continued)

<TABLE>
       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:
<CAPTION>
                                                                               Years ended December 31,
                                                                    -------------------------------------------
                                                                       1997             1996             1995
                                                                    ---------        ----------        --------
                                                                                    (In thousands)
<S>                                                                 <C>              <C>                <C>
Income before provision for income taxes                            $   8,476        $    1,126         $ 2,978

Income tax at statutory federal rate
  (34% for 1995, 35% for 1996 and 1997)                             $  (2,967)       $     (394)        $(1,013)
State income tax, net of federal benefit                                 (360)               46              (9)
Net operating loss carry forwards                                           -             1,748             980
Foreign income taxes                                                        -               (65)            (38)
Change in valuation allowance                                               -             1,289           1,161
Foreign sales corp                                                        168               136               -
Charge for acquired in-process research and development                     -            (1,623)              -
Other                                                                     (15)              (11)              -
                                                                    ---------         ----------        -------
                                                                    $  (3,174)        $   1,126         $ 1,081
                                                                    =========         ==========        =======
</TABLE>


       Foreign  pretax  income  was  $360,000  and  $72,000  in 1997  and  1996,
respectively, while foreign pretax loss was $158,000 in 1995.

       As of December 31, 1997, the Company had federal research and development
tax  credit  carryforwards  of  approximately   $660,000.   The  federal  credit
carryforwards  will expire at various  dates  beginning in 2001 through 2007, if
not utilized.

       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.

                                                              Years ended
                                                              December 31,
                                                       -------------------------
                                                          1997           1996
                                                       ----------      ---------
                                                            (In thousands)
  Deferred tax assets:
  Net operating loss carryforwards                     $    -          $  1,247
  Research and development credit carryforwards               660           836
  Non-deductible reserves                                     356           370
  Warranty and accrued expenses                               568           450
  Net undistributed profits of foreign subsidiaries           182            40
  Other                                                       101           273
                                                       ----------      ---------

  Total deferred tax assets                            $    1,867      $  3,216
                                                       ==========      =========




       The net valuation  allowance  decreased by $3,600,000  for the year ended
December 31, 1996.

                                      F-14

<PAGE>



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% of
total revenue in 1995.

       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 $7,793,000, $7,828,000 and $5,043,000 in 1997, 1996 and 1995,
respectively.  This included  revenue from Europe of  approximately  $2,602,000,
$3,394,000  and  $2,239,000 in 1997,  1996 and 1995,  respectively.  In 1997 and
1996, U.S. export sales included revenue from Asia of  approximately  $3,704,000
and $3,470,000, respectively.

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

<CAPTION>
                                     United                         Adjustments and
                                     States          Europe         Eliminations        Total
                                     ------          ------         ---------------     -----
                                                      (In thousands)
<S>                                 <C>           <C>                <C>               <C>     
Year Ended
     December 31, 1997
     Revenues                       $ 35,640      $   6,752          $  (4,106)        $ 38,286
     Income from operations            7,047            374               (165)           7,256
     Identifiable assets              42,939          4,318             (4,466)          42,791

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
</TABLE>

                                      F-15
<PAGE>

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)
<S>                                      <C>              <C>              <C>              <C>       
Fiscal 1997
     Net revenues                        $    8,306       $    9,818       $    9,527       $   10,635
     Gross profits                            5,115            5,943            6,046            6,756
     Net income                               1,027            1,315            1,370            1,590
     Diluted net income per share        $     0.11       $     0.14       $     0.14       $     0.16
Fiscal 1996
     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
     Diluted net income per share        $     0.12       $    (0.36)      $     0.18       $     0.26

</TABLE>
                                      F-16

<PAGE>



                                                                    SCHEDULE II
________________________________________________________________________________

<TABLE>
                          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, 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
Balance for the year ended December 31, 1997:
   Allowance for doubtful accounts receivable                          196          ---         (16)          180
</TABLE>


                                      F-17