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, 1998

                                       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:

                               Title of Each Class
                     -------------------------------------
                          Common Stock, $.001 Par Value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K 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.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  as of March 15,  1999,  based upon the last sale price  reported for
such date on the NASDAQ National Market, was $120,706,491*.

The number of outstanding  shares of the  Registrant's  Common Stock as of March
15, 1999 was 9,542,789.


                       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.

*Excludes  approximately  5,518,011  shares of common  stock held by  Directors,
Officers and holders of 5% or more of the Registrant's  outstanding Common Stock
at March  15,  1999.  Exclusion  of  shares  held by any  person  should  not be
construed to indicate that such person possesses the power,  direct or indirect,
to  direct  or  cause  the  direction  of  the  management  or  policies  of the
Registrant,  or that such person is controlled  by or under common  control with
the Registrant.


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TABLE OF CONTENTS

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Molecular Devices Corporation

PART I   Item  1. Business...................................................  3
                     The Company.............................................  3
                     Industry Background.....................................  3
                     The Molecular Devices Solution..........................  4
                     Products................................................  4
                     Business Risks..........................................  7
                     Research and Development................................  8
                     Marketing and Customers.................................  9
                     Manufacturing........................................... 10
                     Patents and Proprietary Technologies.................... 10
                     Competition............................................. 11
                     Government Regulations.................................. 11
                     Human Resources......................................... 13
         Item  2. Properties................................................. 13
         Item  3. Legal Proceedings.......................................... 13
         Item  4. Submission of Matters to a Vote of Security Holders........ 13

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PART II  Item  5. Market for Registrant's Common Equity and
                  Related Stockholder Matters................................ 14
         Item  6. Selected Consolidated Financial Data....................... 15
         Item  7. Management's Discussion and Analysis of
                  Financial Condition and Results of Operations.............. 16
         Item 7a. Quantitative and Qualitative Disclosures about
                  Market Risk................................................ 18
         Item  8. Financial Statements and Supplementary Data................ 19
         Item  9. Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure..................... 19

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PART III Item 10. Directors and Executive Officers of the Registrant......... 20
         Item 11. Executive Compensation..................................... 20
         Item 12. Security Ownership of Certain Beneficial Owners
                  and Management............................................. 20
         Item 13. Certain Transactions....................................... 20

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PART IV  Item 14.  Exhibits, Financial Statement Schedules and
                   Reports on Form 8-K....................................... 21
                                 (a)  Documents Filed with Report
                                 (b)  Reports on Form 8-K
                                 (c)  Exhibits
                                 (d)  Financial Statement Schedules

                                       2

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                                     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.* As part of its strategy to provide  complete  customer  solutions,  the
Company also offers certain dedicated consumables, 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 enhance 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 very sophisticated bioanalytical tools.

         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.

         There are two converging  trends that are  significantly  impacting the
drug  discovery  process  today.  The first is the evolution of genomics and the
understanding  of the human genome.  The worldwide  effort to sequence the human
genome is beginning to identify  previously  unknown natural molecules that will
likely become targets for new therapeutic products. As this field makes advances
in understanding the structure and function of the  approximately  100,000 human
genes and their  function in disease,  more and more potential  disease  targets
will be identified.  At the same time, the advances in  combinatorial  chemistry
have provided chemists with techniques that allow them to generate significantly
more potential drug compounds that can be tested against disease targets.  Using
combinatorial  chemistry  techniques,  researchers  are  now  able  to  generate

-------------
*   SPECTRAmax(TM),    Vmax(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

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libraries  of  hundreds  of  thousands  of  compounds  to be  screened,  whereas
previously they could only synthesize  dozens in the same period, or use natural
molecule sources.

         The  volume of new  potential  drug  candidate  compounds  and  disease
targets,  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 provide the necessary throughput.

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.   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  currently  offers  three  product  families  that  address
different segments of the drug discovery market. The Company's MAXline family of
microplate  readers primarily  addresses the assay development market and offers
the assay development  scientist seven  differentiated  microplate  readers that
include a wide range of innovative  and flexible  feature  sets.  The Company is
widely perceived as a leader in microplate reader technology,  and believes that
it was the first to offer a number of  innovative  features into the premium end
of the microplate  reader market.  The Company's Cell Analysis  products,  which
include  Fluorometric Imaging Plate Reader ("FLIPR") products and the Cytosensor
System,  address  cellular based research in the  high-throughput  screening and
lead  optimization  market  segments.  The Company  believes that both FLIPR and
Cytosensor  provide  researchers  with  valuable  information  content about the
effect of a potential drug compounds on cells.  Finally, the Company's Threshold
System  is aimed at the  biopharmaceutical  manufacturing  and  quality  control
process,  and the  Company  believes  that  the  Threshold  System  is the  only
commercially  available fully  integrated  system that rapidly and  reproducibly
detects potential contaminants with picogram level sensitivity.

Products

         The Company's  product  lines include the MAXline  family of microplate
readers,  Cell Analysis systems which include FLIPR and Cytosensor product lines
and Threshold high sensitivity assay system.

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. 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 before and after
passing  through  each of the sample  wells of a  microplate.  Application  of a
mathematical formula to the light intensity measurements of each microplate well
provides a measure of the sample present in the well. The measurement,  known as
optical density, relative fluorescence,  or luminescence, is proportional to the
concentration  of the  substance  that  is  being  measured.  Historically,  the
standard microplate was comprised of 96 individual wells. As cost and throughput
have become increasingly  important,  however, the industry has begun to move to
higher density plates  including 384 wells and 1536 wells.  The Company believes
that this trend towards miniaturization will continue to be a significant factor
affecting the microplate reader market in the future.

                                       4

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         The  Company's  MAXline  strategy has been to continue to introduce new
products  that  include  first-of-a-kind  novel  features,  as well as to  offer
varying feature sets and price points to address different market segments.  The
Company has  historically  focused on the premium end of the  microplate  reader
market  through  offering  advanced  capabilities.  Some of the  first-of-a-kind
features that the Company has pioneered  include:  the first reader and software
capable of kinetic analysis, the first  monochromator-based  reader that enabled
continuous  wavelength  selection  and the first reader  capable of  performance
comparable to a  spectrophotometer.  In each case, the Company believes that the
innovation  helped  expand the utility of readers and more broadly to expand the
available market for microplate readers. Sales of the Company's Maxline products
accounted for 52%, 55%, and 54% of total  revenues for the years ended  December
31, 1998, 1997 and 1996,  respectively.  The Company's  MAXline family currently
includes the following seven primary products:

         Vmax. The Company's first microplate  reader which was launched in 1987
         and was the first microplate reader with kinetic read capability.  This
         product is designed to address the needs of biochemists.

         Emax.  This product is aimed at the market for  traditional  microplate
         readers that do not require  kinetic  capability.  It was introduced by
         the Company to provide a reader for  customers  in  academia  and other
         customers with restricted capital budgets.

         SPECTRAmax  PLUS. The Company's  first  microplate  reader aimed at the
         spectrophotometer market. It was the industry's first microplate reader
         that was able to combine the  high-throughput  of a  microplate  reader
         with the performance of a cuvette based  spectrophotometer  as a result
         of  the  proprietary  PathCheck  Sensor  technology  developed  by  the
         Company.  The SPECTRAmax PLUS was also 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.

         SPECTRAmax 190. This product replaced the SPECTRAmax 250, which was the
         world's first microplate  reader that  incorporated a monochromator for
         continuous  wavelength  selection.  Wavelength  selection  provides for
         enhanced convenience and flexibility in assay design. In addition,  the
         190 also offers the Company's proprietary PathCheck Sensor technology.

         SPECTRAmax   340PC.   This  product  is  a  visible  range   microplate
         spectrophotomer,  offering tunability and the additional  capability of
         PathCheck Sensor technology.

         VERSAmax.  The VERSAmax is the Company's  low cost variable  wavelength
         offering that provides kinetic capability and temperature control.

         SPECTRAmax  GEMINI.  SPECTRAmax GEMINI was introduced in late 1998, and
         represents  the latest  innovation  in the  Company's  growing  list of
         product  firsts.  It is  the  world's  first  dual-scanning  microplate
         spectrofluorometer.  By incorparating two scanning monochromators,  the
         SPECTRAmax  GEMINI  allows  the  user  to  automatically  optimize  the
         instrument  setting for every fluorophore that is in use today.  GEMINI
         also  represents  the  Company's  first  microplate  reader  capable of
         multi-mode  operation,  in that the product is capable of fluorescence,
         luminescence and time-resolved fluorescence measurements.

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 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
System  Products and  Cytosensor  Systems.  Sales of the Company's Cell Analysis
products  accounted  for 35%, 33% and 31% of total  revenues for the years ended
December 31, 1998, 1997 and 1996, respectively.

                                       5

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FLIPR System Products

         The Fluorometric  Imaging Plate Reader ("FLIPR") products satisfy a key
demand from pharmaceutical companies for live cell analysis at a high-throughput
rate. FLIPR was the first instrument to enable high-throughput screening of live
cells  with  high  information  content  on  cellular  activation.  The  primary
applications for the FLIPR products are the measurement of intracellular calcium
ion  flux  and  membrane  potential  change,  both  of  which  provide  critical
information on the activation of cells by test compounds.

         In the FLIPR system,  cells,  along with appropriate  fluorescent dyes,
are maintained in microplates in a humidified,  thermally-controlled compartment
together  with  compound-addition  plates.  A laser light  source is then passed
through the wells to provide excitation illumination and fluorescence from cells
on the  bottom of the wells.  During  the  reading  cycle,  a built-in  pipettor
transfers  compound samples from the  compound-addition  plate to the cell plate
and the reaction is continuously  monitored by a CCD camera at intervals of less
than 1 second. This strategy allows for real-time monitoring of cells before and
after compound  addition,  thus allowing the  measurement  of rapid  non-linear,
response kinetics. The FLIPR limited  depth-of-field  fluorometry optical design
is  patented.  The  Company  currently  offers two  products  based on the FLIPR
technology platform.

         FLIPR.  This product was introduced in 1996 and was the Company's first
         entry into the  high-throughput  screening market.  FLIPR is capable of
         simultaneously  analyzing  each  well  of a 96  well  plate  and  has a
         throughput of approximately 10,000 samples per day.

         FLIPR 384.  FLIPR 384,  introduced  in 1998,  is the second  generation
         FLIPR  product,  and combines all of the benefits of the original FLIPR
         along  with new  automation  capabilities  and the  ability  to analyze
         samples in 384 well microplates. FLIPR 384 can screen as many as 50,000
         samples daily,  and has an optional  integrated plate stacker which can
         dramatically  reduce  the need for  human  intervention  during  sample
         processing.  In addition,  the instrument also incorporates  interfaces
         that enable it to integrate into automated screening lines.

Cytosensor Products

         The  Company  developed  the  Cytosensor  System  to  provide  a  fast,
reliable,  single assay system to  investigate  multiple  cellular  functions in
numerous cell types. The Cytosensor System incorporates the Company's core Light
Addressable  Potentiometric  Sensor  ("LAPS")  technology,  a  detection  system
capable of measuring a wide  variety of chemical  reactions as they occur on the
surface  of a  silicon  based  sensor,  into  a  patented  system  that  permits
researchers  to  conduct  microphysiometry  (the study of  cellular  metabolism)
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.  The Company  believes that the primary
applications  of the  Cytosensor  system are receptor  characterization,  orphan
receptor  identification,  human  cell  pharmacological  profiling  and in vitro
toxicology. The Company offers a 4-chamber Cytosensor system targeting customers
with  relatively  low  throughput  requirements  and  an  8-chamber  system  for
customers who require higher throughput.

Threshold System Products

         The Company's  Threshold System is a high sensitivity assay system that
incorporates   the  Company's  LAPS   technology  to  quantitate  a  variety  of
biomolecules such as DNA,  proteins and mRNA rapidly and accurately.  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
biopharmaceutical  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,  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.   The  Threshold   family  of  products   includes  a
workstation, software and consumable reagent kits. 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.

                                       6

<PAGE>

Software Products

All the  Company's  instrument  products are used with  internally  designed and
developed  software,  either sold as an integral part of the  "package"  (FLIPR,
Cytosensor,  Threshold,  Gemini),  or  as a  separate  offering  (older  Maxline
instruments).  The Company believes that software is an important differentiator
for its instrument products relative to the competition.

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  and
         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.  However,  the timing of
         capital  equipment  purchases by customers is expected to be uneven and
         difficult to predict.  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  for that  quarter may be  materially
         adversely affected.  Many of the Company's products are subject to long
         customer procurement  processes.  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.  Furthermore,  the
         Company  has   historically   received   purchase  orders  and  made  a
         significant portion of each quarter's product shipments near the end of
         the  quarter.  If that  pattern  continues,  even  short  delays in the
         receipt of orders or shipment of products at the end of a quarter could
         have a  material  adverse  effect on  results  of  operations  for that
         quarter.  The Company typically  experiences a decrease in the level of
         sales in the first  calendar  quarter as compared to the fourth quarter
         of the  preceding  year  because of  budgetary  and  capital  equipment
         purchasing  patterns in the life  sciences  industry.  The Company also
         typically  experiences  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.  Revenues  for the  third  quarter  of  1998  nominally
         exceeded  second  quarter  1998  revenues  due to the phasing in of new
         products. The Company believes that the third quarter seasonality trend
         may recur in the  future as the  Company  increases  efforts to further
         penetrate European 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.  The Company has a Year 2000 project in place to
         address the potential  exposures  related to the impact on its computer
         systems and scientific and manufacturing  equipment containing computer
         related  components  for the  Year  2000 and  beyond.  The  Company  is
         currently  assessing  its  internal  and  external  Year 2000 risks and
         continues to monitor,  validate and implement the identified corrective
         actions. The Company's internal business systems have been

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<PAGE>


         reviewed and plans are being  defined to achieve Year 2000  compliance.
         Testing of the Company's business critical  application  programs began
         in the fourth  quarter of 1998 and is  scheduled  to be complete by the
         third  quarter  of 1999.  Any  failure  on the part of the  Company  to
         identify  and  correct  Year  2000  compliance  issues  related  to the
         Company's  internal business systems could materially  adversely affect
         the Company's business, financial condition and results of operation.

         All of the  Company's  products  that are  currently  manufactured  and
         supported  are  Year  2000  compliant.  There is an  installed  base of
         Company  products  no  longer   distributed  that  are  not  Year  2000
         compliant,  all of which  have an  identified  upgrade  path  which our
         customers can purchase to achieve compliance.

         In  addition  to risks  associated  with  the  Company's  own  computer
         systems,  equipment and products,  the Company has relationships  with,
         and is to  varying  degrees  dependent  upon,  a large  number of third
         parties  that provide  information,  goods and services to the Company.
         These include financial institutions,  suppliers, vendors, governmental
         entities,  distributors and customers.  If significant numbers of these
         third  parties  experience   failures  in  their  computer  systems  or
         equipment  due  to  Year  2000  non-compliance,  it  could  affect  the
         company's ability to process  transactions,  manufacture  products,  or
         engage in similar normal business activities. While many of these risks
         are  outside  the control of the  Company,  the Company has  instituted
         programs,  including  internal  records  review  and  use  of  external
         questionnaires,  to identify key third  parties,  assess their level of
         Year 2000  compliance  and  address  any  non-compliance  issues.  Upon
         completion  of this  process,  any required  contingency  plans will be
         developed.

         At this time, the Company believes there are no significant incremental
         costs  anticipated  to achieve both  internal  and  external  Year 2000
         compliance.  The total cost of the Year 2000  systems  assessments  and
         conversions  is being  funded  through  operating  cash  flows  and the
         Company is expensing these costs as they are incurred.  However,  there
         can be no  assurances  that the third parties of the Company will be in
         compliance  and the  Company  has no control  over  whether  such third
         parties will be in compliance with Year 2000 requirements.  Any failure
         on the  part  of the  Company's  third  parties,  which  could  include
         inability to deliver or purchase  product,  could materially  adversely
         affect 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;  (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 and difficulties in staffing
         and managing  international  operations and  international  distributor
         relationships.

Research and Development

         The Company's  research and  development  activities are focused on (i)
providing  more sensitive  quantitative  evaluation of biological  events;  (ii)
providing greater throughput capability, especially with smaller sample volumes;
(iii) developing  biological and chemistry  capability to broaden its technology
solution;  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 addition, there can be no assurance that

                                       8

<PAGE>


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,  chemistry,  electronic  systems and
computer  software.  Company-funded  research and development  expenditures were
approximately $5,686,000,  $4,721,000 and $4,581,000 during 1998, 1997 and 1996,
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 Item 7  "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  distributes  its products  primarily  through direct sales
representatives  in the United States.  The sales effort in the United States is
supported by a team of service,  technical and applications specialists employed
by the Company.  The Company has  subsidiaries in the United Kingdom and Germany
responsible  for selling and  servicing the  Company's  products.  The Company's
products are also sold through international  distributors,  most of which enter
into  distribution  agreements  with the  Company  that  provide  for  exclusive
distribution  arrangements  and minimum purchase  targets.  Such agreements also
generally prohibit the distributors from designing, manufacturing,  promoting or
selling any products that are competitive with the Company's  products.  The use
of distributors  involves certain risks,  including the risks that  distributors
will be unable to satisfy  financial  obligations  to the  Company or will cease
operations. The Company also does not currently have distributors in a number of
significant  international  markets  that  it has  targeted  and  will  need  to
establish additional international distribution  relationships.  There can be no
assurance  that the  Company  will  engage  qualified  distributors  in a timely
manner,  and the  failure to do so could have a material  adverse  effect on the
Company's business, financial condition and results of operations.

         Product sales to customers  outside of the United States  accounted for
approximately  40%, 38% and 40% of the Company's  product revenues in 1998, 1997
and 1996,  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  export  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.  See Note 7 to Notes to the Financial Statements on
pages F-14 and F-15 of this report for more  information on foreign and domestic
operations and export sales.

         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.

                                       9

<PAGE>


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  typically  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
that of 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  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.

                                       10

<PAGE>


         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  consistently  accounted  for over 50% of the Company's
total  revenues.  The  microplate  reader  market is  characterized  by  intense
competition from a number of companies  including  Bio-Rad  Laboratories,  Inc.,
Thermo  Bioanalysis  Corporation,  Bio-Tek  Instruments,  Inc., and Perkin-Elmer
Corporation  that offer, or may in the future offer,  products with  performance
capabilities  generally similar to those offered by the Company's products.  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 the microplate  reader 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  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

                                       11

<PAGE>


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  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.

                                       12

<PAGE>


Human Resources

         As of December 31, 1998,  Molecular  Devices  employed 164 persons full
time,  including  43 in research and  development,  46 in  manufacturing,  59 in
marketing  and sales and 16 in  general  administration  and  finance.  Of these
employees,  37 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  November,  2001.  The  Company  believes  that its
facilities  will be sufficient  for its  operations  through at least 1999.  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.

                                       13

<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
under the symbol "MDCC."

<TABLE>
         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.

<CAPTION>
-------------------------- ------------------------------ -------- ------------------------------
                                        1998                                    1997
-------------------------- ------------------------------ -------- ------------------------------
                                High            Low                      High            Low
-------------------------- -------------- --------------- -------- --------------- --------------
<S>                            <C>             <C>                      <C>            <C>
First Quarter                  22 3/8          15 1/4                   16 3/4         13 3/8
-------------------------- -------------- --------------- -------- --------------- --------------
Second Quarter                 19 3/8          14 3/8                   17 5/8         12 1/2
-------------------------- -------------- --------------- -------- --------------- --------------
Third Quarter                  18 1/2          12 1/8                   21 7/8         16 1/2
-------------------------- -------------- --------------- -------- --------------- --------------
Fourth Quarter                 21 3/4          16                       23 3/4         14 7/8
-------------------------- -------------- --------------- -------- --------------- --------------
</TABLE>


         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,  1999,  there were  approximately  113  stockholders  of record of the
Company.  On March 15, 1999, the last sale price reported on the Nasdaq National
Market for the Company's common stock was $21.875 per share.

         The  Company  entered  into  employment  arrangements  with each of Mr.
Joseph D. Keegan,  Mr.  Timothy A. Harkness and Mr. John S. Senaldi  pursuant to
which the  Company  is  obligated  to issue to each such  officer  shares of its
Common  Stock  in  exchange  for  services  rendered.   As  a  result  of  these
arrangements, the Company issued shares of its Common Stock to these officers on
the  dates  and  amounts  indicated  below in  reliance  on the  exemption  from
registration afforded by Section 4(2) of the Securities act of 1933, as amended.

                                       Number of Shares          Date of Issue
                                       ----------------          -------------
         Mr. Keegan                           3,750               06/30/98
                                              3,750               09/30/98
                                              3,750               12/30/98

         Mr. Harkness                         1,250               10/09/98

         Mr. Senaldi                            312               11/06/98

                                       14

<PAGE>


Item 6 - Selected Consolidated Financial Data

<TABLE>
         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,
                                                                 ------------------------------------------------------------------
                                                                   1998          1997          1996           1995           1994
                                                                 --------      --------      --------       --------       --------
                                                                                 (In thousands, except per share data)
<S>                                                              <C>           <C>           <C>            <C>            <C>
Consolidated Statements of Income Data:
  Revenues                                                       $ 47,798      $ 38,286      $ 30,926       $ 25,615       $ 22,460
                                                                 --------      --------      --------       --------       --------

  Income from operations                                            9,442         7,256            47          3,011          1,763
  Other income (expense), net                                       1,584         1,220         1,079            (33)          (201)
                                                                 --------      --------      --------       --------       --------

  Income before income taxes                                       11,026         8,476         1,126          2,978          1,562
  Income tax provision (benefit)                                    4,245         3,174        (1,126)        (1,081)            43
                                                                 --------      --------      --------       --------       --------

  Net income                                                     $  6,781      $  5,302      $  2,252       $  4,059       $  1,519
                                                                 ========      ========      ========       ========       ========

  Basic net income per share                                     $   0.72      $   0.58      $   0.26       $   0.58       $   0.22
                                                                 ========      ========      ========       ========       ========

  Diluted net income per share                                   $   0.70      $   0.55      $   0.24       $   0.53       $   0.21
                                                                 ========      ========      ========       ========       ========

  Shares used in computing basic net
    income per share                                                9,411         9,137         8,828          7,031          6,920
                                                                 ========      ========      ========       ========       ========
  Shares used in computing diluted net
    income per share                                                9,738         9,721         9,524          7,644          7,310
                                                                 ========      ========      ========       ========       ========

Pro-Forma Consolidated Statements of Income Data:
  Pro-forma diluted net income per share                         $   0.75      $   0.55      $   0.37       $   0.24       $   0.13
                                                                 ========      ========      ========       ========       ========
</TABLE>


<TABLE>
         This  information  has been provided to report the Company's  pro-forma
diluted net income per share data and is calculated excluding the impacts of the
write-offs of acquired  in-process research and development in 1998 and 1996 and
assuming a tax provision rate of 38.5% (37.5% in 1997).

<CAPTION>
Consolidated Balance Sheet Data:
<S>                                                         <C>            <C>             <C>             <C>             <C>
Cash and cash equivalents                                   $ 32,689       $ 26,773        $ 23,727        $ 20,379        $  2,201
Working capital                                               43,438         35,752          27,395          22,786           3,681
Total assets                                                  54,405         42,791          36,833          28,800           9,020
Long-term obligations, less current portion                     --             --              --              --             1,582
Retained earnings (accumulated deficit)                        4,235         (2,546)         (7,848)        (10,100)        (14,159)
Total stockholders' equity                                    45,823         37,417          29,277          24,525           3,757
</TABLE>


         Note that income from operations for the fiscal year ended December 31,
1998  includes a $876,000  (or $0.05 per share)  charge for the  acquisition  of
in-process technology and acquisition costs related to the Company's acquisition
of certain  technology rights from Affymax Research  Institute,  a subsidiary of
Glaxo-Wellcome.  In  addition,  the income from  operations  for the fiscal year
ended  December 31, 1996 includes a $4.6 million (or $0.13 per share) charge for
the acquisition of in-process  technology and  acquisition  costs related to the
Company's acquisition of NovelTech Systems, Inc.

                                       15

<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  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.  As part of its strategy to provide  complete  customer  solutions,  the
Company also offers certain dedicated consumables, 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.

Results of Operations

Years ended December 31, 1998, 1997 and 1996

         Revenues.  Revenues for 1998  increased by 25% to  approximately  $47.8
million from  approximately  $38.2 million in 1997.  All three product  families
showed  increased  levels of revenue.  MAXline  revenues  increased  due to both
greater sales of the new SPECTRAmax  products addressing both the absorbance and
fluorescence  markets and  increased  penetration  of MAXline  products into our
European distribution channels. Cell Analysis revenues increased due to both the
introduction  of new  FLIPR  products  and  increased  FLIPR  demand  worldwide.
Threshold  revenues  increased  due to  greater  volume  shipments  to  military
customers worldwide.

         Revenues for 1997 increased by 24% to approximately  $38.2 million from
approximately  $30.9  million in 1996.  The  MAXline and Cell  Analysis  product
families  showed  increased  levels  of  revenue.   MAXline  revenues  increased
primarily  due  to  greater  sales  of new  SPECTRAmax  products  and  increased
penetration of MAXline products into international  distribution channels.  Cell
Analysis revenues increased primarily due to greater sales of new FLIPR products
worldwide.  Threshold revenues decreased primarily due to lower shipments to the
U.S.   Army  and   decreased   shipments  of   commercial   Threshold   products
internationally.

         Gross  margin.  Gross  margin  increased to 62.9% in 1998 from 62.3% in
1997.  This increase  relates  primarily to increased sales of new higher margin
MAXline and FLIPR products.

         In 1997, gross margin increased  nominally to 62.3% from 62.0% in 1996.
This increase relates  primarily to increased sales of new higher margin MAXline
products and improved margins on sales of Cell Analysis products.

         Research and  development.  Research and development  expenses for 1998
increased by 20% to approximately  $5.7 million from  approximately $4.7 million
in 1997. This increased  spending  relates  primarily to additional  development
expenses  required to support the introduction of new MAXline and FLIPR products
(including additional personnel).

         Research and development expenses for 1997 increased nominally by 3% to
approximately  $4.7  million  from  approximately  $4.6  million  in  1996.  The
relatively  flat  spending in 1997 was due to increased  spending on  personnel,
partially offset by decreased external product development costs.

         Research  and  development  expenses as a percentage  of revenues  were
11.9%, 12.3% and 14.8% in 1998, 1997 and 1996, respectively.

                                       16

<PAGE>


         Write-off of acquired in-process research and development.  The Company
recorded  an  $876,000  charge  during  the  third  quarter  of 1998  due to the
write-off  of  acquired  in-process  research  and  development  related  to the
Company's  acquisition of technology rights from Affymax Research  Institute,  a
subsidiary  of Glaxo  Wellcome (see Note 4 of "Notes to  Consolidated  Financial
Statements"  included in Part IV). The $876,000  represents the entire amount of
up-front  consideration  that has,  or will be,  paid to  Affymax as well as all
related  transaction  costs associated with this technology  license  agreement.
Based on the stage of development  of this  technology and the assessment of the
time  and  resources  needed  to  complete  product  development  based  on this
technology,  the Company  believed that the acquired  technology had not reached
economic or technological feasibility at the time of the acquisition.

         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.  in  1996.  The  acquired  in-process  technology
represented the appraised value of technology in the development  stage that had
not yet  reached  economic  and  technological  feasibility  and  did  not  have
alternative  future uses at the time of the acquisition.  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.  See Note 4 of "Notes to  Consolidated
Financial Statements" included in Part IV.

         Selling,    general   and   administrative.    Selling,   general   and
administrative expenses for 1998 increased by 18% to approximately $14.1 million
from  approximately  $11.9  million  in  1997  and by 20% in  1997  compared  to
approximately  $9.9 million in 1996. The increased  spending for both periods is
primarily  the result of  additional  spending on  marketing,  sales and service
related activities  (including increased personnel) as the Company continued its
efforts to expand worldwide market coverage and introduce new products. Selling,
general and  administrative  expenses as a  percentage  of revenues  were 29.5%,
31.0% and 32.1% in 1998, 1997 and 1996, respectively.

         Other income (net). Net other income,  consisting primarily of interest
income,   increased  by  30%  in  1998  to   approximately   $1.6  million  from
approximately  $1.2 million in 1997 and by 13% in 1997 from  approximately  $1.1
million in 1996.  Both  increases  are due to  greater  interest  income  earned
resulting from higher cash balances (provided  primarily from operations) period
to period.

         Income tax  provision.  Income tax  provisions  of  approximately  $4.2
million (38.5% effective rate) and  approximately  $3.2 million (37.5% effective
rate) were recorded in 1998 and 1997, respectively. The increased effective rate
period to period is due primarily to anticipated decreased tax benefits from the
Company's Foreign Sales Corporation.

         An income tax benefit of $1.1 million was recorded in 1996. The benefit
recorded  in 1996,  which  had the  effect of  increasing  net  income,  related
primarily to a reduced valuation  allowance on the Company's 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 $6.9 million, $4.4
million and $4.6 million in 1998, 1997 and 1996, respectively.  Net cash used in
investing  activities was approximately $1.5 million,  $543,000 and $1.9 million
in 1998,  1997  and  1996,  respectively,  and was used  primarily  for  capital
expenditures,  except for 1996 when  approximately $1.2 million of cash was used
for the acquisition of NovelTech.  Net cash provided by financing activities was
approximately $521,000 and $534,000,  respectively, for 1998 and 1996, while net
cash used in financing activities was approximately  $567,000 for 1997. The 1998
and 1996 proceeds relate  primarily to stock option  exercises.  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 for the foreseeable future. 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,  potential  acquisition  opportunities  that may  arise  and  other
factors.  As such,  there can be no assurance  that the Company will not require
additional financing and, therefore, the Company may in the future seek to

                                       17

<PAGE>


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.

Year 2000 Compliance

         The Company has a Year 2000  project in place to address the  potential
exposures  related to the impact on its  computer  systems  and  scientific  and
manufacturing equipment containing computer related components for the Year 2000
and beyond.  The Company is currently  assessing  its internal and external Year
2000 risks and  continues to monitor,  validate  and  implement  the  identified
corrective  actions.  The Company's internal business systems have been reviewed
and plans are being  defined to  achieve  Year 2000  compliance.  Testing of the
Company's business critical  application programs began in the fourth quarter of
1998 and is scheduled to be complete by the third  quarter of 1999.  Any failure
on the part of the Company to identify and correct Year 2000  compliance  issues
related to the Company's  internal  business systems could materially  adversely
affect the Company's business, financial condition and results of operation.

         All of the  Company's  products  that are  currently  manufactured  and
supported  are Year  2000  compliant.  There  is an  installed  base of  Company
products no longer  distributed  that are not Year 2000 compliant,  all of which
have an  identified  upgrade  path which our  customers  can purchase to achieve
compliance.

         In  addition  to risks  associated  with  the  Company's  own  computer
systems,  equipment and products,  the Company has relationships with, and is to
varying  degrees  dependent  upon, a large number of third  parties that provide
information,  goods  and  services  to  the  Company.  These  include  financial
institutions,   suppliers,  vendors,  governmental  entities,  distributors  and
customers.  If significant numbers of these third parties experience failures in
their computer  systems or equipment due to Year 2000  non-compliance,  it could
affect the company's ability to process  transactions,  manufacture products, or
engage in similar  normal  business  activities.  While many of these  risks are
outside  the  control of the  Company,  the  Company  has  instituted  programs,
including  internal  records  review  and  use of  external  questionnaires,  to
identify  key third  parties,  assess  their level of Year 2000  compliance  and
address any non-compliance issues. Upon completion of this process, any required
contingency plans will be developed.

         At this time, the Company believes there are no significant incremental
costs  anticipated  to achieve both internal and external Year 2000  compliance.
The total cost of the Year 2000 systems  assessments  and  conversions  is being
funded through  operating cash flows and the Company is expensing these costs as
they are incurred. However, there can be no assurances that the third parties of
the Company  will be in  compliance  and the Company has no control over whether
such  third  parties  will be in  compliance  with Year 2000  requirements.  Any
failure  on the  part  of the  Company's  third  parties,  which  could  include
inability to deliver or purchase product,  could materially adversely affect the
Company's business, financial condition and results of operations.


Item 7a - Quantitative and Qualitative Disclosures About Market Risk

         The Company is exposed to market  risk,  including  changes in interest
rates  and  foreign  currency  exchange  rates.  The  primary  objective  of the
Company's investment  activities is to preserve principal while at the same time
maximizing  the income we receive  from our  investments  without  significantly
increasing risk. A discussion of the Company's accounting policies for financial
instruments  and further  disclosures  relating  to  financial  institutions  is
included in the Summary of Significant  Accounting Policies note in the Notes to
Consolidated Financial Statements.

         The  Company's  interest  income is sensitive to changes in the general
level of interest rates,  primarily U.S. interest rates. In this regard, changes
in U.S.  interest  rates  affect  the  interest  earned  on the  Company's  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  agency
securities,  are carried at market value  (which  approximate  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  is  exposed  to  changes  in  exchange  rates  in  Europe
(primarily  the United Kingdom and Germany) and Canada.  All export sales,  with
the exception of sales into Canada,  are denominated in U.S. dollars and bear no
exchange  rate  risk.   Gains  and  losses   resulting  from  foreign   currency
transactions  in  Canada  have been  immaterial.  Translation  gains and

                                       18

<PAGE>


losses related to our foreign subsidiaries in the United Kingdom and Germany are
accumulated as a separate  component of  Stockholders'  equity.  Those gains and
losses have been immaterial.


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-16.

         Financial Statements:

            o     Report of Ernst & Young LLP, Independent Auditors
            o     Consolidated Balance Sheets at December 31, 1998 and 1997
            o     Consolidated  Statements of Income for each of the three years
                  in the period ended December 31, 1998
            o     Consolidated  Statement of Stockholders'  Equity for the three
                  years in the period ended December 31, 1998
            o     Consolidated  Statements  of Cash  Flows for each of the three
                  years in the period ended December 31, 1998
            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.

                                       19

<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 20, 1999 (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 Transactions

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

                                       20

<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 19 of this report.

         2.  Financial Statement Schedules - See Index to Consolidated Financial
             Statements as Item 8 on page 19 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
10.18(3)*      Chief Financial Officer Employment Agreement
10.19(4)*      Key Employee  Agreement for Joseph D. Keegan dated March 11, 1998
               (as amended)
10.20(5)       "Exclusive License and Technical Support Agreement" with Affymax
10.21(5)*      Employee Offer Letter for Tim Harkness
10.22(5)*      Employee Offer Letter for Tony Lima
10.23(5)*      Employee Offer Letter for John Senaldi
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).
(3)  Incorporated  by  reference  to  the  similarly  described  exhibit  in the
     Company's Form 10-K Annual Reported dated December 31, 1997 and filed March
     26, 1998.
(4)  Incorporated  by  reference  to  the  similarly  described  exhibit  in the
     Company's Form 10-Q Quarterly  Report dated June 30, 1998, and filed August
     13, 1998.
(5)  Incorporated  by  reference  to  the  similarly  described  exhibit  in the
     Company's  Form 10-Q Quarterly  Report dated  September 30, 1998, and filed
     November 13, 1998.
*    Management contract or arrangement.

                                       21

<PAGE>


(b)   Reports on Form 8-K

      None.

(c)   Exhibits

      See Item 14(a) above.

(d)   Financial Statement Schedule

      See Item 14(a) above.

                                       22

<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: /s/ Joseph D. Keegan, Ph.D.
                                        ----------------------------------------
                                        Joseph D. Keegan, Ph.D.


<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>
/s/ Joseph D. Keegan, Ph.D.            President, Chief Executive Officer                     March 26, 1999
   -----------------------------       and Director (Principal Executive Officer)
    Joseph D. Keegan, Ph.D.


/s/ Timothy A. Harkness                Vice President, Finance and Chief                      March 26, 1999
   -----------------------------       Financial Officer  (Principal
    Timothy A. Harkness                Financial and Accounting Officer)


/s/ Moshe H. Alafi                     Director                                               March 26, 1999
   -----------------------------
    Moshe H. Alafi


/s/ David L. Anderson                  Director                                               March 26, 1999
   -----------------------------
    David L. Anderson


/s/ A. Blaine Bowman                   Director                                               March 26, 1999
   -----------------------------
    A. Blaine Bowman


/s/ Paul Goddard, Ph.D.                Director                                               March 26, 1999
   -----------------------------
    Paul Goddard, Ph.D.


/s/ Andre F. Marion                    Director                                               March 26, 1999
   -----------------------------
    Andre F. Marion


/s/ Harden M. McConnell, Ph.D.         Director                                               March 26, 1999
   -----------------------------
    Harden M. McConnell, Ph.D.


/s/ J. Allan Waitz, Ph.D.              Director                                               March 26, 1999
   -----------------------------
    J. Allan Waitz, Ph.D.
</TABLE>

                                                     23

<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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three  years in the  period  ended  December  31,  1998.  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,  1998  and  1997,  and  the
consolidated  results of its operations and its cash flows for each of the three
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.


                                                         ERNST & YOUNG LLP


Palo Alto, California
January 18, 1999

                                      F-1

<PAGE>


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

<CAPTION>
                                                                                                             December 31,
                                                                                                    -------------------------------
                                                                                                      1998                  1997
                                                                                                    --------               --------
<S>                                                                                                 <C>                    <C>
Assets:

Current assets:
   Cash and cash equivalents                                                                        $ 32,689               $ 26,773
   Accounts receivable net of allowance for doubtful
     accounts of $325 and $180 at
     December 31, 1998 and 1997, respectively                                                         12,958                  8,899
Inventories                                                                                            4,055                  3,465
Deferred tax asset                                                                                     1,630                  1,867
Other current assets                                                                                     688                    122
                                                                                                    --------               --------
          Total current assets                                                                        52,020                 41,126
Equipment and leasehold  improvements, net                                                             2,115                  1,497
Other assets                                                                                             270                    168
                                                                                                    --------               --------
                                                                                                    $ 54,405               $ 42,791
                                                                                                    ========               ========


Liabilities and stockholders' equity:
Current liabilities:
     Accounts payable                                                                               $  2,135               $  1,316
     Accrued compensation                                                                              1,728                  1,252
     Other accrued liabilities                                                                         3,217                  1,798
     Deferred revenue                                                                                  1,502                  1,008
                                                                                                    --------               --------
          Total current liabilities                                                                    8,582                  5,374

Commitments

Stockholders' equity:
   Preferred stock, no par value, issuable in series;
     3,000,000 shares authorized, no shares issued and
     outstanding at December 31, 1998 and 1997,
     respectively                                                                                       --                     --
   Common stock, $.001 par value; 30,000,000
     shares authorized; 9,476,062 and
     9,331,599 shares issued and outstanding
     at December 31, 1998 and 1997, respectively                                                           9                      9
Additional paid-in capital                                                                            42,391                 40,302
Retained earnings (accumulated deficit)                                                                4,235                 (2,546)
Deferred compensation                                                                                   (586)                  (148)
Accumulated other comprehensive income                                                                  (226)                  (200)
                                                                                                    --------               --------
     Total stockholders' equity                                                                       45,823                 37,417
                                                                                                    --------               --------
                                                                                                    $ 54,405               $ 42,791
                                                                                                    ========               ========

<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,
                                                                                 --------------------------------------------------
                                                                                   1998                 1997                 1996
                                                                                 --------             --------             --------
<S>                                                                              <C>                  <C>                  <C>
Revenues                                                                         $ 47,798             $ 38,286             $ 30,926

Cost of revenues                                                                   17,716               14,426               11,741
                                                                                 --------             --------             --------

Gross Margin                                                                       30,082               23,860               19,185
                                                                                 --------             --------             --------

Operating expenses:
Research and development                                                            5,686                4,721                4,581
Write-off of acquired in-process research
  and development                                                                     876                 --                  4,637
Selling, general and administrative                                                14,078               11,883                9,920
                                                                                 --------             --------             --------
    Total operating expenses                                                       20,640               16,604               19,138
                                                                                 --------             --------             --------

Income from operations                                                              9,442                7,256                   47
Other income, net                                                                   1,584                1,220                1,079
                                                                                 --------             --------             --------
Income before income taxes                                                         11,026                8,476                1,126
Income tax provision (benefit)                                                      4,245                3,174               (1,126)
                                                                                 --------             --------             --------

Net income                                                                       $  6,781             $  5,302             $  2,252
                                                                                 ========             ========             ========

Basic net income per share                                                       $   0.72             $   0.58             $   0.26
                                                                                 ========             ========             ========

Diluted net income per share                                                     $   0.70             $   0.55             $   0.24
                                                                                 ========             ========             ========

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

                                                                F-3

<PAGE>
                          MOLECULAR DEVICES CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                Retained    Accumulated
                                                        Additional              Earnings       Other       Total
                                             Preferred   Common     Paid-In     Deferred    (Accumulated Comprehensive Stockholders'
                                               Stock      Stock     Capital   Compensation    Deficit)     Income          Equity
                                              --------   --------   --------    --------      --------    --------      --------
<S>                                           <C>        <C>        <C>         <C>           <C>         <C>           <C>     
Balance at December 31, 1995                  $   --     $      8   $ 35,159    $   (537)     $(10,100)   $     (5)     $ 24,525
  Comprehensive income
    Net income                                    --         --         --          --           2,252        --           2,252
    Currency translation                          --         --         --          --            --            60            60
                                                                                                                        --------
      Total comprehensive income                                                                                           2,312
                                                                                                                        --------
  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
                                              --------   --------   --------    --------      --------    --------      --------
Balance at December 31, 1996                      --            9     37,462        (401)       (7,848)         55        29,277
  Comprehensive income
    Net income                                    --         --         --                       5,302        --           5,302
    Currency translation                          --         --         --          --            --          (255)         (255)
                                                                                                                        --------
      Total comprehensive income                                                                                           5,047
                                                                                                                        --------
  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          --          --            --
                                              --------   --------   --------    --------      --------    --------      --------
Balance at December 31, 1997                      --            9     40,302        (148)       (2,546)       (200)       37,417
  Comprehensive income
    Net income                                    --         --         --          --           6,781        --           6,781
    Currency translation                          --         --         --          --            --           (26)          (26)
                                                                                                                        --------
      Total comprehensive income                                                                                           6,755
                                                                                                                        --------
  Issuance of 111,666 shares of
    common stock for options
    exercised                                     --         --          521        --            --          --             521
  Issuance of 19,984 shares of common
    stock under Employee Stock
    Purchase Plan                                 --         --          309        --            --          --             309
  Tax benefits from employee stock
    transactions                                  --         --          477        --            --          --             477
  Deferred Compensation                           --         --          782        (782)         --          --            --
  Amortization of deferred
    compensation                                  --         --         --           344          --          --             344
                                              --------   --------   --------    --------      --------    --------      --------
Balance at December 31, 1998                  $   --     $      9   $ 42,391    $   (586)     $  4,235    $   (226)     $ 45,823
                                              ========   ========   ========    ========      ========    ========      ========

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

                                                                F-4

<PAGE>


<TABLE>
                                                    MOLECULAR DEVICES CORPORATION
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (In thousands, except share amounts)

<CAPTION>
                                                                                              Years Ended December 31,
                                                                                       --------------------------------------------
                                                                                         1998              1997              1996
                                                                                       --------          --------          --------
<S>                                                                                    <C>               <C>               <C>
Cash flows from operating activities:
Net income                                                                             $  6,781          $  5,302          $  2,252
Adjustments to reconcile net income to net
  cash used in operating activities:
  Depreciation and amortization                                                             753               729               636
  Loss on disposal of fixed assets                                                         --                  31                40
  Charge for acquired in-process research and development                                  --                --               4,425
  Amortization of deferred compensation                                                     344               122               136
  (Increase) decrease in assets:
    Accounts receivable                                                                  (4,059)           (3,503)           (1,160)
    Inventories                                                                            (590)             (995)             (817)
    Deferred tax asset                                                                      237             1,349            (2,055)
    Other current assets                                                                   (566)               20                (1)
  Increase (decrease) in liabilities:
    Accounts payable                                                                        819              (617)              916
    Accrued compensation                                                                    476               225               151
    Other accrued liabilities                                                             2,205             1,336               (31)
    Deferred revenue                                                                        494               412               120
                                                                                       --------          --------          --------
Net cash provided by operating activities                                                 6,894             4,411             4,612
                                                                                       --------          --------          --------

Cash flows from investing activities:
Capital expenditures                                                                     (1,371)             (625)             (711)
Acquisition of NovelTech Systems, Inc. net of cash on hand                                 --                --              (1,198)
Other assets                                                                               (102)               82                51
                                                                                       --------          --------          --------
Net cash used in investing activities                                                    (1,473)             (543)           (1,858)
                                                                                       --------          --------          --------

Cash flows from financing activities:
Repayments on credit arrangements                                                          --                --                 (76)
Repayment of promissory notes                                                              --              (1,500)             --
Issuance of common stock, net                                                               521               933               610
                                                                                       --------          --------          --------
Net cash provided by (used in) financing activities                                         521              (567)              534
                                                                                       --------          --------          --------

Effect of exchange rate changes on cash                                                     (26)             (255)               60
                                                                                       --------          --------          --------

Net increase in cash and cash equivalents                                                 5,916             3,046             3,348
Cash and cash equivalents at beginning of year                                           26,773            23,727            20,379
                                                                                       --------          --------          --------
Cash and cash equivalents at end of year                                                 32,689            26,773            23,727
                                                                                       ========          ========          ========

Supplemental cash flow information:
Cash paid during the year for:
  Interest                                                                             $   --            $   --            $      6
                                                                                       ========          ========          ========
  Income taxes                                                                         $  2,932          $    472          $    360
                                                                                       ========          ========          ========

Supplemental schedule of noncash
  investing and financing activities:
Disposals of fully depreciated equipment
  and leasehold improvements                                                           $   --            $     85          $    465
                                                                                       ========          ========          ========
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"),  a Delaware corporation,
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   agency
securities,  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.  All  such
investments are classified as available for sale.

         The  Company's  investments  at  December  31,  1998 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, 1998, 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.

Advertising Costs

         The Company  expenses the cost of advertising as incurred.  The Company
incurred advertising costs of approximately $766,000,  $641,000 and $680,000 for
1998, 1997, and 1996, respectively.

Per Share Data

         Basic net income per share is computed  based on the  weighted  average
number of shares of the Company's common stock outstanding.  Dilutive net income
per share is  computed  based on the  weighted  average  number of shares of the
Company's common stock and other dilutive securities.

                                      F-7

<PAGE>


Note 1.  Summary of Significant Accounting Policies (Continued)

Computation of earnings per share is as follows:


                                                        Years Ended December 31,
                                                      --------------------------
                                                        1998      1997     1996
                                                      -------   -------   ------
BASIC

Weighted average common shares outstanding for
  the period                                            9,411     9,137    8,828
                                                      =======   =======   ======

Net Income                                            $ 6,781   $ 5,302   $2,252
                                                      =======   =======   ======

Net income per share                                  $  0.72   $  0.58   $ 0.26
                                                      =======   =======   ======


                                                        Years Ended December 31,
                                                        ------------------------
                                                         1998     1997     1996
                                                        ------   ------   ------
DILUTED

Weighted average common shares outstanding for
  the period                                             9,411    9,137    8,828

Common equivalent shares assuming exercise of
  stock options under the treasury stock method            327      584      696
                                                        ------   ------   ------

Shares used in per share calculation                     9,738    9,721    9,524
                                                        ======   ======   ======

Net income                                              $6,781   $5,302   $2,252
                                                        ======   ======   ======

Net income per share                                    $ 0.70   $ 0.55   $ 0.24
                                                        ======   ======   ======


         Options  to  purchase  344,700  shares  of common  stock at a  weighted
average per share price of $18.89 were  outstanding  during  1998,  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,  1998,  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)

401(K) Plan

         The Company's 401(k) Plan ("Plan") covers substantially all of its U.S.
based employees.  Under the Plan, eligible employees may contribute up to 25% of
their  eligible  compensation,  subject  to  certain  internal  Revenue  Service
restrictions.  The Company began matching a portion of employee contributions in
1997, up to a maximum of 3% of each employee's eligible compensation.  The match
is  effective  December 31 of each year and vests over a period of five years of
service.  For the years ended December 31, 1998 and 1997,  the Company  provided
approximately $126,000 and $110,000,  respectively,  for the Company match under
the Plan.

Comprehensive Income.

         The Company adopted Statement of Financial Accounting Standards ("FAS")
130, "Reporting  Comprehensive  Income" at December 31, 1998. Under FAS 130, the
Company is required to display  comprehensive  income and its components as part
of  the  Company's  full  set  of  financial  statements.  The  measurement  and
presentation of net income did not change.  Comprehensive income is comprised of
net income and other comprehensive  income.  Other comprehensive income includes
certain  changes in equity of the  Company  that are  excluded  from net income.
Specifically,  FAS 130 requires  unrealized gains or losses from the translation
of the Company's foreign subsidiaries' financial statements,  which are reported
separately  in  Stockholders'  Equity,  to be  included  in other  comprehensive
income.

Reclassifications

         Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform with the 1998 presentation.


Note 2.  Balance Sheet Amounts


                                                                  December 31,
                                                              ------------------
                                                               1998        1997
                                                              ------      ------
                                                               (In thousands)
Inventories:
  Raw materials                                               $1,793      $  849
  Work-in-process                                                602         565
  Finished goods and demonstration equipment                   1,660       2,051
                                                              ------      ------
                                                              $4,055      $3,465
                                                              ======      ======

Equipment and leasehold improvements:
  Machinery and equipment                                     $6,124      $4,815
  Furniture and fixtures                                         708         701
  Leasehold improvements                                         566         509
                                                              ------      ------
                                                               7,398       6,025
Less accumulated depreciation and amortization                 5,283       4,528
                                                              ------      ------
Net equipment and leasehold improvements                      $2,115      $1,497
                                                              ======      ======

Other accrued liabilities:
  Accrued income tax                                          $  867      $  213
  Sales tax payable                                              308         352
  License fees payable                                           500        --
  Other                                                        1,542       1,233
                                                              ------      ------
                                                              $3,217      $1,798
                                                              ======      ======


                                       F-9

<PAGE>


Note 3. Commitments

         Net rental  expense  under  operating  leases  related to the Company's
facilities was approximately  $612,000 for each of the three years in the period
ended December 31, 1998.

         Annual  future  minimum lease  payments  under  operating  leases as of
December  31, 1998 are as  follows:  1999 -  $612,000;  2000 - $595,000;  2001 -
$405,000.


Note 4.  Write-off of Acquired In-Process Research & Development

         On  August  28,  1998,  the  Company   acquired  license  rights  to  a
Telecentric  Lens  Luminometer  technology from Affymax  Research  Institute,  a
subsidiary of Glaxo  Wellcome.  Under the  agreement,  the Company  received the
rights to develop,  manufacture,  market and distribute commercial systems based
on this  technology  in  exchange  for  payment of  up-front  consideration  and
continuing royalties to Affymax based on future product sales.

         The $876,000 write-off of acquired  in-process research and development
during the year represents the entire amount of up-front  consideration that has
been,  or will be,  paid to Affymax  as well as all  related  transaction  costs
associated  with  this  technology  license  agreement.  Based  on the  stage of
development  of this  technology  and the  assessment  of the time and resources
needed to complete product  development,  the Company believed that the acquired
technology had not yet reached economic or technological feasibility at the time
of the agreement.

         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 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.


Note 5.  Stockholders' Equity

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

                                      F-10

<PAGE>


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):


                                                     1998      1997        1996
                                                    -------   -------    -------
         Net income as reported                     $ 6,781   $ 5,302    $ 2,252
         Pro forma                                  $ 5,939   $ 4,887    $ 1,901

         Basic net income per share as reported     $  0.72   $  0.58    $  0.26
         Pro forma                                  $  0.66   $  0.53    $  0.22

         Diluted net income per share as reported   $  0.70   $  0.55    $  0.24
         Pro forma                                  $  0.64   $  0.51    $  0.20


         The pro forma net income and net  income per share  disclosed  above is
not likely to be  representative of the effects on net income and net income per
share on a pro forma basis in future years,  due to subsequent  years  including
additional grants and years of vesting.

         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                               50.68-61.7%
       Risk-free interest rate                                      5.38%- 7.56%
       Expected life of options                                        3-5 years


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


                                        Shares                          Weighted
                                 Available for          Options          Average
                                  Future Grant      Outstanding   Exercise Price
                                  ------------      -----------   --------------
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
  Granted                             (562,700)         562,700            17.16
  Exercised                               --           (111,666)            4.67
  Cancelled                            127,611         (127,611)           10.63
                                    ----------       ----------            -----
Balance December 31, 1998              265,510        1,117,157            12.68
                                    ==========       ==========            =====

                                      F-11

<PAGE>


Note 5.  Stockholders' Equity (Continued)


<TABLE>
         The  following  table  summarizes   information   concerning  currently
outstanding and exercisable options at December 31, 1998:

<CAPTION>
                                        Options Outstanding                              Options Exercisable
                        ---------------------------------------------------        --------------------------------

                                             Weighted
                                             Average            Weighted                                Weighted
                                            Remaining           Average                Number            Average
      Range of              Number         Contractual          Exercise            Exercisable         Exercise
   Exercise Price        Outstanding           Life              Price              at 12/31/98           Price
--------------------    --------------    --------------     --------------        --------------     -------------
<S>                         <C>                <C>                 <C>                  <C>               <C>
       $1.73                   57,420          2.8                 $  1.73               57,420           $  1.73
       $3.00                   89,106          5.7                 $  3.00               74,569           $  3.00
       $5.25                  188,081          6.7                 $  5.25              155,875           $  5.25
   $8.00 - 12.00               31,850          7.6                 $  8.13               11,737           $  8.19
   $13.38 - 19.50             750,700          9.3                 $ 16.73               38,050           $ 15.54
--------------------    -------------     --------------     --------------        --------------     -------------
   $1.73 - $19.50           1,117,157          8.2                 $ 12.68              337,651           $  5.42
====================    ==============    ==============     ==============        ==============     =============
</TABLE>


Deferred Compensation

         For options granted in September 1995, the Company recognized  $578,000
as  deferred  compensation  for the  excess of the deemed  value for  accounting
purposes of the common  stock  issuable on  exercise  of such  options  over the
aggregate exercise price of such options.  The deferred  compensation expense is
being  amortized  ratably over the vesting period of the options.  Additionally,
$131,000 of unvested deferred  compensation was reversed in 1997 due to employee
termination.

         During 1998 the Company  granted  42,500 shares of restricted  stock to
certain employees. These restricted shares vest in quarterly increments from the
date of grant  over two years.  The  Company  recognized  $782,000  of  deferred
compensation  for the total value of these shares on their  respective  dates of
grant. The deferred  compensation  expense is being recognized  ratably over the
two-year vesting period.

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,  1998,
113,784 shares remained available for purchase.

                                      F-12

<PAGE>


Note 6.  Income Taxes

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


                                               Years ended December 31,
                                      -----------------------------------------
                                        1998             1997             1996
                                      -------          -------          -------
                                                   (In thousands)
Current:
  Federal                             $ 2,671          $ 1,227          $   524
  State                                   756              350              340
  Foreign                                 581              248               65
                                      -------          -------          -------
                                      $ 4,008          $ 1,825          $   929
Deferred:
  Federal                             $   401          $   969          $(1,645)
  State                                  (164)             380             (410)
  Foreign                                --               --               --
                                      -------          -------          -------
                                      $   237          $ 1,349          $(2,055)
                                      -------          -------          -------
                                      $ 4,245          $ 3,174          $(1,126)
                                      =======          =======          =======


<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,
                                                                                     ----------------------------------------------
                                                                                       1998               1997               1996
                                                                                     --------           --------           --------
                                                                                                     (In thousands)
<S>                                                                                  <C>                <C>                <C>
Income before provisions (benefits)  for income taxes                                $ 11,026           $  8,476           $  1,126

Income tax at statutory federal rate (35%)                                           $  3,859              2,967           $    394
State income tax, net of federal benefit                                                  391                360                (46)
Net operating loss carry forwards                                                        --                 --               (1,748)
Foreign income taxes                                                                     --                 --                   65
Foreign losses not currently benefitted                                                    90                152                 44
Change in valuation allowance                                                            --                 --               (1,333)
Foreign sales corp                                                                       (173)              (168)              (136)
Charge for acquired in-process research and development                                  --                 --                1,623
Other                                                                                      78               (137)                11
                                                                                     --------           --------           --------
                                                                                     $  4,245           $  3,174           $ (1,126)
                                                                                     ========           ========           ========
</TABLE>


         Foreign  pretax  income was  $1,470,000,  $360,000 and $72,000 in 1998,
1997 and 1996, respectively.

                                      F-13

<PAGE>


Note 6.  Income Taxes (Continued)

         Deferred  income  taxes  reflect  the  net  tax  effects  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting and the amount used for income tax purposes.


                                                         Year ended December 31,
                                                         --------------------
                                                           1998         1997
                                                         -------      -------
                                                              (In thousands)
Deferred tax assets:
Research and development credit carryforwards            $  --        $   660
Non-deductible reserves                                      657          356
Warranty and accrued expenses                                589          568
Net undistributed profits of foreign subsidiaries            141          182
Foreign loss carryforwards                                   530          440
Other                                                        243          101
Valuation allowance                                         (530)        (440)
                                                         -------      -------

Total deferred tax assets                                $ 1,630      $ 1,867
                                                         =======      =======


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

         As of  December  31,  1998,  the  Company  has fully  utilized  federal
research and development tax credit carryforwards.

Note 7.  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.

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

<CAPTION>
                                                               United                              Adjustments and
                                                               States               Europe           Eliminations            Totals
                                                               -------              -------        ---------------           -------
                                                                                          (In thousands)
<S>                                                             <C>                  <C>                 <C>                  <C>
Year Ended
  December 31, 1998
  Revenues                                                      43,564               10,540              (6,306)              47,798
  Income from operations                                         7,965                1,429                  48                9,442
  Identifiable assets                                           53,187                5,567              (4,349)              54,405

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
</TABLE>

                                                                F-14

<PAGE>


Note 7.  Industry Segment, Geographic and Customer Information (Continued)

         Consolidated revenue from the Company's product lines was as follows:


                                                Years ended December 31,
                                         ---------------------------------------
                                           1998            1997           1996
                                         -------         -------         -------
Maxline                                  $25,028         $21,108         $16,571
Cell Analysis                             16,498          12,790           9,572
Threshold                                  6,272           4,388           4,783
                                         -------         -------         -------
  Total Revenue                          $47,798         $38,286         $30,926
                                         =======         =======         =======


         Sources of consolidated  revenue from  significant  geographic  regions
were as follows:


                                               Years ended December 31,
                                         ---------------------------------------
                                          1998            1997             1996
                                         -------         -------         -------
North America                            $29,363         $24,671         $18,942
Europe                                    13,821           9,206           7,888
Rest of World                              4,614           4,409           4,096
                                         -------         -------         -------
  Total Revenue                          $47,798         $38,286         $30,926
                                         =======         =======         =======


Note 8.  Comparative Quarterly Financial Data (unaudited)

<TABLE>
         Summarized quarterly financial data is as follows:

<CAPTION>
                                                                     First             Second              Third             Fourth
                                                                    -------            -------            -------            -------
                                                                             (In thousands, except per share amounts)
Fiscal 1998
<S>                                                                 <C>                <C>                <C>                <C>
  Revenues                                                          $10,346            $11,867            $11,901            $13,684
  Gross margin                                                        6,633              7,357              7,477              8,615
  Net income                                                          1,414              1,898              1,355              2,114
  Basic net income per share                                           0.15               0.20               0.14               0.22
  Diluted net income per share                                      $  0.15            $  0.20            $  0.14            $  0.22
Fiscal 1997
  Revenues                                                          $ 8,306            $ 9,818            $ 9,527            $10,635
  Gross margin                                                        5,115              5,943              6,046              6,756
  Net income                                                          1,027              1,315              1,370              1,590
  Basic net income per share                                           0.11               0.14               0.15               0.17
  Diluted net income per share                                      $  0.11            $  0.14            $  0.14            $  0.16
</TABLE>

                                                                F-15

<PAGE>


<TABLE>
                                                                                                                         SCHEDULE II


                                                    MOLECULAR DEVICES CORPORATION
                                                  VALUATION AND QUALIFYING ACCOUNTS
                                                           (In thousands)

<CAPTION>
                                                                            Balance at                                    Balance at
                                                                           Beginning of     Charged to                        End
                Description                                                   Period          Costs       Deductions      of Period
                -----------                                                   ------          -----       ----------      ---------
<S>                                                                             <C>             <C>            <C>            <C>
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
Balance for the year ended December 31, 1998:
   Allowance for doubtful accounts receivable                                   180            155            (10)            325
</TABLE>

                                                                F-16